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Commissioner of Wealth-tax, Bombay City-ii Vs. Sitaram N. Desai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberWealth-tax Reference No. 6 of 1966
Judge
Reported in[1977]109ITR13(Bom)
ActsWealth Tax Act, 1957 - Sections 2
AppellantCommissioner of Wealth-tax, Bombay City-ii
RespondentSitaram N. Desai
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateR.J. Kolah, Adv.
Excerpt:
.....assessment years concerned - held, lands exempted under section 2 (e) (i). (ii) agricultural land - lands allowed to remain fallow - no agricultural operations carried on for five years - tribunal rightly inferred that land ceased to be agricultural lands during relevant years. - - principally, three reasons influenced the mind of the wealth-tax authorities in taking this view :one was that the assessee had entered into several agreements with different parties for the sale of different portions of lands for non-agricultural purposes like starting of industries, etc. 3. both the assessee as well as the department being aggrieved by the judgment and order of the appellate assistant commissioner preferred appeals to the tribunal. , nanubhai industries and ciba of india could..........on on this land up to the year 1959-60. therefore, for the first year and part of the second year, agricultural operations were in fact carried on on these lands. we have already indicated the existence of tenants on these lands. it is clear, therefore, that for both these years, agricultural operations were in fact carried on on these lands (except the 40,315 sq. yds.).' 6. this finding of the tribunal has not been challenged by the revenue before us. in addition to this finding which clearly shows that the agricultural operations were carried on in these lands for the first year and for part of the second year under consideration, additional factors in the present case which appear on record are that these lands have been shown on the record of rights as agricultural lands, that.....
Judgment:

Tulzapurkar, J.

1. This is a reference under section 27(1) of the Wealth-tax Act, in which two questions have been referred to us for our determination, one at the instance of the Commissioner of Wealth-tax, Bombay City-II, Bombay, and the other at the instance of the assessee and the two questions respectively are these :

'(1) Whether, on the facts and in the circumstances of this case, and on the findings above referred to, the lands ultimately sold to or acquired for, (a) Ciba of India, (b) New Standard Engineering Co., and (c) Nanubhai Industries, were agricultural lands and, therefore, exempt under section 2(e)(i) of the Wealth-tax Act ((a), (b) and (c) for the year 1960-61 and (a) for the year 1961-62)

(2) Whether, on the facts and in the circumstances of this case, the finding that the lands admeasuring 40,315 sq. yds. were not agricultural lands and, therefore, not entitled to exemption from the wealth-tax is justified in law ?'

2. The facts giving rise to these two questions may be stated : The assessment years concerned in the case are the assessment years 1960-61 and 1961-62, the corresponding valuation dates being March 31, 1960, and March 31, 1961. The assessee, Shri Sitaram N. Desai, owned extensive lands in several villages of Pahadi, Oshivara, Dindoshi, Goregaon, etc., within Greater Bombay. Till and inclusive of the assessment year 1959-60, the value of these lands were not included in the assessment of the assessee under the Wealth-tax Act for the reason that these properties admittedly agricultural lands. It appears that in the years under consideration the department took the view that circumstances had altered and these agricultural lands had ceased to be agricultural properties and had become liable to be taxed under the Wealth-tax Act. Principally, three reasons influenced the mind of the wealth-tax authorities in taking this view : One was that the assessee had entered into several agreements with different parties for the sale of different portions of lands for non-agricultural purposes like starting of industries, etc. The second factor which weighed with the authorities was that except for land to the extent of one acre and 33 1/2 gunthas, all other lands were being used for agricultural purposes during the years in question, in that no agricultural crops were raised on those lands and, thirdly, the authorise were influenced by prospective use to which these lands were to be put, viz., construction of industrial units. In these circumstances, excluding from the total area 1 acre and 33 1/2 gunthas, all other lands were held by the Wealth-tax Officer as land which had ceased to be agricultural lands and liable to be charged under the Wealth-tax Act. The Wealth-tax Officer considered these lands, barring 1 acre 33 1/2 gunthas, under two groups. In the first group were considered the lands with reference to which agreements for sale had been entered into by the assessee with New Standard Engineering Co. Ltd., Ciba of India and Nanubhai Industries and which lands ultimately were acquired by the three concerns-by New Standard Engineering Co. Ltd. and Nanubhai Industries as a result of acquisition proceedings and by Ciba of India under a regular conveyance dated 14th May, 1962. The other group consisted of the remaining land to the extent of 51,068 sq. yards which was in the possession of the assessee on which no crop had been raised for several years. The Wealth-tax Officer considered the lands falling in both these groups as non-agricultural lands and were liable to be included in the assessment under the Wealth-tax Act. It may be stated that in appeal that was preferred by the assessee to the Appellate Assistant Commissioner, out of the lands admeasuring 51,068 sq. yards, which fell in the second group, the assessee conceded that the lands to the extent of 10,753 sq. yards were not used for agricultural purposes and were not agricultural lands, but the balance of 41,315 sq. yards, though not actually used for agricultural purposes in the year of account, according to the assessee, were still agricultural lands and were liable to be excluded for wealth-tax purposes. As regards the lands falling in the first group in respect whereof agreements had been entered into, it was contended that the mere fact that agreements had been entered into with the aforesaid three parties had not changed the character of those lands, the ownership of those lands continued to rest with the assessee till either the conveyance was executed or till an award was made and possession obtained under the provisions of the Land Acquisition Act. Reliance was also placed upon the fact that the record of rights showed all those lands as agricultural lands, that all these lands had been assessed to land revenue and that no permission for converting the user thereof to non-agricultural purpose had been sought or obtained and that in some portions agricultural operations were actually carried on. The Appellate Assistant Commissioner took notice of the fact that the lands were classified as agricultural lands, that they had been assessed to land revenue, that cultivation was being carried on in those lands till the year ending 31st March, 1959, and that no application was made to the Collector seeking permission from him for using these lands for non-agricultural purposes. He, therefore, took the view that the mere stoppage of agricultural operations on those lands after 31st March, 1959, did not change its character. He further took the view that the mere execution of agreements for sale did not affect the appellant's title to these lands till a conveyance was executed or lands were finally acquired under the Land Acquisition Act and that the character of the lands did not change in any manner. He, therefore, held that the Wealth-tax Officer's view that these lands had ceased to be agricultural lands as on the valuation dates could not be sustained. As regards the land admeasuring 1,43,000 sq. yards which had been sold by the assessee to Ciba, the sale deed having been executed on May 14, 1962, he held that the assessee continued to be the owner of the land till the date of conveyance and its value should not be assessed in the hands of the assessee as it was agricultural land. So far as the land which ultimately was acquired for Nanubhai Industries and New Standard Engineering Co. was concerned, he took the view that on a notification under section 4 of the Land Acquisition Act being issued the assessee ceased to be the owner of these properties and the compensation amounts less the amounts due to the tenants would be assessable in the hands of the assessee. As regards the land to the extent of 40,315 sq. yards he accepted the assessee's contention and held that the same was not includible in the assessment for the wealth-tax purpose.

3. Both the assessee as well as the department being aggrieved by the judgment and order of the Appellate Assistant Commissioner preferred appeals to the Tribunal. In its appeal the department contended that the Appellate Assistant Commissioner erred in holding that the land which was under agreement of sale to Ciba of India Ltd. and the land to the extent of 40,315 sq. yards continued to be agricultural land and was, therefore, exempt from wealth-tax. The assessee's appeal for the first year was confined to the Appellate Assistant Commissioner's finding that the assessee had ceased to be the owner of the land ultimately taken over by New Standard Engineering and Nanubhai Industries. On a consideration of the entire material that was available on record the Tribunal found : (i) that the lands ultimately acquired and taken possession of by New Standard Engineering Co., Nanubhai Industries and Ciba of India were agricultural lands, agricultural operations having been carried on there during the years under consideration; (ii) that for the first year the value of these plots which were acquired by New Standard Engineering Co., Nanubhai Industries and Ciba of India could not be included in the assessment of the year for the wealth-tax purposes as these assets were clearly exempt from the provisions of the Act. For the second year also, as far as Ciba lands were concerned, the Tribunal took the view that these could not be included in the assessment of the assessee as they continued to be agricultural lands in his possession as his property throughout the entire second year also, the conveyance in that behalf having been executed on May 14, 1962. But as regards the lands acquired by New Standard Engineering Co. and Nanubhai Industries, though no doubt these lands were actually cultivated and continued to be agricultural lands, the assessee was divested of these lands and as on the valuation date of the second year the assessee had received compensation and the compensation amount less what was payable to the tenants would have to be included in the assessment of the assessee as far as the second year was concerned. As regards the lands measuring 40,315 sq. yards were concerned, the Tribunal took the view that the assessee had not cultivated the lands for the past three years and had no intention of cultivating the same in future and that the assessee had been gradually divesting himself of the properties by selling for non-agricultural purposes and in the circumstances it was reasonable to infer that the character of those lands ceased to be agricultural lands notwithstanding that in the record of rights they were classified as agricultural lands. It is in view of these findings that were recorded by the Tribunal that the Commissioner of Wealth-tax got the first question mentioned above referred to us for our determination while the assessee got the second question referred to us for our determination.

4. So far the first question is concerned, it may be stated at the outset that so far as the lands which have been ultimately sold or acquired for Ciba of India, New Standard Engineering Co. and Nanubhai Industries are concerned, the question whether they are agricultural lands and, therefore, they are exempt under section 2(e)(i) of the Wealth-tax Act is required to be answered only for the assessment year 1960-61 and so far as the land sold to Ciba of India is concerned, the same question will arise for the assessment year 1961-62.

5. Under section 3 of the Wealth-tax Act, which is a charging section, the wealth-tax would be leviable in respect of the net wealth of every individual, Hindu undivided family and company on the corresponding valuation date at the rate or rates specified in the Schedule. Section 2(m) defines the 'net wealth' to mean the amount by which the aggregate value computed in accordance with the provisions of the Act (the Wealth-tax Act) of all the assets, wherever located, belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on the valuation date, subject to certain exceptions, with which we are not concerned and section 2(e) gives an inclusive definition of the expression 'assets', namely, it includes property of every description, movable or immovable but does not include, (i) agricultural land and growing crops, grass or standing trees on such land. It is in view of these provisions that the question that we have to consider is whether the lands which were owned by the assessee in the instant case, which for the sake of convenience have been divided into two groups, were agricultural lands on the relevant valuation dates or not. So far as the lands falling in the first group, that is to say, the lands in respect whereof the agreements for sale had been entered into by the assessee are concerned, certain facts which are found by the Tribunal will have to be stated. As far as the lands sold to Ciba of India are concerned, the facts are that lands admeasuring 1,43,000 sq. yards situate in Dindoshi and Pahadi village bearing S. Nos. SO/1, 20/10-11, 14, 15, 16 and 17, were agreed to be sold by the assessee to Ciba of India Ltd. for a fixed price of Rs. 9,84,000 and under the agreement earnest money of Rs. 50,000 was received. Ultimately, the conveyance came to be executed on May 14, 1962, though possession had been given in the meanwhile on 21st September, 1961. As regards the lands acquired by New Standard Engineering Co. the assessee had entered into an agreement with the said company for sale of lands admeasuring 1,30,680 sq. yards bearing Hissa Nos. 14/9-10-15, 25/1-2, 26, 29, 79/2-4, 81/2-5, 61/1, 23/3, 82/4 and 22 situate in Goregaon village. The agreement was entered into on December 22, 1958, for the fixed price of Rs. 3,26,680 and a deposit of Rs. 2,50,000 was paid thereof. But for some reason or the other, beyond the agreement, nothing happened. It appears that there was some difficulty on account of the tenants actually in occupation of such lands and such tenants having acquired certain rights objected to the sale till their rights were settled. The State Government was approached to acquire these lands under the Land Acquisition Act, whereupon a notification under section 4 was issued on or about December 28, 1959, and as these lands were urgently required proceedings under section 17 of the Land Acquisition Act were invoked some time in June, 1960, and ultimately these lands came to be vested in the State Government for the purpose of being handed over to the New Standard Engineering Co. Similarly, the lands admeasuring 1,75,000 sq. yards bearing Survey Nos. 35 to 40 were agreed to be sold by the assessee to Nanubhai Industries. But here also beyond the agreement nothing happened further and land acquisition proceedings were required to be initiated. A notification under section 4 was issued on January 24, 1960. Section 17 proceedings were completed on or about June 1, 1960, and possession was given with effect from December 1, 1960. It appears that enquiries were made from the Mamlatdar at Borivli and information was called for about the nature of these lands whether these lands were used for agricultural purposes and were assessed to land revenue or any local rate and if the lands were not then used for agricultural purposes, the date up to which they were used for such purposes, etc., and the Mamlatdar, by his reply letter dated March 22, 1962, stated that after enquiry it had been ascertained that the lands except Survey No. 81 measuring 22 gunthas and another survey number measuring 1 acre and 33 1/2 gunthas were used for agricultural purposes up to the year 1959-60. The Mamlatdar further gave information that the agricultural operations were still being carried on in these lands and the land revenue was being recovered from the assessee. From the report of the Mamlatdar it becomes clear that these lands were used for agricultural purposes up to the year 1959-60 and that they were being used for non-agricultural purposes only after the land acquisition proceedings were over. In other words, the lands were clearly agricultural lands considered from any point of view at least so far as the relevant assessment years were concerned. The Tribunal has recorded a finding as regards these lands which were the subject-matter of the agreement for sale in these terms :

'It is clear that agricultural operations were being carried on on this land up to the year 1959-60. Therefore, for the first year and part of the second year, agricultural operations were in fact carried on on these lands. We have already indicated the existence of tenants on these lands. It is clear, therefore, that for both these years, agricultural operations were in fact carried on on these lands (except the 40,315 sq. yds.).'

6. This finding of the Tribunal has not been challenged by the revenue before us. In addition to this finding which clearly shows that the agricultural operations were carried on in these lands for the first year and for part of the second year under consideration, additional factors in the present case which appear on record are that these lands have been shown on the record of rights as agricultural lands, that these lands have been assessed to land revenue under the Land Revenue Code and in respect of these lands no permission to convert their user to non-agricultural was ever sought or obtained. In order words, notwithstanding the fact that the assessee had entered into agreements for sale with regard to these lands with the aforesaid three parties, till the conveyance was actually executed in favour of one of the parties, viz., Ciba of India, and till the acquisition proceedings were completed in favour of the other two parties, the lands continued to be in possession of the assesses as agricultural lands. It was in view of these facts which have appeared clear on record that the Tribunal took the view that for the first year all these lands which were either sold or acquired for the three concerns were agricultural lands and the lands sold to Ciba of India even for the second year 1961-62 were also agricultural lands. Mr. Joshi appearing for the revenue has contended before us that certain aspects should be considered by this court, namely, that these lands are located within Greater Bombay situate in the vicinity of an area where large scale development has taken place and, therefore, the conduct on the part of the assessee in entering into agreements for sale of these lands in favour of industrial undertakings should be regarded as circumstances showing that these lands had ceased to be agricultural lands notwithstanding the fact that agricultural operations were being carried on in these lands for the first year and for some part of the second year also. He also contended that the price that had been fixed by the assessee with these three parties while entering into agreements for sale of the lands to them had been fixed per square yard and the price had not been fixed by reference to the area in terms of acreage or gunthas. He, therefore, argued that in view of these aspects it should be held that these lands which were the subject-matter of agreements for sale had ceased to be agricultural lands for the relevant years or for the years under consideration. It is not possible to accept this contention of Mr. Joshi, principally because notwithstanding the fact that these lands are situate within Greater Bombay and in the vicinity of an area where large scale development has taken place, in the relevant period actually agricultural operations were being carried on on these lands. Moreover, the large scale development to which reference was made by Mr. Joshi has undoubtedly taken place around these lands now, but we have to consider the position as was obtaining in the relevant assessment year. It is true that these lands are situate near the public highway but in the relevant years these had been shown as agricultural lands in the record of rights, that these were assessed to land revenue, that no permission was sought to convert the user of these lands for non-agricultural purposes and above all, as has been found by the Tribunal, agricultural operations were actually carried on on these lands for the first year under consideration and for part of the second year under consideration. In view of these facts it will be difficult to hold that the aspects on which reliance was placed by Mr. Joshi are sufficient to show that these had ceased to be agricultural lands during the relevant years. In our view, therefore, the Tribunal's finding that all these lands which were ultimately sold or acquired for Ciba of India, New Standard Engineering Co. and Nanubhai Industries were agricultural lands and, therefore, exempt under section 2(e)(i) of the Wealth-tax Act for the year 1960-61 and that the lands sold to Ciba of India were also agricultural lands and, therefore, exempt under section 2(e)(i) of the Wealth-tax Act for the year 1961-62 is correct. The first question is, therefore, answered in the affirmative, in favour of the assessee.

7. Turning to the second question, the finding which has been recorded by the Tribunal with regard to the land to the extent of 40,315 sq. yds. is expressed thus :

'As regards the land to the extent of 40,315 sq. yds. in the possession of the assessee, it is conceded that for the past three years, they are not being used or cultivated for agricultural purposes. The assessee has been entering into several transactions for the sale of lands for non-agricultural purposes, for example, with Miranda, Kadam, Patil, Shetty and others. It appears from the conduct of the assessee that the assessee had no intention of using these as agricultural lands in any event for the years under consideration or even to resume cultivation or using the same over again for agricultural purposes. Therefore, as far as the lands to the extent of 40,315 sq.yds. are concerned, we consider that the department has satisfactorily proved that they had ceased to be agricultural lands though we find from the record of rights that these 40,315 sq.yds. have been classified as agricultural lands. We are clearly of opinion that they ceased to be agricultural lands.'

8. In other words notwithstanding the fact that the aforesaid land to the extent of 40,315 sq.yds. has been shown in the record of rights as agricultural land during the relevant years, the Tribunal has found as a fact that for the past three years, that is, three years prior to the relevant assessment years, these lands were not being used for agricultural purposes, in that no agricultural operations were carried on therein. The Tribunal has further found that even for the two years under consideration the assessee had no intention of using these lands as agricultural land. This finding is recorded after drawing an inference from the fact that the assessee had been entering into several transactions for sale of portions of these lands for non-agricultural purposes to parties like Miranda, Kadam, Patil, Shetty and others. In other words, the position that emerges very clearly is that for the past three years and for the two years under consideration, that is to say, for a period of five years, these lands have never been put to agricultural use and it is on the basis of the conduct of the assessee in entering into transactions for sale of these lands during the relevant years that the Tribunal has come to the conclusion that the department has satisfactorily proved that these lands had ceased to be agricultural lands. Mr. Kolah appearing for the assessee has contended that the mere fact that the lands which were initially used for agricultural purposes were allowed to remain fallow for a year or two or for a certain duration would not lead to an inference that these had ceased to be agricultural lands and in that behalf he invited our attention to certain observations made by the Supreme Court in the case of Mst. Subhadra v. Narsaji Chenaji Marwadi reported in : [1962]3SCR98 . It appears that that was a case under the Bombay Rents, Hotel and Lodging Houses Rates Control Act, 1947, under which the expression 'premises' is defined by section 5(8) as meaning 'any land not being used for agricultural purposes'. In that case the court was concerned with certain premises barring plot No. 68, Town Planning Scheme, No. 1,Jamalpur, Ahmedabad, being part of Survey No.405,admeasuring approximately 38 gunthas and the Supreme Court was concerned with the question as to whether the aforesaid premises in the case before it were 'premises' within the meaning of section 5(8) of the Bombay Rents, Hotel and Lodging Houses Rates Control Act or not. In 1947 the respondent before the Supreme Court had by deed, dated 25th April, 1947, sublet the plot to the appellant at an annual rental of Rs. 2,225. This lease and the earlier leases recited that the lessees may construct buildings on the land and for obtaining sanction in that behalf the lessors shall make applications to the Collector or any other authority for that purpose. Accordingly, an application for conversion of the user of the land to non-agricultural purpose was made in 1949. Till 11th November, 1949, the plot was assessed for agricultural purposes under the Bombay Land Revenue Code. The question before the Supreme Court was what was the position in 1947 and Mr. Justice Shah (as he then was), speaking for the court, made the following observations (page 807, col. 2) :

'In the year 1947, the plot was undoubtedly lying fallow, but on that account, the user of the land cannot be deemed to be altered. User of the land could only be altered by the order of the Collector granted under section 65 of the Bombay Land Revenue Code.'

9. Relying upon these observations Mr. Kolah urged that the Supreme Court had accepted the position that simply because a particular land is allowed to lie fallow that was not sufficient to come to the conclusion that the character of the land would be altered. He also emphasised as was pointed out by the Supreme Court in that case that the user of the land could only be altered by order of the Collector granted under section 65 of the Bombay Land Revenue Code. In the present case before us Mr. Kolah pointed out that no permission had been sought by the assessee for converting the user of the land for non-agricultural purpose in respect of these lands admeasuring 40,315 sq. yards and these lands could be said to be lying fallow during the three years prior to the relevant years under consideration and during the two years under consideration. In other words, according to Mr. Kolah, simply because these lands admeasuring 40,315 sq. yds. were lying fallow and no agricultural operations were carried on therein would not go to show that these had ceased to be agricultural lands. On the other hand, the circumstances that no permission was sought by the assessee to have a change of user from agriculture to non-agriculture would go to show that these lands continued to remain agricultural lands even during the relevant years under consideration. It is not possible to accept this contention of Mr. Kolah for more than one reason. In the first place, the observation on which reliance was placed by him must be read in the context of facts which obtained in the Supreme Court case and also in the context of the question which the court was called upon to decide in that case. The Supreme Court was not concerned with deciding the question as to whether the premises in dispute before it being plot No. 68, Town Planning Scheme No. 1, Jamalpur, Ahmedabad, was agricultural plot or not. The Supreme Court was concerned with the question as to whether the premises in dispute before it were the premises within the meaning of section 5(8) of the Bombay Rents, Hotel and Lodging Houses Rates Control Act, 1947, where the expression 'premises' had been defined to mean 'any land not being used for agricultural purposes'. Therefore, the observation on which reliance has been placed by Mr. Kolah cannot straightway be applied to the facts obtaining in the present case and the question before us cannot be decided in the light of those observations. Secondly, it is not as if that there is merely one aspect, namely, that the lands in the instant case have been allowed to remain fallow for five years as suggested by Mr. Kolah. The Tribunal has not only observed that the lands undoubtedly were not used for agricultural purposes for three past years and were not put to agricultural use during the two years under consideration but has further gone to point out that during the two years under consideration there was certain conduct on the part of the assessee which had the effect of rendering the lands non-agricultural and the conduct on which reliance was placed by the Tribunal was the conduct indulged in by the assessee in entering into transactions for sale of portions of these lands to three parties. It is true that there is nothing on record to show as to whether those transactions were completed or not or what happened to those transactions but the fact remains that during the two years under consideration out of these lands portion had been agreed to be sold or transferred by the assessee to third parties and such sales were for non-agricultural purposes. The fact that these lands were allowed to remain fallow in the sense that no agricultural operations were carried on for five years coupled with the conduct on the part of the assessee during the relevant years under consideration are the circumstances which the Tribunal has relied upon for the purpose of drawing an inference that the assessee did not intend to put these lands to agricultural use and that, according to the Tribunal, was sufficient to come to the conclusion that they had ceased to be agricultural lands during the relevant years. We are in agreement with the inference that had been drawn by the Tribunal in this behalf. In this view of the matter, we are of the opinion that the finding recorded by the Tribunal that the land admeasuring 40,315 sq. yards was not agricultural land and, therefore, not entitled to exemption from wealth-tax was perfectly justified. The second question is, therefore, answered in the affimative, in favour of the revenue.

10. In the circumstances of the case, there will be no order as to costs of the reference.


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