Smt C Girija, Visakhapatnam V. The Addl. CIT, Range-1, Visakhapatnam

ITA 424/VIZ/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2796 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-09-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 21-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Assessee Lawyers: Y KASI VISWESWARA RAO
• Keywords: Capital asset; Cost of acquisition; Fair market value; Revised return; Set aside; Capital Gains
• Section: 54F; 2(14); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 424 /VIZAG/ 20 09 ASSESSMENT YEAR : 2007 - 08 SMT. C. GIRIJA VI SAKHAPATNAM ADDL. CIT, RANGE - 1 VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO.AHKPC 4562C APPELLANT BY: SHRI Y. KASI VISWESWARA RAO, CA RESPONDENT BY: SHRI SUBRATA SARKAR, DR ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER : - THIS APPEAL IS PREF ERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON VARIOUS GROUNDS WHICH ARE AS UNDER: - 1. THE HONBLE CIT(A) HAS ERRED ON FACTS OF THE CASE AND IN LAW, IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE SUBJECT AGRICULTURAL LAND AS CAPI TAL ASSET IN VIOLATION OF SECTION 2(14) OF THE INCOME TAX ACT. 2. THE ASSESSING OFFICER HAS WRONGLY CONCLUDED THE FACT THAT THE SUBJECT MATTER OF ASSET SOLD, IS NOT AGRICULTURAL LAND (AT PARA 5.7 OF HIS ORDER) 3. THE HONBLE CIT(A) FAILED TO APPRECIATE THE DOCUM ENTARY EVIDENCE OF LOCAL GOVERNMENT DECLARING THE SUBJECT LAND AS AGRICULTURAL LAND, ON THE CONTRARY ACCEPTED THE HYPOTHETICAL CONCLUSION OF ASSESSING OFFICER THAT THE LAND IS NOT AGRICULTURAL LAND. 4. THE EXTENSION OF LOCAL LIMITS BY THE LOCAL GOVERNMENT CAN NOT OVERRIDE THE NOTIFICATION OF CENTRAL GOVERNMENT. 5. BOTH THE ASSESSING OFFICER AND HONBLE CIT(A) HAVE ARBITRARILY ADOPTED THE COST OF LAND AT RS.35/ - AS AGAINST RS.70/ - DULY SUPPORTED BY APPELLANT. 6. FOR ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 2. THE MAIN CONTROVERSY INVOLVED IN THIS APPEAL THROUGH TH ESE GROUND S IS; WHETHER THE SALE OF AGRICULTURAL LAND OF THE ASSESSEE IS OUTSIDE THE PURVIEW OF CAPITAL ASSET U/S 2(14) OF THE ACT AND THUS NOT LIABLE TO CAPITAL GAIN AND IF IT IS LIABLE TO CAPITAL GAIN, WHAT WOULD BE THE COST OF ACQUISITION. 2 3. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT DURING THE RELEVANT PREVIOUS YEAR, ASSESSEE SOLD 5 ACRES OF LAND ON 22.9.2006 FOR A CONSIDERATION OF RS.10 CRORES TO M/S. GAYATRI VIDY A PARISHAD, VISAKHAPATNAM. THE LAND WAS LOCATED AT SURVEY NO.180 OF PARADESIPALEM VILLAGE WITHIN THE PANCHAYAT LIMITS OF PARADESIPALEM, VISAKHAPATNAM AND MADHURAWADA SUB - REGISTRATION DISTRICT. THE ASSESSEE HAD PURCHASED 50 ACRES OF LAND ON 14 TH AND 30 TH MAY, 1968 FOR A TOTAL CONSIDERATION OF RS.18,050/ - . OUT OF THE SAID 50 ACRES OF LAND, THE IMPUGNED 5 ACRES WAS SOLD DURING THE RELEVANT PREVIOUS YEAR. IN THE ORIGINAL RETURN FILED, THE ASSESSEE HAS SHOWN THE LONG TERM CAPITAL GAIN AMOUNTING TO RS.5,97,08 ,140/ - . HOWEVER WHILE COMPUTING THE LONG TERM CAPITAL GAIN, THE ASSESSEE HAD ADOPTED RS.9,85,00,000/ - AS THE SALE CONSIDERATION OF THE LAND ON THE GROUND THAT OUT OF TOTAL CONSIDERATION RECEIVED OF RS.10 CRORES, RS.15 LAKHS WAS ATTRIBUTABLE TO THE AGRICUL TURAL INCOME. SUBSEQUENTLY IN THE REVISED RETURN, THE ASSESSEE CLAIMED THAT LAND SOLD WAS AGRICULTURAL LAND AND THEREFORE SUCH SALE DO NOT ATTRACT CAPITAL GAIN. CONSEQUENTLY, SHE DISCLOSED AN INCOME OF RS.26,06,843/ - ONLY WHICH REPRESENTED INTEREST INCOM E RECEIVED FROM BANK DEPOSITS. AFTER SCRUTINIZING, THE ASSESSING OFFICER CAME TO THE FOLLOWING CONCLUSIONS: (I) THE LAND SOLD BY THE APPELLANT WAS SITUATED WITHIN THE AREA OF GREATER VISAKHAPATNAM MUNICIPAL CORPORATION (GVMC). THE LIMITS OF THE GVMC WERE E XTENDED BY G.O. MS.NO.938, DT.21.11.2005 VIDE WHICH THE GRAMPANCHAYAT OF PARADESIPALEM WAS COVERED WITHIN THE LIMITS OF GVMC. THUS, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE APPELLANTS LAND FELL WITHIN THE DEFINITION OF CAPITAL ASSET AS DEFINED IN S EC.2(14). (II) THE APPELLANTS CONTENTION THAT IN THE ABSENCE OF ANY NOTIFICATION BY THE GOVERNMENT OF INDIA U/S 2(1A) AND 2(14)(III), THE APPELLANTS LAND CANNOT BE TREATED AS FALLING WITHIN THE LIMITS OF GVMC, WAS REJECTED BY THE ASSESSING OFFICER BY OBSERVIN G THAT THE REQUIREMENT OF THE NOTIFICATION BY THE GOVERNMENT OF INDIA IS ONLY WITH RESPECT TO AGRICULTURAL LAND SITUATED IN ANY AREA WITHIN A DISTANCE BEYOND THE LOCAL LIMITS OF ANY MUNICIPALITY. THE SAME WAS AS PER THE ALTERNATIVE PROVISION AS STATED IN SEC.2(14)(III)(B). HOWEVER, THE APPELLANTS CASE FALLS WITHIN THE MUNICIPAL AREA I.E., U/S 2(14)(III)(A). (III) THE APPELLANT SOLD THE LAND TO A NON - AGRICULTURIST FOR NON - AGRICULTURAL PURPOSES. INFACT, THE LAND WAS SOLD TO GAYATRI VIDYA PARISHAD I.E., A SOCIET Y RUNNING EDUCATIONAL INSTITUTIONS. THE LAND WAS SOLD AS PER THE SQ.YD. BASIS AT A PRICE COMPARABLE TO THE PRICE FETCHED BY BUILDING SITES. THE PRICE IS SUCH THAT NO 3 BONAFIDE AGRICULTURIST WOULD PURCHASE THE SAME FOR GENUINE AGRICULTURAL OPERATIONS. WHE N THE PRICE IS SUCH THAT NO PRUDENT OWNER WOULD SELL IT AT A PRICE WORKED OUT ON THE CAPITALIZATION METHOD TAKING INTO ACCOUNT ITS OPTIMUM YIELD IN THE MOST FAVOURABLE CIRCUMSTANCES, THE SAME CANNOT BE REGARDED AS AGRICULTURAL LANDS. IN SUPPORT OF THE ABO VE CONTENTIONS, THE ASSESSING OFFICER CITED A NUMBER OF CASE LAWS VIZ., 201 ITR, 293, (BOMBAY); 201 ITR 382 (DELHI); 31 ITR 480 (MADRAS); 56 ITR 605 (SC). (IV) THE APPELLANTS CLAIM THAT OUT OF THE TOTAL SALE CONSIDERATION OF RS.10 CRORES, RS.15 LAKHS WAS ATTRI BUTABLE TO AGRICULTURAL INCOME, WAS NOT ACCEPTED BY THE ASSESSING OFFICER ON THE GROUND THAT IN THE REGISTERED SALE DEED THERE IS NO INDICATION OF ANY SUCH TRANSACTIONS RELATABLE TO AGRICULTURAL PRODUCE. RELYING UPON THE DECISION IN THE CASE OF TARAJAN TE A COMPANY (P) LTD VS. COMMISSIONER OF INCOMETAX REPORTED IN 227 ITR 649, THE ASSESSING OFFICER OBSERVED THAT THE LUMP - SUM CONSIDERATION FOR SALE OF LAND AND STANDING TREES IS LIABLE TO CAPITAL GAINS. FURTHER, RELYING UPON IN THE CASE OF RAJA BINOYKUMAR SA HAS ROY REPORTED IN 32 ITR 466, THE ASSESSING OFFICER OBSERVED THAT THE REQUISITE INGREDIENTS OF AGRICULTURAL OPERATION WERE MISSING IN THE APPELLANTS CASE. HE STATED THAT THE MANGO AND COCONUT TREES ETC., WHICH WERE CLAIMED TO HAVE BEEN TRANSFERRED MAY BE TREATED AS USUFRUCT FROM LAND OR TREES OF SPONTANEOUS GROWTH SINCE THERE ARE NO HISTORY OF AGRICULTURAL OPERATIONS IN THE SAID LAND. (V) REGARDING THE COST OF THE LAND, THE APPELLANT VALUED THE COST AS ON 1.4.1981 AT RS.70/ - PER SQ.YD. FOR ADOPTING THE SAI D RATE, THE APPELLANT RELIED UPON A SALE DEED OF THE SALE OF PART OF THE SAME LAND IN THE YEAR 1987. HOWEVER, THE ASSESSING OFFICER FOUND THAT THE SRO RATE AT THE CENTRAL PART OF VISAKHAPATNAM CITY AS ON 1.4.1981 WAS ONLY RS.35/ - PER SQ.YD. THEREFORE, FO R DETERMINING THE COST OF ACQUISITION, THE ASSESSING OFFICER ADOPTED THE COST AS ON 1.4.1981 AT RS.35/ - PER. SQ.YD. 4. ACCORDINGLY, THE ASSESSING OFFICER RECOMPUTED THE CAPITAL GAIN AT RS.6,56,04,070/ - AFTER ALLOWING THE EXEMPTION U/S 54F OF RS.3 CRORES . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) BUT DID NOT FIND FAVOUR WITH HIM. 5. NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSION THAT THE IMPUGNED LAND WAS NOT SITUATED WITHIN THE MUNICIPAL LIMITS OF VMC (VISAKHAPATNAM MUNICIPAL CORPORATION). HE FURTHER CONTENDED THAT THIS CASE FALLS WITHIN THE PURVIEW OF CLAUSE (B) OF 2(14)(III) OF THE I.T. ACT RELATING TO A DEFINITION OF AGRICULTURAL LAND. HE FURTHER CONTENDED THAT A LIMIT OF A MUNICIPALITY IS ALSO TO BE NOTIFIED BY THE CENTRAL GOVERNMENT. IN THIS REGARD, THE AREA UPTO A 4 DISTANCE OF 8 KMS. WAS NOTIFIED BY THE CENTRAL GOVERNMENT VIDE NOTIFICATION NO.9447 DATED 6.1.1994 AND SINCE THE LAND SITUATES OUTSIDE THE LIMIT OF 8 KMS. FROM THE MUNICIPAL LIMITS, IT WOULD NOT FALL WITHIN THE PURVIEW OF T HE CLAUSE (B) AND THE REVENUE HAS WRONGLY TREATED THE IMPUGNED LAND AS A CAPITAL ASSET AND COMPUTED THE LONG TERM CAPITAL GAIN. 6. THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED THAT THE IMPUGNED LAND IS ADMITTEDLY SITUATED WITHIN THE MUNICIPAL LIMIT OF T HE GVMC. THEREFORE, ASSESSEES CASE FALLS WITHIN THE PURVIEW OF CLAUSE (A) OF SECTION 2(14)(III) OF THE ACT AND THE LAND WHICH FALLS WITHIN THE MUNICIPAL LIMIT, NO NOTIFICATION FROM THE CENTRAL GOVERNMENT IS REQUIRED TO NOTIFY THAT THE AGRICULTURAL LAND W HICH FALLS WITHIN THE EXTENDED LIMIT OF A MUNICIPALITY CEASE TO BE THE AGRICULTURAL LAND. OUR ATTENTION WAS INVITED TO BOTH THE CLAUSES OF SECTION 2(14)(III) OF THE ACT. THE LD. D.R. FURTHER CONTENDED THAT SINCE THE IMPUGNED LAND IS SITUATED WITHIN THE M UNICIPALITY LIMIT OF GVMC, THE REVENUE HAS RIGHTLY TREATED TO BE A CAPITAL ASSET AND COMPUTED THE CAPITAL GAIN. 7 . HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THIS REGARD AND THE PROVISIONS OF SECTION 2(14)(III) OF THE ACT RELATING TO AGRICULTURAL LAND, WE FIND THAT AS PER CLAUSE (A), ANY LAND WHICH SITUATED IN AN AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF MUNICIPALITY OR A CONTAINMENT BOARD WHICH HAS A POPULATION OF NOT LESS THAN 10,000 ACCORDING TO THE LAST PRECEDING CENSUS W OULD NOT BE AN AGRICULTURAL LAND. THE CLAUSE (B) OF SECTION 2(14)(III) DEALS WITH THOSE LANDS WHICH SITUATES IN ANY AREA WITHIN SUCH DISTANCE NOT BEING MORE THAN 8 KMS. FROM THE LOCAL LIMITS OF THE MUNICIPALITY OR CANTONMENT BOARD AS THE CENTRAL GOVERNMEN T MAY HAVING REGARD TO THE EXTENT OF AND SCOPE FOR URBANISATION OF THAT AREA AND OTHER RELEVANT CONSIDERATION SPECIF Y IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE. TO BRING A LAND WITHIN THE PURVIEW OF CLAUSE (B), THE CENTRAL GOVERNMENT IS REQUI RED TO ISSUE A NOTIFICATION IN THE OFFICIAL GAZETTE. WITHOUT A NOTIFICATION, A LAND FALLS WITHIN THE 8 KMS. FROM THE LOCAL LIMITS OF ANY MUNICIPALITY WOULD NOT CEASE TO BE AN AGRICULTURAL LAND. BUT IN THE INSTANT CASE, THE IMPUGNED LAND IS ADMITTEDLY SIT UATES WITHIN AREA OF A LOCAL LIMIT OF THE GVMC FOR WHICH NO NOTIFICATION AS SPECIFIED IN CLAUSE (B) IS REQUIRED TO BE ISSUED BY THE CENTRAL GOVERNMENT. WE HAVE ALSO EXAMINED THE CONTENTION OF 5 THE ASSESSEES THAT THE GVMC WAS NOTIFIED BY THE LOCAL LAWS AND LOCAL LAWS CANNOT SUPERSEDE THE CENTRAL LAWS. BUT WE DO NOT FIND ANY FORCE IN THIS ARGUMENT BECAUSE THE MUNICIPALITY O R THE CANTONMENT BOARD ARE SUBJECT TO LOCAL LAWS AND WITHIN A STATE SUBJECT AND ARE CREATED BY A NOTIFICATION BY THE STATE GOVERNMENT. C ENTRAL GOVERNMENT HAS NO JURISDICTION TO CREATE A MUNICIPALITY , CANTONMENT BOARD IN ANY STATE OF THE COUNTRY. CENTRAL GOVERNMENT IS CONCERNED WITH THE CENTRAL ACT. ONCE THE MUNICIPALITY OF THE CANTONMENT BOARD IS CREATED BY A NOTIFICATION BY THE STATE GO VERNMENT AS PER LOCAL LAWS, THE CENTRAL ACT WILL APPLY. THEREFORE ONCE THE IMPUGNED LAND IS SITUATED WITHIN THE JURISDICTION OF THE LOCAL LIMIT OF THE GVMC, THE IMPUGNED LAND CEASE TO BE THE AGRICULTURAL LAND AND ON ITS SALE CAPITAL GAIN IS TO BE COMPUTED . WE THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) WHO HAS RIGHTLY COMPUTED THE CAPITAL GAIN ON SALE OF THE IMPUGNED AGRICULTURAL LAND. 8. THE NEXT ISSUE RAISED BEFORE US IS WITH REGARD TO THE COST OF ACQUISITION OF THE IMPUGNED LAND. UNDISPUT EDLY, THE LAND WAS PURCHASED IN 1968 AND THE ASSESSEE HAS AN OPTION TO ADOPT THE FAIR MARKET VALUE OF THE LAND AS ON 1.4.1987 AND THE ASSESSEE ACCORDINGLY ADOPTED THE RATE AT RS.70 PER SQ.YD. AND COMPUTED THE LONG TERM CAPITAL GAIN. BUT THE A.O. HAS ADOPT ED THE RATE AT RS.35 PER SQ.YD. BASED UPON THE INFORMATION COLLECTED FROM THE REGISTRATION DEPARTMENT, VISAKHAPATNAM AS PER THE VALU E OF THE LAND LOCATED IN WARD - 2, WALTAIR, BLOCK 1 TO 8 WAS RS.35 PER SQ.YD. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESS EE HAS SUBMITTED THAT THE ASSESSING OFFICER HAS ESTIMATED THE RATE ON THE BASIS OF THE RATES ADOPTED BY THE REVENUE DEPARTMENT FOR THE PURPOSE OF REGISTRATION OF THE DOCUMENT. WHEREAS, THE FAIR MARKET RATE OF THE LAND ARE ALWAYS MUCH MORE. THE ASSESSEE H AS ADOPTED THE RATE AT RS.70 PER SQ.YD. ON THE BASIS OF THE SALE DEED DATED 25.3.1987 IN WHICH THE SAME AGRICULTURAL LAND WAS SOLD AT THE RATE OF RS.100 PER SQ.YD. THEREFORE, THE RATES ADOPTED BY THE ASSESSEE SHOULD HAVE BEEN TAKEN INTO ACCOUNT WHILE COM PUTING THE LONG TERM CAPITAL GAIN. 9. WE HAVE CAREFULLY EXAMINED THE RIVAL SUBMISSIONS AND WE AGREE WITH THE CONTENTION OF THE ASSESSEES THAT THE FAIR MARKET RATE OF A LAND CANNOT BE THE RATES ADOPTED BY THE REGISTRATION DEPARTMENT FOR THE PURPOSE OF RE GISTRATION OF A DOCUMENT. GENERALLY, THE FAIR MARKET RATE OF THE LANDS ARE 6 MUCH MORE THAN THE RATES NOTIFIED BY THE REGISTRATION DEPARTMENT FOR THE PURPOSE OF REGISTRATION OF A DOCUMENT. THESE RATES ARE NOT REGULARLY REVISED . I T WAS RATHER NOTIFIED AFTE R AN INTERVAL OF FEW YEARS. WE HAVE ALSO EXAMINED THE BASIS FOR THE ADOPTION OF THE RATE AT RS.70 PER SQ.YD. BY THE ASSESSEES AND WE FIND THAT ASSESSEE HAS RELIED UPON THE SALE DEED EXECUTED ON 25.3.1987 IN WHICH THE LAND WAS SOLD AT RS.100 PER SQ.YD., WH EREAS THE RATES ARE TO BE DETERMINED AS ON 1.4.1981. THEREFORE, THE BASIS TAKEN BY THE ASSESSEES IS ALSO NOT CORRECT. NOW IT IS A QUESTION OF PURE ESTIMATE AND WE THEREFORE ESTIMATE THE RATE OF LAND AT RS.60 PER SQ.YD. KEEPING IN VIEW THE RATES ADOPTED B Y THE ASSESSEE AND THE REVENUE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO RECOMPUTE THE CAPITAL GAIN AFTER HAVING ADOPTED THE COST OF ACQUISITION OF THE LAND AT RS.60 PER SQ.YD. 1 0 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 - 09 - 20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VIS AKHAPATNAM, DATED 27 TH SEPTEMBER, 20 10 COPY TO 1 SMT. C. GIRIJA, PLOT NO.702, RED CREEK APARTMENTS, PANDURANGAPURAM, VISAKHAPATNAM 2 ADDL. CIT RANGE - 1, VISAKHAPATNAM 3 THE CI T, VISAKHAPATNAM 4 THE CIT (A) , VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPA TNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM