Patna H.C : The capital gains tax was not chargeable on the sale of land bearing plot Nos. 679 and 680 and in giving a finding that the land in question was agricultural land ?

High Court Of Patna

CIT vs. Dumraon Cold Storage Refrigeration Service P. Ltd.

Sections 2(14), 45

Nagendra Prasad Singh & Ashwini Kumar Sinha, JJ.

Taxation Case No. 58 of 1974

11th January, 1983

Counsel Appeared

B.P. Rajgarhia with S.K. Sharan & Samarendra Pratap Singh, for the Revenue : K.N. Jain & B.P. Gupta, for the Assessee

NAGENDRA PRASAD SINGH, J. :

The Tribunal under s. 256(1) of the IT Act, 1961 (hereinafter to be referred to as “the Act”), has submitted the statement of the case for opinion of this Court on the following question of law:

“Whether, on the facts and in the circumstances of the case, the Tribunal have correctly held that the capital gains tax was not chargeable on the sale of land bearing plot Nos. 679 and 680 and in giving a finding that the land in question was agricultural land ?”

2. In view of s. 45 of the Act any profit and gain arising from the transfer of capital asset is chargeable to income- tax under the heading “Capital gains” and is treated to be an income of the previous year in which the transfer took place. “Capital assets” has been defined in sub-s. (14) of s. 2 of the Act. The definition of “Capital asset” has been amended by the Finance Act, 1970, which came into force w.e.f. 1st April, 1970. In this reference we are concerned with the definition of “Capital asset” as it stood prior to 1st April, 1970. During the relevant period an agricultural land could not have been included in the definition of “capital asset”. As such, the answer to the question referred depends on the fact whether the lands in question have been rightly held as agricultural lands on the date of their sale.

3. The relevant facts are that the assessee-company has been doing the cold storage business and it was owning certain lands which it had purchased from M/s Dumraon Industries Ltd. in 1963. M/s Dumraon Industries Ltd. had purchased the aforesaid lands along with others from Maharani Kanak Kumari Sahiba, wife of Maharaja of Dumraon. The lands purchased by the company also included plots Nos. 679 and 680 having an area of 47.25 acres, and 1.27 acres out of plot No. 680 to M/s Dumraon Textiles Ltd. In the sale deed it was stated that the entire piece of agricultural land was being sold for a consideration of rupees four lakhs for purpose of setting up a textile mill by the purchasing company. By the sale the aforesaid company gained Rs. 3,98,400.

The ITO held that the sale proceeds of the aforesaid land was a capital gains within the meaning of the Act on the grounds (i) the land was shown in the record of rights as a race course and pokhar land, (ii) the land was within the municipal area, (iii) at the time of the sale two important industrial concerns had sprung up adjacent to the land in question. The AAC upheld the order of the ITO. He, while endorsing the reasons given by the ITO, further pointed

out that even if the land was agricultural before the transfer, it had ceased to be so, because the assessee-company had sold it for the purpose of industrial use. The AAC also pointed out that the price received for the land was a clear indication of the fact that the land was no more an agricultural land. When the matter went to the Tribunal, the Tribunal found from a perusal of the orders of the Agrl. ITO that after the acquisition of this land in 1953, the assessee-company had been carrying on agricultural operations in partnership with some other sister concerns. The Tribunal also looked into the balance sheet and profit and loss account of the company for different years and it was found that in each year, income from agriculture (zirat) was being shown by the assessee in its accounts, and on the records there were materials to show that tractors and tubewells were being maintained by the assessee- company which suggested extensive farming. Reference was also made to the assessment orders of the Agrl. ITO from which it appeared that there was a specific mention of plot Nos. 679 and 680 as being cultivated as agricultural lands. Regarding the entry in the record of rights as racecourse land, the Tribunal pointed out that the said entry had been made as early as in the year 1912 and, thereafter, the lands might have been used for agricultural purposes. On the basis of the aforesaid materials, the Tribunal was of the view that the land being agricultural land, before it was sold by the assessee-company, any gain arising on such transaction shall not be a capital gains within the meaning of the Act. The Tribunal, accordingly, deleted the addition of Rs. 3,98,400 from the assessment order. On an application being filed on behalf of the Department the question mentioned above has been referred for the opinion of this Court. Mr. B.P. Rajgarhia appearing for the Department, first submitted that in view of the admitted position that a portion of the land was shown in the record of rights as racecourse, on the basis of the presumption of correctness attached to the entries in the record of rights, the Tribunal should have held that the lands had been used for non-agricultural purpose throughout and it cannot be held to be agricultural lands. It is true that in view of s. 103B(3) of the Bihar Tenancy Act every entry in a record of rights duly published shall be evidence of the matter referred to in such entry and shall be presumed to be correct “until it is proved by evidence to be incorrect”. It cannot be disputed that the aforesaid presumption about the correctness of the entry is a rebuttable one. Moreover, any land which might be under non-agricultural use at the time when an entry in the record of rights is made, may later be converted to agricultural use so as to become an agricultural land. It is a matter of common experience that lands which had been recorded in the cadastre survey, decades ago, as parti, forest land, have been, in due course, converted into agricultural lands under the changed circumstances. Can it be said that later when such lands are transferred it will amount to transfer of non- agricultural piece of land ? In my view, the proper approach should be to consider the survey entry in the light of the materials produced by the assessee. The presumption regarding the correctness of the entry in survey record of rights can be rebutted if it is established that later the character of the land has changed and it has become an agricultural land. The Tribunal has correctly examined the materials on the record to ascertain whether the land which had been recorded as a racecourse in the year 1912, later changed its character and became agricultural lands. In support of the finding aforesaid, the Tribunal has referred to several circumstances including the orders of the Agrl. ITO for the asst. yr. 1955-56, wherein these lands have been described as agricultural lands, and the balance-sheet and profit and loss accounts of the company submitted from year to year where income from the agriculture from these lands have been shown by the assessee in its accounts. From the orders of the Agrl. ITO it appeared that the assessee had been cultivating 116 bighas of land and was earning regular income. In the assessment order, details of the lands cultivated and non-cultivated have been mentioned. So far as plot Nos. 679 and 680 are concerned, they have been specifically mentioned in the order as cultivated lands. The report of the inspector also supported the assertion made on behalf of the assessee that tubewells and tractors are being maintained for cultivation. From the order of the Tribunal it appears that the land was subject to land revenue and its income was being charged to agricultural income-tax for more than 12 years.

6. Learned counsel for the Department pointed out that as the lands were located near the railway station, and as lands near about the lands which are the subject-matter of controversy, were being used for industrial purpose, it should have been held that the lands were no more agricultural lands. In this connection, it was also pointed that the lands are within a municipality and had been purchased by an industrial concern at a high price.

7. In the case of CWT vs. Officer-in-charge (Court of Wards), Paigah 1976 CTR (SC) 404 : (1976) 105 ITR 133 (SC), while trying to define an “agricultural land”, it was observed by the Supreme Court as follows: “We think that this must be land which could be said to be either actually used or ordinarily used or meant to be used for agricultural purposes. In other words, ‘agricultural land’ must have a connection with an agricultural user or purpose.”

8. If on the materials it is established that the land which is the subject-matter of controversy has actually been used for agricultural purposes then merely because such land is near a railway station or within a municipality is not of much consequence. Similarly, what is the purpose for which the lands have been sold also is not of much consequence because the stage to consider for the purpose of capital gain is the day the land is sold; what was the nature of the land on that day and not what it would be in future. In the case of Addl. CIT vs. Tarachand Jain (1980) 123 ITR 567 (Pat) : TC20R.730, this Court considered a similar question. In that case the ITO had found that, (a) for the last 2 to 3 years no agricultural operation had been carried out on the land, (b) although the land was agricultural land in the past, owing to the development of the town it acquired the character of urban property, and (c) it had been sold for the purpose of construction of a building. This Court pointed out that merely because a land has been sold for the purpose of construction of a building or it has been sold at a high price, it cannot be held that the land in question was not an agricultural land, if on materials it is otherwise established that it was an agricultural land on the date it was sold. It was also observed that there may be cases in which for one reason or the other, actual agricultural operations might not have been carried on and yet the owner had always intended to use it for agricultural purposes. In the case of CIT vs. Manilal Somnath (1977) 106 ITR 917 (Guj) : TC20R.682, it was heldiation v. Commis to determine whether a particular land is agricultural land or not one has first to find out the use to which it is being put. In the case of CED vs. V. Venugopala Varma Rajah 1976 CTR (SC) 423 : (1976) 105 ITR 593 (SC), the Supreme Court again pointed out that “the question whether a land is an agricultural land” has to be decided on evidence of actual or intended user for which the land may have been prepared or set apart”. I have already pointed out above that the Tribunal has pointed out several materials and circumstances which established the fact that whatever may be the position on the day the record of rights was prepared, i.e., in the year 1912, for the last several years before the date of the sale the lands were being used for agricultural purposes, and as such, they shall be deemed to be agricultural lands for the purpose of determining whether they are subject to capital gain.

9. On behalf of the Department reliance was placed on the cases of Syed Rafiqur Rahman vs. CWT (1970) 75 ITR 318 (Pat and CIT vs. Sarifabibi Mohmed Ibrahim (1981) 24 CTR (Guj) 171 : (1982) 136 ITR 621 (Guj) : TC20R.669. In the former case, (1970) 75 ITR 318 (Pat) (supra), in connection with the WT Act, it was held, on the facts of that case, that the land in question was not agricultural land. From a bare reference to the judgment it will appear that the plot in question was situated in the residential area and no evidence, oral or documentary, was adduced on behalf of the assessee to show that the land was actually being cultivated after 1933. In my opinion, that judgment is of no help to the Department because the facts were different. In the latter case, (1982) 136 ITR 621 (Guj), (supra) a question had arisen about a land which had been entered in the Land Revenue Code as agricultural land. On the materials produced, it was held that later it ceased to be an agricultural land. For arriving at that conclusion several circumstances have been mentioned from the records of the case, including that the land was situated in an urban area within municipal limits. It was also taken note of that it had been sold on square yard basis for non-agricultural purposes to a building society. It need not be pointed out that any finding on the question whether on a particular date the land is an agricultural land or not will depend on the facts and circumstances of each case. A land which might have been recorded as agricultural land on material on record, can be held to be non-agricultural one because of the use it had been put for the last several years before the sale. Similarly, a land which originally might be non-agricultural can later become an agricultural land and on the materials on record can be held as such for the purpose of determining the liability for the capital gain.

So far as the instant case is concerned, I have pointed out that the Tribunal has referred to different materials on the basis of which it has come to the conclusion that on the date of sale the lands in question were agricultural in nature.

10. In my view, on the facts as stated by the Tribunal, its conclusion that the land sold by the assessee was an agricultural land and that capital gain tax was not chargeable on the sale thereof is valid and correct. In the result, the question is answered in the affirmative and against the Department. In the circumstances of the case, there will be no order as to costs.

ASHWINI KUMAR SINHA, J. :

I agree.

[Citation : 141 ITR 700]

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