13 tests to determine if land is agricultural or not. High Court declares ITAT order as perverse in allowing capital gain exemption u/s 2(14)(iii)
ABCAUS Case Law Citation:
ABCAUS 2896 (2019) (04) HC
Important Case Laws Cited/relied upon by the parties
Sarifabibi Mohmed Ibrahim & Others Vs. Commissioner of Income Tax 1993 (204) ITR 06
CIT Vs. Siddharth
Sarojini Devi v. T. Sri Krishna [AIR 1944 Mad 401]
Ramlal v. Phagua [2005 (5) CTC 282]
Bharatha Matha v. R. Vijaya Renganathan [2010 (3) CTC 654]
The assessee had filed Return of Income Tax claiming exemption towards sale of agricultural land under Section 2(14)(iii) of the Income Tax Act, 1961 (the Act). However, a Survey action under Section 133A of the Act was undertaken.
After the proceedings under Section 133A of the Act, a notice under Section 148 of the Act was issued to reopen the assessment for the assessment on the ground Long Term capital gains (LTCG) chargeable to tax is escaped from assessment.
Later, the Assessing Officer (AO) passed the reassessment order charging the Long Term Capital Gains and demanded tax.
On appeal, the Commissioner of Income Tax, confirmed the reassessment order.
Both, the Assessing Officer and the Commissioner of Income Tax had held that no agricultural activity was undertaken by the assessee in the land in question and hence, the nature of land could not be considered as agriculture.
The assessee had produced Chitta and Adangal to show that for the relevant period he cultivated the land. On the basis of the Chitta, Adangal and payment of kist, the Appellate Tribunal came to the conclusion that the assessee had proved the factum of agricultural activity being carried on during the relevant time and set aside the orders of imposing capital gain tax.
The Revenue approached the High Court and challenged the order passed by the Income Tax Appellate Tribunal as perverse and also questioning the evidence relied upon by the Tribunal.
The question was whether the assessee had proved that the land sold was an agricultural land so as to be out of the net of capital gain tax and whether the High Court could interfere with the findings of facts recorded by the Appellate Tribunal in exercise of jurisdiction u/s 260A of the Act.
The Hon’ble High Court observed perusal of the Chitta and Adangal furnished by the assessee would reveal that except mentioning the name of the asessee, survey number and extent, the other relevant columns i.e., crop and extent said to have been cultivated by the assessee were left blank.
The Hon’ble High Court concurred with the Revenue in that the Adangal produced by the assessee created a serious doubt whether the said land was actually cultivated at the relevant point of time.
The Hon’ble High Court noted that the Hon’ble Supreme Court had held that the fact that the land is assessed to the Land Revenue as agricultural land under the State Revenue Law is a relevant fact but not conclusive.
It was also observed that the Madras High Court had held that the exception “agricultural land” should be given the widest meaning and the land is assessed to land revenue as agricultural land under the State Revenue Law is a strong piece of evidence of its character as an agricultural land, but on appeal, the Constitution Bench of the Hon’ble Supreme Court held that inasmuch as, the agricultural land is exempted from the purview of the definition of the expression “assets”, it is impossible to adopt a wide test which would defeat the very purpose of the exemption. It was also observed that the idea behind exempting the agricultural land is to encourage cultivation of land and the agricultural operations.
The Hon’ble High Court noted that the Gujarat High Court had evolved the following 13 tests to determine the character of the land:
(1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue?
(2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time?
(3) Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stopgap arrangement?
(4) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land?
(5) Whether, the permission under Section 65 of the Bombay Land Revenue Code was obtained for the nonagricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date?
(6) Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/or alternative user was of a permanent or temporary nature?
(7) Whether the land, though entered in revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes?
(8) Whether the land was situate in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural?
(9) Whether the land itself was developed by plotting and providing roads and other facilities?
(10) Whether there were any previous sales of portions of the land for non-agricultural use?
(11) Whether permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such non-agriculturist was for non-agricultural or agricultural user?
(12) Whether the land was sold on yardage or on acreage basis?
(13) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield?”
The Hon’ble Supreme Court held that all the above factors may not be present or absent in any case and that in each case one or more of those factors may make appearance and that the ultimate decision will have to be reached on an balanced consideration of the totality of the circumstances.
Further, the Hon’ble High Court clarified that the burden of proof that the land is an agricultural land is always on the assessee, who seeks exemption under Section 2(14)(iii) of the Income Tax Act, because, the Revenue cannot be expected to produce negative evidence.
The Hon’ble High Court observed that in the instant case, the assessee did not produced any materials to show that he was carrying on agricultural activities in the land at any point of time except producing Chitta and Adangal for just one year.
The Hon’ble High Court opined that since relevant columns in the Adangal with regard to crop and extent were left blank, it would not be proper to record a finding on those documents and they had to be discarded. Also the Court agreed that undisputedly no genuine agriculturist would purchase a land at a high price as in the case in hand.
The Hon’ble High Court opined that tests no. 2, 7, 8 and 13 evolved by the Gujarat High Court were relevant factors to be taken into consideration for deciding the nature of the land. However, the appellate Tribunal overlooked them on the basis of Chitta and Adangal. Hence, the finding recorded on no evidence were perverse.
After holding the findings of the Tribunal as perverse, the Hon’ble High Court pointed out that the Hon’ble Supreme Court had held that if the finding is based on no evidence or misreading of evidence and non consideration of material evidence would be perverse and they are liable to be set aside.
Accordingly, in view the above said principles, the Hon’ble High Court order set aside the order of the Income Tax Appellate Tribunal and answered the questions of law in favour of the Revenue.
However, Hon’ble the Supreme Court has admitted the Special Leave Petition (SLP) of the assessee and prohibited the Department in taking any coercive steps against the petitioner on the basis of the judgment of the High Court.