Madras H.C : Whether a land is “agricultural land” ?

Counsel Appeared

Mrs. Chitra Venkataraman, for the Petitioner : P. P. S. Janarthana Raja, for the Respondent

ABDUL HADI J.:

The above-referred to five tax case revisions are by the Revenue under s. 54 of the Tamil Nadu Agrl. IT Act, 1955, and they are against the common order dt. 10th Jan., 1992, in the corresponding five appeals by the assessee-respondent before the Agricultural Tribunal in respect of five asst. yrs. 1986-87 to 1990-91. The said order allowed all the said appeals.

Only one common question is involved in all the cases, viz., whether the income assessed to tax by the original assessing authority and confirmed by the first appellate authority to the extent of Rs. 4,32,000 in each of the abovesaid five years at the rate of Rs. 36,000 per month received by the assessee as rent in leasing out its land of 53 acres to its sisterconcern, V. G. P. Golden Beach Resort Ltd., for the latter carrying on the business of developing the said land as a beach resort for tourists, is “agricultural income” assessable to tax under the abovesaid Act. The Tribunal, while reversing the concurrent decision of the authorities below, has held that the said income is not agricultural income. Consequently, the Tribunal below set aside the abovesaid assessments and allowed the appeals filed by the assessee. Hence, these revisions by the Revenue.

On the other hand, the assessee has filed the other W. P. No. 7604 of 1992 for a direction to the respondent- assessing authority to grant refund of the tax amount of Rs. 2,65,215 consequent upon the abovesaid order dt. 10th Jan., 1992, of the Tribunal. So, the decision in the said writ petition depends only on the decision to be given in the five tax revision cases. Hence, both the revisions and the writ petition are heard together. Based on the following facts on which there is no dispute, the Tribunal came to the conclusion that the abovesaid income is “agricultural income”.

The lease deed entered into between the lessor-assessee and the abovesaid lessee shows that the lessee should use the lease land exclusively for commercial purposes for catering to tourists and not under any circumstances for agricultural activities. The lessor has also permitted the lessee to put up on the abovesaid land, constructions for the development of the abovesaid beach resort project and for putting up a hotel, etc. The memorandum and articles of association of the lessee-company also show that its main object is to carry on the business of a hotel, lodging house keepers, etc. Only house tax and not land revenue is paid for the said land. Further, in the relevant assessments under the Central enactment, viz., the IT Act, 1961, the abovesaid income is charged to tax only as non-agricultural income.

6. But, learned counsel for the Revenue submits that the whole approach of the Tribunal in coming to the abovesaid conclusion is wrong. According to her, the Tribunal below did not take into account the relevant considerations based on the definition of the term “agricultural income” found in s. 2(a)(1) of the abovesaid Tamil Nadu Act r/w the definition of the term “land” under s. 2(nnn) of the same Act and in the light of the definition of the said term “agricultural income” contained in the Central Act, IT Act, 1961, and Art. 366(1) of the Constitution of India and of the interpretation put by the Supreme Court on the said definition contained in the said Central enactment in the decision in CIT vs. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC). On the other hand, she also submits that the Tribunal has erred in taking into consideration irrelevant materials on which it relied as stated above. She further submits that though certain buildings might have been put up by the lessee on some parts of the said land, in some other parts, coconut, casuarina and other trees and plants are grown. She also brought to our notice that the order of the first appellate authority, viz., the AAC, also found that the income from the abovesaid coconut and casuarina trees were calculated by the Agrl. ITO after spot inspection.

7. Learned counsel for the assessee, on the other hand, submits that the Tribunal below has made the factual finding thus : “Absolutely, there is no proof that agricultural operations are being carried on on this land and agricultural income is derived from the land”. He also reiterates that the above- referred to reasons of the Tribunal for coming to its abovesaid conclusion are correct. Hence, he submits that the decision of the Tribunal cannot be disturbed in these revisions.

8. We have considered the rival submissions. The Constitution of India, while granting the power to tax agricultural income to the States as per entry 46 of List II of the Seventh Schedule therein, and correspondingly denying the said power to the Union, defines the term “agricultural income” in Art. 366(1) thus : “‘Agricultural income’ means agricultural income as defined for the purposes of the enactments relating to Indian income- tax.”

9. At the time when the Constitution was framed in 1950, the Indian IT Act, 1922, was in force and it contained the definition of “agricultural income” and granted its exemption from the levy under the said Act. When the IT Act, 1961, replaced the abovesaid 1922 Act, it also contained the definition of the term almost identical to what was contained in the definition under the 1922 Act. The Supreme Court also has held in Karimtharuvi Tea Estates Ltd. vs. State of Kerala (1963) 48 ITR (SC) 83, ; AIR 1963 SC 760, thus : “The agricultural income about which a State Legislature may enact under entry 46 of List II would be such income as defined in the Indian IT Act”. The said decision has also held, after referring to rr. 23 and 24 of the IT. Rules framed under the abovesaid 1922 Act ( corresponding to rr. 7 and 8 framed under the abovesaid 1961 Act ), ( at page 91 ) : “These rules were in existence in 1950 when the Constitution incorporated the definition of ‘agricultural income’ from the IT Act by reference. The definition of the term was bound up with the rules . . . The provisions of the IT Act and the Rules made thereunder will control the provisions of the Agricultural IT Act enacted by a State Legislature.” ( emphasis italicised in print, supplied )

10. Further, the decision in Tata Tea Ltd. vs. State of West Bengal (1988) 70 CTR (SC) 99 : (1988) 173 ITR 18 (SC) has reiterated the same rule of interpretation and further observed that the State Legislature in defining” agricultural income”, cannot go beyond the definition of the term “agricultural income” as found in the IT Act, 1961, and the Rules therein. Now, the definition of “agricultural income” as contained in the IT Act, 1961, is found in s. 2(1A) thereof. The relevant portion thereof is as follows : “(1A)’agricultural income’ means— (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes ; (b) any income derived from such land by— (i) agricultural ; or . . .”

11. The Supreme Court, in interpreting this definition, has held in CIT vs. Raja Benoy Kumar Sahas Roy (supra) referred to above, that one of the essential requisites for treating an income as “agricultural income”is that the land in question must have been actually “used for agricultural purposes” in the previous year in question. In this connection, the Supreme Court, after exhaustively discussing the case-law on the subject, laid down the following principles : “(a) some basic operation, prior to germination, involving expenditure of human skill and labour on the land itself and not merely on the growths from the land, is essential to constitute agriculture’ ; illustrative instances of such basic operations are tilling of the land, sowing or disseminating of seeds, and planting, (b) subsequent operations, i.e., operations performed after the produce sprouts from the land, e.g., weeding, digging the soil around the growth, removal of undesirable undergrowths, tending, pruning, cutting, felling and preservation of the plants from insect, pests and other animalsby themselves would not constitute ‘agriculture’. But in cases where the subsequent operations are combined with the basic operations, the subsequent operations would also constitute part of the integrated activity of ‘agriculture’. (c) activities not involving any basic operation on the land would not constitute agriculture merely because they have relation to or connection with the land”

It has also been held in Maharajadhiraj Sir Bijay Chand Mahtab Bahadur of Burdwan, In re (1940) 8 ITR 378 (Cal), CIT vs. Burdhan Kuti Wards Estate (1949) 17 ITR 191 (Dacca), Raja Bahadur Vishweshwara Singh vs. CIT (1954) 26 ITR 573 (Patna) and other decisions that the purpose for which the land is leased, is an immaterial consideration in deciding the question whether the income in question in relation to the land is agricultural income or not. Now, the relevant portions of the definition of the abovesaid term contained in the Tamil Nadu Agrl. IT Act, 1955, in s. 2(a) thereof are as follows : “2. In this Act, unless the context otherwise requires— (a) ‘agricultural income’ means— (1) any rent or revenue derived from land ; (2) any income derived from such land in the State by— (i) agriculture, or . . . Explanation.—Agricultural income derived from such land by the cultivation of any crop means that portion of the income derived from the cultivation, manufacture and sale of the produce of that crop as is defined to be agricultural income for the purposes of the enactments relating to Indian income-tax and if it has not been so defined, the whole of the income”

13. The abovesaid term “land” has been defined under s. 2(nnn) of the said Act as follows : “‘land’ means agricultural land which is used for the purpose of growing any plantation crop with or without any other crop intermingled with such plantation crop or for purposes subservient thereto and is either assessed to land revenue in the State or is subject to a local rate assessed and collected by officers of the Government as such and includes any plantation in any forest land.” While interpreting this definition of “land”, a Division Bench of this Court also observed in R. V. R. Nallasivam vs. Commr. of Agrl. IT. (1980) 16 CTR (Mad) 243 : (1982) 133 ITR 184 (Mad) as follows ( at page 191 ) : “The definition falls into two parts. The first part contemplates the cases of lands used for agricultural purpose or purposes subservient thereto, and the second part requires that the lands are either assessed to land revenue in the State or subject to a local rate assessed and collected by officers of the Government as such . . . Reliance was placed on the second part of the definition ; that part of the definition includes horticultural land, forest land, garden land and plantations. But even this part of the definition cannot be taken for compounding any land from which agricultural income is not derived. If the contention put forward by the learned Government Pleader were to be accepted, then the State Legislature would be straying out of its field of taxation and would be indirectly levying tax on income on which it has no power directly to levy tax. The second part of the definition would also have to be understood only in the sense that horticultural land, forest land, garden land and plantation are used for agricultural purposes and income is derived therefrom. In other words, those lands should yield agricultural income as defined in s. 2(1)(a) of the IT Act, 1961, which is in identical terms with s. 2(1) of the Indian IT Act, 1922.” (emphasis italicised in print, supplied) Then, regarding the abovesaid Explanation found in the said s. 2(a)(2) of the abovesaid Act, it is clear that the abovesaid Explanation shall not apply to the present case since the said Explanation seeks to explain only “income derived from such land”, spoken to in s. 2(a)(2) and so, the Explanation is not with reference to “rent or revenue derived from land” spoken to in s. 2(a) (1), about which alone we are concerned in the present case. No doubt, if the said Explanation is applicable we have to see the above-referred to rr. 7 and 8 of the IT. Rules in order to ascertain what portion is agricultural income where the income in question is composed both of agricultural and non- agricultural incomes and would fall under any one of the abovesaid rules. But, since the Explanation is not applicable to the present case, we do not go into the said question any further. However, even though the present case is not falling under s. 2(a)(2), but only under s. 2(a) (1), yet in view of the finding of the AAC that coconut and casuarina trees have been grown on the abovesaid land ( which fact is also not disputed by learned counsel for the assessee before us ), it has to be seen how much portion of the abovesaid entire 53 acres is so found with such trees or other trees or plants grown on the said land during the relevant previous years in question, which would go to show how much part of it was used for “agricultural” purposes, in the light of the abovesaid Supreme Court decision in CIT vs. Raja Benoy Kumar Sahas Roy (supra). This use of the said land for agricultural purposes may be even by the lessee and not by the lessor at all, yet, to the extent to which any portion of the abovesaid land is used for such agricultural purposes, the rent got by the lessor-assessee would be agricultural income in its hands. As already pointed out, the purpose for which the land was leased out is an immaterial consideration to decide the question whether the income in relation to the land is agricultural income or not. Likewise, any stipulation contained in the lease deed is also irrelevant and the fact that the land is not assessed to land revenue, but the building thereon is assessed to house tax is also irrelevant. The fact that the income in question was assessed to tax under the Central enactment may not also be material since the said assessment may sometimes be a wrong assessment also. So, independently, the authorities under the Tamil Nadu Agrl. IT Act have to come to a conclusion in the light of the law as enunciated by the relevant provisions of the Act and the decisions of the Court while interpreting those provisions.

16. But the Tribunal and the other authorities below did not approach the abovesaid question involved in this case in the way in which it should have been done. It is clear that the Tribunal has taken into consideration irrelevant facts and has omitted to take into consideration the relevant facts and the legal position. No doubt, learned counsel for the assessee drew our attention to the above-referred to sentence in the Tribunal’s order, viz., “there absolutely no proof that agricultural operations are being carried out on this land and agricultural income is derived from the land”. Based on this one sentence observation, learned counsel for the assessee contends that, in view of the said factual finding embodied in the said sentence, there is no scope for any interference in revision by us. But, it is clear on going through the entire order of the Tribunal that the abovesaid observation by the Tribunal was only passed on what is contained in the lease deed between the assessee-lessor and the above- referred to lessee and what is contained in the memorandum and articles of association of the lessee-company and also the fact that house tax alone was paid in relation to the property in question and not land revenue. These facts are absolutely irrelevant for coming to the conclusion as to whether the income in question is agricultural income. Based on these irrelevant factors only and not on any other factual data regarding the “basic operations” carried on over the said land, the Tribunal has observed that there is no proof that agricultural operations are being carried on over the land in question. Therefore, it is but proper that the revisional jurisdiction of this Court has necessarily to be exercised in this matter by setting aside the order of the Tribunal and remitting the matter back for fresh assessment based on relevant factors.

17. Even in the assessment order of the Agrl. ITO, the alleged reasoning for assessing the income in question as agricultural income, is only stated as follows : “The company has leased out agricultural lands to the V. G. P. Golden Bench Resort on a monthly rent of Rs. 36,000. The income derived from the land is agricultural income.”

18. It is obvious that the above statement cannot be considered as a proper reasoning at all. Further, in the order of the AAC also, the reasons given are as follows : “According to the definition given in the Agrl. IT Act, agricultural income means any rent or revenue derived from the land. The land is an agricultural land assessed to land revenue and any rent or revenue which is derived from the land is liable for assessment under the Agrl. IT Act. The income from the coconut and casuarina trees were calculated by the Agrl. ITO after spot inspection and taking into consideration all aspects of the case.”

19. This approach of the AAC may be partially correct. But yet, as indicated by us, a proper approach should be made fully. Therefore, these two orders, viz., the order of the assessing authority and the first appellate authority also have to be set aside. Therefore, we think that the abovesaid five cases have to be remanded back to the assessing authority, viz., the Agrl. ITO, Saidapet, Madras, for making a fresh assessment on the assessee in accordance with law as explained above.

20. No doubt, learned counsel for the assessee also argues that, if the dominant use to which the land is put is commercial, the income from the land could not be classified as agricultural income. But, on this aspect, learned counsel did not cite any authority in support of his contention. Further, we find that in the above-referred to rr. 7 and 8 under the abovesaid 1961 Act ( corresponding to rr. 23 and 24 under the 1922 Act ), the apportionment of income as agricultural and non-agricultural has been provided only in certain cases spoken to therein. But those rules contemplate cases where though the land in question is cultivated by some crop, the income ultimately derived is composed not only of that which arises from cultivation operations, but also from subsequent manufacture or sale of the produce raised. But the present case is entirely different. Out of the abovesaid total extent of land of 53 acres, it appears that part of it is used for agricultural purposes and the remaining part is used for non-agricultural purposes. In the said remaining part, some buildings are there and hotel and other business activities are carried on. In such a case, there are no specific rules of apportionment as found in the abovesaid r. 7 or 8. In the above circumstances, it has to be seen whether the theory of dominant use is applicable. Actually, first of all, it has to be seen which part and to what extent, the land is used for agricultural purposes and what is the remaining part which is not used for agricultural purposes. Then only it could be said whether the dominant use is a commercial or agricultural one. In the circumstances and particularly since learned counsel for the assessee or the Revenue did not throw much light on this aspect, we are not further probing the matter for coming to any conclusion regarding the application of the abovesaid theory of dominant use. Anyway, since we are remanding the matter back, the assessing authority may make fresh assessment after ascertaining the necessary facts relating to the extent to which the land was put to use for agricultural purposes during the relevant previous years in question, and it is open to the assessee to canvass the abovesaid principle of dominant use also if that principle could be applied in the present case.

Learned counsel for the assessee also relied on the decisions in Gordhanbhai Kahandas Dalwadi vs. CIT (1981) 21

CTR (Guj) 177 : (1981) 127 ITR 664 (Guj) and Arundhati Balkrishna vs. CIT (1982) 29 CTR (Guj) 85 : 200 : (1982) 138 ITR 245 (Guj). But they have no application to the present case. They related to the term “agricultural land” in the context of “capital gains” chargeable to tax under the IT Act, 1961. The said term “agricultural land” unlike the term “agricultural income” has not been specifically defined under the said Act, though it has been excluded from the term “capital asset” whose transfer gives rise to the abovesaid “capital gains”. Further, what has to be seen there is whether the land in question is “agricultural land” on the date of transfer.

In the circumstances, different considerations may prevail in deciding the said question whether a land is

“agricultural land”.

The net result is that the revisions are allowed, the abovesaid order of the Tribunal below as well as the orders of the assessing authority and the first appellate authority are set aside and the cases are remanded to the assessing authority for fresh disposal in accordance with law. No costs.

The above writ petition prays for refund of the amount of tax paid in consequence of the above-referred to order of the Tribunal dt. 10th Jan., 1992. But since we have set aside the order, the writ petition has to be dismissed. However, since we have set aside the orders of the first appellate authority as well as the assessing authority also, we direct the assessing authority to make fresh assessment within a reasonable time preferably within three months from this date. After the fresh order of assessment is passed, it is open to the writ petitioner to take suitable action to work out its remedies pursuant to the said assessment order. With the above direction, the writ petition is dismissed. No costs.

[Citation : 201 ITR 412]