Skip to content


Commissioner of Income-tax Vs. K. Ananthan Pillai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 21 of 1969
Judge
Reported in[1974]94ITR122(Ker)
ActsIndian Income Tax Act, 1922 - Sections 2(4A) and 12B
AppellantCommissioner of Income-tax
RespondentK. Ananthan Pillai
Appellant Advocate P.K. Krishnankutty Menon, Adv.
Respondent Advocate S. Easwara Iyer and; E. Subramoni, Advs.
Cases ReferredRasikhlal Chimanlal Nagri v. Commissioner
Excerpt:
.....right in not treating land in question as capital asset - fact that even at time of purchase of land by 'x' land was not agricultural land - this is because 'x' paid rs. 1180 which was 8 times value of best agricultural land at time - therefore land involved in this case was agricultural land - held, tribunal right in not treating land in question as capital asset. - - it had also some sandalwood trees and flowering plants like jasmin. ). the reasoning of the tribunal, on the other hand, was that the fruit-bearing trees like coconut trees, jack trees, etc. the other operations like weeding, digging the soil around the growth, removal of undesirable undergrowths and all operations which foster the growth and preserve the same not only from insects and pests but also from..........father, kolappa pillai, purchased from the maharajah of travancore on 18th august, 1956, a landed property known as singarathope having an extent of a little over 9 acres situated within the municipal limits of trivandrum town for rs. 34,500, including registration expenses. the property was a garden land and had two wells and a tank i it had also facilities of electricity and tap water. the property had over 300 coconut trees, a few jack trees and other fruit-bearing trees thereon: it had also some sandalwood trees and flowering plants like jasmin. the maharajah used to drive to the singarathope during the evenings and spend some time there. on 23rd january, 1957, kolappa pillai made a settlement of the property on the assessee and his younger brother, the former getting 2 out.....
Judgment:

Raghavan, C.J.

1. The assessee's father, Kolappa Pillai, purchased from the Maharajah of Travancore on 18th August, 1956, a landed property known as Singarathope having an extent of a little over 9 acres situated within the municipal limits of Trivandrum town for Rs. 34,500, including registration expenses. The property was a garden land and had two wells and a tank I it had also facilities of electricity and tap water. The property had over 300 coconut trees, a few jack trees and other fruit-bearing trees thereon: it had also some sandalwood trees and flowering plants like jasmin. The Maharajah used to drive to the Singarathope during the evenings and spend some time there. On 23rd January, 1957, Kolappa Pillai made a settlement of the property on the assessee and his younger brother, the former getting 2 out of 3 shares and the latter getting the remaining third share.

2. The same year the Government of Kerala initiated proceedings for acquiring the property for providing house sites for Harijans. In the acquisition the assessee and his brother got Rs. 2,90,653 as compensation, the matter, ultimately, having been disposed of by the High Court in February, 1961. The assessee claimed that he expended Rs. 5,000 on the property subsequent to the settlement. However, the department allowed the claim only to the extent of Rs. 3,400 so that the total cost of the asset(the property) came to Rs, 37,900. Deducting this amount from the amount received as compensation, the balance came to Rs. 2,52,753, out of which the share of the assessee came to Rs. 1,68,500. This was sought to be assessed under the head 'capital gairs'; and the assessee raised objection that the property was agricultural land and as such was not a capital as set. The Income-tax Officer and the Appellate Assistant Commissioner overruled this objection and treated the amount as capital gains. On appeal, the Income-tax Appellate Tribunal held that the property was agricultural land (in other words, the income derived from the property was rgricultural income) and, therefore, it was not a capital asset. Thereafter, at the instance of the revenue, the following questions have been referred to this court:

' (1) Whether, en the facts and in the circumstances of the case, the Appellate Tribunal was right in law in not treating the land in question as a capital asset ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the income derived by the sale of land in question was not assessable as capital gains '

Capital gains are assessable under Section 128 of the Indian Income-tax Act, 1922 (this is the Act that applies to the case, since the assessment relates to the assessment year 1958-59), if the profits or gains arise from the sale, exchange, relinquishment or transfer of a capital asset effected after 31st March, 1956. And ' capital asset' is defined under Section 2(4A) to mean property of any kind held by an assessee, whether or not connected with his business, profession or vocation, but does not include, inter alia, ' any land from which the income derived is agricultural income'. ' Agricultural income ' is again defined under Section 2(1) to mean, inter alia, any income derived by agriculture from land which is used for agricultural purposes and is either assessed to land revenue in the taxable territories or subject to a local rate assessed and collected by officers of the Government as such

3. The reasoning of the department for holding that the property was a capital asset was that the property was in an important locality in the town having facilities of electricity and tap water and was capable of being used as house sites. The department also relied upon the decision of a Division Bench of, this court in Krishna Iyer v. Additional Income-tax Officer, Ernakulam, [1966] 59 I.T.R. 145 (Ker.). The reasoning of the Tribunal, on the other hand, was that the fruit-bearing trees like coconut trees, jack trees, etc., could not have been of spontaneous growth, nor was there any evidence that they were of spontaneous growth; that the Maharajah must have planted them, nurtured them and tended them; that there was evidence that theMaharajah used to auction the usufructs of the trees annually and collect the income; that the Maharajah also used to pay land revenue for the property ; that the property was, therefore, agricultural land in the hands of the Maharaja; that the purchase by Kolappa Filial in 1956, paying a low price, which worked out only to less than Rs. 40 per cent was also as agricultural land ; and that, thereafter, unless there was some act on the part of the assessee to convert the land into non-agricultural land, the property should remain agricultural land as it originally was. The Tribunal also pointed out that there was no evidence to show that the assessee, after the purchase from the Maharajah, converted the land into non-agricultural land.

4. Though the term ' agricultural income ' is defined in the Income-tax Act (article 366(1) of the Constitution lays down that for purposes of the Constitution the definition in the Indian Income-tax Act will prevail), the terms ' agriculture ' and ' agricultural purpose' have not been defined. Therefore, the court has necessarily to fall back upon the general sense in which they have been understood in common parlance. The Supreme Court has considered the meaning of the term ' agriculture ' elaborately in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy, [1957] 32 I.T.R. 466 ; [1958] S.C.R. 101 (S.C.). Bhagwati J., who spoke for the Bench, has said that ' agriculture ' in its root sense means cultivation of the field; ' agar ' means field and 'cultra' means cultivation, so that agriculture means cultivation of the field. This means that agriculture in the restricted or root sense means cultivation of the land, meaning thereby tilling of the land, sowing the seeds, planting or similar work on the land, the basic operations requiring expenditure of human skill and labour upon the land. The other operations like weeding, digging the soil around the growth, removal of undesirable undergrowths and all operations which foster the growth and preserve the same not only from insects and pests but also from depredation from outside, tending, pruning, cutting, harvesting and rendering the produce fit for the market, would also be agricultural operations, when taken in conjunction with the basic operations mentioned above. Thus, the subsequent operations in conjunction with the basic operations (not the subsequent operations alone by themselves) would also constitute agriculture. The learned judge has observed further that the term ' agriculture ' cannot be confined merely to the production of grain and food products for human beings and beasts, but must be understood as comprising all the products of the land which have some utility either for consumption or for trade and commerce and would also include forest products such as timber, casuarina plantations, etc.

5. This decision has been followed in another decision in Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax, [1957] 32 I.T.R. 587 (S.C.) where the Supreme Court was considering forest trees of spontaneous growth. The Supreme Court has observed that, where the only operations performed by the assessee were subsequent operations in regard to forest trees of spontaneous growth, trees which sprung into existence unaided by any human skill and labour and without any basic operations, there is no cultivation of the soil--there is no agriculture. Yet another decision on the question is again of the Supreme Court in Commissioner of Income-tax v. Ramakrishna Deo, [1959] 35 I.T.R, 312, [1959] Suppl. 1 S.C.R. 176 (S.C.). In addition to discussing the nature of agriculture, this decision has laid down that it is for a person who claims exemption from tax to establish it: in other words, where an assessee claims exemption from income-tax, it is for him to prove that the income from the forest was agricultural income and it is not for the department to prove that the forest income was chargeable to tax. Venkatarama Aiyar J., who wrote the judgment in this case, has observed that, in order to decide whether the income derived by an assessee by the sale of trees in his forests was agricultural income or not, the crucial question is whether the trees were planted by the assessee or whether they grew spontaneously; and that, if it is the latter, it would be immaterial that the assessee has maintained a large establishment for the purpose of preserving the forests and assisting in the growth of the trees, because, ex hypothesi, he performed no basic operations for bringing the forests into being. We may also refer, in this connection, to the decision of the Privy Council in Raja Mustafa Ali Khan v. Commissioner of Income' tax, [1948] 16 I.T.R. 330 (P.C.). The Judicial Committee has observed that, in order to decide the question whether land is ' used for agricultural purposes ', no assistance is to be got from the meaning ascribed to the word ' agriculture ' in other statutes. And their Lordships have also observed that income from the sale of forest trees growing on land naturally and without the intervention of human agency, even if the land is assessed to land revenue, is not agricultural income within the meaning of Section 2(1)(a) of the Income-tax Act.

6. The counsel on both sides have brought to our notice two of three decisions under the Wealth-tax Act. In the Wealth-tax Act, the expression ' agricultural land ' appears; and it is in considering this expression that these decisions have been given. The first decision is of the Patna High Court in Syed Rafigur Rakman v. Commissioner of Wealth-tax, [1970] 75 I.T.R. 318 (Pat.). The learned judges have followed the decision of the Supreme Court in Raja Benoy Kumar Sahas Roy's case already mentioned by us and observedthat the mere presence of the trees on the land will not make it agricultural, especially when it is situated in the heart of a town and is surrounded by residential buildings; and that the question whether a land isagricultural land or not does not also depend upon the intention of theowner to use the land or on the fluctuating or ambulatory intention of theowner; and that the criterion must be something more definite and moreobjective, something relating to the nature or character of the land.Another similar decision brought to our notice is the decision of the Punjaband Haryana High Court in Commissioner of Wealth-tax v. Smt. SheelaDevi, [1970] 77 I.T.R. 693 (Punj.). Therein, the learned judges have observed that whether a particular land is or is not 'agricultural land' within the meaning of therelevant section of the Wealth-tax Act is a question of fact to be decidedin the circumstances of a given case depending upon the nature andcharacter of the land, its environment, the use to which it has been previously put or is capable of being put, sometimes possibly the intention ofthe owner, its assessment or non-assessment to land revenue, its situationwithin a municipal or a town planning area, its potential value and variousother relevant factors. The learned judges have also observed that, in acase where land has been admittedly put to agricultural use till a day ora month or a few months before the valuation date, the land would notcease to be agricultural merely because it does not happen to be under theplough on the valuation date; that, particularly, in a case where it isadmitted or proved that the laud in dispute was agricultural land for along time, till about a few years before the valuation date, it would bepresumed to remain as agricultural land unless something definite has inthe meantime happened to make it non-agricultural; and that, till the userof the land is actually changed or other definite indications to the contraryare available in a given case, it is only safe to presume that a propertywould normally continue to be put to the use to which it has been put allalong for a long time. Yet another decision on this aspect is the decisionof the Gujarat High Court in Rasikhlal Chimanlal Nagri v. Commissioner ofWealth-tax, (2) [1965] 56 I.T.R. 608 (Guj.). The learned judges have observed that the true test to beapplied for the purpose of determining whether a particular land is agricultural land or not, in a case where the land is not being actually put toany use, is not whether the land is capable of being used for agriculturalpurposes, but whether the general nature or character of the land is suchthat it can be regarded as agricultural land; and that, in order to ascertainthe general nature or character of the land, various factors would have tobe taken into account like the development and use of the lands in theadjoining area, the surroundings, the situation of the land, the physicalcharacteristics of the land, the intention of the owner as gathered fromthe circumstances, whether the land is assessed for agricultural purposes, etc.

7. From the facts of the case before us, it is clear that the Maharajah must have planted the coconut and the other fruit-bearing trees on the property and must have also been watering and tending them, because there were two wells and a tank in the property. The fact that Kolappa Pillai purchased the property from the Maharajah in 1956 paying only less than Rs. 40 per cent will also indicate that the property, at any rate, in the hands of the Maharajah, was agricultural land. We may also mention, in this connection, that the property was assessed to land revenue and the Maharajah was paying the same. Again, the Maharajah was auctioning the right to collect the usufructs every year and was thus getting income from the property. It has been pointed out by the counsel for the revenue that the assessee claimed before the subordinate judge and the High Court in the acquisition proceedings that the land had potential value, that his intention was to plot the property into building sites and to sell them and that the land was situated in a developed area within a town. It has also been urged by him that the property was situated within the municipal area of Trivandrum town in a fairly important and developed locality with facilities like electricity and tap water too. As indicated in the decisions noticed by us, no one of these circumstances by itself should be taken to decide the question J all the circumstances including even the intention of the assessee have to be considered in coming to a conclusion on a question like this. Since the property was agricultural land in the hands of the Maharajah, until some act on the part of the assessee has been established, which has converted the property into non-agricultural it is not safe to hold that the property ceased to be agricultural, by the mere intention of the assessee to convert it into housing sites. Therefore, the conclusion should be that the property remained agricultural land.

8. And, lastly, a word about the decision in Krishna Iyer's case, which we have already referred to at the commencement of the judgment. In that case, a property having an extent of 57 cents in a very important locality in Ernakulam town was purchased by the assessee at Rs. 1,180 per cent. During the relevant time (1959), even the best coconut garden in the most fertile areas in the State would not have fetched even Rs. 150 per cent. The property had 12 coconut palms, 17 arecanut palms, 2 mango trees and 5 other trees and also a building. The building was fetching a rent of Rs. 50 per month; and it was not possible to find out how much was being derived as income from the coconut and other trees. In those circumstances, a Division Bench of this court held that the land was not agricultural land. It is dear that, even at the time of purchase of theland by Krishna Iyer, the land was not agricultural land, because he paid Rs. 1,180 prr cent which was about seven or eight times the value of the best agricultural land at the time. Therefore, on the basis of this decision, the revenue cannot claim that the land involved in this case was not agricultural land.

9. In the result, we answer the questions referred to us in the affirmative, viz., that the Tribunal was right in not treating the land in question as a capital asset and also in holding that the income derived by the sale of the land was not assessable as capital gains. We pass no order regarding costs.

10. A copy of this judgment will be sent by the Registrar to the Tribunal as required by law.


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