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Nathmal Jalan Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Patna
Decided On
Judge
Reported in(1983)6ITD275(Pat.)
AppellantNathmal Jalan
RespondentWealth-tax Officer
Excerpt:
1. the appellant-assessee by his present appeals challenges the first consolidated appellate order dated 23-2-1981, of the learned aac, for the assessment years 1970-71 to 1976-77. the assessee is a resident-individual by status and the valuation dates are the relevant financial years ending 31st march of each year.2. the appeals are against a consolidated order. the facts, circumstances, parties and issues are identical. for the sake of convenience, therefore, we propose to dispose of all the appeals by a single order.3. the first common ground of the assessee's appeals during all the years under consideration is to the following effect: for that the learned wealth-tax officer and aac have erred by now allowing mango orchard as exempt under section 5(1)(iva) of the wealth-tax act.4. the.....
Judgment:
1. The appellant-assessee by his present appeals challenges the first consolidated appellate order dated 23-2-1981, of the learned AAC, for the assessment years 1970-71 to 1976-77. The assessee is a resident-individual by status and the valuation dates are the relevant financial years ending 31st March of each year.

2. The appeals are against a consolidated order. The facts, circumstances, parties and issues are identical. For the sake of convenience, therefore, we propose to dispose of all the appeals by a single order.

3. The first common ground of the assessee's appeals during all the years under consideration is to the following effect: For that the learned Wealth-tax Officer and AAC have erred by now allowing mango orchard as exempt under Section 5(1)(iva) of the Wealth-tax Act.

4. The assessee is said to have purchased 9.19 acre, i.e., 6 kathas of land sometime during 1970. There are said to be about a dozen trees there in the said plot. The value of the said plot of land was reflected by the assessee in his return of income in the following manner: Assessment Value Value estimated year reflected by the WTO Rs. Rs.1970-71 26,000 30,0001971-72 26,000 30,0001972-73 27,000 35,0001973-74 28,000 36,0001974-75 28,000 36,0001975-76 29,000 40,0001976-77 29,000 40,000 5. Since there are said to be 12 old mango trees in the said plot of land-on that basis--the assessee claimed that the land was exempt under Section 5(1)(iva) of the Wealth-tax Act, 1957 ('the Act')---being agricultural land. The learned WTO obtained a report from his inspector and on the basis thereof and other materials in his possession, recorded a finding that the said land, being within the municipal corporation was not assessed to the land revenue. The Inspector also observed that the residential houses were fast coming up in the area and no agricultural operations were being carried out on the said land.

The learned WTO on the basis of the said report estimated the value of the land as referred to above and refused to allow exemption as claimed.

6. The assessment orders were challenged subsequently by the assessee.

Shri N.P. Jajodia, the learned authorised representative, argued before the learned AAC that the learned WTO was not justified in disallowing the exemption claimed by the assessee in respect of the mango orchard, which in fact, was an agricultural land and, therefore, exempt under Section 5(1) (iva). He further, argued that there was no basis for enhancing the value of the said land. He continued that the agricultural operations were being carried on regularly and that the said piece of land was some sort of a fruit orchard. It was contended that the land, no doubt, is in the municipal area, but cannot be denied exemption. The mention was also made that during the assessment year 1976-77 an agricultural income of Rs. 500 was reflected.

7. The learned AAC after considering the contentions raised before him and relying upon the ratio in the case of Syed Rafiqur Rahman, decided by their Lordships of the Patna High Court and reported in Syed Rafiqur Rahman v. CWT [1970] 75 ITR 318 and in another case i.e., CWT v.Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 (SC), confirmed the assessment orders on this point during all the years under consideration.

8. The assessee is now in further appeal before us. On behalf of the appellant, Shri Jajodia, the learned authorised representative, repeated and reiterated all the contentions he had earlier raised before the lower authorities and further placed on record a Circular bearing No. 2(WT), dated 16-3-1968 [see Taxmann's Direct Taxes Circulars, Vol. 1, Edn. 1980, pp. 1005-06] issued by the Direct Taxes Advisory Committee, and photostat copies of two papers--said to be the receipts for the land revenue, said to have been paid. He mentioned that the land in question was never put to any non-agricultural use and that the agricultural operations were regularly carried on in the sense that an orchard was being maintained. It was also contended that the land is not within the municipal corporation and that, in fact, the same is situated within the jurisdiction of village Kurji. He also submitted that the ratios relied upon by the learned AAC could not be helpful to the revenue since the facts were different. On the basis of such arguments, he contended that the consolidated impugned order on the point be set aside and exemption allowed.

9. On behalf of the revenue, the learned senior departmental representative, Shri Khan, supported the actions of the authorities below and further argued that the report of the Income-tax Inspector was clear on the point and that the contents thereof have not been challenged. He continued that the circular mentioned by the assessee is also of no help being irrelevant in the context. He also relied upon the ratio in the cases supra.

10. The contentions raised and submissions made on behalf of the contesting parties have been heard and record carefully perused. The area of the plot in question is 0.19 acre, i.e., 6 kathas, i.e., less than 1,000 square yds. 12 mango trees were said to be in the plot at the time of purchase and it is not shown that the number has gone to 13, i.e., there is no change of whatsoever nature in the plot. The plot is said to be sorrounded by a compound wall and the house construction activities around the plot are said to be in progress and some houses are said to have been built also. The land is situated within the area of the municipal corporation, Patna. On behalf of the assessee, it was no doubt contended that the land is situated in Kurji village, but no evidence of any sort to support the stand was placed on record. In absence of any such evidence, it is clear that the plot of land is situated within the jurisdiction of Patna municipality.

11. In our view, the size of the plot is such which is practically impossible of being used for any agricultural operation. For properly understanding as to what is an agricultural operation, we have got to refer the finding of the Hon'ble Supreme Court in the case of CIT v.Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466. According to the said finding: 'Agriculture' in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term, meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. These are basic operations and require the expenditure of human skill and labour upon the land itself.

12. First of all, it is not shown that the land in question can be termed as an agricultural land. Secondly, it is also not shown that the agricultural operations as contemplated in Raja Benoy Kumar Sahas Roy's case (supra) were at all being carried on during the relevant periods.

In such circumstances, it appears difficult to accept the assessee's contentions.

13. The receipts relied upon by the assessee do not lead anybody anywhere. It is not shown as to whether these pertain to the plot in question or others. On our specific query, no revenue record was pointed out to ascertain that the land in question was agricultural.

With regard to the receipts, no demand of the revenue's side was also shown. These receipts, therefore, cannot be of any consequence for the controversy at hand.

14. The reliance on the circular also is somewhat misplaced. According to item 2(b) in the said circular, the agricultural operations should have been carried on from year to year. No such fact is proved before us. It is also not shown that demand for agricultural cess was raised against the assessee by the revenue authorities of the State Government. It is not denied by anybody that the house buildings are coming up soon in the locality. The lands round the plot are said to be used for residential purposes only. Thus, for the time being, there may not be house construction on the plot, but the possibility of its being put to non-agricultural use, i.e., for residence purposes, cannot at all be ruled out.

15. If some income of Rs. 500 or so was shown by the assessee as agricultural income during a particular year, that cannot by itself be a basis for coming to the conclusion that the land in question is an agricultural land. Moreover, it is not shown that the said income was directly attributable to this plot. The learned ITO might have acted there on the basis of the entries made in the return Thus, the entries in the return cannot take the place of proof for recording a finding in the controversy before us.

16. The inspector's report is really clear on the point. The plot, according to the report, is said to be situated on the western and northern side of Patliputra Industrial Estate and sorrounded by compound walls. The land is situated in the Patna municipal area and houses are said to be fast approaching from northern side. According to the report, there are few trees and the land is not assessed to land revenue. The contents of the report of the Income-tax Inspector do not appear to admit of any confusion or ambiguity. The contents were not either rebutted by the assessee by means of some evidence. It will, therefore, not be at all unsafe to base a finding on the contents of such a report.

17. In the light of the preceding discussions, we are satisfied that the plot in question is not at all an agricultural land. In fact, the same is only a plot of land having compound walls within the municipal limits, where house buildings are coming up soon. It is not an orchard either since no activity connected with and concerned to the maintenance of orchard are being undertaken. The same number of trees which were there at the time of purchase are said to be existing during the relevant period. The assessee, therefore, was not justified to claim exemption under Section 5(1)(iva). The claim was rightly negatived by the learned WTO and such approach of the learned WTO was correctly confirmed by the learned AAC. For such a conclusion, we further find support from the ratio in the case of Syed Rafiqur Rahman (supra). The consolidated impugned order on this point, since admits of no interference, is confirmed.

18. During the assessment years 1975-76 and 1976-77, the assessee has also taken another common ground to the following effect: For that for all the preceding years since start of factory building the WTO has accepted book value of the building in the wealth-tax assessments.

1 9. During the assessment year 1975-76, the assessee showed the value of the factory building at Rs. 43,700 on the basis of the assessee's account books. The learned WTO noticed that the assessee had not maintained verifiable accounts of investments and that the value shown by the assessee was low as compared with the prevailing cost of construction during the accounting period. Thus, he rejected the figure shown by the assessee and valued the factory building at Rs. 53,300.

So, in place of the investment of Rs. 43,700 shown by the assessee, the learned WTO took it at Rs. 53,300. On appeal, the learned AAC confirmed the figure picked up by the learned WTO.20. During the assessment year 1976-77, such value of investment on factory building was shown by the assessee at Rs. 46,620 and for the same reasons, the learned WTO adopted such value at Rs. 64,767. On appeal, the learned AAC reduced such value to Rs. 56,000.

21. By the present appeals, the assessee challenges the confirmation of the value of investment on factory building at Rs. 53,300 and Rs. 56,000 during the assessment years 1975-76 and 1976-77, respectively.

On behalf of the appellant, the learned authorised representative contended that the factory building was coming up on a leasehold plot and that the value should, therefore, be adopted keeping in view that the assessee's right to transfer is restricted. It was also contended that the investment shown in the assessee's books should have been accepted. The learned authorised representative also argued that the inspector of the revenue whose report is relied upon by the learned WTO, was not an expert in the line and, therefore, any reliance on such a report cannot naturally be very safe.

22. On behalf of the revenue, the learned senior departmental representative supported the impugned order on the point and further invited our attention to the chart showing investments in the factory building during various years including the years under consideration.

He contended that whatever relief could possibly be relevant was already allowed by the learned AAC.23. The arguments have been heard and record carefully perused. This was not denied before us that the verifiable accounts of the investment are not maintained by the assessee. The inspector valued the investment at Rs. 52,732 on the valuation date, i.e., 31-3-1975. No serious, objection could be taken against the report of the inspector. In view of the existence of the defect and the report of the inspector, we feel that the finding of the learned WTO was correct. However, the whole process is on estimate. We feel if the value of the investment during the assessment year 1975-76 is restricted to Rs. 50,000, the same will meet the ends of justice. For the same reason during the assessment year 1976-77, we restrict the value of investment on factory building at Rs. 55,000. The balance is deleted. The impugned order on this point is modified to this extent.

24. In the result, the appeals are partly allowed for the assessment years 1975-76 and 1976-77 and dismissed for the remaining years.

1. Since after carefully perusing the order passed by the learned Judicial Member as contained in paras 1 to 17 holding in respect of the assessment years 1970-71 to 1976-77 that a mango orchard owned by the appellant was merely a plot of land and not an agricultural land, I have failed to persuade myself to agree with that finding, I would express a note of dissent as follows: 2. The facts relevant for determining the issue as contained in the orders passed by the ITO and the AAC have already been stated in the above-mentioned paragraphs of the order made by the learned Judicial Member but I would, for the sake of making a self-contained order, briefly recall them hereinafter.

3. The WTO had initiated proceedings of wealth-tax against the appellant under Section 17 of the Act for the assessment years 1970-71 to 1975-76 and under Section 14(2) of the Act for the assessment years 1976-77. In response to these notice, returns of wealth had been filed by the assessee for all the seven assessment years and in each of these returns the assessee had shown that he owned a mango orchard admeasuring .19 acre situate at Kurjee Digha. The value of this plot of land had been shown at ligures varying between Rs. 26,000 to Rs. 29,000 but it was claimed to be exempt under the provisions of Section 5(1)(iva). The WTO did not accept the contention of the appellant that the mango orchard was an agricultural land and, therefore, after holding that the exemption was not available to the appellant under the provisions of Section 5(1)(iva), included the value of that land determining it at figures ranging between Rs. 30,000 to Rs. 40,000 in the seven assessment years. The WTO had rejected the claim of exemption in the following terms as per finding contained in the assessment order for the year 1970-71: Immovable Property: The assessee has shown the value of mango orchard at Kurjee Digha at Rs. 26,000 and has claimed exemption under Section 5(1)(iva). The land is .19 acre and there are 12 old mango trees on it. As it appears from the inspector's report, the orchard is within the municipal corporation area and is not assessed to land revenue. Residential houses are fast approaching it. From the ITI's report, it is also clear that agricultural operations are not regularly carried out on the land and it cannot be claimed to be an agricultural land. Thus, the property does not qualify for exemption under Section 5(1)(iva). As regards, the value of the property, the area is 6 kathas and is surrounded with a compound wall. There are 12 old mango trees on it. The value of the land, trees and compound wall is estimated at Rs. 30,000 and added to the assessee's wealth.

Similar findings had been given by the WTO in the subsequent six assessment years and the value of the land was gradually enhanced to Rs. 40,000 by the end of the valuation date relevant to the assessment year 1976-77.

4. Before arriving at the above conclusion the WTO had deputed an inspector to make a spot inspection of the land in question. The inspector had reported as follows: As directed, I visited the orchard of the above-named person. The plot is just on the western and northern side of Patliputra Industrial Estate and is surrounded with the compound wall. The orchard is within the municipal corporation and the residential houses are fast approaching from the northern side. There are few old trees on it. Further, the land is not assessed to land revenue.

In the circumstances, this orchard could not be termed as agricultural land.

R. Aggrieved by the finding given by the WTO the appellant filed appeals before the AAC in respect of all the seven assessment years.

The following contentions were taken by the learned Counsel for the appellant before the AAC: 1. The land in question was a mango orchard and, therefore, an agricultural land which was exempt under Section 5(1)(iva) of the Act.

2. Agricultural operations like watering of the trees and sprinkling of pesticides, etc., had been carried on although these operations were not as regular as in the case of standing crops.

3. That even though the land was said to be situate within the municipal area, there was no bar for claiming exemption for an agricultural land within the provisions of Section 5(1)(iva).

5. The income from agriculture from the said land had been returned in the income-tax returns filed and that in the assessment year 1976-77 when an estimated income of Rs. 500 had been shown from mango orchard, the ITO had taken the value at an estimated sum of Rs. 1,000.

6. The AAC, however, did not accept the representations made as above and he held, after relying upon the decisions of the Hon'ble Patna High Court in Syed Rafiqur Rahman (supra) and the Hon'ble Supreme Court of India in Officer-in-Charge (Court of Wards)'s case (supra), that the land in question was not an agricultural land. According to him, the land was situate within the limits of municipal corporation, and since there were only 12 mango trees on the land and since no regular agricultural operations were carried on in true sense, the land could not be accepted as an agricultural land exempt within the provisions of Section 5(1)(iva).

7. In further appeal before the Tribunal, the contentions that were raised before the AAC were reiterated. It was further contended by the learned Counsel that in view of a circular issued under the Act, a land which may be situate within a Town Planning Scheme, could not be denied exemption, provided the following conditions were satisfied: (ii) Agricultural operations have been carried on from year to year; and Over and above, the reliance placed on the above Circular issued by the department, the learned Counsel produced before us photostat copies of the land revenue receipts issued by the circle officer. These photostat copies of the land revenue receipts indicate that the land was situate in Circle-Patna and Police Station, Digha, and was owned by Shri Nathmal Jalan, son of Shri Babulal Jalan. The area of the land is indicated as .19 acre. 'Katha' number mentioned is 13 and the plot number is mentioned as 5414. For the revenue year 1971-72 a sum of Rs. 14.78 had been paid as land revenue and for the year 1980-81 a sum of Rs. 12.68 only had been paid as land revenue. Ultimately, it was contended by the learned Counsel that the basic operation of planting the mango trees having been carried on in that land and subsequent operation of watering and applying pesticides having been carried on year after year, the mango orchard was nothing but an agricultural land and that the authorities below were not justified in denying the claim of exemption under Section 5(1)(iva).

8. Since in spite of a catena of decisions no precise or strait-jacket formula has been so far evolved as would decide whether a land is an agricultural land or not, the determination of the character of land in the ultimate analysis has to depend upon the facts and circumstances of each case and that in each case a conclusion will have to be reached upon a balanced consideration of the diverse factors. In these circumstances I have instructed myself with the directions given by the Hon'ble Supreme Court of India in the decision in the case of Officer-in-Charge (Court of Wards) (supra). It has been observed in that decision as follows: ... the determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of 'assets', but its actual condition and intended user which has to be seen for purposes of exemption from wealth-tax . . . .

I have also instructed myself with the law on the subject as laid down in another decision of the Hon'ble Supreme Court of India in the case of Raja Benoy Kumar Sahas Roy (supra). I have kept in mind the guidelines laid down that the agriculture involves both basic operations requiring the expenditure of human skill and labour upon the land itself and subsequent operations carried on in connection with the basic operations. I have also gone through the decision of the Hon'ble Patna High Court in the case of Deen Mohammad Mian v. Hulas Narain Singh 23 Patna LT page 143, wherein the following observations appear: The case of an orchard is quite different. Orchard trees ordinarily are, and can be presumed to have been planted by man after preparation of the ground which is cultivation and seasonal crops are gathered. Fruit trees also require seasonal attention such as pruning and digging of the soil around the roots, and it cannot be said that this ceases to be cultivation merely because the whole tree is not replanted every year . . . .

9. The above decision of the Hon'ble Patna High Court was noticed by the Hon'ble Supreme Court of India while deciding the case of Raja Benoy Kumar Sahas Roy (supra). I have also, before taking a decision on the issue, carefully gone through the decision of the Hon'ble Patna High Court in the case of Syed Rafiqur Rahman (supra), a decision which has been relied upon by the learned AAC in declining the exemption claimed by the appellant.

10. Proceeding to decide the issue in the background of the above-mentioned facts and the legal light available from the aforesaid decisions of the Hon'ble High Court and the Supreme Court of India, it appears to me that the land admeasuring .19 acre situate at Police Station, Digha, was nothing but an orchard. The Inspector of Income-tax who was deputed to make an on the spot inspection of the plot of land, has stated repeatedly that the land in question was an orchard and that since the orchard was within the municipal corporation area and since the residential houses were being built on the northern side of the land and since the land was not assessed to the land revenue, the orchard should not be treated as an agricultural land. The most important fact as to whether the land was orchard or not has been reported by the inspector in favour of the appellant. He has repeatedly stated that the land was an orchard but for the various reasons given by him it would not be treated as an agricultural land. According to me, this report which seems to have formed the backbone of the decisions given by the ITO, the AAC and the learned Judicial Member of the Tribunal is not acceptable to me as far as it suggests a conclusion that the orchard was not an agricultural land. It is accepted by the inspector that there are few trees on it but since the land was not assessed to the land revenue and since the area fell within the municipal corporation, it should not be treated as an agricultural land. This, according to me, is fallacious and incorrect. The land is assessed to the land revenue as has been shown by the two photostat copies of the land revenue receipts furnished by the learned Counsel for the appellant. These two receipts not only show that the above-mentioned .19 acre of land situate at Digha was assessed to the land revenue but also identify it by indicating the same area as has been mentioned by all the lower authorities. These two receipts do not leave any doubt whatsoever that the assessee did own .19 acre of land in Digha which was an orchard and which was subjected to the land revenue in the various years. In my opinion, the learned Judicial Member was not correct in discarding the weight of evidence as available from the two photostat copies of the land revenue receipts.

The viewpoint expressed by my learned brother in para 13 of his order to the effect that the receipts furnished cannot be of any consequence is not acceptable to me. The record of the assessment which has been perused by me shows that, in fact, the assessee owned an orchard in Digha which yielded agricultural income of varying amounts. I find that in the assessment year 1972-73 the assessee had shown an agricultural income of Rs. 2,700 from 'sale of mangoes from orchard in Digha, Patna' in Part III of the return of income. I also find that in the assessment year 1976-77 the assessee had shown an estimated agricultural income of Rs. 500 from the same plot of land and the [TO had in his assessment order determined the income at a sum of Rs. 1,000 in the following words: Agricultural Income: The assessee has shown income of Rs. 500 from this source but no particulars have been furnished. On the basis of the discussions I estimate the income from this at Rs. 1,000.

The assessee had felt aggrieved of the assessment made as above and, therefore, an appeal was preferred before the AAC. In para 10 of his order the AAC held as follows: The last grievance is against estimate of agricultural income at Rs. 1,000 as against Rs. 500 shown. The appellant owned an orchard of six kathas in Digha, Patna. In view of the extent of the land the income be accepted as reasonable.

In the face of these findings given by the lower two authorities in the various years and in view of the fact that the assessee's agricultural income was assessed to tax in the years in which it was shown and also assessed to tax in the year in which it was not shown (as for example, in the assessment year 1977-78 when the assessee had shown no agricultural income, the ITO had estimated an income of Rs. 1,000 as in the assessment year 1976-77), it is very difficult for me not to accept the contention taken that the plot of land admeasuring .19 acre which is equivalent to 6 kathas and which is identified to be situate at Digha was not an orchard or not an agricultural land. Copies of the receipts of the land revenue furnished by the appellant would amount to good prima facie evidence as held by the Hon'ble Supreme Court of India in the decision in the case of Officer-in-Charge (Court of Wards) (supra). This good prima facie evidence, in fact, raised a rebuttable presumption that the land was, in fact, an agricultural land and since the department has done nothing and brought no evidence on record to rebut the presumption thus raised, it would not be entitled to contend that the land in question was not an agricultural land. According to me there are six important tests which would go to determine in the majority of the cases as to whether the land in question is an agricultural land or not. These are: 1. Whether the land stands classified in the revenue records as an agricultural land 4. Whether the use of the land for the agricultural purposes was for a long period or whether it was only a stop-gap arrangement 5. Whether there was any agricultural income derived from the land which was assessed as such by the income-tax authorities or by any other governmental authorities 6. Whether the physical characteristics of the land show that some basic and subsequent operations of agriculture had been carried thereon According to me, when the answers to all the six questions posed as above go in favour of the appellant, the departmental authorities were not justified in holding that the land in question was not an agricultural land. The fact that certain residential houses were being built on the northern side of the plot or that the land fell within the municipal corporation area is not of any material consequence. The fact that the land could in future years be sold and utilised for non-agricultural purposes is also of no consequence. The area of the land is also not contra-indicative of the land being agricultural in nature. It is widely known that in our country where there is a large-scale fragmentation of holdings and where the people living in villages are found to own and possess uneconomical small agricultural holdings, it cannot be said that those small holdings are not agricultural holdings. In conclusion, therefore, I would hold that the grounds taken in the seven petitions of appeals insofar as these relate to the exemption claimed under Section 5(1)(iva) in respect of 0.19 acre of orchard land situate at Digha will stand allowed.

11. Before coming to the above conclusion I have carefully gone through the decision of the Hon'ble Patna High Court which has been reported in Syed Rafiqur Rahman's case (supra). It appears to me that the facts in that case are wholly different. Even though the Survey 'Khaitan' as recorded in the municipal records had shown that the land in question in that case was a mango orchard, it had been found on inspection of that land that there was no mango tree on that plot of land and that land had never been used for agricultural purposes. There were few palm trees on the fringes of that land and it was in these circumstances that the Hon'ble Patna High Court had held that the land which was situate at Bhatta-charjee Road, Patna, was not an agricultural land.

The facts in the present case are wholly different. The land in the present case may be situate on the periphery of Patna but the facts which have been found by the Inspector of Income-tax, by the ITO and by the AAC clearly show that the land in question was an orchard ever since it came to the possession of the assessee. It is not the case of the department that the 12 mango trees were of spontaneous growth.

Since the trees were not of spontaneous growth, these must have been grown by carrying on basic operation of digging the land and planting the trees which were later on reared and protected by making a boundary wall around the plot of land. The subsequent operations of watering the mango trees and of applying pesticides are also said to have been carried on by the appellant an contended by the learned Counsel before the AAC. Since all these facts pointedly show that the land in question was nothing but an orchard or an agricultural land, the exemption claimed ought not be have been denied.

12. In the result, the identical grounds raised in the seven petitions of appeal at serial numbers 1 to 4 and 6 are allowed. In respect of the other points involved in these appeals relating to the investment in a factory building, I agree with the finding contained in the order passed by my learned brother in para 23 thereof.

1. The following question has been assigned by the President under Section 24(11) of the Act read with Section 255(4) of the Income-tax Act, 1961: Whether, on the facts and in the circumstances of the case, the exemption under Section 5(1)(iva) of the Wealth-tax Act, 1957 was allowable 2. The assessee purchased .19 acre of orchard land in 1970. The land was situated in Digha, Patna. According to the assessee, the value of land for the assessment years 1970-71 to 1976-77 was at Rs. 26,000, Rs. 26,000, Rs. 27,000, Rs. 28,000, Rs. 28,000, Rs. 29,000, and Rs. 29,000 respectively. The assessee claimed exemption under Section 5(1)(iva).

The matter was discussed by the WTO in the assessment year 1970-71 and the WTO did not allow the claim of the assessee on the ground that the orchard land owned by the assessee was inspected by an inspector who reported that it was situated within the municipal corporation area and residential houses are fast approaching it. The observation of the WTO in the assessment year 1970-71 is reproduced below: Immovable property: The assessee has shown the value of mango orchard at Kurji, Digha, at Rs. 26,000 and has claimed exemption under Section 5(1)(iva). The land is 19 decimals and there are 12 old mango trees on it. As it appears from the Inspector's report, the orchard is within the municipal corporation area and is not assessed to land revenue. Residential houses are fast approaching it. From the ITI's report, it is also clear that the agricultural operations are not regularly carried out on the land and it cannot be claimed to be agricultural land. Thus, the property does not qualify for exemption under Section 5(1)(iva). As regards the value of the property, the area is 6 kathas and is surrounded with a compound wall. There are 12 old mango trees on it. The value of the land, trees and compound wall is estimated at Rs. 30,000 and added to the assessee's wealth.

The WTO, accordingly, during the assessment year 1970-71 estimated the value of the land at Rs. 30,000. Following his order for the assessment year 1970-71, the value was estimated at Rs. 30,000, Rs. 35,000, Rs. 36,000, Rs. 36,000, Rs. 40,000 and Rs. 40,000 respectively for the assessment years 1971-72 to 1976-77.

3. The assessee came in appeal before the AAC and contended that the agricultural land owned by the assessee was exempt under Section 5(1)(iva). It was also stated in the grounds of appeal that the agricultural operations like watering of the trees and sprinkling of pesticides, etc., had been carried on by the assessee. It was further stated that even though the land was situated within the municipal corporation, there was no bar in claiming exemption under Section 5(1)(iva). The assessee further urged that the agricultural income shown had been accepted by the ITO. The AAC relying on Syed Rafiqur Rahman's case (supra) and Officer-in-charge (Court of Wards)'s case (supra) came to the conclusion that the assessee was not eligible for exemption under Section 5(1)(iva).

4. The matter came up before the Tribunal and the assessee filed receipts about the payment of the land revenue and further filed the copy of the circular of the department No. 2(WT), dated 16-3-1968--[See Taxmann's Direct Taxes Circulars, Vol. 1, Edn. 1980, pp. 1005-06] and urged that the land owned by the assessee was an agricultural land and, hence, the assessee was eligible for exemption under Section 5(1)(iva).

The matter was considered by the learned Judicial Member and Accountant Member separately and they did not arrive at a common conclusion on this issue.

5. Shri N.P. Jajodia, the counsel for the assessee again filed the copy of the land revenue receipt, which was previously filed for the years 1971-72 and 1980-81. He has also filed a copy of the land revenue receipt for the year 1982. The attention was drawn to the circular of the department No. 2(WT), dated 16-3-1968. On the basis of these papers, Shri Jajodia urged that the orchard land purchased by the assessee is only an agricultural land. The orchard land had 12 mango trees. The assessee is carrying on agricultural operation. Water arrangement for mango trees are made by the assessee. The assessee further by digging earth around the trees puts pesticides, etc., and makes proper arrangement for the storage of water for the roots. The assessee sells mango crops if the same is surplus and the same has been reflected in the accounts and had been accepted by the ITO.Accordingly, it was urged that the assessee was eligible for exemption under Section 5(1)(iva). Shri Vaskar Sen, senior departmental representative, on the other hand, placed strong reliance on the order of the Judicial Member and urged that simply because the assessee had 12 mango trees, it could not be said that the assessee fulfils the characteristic of the agricultural land. Under the above circumstances, the claim of the assessee was rightly negatived.

6. The assessee purchased agricultural land of 0.19 acre in 1970. The land was surrounded by a compound wall and it had 12 mango trees. The exemption under Section 5(1)(iva) was claimed in the assessment year 1970-71 and for the subsequent years. The Inspector was deputed by the WTO who reported the matter as hereunder: As directed, I visited the orchard of the above-named person. The plot is just on the western and northern side of Patliputra Industrial Estate and is surrounded with the compound wall. The orchard is within the municipal corporation and the residential houses are fast approaching from the northern side. There are few old trees on it. Further, the land is not assessed to the land revenue. In the circumstances, this orchard could not be termed as an agricultural land.

The Inspector has taken two objections against the assessee. The first objection of the Inspector is that the land is situated within the municipal corporation and the second objection is that the residential houses are fast approaching it. The assessee claims exemption under Section 5(1)(iva) which is available for the agricultural land belonging to the assessee. Therefore, even if the land was situated within the municipal corporation, this does not go against the assessee. Similarly, if nearabout the land of the assessee the houses are being constructed, the agricultural land held by the assessee would not lose the character unless the land held by the assessee is also being used for non-agricultural purposes. Under the circumstances the Inspector's report is not against the assessee or at least it does not indicate any material on the basis of which it can be held that the land held by the assessee was not an agricultural land. The learned Accountant Member has rightly quoted the abstract from the decision reported in Officer-in-charge (Court of Wards)'s case (supra) in the following words: The determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case.

What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of 'assets', but its actual condition and intended user which has to be seen for purposes of exemption from wealth-tax.

The observation in Deen Mohammad's case (supra) is also relevant for considering whether the land owned by the assessee was an agricultural land. The observation in the above decision has been made as follows: The case of an orchard is quite different. Orchard trees ordinarily are, and can be presumed to have been, planted by man after preparation of the ground which is cultivated and seasonal crops are gathered. Fruit trees also require seasonal attention such as pruning and digging of the soil around the roots, and it cannot be said that this ceases to be cultivation merely because the whole tree is not replanted every year. . .

After taking into account the above two decisions, it is clear that it can only be determined on facts whether the land owned by the assessee is an agricultural land or not. It would be relevant to refer the circular of the department No. 2 (WT) of 1968, dated 16-3-1968, which has been discussed at page 91 of Law & Practice of Wealth-tax and Gift-tax by V. Balasubramanian (4th Edition). The following characteristics had been indicated in the above circular which are necessary for accepting any land as an agricultural land: Circular No. 2(WT) of 16-3-1968 held exemption from available to vacant lands under town planning scheme if: 7. Now the matter is considered on facts having in mind the above circular. The assessee has produced two receipts for the years 1971-72 and 1980-81 showing the payment of land revenue. The certificates with the assessee were lying since 1971-72 for all the years. The assessee also filed the certificate for the year 1982. It is clear from the certificates that the assessee was paying the land revenue for the land owned by him. This was one of the characteristics indicated in the circular of 1968. The assessee has also indicated that it was digging the plants and raising the earth as required for the orchard for storage of water and applying manure and pesticides. It was also making arrangement for watering. The assessee had disclosed the income from the agricultural land in the assessment years 1972-73 and 1976-77 and the agricultural income shown by the assessee had been accepted by the department. The assessee did not show any income from agricultural in the assessment year 1977-78 but the same was estimated at Rs. 1,000 by the ITO. Therefore, if these facts are taken into consideration, it is evidently clear that the land owned by the assessee was agricultural land and the assessee was eligible for exemption under Section 5(1)(iva). Consequently, the answer to the question referred under Section 24(11) is as follows: On the facts and in the circumstances of the case, the exemption under Section 5(1)(iva) was allowable.

The matter is referred back to the Bench for passing an order according to the opinion of the majority of the members of the Tribunal.


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