Section 10(37) not available if agricultural activity not carried out

By | November 9, 2015

Facts of the Case :-

The assessee-appellant is a Class-IV employee in the postal department. He purchased certain land in village Dummannahalli on 27.7.2006. The said land was notified for acquisition under the provisions of Karnataka Industrial Area Development Act, 1966 (for short ‘the KIAD Act’). Thereafter, on the basis of an agreement entered into on 07.10.2008, the assessee was paid a compensation of Rs. 1,47,48,750/- for the compulsory acquisition of his land which he had purchased on 27.07.2006. For the said assessment year 2009-10, the assessee-appellant filed his return of income on 30.07.2009 declaring a total income of Rs. 5,33,780/-. The case of the assessee was selected for scrutiny and notice under Section 143(2) of the Act was issued on 18.08.2010.

Issue :

In his return, the assessee-appellant had disclosed receipt of compensation of Rs. 1,47,48,750/- in pursuance of the agreement dated 07.10.2008 but claimed benefit of Section 10(37) of the Income Tax Act, 1961 (for short ‘the Act’) as it was the case of the assessee that said land which was acquired was an agricultural land and no capital gains would be leviable.

Assesseing Officer Contention

The Assessing Officer, besides holding that the land in question was not being used for agricultural purpose for the previous two years prior to the transfer, has also held that the land having been purchased by the appellant-assessee on 27.07.2006 and the final acquisition notification having been issued on 17.05.2007, same was in possession of the assessee for less than one year and as such, question of assessee cultivating the land for two consecutive years prior to the compulsory acquisition would not arise.

The authorities below have also taken into account the certificate issued by the Special Land Acquisition Officer at the time of taking possession of the land in question by the Karnataka Industrial Development Board wherein it was mentioned that the same was barren land and that there was no cultivation carried out on the said land.

Held :

The revenue records of different years are inconsistent or contrary to each other that there was plantation of Eucalyptus saplings. What is to be considered is that for being granted benefit under sub-section (37) of section 10, the land in question should have been put to agricultural use by the assessee for preceding two years. Even if the contention of the appellant was accepted that he was in possession of the land for two years from 27-7-2006 to 7-10-2008, then too, from the records it is not at all clear that for both the years the appellant was carrying out agricultural activity in the land in question. The Tribunal has further examined the issue and held that if at all there was any agricultural activity being carried on by the appellant in the previous two years, some accounts with regard to expenditure made by the appellant for sowing the crops and also revenue generated by selling the agricultural produce would have been submitted by the assessee, which has not been done by him. The same is also a strong ground for not accepting that the appellant was carrying on agricultural activity on the plot in question.

HIGH COURT OF KARNATAKA

B. M. Muniraju

v.

Commissioner of Income Tax (Appeals)-V, Bangalore

VINEET SARAN AND ARAVIND KUMAR, JJ.

IT APPEAL NO. 211 OF 2015

JULY  21, 2015

K. Shrihari, Adv. for the Appellant. K.V. Aravind, Adv. for the Respondent.

JUDGMENT

Vineet Saran, J. – This appeal, which has been filed by the assessee, pertains to the Assessment Year 2009-10. The assessee-appellant is a Class-IV employee in the postal department. He purchased certain land in village Dummannahalli on 27.7.2006. The said land was notified for acquisition under the provisions of Karnataka Industrial Area Development Act, 1966 (for short ‘the KIAD Act’). The final notification was published on 17.05.2007. Thereafter, on the basis of an agreement entered into on 07.10.2008, the assessee was paid a compensation of Rs. 1,47,48,750/- for the compulsory acquisition of his land which he had purchased on 27.07.2006. For the said assessment year 2009-10, the assessee-appellant filed his return of income on 30.07.2009 declaring a total income of Rs. 5,33,780/-. The case of the assessee was selected for scrutiny and notice under Section 143(2) of the Act was issued on 18.08.2010. In his return, the assessee-appellant had disclosed receipt of compensation of Rs. 1,47,48,750/- in pursuance of the agreement dated 07.10.2008 but claimed benefit of Section 10(37) of the Income Tax Act, 1961 (for short ‘the Act’) as it was the case of the assessee that said land which was acquired was an agricultural land and no capital gains would be leviable.

2. A sum of Rs. 1,47,48,750/- claiming exemption under Section 10(37) of the Act being compensation received on compulsory acquisition of agricultural land was denied by the assessing Officer on the ground that assessee had not fulfilled the second condition laid down under said provision for availing exemption. Hence, it was held that amount of compensation received by the assessee is taxable as short term capital gains and thereby assessed the total income at Rs. 1,35,18,640/- and imposed tax liability of Rs. 59,10,180/-. The assessee-appellant challenged the said order before the Commissioner of Income Tax (Appeals), Bangalore, who dismissed the same by its order dated 16.08.2013. Aggrieved by the said order of the Appellate Commissioner, an appeal was filed by the assessee before the Tribunal which was also dismissed on 20.02.2015. Challenging the said orders, this appeal has been filed.

3. We have heard Sri K.Shrihari, learned counsel for the appellant as well as Sri K.V.Aravind, learned counsel for the respondents at length and perused the record.

4. The moot question for determination in this appeal is with regard to the applicability of Clause (ii) of sub-section (37) of Section 10 of the Act in the facts of the present case. Said provision reads as under:

‘Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included. . . . . . . . . . .

(1) to (36)** ** **

(37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head “Capital gains” arising from the transfer of agricultural land, where –

(i) such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of section 2;
(ii) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his;
(iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India;
(iv) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.

Explanation – For the purposes of this clause, the expression “compensation or consideration” includes the compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority.’

A bare reading of the above provision would indicate, besides other conditions, one of the necessary ingredients for granting exemption under sub-section (37) of Section 10 of the Act would be that the land in question should have been used for agricultural purpose by the assessee during the period two years immediately preceding the date of transfer or compulsory acquisition. It is this question, which has to be considered by this Court.

5. The Assessing Officer, besides holding that the land in question was not being used for agricultural purpose for the previous two years prior to the transfer, has also held that the land having been purchased by the appellant-assessee on 27.07.2006 and the final acquisition notification having been issued on 17.05.2007, same was in possession of the assessee for less than one year and as such, question of assessee cultivating the land for two consecutive years prior to the compulsory acquisition would not arise. However, the Appellate Commissioner as well as the Tribunal did not agree with the reasoning of the Assessing Officer with regard to the assessee being in possession of the land in question for less than one year but categorically affirmed the finding of the Assessing Officer to the extent that no agricultural activity was being carried out on the land in question during the two years prior to 07.10.2008. Such findings of fact are primarily based on the revenue records, and also some inspection which was carried out by the Assessing Officer, which we need not go into much detail. The authorities below have also taken into account the certificate issued by the Special Land Acquisition Officer at the time of taking possession of the land in question by the Karnataka Industrial Development Board wherein it was mentioned that the same was barren land and that there was no cultivation carried out on the said land.

6. Learned counsel for the appellant has vehemently argued that in the revenue records (RTC) produced by the assessee before the authorities, for the relevant year 2007-08 (vide certificate dated 07.02.2007) it was shown that there were Eucalyptus trees grown on the said land whereas subsequently by another certificate issued by the revenue authorities on 14.12.2007, it was indicated that there was nothing planted or grown on the said land. Learned counsel for the appellant has submitted that Eucalyptus tree on the plot would be a crop and would be included for agricultural purposes. In our considered view, plantation of Eucalyptus would be plantation of trees which would not be for agricultural purpose as it does not give any agricultural produce. Thus, such contention of learned counsel for the appellant is not worthy of acceptance.

7. Even otherwise, we notice from the records that subsequently certain certificates came to be issued by the revenue authorities in the year 2012 to indicate that there was agricultural crop of Jowar on the plot in the year 2005-06 as well as 2006-07 and in the year 2007-08. The revenue records produced by the assessee before the authorities also indicated that there was plantation of Eucalyptus saplings. Thus, even on facts, records are inconsistent or contrary to each other that there was plantation of Eucalyptus saplings. What is to be considered is that for being granted benefit under sub-section (37) of Section 10 of the Act, the land in question should have been put to agricultural use by the assessee for the preceding two years. Even if we accept the contention of the appellant that he was in possession of the land for two years from 27.07.2006 to 07.10.2008, then too, from the records it is not at all clear that for both the years the appellant was carrying out agricultural activity in the land in question. The Tribunal has further examined the issue and held that if at all there was any agricultural activity being carried on by the appellant in the previous two years, some accounts with regard to expenditure made by the appellant for sowing the crops and also revenue generated by selling the agricultural produce would have been submitted by the assessee, which has not been done by him. The same is also a strong ground for not accepting that the appellant was carrying on agricultural activity on the plot in question.

8. Clear findings of fact have been recorded by all the three authorities, which in our view, do not require to be interfered with by this Court in appeal. As such, we are of the view that since the finding of fact has been given by all the authorities that the appellant was not carrying on any agricultural activity in the plot in question in preceding two years prior to 07.10.2008, the appellant would not be entitled to the benefit of Section 10(37) of the Act.

9. In view of the aforesaid, we are of the view that no substantial question of law arises for determination by this Court. The appeal is accordingly dismissed. No order as to costs.

All pending applications stands consigned to file.

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