Kamanahalli Pilla Reddy Nagesh v. ITO

Case snapshot

Sections / provisions: 2(14)

Questions before the Court / Tribunal

• Rural agricultural land situated beyond the specified limits was converted for non agricultural purposes but was used for agriculture till the date of sale- Facts: Assessee claimed that land is situated beyond the Municipal limits 10 kms. and therefore, it is not a capital asset as per section 2(14) of the Act. Revenue contended that the land was converted for non agricultural purposes before execution of sale deed, therefore, it is a capital asset u/s 2(14) & cannot be exempted u/s 10(1). Tribunal noted and held: (i) The lands in question do not cease to be agricultural lands merely because it stood converted…
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

Shri Kamanahalli Pilla Reddy Nagesh, Kamanahalli Village, Kagur The Income Tax Post, Officer, Sarjapura Road, Ward – 4 [3] [5], Anekal Taluk, Bangalore. Vs. Bangalore – 562 125. PAN: ADFPN8365H APPELLANT RESPONDENT

Assessee by : Shri Guruswamy, ITP Shri V.S. Chakrapani, CIT- Revenue by : DR

PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order dated 28.03.2019 passed by Ld.CIT(A)-9, Bangalore for A.Y. 2014-15 on the following grounds of appeal: “1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

upon the appellant taking recourse to the provisions of sec. 292B of the Act and holding that the appellant was not entitled to raise the said challenge under the facts and circumstances of the appellants case.

3. Without prejudice to the above, the learned CIT[A] is not justified in upholding the assessment of Rs. 2,01,92,432/- as Long Term capital gains in the hands of the appellant in individual capacity under the facts and circumstances of the appellant's case.

Appellant / assessee submissions

9. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 2. Facts of the case are that the A.O. made addition of Rs.2.06 crores as long term capital gain arising from sale of land situated at Survey No.40, Chikkanahalli Kammanahalli, Sarjapur hobli, Anekal Taluk, Bengaluru. The assessee claimed that the said land is situated beyond the Municipal limits 10 kms. and therefore, it is not a capital asset as per section 2(14) of the Act. According to the Ld. A.R., the sale of agricultural land outside municipal limit is to be treated as agricultural land and should be exempted u/s 10(1) of the Act. However, the A.O. held that, the land was converted for non- agricultural purposes before execution of sale deed, therefore, it is a capital asset u/s 2(14) of the Act, and it cannot be exempted u/s 10(1) of the Act. Accordingly, the same was brought into taxation as capital gain. On appeal, the Ld. CIT(A) confirmed the above finding of the…

into sale deed on 18.9.2013. It was submitted that the conversion of said property for non-agricultural purpose was only to fetch good price and not any other intention. The Ld.AR submitted that, the property was sold within a period of 2 days after the order of conversion, and the land was not subjected to use for non-agricultural purpose on any day and the sole intention of conversion was to get good price that cannot be reason to hold that the land sold by assessee is non-agricultural land. Further, it was submitted that, land has been used by the assessee till the date of transfer as agricultural land and also assessee declared income from agriculture in its return of income which was not accepted by the department. Further, the Ld.AR drew our attention to the record of rights, wherein it was classified as non-agricultural land and the land was subjected to cultivation, wherein assessee cultivated cashew nut and Neilgiri. He also submitted that the endorsement issued by the Dy. Tahsildar, Sarjapur Hobli, Anekal vide no.Sanaaka/MNK/MSC/20/2014-15 dated 13.1.2015, the land is situated 10 kms away from the local municipality. He relied on the following judgements:- a) Shri M.R.…

WTA No.34-36/Bang/2014 dated 16.10.2015 in the case of M.R. Pattabhirama (HUF). 3. On the other hand, the Ld. D.R. submitted that the land was converted for non-agricultural purpose before sale and the sale of converted land for non-agricultural purpose should be liable for tax as it is not an agricultural income in terms of section 2(14) of the Act. We note that assessee has filed following additional grounds. It is submitted that no new facts needs to be adjudicated and accordingly application dated 28.04.2022 stands allowed. “1. The Appellant begs to submit the following additional grounds of Appeal for Adjudication in addition to the grounds of Appeal already urged in the Appeal Memorandum.

6. Therefore the Appellant respectfully prays that this Hon'ble Bench be pleased to admit the Additional Grounds of Appeal for adjudication in the interest of equity and substantial justice.” 4. It is also submitted by the Ld.AR that in the event the additional grounds is considered, assessee would not press on the main grounds raised in the grounds of appeal. He also submitted that assessee had also raised additional grounds vide application dated 28.04.2022. 5. The Ld.AR at the outset submitted that on identical facts in case of co-owner Shri K.P. Manjunatha Reddy vs. ITO in ITA No. 977/Bang/2019 vide order dated 25.03.2022, the Coordinate Bench of this Tribunal held the land sold not to be liable for capital gain being an agricultural land. The Ld.DR however submitted that the issue may be remanded to the Ld.AO to verify the same. 6. We have perused the submissions advanced by both sides in the light of records placed before us. 7. We note that on identical facts, Coordinate Bench of this Tribunal in co-owner’s case observed and held as under: “4. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below.…

Revenue / respondent submissions

into sale deed on 18.9.2013. It was submitted that the conversion of said property for non-agricultural purpose was only to fetch good price and not any other intention. The Ld.AR submitted that, the property was sold within a period of 2 days after the order of conversion, and the land was not subjected to use for non-agricultural purpose on any day and the sole intention of conversion was to get good price that cannot be reason to hold that the land sold by assessee is non-agricultural land. Further, it was submitted that, land has been used by the assessee till the date of transfer as agricultural land and also assessee declared income from agriculture in its return of income which was not accepted by the department. Further, the Ld.AR drew our attention to the record of rights, wherein it was classified as non-agricultural land and the land was subjected to cultivation, wherein assessee cultivated cashew nut and Neilgiri. He also submitted that the endorsement issued by the Dy. Tahsildar, Sarjapur Hobli, Anekal vide no.Sanaaka/MNK/MSC/20/2014-15 dated 13.1.2015, the land is situated 10 kms away from the local municipality. He relied on the following judgements:- a) Shri M.R.…

India which explicitly defines `Municipality' means an Institution of self-Government constituted under Article 243Q and Article 243R requires that all the seats in a Municipality shall be filled by persons chosen by direct election from the territorial constituencies in the Municipal area and, thus, clear that a municipality has to necessarily be an elected body whereas BIAAPA was not an elected body, but, an appointed body and, therefore, BIAAPA does not qualify to be considered as a Municipality. 8.3.1. To strengthen the above view, it is appropriate to refer to the judgment of the Hon'ble Kerala High court in the case of CIT v. Murali Lodge reported in (1992) 194 ITR 125 (Ker). The issue before the Hon'ble Court was Whether the land in question situated within Guruvayur Township can be treated as a capital asset within the definition of section 2(14) of the I.T. Act? After having comprehensively, dealt with the issue of 'Whether the local authority is a Municipality?' as under: "(On page 127)…………………………………………………………………… From the plain and unambiguous language employed in the section [2(14)(iii)(a)], it is clear that, if the agricultural land is situated outside the jurisdiction…

found at pages 67 to 69 of the department’s paper book. There is no sign of residential sites having been formed. The schedule to the sale deed reproduced at pages 4 to 6 of the assessment i.e., pages 1 to 43 of the department’s paper book shows that the lands are sold in the measuring form of acres and guntas and not as residential sites. The report of ITI indicates that there is no sign of layout or residential sites having been formed. These factors indicate the lands were not put to use for the purpose for which it was converted. Thus, the lands to the extent of 12 acres and 38 guntas had lost their non-agricultural status as on 28.4.01 i.e., on the completion of two years from the date of conversion order. 15. Coming to the objection of the Departmental authorities that the lands were not used for agricultural activities, the assessee’s representative submitted the facts in brief as follows. The lands were used for agricultural activities. This is evident by documents like RTC extracts produced before the Assessing Officer and the appellate authorities. This fact of producing RTC is evidenced by the observation of the Assessing Officer at page 18 para 7 and page 24, para 2 of…

It is an admitted position that no further action was taken by obtaining permission from the BMRDA or the assessee had complied with condition no.10. No activity was undertaken within the two years. In other words the conversion has been now been deemed to have been cancelled. The assessee’s representative further submitted the assessee never paid any amount as tax to the Grama Panchayat. The learned representative for the assessee brought our attention to paper book pages 10 to 13 i.e., RTC form no.16 in which the land revenue authorities have mentioned that the assessee had carried on certain agricultural activities. We find at page 12 the land used was to the extent of 1.38 acres and the crop grown was Ragi. So also at page 14 it is mentioned that the extent of land utilized was two acres for growing Ragi. He reiterated the submission made before the Departmental authorities that RTC form is a record issued by the Government which consistently show that there were agricultural activities going on. 16. He further submitted inviting our attention to written submission made before the Commissioner of Income- tax(A) on 21.7.2008 particularly at page 4, briefly which is as under. It…

Court / Tribunal analysis and reasoning

6. Therefore the Appellant respectfully prays that this Hon'ble Bench be pleased to admit the Additional Grounds of Appeal for adjudication in the interest of equity and substantial justice.” 4. It is also submitted by the Ld.AR that in the event the additional grounds is considered, assessee would not press on the main grounds raised in the grounds of appeal. He also submitted that assessee had also raised additional grounds vide application dated 28.04.2022. 5. The Ld.AR at the outset submitted that on identical facts in case of co-owner Shri K.P. Manjunatha Reddy vs. ITO in ITA No. 977/Bang/2019 vide order dated 25.03.2022, the Coordinate Bench of this Tribunal held the land sold not to be liable for capital gain being an agricultural land. The Ld.DR however submitted that the issue may be remanded to the Ld.AO to verify the same. 6. We have perused the submissions advanced by both sides in the light of records placed before us. 7. We note that on identical facts, Coordinate Bench of this Tribunal in co-owner’s case observed and held as under: “4. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below.…

revenue authorities that land was subjected to cultivation, wherein assessee cultivated cashew nuts and Neilgiri in the assessment year under consideration. The assessee also produced the certificate from Dy. Tahsildar, Sarjapur Hobli, Anekal, wherein he has stated that the land is situated 10 kms. away from the municipal limits. These facts support the case of assessee to hold that land is an agricultural land and only to facilitate to get good price, the assessee converted the land and at the time of entering into sale agreement, land was not converted into non- agricultural land. The assessee also declared agricultural income from the said land as an agricultural income at Rs.9 lakhs, which was accepted by the department and there was no disturbance on this count. The situation of land within the BMRDA limits cannot be considered as the land is situated within the limit of municipality and moreover, BMRDA is not a municipal or local authority in terms of section 2(14)(iii)(a) of the Act. This proposition is verified by the order of the Tribunal in the case of M.R. Pattabhiram (HUF) Vs. ACWT in WTA Nos.34 to 36/Bang/2014 dated 16.10.2015, wherein Tribunal held as under: 7. The…

".... 10. The land should be used for the said purpose within two years from the date of this order [ Refer pages 8(' to 92 (including English transaction) of paper book of A.R.] " only for the limited purpose of stating that the Assess* Officer is not correct in taking a stand that once the agricultural land is converted for nonagricultural purposes, the land cannot be treated as agricultural land even though it continues to be used only for agricultural purposes. The fact that the mandatory condition was not complied with by the assessee was not the reason by the co-ordinate bench of this Tribunal held that the lands sold are agricultural lands and not capital assets u/s. 2(14) of the Act.

The Hon'ble High Court has answered both the substantial questions before it (supra) in favour of the assessee and against Revenue. An analysis of the above two -substantial questions of law and the conclusion / finding of the Hon'ble High Court would, in our considered view, go to mean that land which was converted from agricultural to non- agricultural and continued to be used as agricultural land till the date of sale, should be treated as agricultural land and the same is exempt and not exigible to tax from capital gains in view of section 2(14) r. w. sections 45 and 48 of the Act despite the fact that the land in question was a converted land as on the date of sale. The co-ordinate bench of this Tribunal in its order in the case of M.R. Seetharam (HUF) (supra) has only followed this proposition- of law laid down by the Hon'ble jurisdictional High Court of Karnataka, vindicating the stand of the Tribunal in tire cases of H.S. Vijaykumar V ACIT, Hassan (supra), T. Suresh Gowda & Others (supra) and Smt. K. Leelavathy.

5. Further, similar issue came for consideration before this Tribunal in the case of Shri D. Dasappa Vs. Deputy Commissioner of Income-tax in ITA Nos.2222 & 2223/Bang/2016 dated 9.2.2022, wherein Tribunal held as under:- “16. We have heard both the parties and perused the material on record. The assessee sold the agricultural land for Rs.1,95,00,000 by Sale Deed Sale Deed dated 16.7.2007 entered into between 1. Sri. T Prasanna Kumar Gowda (aka T. Prasanna Gowda) S/o. Sri. M Thimme Gowda 2. Smt. K Leelavathi W/o. Sri. M Thimme Gowda & 3. Sri. Dasappa, S/o. Late Sri. Singrigowda (The Vendors) and M/s. Goodlife Shelters Pvt Ltd., having its Registered Office at 25/6, AG 6 Brigade Majestic First Main, Gandhinagar, Bangalore-560009. The description of schedule of properties has already been extracted in the earlier part of this order. 17. According to the AO, it is clear from the description of schedule of properties that the lands are

No.108/Bang/05 dated 28.11.2006. After taking into account the rival submissions of an almost identical issue to that of the present issue under dispute, the Tribunal has held as under: "6.4. In this case also various conditions imposed by the Deputy Commissioner, Hassan were not fulfilled by the assessee prior to the sale of the said land. It is observed that permission has been accorded for residential purposes and whereas the sale has been made to Indian Oil Corporation for putting up a service station. This contradiction itself goes to show that the permission accorded does not militate against the land becoming non- agricultural land. The first appellate authority also went by the fact that the land was sold on yardage basis to Indian Oil Corporation. This single circumstance in our considered opinion does not change the character of the land for the reason that no layout plan was obtained, nor the land had been subject to any change in physical characteristics. A person can obtain higher amount by adopting a particular methodology of valuation and this by itself does not result in an asset becoming a capital asset. Non-payment of land revenue for a period of one month and 10…

Operative decision and relief

43. In the result, appeal by the assessee is allowed in part. ITA.1465/Bang/2008 - By the assessee, Shri. Dasappa - Assessment Year.2005-06 : 44. The first ground is general in nature and does not call for any specific dealing as such. 45. Coming to the second ground which is with regard to the sale of land, we have elaborately deliberated upon the issue and given our findings at paras 33 to 38 above wherein we have held that the revenue authorities were not justified in holding that the land sold by the assessee was not agricultural land and consequentially charging long-term capital gains on such sale. 46. Coming to the third ground which is against charging of interest u/s.234B, we hold that the Assessing Officer may give consequential relief after giving effect to our order.

47. In the result, appeal by the assessee is allowed.” 23. In the present case, the main reason for treating the land as non-agricultural is that the land was converted for usage of non-agricultural purposes. However, the assessee filed revenue records wherein it is stated that the land still continued to be agricultural land wherein crops like Ragi & Paddy were cultivated by the assessee. Further, it was brought on record by the assessee that the land revenue was paid as applicable to agricultural land only. The land got converted by the assessee for non- agricultural purposes and conversion permission was granted on the condition that the land should be used for non-agricultural purposes within two years, otherwise original character of the land i.e., agricultural in nature would be restored. The assessee has not used the land for non-agricultural purposes even after conversion of the land for non-agricultural purposes. In similar circumstances, in the case of Shri M.R. Anandaram (HUF) v. ACIT (supra), the Tribunal observed that though the said land was converted for non-agricultural purposes, but cultivation of land continued till the date of sale of the land. Thus, the land…

24. The Madras High Court in the case of CIT v. Ashok Kumar Rathi (404 ITR 173)(Mad) held that if the land is recorded as agricultural land in the revenue records, it would only enure in favour of the assessee as agricultural land and assessee is entitled to get exemption from tax., 25. The Hyderabad Bench of the Tribunal in Tulla Veerender v. Addl. CIT (160 TTJ 435)(Hyd) held that when the land which does not fall under the provisions of section 2(14)(iii) of the Act and assessee is engaged in agricultural operations in such land and also being specific agricultural land in the revenue records, transfer of such land cannot be considered as a transfer of capital asset. 26. In the case of Harniks Park (P) Ltd. v. ITO (62 SOT 15)(Hyd) the Tribunal held that where land which does not fall under provisions of section 2(14)(iii) and an assessee who is engaged in agricultural operations in agricultural land and also being specified as agricultural land in revenue records, transfers such agricultural land as it is, in such circumstances, such transfer cannot be considered as a transfer of capital asset or transaction relating to sale of land was not an adventure in nature of trade so as…

We note that revenue has not been able to bring anything on record to controvert the above observation. It is also not the case of the revenue that the land was used by the assessee for non- agricultural purposes. Accordingly, we allow the additional grounds raised by the assessee. 9. As we have considered the issue raised by assessee in additional grounds in assessee’s favour, we do not wish to dwell upon the other issues raised in the grounds of appeal filed by the assessee as submitted by the Ld.AR and they are left open to be adjudicated in an appropriate circumstances. Accordingly, the appeal filed by the assessee stands allowed as indicated hereinabove. Order pronounced in open court on 21st June, 2022.

Ratio and legal principle

• The packaged judgment addresses Rural agricultural land situated beyond the specified limits was converted for non agricultural purposes but was used for agriculture till the date of sale- Facts: Assessee claimed that land is situated beyond the Municipal limits 10 kms. and therefore, it is not a capital asset as per section 2(14) of the Act. Revenue contended that the land was converted for non agricultural purposes before execution of sale deed, therefore, it is a capital asset u/s 2(14) & cannot be exempted u/s 10(1). Tribunal noted and held: (i) The lands in question do not cease to be agricultural lands merely because it stood converted…. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with rural agricultural land situated beyond the specified limits was converted for non agricultural purposes but was used for agriculture till the date of sale- facts: assessee claimed that land is situated beyond the municipal limits 10 kms. and therefore, it is not a capital asset as per section 2(14) of the act. revenue contended that the land was converted for non agricultural purposes before execution of sale deed, therefore, it is a capital asset u/s 2(14) & cannot be exempted u/s 10(1). tribunal noted and held: (i) the lands in question do not cease to be agricultural lands merely because it stood converted… Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

Does this case match your facts?

Section / provision impact

• 2(14) - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• Rajesh R. Hemrajani v. ITAT - Bombay High Court
• Pujya Sindhi Panchayat Trust v. ITO(E) - ITAT Mumbai
• Annamma Samkutty v. ITO - ITAT Pune

Different outcome / possible distinction

• Pr. CIT (Central)-4 v. DBM Geotechnics & Construction Pvt. Ltd. - Partly allowed
• Pr. CIT (Central)-1 v. Surendra L. Hiranandani - Dismissed

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