ACIt, Ernakulam V. Poothotta Farms P.Ltd, Ernakulam

ITA 471/COCH/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0993 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 08-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUSAN GEORGE
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Capital asset; Business income; Depreciation

Judgement Text

1 ITA NO. 471 & 472/COCH/2011 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 471/COCH/2011 (ASSESSMENT YEARS 2006-07) A.C.I.T., CIR.4(1) VS POOTHOTTA FARMS (P) LTD ERNAKULAM 14B, LINK HORIZON, MARINE DRIVE ERNAKULAM, KOCHI-11 PAN : AACCP3886C (APPELLANT) (RESPONDENT) I.T.A NO. 472/COCH/2011 (ASSESSMENT YEARS 2006-07) A.C.I.T., CIR.4(1) VS NEW COCHIN DEVELOPERS (P) LTD ERNAKULAM 14B, LINK HORIZON, MARINE DRIVE ERNAKULAM, KOCHI-11 PAN : AABCN3792Q (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. SUSAN GEORGE RESPONDENTS BY : SHRI ASHOK J PATIL DATE OF HEARING : 08-01-2013 DATE OF PRONOUNCEMENT : 28-02-2013 2 ITA NO. 471 & 472/COCH/2011 O R D E R PER N.R.S. GANESAN (JM) BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAIN ST THE TWO INDEPENDENT ORDERS OF CIT(A) DATED 25/02/2011 FOR T HE ASSESSMENT YEAR 2006-07 IN RESPECT OF TWO INDEPENDENT TAXPAYERS. S INCE COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS, WE HE ARD THE SAME TOGETHER AND DISPOSE OF THE SAME BY THIS COMMON ORDER. 2. SMT. SUSAN GEORGE, THE LD.DR SUBMITTED THAT DURI NG THE YEAR UNDER CONSIDERATION, THE TAXPAYER IN ITA NO.472/COCH/2011 SOLD 12 ACRES 84 CENTS OF LAND IN MANAKUNNAM VILLAGE TO M/S LAXMI PAPER IN DUSTRIES LTD. SIMILARLY, THE TAXPAYER IN ITA NO.471/COCH/2011 SOLD 11.27 ACR ES OF LAND IN MANAKUNNAM VILLAGE TO BOUTIQUE HOTELS INDIA LTD, NE W DELHI. BOTH THE TAXPAYERS HAD NOT DECLARED ANY INCOME IN RESPECT OF THE SALE OF THE LAND. BOTH THE TAXPAYERS CLAIMED BEFORE THE ASSESSING OFF ICER THAT WHAT WAS SOLD WAS AGRICULTURAL LAND. THEREFORE, THE SAME WAS NOT TAXABLE UNDER THE INCOME-TAX ACT. THE LD.REPRESENTATIVE FURTHER SUBM ITTED THAT THE OBJECT OF 3 ITA NO. 471 & 472/COCH/2011 THE COMPANY IS TO PURCHASE LAND, TAKE THE LAND ON L EASE OR OTHERWISE ACQUIRE, DEVELOP AND DISPOSE OF ANY ESTATE IN THE S TATE OF KERALA. THEREFORE, IT IS OBVIOUS FROM THE MEMORANDUM OF ASS OCIATION THAT BOTH THE COMPANIES WERE INCORPORATED FOR DOING BUSINESS IN R EAL ESTATE. BOTH THE TAXPAYERS CLAIMED MASSIVE IMPROVEMENT IN THE LAND. THE TAXPAYER IN ITA NO.471/COCH/2011 DECLARED AGRICULTURAL INCOME FOR T HE ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05. HOWEVER, THE TAXPAYE R IN ITA NO.472/COCH/2011 HAS DECLARED AGRICULTURAL INCOME O NLY IN THE ASSESSMENT YEAR 2006-07. ACCORDING TO THE LD.DR, THE COMPANY WAS NOT INCORPORATED FOR DOING AGRICULTURAL ACTIVITY AND THE LAND WAS N OT PURCHASED FOR CULTIVATION. ACCORDING TO THE LD.DR, IN FACT, THE TAXPAYER HAS NOT CULTIVATED THE LAND AT ALL. THE LD.DR FURTHER SUBMITTED THAT DURING THE VISIT OF THE INSPECTOR FROM THE OFFICE OF THE ASSESSING OFFICER IT WAS FOUND THAT NO AGRICULTURAL OPERATION WAS CARRIED OUT AND ONLY SOM E OLD COCONUT TREES WERE STANDING THERE. THE LD.DR FURTHER SUBMITTED T HAT MERELY BECAUSE THE LAND WAS RECORDED AS FIXED ASSET IN THE ACCOUNTS OF THE TAXPAYER COMPANY, THE SAME MAY NOT ALTER THE REAL NATURE OR PURPOSE O F HOLDING. ACCORDING TO THE LD.DR, THE SUBJECT MATTER OF THE LAND WAS NOT T REATED AS FIXED ASSET AT ANY POINT OF TIME. IT WAS TREATED AS STOCK IN TRAD E FOR THE PURPOSE OF 4 ITA NO. 471 & 472/COCH/2011 CARRYING OUT THE BUSINESS. THEREFORE, THE ASSESSIN G OFFICER FOUND THAT THE PROFIT AND GAIN ARISING ON SALE OF SUCH LAND HAS TO BE ASSESSED AS INCOME FROM BUSINESS. 3. HOWEVER, ON APPEAL BY THE TAXPAYERS, THE CIT(A) FOUND THAT THE SUBJECT MATTER OF LAND WAS AGRICULTURAL LAND AND IT WAS NOT STOCK IN TRADE. THE CIT(A) HAS ALSO FOUND THAT THE LAND WAS NOT SIT UATED IN THE MUNICIPALITY AND THERE WAS NO COMMERCIAL DEVELOPMENT IN THE AREA WHERE THE LAND WAS STATED SITUATED, THEREFORE, IT IS NOT A CAPITAL ASS ET WITHIN THE MEANING OF SECTION 2(14)(III) OF THE ACT. ACCORDINGLY, THE CI T(A) FOUND THAT THE INCOME ON SALE OF THE LAND WAS NOT ASSESSABLE TO INCOME-TA X. 4. THE LD.DR FURTHER SUBMITTED THAT WHETHER THE LAN D WAS A CAPITAL ASSET OR NOT WAS NOT EXAMINED BY THE ASSESSING OFFI CER. THE ASSESSING OFFICER SIMPLY FOUND THAT THE LAND WAS STOCK IN TRA DE AND IT WAS SOLD IN THE COURSE OF REGULAR BUSINESS ACTIVITY, THEREFORE, THE PROFIT ON SALE OF SUCH LAND HAS TO BE ASSESSED AS BUSINESS INCOME. FOR THE PUR POSE OF CLAIMING EXEMPTION, THE TAXPAYER HAS TO SHOW THAT THE AGRICU LTURAL ACTIVITY WAS CARRIED ON CONTINUOUSLY AND THE LAND WAS SITUATED B EYOND 8 KMS RADIUS OF 5 ITA NO. 471 & 472/COCH/2011 MUNICIPALITY LIMITS. THE ASSESSING OFFICER HAD NO OCCASION TO EXAMINE WHETHER THE LAND WAS BEYOND 8 KMS RADIUS OF THE MUN ICIPALITY LIMITS. THEREFORE, ACCORDING TO THE LD.DR, THE CIT(A) IS NO T JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. 5. ON THE CONTRARY, SHRI ASHOK J PATIL, THE LD.COUN SEL FOR THE TAXPAYER SUBMITTED THAT THE TAXPAYER COMPANIES PURCHASED AGR ICULTURAL LAND FOR AGRICULTURAL CULTIVATION AND ACQUA CULTURE. THE LA ND WAS REGISTERED AS AGRICULTURAL LAND IN THE RECORDS OF THE STATE GOVER NMENT. THE TAXPAYER NEVER CONVERTED THIS LAND INTO NON AGRICULTURAL LAN D AT ANY POINT OF TIME. ACCORDING TO THE LD.COUNSEL, THE LAND CONTINUES TO BE OF AGRICULTURAL LAND EVEN AFTER PURCHASE OF THE SAME BY THE TAXPAYER. R EFERRING TO PROVISIONS OF SECTION 2(14)(III) OF THE ACT ANY AGRICULTURAL LAND SITUATED BEYOND 8 KMS RADIUS OF MUNICIPAL LIMIT CANNOT BE TREATED AS CAPI TAL ASSET. ACCORDING TO THE LD.COUNSEL, THE TAXPAYER COMPANY EARNED AGRICUL TURAL INCOME AND THE SAME WAS DISCLOSED TO THE REVENUE. BOTH THE TAXPAY ERS ARE SISTER CONCERNS, THEREFORE, NO SEPARATE BOOKS OF ACCOUNT WERE MAINTA INED. ALL THE EXPENDITURES WERE BOOKED IN THE BOOKS OF POOTHOTTA FARMS (P) LTD. THE TAXPAYER HAS RETURNED AGRICULTURAL INCOME FROM THE DATE OF PURCHASE OF THE 6 ITA NO. 471 & 472/COCH/2011 PROPERTY. SINCE BOTH THE COMPANIES ARE SISTER CONC ERNS, BY IGNORANCE, THE EMPLOYEES MAINTAINED ONE RECORD IN THE ACCOUNT OF M /S POOTHOTTA FARMS (P) LTD. 6. THE LD.COUNSEL FOR THE TAXPAYER FURTHER SUBMITTE D THAT BOTH THE COMPANIES CULTIVATED THE LAND AND THE VILLAGE OFFIC ER CERTIFIED THAT BOTH LANDS ARE SUBJECTED TO CULTIVATION. THE LANDS WERE SHOWN AS FIXED ASSET IN THE BALANCE-SHEET AND NO DEPRECIATION WAS CLAIMED O N THE ASSET. ACCORDING TO THE LD.COUNSEL, THE TAXPAYER HAS PRODU CED EVIDENCES TO SHOW THE PURCHASE OF FERTILIZER PAYMENT TO FARM LABOURER S, SALE OF AGRICULTURAL PRODUCE AND PAYMENT OF LAND REVENUE. THE ASSESSING OFFICER, ACCORDING TO THE LD.COUNSEL, FAILED TO CONSIDER ALL THESE EVIDEN CES WHICH WERE PRODUCED BEFORE HIM. THE ASSESSING OFFICER SIMPLY PROCEEDED ON THE BASIS OF THE MEMORANDRUM OF ASSOCIATION OF THE COMPANY AND HELD THAT CULTIVATION IS NOT OBJECT OF THE COMPANY, THEREFORE, THE PROPERTY WAS NOTHING BUT STOCK IN TRADE. ACCORDING TO THE LD.COUNSEL WHEN THE TAX PAYER WAS ACTUALLY CULTIVATING THE LAND AND RETURNED AGRICULTURAL INCO ME, THE NATURE AND CHARACTER OF THE LAND CANNOT BE CHANGED MERELY BECA USE OBJECT OF THE COMPANY IN THE MEMORANDUM OF ASSOCIATION IS TO ENGA GE ITSELF IN REAL 7 ITA NO. 471 & 472/COCH/2011 ESTATE BUSINESS. THE LD.COUNSEL PLACED HIS RELIANC E ON THE JUDGMENT OF THE APEX COURT IN SARIFABIBI MAHAMMED IBRAHIM VS. CIT 2 04 ITR 631 (SC). IN THE CASE BEFORE THE APEX COURT THE SUBJECT MATTER OF TH E LAND WAS SITUATED WITHIN THE MUNICIPAL LIMITS IN SURAT MUNICIPALITY A ND AT A DISTANCE OF 1 KM FROM SURAT RAILWAY STATION. THE LAND WAS NOT CULTI VATED FROM 1965-66 AND IT WAS SOLD IN 1969. THE TAXPAYER BEFORE THE APEX COU RT ENTERED INTO AN AGREEMENT WITH HOUSING CO-OPERATIVE SOCIETY TO SELL THE LAND FOR CONSTRUCTION OF HOUSES. THE PERMISSION TO SELL THE LAND FOR NON AGRICULTURAL PURPOSES WAS OBTAINED AND THEREAFTER THEY EXECUTED THE SALE DEED. THEREFORE, THE APEX COURT FOUND THAT THE PROFIT AND SALE OF THE LAND IS ASSESSABLE TO CAPITAL GAIN TAX. IN THE CASE BEFORE US, THE LAND WAS SITUATED BEYOND 8 KMS RADIUS OF THE MUNICIPALITY. ACCORDING TO THE LD.COUNSEL, THE LAND WAS SITUATED IN UDAYAMPEROOR GRAM PANCHAYAT. THE TAXPAYER WAS RETURNING AGRICULTURAL INCOME CONTINUOUSLY WHICH WA S ACCEPTED BY THE REVENUE AUTHORITIES. THE LD.COUNSEL FURTHER SUBMIT TED THAT THERE WAS NO COMMERCIAL DEVELOPMENT IN THE AREA WHERE THE LAND I S SITUATED. THE LD.COUNSEL FURTHER SUBMITTED THAT THE TAXPAYERS WER E USING THE LAND AS AGRICULTURAL LAND FROM THE ASSESSMENT YEAR 1994-95 AND THEY HAVE NOT APPLIED FOR ANY PERMISSION TO CHANGE THE NATURE OF THE LAND. THE REVENUE 8 ITA NO. 471 & 472/COCH/2011 RECORDS OF THE STATE GOVERNMENT SHOW THAT THE LAND IS AGRICULTURAL LAND. IN VIEW OF THE ABOVE, ACCORDING TO THE LD.COUNSEL THE PRINCIPLE LAID DOWN IN THE CASE OF SARIFABIBI MAHAMMED IBRAHIM (SUPRA) BY THE APEX COURT IS STRICTLY APPLICABLE AND IT CANNOT BE TREATED AS CAPITAL ASSE T WITHIN THE MEANING OF SECTION 2(14)(III) OF THE ACT. THEREFORE, THE PROF IT ON SALE OF SUCH LAND IS NOT ASSESSABLE TO TAX. 7. THE LD.COUNSEL FOR THE TAXPAYER HAS ALSO PLACED HIS RELIANCE ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN CIT VS SMT.DEB I ALEMAO 331 ITR 59 (BOM) AND SUBMITTED THAT THE TAXPAYER BEFORE THE BO MBAY HIGH COURT AND HIS WIFE WERE CO-OWNERS OF THE LAND WHICH THEY PURC HASED IN THE YEAR 1988 AS AGRICULTURAL LAND. IN THE YEAR 1990 THEY SOLD T HE LAND TO A COMPANY AND FILED THE RETURN OF INCOME CLAIMING EXEMPTION ARISI NG OUT OF THE SALE OF AGRICULTURAL LAND. HOWEVER, THE ASSESSING OFFICER BROUGHT THE CAPITAL GAIN TO TAX ON THE GROUND THAT THE LAND HAD NO AGRICULTURAL POTENTIAL AND IT WAS SOLD NEARLY 10 TIMES OF THE PURCHASE PRICE WITHIN TWO YE ARS FROM ITS PURCHASE AND IT WAS PURCHASED BY THE PURCHASER FOR THE PURPO SE OF BEACH RESORT SHOWED THE LAND WAS NOT AGRICULTURAL LAND. HOWEVER , ON APPEAL BY THE TAXPAYER, THE CIT(A) FOUND THAT THE LAND WAS AGRICU LTURAL LAND. THE TRIBUNAL 9 ITA NO. 471 & 472/COCH/2011 ALSO CONFIRMED THE ORDER OF THE CIT(A). ON FURTHER APPEAL BEFORE THE BOMBAY HIGH COURT (PANAJI BENCH) IT WAS FOUND THAT THE TAXPAYER WAS RECEIVING INCOME ON SALE OF COCONUT FROM THE COCONU T TREE STANDING ON THE LAND AND THE INCOME WAS JUST ENOUGH TO MAINTAIN THE LAND AND THERE WAS NO SURPLUS. THEREFORE, NO AGRICULTURAL INCOME WAS RETURNED. THE BOMBAY HIGH COURT FURTHER FOUND THAT IF AN AGRICULTURAL OP ERATION DOES NOT RESULT IN GENERATION OF SURPLUS IT CANNOT BE SAID THAT THE LA ND WAS NOT USED FOR AGRICULTURAL PURPOSE. IT WAS ALSO FOUND THAT THE L AND WAS SHOWN AS AGRICULTURAL LAND IN THE REVENUE RECORDS AND PERMIS SION WAS OBTAINED FOR CHANGE OF THE USE. PERMISSION FOR NON AGRICULTURAL USE WAS OBTAINED FOR THE FIRST TIME BY THE PURCHASER AFTER IT HAS PURCHASED THE LAND. ACCORDINGLY, THE BOMBAY HIGH COURT CONFIRMED THE ORDER OF THE TRIBUN AL BY HOLDING THAT THE LAND WAS AGRICULTURAL LAND AND NOT ASSESSABLE TO TA X. 8. THE LD.COUNSEL HAS ALSO PLACED HIS RELIANCE ON T HE JUDGMENT OF THE BOMBAY HIGH COURT (PANAJI BENCH) CIT VS MINGUEL CHA NDRA PAIS & ANR (2006) 282 ITR 618 AND SUBMITTED THAT THE TEST TO D ETERMINE THE NATURE OF THE LAND IS LAID DOWN BY APEX COURT IN SARIFABIBI M OHAMMED IBRAHIM (SUPRA). AGRICULTURAL LAND IS NOT DEFINED IN THE A CT. THEREFORE, WHETHER A 10 ITA NO. 471 & 472/COCH/2011 PARTICULAR LAND IS AGRICULTURAL LAND OR NOT HAS TO BE DETERMINED BY USING THE TEST OR METHOD LAID DOWN BY THE APEX COURT IN SARIF ABIBI MAHAMMED IBRAHIM (SUPRA). THE BOMBAY HIGH COURT FOUND THAT THE SUBJECT LAND WAS SITUATED IN A VILLAGE AT A DISTANCE OF ABOUT 15 KMS FROM THE MUNICIPAL LIMIT, THEREFORE, IT CANNOT BE TREATED AS A CAPITAL ASSET. 9. THE LD.COUNSEL FOR THE TAXPAYER HAS ALSO PLACED RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN SA RASWATI HOLDING CORPORATION (2007) 111 TTJ 334 (BOM). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSING OFFICER FOUND THAT NO AGRICULTURAL INCOME WAS RETURNED AND THE BUSINES S OF THE TAXPAYER IS TO DEAL IN REAL ESTATE AND NOT AGRICULTURE; THEREFORE, THE LAND HAS TO BE TREATED AS STOCK IN TRADE. WE HAVE ALSO CAREFULLY GONE THR OUGH THE MEMORANDUM OF ASSOCIATION OF BOTH THE COMPANIES. AGRICULTURAL ACTIVITY IS NOT THE OBJECT OF BOTH THE COMPANIES. ADMITTEDLY, THE OBJECT OF T HE COMPANY IS TO ENGAGE ITSELF IN REAL ESTATE BUSINESS. HOWEVER, THE OBJEC T OF THE COMPANY IN THE MEMORANDUM OF ASSOCIATION WILL NOT DETERMINE THE HE AD OF THE ACCOUNT 11 ITA NO. 471 & 472/COCH/2011 UNDER WHICH THE INCOME HAS TO BE ASSESSED. IRRESPE CTIVE OF THE OBJECT OF THE COMPANIES IN THE MEMORANDUM OF ASSOCIATION, THE INCOME HAS TO BE CLASSIFIED AS PER THE PROVISIONS OF THE INCOME-TAX ACT. THEREFORE, THIS TRIBUNAL IS OF THE OPINION THAT THE OBJECT OF THE T AXPAYERS IN THEIR MEMORANDUM OF ASSOCIATION WILL NOT BE RELEVANT FACT OR TO DETERMINE THE CHARACTER AND NATURE OF THE INCOME. EVEN THOUGH TH E OBJECT IN THE MEMORANDUM OF ASSOCIATION DOES NOT PERMIT THE TAXPA YER TO DO AGRICULTURE, BUT IN FACT, IF IT WAS FOUND THAT THE TAXPAYERS CULTIVATED THE LAND AND RECEIVED AGRICULTURAL INCOME, SUCH INCOME HAS T O BE CLASSIFIED AS AGRICULTURAL INCOME AND IT CANNOT BE SUBJECTED TO T AX UNDER CENTRAL INCOME- TAX ACT EXCEPT FOR RATE PURPOSE IT HAS TO BE SHOWN IN THE COMPUTATION. 11. IN THE CASE OF POOTHOTTA FARMS (P) LTD IN ITA N O.471/COCH/2011 THE TAXPAYER HAS RETURNED RS.97,000 AS AGRICULTURAL INC OME FOR THE ASSESSMENT YEAR 2002-03 AND RS.83,700 FOR THE ASSESSMENT YEAR 2003-04 AND RS.4,64,770 FOR THE ASSESSMENT YEAR 2004-05. HOWEV ER, IN THE CASE OF NEW COCHIN DEVELOPERS (P) LTD IN ITA NO.472/COCH/2011, THE TAXPAYER HAS RETURNED AGRICULTURAL INCOME FOR THE ASSESSMENT YEA R 2006-07 AT RS.76,500 12 ITA NO. 471 & 472/COCH/2011 AND FOR REST OF THE YEAR NO INCOME WAS RETURNED. H OWEVER, THE TAXPAYER CLAIMS THAT AGRICULTURAL OPERATIONS WERE CARRIED ON CONTINUOUSLY. 12. THE BOMBAY HIGH COURT IN THE CASE OF DEBI ALEMA O (SUPRA) FOUND THAT WHEN THE INCOME FROM AGRICULTURE WAS JUST ENOU GH TO MAINTAIN THE LAND AND THERE WAS NO SURPLUS THAT CANNOT BE A GROU ND TO SAY THAT THE LAND WAS NOT USED FOR AGRICULTURAL PURPOSE. THEREFORE, WHEN THE TAXPAYER HAS NO SURPLUS INCOME FROM AGRICULTURAL OPERATION IT CA NNOT BE DISCLOSED IN THE RETURN OF INCOME. MERELY BECAUSE THE TAXPAYER HAS NOT RETURNED ANY AGRICULTURAL INCOME THAT ALONE CANNOT BE A DETERMIN ATIVE FACTOR TO COME TO A CONCLUSION THAT THE TAXPAYER HAS NOT CARRIED OUT ANY AGRICULTURAL OPERATION. THIS TRIBUNAL IS OF THE OPINION THAT TH E STATE GOVERNMENT IS MAINTAINING STATISTICAL REPORT WITH REGARD TO CULTI VATION. EVERY SIX MONTHS THE STATE GOVERNMENT IS TAKING STOCK OF THE AGRICUL TURAL OPERATION THROUGH THE VILLAGE OFFICERS. IN SOME STATES, THE RECORDS OF CULTIVATION IS KNOWN AS ADANGAL REGISTER OR VILLAGE ACCOUNT NO.2 WHICH DISC LOSES THE ACTUAL CULTIVATION MADE BY EVERY AGRICULTURISTS IN THE LAN D. ON THE BASIS OF THIS RECORD PREPARED BY THE VILLAGE OFFICER, THE TALUK S TATISTICAL COMMITTEE SUBMITS THE REPORT TO THE DISTRICT LEVEL COMMITTEE WITH REGARD TO ESTIMATED 13 ITA NO. 471 & 472/COCH/2011 FOOD PRODUCTION IN THE TALUK. THEREFORE, THERE IS AN OFFICIAL RECORD PREPARED EVERY SIX MONTHS AT VILLAGE LEVEL IN RESPECT OF THE ACTUAL CULTIVATION. THE NAME OF THE RECORD MAY BE DIFFERENT FROM ONE STATE TO ANOTHER. HOWEVER, THE FACT REMAINS THAT THE RECORDS ARE PREPARED WITH REGARD TO CULTIVATION ON THE BASIS OF THAT RECORD, THE FOOD PRODUCTION OF TH E COUNTRY IS ESTIMATED. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE VILLAGE LEVEL RECORD WHETHER IT IS CALLED AS ADANGAL REGISTER OR VILLAGE REGISTER NO.2 OR ANY OTHER NAME MAY BE THE RELEVANT MATERIAL TO DECIDE W HETHER THE LAND IN QUESTION WAS REALLY SUBJECTED TO AGRICULTURAL ACTIV ITIES OR NOT? 13. IN THE CASES ON OUR HAND, THE CIT(A) RELIED UPO N THE ENTRIES IN THE STATE GOVERNMENT RECORD WHERE THE LAND WAS RECORDED AS AGRICULTURAL LAND. MERE CLASSIFICATION OF THE LAND AS AGRICULTURAL LAN D MAY NOT BE SUFFICIENT TO HOLD THAT THE TAXPAYERS HAVE ACTUALLY CULTIVATED TH E LAND. CLASSIFICATION OF THE LAND AS AGRICULTURAL LAND MAY SHOW THAT THE LAN D IS MEANT FOR CULTIVATION. BUT WHETHER THE TAXPAYERS HAVE ACTUAL LY CULTIVATED THE LAND OR NOT COULD TO BE SEEN ONLY FROM THE RECORD AND PREPA RED BY THE VILLAGE OFFICER AT EVERY SIX MONTHS INTERVAL WITH REGARD TO CULTIVATION. THE CIT(A) HAS NOT IN FACT EXAMINED THIS DOCUMENT TO COME TO A CONCLUSION THAT THE 14 ITA NO. 471 & 472/COCH/2011 TAXPAYER HAS CULTIVATED THE LAND. FURTHERMORE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE LAND WAS SITUATED WITHIN 8 KMS RADIUS OF THE MUNICIPALITY OR NOT? IF THE LAND WAS SITUATED BEYO ND 8 KMS RADIUS OF THE MUNICIPALITY AS CLAIMED BY THE TAXPAYER AND THE TAX PAYER WAS ACTUALLY CULTIVATING THE LAND IT MAY NOT BE A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14)(III) OF THE ACT. THE ASSESSING OFFIC ER HAS NOT EXAMINED THIS FACT WHERE EXACTLY THE LAND WAS SITUATED. THE ASSESSING OFFICER FOUND THAT THE LAND WAS SHOWN AS A FIXED ASSET IN THE ACCOUNTS OF THE COMPANIES. HOWEVER, THE ASSESSING OFFICER HAS ALSO FOUND THAT SUCH A TREATMENT IN THE BOOKS OF ACCOUNT MAY NOT BE A DETERMINATIVE FACTOR. THE TREATMENT IN THE BOOKS OF ACCOUNT IS NOT THE DETERMINATIVE FACTOR TO FIND OUT THE NATURE OF THE LAND. AT THE VERY SAME TIME, WHETHER THE LAND ACTUALLY SITUATED WITHIN THE 8 KMS RADIUS OR NOT HAS TO BE EXAMINED TO FIND OUT WHETHER IT IS A CAPITAL ASSET OR NOT? IT ALSO NEEDS TO BE EXAMINED WHETHER THE LAND WAS IN FACT SUBJECTED TO CULTIVATION OR NOT. THE INSPECTO R OF INCOME-TAX FROM THE OFFICE OF THE ASSESSING OFFICER HAS VISITED THE LAN D MUCH AFTER THE FINANCIAL YEAR IN WHICH THE TAXPAYER CLAIMED TO HAVE CULTIVAT ED THE LAND. THEREFORE, THE INSPECTION REPORT OF THE INSPECTOR MAY NOT DISC LOSE THE REAL FACT WHETHER THE LAND IN QUESTION WAS SUBJECTED TO CULTI VATION AT THE RELEVANT 15 ITA NO. 471 & 472/COCH/2011 POINT OR NOT? IF THE INSPECTOR HAS MADE SOME LOCAL ENQUIRY WITH REGARD TO NEIGHBOURING FARMERS THEN THE REPORT OF THE ENQUIRY AND THE STATEMENT RECORDED FROM THE NEIGHBOURING FARMERS HAVE TO BE F URNISHED TO THE TAXPAYERS. IN THIS CASE, IT IS NOT THE CASE OF THE REVENUE THAT ANY SUCH STATEMENT WAS RECORDED FROM ANY SUCH FARMERS. THER EFORE, IT IS NOT KNOWN HOW THE INSPECTOR FROM THE OFFICE OF THE ASSESSING OFFICER CAME TO KNOW THAT NO AGRICULTURAL ACTIVITY WAS CARRIED OUT IN TH E LAND. 14. THE ASSESSING OFFICER, WITHOUT EXAMINING THE EX ACT LOCATION OF THE LAND FOUND THAT THE LAND WAS STOCK IN TRADE. HOWEV ER, THE CIT(A) FOUND THAT THE LAND WAS SUBJECTED TO CULTIVATION AND IT WAS BE YOND THE 8 KMS RADIUS OF THE MUNICIPALITY. THIS TRIBUNAL IS OF THE CONSIDER ED OPINION THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE IN THE RIGHT PERSPECTIVE WITH REGARD TO THE NATURE AND LOCATION OF THE LAND AND T HE ACTUAL CULTIVATION THAT WAS CLAIMED TO BE MADE. THEREFORE, THIS TRIBUNAL I S OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER WITH REGARD TO THE ACTUAL USAGE OF THE LAND AND WHE RE EXACTLY THE LAND IS SITUATED. THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT EVEN THOUGH THE BUSINESS OF THE TAXPAYER IS TO ENGAGE ITSELF IN REA L ESTATE, STILL, THE TAXPAYERS 16 ITA NO. 471 & 472/COCH/2011 MAY ENGAGE THEMSELVES IN CULTIVATION ALSO. THE INT ENTION OF THE TAXPAYERS AT THE TIME OF PURCHASE OF THE LAND WOULD DETERMINE THE PURPOSE FOR WHICH THE LAND WAS ACQUIRED. THE INTENTION OF THE TAXPAY ER AT THE TIME OF PURCHASE WAS ALSO NOT EXAMINED BY BOTH THE AUTHORIT IES BELOW. 15. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER IN THE LIGHT OF THE LAW LAID DOWN BY THE APEX COURT IN THE CASE OF SARIFABIBI MAHAMMED IBRAHIM (SUPRA). ACCORDINGLY, THE ORDERS OF THE LO WER AUTHORITIES ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE AFRESH AND FIND OUT WHERE EXACTLY THE LAND IS SITUATED. THE ASSESSING OFFICE R SHALL ALSO CALL FOR THE RELEVANT MATERIAL FROM THE CONCERNED TALUK OFFICE T O FIND OUT THE ACTUAL CULTIVATION MADE DURING THE RELEVANT YEARS UNDER CO NSIDERATION AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW, AFTER CONSIDERING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SARIFA BIBI MAHAMMED IBRAHIM (SUPRA). THE ASSESSING OFFICER SHALL ALSO GIVE REASONABLE OPPORTUNITY TO THE TAXPAYERS. 17 ITA NO. 471 & 472/COCH/2011 16. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH FEBRUARY, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 18 TH FEBRUARY, 2013 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH