Income-Tax Officer vs Kanchanlal Manchharam on 18 June, 1988

Income Tax Appellate Tribunal – Ahmedabad

Equivalent citations: 1989 28 ITD 1 Ahd

Bench: K Srivastava, Vice, P Goradia, M Khan

ORDER

P.J. Goradia

1. Both these appeals involve common ground in respect of the inclusion by way of capital gain on sale of land owned jointly by both the respondents.

2. The common order was passed in the case of Shri V.C. Khandwala and therefore, relevant facts and findings are incorporated on the basis of appellate order dated 31-3-1981 in the case of Shri V.O. Khandwala. The assessee is karta of his own HUP, deriving income under the various heads. For the purpose of accounts the accounting year adopted is on the basis of Samvat Year. While completing the assessment under Section 143(3), the Income-tax Officer brought on record following facts as stated in paras 3 and 4 of his order dated 31-3-1971:

3. During the year under review the assessee who is a co-owner having l/3rd share in the land bearing survey No. 57-3 of 4 Acre and 35 Gunthas, i.e., 23,595 Sq. Yards (19,727 Sq. Metres) situated at Village Umra, Dist. Surat which is included in the Municipal Limits of Surat and bears the number of Surat City Survey Ward No. 13, Nondh No. 126, has sold the said land on Maha Vad 9, S.Y. 2021 corresponding to 24-2-1965 to Srangar Co-operative Housing Society, C/o. Rasiklal Somchand Shah, Taswala Building, Gandhi Ghowk, Surat for Rs, 2,15,163. It is stated by the assessee that the aforesaid land originally belonged to his ancestor 1916 and was acquired in 1924 by the firm of M/s. Shivlal Khandwala & Sons, Surat. It is further stated by the assessee that in Asst. Yr. 1957-58 (S.Y. 2012) the said land was purchased by the assessee along with other co-owners Shri Kanchanlal M. Khandwala having 2/3rd share in the said land from the firm of M/s. Shivlal Khandwala & Sons, Surat in, which they were partners, for Rs. 54,000. Thereafter, the other two partners, Shri Shantilal Hiralal Khandwala and Shri Amratlal Chhotalal Khandwala also got separated from the said firm of M/s. Shivlal Khandwala & Sons, Surat in A.Y. 1957-58 (S.Y. 2012) by taking their share by effecting Havala entries in the books of accountvof the firm.

4. It is the contention of the assessee that the aforesaid land is an agricultural land and the surplus of his 1/3rd share which has been resulted on the sale of the land, being profit on the sale of agricultural land, is not liable for capital gains ta,x. In support of his contention that the said land is an agricultural land, the assessee has furnished the copy of the extract from the Registrar of Measurement dated 29-7-1919 showing the nature and classification of this land as ‘ JARAYAT’, copy of the extract from property Register showing the tenure of the land as agriculture according to the order dated 27-11-1953 of the City Survey Officer, Surat which was recorded In 1961 ; copy of the Pani Patrak for the year 1964-65 that there were certain plants of Chiku, Lemon and Guava on the said land and the copy of the letter from the Chief Officer, Surat Municipality dated 29-5-1964, stating the tax on land which was classified by him as agricultural land. The assessee has also filed certain extracts from the Account Books of M/s. Shivlal Khandwala & Sons, Surat and from the personal account books of the assessee, from. S.Y. 2018 to S.Y. 2021 showing that there was some income from the sale of grass and sale of the plants of Chiku, Lemon and Guava and that there were also some corresponding expenses to substantiate his claim that there was some agricultural income.

2.1 He rejected the claim of the assessee that the land was agricultural land on the basis of following findings:

(i) There was no cultivation on land. Up to asst. year 1963-64 there was only grass grown and only in 1964-65 the assessee had planted Chiku, Lemon and Guava plants. This was done only to create an evidence.

(ii) On the basis of scrutiny of the account books in respect of the income and expenditure the income was very meagre.

(iii) Earlier the land was owned by firm of M/s. Shivlal Khandwala & Sons engaged in business as share brokers. Only in asst. year 1957-58 the land was transferred to the present owners. Probably this was with a view to make use of the land for non-agricultural purposes.

(iv) The land is situated within municipal limits and the nearby area, was being developed as residential area,

(v) The purchaser was a co-operative housing society which paid fancy price.

3. The matter was carried in appeal before the Commissioner (Appeals) who after considering” the relevant evidence and the findings recorded by the Income-tax Officer came to the conclusion that the land did have the character as agricultural land. He observed that (i) it could not be denied that the assessee did produce some evidence for purchase of grass, seeds, etc. The fact of planting trees had also not been disputed by the Income-tax Officer, (n) the assessee had not applied for conversion of agricultural land before the sale was made.

4. At the time of hearing, the learned Jr. Departmental Representative Mr. Saxena who appeared in early stages strongly attacked the order passed by the Commissioner (Appeals) and highlighted the factual aspects brought on record by the Income-tax Officer. According to him, considering the various judicial pronouncements it could not be said that the land continued to have character of agricultural land.

5. The learned representative of the assessee supporting the order passed by the Commissioner (Appeals) stated that in fact on 20th Febuary, 1966 the Income-tax Officer Mr. Mandlik had personally inspected the land for ascertaining whether the land could be said to be agricultural land and this was done on the basis of instruction by the IAC when an occasion for reopening of the assessment was contemplated in the case of the firm of M/s. Shivlal Khandwala & Sons, the firm from the assessee purchased the land and on 26-2-1966, the Income-tax Officer had made a report in writing and ultimately suggesting that the land in question was agricultural land and on that basis no action was taken in respect of the charge of capital gain in the case of the firm. The land in question was inspected personally by the Income-tax Officer in the company of both the assessees and various places were visited by the Income-tax Officer who had also verified appropriate evidence regarding cultivation, records with the revenue authorities, purchase of seeds and the income shown by way of agricultural income, etc. Not only this but he also brought to our notice an affidavit by Shri K.M. Khandwala one of the assessees, dated 30th July, 1973 and given to the Appellate Asstt. Commissioner of Income-tax, Surat Range when the appeal was being heard in the case of one of the two co-owners wherein extracts of the proceedings were also incorporated and the same being self-explanatory. It was, therefore, submitted that the revenue should not be allowed to take different stands at different places. What was important was the date of inspection of various lands owned by the firm. He also brought to our notice copies of the assessment orders where the agricultural income had been shown by both the assessees and accepted as such. In respect of the grass it was submitted that it was a grass grown by the assessee and there was no question of growth of spontaneous grass and for this purpose necessary evidence was led before the Commissioner (Appeals). At this point of time the learned Jr. D.R. Mr. Saxena was of the view that since such report was net on the case records of the assessment it would be necessary to examine the report and, therefore, necessary information shall have to be brought on record. It was, therefore, thought proper to ask for the remand report from the Income-tax Officer and the same was done vide our order dated 4th February, 1984 wherein he had asked the Income-tax Officer to submit the details as mentioned in the remand order at page 117 of the paper book and accordingly, the Income-tax Officer had obtained the necessary information from the then Income-tax Officer Mr. V.M. Mandlik and the report was submitted some time in December 1984. On going through the various answers given by Shri V.M. Mandlik the then Income-tax Officer who visited the site, the learned Departmental Representative now appearing before us was requested to make further submissions and therefore, he made lengthy submissions again highlighting the findings recorded by the Income-tax Officer and stated that certain aspects were not at all considered by the Commissioner (Appeals). The most important aspect was with regard to the cultivation. He relied upon various judicial pronouncements, vis., in the case of CIT v. Sarifabibi Mohmed Ibrahim [1982] 136 ITR 621 (Guj.) and submitted that the ratio laid down by the court was not at all overruled by the later decision in the case of CIT v. Siddharth J. Desai [1983] 139 ITR 628 (Guj.). Further reliance was also placed on in the cases of CED v. V. Venugopala Varma Rajah [1976] 105 ITR 593 (SO) and Dr. K.A. Dhairyawan v. J.R. Thakur AIR 1958 SO 789 for the proposition that trees, etc., are not to be considered as part of agricultural land, in the case of CIT v. Sutton & Sons Ltd. [1981] 127 ITR 57 (Cal.) where the term ‘cultivation’ was denned in the case of Kalpaka Oil Mills (in liquidation) v. CIT [1985] Tax. 76(1)-34 (Ker.) where it was held that agricultural operations in fact were necessary and mere sale of grass would not suffice. It was further submitted that the land was agricultural land had to be proved by the assessee.

6. The learned representative of the assessee strongly supporting the order passed by the Commissioner (Appeals) reiterated the factual aspect that according to the opinion of the then Income-tax Officer, Mr. Mandlik, now promoted as Appellate Asstt, Commissioner of Income-tax, Bombay, has in Ms statement on oath accepted the fact that he had inspected the site and has also approved of the contents of the report) where it was stated that in respect of the land, in Umra village there were signs of cultivation besides there being a well and after considering the evidence it was opined that the land was agricultural. According to him, what more was required. Again, considering this aspect coupled with other evidence and findings recorded by the Commissioner (Appeals) the relevant tests laid down in the case of Siddharth J. Desai (supra) weighed more in favour of the assessee rather than the revenue. Again, in that very decision Their Lordships of the Hon’ble High Court reiterated the finer aspect of the issue involved by stating that there could not be fool-proof yardstick on the basis of various tests laid down but the totality of the facts and circumstances was required to be considered. Further reliance was placed on in the cases of CIT v. Borhat Tea Co. Ltd. [1982] 138 ITR 783 (Cal.), CIT v. Dumraon Cold Storage Refrigeration Service (P.) Ltd. [1983] 141 ITR 700 (Pat.) and CWT v. H.V. Mungale [1984] 145 ITR 208 (Bom.).

7. We have considered the submissions and materials to which our attention was drawn. We have also gone through relevant judicial pronouncements on which considerable reliance was placed at the Bar. We would only mention that subsequent to.the decision in the case of Siddharth J. Desai (supra), Their Lordships of Gujarat High Court had an occasion to consider similar issue in the case of CIT v. Smt. Lilavati Thakorelal Patel where again various judicial pronouncements were considered. We would only like to mention that the exemption is in respect of agricultural land, i.e., the character of the land and not the character of the assessee whether agriculturist or not. Again an agricultural land does not cease to be so merely because the owner has not undertaken agricultural operations on the land either by himself or through somebody, therefore, as long as considering the past history, if the land has been accepted as agricultural land and it is so stated in the revenue records it has to be presumed that the land continues to be agricultural land and that is why great importance was attached by the Supreme Court in the case of CWT v. Offlcer-in-Charge (Court of Wards) [1976] 105 ITR 133 where the Bench consisted of 5 Judges to entries in the revenue records and held to be good prima facie evidence for the land being of agricultural character. Now, in the facts before us, the assessing Income-tax Officer has taken one view while another Income-tax Officer who personally inspected the site soon after the previous year ended and who is now promoted as Appellate Assistant Commissioner of Income-tax as also the Commissioner (Appeals) who decided the issue in favour of the assessee took the view different from that taken by the Income-tax Officer. Therefore, this is not a case where the picture is so clear even on the basis of evaluation of the various factors on the basis of various tests required to be considered as stated in the case of Siddharth J. Desai (supra) so that there can only be one conclusion in favour of the revenue. Suffice it to say that the case of the revenue is not so strong to enable us to take a view only in favour of the revenue so as to reverse the decision taken by the Commissioner (Appeals). On going through the order passed by the Income-tax Officer, we find that he has overemphasised the aspect regarding the development in the vicinity of the land and the agricultural income being meagre. Though it was strictly stated before him by the assessee that such report on the basis of inspection of the land was given in a particular case no attention was given by the Incomes-tax Officer. Instead, he chose to ignore the same probably because the same was favouring the assessee. It appears that while deciding the issue in favour of the assessee the Commissioner (Appeals) has also considered this aspect together with the relevant affidavit and the report placed before him on behalf of the assessee. In respect of the decisions relied upon, we would like to state the following. The learned Departmental Representative emphatically stated that decision in the case of Sarifabibi Mohmed Ibrahim (supra) clinched the issue before us since the facts are exactly similar and, therefore, that decision should be applied further stating that the ratio of the said decision was not overruled by the subsequent decision of Siddharth J, DesaVs case (supra). However, on going through the said decision, we find many dissimilarities on facts. The important distinguishing features in respect of that case are as follows:

(i) The land was situated at a distance of 1 km. from Surat Railway Station.

(ii) The owners converted a parcel of the land to non-agricultural use after obtaining requisite permission under Section 65 of the Bombay Land Revenue Code.

(iii) The Tribunal gave a finding that no agricultural operations were carried on since 1964-65 till the sale of the land in 1969.

(iv) Residential chawls were constructed on this plot of converted land.

The above factual aspects had an over-powering effect and therefore, it was held that the land was not agricultural. It would be recalled from the facts mentioned earlier in this order that facts under consideration, are entirely different if viewed on the basis of above distinguishing features. Now, let us take the 13 factors enumerated on pages 638 and 639 of the decision in the case of Siddharth J. Desai (supra). Considering those factors the position emerges as under:

(i) The land was classified in the revenue records as agricultural and it was subject to payment of land revenue.

(ii) The land is ordinarily used for agricultural purposes at or about the relevant time.

(iii) Such user of the land was for a long period and there is no evidence to suggest that in past such user was not made.

(iv) The income derived from the agricultural operations does not have rational proportion to the investment made in the land.

(v) No permission was applied for the non-agricultural use of the land.

(vi) On the relevant date the land has not ceased to be put to agricultural use since there is no alternative use also.

(vii) Regarding ploughing and tilling there is no clear evidence against the assessee since it was reported, in fact that there were signs of cultivation and a well existed and the grass was grown.

(viii) Regarding intention of the owner of the land to use it for agricultural purposes there is no clear evidence giving a clue either way.

(ix) The land is not situated in developed area but nearby area is in the process of development as stated by the Income-tax Officer.

(x) The land itself was not developed by plotting and providing roads and other facilities.

(xi) There is no evidence regarding previous sales of portions of the land for non-agricultural use.

(xii) Permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948 is not obtained probably because the same is not applicable. The land is sold to cooperative housing society.

(xiii) The land was sold on acreage basis. On the basis of evidence it is clear that the owner would not have sold the land valuing the same on the basis of agricultural yield.

Out of the above factors most of the factors are in favour of the conclusion that the land sold was having the character of agricultural land. We, therefore, uphold the decision taken by the Commissioner (Appeals).

8. In the result, both the appeals are dismissed.

M.A.A. Khan, Judicial Member

1. I have had the benefit of going through the order proposed by my learned brother but I find myself in respectful disagreement with the conclusions arrived at by him with regard to the character of the land in question as being agricultural land. Unable as I have been to subscribe to the verdict of my learned brother I hereby proceed to record my reasons for arriving at a conclusion, different from that of my learned brother, with regard to the true character of the subject matter of this litigation at the relevant date, i.e., the date of the transfer of the land in question giving rise to the disputed and contested question of accrual and taxability of the surplus receipts on its sale as capital gains.

2. The broad facts of the two cases and the principles of law applicable thereto have no doubt been detailed by my learned brother in his order. Yet I intend to refer to some more facts, available on the record of the cases, which not only have a relevance to and bearing upon the issue on hand but also, in my humble opinion, irresistibly lead to hold the land in question to be non-agricultural land on the date of its transfer in the context of the administration of Income-tax Act, 1961 (the Act).

3. Undisputed goes the fact that on the date of transfer of the land in question, being 24-2-1965, by the assessees to a Housing Society it stood recorded as agricultural land in the relevant Revenue Records. Once a land is so recorded in the Record of Rights, maintained by Revenue Department, entries relating to the charge of land revenue (if the land is subject to such a charge), payment of irrigation charges (if the land gets State-provided irrigation facility), its possession with the person named in the record of right, the crops sown and grown in it (if it has been subjected to cultivation and growing of any crop) would necessarily find place in other relevant records like Pabani Patrak (Form Nos. 7, 7A & 12), Record of possession, Record of levy and payment of Government dues, etc. All such entries, existing as they are in public documents, carry a presumption of correctness in their favour. But such a presumption is not conclusive. It is rebuttable. The entries are to be presumed to be correct until the contrary is proved. By leading proof to the contrary not only the correctness of the entries in such records relating to the ownership and possession of the land but also with regard to its very character as agricultural land may be successfully challenged and disproved. It is in this view of the nature of the presumption in favour of the correctness of the entries in Revenue Records that in the administration of Direct Tax Laws the Taxing Officer is burdened with the initial onus of dislodging the presumption by bringing some positive evidence to the contrary to rebut the existing presumption. Such positive evidence to the contrary may, of course, be found by the Taxing Officer in the facts attending on the land under consideration, treatment given by the owner to the land, previous and/or subsequent conduct of the owner in relation thereto, etc. The question is whether the Income-tax Officer discharged this initial burden and shifted the burden from the Revenue to the assessees. Let us examine.

4.1 In para 8 of his order the Income-tax Officer has noted the following facts:

It is significant to note that the aforesaid land is situated near Paries Point at the Surat Dumas Road itself. This area is in the Municipal limits and is included within the area declared in the Notification under Section 4(1) of the Town Planning Act, 1954 published in Government Gazette on 5-12-1963. This is situated in the midst of the residential area which is fast developing. In the North of this there are already three to four old bungalows which are there for the last many years. The one of third bungalow belongs to Shri Chhotubhai Marfatia, the second one belongs to Shri Choksi, the third one belongs to Dr. B.K. Desai. In the Bast side of this land are also situated some residential buildings. In the adjoining West side of this land Sungam Co-operative Housing Society, Surat which, purchased the land in 1964, is situated. Further in the West side of it number of new Bungalows have been constructed, Sardar Vallabhbhai Regional Engineering College, Surat is also situated in the South West of this land. There is no trace of agricultural activity in the near about areas.

4.2 With regard to the presumption existing in favour of correctness of the entries in the Revenue Record and Respondent’s conduct in respect to the treatment of the land, the ITO has observed as follows in para 5 of his order:

Though it is correct that the land has been subjected to land revenue, no cultivation has been done on the land. The Pabani Patrak 7, 7A and 12 of the Land Revenue Department from the year 1958-59 to the year 1963-64 indicates that only grass grows on the said land. The growth of the grass is only of the spontaneous nature. It is only in the year 1964-65 that the assessee has planted Chiku, Lemon and Guava plants on the said land. If one reads beneath the lines it is very much evident that the assessee has planted the aforesaid plants only one and a half year before the sale of land simply to create an evidence that before the sale of land there were certain plants. These plants which were planted would not have even grown reasonably and obviously, there cannot be any question of their bearing fruits. This act of the assessee of putting plants is merely to clock the real nature of the land which only had growth of the spontaneous grass for which no agricultural operations are required.

4.3 From the above extracts from the order of the ITO it is evident that he had sought to shift the initial onus on Revenue to the respondents by bringing the following positive evidence on record:

(i) The land in question was situated in the midst of a residential area which was fast developing and almost on all sides of it there existed several old and new bungalows besides the Sardar Vallabhbhai Regional Engineering College ;

(ii) The land in question situated in Municipal limits and was included in the Notified Town Planning Area ;

(iii) There were no traces of agricultural activities in the near about areas;

(iv) The land in question was though recorded as agricultural land and as such subject to the payment of land revenue yet no cultivation had been done in it from 1958-59 to 1963-64 and during that period only spontaneous grass had grown over it;

(v) The Chiku, Lemon and Guava plants were planted only in the year 1964-65.

5. In order to examine the justification and to appreciate the probative value of the above positive evidence a brief reference to the background of the case and the treatment given by the respondents and/or their ancestors to the land in question is called for. In my discussion, which is to follow hereinbelow, the figures in brackets refer to the pages of the paper books of the respondents.

6.1 The land in question which bears Survey No. 57/3 and measures Acres 4 and G-unthas 35 is a part of the old S. No. 94 measuring 9 acres 13 G-ths. The said old S. No. 94 appears to have been obtained by one Sri Kasan Lal Shambhu Lal, may be an ancestor of the respondents, prior to 5-2-1894 A.D. (91) as a personal ‘Inam’ under a Sanad. That is why this land was called as “Vajifa” land. It was a “Jarayat” (cultivated land and situated at a distance of 1 mile from village Umra, Taluka Ghaurasi, Distt. Surat. From Sri Kasan Lal Sambhu Lal, the land in S. No. 94 had come down to the hands of Pranjiwandas Shivlal and Vithaldas Ghela-bhai (43).

6.2 By the time of Land Settlement in the year 1927-28 A.D. 11 Gun-thas of the said land had been acquired by the then State Government for Road, leaving an area of 9 acres 2 Gunthas (92). According to the respondents, a portion of the land had been acquired by the Govt. in 1916 (74). The acquired portion had been valued in 1916 at Rs. 1,500 per acre by the Land Acquisition Officer but the same was enhanced to Rs. 5,000 per acre by the High Court (75). As per the respondents the land in question had been left with a ‘very small frontage’.

6.3 It appears that in the year 1916 the land in S. No. 57 was partitioned by the members of bigger HUF in which 57/3, measuring Acres 4 and Gunthas 13 fell to the lot of the branch of the present respondents whereas 57/1 went to the branch represented by one Sri Rangildas Khandwala (32). The land in question having thus become the HUF property of the branch respondents in the year 1916 appears to have become, in due course of time, property of a partnership firm wherein the respondents were partners.

7.1 Regarding the agricultural operations carried on in the land in Question the evidence available on record is like this. The ITO has observed, and rightly so to my mind, that the respondents, and for that matter their ancestors also, are not agriculturists by profession. Share-brokerage appears to be and to have been their business. That the respondents and their families have not cultivated the land in question by themselves is also borne out by good material on record. I agree with my learned brother that the character of a land as being agricultural land does not depend upon the profession of its owner. But, to my mind, in the absence of cultivation of the land by any other person, either on his own behalf or on behalf of the owner of the land, and particularly when the question of carrying on agricultural operations in the land at a particular point of time or for a particular period assumes importance in the determination of the character of the land, the profession of the owner himself, though not at all decisive in itself, becomes somewhat relevant having a bearing, howsoever small it may be, upon the determination of such question.

7.2 What is available on record on the point of cultivation of the land is that it was (not necessarily for the first time) let out to Koli Prabhu Uka of village Athwa, Taluka Chaurasi, Distt. Surat by Seth Shivlal Khandwala & Sons on 31st May, 1935 for S.Y. 1992 season (fasal) against a rent consideration of Rs. 175 only (83). Fresh lease deeds for following three years, i.e., S.Ys. 1993,1994 and 1995 appear to have been executed on 13-5-1936, 3-5-1937 and 11-5-1938 respectively (84, 85, 86). The entry of Prabhu Uka into cultivatory possession of the land in question not only has a bearing upon the main question of the user of the land but also upon the rebuttable presumption in favour of the correctness of the entries in the revenue record, as would be pointed out shortly.

7.3 The events of abolition of ‘Inam’ with effect from 1-4-1954 (75) and subsequently of the declaration of first day of April, 1957 as “Tiller’s Day” (72) by the Bombay Tenancy and Agricultural Lands Act, 1948 as amended up to 31-3-1956 (71) appear to have their own effect on the treatment meted out to the land in question at the hands of the respondents and their remaining two partners in the partnership firm which owned the land at that time.

8. In its return of income for the assessment year 1957-58, the firm M/s. Shivlal Khandwala & Sons had shown a capital gain of Its. 1,61,841 on sale proceeds of its land which was claimed agricultural land (68, 69). The transferred lands comprised of 8100 sq. yds. of land at village Athwa, Acre 4 Gunthas 35 land at village Umra (the land in question), Acr. 60 Gs. 3 1/2 land at village Kapadra, Ac. 2 Gs. 13 land at Vanta and Acr. 24 Gs. 35 land at village Athwa. The hook value of the land in question was shown at Rs. 2,879 though it wa,s stated to have been sold for Rs. 54,000 to the respondents and its price on 1-1-1954, i.e., the date of abolition of ‘Inam’, was declared at Rs. 70,765 (74). The ITO appears to have thought of reopening the assessment under Section 147(a) of the IT Act, 1961 on the ground that the total income returned from all the above five lands was Rs. 1,000 per year only and, therefore, in view of the income returned, the same was not agricultural land (68). Vehemently opposing’ the proposed action of the ITO and also explaining the valuation of the land in question it was explained that the land in question situated a furlong away from Athwa land, was valued at Rs. 3 per sq. yd. as compared to Athwa land sold @ Rs. 6 per sq. yd., in view of its very small frontage and dispute in respect of its possession (74, 75). It is thus evident that at the time of the transfer of the land by the firm to the respondents it was valued in terms of yards and not acres. The version regarding its possession being in dispute is required to be appreciated in its right perspective which has a bearing upon the question of Its cultivatory user as well as upon the correctness of the entries in the Revenue Records.

9. It has been seen above that Koli Prabhu Ukabhai had entered into cultivatory possession of the land in question in the year 1985 or may be prior to that. There is no evidence from the side of the respondents on the point as to how long had the said Prabhu Uka remained in possession of the land. What is gathered from the record is that he was holding the said land as tenant on “Tiller’s Day”, i.e., on 1-4-1957 and, therefore, he was deemed to have purchased the said land as per provisions of Section 32 of Bombay Tenancy & Agricultural Lands Act, 1948 (48). By his order dated 9-9-59 in RTS 1-58 the Mamlatdar Saheb appears to have taken note of the entry of the name of Prabhu Uka over S. No. 57/3 in Revenue Record and deleted his name vide order dated 9-7-1960 (47). The Talati appears to have notified the change vide notice dated 12-7-1960 (47).

10. The matter had come up before the Tribunal for Agricultural Land & Mamlatdar, Chorasi whereupon a notice under Section 32(#) (1) of the Bombay Act, 1948, aforesaid, was directed to be issued on 10-12-1962 to the respondent Kanchan Lal Manchha Ram Khandwala (48). And by its order dated 19-12-1962 the Mamlatdar had felt satisfied that the possession of the land in question was with the owner on ‘Tiller’s Day’ and, therefore, the name of the tenant was required to be removed (49). Prabhu Uka’s name was accordingly deleted.

11. The above developments with regard to the cultivatory possession of the land give rise to two alternative positions. First, Prabhu Uka, having entered into cultivatory possession in 1935 or even before had continued to hold the land on and up to the “Tillers Day” and that was why his name was correctly recorded in Revenue Record. If this is accepted to be the correct position, then not only the entries in the Revenue Record are to be found correct and in order but also the cultivation of the land from 1935 to 1957 stands proved. But this position is denied by the respondents as evidenced by the corrections carried out by the Tribunal and Mamlatdar in the Revenue Record. If this later position is to be accepted and it shall have to be accepted in view of the orders of the Talati & Mamlatdars, referred to above, then it becomes obvious that the entries in revenue record in respect of the name of Prabhu Uka as tenant were wrong and incorrect thus thereby weakening the probative value of such entries. At the same time the question of cultivation of the land during that period would also arise. As stated above, if Prabhu Uka is not to be considered in cultivatory possession of the land up to 1-4-1957, then how was the land used by the respondents’ firm after 1938 up to 1957 ? Neither the entries from the account books of the respondents’ firm nor their version in their various written submissions throw any light over this pertinent question. This aspect of the case assumes importance in the face of the fact that the respondents do not allege to have ever carried out any agricultural operations in the land by themselves or through others prior to 1957. What they assert that after the transfer of the land to them in 1957, they had grown grass and fruit plants therein and the income from the grass crop was shown as agricultural income in their account books and also in their Income-tax Returns from A.Y. 1958-59 up to A.Y. 1965-66.

12.1 Before I appreciate the respondents’ evidence on the point of actual cultivation of the land on and up to the date of transfer, I consider it worthwhile to refer to the examination thereof by the ITO. The ITO has commented upon that aspect of respondents’ evidence in paras 6 & 7 of Ms order (13, 14, 15) as follows:

6. The aforesaid copy of the ‘UMRA VILLAGE’ Agricultural income and expenditure A/c as standing in the account books of M/s. Shivlal Khandwala & Sons, Surat for S.Y. 2018 and 2019 only contain on the income side receipts of the sale of grass of Rs. 551 for the entire aforesaid land in S.Y. 2018 and the identical amount of Rs. 551 in S.Y. 2019 from one Shri Soma Dhaya and an identical amount of Rs. 150 paid in both the years to the same person, i.e., Shri Soma Dhaya for miscellaneous Majuri done by him. In S.Y. 2020 there is an account named ‘UMRA LAND ACCOUNT’ which has been debited by an amount of Rs. 1,179 which includes the cost of certain plants of Chiku, Lemon and Guava for Rs. 929. This account has been capitalised by the cost of the aforesaid capital expenditure of Ra. 1,179 and has been squared up by debiting the account of the assessee and his other co-sharer Shri Vasantlal C. Khandwala. During this year in S.Y. 2020 the assessee has shown to have received the amount of Rs. 575 in Agricultural Account from the sale proceeds of grass from Shri Jivabhai Pitamber for the entire said land. This account has been debited by an amount of Rs. 150 in Agricultural Account from the sale proceeds of grass from Shri Jivabhai Pitamber for the entire said land. This account has been debited by an amount of Rs. 150 paid to the same person Shri Jivabhai Pitamber for Miscellaneous Majuri Expenses. The true nature of the aforesaid transactions indicate that no regular agricultural operations like ploughing, sowing seed and watering was done by the assessee. At best the assessee was getting some meagre income from the sale proceeds of grass which might have grown spontaneously. Curiously enough, no income from the sale of grass or expenditure for Majuri account have been paid by the assessee in S.Y. 2021. In the S.Y. 2021 the ‘UMRA VILLAGE’ agricultural income and expenditural account has been credited by an amount of Rs. 1,500 for the sale proceeds of the plants of Chiku, Lemon, Guava and a well. Some expenses have also been debited in the account and the surplus of Rs. 630 has been transferred to the assessee’s account and surplus of Rs. 315 has been transferred to other co-owner Shri V.C. Khandwala’s account. The assessee is also having agricultural account in his books of account in which Havalas for the aforesaid income and expenditure are credited and debited respectively. The copies of the said account have also been laid by the assessee. Thus, from the above, it is quite evident that whatever income is, it is only from the sale of grass which is much meagre and insignificant.

7. From the above discussion, it is quite evident that the aforesaid land was just a fallow land on which only grass used to grow, spontaneously. Thus the true character of the land was non-agricultural.

12.2 The above observations of the ITO are found quite logical and correct. On a perusal of the several assessment orders and the various accounts filed along with them (62, 63, 64, 65, 66, 67,149,150, 151, 152, 153, 154) pertaining to S,Y, 2012 to 2014f it is gatherer that though agricultural income from various lands, including the land under consideration was shown yet no reference to the expenses incurred in respect to cultivating of land and sowing, growing and reaping any crop was made anywhere. In S.Y. 2015 (155, 156, 157) loss of agricultural income was mentioned but it was not explained as to how this loss was occasioned. In S.Y. 2016 (116) Rs. 150 were earned from sale of grass grown in the land at Umra but without incurring any corresponding expenses as have been shown in subsequent years.

13.1 The method of writing the account books of the respondents seems to have recorded a change from S.Y. 2017 onward. In the account of the respondents Rs. 551.00 stated to have been received from sale of ‘Green’ grass and ‘Sundhiya’ to Soma Dahya Ahir was shown on Cr. side and expenditure of Rs. 150 on Majoori of Umra land was shown on Dr. side. What for this ‘Majoori’ was paid, either for growing the ‘green grass’ or for cutting the spontaneously grown grass is not gathered from the accounts of this year but that fact is clearly gathered from the details of income and expenditure in subsequent years. In S.Y. 2018 (113) following entries were made on Cr. & Dr. sides of the Ganotia A/c:

Cr. Dr.
Rs. Rs.
551.00 Aso Vad Amas Sunday. 150.00 Kartik Vad Amas Thurs-
By proceeds of current day to labour and ex-
year rainy season grass of pense for grass and weed-
Umra village S. No. 57(3) ing the land in Umra
sold to Somabhai Ahir village S. No. 57(3) paid to
debited to his a/c. Bharwad Soma Dahya on
S.Y. 2017 Jeth Vad 13
Monday and was in sus-
pense (a/c.)
[Emphasis supplied]

13.2 In S.Y. 2019 (113) some more details were given as follows:
Cr. Dr.
Rs. Rs.
551.00 Aso Vad 30 Thursday. By 150.00 Aso Vad 30 Thursday to
proceeds of grass of labour of cutting grass
Umra land S. No. 57/3 got and labour and miscel-
out and sold to Ahir laneous expense for
Soma Dahya. Umra land S. No. 57/3
paid to Ahir Somabhai
Dahyabhai Kartik Vad
30 Thursday.

13.3 Again a significant change in the treatment given to the land is exhibited from the entries made in the accounts for S.Y. 2020 & 2021(114)

Cr. Dr.
S.Y. 2020
Sharvan Vad 1st Tuesday as
detailed below
Rs. Rs.
929.30 Sprouts of Chiku, Lemon
& Guava purchased from
Mohan Gulabbhai Joshi
credited.
250.00 To Mohanlal Gulabbhai
of labour contract (to
plant the sprouts)
575.00 Aso Vad 30 Wednesday.
By proceeds of grass sold
to Jivabhai Pitamber of
land of Umra village S.
No. 57/3 debited to his
account
S.Y. 2021
1500.00 Maha Vad 9 Wednesday. 220.00 Magsar Vad 30 Saturday
By Rasiklal Somchand to labour of digging a
Shah Promoter of Shri- well per Magan
nagar Cooperative Hous- Madhu ...Rs. 151.00
ing Society of off-hand Buckets, rope, baskets,
price of the Ohiku, timber and pulley
Lemon & Guava trees ...Rs. 39.00
planted and of well in Labour of drawing and
land of village Umra watering the plantations
and watching ...Rs. 30.00
189.00 Magsar Vad 30 Monday.
Watering Labour
Rs. 125.00 Guarding the
trees Rs. 64.00
145.80 Maha Vad 30 Wednesday.
Salary of guarding the
trees and watering
labour ...Rs. 60.00

14. Now from the narration of above facts it is not difficult, I think, to infer that after the acquisition of the land in question from their firm in 1957 right up to S.Y. 2019 (1962-63) the respondents had carried out absolutely no cultivation or any other agricultural operation therein, worth the name. Whatever income came to them, therefrom was from sale of spontaneously grown grass during rainy season. On the evidence on record, as pointed out above, the ITO was, to my mind, fully justified and correct to have come to such a conclusion. Expenses shown incurred in S.Y. 2018 and 2019 were not incurred in carrying out any cultivation or other agricultural operation but on cutting the spontaneously grown grass. Even incurring of such expenses does not fit in the facts and circumstances of the case for the obvious reason that the grass had been sold to the very person who had cut it for himself. For obvious reasons, payment of Rs. 15 on 25-7-1961 and of Rs. 12 on 7-7-1962 to Soma Dahayabhai and of Rs. 18 on 27-6-1963 to Jeevabhai Pitamber (116) inspires no confidence in me. When these so-called expenses and the expenses. incurred on plantation of Chiku, Lemon & Guava plants and digging a well in S.Y. 2020 & 2021 are read in the light of other circumstances attending on the transaction, of transfer of land on 24-2-1965, it remains no longer a secret that all that exercise was done to give a colour of agricultural land to the land in question which had all along, after the departure of Prabhu Uka in 1957 or prior to that, remained fallow land bringing only insignificant income to the respondents from sale of spontaneously grown grass without necessitating any agricultural operation and incurring of any expenditure on its growth. The reasons for such a planned exercise are not hidden in any mystery.

15. It was as back as in February 1963 that the limits of Surat Municipality were extended and the Municipality had declared its intention to make a Development Plan under the Town Planning Act, 1954 (31). A notification under Section 4(1) of the said Act regarding old and new limits was also published in Official Gazette on 5-12-1963 (50). The preparation/submission/flnalisatlon of the Development Plan by the Municipality, however, appears to have been delayed due to one reason or the other. But this state of affairs was sufficient to make the respondents aware of the important consequential difference in the charge of capital gains tax in the transfer of agricultural and non-agricultural land. The land in question was not being subjected to any sort of cultivation and/or other agricultural operations. It was, therefore, necessary to give it a colour of agricultural land whose income was exempt under the relevant Tax Law. The respondents, therefore, thought it proper to behave and conduct in the way they did. First, the growth of spontaneous grass was tried to be represented as “green grass” as if it was sown or grown. Then several kinds of plants were planted and to complete the process of external appearance of the land as that of an agricultural land, a so-called well was also dug, only to be transferred along with the land so soon after the plantation of plants and digging of it. It is ridiculous to accept that in S.Y. 2021 the respondents would purchase plants worth Rs. 929.50 (57) or Rs. 941.30 (59), spend Rs. 250 on their plantations (57) but would incur an expenditure of Rs. 151 only in S.Y. 2021 (57) on digging a well which could be sufficient to water a land measuring Acr. 4 and Gunthas 13 and having 180 Chiku, 69 Lemon and 68 Guava plants on it (53). In this context it also needs to be taken into account that, as found by the ITO in para 16 of his order (19), the respondents had agreed in April 1964 to sell the land in question to M/s Gandhi & Ravals and had received Rs. 25,000 also. The subsequent conduct of the respondents in selling the land in question on 24-2-1965 to a Housing Society for Rs. 2,15,163 exposes the truth and hona fides in their previous conduct of starting hectic efforts in 1963-64 only in the direction of giving the colour of agricultural land to the land in question which had all along been lying as a fallow land since the days of its last cultivation by Prabhu Uk.a prior to 1957.

16.1 The respondents appear to be laying much stress on a report of the then Income-tax Officer, M.V. Mandlik who, under the orders of IAO Surat, had inspected the respondents’ land situated in five different villages including the land in question, on 24-2-1966 in connection with similar question of capital gains tax levy for A.Y. 1957-58. My learned brother has dealt with this report of Sri Mandlik at sufficient length and has accepted his opinion with regard to the agricultural character of the land in question. I regret my inability of giving that value to the report or opinion of Mr. Mandlik for more than one reasons.

16.2 As is gathered from the affidavit of respondent Kanchanlal Manchha Ram Khandwala at page 177 Sri Mandlik, ITO had visited the land in question as also four other lands on 20-2-1966, that is, just after one year of its transfer by the respondents to the Housing Society. Now what Mr. Mandlik had found on spot was this that the lands at villages Athwa, Vanta and Kapadara were in possession of the tiller-tenants and were having kapas, bananas, jowar, etc., over them–the land at village Athwa was partly occupied by the assessees’ bungalow and partly by fruit trees. With regard to the factual position of the land under consideration, Mr. Mandlik reported on 24-2-1966 as follows:–

2. Regarding land at Umra, it was seen that there is a well and there was also some sign of cultivation. The assessee has produced the copies of Pabani Patrak and Panchnama saying that the said land was used for agricultural purposes. In my opinion, therefore, no action for taxing capital gains is necessary.

17.1 Taking pointwise, the evidentiary value of this report comes to this:

(i) The so-called well was dug, as has been seen above, in S.Y. 2021 only, sometimes before its transfer along with land by the respondents to the Housing Society.

(ii) The land had been transferred along with the 317 Chiku, Lemon and Guava plants thereupon. They were not found by Mr. Mandlik. Presumably, they had been removed/uprooted by the Housing Society as that had purchased the land for use for residential purposes and not for carrying on any agricultural operations.

(iii) No doubt, Mr. Mandlik declares to have seen ‘sign of cultivation’ in the land in question in his report (176) as also in his examination on oath (187), but he gives no details of such signs as he has given in respect of other lands so that others could have made their own assessment of the facts found by him.

(iv) As stated above?, the land, at the time of inspection by Mr. Mandlik, had already been in possession of the Housing Society for the last about one year. Obviously the Housing Society had not purchased the land for cultivation. Hence, there could have been no question of presence of any signs of cultivation thereupon. On the face of it, the report of Mr. Mandlik is a worthless piece of evidence on the point of ‘signs of cultivation’.

(v) The ‘Pabani Patrak’ for 1964-65 (45) and the ‘Panchnama’ dated 2-2-1965 (53) mentioned no facts regarding cultivation of the land, and simply mentioned the presence of the Cheeku, Lemon & Guava plants and a well there, whose probative value has already been judged above. Even the Panches had nowhere stated In the ‘Panchnama’ that the land was ever cultivated by the respondents.

17.2 For the above reasons the report of Mr. Mandlik dated 24-2-1966 makes no contribution to the decision of the main question of carrying on agricultural operations in the land under consideration from year to year as required by condition No. 2 of Instruction No. 2 of CBDT Circular No. 2 (WT) of 1960 dated 16-3-1968 (164).

18. Now to sum up my findings, I hold that:

(1) the land in question was no doubt recorded as Agricultural land in Revenue Record and was subject to payment of land revenue but the presumption arising in favour of correctness of entries in revenue record stood sufficiently rebutted by positive proof of the recorded entry of holding of the land by Koli Prabhu Uka on 1-4-1957, the ‘Tiller’s Day’ having been found wrong and incorrect and by absence of any proof of its user as agricultural land after 1938 ;

(2) the land was cultivated by the tenant Koli Prabhu Uka for the period from 1935 to 1938 and thereafter there is no proof of its cultivation either by the said Prabhu Uka or by the firm M/s Seth Shivlal Khandwala & Sons up to 1957 ;

(3) from the years 1957 to 1963-64 (S.Y. 2012 to S.Y. 2019), no agricultural operations were carried on at all in the land and during this period the land had given ‘agricultural income’ from sale of spontaneously grown grass in rainy season ;

(4) the limits of Surat Municipality were extended, in February 1963 and the said Municipality declared its intention to make a Development Plan under the provisions of Town Planning Act, 1954 and the old and new limits were also published in Official Gazette on 5-12-1968. The land under consideration fell within the Town Planning Scheme ;

(5) the land in question was situated in the midst of residential area which was fast developing ;

(6) it was only in the year 1964-65 that certain plants of Cheeku, Lemon and Guava were stated to have been planted in the land in question ;

(7) a well was also dug (not constructed) in the land in the year 1964-65 ;

(8) the Cheeku, Lemon and Guava plants were not found on spot by Mr. Mandlik, ITO on 20-2-1966 ; and

(9) the land was first agreed to be sold in April 1964 to M/s Gandhi & Ravals but was later on sold for Rs. 2,15,163 on 24-2-1965 to a Housing Society called Srinagar Co-operative Housing Society, Surat for residential purposes.

19. The above established facts lead me to the irresistible conclusion that as no agricultural operations had been carried on in the land in question from year to year since’ 1957 and/or even prior to that till the date of its transfer on 24-2-1965 it was certainly not agricultural land on the date of transfer as it had lost that character long ago and in reality was non-agricultural land for the purposes of the Act. The acts of the respondents in planting Cheeku, Lemon and Guava plants in it in 1964-65 and digging a so-called well in that year were planned but unsuccessful attempts in the direction of giving it a colour of agricultural land which it was certainly not. That being the position found by me, I would set aside the order under appeal and restore that of the Income-tax Officer.

20. In the result both the appeals are allowed, the order of the Appellate Assistant Commissioner is set aside and that of the ITO is restored in both of them.

ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961

P.J. Goradia

1. Because of the difference of opinion between the members of the Bench who heard the above appeals, the point in difference is required to be referred to the Third Member for his opinion and, therefore, we propose the following question for the opinion of Third Member:–

Whether the land sold by the co-owner-assessees was agricultural land and therefore, gain on sale of land is not to be regarded as capital gain within the meaning of Section 45 of the Income-tax Act, 1961 ?

The Hon’ble President is requested to do the needful in the matter.

THIRD MEMBER ORDER

K.C. Srivastava, Vice President

1. These are two departmental appeals in the case of two assessees where a common point had arisen. Before the Tribunal there has been a difference of opinion between the two Members and the following point of difference has been referred to me as a Third Member under Section 255(4) of the IT Act: —

2. The two assessees in the two appeals were co-owners of a land bearing Survey No. 57-3 of 4 acres and 35 gunthas situated in village Umra, District Surat. This land was sold on 24-2-1965 to Sarangpur Co-op. Housing Society for Rs. 2,15,163. A question arose regarding the charge of capital gains on the same. It was claimed by the assessees that capital gain was not chargeable as the land in question was agricultural land at the relevant time.

3. The Income-tax Officer had noted that the land was in a village which had come in the municipal limits of Surat and the sale was also to a co-operative housing society. Before the Income-tax Officer, reliance had been placed in the entries in the revenue records where it was shown that agricultural operation was being carried on. In the Panipatrak for the year 1964-65 it was noted that there were certain plants of chiku, lemon and guava on the said land and the Chief Officer of Surat Municipality had stated in a letter that the tax on the land was on the classification as agricultural land. Some income from the fruit-bearing trees and sale of grass had been shown in the earlier years. The Income-tax Officer, however, observed that he did not find any cultivation having been done on the land and from the year 1958-59 to the year 1963-64 only grass was grown on the land. He held that the grass was of spontaneous growth and oniy in the year 1964 the fruit trees were planted. According to the Income-tax Officer, the plantation of fruit trees was only to create an evidence before the sale of the land to show that it was agricultural land.

4. The Income-tax Officer has also referred to the small income from agriculture in the earlier years and earlier there was some tenant known as Soma Dahya from whom some payments were being received. The Income-tax Officer also noted that an amount of Rs. 1,179 was found in the books of account as having been spent for the purchase of various fruit-bearing trees. The Income-tax Officer noted that till the fruit-bearing trees could give fruit the only receipt was from the sale of grass and the extent of such income was only Rs. 500 to Rs. 600. Some small expenses were incurred for this purpose. According to the Income-tax Officer, there was no regular agricultural operation and the Income-tax Officer observed that the grass might have grown spontaneously. In later years there were certain receipts from the sale of fruits. According to the Income-tax Officer, it was just a fallow land and its true character was non-agricultural. He also held that the firm which owned the land was not doing any agricultural business and the idea of the firm and the assessees in purchasing the land in all probability was for using it for non-agricultural purposes. He noted that this was declared part of the municipal limits by the Town Planning Act in 1963 and it was situated in the midst of residential area which was developing. Considering these factors, he held that the land in question could not be considered as agricultural land and he charged capital gains on the sale of this land in both the cases.

5. When the matters came before the CIT (Appeals) he considered the facts and the legal position and observed as under:

5. Following facts have not been disputed by the ITO:–

(a) The land is shown as agricultural land in the land revenue records and land revenue paid in respect of land is all along on the basis that the land was agricultural land.

(b) The land had various fruit trees planted probably by the appellant about two years before the sale of the land.

(d) No application was made by the appellant at any time to get the land converted into non-agricultural land.

(e) There is no evidence to come to the conclusion that the land at any time was used for non-agricultural purposes.

6. The following points put forward by the ITO in support of the land being non-agricultural land have been disputed by the appellant and as such are to be adjudicated:–

(a) The grass grown on the land was of spontaneous growth and no cultivation was made by the appellant.

(b) The land was fallow for a number of years before the actual sale.

(c) The land was situated in an area which was developing very fast and as such the land was no longer fit for agricultural purposes.

(d) The land was sold to a housing society which purchased the land with an idea of using it for non-agricultural purposes.

(e) The appellant could have got the permission to get the land converted to non-agricultural category if he had applied for the same.

Before the CIT (Appeals) it was pointed out that the grass which was grown was not self-generating but had been cultivated by putting grass seeds and paying wages to labourers for cultivating it and then cutting it. The GIT (Appeals) referred to the decision of the Gujarat High Court in the cass of Dr. Motibhai D. Patel v. CIT [1981] 127 ITR 671 and other oases and held that the land was agricultural land. The reasons given by him were as under:

10. In the present case, the entry in the Land Revenue Register shows the land as agricultural. The land revenue has been paid by the appellant on the basis of the land being agricultural land. A claim for cultivation of grass for sale has been made. The ITO has only said that the grass sold was of spontaneous growth. However, it cannot be denied that the appellant has produced some evidence for purchase of grass seeds. The fact of planting trees sometimes before the sale of the land has not been disputed by the ITO. It has only been suggested by the ITO that the appellant had done this planting of fruit trees with the main idea of proving that the land was agricultural land. It is not disputed that the appellant had not applied for the conversion of agricultural land in to non-agricultural land before the sale was made. In the circumstances, I am of the opinion that no evidence has been brought on record by the ITO, except development potential of the area to suggest that the land was non-agricultural land. As held by the Gujarat High Court in the above mentioned cases, the nature of the land does not change only because it can be put to a better use as non-agricultural land. In the circumstances, I hold that the land in question was agricultural land and capital gains has been wrongly charged in the present assessment. The ITO is directed to modify the assessment deleting the capital gains from the assessment.

6. When the matters came before the Tribunal, the above difference of opinion arose. The learned Accountant Member referred to the fact that at the relevant time in 1966 one Income-tax Officer Shri Mandlik had personally inspected the land and had given a report that there were signs of cultivation and the land in question was agricultural land. He also noted the fact that when the land, in question belonged to the firm agricultural income was being shown and even after the land was purchased by the assessee agricultural income from this land was being disclosed. As the report of Shri Mandlik was not on record the matter had been remanded and Shri Mandlik had been examined in the remand proceedings. He had stated that he did visit certain villages and had given a report that there were agricultural operations on the land. As Shri Mandlik had been examined several years after his first report he had stated that he did not remember the details of the villages visited at that time but he did remember to have made a report. The Accountant Member referred to the various case laws and applying those principles which were enumerated by the Gujarat High Court in the case of Siddharth J. Desai (supra) held that most of the factors considered in the case were in favour of the assessee and the land in question should be held to be agricultural land.

7. The Judicial Member was, however, inclined to take a different view and considered the history of the case in detail. According to him, the Income-tax Officer had shifted the initial onus on revenue to the assessee by bringing some positive evidences on record. He referred to the following factors:

(ii) The land in question situated in Municipal limits and was included in the Notified Town Planning Area ;

(iii) There were no traces of agricultural activities in the near about areas ;

(v) The Chiku, Lemon and Guava plants were planted only in the year 1964-65.

He referred to the fact that the assessees or their ancestors were not agriculturists by profession and the land in question was not cultivated by any other person on behalf of the assessee. He referred to the fact that the land had been given to some tenants in 1935 when some agricultural operations were carried on for which there was evidence up to 1938. He further found that after the abolition of Inam in 1954 and after 1-4-1957 which was the Tiller’s Day the land in question was sold by the firm to the two assessees and at that time the sale was in terms of yards and not acres. He referred to the fact that the Mamlatdar had found that on Tiller’s Day the land was in possession of the owners and not the tillers and therefore, the tenant’s name was removed. According to him, Prabhu Ukabhai who was a tiller could not be considered in cultivatory possession on 1-4-1957 and therefore, it could not be held that there was cultivation of land when the land was with him. The learned Judicial Member found the analysis of the facts by the Income-tax Officer as logical and correct and he found that the expenses incurred for earning meagre agricultural income was very small. According to him, the expenses incurred were for cutting the grass. He further held that the entries in the books of S.Y. 2020 showing fruit trees and cultivation of such trees was only for creating evidence and there was absolutely no cultivation from 1957 till the planting of the trees. According to him, the grass was spontaneously grown during the rainy season and therefore, it could not be considered to be agricultural operation. According to him, the expenses incurred on the plants, digging of wells, etc., was done to give a colour of agricultural land to the land in question and the land in question remained fallow. He also referred to the fact that the Surat Municipality extended its limits and a development plan for the area was also being worked out. According to him, considering the potential of the land, the assessees wanted to create evidence that it was agricultural land and put fruit plantations so that it may appear to be an agricultural land. It was also observed by him that the assessees had shown the sale of grass grown and had tried to show that there was cultivation of grass and it was not of spontaneous growth. It was also observed that there was a well dug in the land but the expenditure incurred was only Es. 121 which could not be considered to be sufficient for watering the plants which themselves had cost about Rs. 1,000 or more. He also referred to the fact that the land was to be sold to a housing society for Rs. 2,15,163 which shows that the land had become a developed land for the purpose of housing and in order to show that it was an agricultural land some evidence was created.

8. The learned Judicial Member also did not attach much importance to the report of Shri Mandlik as it was not stated in it as to what sort of agricultural operation was going on on this land. He referred to tlie fact that Shri Mandlik had nob referred to the fruit-bearing trees in 1966 and it might be that they were removed by the housing society. He also pointed out that in Panipatrak of 1964-65 and in Panchnama there was no mention of cultivation of land and there is only mentidn of fruit trees. He summed up his findings as under: —

26. Now to sum up my finding’s, I hold that:

(1) the land in question was no doubt recorded as agricultural land in Revenue Records and was subject to payment of land revenue but the presumption arising in favour of correctness of entries in revenue record stood sufficiently rebutted by positive proof of the recorded entry of holding of the land by Koli Prabhu Uka on 1-4-1957, the ‘Tiller’s Day’ having’ been found wrong and incorrect and by absence of any proof of its user as agricultural land after 1938 ;

(3) from the years 1957 to 1963-64 (S.Y. 2012 to S.Y. 2019) no agricultural operations were carried on at all in the land and during this period the land had given ‘agricultural income’ from sale of spontaneously grown grass in rainy season ;

(4) the limits of Surat Municipality were extended in February 1963 and the said Municipality declared its intention to make a Development Plan under the provisions of Town Planning Act, 1954 and the old and new limits were also published in Official Gazette on 5-12-1963. The land under consideration fell within the Town Planning Scheme ;

(5) the land in question was situated in the midst of residential area which was fast developing ;

(6) it was only in the year 1964-65 that certain plants of Cheeku, Lemon and Guava were stated to have been planted in the land in question ;

(7) a well was also dug (not constructed) in the land in the year 1964-65 ;

(8) the Cheeku, Lemon and Guava plants were not found on spot by Mr. Mandlik, ITO on 20-2-1966 ; and

(9) the land was first agreed to be sold in April 1984 to M/s. Gandhi & Ravals but was later on sold for Rs. 2,15,163 on 24-2-1965 to a Housing Society called Srinagar Co-operative Housing Society, Surat for residential purposes.

9. On the above facts, he came to the conclusion that the land in question was not agricultural land on the date of transfer and had lost that character long ago and the evidence created was only 11 years prior to the sale. He, therefore, proposed to set aside the order of the CIT (Appeals) and restored the order of the Income-tax Officer.

10. It is on these facts that the difference has arisen between the two Members. The learned, departmental representative after referring to the facts pointed out that Shri Mandlik who had been re-examined in the remand proceedings had accepted that he had visited some villages but he was not sure whether he had seen this particular land when he had given his report. Relying on the analysis of the facts in Judicial Member’s order, he submitted that there were no” agricultural operations after 1938 and the assessee was not an agriculturist and the land in question was within the municipal limits of Surat. He stated that the totality of circumstances had to be seen and the principles as laid down in various case laws should be applied. He referred to the decisions in the case of Officer-in-Charge (Court of Wards) (supra) and the decisions of the Gujarat High Court in the cases of Siddharth J. Desai (supra), Arundhali Balkrishna v. GIT [1982] 138 ITR 245, Sarifabibi Mohmed Ibrahim (supra), Srnt. Lilavati Thakorelal Patel (supra) and Yaswanti R. Bhatt v. CWT [1978] 114 ITR 318. According to him, considering the totality of the circumstances it could not be held that the land was subjected to any cultivation in several years before the sale. He pointed out that the expenses on grass was meagre and the purchase of grass seeds alone could not prove that there was cultivation of grass on the whole land. Referring to the meagre expenditure, he submitted that it was not sufficient for carrying on any agricultural operation on such a large piece of land. He submitted that there was no tilling of the soil by the assessee and therefore, it could not be held that there was any agricultural operation. Regarding the planting of trees, he submitted that they had been planted only 1 1/2 years prior to the sale only for creating evidence that there was agricultural operation. According to Mm, it was only a stop-gap arrangement with some motive. He contended that the entry in the land revenue records could not be considered to be conclusive about the nature of the land and for this he referred to the decision of the Supreme Court already referred to above.

11. The learned counsel for the assessee pointed out what he considered to be the loopholes in the order of the learned Judicial Member. He submitted that the observation of the learned Judicial Member that the land in question was surrounded by a residential area at the appropriate time was not correct as the adjoining lands were being used for the purposes of cultivation as would be apparent from Panipatrak of those adjoining areas. In this connection, he made reference to pages 125, 126 and 127 of his paper book, He also submitted that though the village was brought in the municipal area in 1963 there was no development for almost 10 years and he placed before me Notification dated 15th March, 1986 showing that several parts of village Umra were brought in the city limits for the purpose of development only at the time of this Notification. He submitted that there was no development of this area at the time of the sale. Regarding the grass grown on the land he submitted that there was evidence that grass seeds were purchased from year to year and grass was being cultivated for the purposes of sale. He contended that a small income from this source and the small expenditure should not give the basis for completely ignoring the case of the assessee. He pointed out that all these years the assessee was mainly dependent on monsoon even for growing grass and therefore, the grass seeds were purchased immediately before the monsoon.

12. Regarding the history of the case he submitted that when the land was with the firm it had been given to a tenant and he was carrying on agricultural operation on the land. He also submitted that on the Tiller’s Day the tiller had died and hence the assessees were able to get the land in their names. It was also contended that when the land was sold to the assessee in 1957 the sale was not in yards as stated by the learned Judicial Member. He pointed out that up to 1957 when the land was with the Ganotia the firm used to pay land revenue and certain interest payment was being received and shown as agricultural income after giving the facts.

13. Referring to the report of Shri Mandlik he submitted that the report of 1966 was very clear and Shri Mandlik on re-examination had accepted that he had visited the land and had given a report. In his report he had stated that signs of cultivation were found on this land and a well was also dug by that time. It was submitted that this being a contemporaneous record only one year after the sale importance should be attached to it and the land should be considered as agricultural land. Regarding the planting of fruit trees he submitted that it was not for creating evidence and it was merely a surmise of the Judicial Member that it was done for creating evidence. He further submitted that the fact that it was purchased by a housing society should not mean that the land was not agricultural. The Housing Society might have needed it for housing purposes but the thing to be seen is whether at the time of sale it was an agricultural land or not. He pointed out that even in the municipal areas there could be agricultural operation and for this purpose he relied on the decision of Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87 (Bom.). He submitted that even if the land was sold for several years agricultural income was being shown from this land and it could not be held to be only for creating evidence. Even up to the immediately preceding year agricultural income was being shown by the assessee. In this connection he referred to the records of the Department in the shape of assessment orders under the Income-tax Act as well as Wealth-tax Act. These were placed at pages 129 to 171 of the paper book. In these orders it is shown that some agricultural income has been shown by the assessee but the same was not brought to tax in the assessment. He referred to the description of the land from which it appeared that it was agricultural land. In this connection, a reference was made to the details at page 171 of the paper book which was a statement of the return showing the land at village Umra as agricultural land.

14. The learned counsel further submitted that no res judicata was applicable. There should be uniformity in the findings, otherwise there would be great confusion. He further relied on an order of the Jaipur Bench in 25 ITD 2 (sic) and strongly relied on the decision of the Gujarat High Court in Dr. Motibhai D. Patel’s case (supra).

15. I have considered the facts and have perused the orders of both the Members. Determination of the nature of land on the point of view of its being agricultural land depends on large number of circumstances and It is the totality of the circumstances which has to be considered. I am inclined to agree with the learned Accountant Member having regard to all the materials which have been brought on record and are indicated in the paper book filed before the Tribunal. As stated above, the land had been given to a Ganotia on rent and from the agreement with the Ganotia which appears on page 145 of the paper book, it appears that the land had been taken for actual consideration and at that time besides Jowar and Kapas, grass was being grown in a regular manner. As far as the owners were concerned, they were getting the rent and the work of cultivation was being done by the Ganotia at that time. This position continued till 1957. When the Ganotia died the tiller could not get the benefit of getting the land in the name of the tiller as on that Tiller’s Day and the lands reverted to the firm which in its turn transferred it to the present two assessees. The first assessment of these two persons which is available on record is for the asst. year 1958-59 where the agricultural income had been shown by both the asses-seea. This was one of the lands in the possession of the assessees and after noting this fact the Income-tax. Officer had exempted this income from tax. In the details available on record the income from Umra land is also shown and the shares of the two assessees are shown duly in their accounts. The surplus from the sale of the agricultural land was also duly shown in the accounts. At that point of time there could not have been any intention of showing agricultural income or agricultural land when it was not there. This position continues from year to year and it is seen that the agricultural income from the land at Umra village has been shown. Expenses by way of land revenue have been shown as a deduction. Thus, as far as the records of the Income-tax Department are concerned, the material available shows that the land in question was agricultural land giving agricultural income of the assessee. The records of the wealth-tax also show the expenses of agricultural land in the asst. year 1963-64. This is so evidenced at page 171 of the paper book. The value of this land (assessee’s share) was shown at Rs. 36,000 in that year. The sale deed mentions the land as agricultural land. That, however, cannot be considered as conclusive. It is also seen that the Income-tax Officer had mentioned that all the adjoining plots of lands were having residential houses. The details have been seen by him in the paper book and I find from the Panipatraks that the adjoining lands were having either fruit trees or being used for growing agricultural crops and vegetables. That is the position of most of the adjoining plot Nos. 58, 56, 61 and others. In some of the plots there was some small residential house also but that would, not be determinative of the nature of the land as admittedly these plots were earlier at the outskirts of the city and later on were brought in the city area. My attention was drawn to the fact that development of this area as part of Surat has taken several years and it was only recently that the municipal area was fully extended to various areas including the village Umra.

16. As regards the use of the land in a few years prior to the sale the assessee had brought on record the material to show that the grass was being grown as a result of cultivation and the assessees were incurring expenses on the labour for cultivation as well. It is true that the assessees were mainly dependent on rains and therefore, the grass seeds are sown in three years continuously being purchased, prior to the monsoon season. The fact that the income from such sale of grass was small did not mean that it was not being put in the earth by human effort. In those years any such income up to Rs. 500 was also not very low.

17. It cannot be denied that the assessees as the owner of the land must have been aware of the potential of the land due to its vicinity of the city or being a part of the city and might have gradually confined to cultivation of grass or planting of fruit trees and not to regular cultivation of agricultural produce. There is also no dispute that the potential of the land had improved and its value was also going up as it could be used in future when the city was developed. However, in view of the principles laid down by the courts one has to see” whether the land which was basically agricultural land in the past has continued to be used as an agricultural land or the user was changed. No material is there on record to show that the user was changed to non-agricultural purposes. The use for cultivating grass and selling the grass and later on putting the fruit trees might have been planned by the assessees in order to sell the land when it is convenient, but that would not take away the basic nature of the land which was agricultural.

18. It is not correct to say that the land was sold on the basis of per yard though while fixing the rate it might have been in the mind of the purchaser which was a co-operative society. It cannot be denied that the purchaser had not purchased it for the purpose of agriculture. That in my opinion, could not be a circumstance against the assessees. The allegation that the planting of fruit trees was meant to create evidence before sale may not be incorrect though there is nothing positively to prove it. The main difficulty has arisen about the growth of grass and the evidence brought on record to show that it was not self-growing but cultivated grass has not been rebutted at any stage by the Income-tax Officer or any other authority. I have also noted the order of the municipal authorities of Surat who have noted in 1967 that at that time the property was agricultural. This is evident from page 124 of the paper book. Even till that time, the permission to convert the nature of land from agricultural to non-agricultural has not been received. It was on this basis that the tax had been reduced.

19. Thus, from the records of the Department itself it appears that the land in question was giving agricultural income for the last several years and prior to the sale of the land it was being used for cultivation of grass and sale of grass as a produce of the land and later on some fruit trees were also planted and some income received. In conformity with all these materials which are available for several years the plea of the assessees appears to have been rightly accepted, by the CIT (Appeals). As far as the agricultural income being very low in all these years is concerned, we may mention that the Gujarat High Court in the case of Siddharth J. Desai (supra) had held that though it was a relevant consideration it wa,s not conclusive and it may be that the agricultural activity was giving a low income to the owner. The courts have laid down various factors which are relevant to be looked into for determining the nature of the land. All the factors cannot be present in all cases and ultimate decision will have to be reached on a balanced consideration on a totality of the circumstances. In this connection, the report of Shri. Mandlik has some importance. He has admitted that he has given his report in which he has stated that at the time when he visited in 1966 after the sale had taken place one year back signs of cultivation were still there. If the Income-tax Officer had any doubt about this statement he could have questioned it. This was a contemporaneous report and the Officer having given the report and having accepted after several years should be given its due importance. The main difficulty in this case has arisen because of the rise in the price of land due to various factors. It has given an impression to the revenue authorities that the nature of the land had changed. If the value of agricultural land shoots up due to the development of the city and it fetches a high value the nature of the land cannot be said to have been changed if some agricultural activity or cultivation has continued on that land. In the case of Smt. Lilavati Thakorelal Pate! (supra) the land in question had been sold to a co-operative housing society. Yet on the basis of the entries in Panipatraks and the other material to show the use of the land, it was held that the land was agricultural up to the date of sale. Having regard to these factors, I a,gree with the learned Accountant Member that the land was agricultural land and capital gain was not chargeable on its sale. Now the matter will go before the Bench for passing an order in accordance with the majority view.

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