GHANSHYAM MUDGAL, Jaipur V. ITO, BEHROR

ITA 896/JPR/2010

• Counselvise Citation: 89623114 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Keywords: Capital asset; Cost of acquisition; Fair market value
• Section: 2(14)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 896/ JP/2010 ASSESSMENT YEAR 2007-08 PAN: AKUPM 1265 B SHRI GHANSHYAM MUDGAL VS. THE ITO S/O SHRI CHIRANJI LAL SHARMA WARD- BEHROR NEEMRANA, BEHROR ALWAR (APPELLANT ) (RESPONDENT) ASSESSEE BY: SHRI MAHENDRA GARGIEYA DEPARTMENT BY : SHRI D.K. MEENA DATE OF HEARING: 10-08-2011 DATE OF PRONOUNCEMENT:09-09-2011 ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), ALWAR DATED 30-03-2010 FOR THE ASSESSMENT YEAR 20 07-08. 2.1 THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS T HAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 50,000/- IN HOTEL INCOME. 2.2 DURING THE COURSE OF PROCEEDINGS BEFORE THE AO, THE ASSESSEE WAS REQUIRED TO FURNISH CERTAIN INFORMTIONS AND NATURE OF SUCH INFORMATIONS HAVE BEEN MENTIONED BY THE AO AT PAGE 1 AND 2 OF THE ASS ESSMENT ORDER. THE ASSESSEE FILED THE REPLY VIDE LETTER DATED 29 TH DEC. 2009. THE DETAIL OF THE 2 OCCUPANCY WAS FILED. THE ASSESSEE ALSO FURNISHED T HE TARIFF RATE IN RESPECT OF THE ROOMS. THE HOTEL WAS HAVING NO FACILITY OF BAR, STD, RESTAURANT ETC. THE AO MADE THE LUMPSUM ADDITION OF RS. 50,00/-. 2.3 THE LD. CIT(A) HAS CONFIRMED THE ADDITION OF RS . 50,000/-. 2.4 WE HAVE HEARD BOTH THE PARTIES. THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS TO ILLUSTR ATE THAT ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT VERIFIABLE. THE ASSESSEE FILED THE EXPLANATION VIDE LETTER DATED 29 TH DEC. 2009. THE ORDER WAS GOING TO BE BARRED BY LIM ITATION ON THE NEXT DAY I.E. 31ST DEC. 2009. THE AO THEREFORE, H AS NOT BEEN ABLE TO VERIFY THAT REPLY FILED BY THE ASSESSEE IS INCORRECT. IN V IEW OF THE FACTS THAT NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT, WE THEREFOR E, FEEL THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 50,000/-. 3.1 THE SECOND GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 4,63,886/- ON ACCOUNT OF INTEREST INCOME. 3.2 THE AO NOTICED FROM THE TDS CERTIFICATE ISSUED BY RIICO THAT THE ASSESSEE HAS RECEIVED THE PAYMENT OVER AND ABOVE TH E ACQUISITION PAYMENT. THE PAYMENTS ARE @ 12% PER ANNUM FOR THE PERIOD DEL AY IN PAYMENT IN ACCORDANCE WITH SECTION 23A(1) OF THE LAND ACQUISIT ION ACT. ACCORDING TO THE AO, THIS AMOUNT IS INTEREST AND IS THEREFORE, T AXABLE AS INTEREST INCOME. 3 3.3 BEFORE THE AO, IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNT SO RECEIVED IS PART OF THE COMPENSATION. LAND WAS NOTI FIED ON 23-02-2006 AND POSSESSION WAS TAKEN ON 10-04-2006. HENCE TO DETERM INE COMPENSATION ON THE DATE OF POSSESSION, AN AMOUNT IS ADDED THOUGH I T IS COMPUTED ON THE BASIS OF PERIOD BETWEEN DATE OF NOTIFICATION TO DAT E OF POSSESSION. THE RIICO ITSELF HAS CONSIDERED IT AS PART OF THE COMPE NSATION. THE AO WAS NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSES SEE. ACCORDING TO THE AO, THE SUM RECEIVED WAS INTEREST AND THEREFORE, THE SA ME IS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. 3.4 THE LD. CIT(A) HAS UPHELD THE FINDINGS OF THE A O BY HOLDING THAT THE AO HAS RIGHTLY TREATED THE ADDITIONAL AMOUNT RECEIV ED BY THE ASSESSEE AS INTEREST ON DELAYED PAYMENT. 3.5 WE HAVE HEARD BOTH THE PARTIES. SECTION 23 OF T HE LAND ACQUISITION ACT DEALS WITH THE MATTERS TO BE CONSIDERED IN DETE RMINING THE COMPENSATION. SECTION 23(1A) SAYS THAT THE COURT S HOULD AWARD AN AMOUNT CALCULATED @ 12% PER ANNUM ON MARKET VALUE FOR THE PERIOD COMMENCING ON FROM THE DATE OF THE PUBLICATION OF THE NOTIFICATIO N U/S 4 TO THE DATE OF AWARD OF THE COLLECTOR OR THE DATE OF TAKING POSSESSION O F THE LAND WHICHEVER IS EARLIER AND SUCH AN AMOUNT SHOULD BE IN ADDITION TO THE MARKET VALUE OF THE LAND. HENCE, SECTION 23(1A) OF THE LAND ACQUISITION ACT DEALS WITH THE 4 AMOUNT WHICH IS TO BE INCLUDED IN THE AWARD IN ADDI TION TO THE MARKET VALUE OF THE LAND. HENCE, THIS AMOUNT IS A CONSIDERATION FOR THE TRANSFER OF THE LAND. THE AMOUNT IS TO BE CALCULATED AT THE FIXED RATE GI VEN IN THE LAND ACQUISITION ACT. IT IS NOWHERE MENTIONED THAT SUCH AN AMOUNT IS INTEREST. BEFORE US, THE LD. AR HAS FILED THE DECISION OF HON 'BLE APEX COURT IN THE CASE OF CIT VS. GHANSHYAM (HUF), 224 CTR 522. AS PE R THIS DECISION, THE HON'BLE APEX COURT HELD ADDITIONAL AMOUNT U/S 23(1A ) AND SOLATIUM U/S 23(2) FORMS THE PART OF ENHANCED COMPENSATION. WE T HEREFORE, HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN TREATING THE AMOUNT RECEIVED U/S 23(1A) OF THE LAND ACQUISITION ACT AS INTEREST. THIS AMOUNT I S TO BE CONSIDERED AS PART OF THE COMPENSATION AND IS TO BE CONSIDERED FOR THE PURPOSE OF CAPITAL GAIN. 4.1 THE LAST GROUND OF APPEAL OF THE ASSESSEE IS TH AT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 2,85,992/- ON ACCOUNT OF LONG TERM CAPITAL GAIN. 4.2 THE AO NOTICED FROM THE TDS CERTIFICATE THAT TH E ASSESSEE HAS RECEIVED COMPENSATION ON ACQUISITION OF TUBEWELL, O NE GODOWN AND BOUNDARY WALL ON LAND ACQUIRED BY THE RIICO AMOUNTI NG TO RS. 8,53,713/-. THE ASSESSEE WAS REQUIRED TO FURNISH THE DETAILS OF CAPITAL GAIN. BEFORE THE AO, IT WAS SUBMITTED THAT THE ASSESSEE RECEIVED REW ARD AGAINST DEMOLITION OF BORWELL, BOUNDARY WALL, STORE TEMPORARY CONSTRUCTIO N ETC USED IN AGRICULTURAL 5 ACTIVITIES. SUCH CONSTRUCTIONS ARE RELATED AND INCI DENTAL TO AGRICULTURAL LAND. NO TAX IS LEVIABLE ON TRANSFER OF SUCH THINGS LIKE AGRICULTURAL LAND. IT WAS THEREFORE, SUBMITTED THAT NO CAPITAL GAIN ARISES ON THE AMOUNT OF RS. 8,53,713/-. ALTERNATIVELY IT WAS SUBMITTED THAT TOT AL COST IN RESPECT OF SUCH ASSETS WAS TO THE EXTENT OF RS. 4.00 LACS. HENCE, C ONSIDERING THE COST, THE CAPITAL GAIN AFTER INDEXATION WILL BE NIL. THE AO E STIMATED THE FAIR MARKET VALUE AT RS. 60,000/-. AFTER INDEXATION OF COST OF ACQUISITION, THE AO ESTIMATED THE CAPITAL GAIN AT RS. 2,35,992/-. THE A SSESSEE FURTHER RECEIVED COMPENSATION FOR BUILDING BEARING KHASRA NO. 1120. ON THIS AMOUNT, THE AO ESTIMATED THE LONG TERM CAPITAL GAIN AT RS. 50, 000/-. ACCORDINGLY THE AO MADE THE ADDITION OF RS. 2,85,992/-. 4.3 THE LD. CIT(A) HAS CONFIRMED THE ORDER OF THE A O AS ACCORDING TO HIM THE AO HAS RIGHTLY WORKED OUT THE LONG TERM CAPITAL GAIN. 4.4 WE HAVE HEARD BOTH THE PARTIES. THE AO HAS CONS IDERED THE AMOUNT RECEIVED IN RESPECT OF TUBEWELL, GODOWN AND BOUNDA RY WALL AT RS. 5,47,392/- . THE COMPUTATION OF CAPITAL GAIN MADE BY THE AO I S REPRODUCED AS UNDER:- FAIR MARKET VALUE AS ON 1-4-1981 RS. 60,000/- INDEXED COST = 60,000X519 = RS. 3,11,400 100 COST OF ACQUISITION RS.3,11,400/- COMPENSATION RECEIVED RS. 5,47,392/- CAPITAL GAIN RS.2,35,992/- 6 SECTION 2(14) DEFINES CAPITAL ASSET. THE AGRICULTUR AL LAND WHICH IS NOT WITHIN THE SPECIFIED LIMIT IS NOT TO BE CONSIDERED AS CAPI TAL ASSET. THE HON'BLE KERALA HIGH COURT IN THE CASE OF TRAVANCORE TEA ES TATES CO. LTD. VS. CIT, 93 ITR 314 HAD AN OCCASION TO CONSIDER THE MEANING OF AGRICULTURAL LAND. IT WILL BE USEFUL TO REPRODUCE THE SAME. WE HAVE OMITTED SUB-CLAUSES (I) AND (II) AS WELL AS A PART OF CLAUSE (III) AS THOSE HAVE NO APPLICATION WHATE VER FOR THE PURPOSE OF THIS CASE. THE QUESTION IS WHETHER THE TREES ARE ' PROPERTY OF ANY KIND ' AND WHETHER IT HAS TO BE EX CLUDED FROM THE AMPLITUDE OF THE TERM ' PROPERTY OF ANY KIND ' BECAUSE IT IS AGRICULTURAL LAND IN INDIA. THERE CAN BE NO DOUBT T HAT THESE TREES ARE PROPERTY AND, THEREFORE, WILL BE PROPERTY OF ANY KIND. THE ONLY QUESTION THEREFORE IS WHETHER THE TREES C AN BE SAID TO BE AGRICULTURAL LAND. THE RULE THAT ' WHAT IS ATTA CHED TO THE LAND BELONGS TO THE LAND ' IS A PRINCIPLE NOT APPLICABL E TO INDIA. THE JUDICIAL COMMITTEE OF THE PRIVY COUNCIL HAS SAID SO VERY EARLY (VALLABDAS NARAINJI V. DEVELOPMENT OFFICER, BANDRA (1)). THIS COURT FOLLOWED THAT DECISION IN STATE V. MAHADEVA I YER VENKITASUBRAMANIA IYER (2) AND IN CHELLAPPAN NADAR V. KRISHNAN NAIR (3) AND THE SUPREME COURT APPROVED T HE DECISION OF THE PRIVY COUNCIL IN DR. K. A. DHAIRYA VAN V. J. R. THAKUR (4). WE CANNOT, THEREFORE, POSTULATE THAT T HE TREES ATTACHED TO THE LAND BELONG TO THE LAND. IT IS DIFF ICULT TO SAY THAT TREES ARE AGRICULTURAL LAND IN INDIA. OUR ATTENTION WAS DRAWN TO A 7 DECISION OF THIS COURT IN SAINABA V. NARAYANAN (5), WHEREIN THE LEARNED JUDGE FOR THE PURPOSE OF EXPLANATION III O F SECTION 2(25) OF THE KERALA LAND REFORMS ACT OF 1964 PROCE EDED ON THE BASIS THAT ' LAND ' IN THAT EXPLANATION DOES N OT MEAN THE SOIL ALONE BUT THE BUILDING WHICH WAS STANDING ON T HE LAND AS WELL. THE QUESTION THAT AROSE BEFORE THE LEARNED JU DGE WAS SOMEWHAT DIFFERENT. IF THE DECISION, HOWEVER, MEAN S THAT WHAT IS ATTACHED TO THE LAND BELONGS TO THE LAND, WITH GREAT RESPECT, WE DISAGREE WITH THE VIEW EXPRESSED THEREIN AS IT IS AGAINST THE PRONOUNCEMENT OF THE SUPREME COURT AND THE DECISIO NS OF THIS COURT, THE LATEST BEING A DECISION OF THIS BENCH IN I. T. RS. NOS. 94 AND 95 OF 1970. (6) WE WILL HAVE, THEREFORE, TO TAKE IT THAT THE TREES THAT STOOD ON ' AGRICULTURAL LAND IN INDIA ' MENTIONED IN SECT ION 2(14)(III) IS NOT ' AGRICULTURAL LAND IN INDIA ', AND, THEREF ORE, PROPERTY OF ANY KIND WHICH WILL BE ' CAPITAL ASSET '. IF THIS BE SO, THE PROFITS AND GAINS ARISING FROM THE TRANSFER OF SUCH A CAPI TAL ASSET ARE TAXABLE UNDER SECTION 45 OF THE ACT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF BEVER LEY ESTATE LTD. VS. CIT, 117 ITR 302 HELD THAT TREES THAT STOOD ON AGRI CULTURAL LAND IN INDIA IS NOT AGRICULTURAL LAND IN INDIA. 4.5 IT IS TRUE THAT THE HON'BLE KERALA HIGH COURT IN THE CASE OF CLEN LEVAN ESTATE LTD. VS. CIT, 91 ITR 391 HELD THAT WHA T IS ATTACHED TO THE LAND BELONGS TO THE LAND. HOWEVER, THIS DECISION WAS NOT APPROVED BY THE 8 HON'BLE KERALA HIGH COURT REPORTED AT 83 ITR 314 AF TER REFERRING TO THE PRONOUNCEMENT OF THE HON'BLE SUPREME COURT. 4.6 AGRICULTURAL INCOME IS DEFINED IN SECTION 2(1A) OF THE ACT. INCOME IS AGRICULTURAL IF CERTAIN BASIC OPERATIONS ARE CARRIE D ON THE LAND. IRRIGATION IS ONE OF THE BASIC OPERATION AS BOREWELL IS AN ASSET RELATED TO THE AGRICULTURAL INCOME AND THEREFORE, THE COMPENSATION ON BOREWELL IS TO BE CONSIDERED AS COMPENSATION FOR AGRICULTURAL LAND. SIMILARLY, THE BUILDING OWNED AND OCCUPIED BY THE RECEIVER OF THE REVENUE OF LAND IS AGRICULTURAL INCOME. THIS INCLUDES THE BUILDING USED AS DWELLING HOUSE OR AS A STORE HOUSE. THEREFORE, THE STORE HOUSE IS TO BE CONSIDERED AS PART OF THE AGRICULTURAL INCOME AND THE COMPENSATION SO RECEIVED WILL BE PART OF THE AGRICU LTURAL LAND. HOWEVER, THE BOUNDARY WALL IS NOT COVERED UNDER PROVISO TO SECTI ON 2 (1A) OF THE ACT. HENCE, THE COMPENSATION SO RECEIVED FOR BOUNDARY WA LL CANNOT BE CONSIDERED AS COMPENSATION RELATED TO AGRICULTURAL LAND. THUS THE AO WILL ESTIMATE THE COMPENSATION RELATING TO BOUNDARY WALL AND WILL ACCORDINGLY COMPUTE THE LONG TERM CAPITAL GAIN. 4.7 WE ARE NOT HAVING THE BENEFIT IN RESPECT OF TH E PROPERTY AT KHASRA NO. 120 AND 1124. NEITHER BEFORE US NOR BEFORE THE LD. CIT(A), THE ASSESSEE HAS GIVEN THE NATURE OF THE PROPERTY AT KHASRA NO. 1120 AND 1124. WE THEREFORE, FEEL THAT THE AO WAS JUSTIFIED IN ESTIMATING THE LO NG TERM CAPITAL GAIN ON THE 9 AMOUNT RECEIVED AGAINST THIS PROPERTY AT RS. 1,63,6 61/-. WE ARE NOT HAVING THE BENEFIT OF ASCERTAINING THE COST. THEREFORE, WE FEEL THAT LD. CIT(A) WAS JUSTIFIED IN ESTIMATING THE LONG TERM CAPITAL GAIN AT RS. 50,000/- IN RESPECT OF THIS PROPERTY. THE APPEAL HAS BEEN FILED BY THE ASS ESSEE AND ONUS WAS ON THE ASSESSEE TO HAVE GIVEN THE DETAILS IN RESPECT OF TH E COST OF THE PROPERTY. WE HAVE ALSO NOTICED THAT THE CAPITAL GAIN ESTIMATED B Y THE AO IN RESPECT OF OTHER ASSETS AS COMPARED TO THE AMOUNT RECEIVED. CO NSIDERING THESE FIGURES, WE FEEL THAT THE AO WAS JUSTIFIED IN ESTIMATING THE LONG TERM CAPITAL GAIN AT RS. 50,000/-. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09-09 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 09 /09/2011 *MISHRA COPY FORWARDED TO :- 1. SHRI GHANSHYAM MUDGAL, BEHROR 2. THE ITO, WARD- BEHROR, ALWAR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.896/JP /10) A.R., ITAT , JAIPUR 10 11 12