Bombay H.C : Whether, on the facts and in the circumstances of the case, the sums of Rs. 5,98,527 Rs. 1,37,328 and Rs. 2,47,300 were exempt from assessment to tax as capital gains on the ground that the relevant lands were agricultural lands ?

Counsel Appeared

G.S. Jetly, Mrs. Manjula Singh & K.C. Sidhwa, for the Revenue : N.A. Dalvi i/b Divekar & Co., for the Assessee

T.D. SUGLA, J.:

The only question of law referred to this Court at the instance of the Department is :

“Whether, on the facts and in the circumstances of the case, the sums of Rs. 5,98,527 Rs. 1,37,328 and Rs. 2,47,300 were exempt from assessment to tax as capital gains on the ground that the relevant lands were agricultural lands ?”

2. The assessment years involved in this reference are 1963-64, 1965-66 and 1966-67, for which relevant previous years ended on 1st March, 1963, 31st March, 1965 and 31st March, 1966 respectively. The assessee had extensive lands in the villages of Pahadi, Oshivara, Dindoshi, Goregaon, etc., within the area of Greater Bombay. For the asst. yrs. 1957-58 to 1959-60, the value of these lands was not assessed to wealth-tax on the ground that these were agricultural lands to which WT Act was not applicable. For the next two assessment years, i.e., 1960-61 and 1961-62, the WTO took the view that circumstances had changed and the lands in dispute had ceased to be agricultural lands as (i) the assessee had entered into several agreements for sale of these lands with different parties; (ii) as except the area of land admeasuring about 1 acre 33-1/2 gunthas the remaining lands were not used for agricultural purposes during the previous years relevant for the asst. yrs. 1960-61 and 1961-62, and (iii) as the remaining lands were likely to be used for the construction of the industrial units by the purchasers. The said wealth-tax assessments were divided into two groups. The first group related to the lands for which agreements for sale had been entered into by the assessee with three different concerns i.e. Ciba of India. New Standard Engineering Co. Ltd. and Nanubhai Industries, and which lands were ultimately purchased by the said concerns. The second related to the lands which were lying fallow. The WTO held that except for an area admeasuring 1 acre and 33-1/2 gunthas, which was used for agricultural purposes, all other lands had ceased to be agricultural lands and were liable to be charged to wealth- tax. The wealth-tax assessments ultimately reached the stage of the Tribunal who after elaborately considering the facts and case law cited before it, came to the conclusion that the lands to be sold to the aforesaid three concerns were agricultural lands and the value thereof could not, therefore, be included in the assessment of the assessee as they continued to be agricultural lands. As regards the fallow land also the Tribunal further held that the character of this land had ceased to be that of an agricultural land and its value was calculated for the purpose of wealth-tax. The matter was taken to this Court and by its judgment, dt.25th July. 1975 in CWT vs. Sitaram N. Desai 1976 CTR (Bom) 274 : (1977) 109 ITR 13 (Bom), this Court took the view that the decision of the Tribunal involved findings of fact only and, therefore, the decision required to be upheld, being not perverse.

During the previous year relevant for asst. yr. 1963-64, the assessee sold lands measuring 1,64,862 sq. yds. for a sum of Rs. 10,93,113. The ITO did not accept the assessee’s contention that these were agricultural lands and that surplus, if any, was not liable to tax as capital gains. He also did not accept the assessee’s alternative claim that the fair market value of the lands in dispute was higher than the sale price as on 1st Jan., 1954. According to him, the fair market value of these lands as on 1st Jan., 1954 could reasonably be estimated at Rs. 3 per sq. yd. In this manner he computed the capital gain for the asst. yr. 1963-64 at Rs. 5,98,527. For the asst. yr. 1965-66 the ITO computed the capital gains at Rs. 1,38,951. However, for this assessment year, there are no details in the assessment order as regards the area and the price for which the lands were sold. For the asst. yr. 1966-67, the ITO found that the assessee had sold 2,16,322 sq. yds. of the lands for a consideration of Rs. 9,15,920. Rejecting the assessee’s contention that the fair market value of these lands as on 1st Jan., 1954 was higher than the sale price or that the lands were agricultural lands, the ITO computed the capital gains at Rs. 2,47,300 by estimating the fair market value of the lands as on 1st Jan., 1954, at Rs. 3 per sq. yd.

The AAC as well as the Tribunal accepted the assessee’s claim that the lands were agricultural lands and that therefore the surplus arising on their sale, if any, was not liable to tax. The Tribunal, however, did not accept the assessee’s alternative contention that the fair market value of the lands was higher on 1st Jan., 1954 than the sale price. In fact, a question sought to be raised on behalf of the assessee as regards the estimate of fair market value of the lands as on 1st Jan., 1954 as a question of law was rejected by the Tribunal holding that the question involved a finding of fact.

The question that arises in this reference, therefore, is whether or not the lands were agricultural lands in the hands of the assessee during the relevant previous year. In this context, it is desirable to mention that so far as the lands sold during the previous year relevant for the asst. yr. 1963-64 are concerned, the dates of the agreements of sale are not available on record. It is, however, common ground that the possession of the lands was handed over on 21st Sept., 1961 and the deed of conveyance was executed on 14th May, 1962. It is also more or less agreed that the lands in dispute were used for agricultural purposes upto 31st March, 1959. For asst. yr. 196566 there is no material on record indicating the dates of agreement or the date of conveyance or the area of the land and the price for which these were sold. The only material available is that the surplus treated as capital gains was computed at Rs. 1,38,951. For asst. yr. 1966-67, the facts were somewhat different. The assessee had entered into an agreement with Nanubhai Industries for sale of certain lands at Rs. 4.50 per sq. yd. on 29th April, 1959. Nothing happened further under that agreement. In the meantime, land acquisition proceedings were initiated by issue of notice under s. 4 of the Land Acquisition Act on 24th Jan., 1960 and completed under s. 17 on 1st June, 1960. The possession of the lands was given on 1st Dec., 1960. It appears that in the year 1964 a Supreme Court decision was published. According to buyers the Supreme Court expressed some doubt as to whether the acquisition proceedings conferred valid title upon the company for whom the lands were acquired. In this background Nanubhai Industries who had in the meanwhile, changed the name of their company into Nirlon Synthetic Fibres & Chemicals Ltd., entered into a fresh agreement with the assessee on 22nd Sept., 1964. The total consideration received by the assessee amounted to Rs. 7,04,022. It is an admitted position that a part of the consideration was received during the previous year. This transaction pertained to the sale of 1,71,215 sq. yds. only. The total sale of lands during the previous year was of 2,16,322 sq. yds. for a consideration of Rs. 9,15,920.

6. After considering relevant facts on record and on going through the cases cited before it and referred to in paras 10 to 17 of its order, the Tribunal, while dealing with the transaction relevant for the asst. yr. 1963-64, observed that the lands were admittedly agricultural lands upto 31st March, 1959. Apart from entering into an agreement the assessee had not done anything to convert the nature and character of the lands. There was no evidence to show that at the time when the sale deed was actually executed, the assessee had obtained permission for conversion of the lands into non-agricultural lands. In the above circumstances, the Tribunal upheld the finding of the AAC that the lands in dispute continued to be the agricultural lands even at the time when the deed of sale was executed.

As regards asst. yr. 1965-66, facts are almost nil on record. However, the Tribunal has proceeded on the assumption that the facts are identical. Observing in paras 18 and 19 of its judgment that there was no material to show that the nature and/or character of lands had altered, the Tribunal held that the ITO was in error in treating the surplus arising out of the transaction as capital gain and agreed with the finding of the AAC.

Regarding asst. yr. 1966-67, the Tribunal laying main stress on the facts that the assessee had not done anything to convert the lands from agricultural into non-agricultural and agreeing with the AAC’s finding, held that the lands were agricultural and surplus arising from the transaction was, therefore, not liable to tax as capital gain.

7. Shri Jetley, learned Counsel for the Department, drew our attention to the Supreme Court decision in the case of CWT vs. Officer-in-charge (Court of Wards) Paigah 1976 CTR (SC) 404 : (1976) 105 ITR 133 (SC), for the purpose of showing that the decisions relied upon by the Tribunal were of not much relevance after the aforesaid Supreme Court decision. It was pointed out that the determination of the character of the land, according to the purpose for which it is meant or set apart, whether it was kept fallow or used, was a matter which ought to be determined on the facts and circumstances of each particular case. What was really required to be shown was its connection with the agricultural purpose and actual user and not mere possibility of user of the land, by some possible future owner or purchaser or possessor for an agricultural purpose. It was not the mere potentiality, which could affect its valuation as part of the assets, but its actual condition and intended user which had to be seen. One of the objects of the exemption was stated to be to encourage cultivation or actual utilisation of land for agricultural purposes. If there was neither anything in its condition, nor anything in evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be treated as agricultural land for obtaining exemption under the Act. Further according to Shri Jetley, this Court’s decision in the case of CIT vs. Universal Cine Traders Pvt. Ltd. (1986) 52 CTR (Bom) 169 : (1986) 161 ITR 696 (Bom) : TC20R.756 to which one of us was a party practically clinched the issue against the assessee. He invited our attention to the observations made in this case at pages 702 & 703 of ITR. He also placed reliance on the observations at page 102 in another decision of this Court in the case of CIT vs. V.A. Trivedi (1988) 72 CTR (Bom) 199 : (1988) 172 ITR 95 (Bom) : TC20R.761 : “….To ascertain the true character or nature of the land, it must be seen whether it has been put to use for agricultural purposes for a reasonable span of time prior to the relevant date. It must also be seen whether on the relevant date the land was intended to be put to use for agricultural purposes for a reasonable span of time in the future. That this last criterion is also necessary is indicated by the decisions now mentioned.”

It was stated that all these transactions of sale by the assessee were with persons who had purchased these lands with an intention to put up industries. It was stated that in the circumstances obtaining the fact that the assessee had himself not applied for the conversion of the land from agricultural to non-agricultural use was of not much consequence. It was clear that once the lands were sold they were likely to be used by the purchasers for setting up industries and certainly not for an agricultural purpose. The lands sold during the previous year relevant for the asst. yr. 1966-67, in particular, it was further stated, were not put to agricultural use after 31st March, 1959. Except for a vague observation that the lands were treated as agricultural lands, there was no specific finding that the lands continued to be assessed to land revenue upto the time of the sale. These circumstances, according to Shri Jetley, clearly indicated that the Tribunal was in error treating them as agricultural lands. Shri Dalvi, learned Counsel for the assessee, on the other hand, reiterated that the lands in dispute were assessed to land revenue and that the lands sold during the previous year relevant for the asst. yrs. 1963-64 and 1966-67 were used for agricultural purpose till 31st March, 1959 whereas the lands sold during the year relevant for the asst. yr. 1965-66 were put to agricultural use till 31st March, 1961. He strongly relied on the negative fact, namely, that no application for conversion of the land from agricultural to non-agricultural use was admittedly made on behalf of the assessee. He stated that merely because for a few years, the lands were not put to agricultural use, the character of the land would not change. Shri Dalvi then placed reliance on another decision of this Court in assessee’s own case (supra), where a major portion of these lands was held to be agricultural lands. According to Shri Dalvi, the facts remained almost identical except that during the relevant previous years, the sale transactions were completed. Shri Dalvi next relied on another decision of this Court in the case of CWT vs. H.V. Mungale (1983) 32 CTR (Bom) 301 : (1984) 145 ITR 208 (Bom). In particular, he invited our attention to the first para at page 215 of the judgment, where after analysing the decision of the Supreme Court in CWT vs. Officerin-charge (Court of Wards) (supra), it was observed that the decision of the Supreme Court required to be read in the light of the fact that the Supreme Court was dealing with an exclusive piece of land which was a part of the palace estate which had never been used for agricultural purpose and mere possibility that it could be used for agricultural purpose was treated as insufficient to qualify as agricultural land. It was stated that this Court did ultimately hold that the land was entered into land revenue records as agricultural land and was assessed to land revenue. It was used for agricultural purpose till 1963 and that merely because the land remained fallow after 1963, it did not cease to be agricultural land during the previous years relevant for the asst. yrs. 1965-66 to 1969-70 during which the sales took place.

8. It may not be out of place to mention that by way of alternative argument, Shri Dalvi stated that so far as the computation of capital gains for the asst. yr. 1966-67 is concerned his client was entitled to succeed also on the ground that the transaction of sale had not taken place during the previous year. In this context he pointed out that the land was acquired by the Government in the year 1960 and possession of the land was also given long before the previous year. The Conveyance deed was, no doubt, executed during the previous year but that was only as a matter of precaution. We do not think that such a contention can be considered at this stage. Firstly this is not the question of law referred to this Court by the Tribunal and therefore it is not possible for us to look into that aspect of the matter in this reference. Moreover, para 24 of the Tribunal’s order clearly shows that the Tribunal had also not entertained such a contention. The Tribunal’s observations in this regard are : “…The assessee offered the said amount for assessment in this year and the assessee now cannot seek to go back on his own conduct. If the assessee had taken up this point at the stage of assessment, there would have been scope for taking other proceedings for the earlier year or years so as to bring the relevant amount to tax in the earlier year or years. The assessee cannot seek to prejudice the Revenue by offering the amount for assessment in 1966-67 and then finding that the proceeding for the earlier year could be barred, trying to go back on the admission.”

9. We do not think that it is really necessary to examine each and every decision considered by the Tribunal in its judgment or cited before us by the parties. It is sufficient to say that after the Supreme Court decision in the case of Court of Wards (supra), the legal position is that the mere fact that certain lands are shown as agricultural lands in revenue record and are assessed to land revenue is no longer sufficient though it continues to be a relevant factor to be taken into account. Similarly, a judicial notice has to be taken of the fact that one of the objects of exemption is to encourage cultivation or actual utilisation of the land for agricultural purpose. Of course, each circumstance by itself may not be conclusive one way or the other and it is the cumulative effect of all attending circumstances that will have to be weighed for the purpose of coming to the conclusion whether certain lands when sold were agricultural lands or not.

10. For this purpose what we consider necessary to bear in mind is that the lands sold during the previous years relevant for the asst. yr. 1963-64 were not put to agricultural use after 31st March, 1959. There is no positive evidence on record to suggest that these lands were agricultural lands and were assessed to land revenue upto the date of their sale. The possession of these lands was handed over on 21st Sept., 1961 i.e. much prior to the commencement of the previous year relevant for that assessment year. The major portion of the land was sold to Ciba of India. It is, thus, clear that the land was not going to be used for agricultural purpose. No doubt, the assessee himself had not applied for converting the lands from agricultural into non- agricultural. However, having regard to the facts mentioned by us above, we are of the view that the Tribunal was in error in holding that the lands in question continued to be agricultural lands during the previous year relevant to asst. yr. 1963-64 and that, therefore, the surplus arising from the transaction was not liable to tax as capital gains.

For the asst. yr. 1966-67, the position is still worse for the assessee. The possession of the land was handed over to the purchaser in 1960 itself. Naturally, therefore, the assessee did not, rather could not have continued agricultural operations after 31st March, 1959. Here again the lands are sold to business concerns, who are not going to put them to agricultural use. For reasons stated, for the asst. yr. 1963-64, we hold that the lands sold during the previous year relevant for the asst. yr. 1966-67 were not agricultural lands and surplus computed by the ITO was accordingly liable to tax. For the asst. yr. 1965-66, however, as stated by us earlier, there is no material on record to suggest that the nature and/or character of the lands which were treated as agricultural lands for asst. yrs. 1960-61 and 1961-62 had changed in any manner whatsoever. On the material before us, therefore, we do not see any justification for interference so far as the finding of the Tribunal in regard to the asst. yr. 1965-66 is concerned.

11. In the result, the question of law which is a composite question of law is answered thus : In so far as the asst. yrs. 1963-64 and 1966-67 are concerned, the sum of Rs. 5,98,527 and Rs. 2,47,300 respectively are not exempt from assessment to tax as capital gain on the ground that the relevant lands were not agricultural lands.

In so far as the asst. yr. 1965-66 is concerned, the sum of Rs. 1,37,328 is exempt from the assessment to tax as capital gain on the ground that the relevant land was agricultural lands. The question is so answered. No order as to costs.

[Citation : 177 ITR 151]