Skip to content


Shiv Shanker Lal Vs. Commissioner of Income Tax, Delhi - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome Tax Reference Appeal No. 18 of 1968
Judge
Reported inILR1973Delhi298; [1974]94ITR433(Delhi)
ActsIncome Tax Act, 1961 - Sections 2(14), 45, 47 and 52
AppellantShiv Shanker Lal
RespondentCommissioner of Income Tax, Delhi
Advocates: D.S. Randhawa,; Randhir Chawla and; B. Kirpal, Advs
Cases ReferredCommissioner of Income Tax. v. George Henderson and Co. Ltd.
Excerpt:
(i) direct taxation - agricultural land - sections 2 (14), 45, 47 and 52 of income tax act, 1961 - whether property in question was agricultural land - material on record described land in 'khasra girdawari' as garden - nothing on record to show that prior to land being leased out it was used for non-agricultural purpose - after land leased out garden continued to be maintained - fact that larger area cultivated in earlier years and smaller areas cultivated in later years and that for some years no cultivation done will not alter character of land or user as agricultural land. (ii) capital asset - whether provisions of section 52 applicable to present case - property in question not capital asset but agricultural land - held, tribunal justified in holding that section 52 not.....m.r.a. ansari, j.(1) shri amba prasad, his son shri shiv shanker lal, and his grand-son, shri bhawani shanker. constituted a hindu undivided family. this family owned a property called amba prasad garden situated at subzimandi, of the extent of 14,716 sq. yards and coataining a garden house which covered an area of 312 sq. yards. amba prasad died in 1950 and in 1953, the joint family was disrupted by a partition between shri shiv shanker lal, his wife, smt. krishana devi, and his son, shri bhawani shanker. under this partition, the property known as amba prasad garden was allotted to the share of shri shiv shanker lal (who will be hereinafter referred to as the assessed). on 25-6-1961 the assessed, his wife, his son and his daughter-in-law formed a company known as new delhi theatres.....
Judgment:

M.R.A. Ansari, J.

(1) Shri Amba Prasad, his son Shri Shiv Shanker Lal, and his grand-son, Shri Bhawani Shanker. constituted a Hindu undivided family. This family owned a property called Amba Prasad Garden situated at Subzimandi, of the extent of 14,716 sq. yards and coataining a garden house which covered an area of 312 sq. yards. Amba Prasad died in 1950 and in 1953, the joint family was disrupted by a partition between Shri Shiv Shanker Lal, his wife, Smt. Krishana Devi, and his son, Shri Bhawani Shanker. Under this partition, the property known as Amba Prasad Garden was allotted to the share of Shri Shiv Shanker Lal (who will be hereinafter referred to as the assessed). On 25-6-1961 the assessed, his wife, his son and his daughter-in-law formed a company known as New Delhi Theatres Private Limited. The assessed, his wife and his son held 10 shares each and the assessed's daughter-in-law held 5 shares in this company. On 15-7-1961, the assessed sold 6,120 sq. yards of land out of Amba Prasad Garden along with the garden house situated therein to the company for Rs. 93.450.00. On 25-8-1961, the assessed sold 5,678 sq. yards from out of the remaining portion of the land to M/s. Ganesh Flour Mills Company Ltd., at the rate of Rs. 60.00 per sq. yard. In the income-tax return filed by the assessed for the assessment year 1962-63, the relevant previous year being the year ending 14-7-1961, the assessed declared a net income of Rs. 21,270.00 and a capital loss of Rs. 54,060.00. In computing this loss, the assessed had deducted Rs. 93,440.00, the amount for which the property was sold to the company, from Rs. 1,50,000.00 which, according to the wealth-tax return of the assessed was the value of the property. Although the assessed had claimed a capital loss in respect of the sale of this property to the company implying thereby that the property was a capital asset, during the course of the assessment proceeding he claimed that this was not a capital asset within the meaning of section 2(14) of the Income-tax Act, 1961 (hereinafter referred to as the Act) as it was in the nature of agricultural land. The Income-tax Officer did not accept the assessed's claim that it was an agricultural land and held that it was a capital asset. The Income-tax Officer was also of the view that the transaction in question came within the scope of section 52 of the Act and, thereforee, estimating the market value of the property at Rs. 80.00 per sq. yards, he held that the assessed had derived capital gains of Rs. 4,74,956.00. He included this amount in the income-tax return of the assessed and completed the assessment on a total income of Rs. 5,04,104.00.

(2) The assessed preferred an appeal before the Appellate Assistant Commissioner only in respect of the capital gains assessed by the Income-tax Officer. The Appellate Assistant Commissioner, however, confirmed the order of the Income-tax Officer except for a modification in the amount of the capital gains. He reduced the amount of capital gains to Rs. 3,80,664.00.

(3) The assessed preferred a further appeal before the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal) and raised three contentions, namely,-

(I) that the property was not a capital asset but an agricultural land; (ii) that the transaction did not come within the scope of section 52 of the Act; and (iii) that the difference between the sale price and the market value of the land having been treated as a deemed gift and assessed to Gift Tax Act, the same amount was not liable to be assessed under section 45 of the Act.

(4) The Tribunal accepted all the three contentions of the assessce and held that the property in question was not a capital asset but an agricultural land, that the provisions of section 52 of the Act were not attracted and that the difference between the market value and the sale price having been assessed to Gift Tax, it was not liable to be assessed under section 45 of the Act. The Tribunal, thereforee, deleted the amount of Rs. 3,80,664.00 from the income of the assessed.

(5) The Commissioner of Income-tax moved the Tribunal under section 256(1) of the Act for referring certain questions of law said to have arisen out of the order of the Tribunal. Although the order of the Tribunal was in favor of the asscssee, the latter felt aggrieved by the finding of the Tribunal that the assessed and the company to whom the assessed had sold the property were two separate entities and that the assessed had not transferred the land to himself. thereforee, the assessed also filed an application before the Tribunal under section 256(1) of the Act to refer certain questions of law to this Court. On a consideration of these applications, the Tribunal has referred the following questions to this Court under section 256(1) of the Act :-

(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the land in question was an agricultural land on the date of its sale to M/s. New Delhi Theatres Private Limited ' (2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions contained in section 52 of the Income-tax Act 1961 were not applicable to the facts of the case (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of section 47(iii) were applicable to the facts of the case? (4) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the fair market price of the land in excess of Rs. 15.00 per sq. yd. actually received by the assessed which would be liable to income-tax under section 45 of the Income-tax Act, 1961 and would be liable to gift tax under section 4(a) of the Gift Tax Act, would amount to double taxation (5) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that no capital gain was payable by the assessed ' (6) Whether on the facts and in the circumstances of the case, the Tribunal erred in not piercing corporate veil of a private limited company and not holding that the sale of the land by the assessed to M/s. New Delhi Theatres Private Ltd., was indirectly sale to himself and to his family

(6) Although as many as six questions have been referred by the Tribunal as questions of law arising out of the order of the Tribunal, we feel that only three questions arise for determination, namely,-

(1) Whether the property in question is an agricultural land If this question is answered in the affirmative, then no further question arises inasmuch as the agricultural land is excluded from the defination of capital asset under section 2(14) of the Act. But if this question is answered in the negative, then the further question would arise for determination, namely,- (2) Whether the provisions of section 52 of the Act are applicable to the facts of the case If this question is again answered in the negative, then no further question arises. But if this question is answered in the affirmative, i.e., against the assessed and in favor of the Revenue, the last question would arise for consideration, namely,- (3) Whether the difference between the sale price and the market value of the property would still be liable to be assessed under section 45 of the Act in view of the same having been already assessed under the Gift Tax Act

(7) We shall consider these questions in the order stated above. Shri Deva Singh Randhawa, learned counsel for the assessed, has challenged the very jurisdiction of this Court to consider the question whether the property is an agricultural land. According to him, the question whether a property is an agricultural land is purely a question of fact and that the finding of the Tribunal on this question is binding on the High Court and even if the question whether a particular property is an agricultural land is referred to the High Court, the High Court should decline to answer this question. In support of his contention that the finding of the Tribunal that a particular property is an agricultural land is a question of fact, he has referred to a decision of the Kerala High Court in Krishna Iyer v. Addl. Income-tax Officer : [1966]59ITR145(Ker) and a decision of the Punjab and Haryana High Court in Commissioner of Wealth-tax v. Smt. Sheela Devi and in support of his contention that the High Court should decline to answer questions of fact even if referred to by the Tribunal, he has cited a decision of the Supreme Court in Commissioner of Income-tax v. Smt. Anusuya Devi : [1968]68ITR750(SC) . In the Kerala High Court case, it was observed as follows :-

'WHETHER a piece of land is agricultural in character or a 'capital asset', as defined in section 2(4A) is essentially a question of fact.'

(8) In the case before the Punjab and Haryana High Court, it was observed as follows :-

'THE question whether a particular piece of land is or is not 'agricultural land' within the meaning of section 2(e)(i) of the Wealth-tax Act is necessarily a question of fact to be decided in the circumstances of a given case depending on the nature and character of the land, its environment, the use to which it has been previously put or is capable of being put, sometimes possibly the intention of the owner, its assessment or non-assessment to the land revenue, its situation within a municipal or a town planning area, its potential value, and various other relevant factors.'

(9) Neither the Kerala nor the Punjab and Haryana High Courts, however, went to the extent of staling that it was a pure question of fact and that the finding of the Tribunal on this question was binding upon the High Court and that the High Court was precluded from considering the correctness of the finding of the Tribunal in the light of the tests which have been generally laid down for determining whether a particular property comes within the meaning of agricultural land. On the other hand, both the High Courts have proceeded to consider the various factors which determined the character of the property. The very fact that there is voluminous case law on the question whether a particular property can be classified as an agricultural land and various High Courts have laid down various tests for determining the nature of the property indicates that the finding of the Tribunal that a particular property is an agricultural land is not binding upon the High Court and that it would be open to the High Court to consider the correctness of the finding in the light of the various tests laid down for that purpose. The observations of the Kerala, Punjab and Haryana High Courts that the question that a particular property is an agricultural land is a question of fact, can only be construed to mean that this is a finding which has to be arrived at by taking into consideration all the relevant facts. The finding of the Tribunal with regard to the fact on which the Tribunal comes to the conclusion that a particular property constitutes as agricultural land is no doubt binding upon the High Court. But the conclusion drawn by the Tribunal on such facts is not binding upon the High Court and it is open to the High Court to examine the correctness of such conclusion. The question whether a particular property constitutes an agricultural land is not such a question of fact which, according to the Supreme Court, the High Court should decline to answer.

(10) Capital asset as defined in section 2 of the Act means property of any kind held by an assessed but does not include agricultural land in India. The word 'agricultural land' itself is not defined in the Act; but 'agricultural income' is defined under section 2(1) of Act as follows :- 'agricultural income' means -

(A) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such; (b) any income derived from such land by - (i) agriculture: or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or (iii) the sale by a cultivator or reciver of rent-in-kind of the produce raised or recived by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause; (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on : Provided that the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house or as a store-house, or other out-building;'

(11) That the word 'agricultural land' has to be construed in the context of the definition of 'agricultural income' as refined in section 2(1) of the Act has been recognised by the Kerala High Court in Krishna Iyer's case cited by the learned counsel. M. S. Menon, C. J., observed in that case as follows :-

'THE expression 'capital asset' is defined in section 2(4A) of the Act. According to that definition 'capital asset' means property of any kind held by an assessed, whether or not connected with his business, profession or vocation, but does not include, among other things, 'any land from which the income derived is agricultural income'. The expression 'agricultural income' is defined in section 2(1) of the Act. It is clear from the definition that the primary condition that must be satisfied is that the land in question should be used for agricultural purposes.'

(12) The decision of the Kerala High Court was under the Income-tax Act, 1922. There is a change in the definition of the word 'capital asset' in the Act, the change being that whereas under section 2(4A) of the 1922 Act, capital asset did not include 'any land from which the income derived is agricultural income', under section 2(14) of the Act, 'capital asset' docs not include 'agricultural land in India'. The change in the language, however, has not been construed to be of any special significance, because both under the Act of 1922 as well as under the Act, common tests have been laid down to determine whether a particular property is agricultural land. thereforee, in our view, in deciding the question whether a particular property is agricultural land, it would be necessary to take note of the definition of 'agricultural income' in the Act. It would follow that the use to which a particular property is put would be a very relevant factor to be considered for the purpose of determining whether it is agricultural land.

(13) As already stated, there is voluminous case law on this subject and it would neither be necessary nor desirable to review the entire case law. It would be sufficient to take note of some of the important decisions. In two of the earlier decisions, namely, Sarojinidevi v. Shri Krishna I.L.R. (1945) Mad 61 and Megh Raj v. Allah Rakhia (1942) F.C.R. 53 the expression 'agricultural land' was interpreted in its wider significance as including lands which are used or which are capable of being used for raising any valuable plants or for any other purpose of husbandry. According to these decisions, the actual user of the land would not be a relevant factor and if the land is capable of being used for agricultural purposes, it would come within the expression 'agricultural land'. These two decisions were noticed by the Supreme Court in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy : [1957]32ITR466(SC) and the Supreme Court while recognising the force of the above opinions did not, however, pressed them into service for deciding the question before it, namely, the meaning of the expression 'agricultural income' as defined in Article 366(1) of the Constitution and section 2(1) of the Income-tax Act, 1922. Some High Courts have expressed the view that the Supreme Court had approved of the interpretation of the expression 'agriculture land' given in Sarojinidevi and Megh Raj's cases, but some other High Courts have expressed the country view, namely, that the Supreme Court had disapproved of the interpretation of the expression ''agricultural land' given in the two cases.

(14) In Smt. Manyam Meenakshamma v. Commissioner of Wealth-lax : [1967]63ITR534(AP) , a division Bench of the Andhra Pradesh High Court expressed the view that the rule laid down in Sarojinidevi's case as well as in the case of Megh Raj by the Madras High Court could not be supported in view of the pronouncement of the Supreme Court in Raja Benoy Kumar Sahas Roy's case. But a Full Bench of the same High Court in Officer-in-charge v. Commissioner of Wealth-tax : [1969]72ITR552(AP) , ((r)) dissented from the view expressed by the Division Bench and held that the interpretation of 'agricultural land' given in Sarojinidevi's case and in the case of Megh Raj was approved by the Supreme Court in Raja Benoy Kumar sahas Roy's case. While so holding, the Full Bench of the Andhra Pradesh High Court, however, proceeded to lay down several tests for determining whether a particular land was agricultural land. The effect of laying down these tests was to curtail to a very large extent the very wide interpretation of the term 'agricultural land' given in Sarojinidevi's case and the case of Megh Raj. Other High Courts also have laid down various tests. It would, thereforee, not be possible to adopt the very wide interpretation put on the term 'agricultural land' in Sarojinidevi's case and the case of Megh Raj.

(15) It would be proper to consider the case law on the subject by starting with reference to the decision of the Supreme Court in Raja Benoy Kumar Sahas Roy's case. Although the Supreme Court in that case was not concerned with the meaning of the term 'agricultural land', but was primarily concerned with the meaning of the term 'agricultural income' under section 2(1) of the Income-tax Act, 1922, the tests laid down by the Supreme Court for determining what the agricultural income would afiord guidance for deciding what is agricultural land. It would be sufficient for our purpose to reproduce the head note of the reported judgment:-

''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 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. Those operations which the agriculturist has to resort to and which are absolutely necessary for the purpose of effectively raising produce from the land, operations which are to be performed after the produce sprouts from the land, e.g. weeding, digging the soil around the growth, removal of undesirable undergrowth, and all operations which foster the growth and preservation of the same not only from insects and pests but also from depradiation from outside, tending, pruning. Cutting, harvesting and rendering the produce fit for the market, would all be agricultural operations when taken in conjunction with the basic operations. The human labour and skill spent in the performance of these subsequent operations cannot be said to have been spent on the land itself. The mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations, would not be enough to characterise them as agricultural operations; in order to invest them with the character agricultural operations these subsequent operations must necessarily be in conjunction with and in continuation of the basic operations which arc the effective cause of the products being raised from the land. The subsequent operations divorced from the basic operations cannot constitute by themselves agricultural operations. Only if this integrated activity which constitutes agriculture is undertaken and performed in regard to any land can that land be said to have been used for 'agricultural purposes' and the income derived there from be said to be 'agricultural income' derived from the land by agriculture, under section 2(1) of the Indian Income-tax Act, 1922.'

(16) In Wilfred pereira Ltd. v. Commissioner of Income-fax : [1964]53ITR747(Mad) , a Division Bench of the Madras High Court considered the meaning of 'capital asset' under section 2(4A) of the Income-tax Act, 1922. Referring to sub-clause (iii) of that section under which any land from which the income derived is agricultural income was excluded from the scope of section 2(4A). the High Court made the following observations :-

'IT may be conceded that agricultural land would not cease to possess that character if no income is derived from it in any particular year. Continuous and uninterrupted derivation of agricultural income is not an essential sine qua non to determine the character of the land; even if the land had been used for agricultural purposes by fits and starts, the land could yet be called the. land from which the income derived is agricultural income. But all the .same, it should be remembered that it would not be enough for the assessed to claim the exemption, on the ground that the land is not a capital asset, by merely showing [hat the land was once an agricultural land. It might be that the land became converted into a house-site, or devoted to the location of a brick-kiln. If, at the time of the sale or transter, which leads to the receipt of money liable to be taxed under section 12B(1), the land is not strictly agricultural in character, then the levy would be proper. In other words, the assessed must show that the land was agricultural even at the time of the sale or transfer.'

(17) In Rasiklal Chimanlal Nagri v. Commissioner of Wealth-tax, (1965) 56 I. T. R. 608, a Division Bench of the Gu)arat High Court considered the meaning of the expression 'agricultural land' under the Wealth-tax Act. The very wide interpretation put on the expression 'agricultural land' in Sarojinidevi's case and the case of Megh Raj was also canvassed before the High Court. But it was held that that interpretation did not apply to agricultural land under the Wealth-tax Act. The High Court enunciated the following tests for determining whether a particular land is agricultural land:-

'(1) As a general proposition it may be stated without any fear of contradiction that ordinarily the actual user to which the land is being put would furnish prima facie evidence of the true nature or character of the land; (2) Whether a particular land is agricultural land or not must depend on the general nature or character of the land, and various factors would have to be taken into account; and (3) Development and use of the lands in the adjoining area and the surroundings and situation of the land would be an important factor which would have a bearing on the question whether the land is agricultural land or not.'

(18) In the case of Smt. Manyam Meenakshamma's case, already referred to, the Division Bench of the Andhra Pradesh High Court, while expressing the view that the Supreme Court in the case of Raja Benoy Kumar Sahas Roy's case approved of the interpretation of agricultural land given in SarojMdevi's case and the case of Megh Raj, applied the same test which was laid down by the Supreme Court in Raja Benoy Kumar Sahas Roy's case for determining whether a land came within the definition of agricultural land under section 2(e)(1) of the Wealth-tax Act. In other words, it was held that it was the present characteristic and not the potentialities of the land which was the proper criterion for determining whether the land was agricultural land. It was further observed as follows :-

'IF a land is ordinarily used for purposes of agriculture or for purposes subservient to or allied to agriculture, it would be agricultural land. If it is not so used, it would not be agricultural land. The question how a land is ordinarily used would be one of fact depending on the evidence in each case. If, for instance, an agricultural land, as we have interpreted above, is left fallow in a particular year owing to adverse seasonal conditions or to some other special reason, it would not cease to be agricultural land.'

(19) A Full Bench of the Andhra Pradesh High Court in : [1969]72ITR552(AP) laid down the following tests for determining whether a particular property was agricultural land within the meaning of section 2(e)(i) of the Wealth-tax Act :-

'(1) the words 'agricultural land' occurring in section 2(i) of the Wealth-tax Act should be given the same meaning as the said expression bears in entry 86 of List I and given the widest meaning; (2) the said expression not having been defined in the Constitution or in the Wealth-tax Act, it must be given the meaning which it ordinarily bears in the English language and as understood in ordinary parlance; (3) the actual user of the land for agriculture is one of the indication for determining the character of the land as agricultural land; (4) land which is left barren but which is capable of being cultivated can also be 'agricultural land' unless the said land is actually put to some other non-agricultural purpose, like construction of building or an aerodrome, runway, etc., thereon, which alters the physical character of the land rendering it unfit for immediate cultivation; (5) if land is assessed to land revenue as agricultural land under the State revenue law, it is a strong piece of evidence of its character as agricultural land; (6) mere enclosure of the land does not by itself render It a non-agricultural land; (7) the character of land is not determined by the nature of the products raised, so long as the land is used or can be used for raising valuable plants or crops or trees or for any other purpose of husbandry; and (8) the situation of the land in a village or in an urban area is not by itself determinative of its character.'

(20) In Syed Rafiqur Rahman v. Commissioner of Wealth-tax : [1970]75ITR318(Patna) , a Division Bench of the Patna High Court agreed with the principles laid down by the Gujarat High Court in Rasiklal Chimanlal Nagri's case, already referred to, and supplemented them with the following observations :-

'IT is quite obvious that the owner may use a vacant piece of land either for cultivation or as a building site, but naturally the character of the land cannot be solely dependent on his intention to use the land as such. The question whether the land is agricultural land or not cannot depend on the fluctuating or ambulatory intention of the owner of the land. The criterion must be something more definite and objective, something related to the nature or character of the land and not varying with the intention of the owner as to the use to which he wants to put the land at a particular point of time. The intention of the owner, however, is not altogether irrelevant, but is a factor which would bear on the nature, or character of the land dependent on other factors.'

(21) In the case of Commissioner of Wealth-tax v. Smt. Sheela Devi , a Division Bench of the Punjab and Haryana High Court agreed with the tests laid down by the Full Bench of the Andhra Pradesh High Court in : [1969]72ITR552(AP) and expressed its own views in the following terms :-

'AFTER a careful consideration of the matter, we arc inclined to think that, though it is neither proper nor safe to lay down any hard and fast rule in this respect, the tests laid down by their Lordships of the Federal Court in Megh Raj. v. Allah Rakhia, and by the Madras High Court in T. Sarojini Devi v. T. Krishna, both of which have been impliedly approved for purposes of defining agricultural land in the course of the judgment of their Lordships of the Supreme Court in Commissioner of Income-tax v. Raj Benoy Kumar Sahas Roy, still hold the field and are correct tests.'

(22) A division Bench to the Gujarat High Court in Ranchhodbhai Bhaijibhai Patel v. Commissioner of Income-tax : [1971]81ITR446(Guj) , expressed the view that the tests laid down by the same High Court in Rasiklal Chimanlal Nagri's case for determining what constituted agricultural land under section 2(e) of the Wealth-tax Act applied also to the definition of agricultural land under section 2(14) of the Act. While reiterating the principles enunciated in the earlier case, the High Court made the following additional observations :-

'IT will be clear from these observations that the true test to be applied for the purpose of determining whether a particular land is agricultural land or not is first to ascertain what is the use to which the land is being actually put. If it is being used for agricultural purpose or even if the agricultural use has ceased but it is apparent that the land is meant to be used for agricultural purpose, it would be agricultural land. If on the other hand the land is being used for nonagricultural purpose; it would be a strong circumstance to indicate that the land is not agricultural land. Where, however, the land is not being actually put to any use, the test would be not whether the land is capable of being used for agricultural purpose but whether, having regard to the various factors referred to in the above-quoted passages from the judgment in Rasiklal Chimanlal Nagri's case, the general nature or character of the land is such that it can be regarded as agricultural land.'

(23) From a review of the above case law on the subject, the legal position in respect of the definition of agricultural land under section 2(14) of the Act can be expressed as under :- The very wide interpretation of the term 'agricultural land' put by the Madras High Court in Sarojinidevi's case and by the Federal Court in the case of Megh Raj, namely, that any land which is capable of being used for agricultural purposes even if it is not so used at any time is agricultural land, has not been accepted without reservation or qualification by any High Court, although some of the High Courts have expressed the view that it was approved by the Supreme Court in Raja Benoy Kumar Sahas Roy's case. In order to come within the category of agricultural land, it must not only be capable of being used for agricultural purposes but should have been actually used as such at some point of time. A temporary non-user for agricultural purposes will not affect the character of the land but a permanent abandonment of user for agricultural purposes will affect the character of the land as agricultural land. The actual conversion of the land for a non-agricultural purpose will also affect the character of the land as agricultural land. Whether such a conversion has taken place will depend on the facts of each case. It is in the light of the above principles that we have to consider whether the land sold by the assessed to the company was agricultural land.

(24) The relevant facts which are found in the statement of the case originally submitted as well as in the supplementary statement which was submitted in pursuance of the order of this Court dated 30-8-1971 as well as from the annexures to these statements, may be briefly stated. The whole property which was called Amba Prasad Garden and which covered an area of 14,716 sq. yards with a garden house covering an area of 312 sq. yards belonged to the joint family of Amba Prasad, his son, Shiv Shanker Lal, the assessed herein, and the later's son, Bhawani Shanker. In the whole of this land, there were 100 fruit trees which were grown, watered, manured and maintained. Sometime prior to 1945, a portion of this property including the garden house was rented out to M/s. Ganesh Flour Mills, but the fruit trees remained in the possession of the family and the usufruct of the trees was sold to contractors. As M/s. Ganesh Flour Mills were inconvenienced by the contractors entering upon the property, the Mills agreed to take the entire land including the fruit trees on lease in the year 1945. The rent for the building was fixed at Rs. 900.00 per month and for the rest of the land at Rs. 500.00 per annum. Since 1945, M/s. Ganesh Flour Mills maintained the fruit trees, harvested the fruit crop and raised vegetables in the open area which was not covered by the trees and was in a position to be cultivated. The municipal tax on the building in the land was paid as the property was situated within the municipal area. At the same time, the land revenue and the canal water charges were being regularly paid in respect of this land. The Khasra Girdawari in respect of this property showed that out of the total extent of about 15 Bighas of land, vegetables were grown on some portions of the land as shown below:-

'OCTOBER 1954 11-3/4 Bighas. March 1955 10 Bighas. October 1955 10-1/4 Bighas. March 1956 2 Bighas. October 1956 2 Bighas. March 1957 31 Bighas. October 1957 3 Bighas. March 1958 3 Bighas. October 1958 Nil. March 1959 2 Bighas. October 1959 Nil. March 1960 Nil. October 1960 Nil. March 1961 2 Bighas.'

(25) Against the column 'Kind of land according to detailed previous Jamabandi' the land was described as 'Garden of canal water and Kothi'. The Khasra Girdawari also describes the various kinds of vegetables which were grown on the land. As regards the area covered by the fruit trees, the Tribunal has merely stated -that the fruit trees were scattered all around the house. From this observation, it cannot be said that the, fruit trees stood on a definite and a separate portion of the land. The Tribunal has also found that before the assessed sold the land in question to the New Delhi Theatres Private Ltd., he had not made any application to the concerned authorities to convert the land from agricultural side to Abadi side.

(26) On the basis of the above facts, the Tribunal has come to the conclusion that the land sold by the assessed to the company was agricultural land on the date of the sale. We are of the view that the Tribunal was right in coming to this conclusion on the material placed before it. The land was described in the Khasra Girdawari as a garden. There is no evidence that prior to the land being leased out to M/s. Ganesh Flour Mills, the land was used for any nonagricultural purpose. Even after the land was leased out to M/s. Ganesh Flour Mills prior to 1945, the assessed's family continued to use the land as a garden. After it was leased out to M/s. Ganesh Flour Mills, the garden was continued to be maintained and in addition, varying extents of the land were brought under vegetable cultivation. The fact that, a larger area was cultivated in the earlier years and a smaller area cultivated in the later years and that in one or two years there was no cultivation at all will not, in our view, alter either the character of the land or its user as agricultural land. The learned counsel for the Revenue has pointed out the discrepant statements of the officers of M/s. Ganesh Flour Mills and has contended that the earlier statements should be accepted according to which the land that was leased out to M/s. Ganesh Flour Mills was used by them only for dumping scrap. The Tribunal has, however, accepted the later statements of these officers in which they have stated that the scrap was dumped only on the land immediately appurtenant to the building and that the remaining land was used for agricultural purposes. It is not the function of this Court to re-appraise the evidence as if it was an appellate Court. The evidence which has been accepted by the Tribunal is binding upon us.

(27) The learned counsel for the Revenue has also contended that the property in question is not the entire extent of 14,817 sq. yards but only the extent of 6,100 sq. yards which was transferred by the assessed to M/s. New Delhi Theatres Private Limited and that it is only the character of this particular piece of land that has to be determined. We cannot accept this contention. The land which was transferred was part of the whole property called Amba Prasad Garden and it would not be proper to treat portions thereof as if they were separate properties.Of course, if there is material to show that the portion which was sold by the assessed to New Delhi Theatres Private Limited was treated differently by the assessed from the rest of the land and if there is material to show that this particular portion had different characteristics from the remaining land, then perhaps there might be justification to consider the character of this portion separately. But apart from the fact that some portion of the land was sold to M/s. Ganesh Flour Mills and another portion sold to New Delhi Theatres Private Ltd. which transactions took place almost simultaneously, there is no other factor which would justify the treatment of the portions sold by the assessed to New Delhi Theatres Private Limited as being different in character from the rest of the land.

(28) The learned counsel for the Revenue has strongly relied upon the following two factors in support of his contention that the property in question was a capital asset, namely,-

(1) that in the wealth-tax returns filed by the assessed for several years, the assessed was showing this property as a capital asset and that even in the income-tax return filed by the assessed for the year 1962-63, the assessed showed this property as a capital asset, and (2) that the sale price of the portion of the property which was sold to M/s. Ganesh Flour Mills was fixed on the basis of Rs. 60.00 per sq. yard and even the sale price for which the property in question was transferred by the assessed to the New Delhi Theatres Private Limited indicated that the property was sold as a capital asset and not as agricultural land.

(29) So far as the description of the property in the wealth-tax returns as well as in the income-tax return is concerned, that by itself will not impress the property with the character of a capital asset if by the application of the tests laid down in the several cases cited above, the property comes within the category of agricultural land. If the assessed has wrongly described the property as a capital asset, it cannot in law be treated as a capital asset just as a wrong description of the property as agricultural land would not prevent the Revenue from treating it as a capital asset. So far as the sale price of the land is concerned, it does not necessaarily indicate the nature of the land on the date of the sale. It will be an indication of the nature of the use to which the property will be put by the purchaser. thereforee, none of these factors referred to by the learned counsel for the Revenue, in our view, justify the inference that the property in question is not an agricultural land.

(30) Applying the principles enunciated in the foregoing paragraphs for determining whether the land in question is agricultural land and considering the relevant facts which have been stated above, we find ourselves in complete agreement with the conclusion reached by the Tribunal that the land in question is agricultural land.

(31) As already stated, if the question whether the property is agricultural land is anserwered in the affirmative, then the other two questions, namely, whether the transaction comes within the mischief of section 52 of the Act and whether the assessment of the difference between the sale price of the property and its full market value to gift tax will operate as an exemption from the assessment of the same amount to capital gains tax, really do not arise. But since these questions have been referred to us, we shall proceed to answer them.

(32) Section 52 of the Act consists of two sub-sections. But it is only sub-section (1) which is relevant for the purpose of determining whether the transaction, assuming it to be a transfer of a capital asset, comes within the scope of sub-section (1) of section 52 of the Act. Sub-section (1) reads as under:-

'WHERE the person who acquires a capital asset from an asses- see is directly or indirectly connected with the assessed and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessed under section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer.'

(33) There is no difficulty in holding that one of the two conditions prescribed under sub-section (1) of section 52 of the Act, namely, that the person who acquires the capital asset from the assessed is directly or indirectly connected with the assessed, is satisfied in the present case. In fact, there is hardly any dispute on this point. Although the assessed and the company in which he was a shareholder are two different legal entities, yet there is a close connection between the assessed and the company inasmuch as the only other shareholders of the company are the assessed's wife, son, and daughter-in-law. We may at this stage itself dispose of the contention of the assessed which is the subject-matter of question No. 6, namely, that the assessed and the company are one and the same person and that there cannot be a transfer or sale of the capital asset by the assessed to himself. In spite of the fact that the assessed and the other shareholders of the company are closely related inter se, still in law they are separate entities. It is nobody's case that the other shareholders of the company were Benamidars of the assessed. thereforee, even after piercing the corporate veil, we still find the assessed and the company to be two different entities.

(34) The controversy is about the second condition in sub-section (1) of section 52 of the Act, namely, whether the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessed under section 45 of the Act. Before deciding this point, it is well to remember the scope of the enquiry which the High Court can make in this regard, which has been explained by the Supreme Court in I.C.I. (India) Private Ltd. v. Commissioner of Income-tax : [1972]83ITR710(SC) in the following terms :-

'THEquestion whether the object of the assessed in transferring assets was to avoid or reduce his liability to tax on capital gains by making the transfer, does not involve the application of any legal principles to the facts established by the evidence. The intention with which the particular transfer is made and the object which is to be achieved by such transfer is essentially a question of fact, the conclusion relating to which is to be arrived at on a consideration of the relevant material.'

(35) In sundaram Industries Private Ltd. v. Commissioner of Income-tax : [1969]74ITR243(Mad) , the facts were that the assessed purchased 669 shares in S. Limited in August, 1954 for Rs. 93,660.00 and sold them in December 1958 for Rs. 66,900.00 to three ladies and incurred a loss of Rs. 26.760.00 in the transaction. In November 1959. the directors of the assessed-company resolved that the difference between the cost price and the sale price of the shares might be treated as a gift to the purchasers. The Income-tax Officer determined the market price of the shares as on March 31, 1958 at Rs. l,56,064.00 and treated the difference between the cost and market prices, viz., Rs. 62.404.00, as capital gains liable to be taxed. The Tribunal found as a fact that the sale was a real transaction which was given effect to and acted upon by the parties thereto and it was not made with the object of avoidance or reduction of tax liability but made for the purpose of benefiting the ladies and held that as the second condition for the application of the proviso to section 12B(2) had not been satisfied, the proviso could not be invoked. On a reference, the High Court held as under :-

'THE proviso to section 12B(2) does not discourage or avoid honest transactions made out of love and affection or for other conceivable reasons on pain of being hauled up for having attempted to avoid or reduce the tax liability and on that basis made liable to tax on the difference between the consideration for the transaction and the fair market value nor does it treat what is not an actual capital gain as a deemed capital gain but it must be limited to escaped capital gain, which is so in truth and in fact, and is not intended to bring about a fictional gain on an assumption and charge the same.'

(36) Although we find some difficulty in agreeing with the view expressed by the Madras High Court, namely, that the first proviso to section 12B(2) does not treat what is not an actual capital gain as a deemed capital gain but that it must be limited to escaped capital gain which is so in truth and in fact and is not intended to bring about a fictional gain on an assumption-and we find this difficulty in view of the clear language of the section as also the interpretation put upon it by the Supreme Court in Commissioner of Income Tax. v. George Henderson and Co. Ltd. : [1967]66ITR622(SC) where their Lordships of the Supreme Court observed that 'it is evident that the Legislature itself has made a distinction between the two expressions 'full value of the consideration' and 'fair market value of the capital asset transferred' and it is provided that if certain conditions are satisfied as mentioned in the first proviso to section 12B(2), the market value of the asset transferred, may be deemed to be the full value of the consideration'-we are in respectful agreement with the view of the Madras High Court that the first proviso to section 12B(2) which corresponds to section 52 of the Act does not discourage or avoid honest transactions made out of love and affection or for other conceivable reasons other than the avoidance or reduction of liability to tax on capital gains.

(37) The only circumstance relied upon by the revenue in the present case for drawing an inference that the object of the assessed was to avoid liability under section 45 of the Act is the lower price for which the property in question was sold to the New Delhi Theatres Private Limited as compared with the price for which the other portions of the property were sold to M/s. Ganesh Flour Mills. The difference between the two transactions, however, was obvious. The sale in favor of M/s. Ganesh Flour Mills was made primarily with the object of making a profit, but the sale in favor of the company in which the assessed, his wife, his son and his daughter-in-law were the only shareholders, could not have been made with an idea to derive any profit. There would have been no purpose in charging a high price which was to be paid by his own kith and kin, even if the price was not to be paid in cash but in terms of shares. It could very well be that the assessed did not find any special advantage in transferring the property for its full market value which, as a matter of fact, he did not receive from the company in terms of cash but for which he will have to incur additional expenditure by way of stamp duty and registration charges. It cannot be said on the material placed before the Tribunal that the Tribuanl was not justified in coming to the conclusion that the transfer was not made with the object of avoiding the assessed's liability under section 45 of the Act.

(38) The only question now left for consideration is the effect of assessment to gift tax of the difference between the full market value of the property and the consideration received by the assessed for the same. Certain categories of transactions are exempt from assessment under section 45 of the Act and one such category is the one covered by clause (iii) of section 47 of the Act, namely, 'any transfer of a capital asset under a gift or will or an irrevocable trust.' As already stated, the difference between the full market value of the property and the consideration mentioned in the document of sale has been assessed to Gift Tax Act. In other words, this difference has been treated as a gift under section 4 of the Wealth-tax Act. If the gift referred to in section 47(iii) includes a gift under section 4 of the Gift Tax Act, then it would follow that the difference between the consideration and the full market value of the property is exempted from assessment under section 45 of the Act. The learned counsel for the Revenue, however, contends that it would not be proper to adopt the meaning given to gift under the Gift Tax Act to a gift under clause (iii) of section 47 of the Act. According to the learned counsel, we must give the ordinary meaning to the word 'gift', namely, that it is a transfer of property without any consideration. In other words, according to the learned counsel, the meaning to the word 'gift' under clause (iii) to section 47 of the Act should be the meaning given to it under section 122 of the Transfer of Property Act. The word 'gift' itself is not defined under the Act. thereforee, we have to seek guidance from the definition of this word in other statutes' In our view, it would be more reasonable to seek guidance from the definition of the word in a taxing statute like the Gift Tax Act rather than in a general law as the Transfer of Property Act. Section 2(xii) of the Gift-tax Act defines gift as under :-

''gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under section 4.'

(39) The transaction in question to the extent of the amount which is sought to be assessed under section 45 of the Act has already been treated as a gift and assessed under the Gift-tax Act. The same amount is, thereforee, exempt from assessment under section 45 of the Act. We should, however, like to make it clear that the ground on which we hold that it is exempt from assessment under section 45 of the Act is not that it has already been assessed to gift tax and this would result in double taxation. We cannot agree with the view of the Tribunal that the taxation laws did not contemplate double taxation at all. The same transaction can be taxed under different taxation laws. It can be taxed twice in the hands of the same person under the Act itself. No assessment is had by reason only of double taxation. It is not necessary for the purpose of this case to elaborate further on this point. It is sufficient for the purpose of this case to hold that the transaction is exempt from assessment under section 45 of the Act by virtue of section 47(iii) of the Act.

(40) We now proceed to answer the questions referred to us as under : Questions Nos. 1, 2, 3 and 5 are answered in the affirmative, i.e., in favor of the assessed and against the Revenue. Question No. 4 is purely an academic question and an answer to it either in the affirmative or in the negative would not determine the real question at issue, namely, whether the sale of the land by the assessed in favor of New Delhi Theatres Private Limited is liable to assessment under section 45 of the Act. thereforee, we decline to answer this question. Question 6 is answered in the negative, i.e., in favor of the Revenue and against the assessed. Under the circumstances, there shall be no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //