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Commissioner of Income-tax, Gujarat-i Vs. Lilavati Thakorelal Patel - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 2 of 1977
Judge
Reported in(1985)45CTR(Guj)77; [1985]152ITR565(Guj)
ActsIncome Tax Act, 1961 - Sections 2(1)
AppellantCommissioner of Income-tax, Gujarat-i
RespondentLilavati Thakorelal Patel
Appellant Advocate S.N. Shelat, Adv.
Respondent Advocate J.P. Shah, Adv.
Excerpt:
.....laid down by the full bench of the andhra pradesh high court was that if the land was 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. desai [1983] 139 itr 628, has tabularised as many as 18 judgments -reported as well as unreported -wherein relevant test have been evolved and applied for determining the nature of the land. ' it would thus appear that any attempt to devise any strait jacket formula, howsoever, precisely conceived and designed to cover all situations, would not prove to be a profitable exercise and that it may not always produce a correct answer. (10) price of the land on sale, and whether the value was determined as a unit of the land or on yardage or on acreage basis ? one..........the land by making it unfit for immediate cultivation; and (v) it was classified and assessed to land revenue as 'agricultural land' under the andhra pradesh land revenue act. on appeal to the supreme court, it was held that the first four features set out above were inconclusive and the fifth feature alone provided some evidence of the character of the land from the point of view of its purpose; and that the property was classified in the revenue records as agricultural land, though not conclusive, would raise a rebuttable presumption; and, therefore, the appellate tribunal should determine afresh whether the lands were agricultural after giving an opportunity to both sides to lead further evidence. the supreme court further ruled that the determination of the character of the land,.....
Judgment:

Mehta, J.

1. A vexed question is again arising in this reference as to whether he lands in question which were purchased in two parts in November, 1937, and February, 1947, by the assessee, her sister-in-law and her two brothers-in-law were agricultural lands or not In order to appreciate the question which has been referred to us by the Income-tax Appellate Tribunal, Ahmedabad (hereafter referred to as 'the Tribunal'), we may set out a few facts from the statement of the case referred to us by the Tribunal. The assessee together with her sister-in-law, Smt. Shardaben Dhirajlal, and two brothers of her husband, Shri Ratilal Khushaldas and Shri Kantilal Khushaldas, jointly owned certain lands in village Shekhpur Khanpur, which is now known as Navrangpura. The lands are totally admeasuring 8,191 sq. yds. which is roughly equivalent to 1.28 gunthas. With effect from May, 1945, the said lands came within Town Planning Scheme No. 3 of Ellisbridge area in Ahmedabad City, with the result that they were given two final plots Nos. 280 and 281 by the Town Planning Authorities. Each of the four owners had 1/4th interest in the said lands. These lands were sold to one co-operative Housing Society under the name and style of Shriji Co-operative Housing Society on November 10, 1966, for Rs. 5,26,412; and the capital gains were worked out at Rs. 4,10.387 with the result that each joint owner including the present assessee was held to be taxable on capital gains of Rs. 1,02,597. It was claimed by the assessee that the lands were agricultural lands and they were sold as such. That claim did not find favour with the ITO; and he, therefore, treated the land as non-agricultural land and calculated capital gains accordingly. The assessee, therefore, carried the matter in appeal before the AAC, who accepted the appeal holding that the land was agricultural land and, therefore, there was no question of any taxable capital gains. The Department, therefore, carried the matter in appeal before the Tribunal in respect of three assessments, viz., that of the assessee, assessee's sister-in-law and one of the brothers of her husband. The Tribunal disposed of all these three appeals by a common order; and, relying upon the decisions of this court, held that on an overall consideration of the matter, these lands were agricultural land; and, therefore, dismissed the appeals of the Department including the one preferred in the case of the assessment of the present assessee for the assessment year 1967-68 with which we are concerned in this reference. At the instance of the CIT, Ahmedabad, the following question is, therefore, referred to us :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the lands in question were agricultural lands ?'

2. Several principles have been laid down by this court as well as by the Supreme Court for determination of the question as to when a particular land can be considered to be an agricultural land. Before we advert to the decisions of this court, it would be profitable to remind ourselves as to what the Supreme Court has ruled on this point though in the context of the provisions of the W.T. Act. In CWT v. Officer-in-law Charge (Court of Wards) [1976] 105 ITR 13, the five judges' Bench was concerned with the question as to whether the property called 'Begumpet Palace' situated within the municipal limits of Hyderabad, consisting of vacant lands, admeasuring as much as 108 acres and also buildings, sheds and structures enclosed in compound walls of the said palace constituted agricultural land within the meaning of s. 2(e)(i) of the W.T. Act. The income-tax authorities as well as the Appellate Tribunal negatived the contention of the assessee that the land was agricultural land on the ground that it was neither ploughed nor tilled at the relevant time; nor had it been actually used for the said purpose; and, therefore, it was not intended to be used for agricultural purpose. On a reference to the High Court, it was held to be an agricultural land, because (i) the area was 108 acres abutting the Hussain Sagar tank; (ii) the land had two wells in it; (iii) it was capable of being used for agricultural purposes; (iv) it had not been put to any use which could change the character of the land by making it unfit for immediate cultivation; and (v) it was classified and assessed to land revenue as 'agricultural land' under the Andhra Pradesh Land Revenue Act. On appeal to the Supreme Court, it was held that the first four features set out above were inconclusive and the fifth feature alone provided some evidence of the character of the land from the point of view of its purpose; and that the property was classified in the revenue records as agricultural land, though not conclusive, would raise a rebuttable presumption; and, therefore, the Appellate Tribunal should determine afresh whether the lands were agricultural after giving an opportunity to both sides to lead further evidence. The Supreme Court further ruled that the determination of the character of the 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 investigated and established is the connection with an agricultural purpose and user and not mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. The Supreme Court emphasized that potentiality has bearing only as far as its valuation is concerned, but its actual condition and intended user which has to be seen for the purpose of exemption from wealth-tax. If, therefore, there is neither anything in its condition, nor anything in the evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be held to be an agricultural land for the purpose of claiming exemption under the W.T. Act. Entries in the revenue records are held to be good prima facie case.

3. The Supreme Court speaking through Beg J. referred to the decision of the Full Bench of the Andhra Pradesh High Court in Officer-in-Charge (Court of Wards) v. CWT : [1969]72ITR552(AP) , where the Full Bench has laid down as many as eight tests to determine the nature of the land. At serial No. 5, one of the tests laid down by the Full Bench of the Andhra Pradesh High Court was that if the land was 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. The Supreme Court in that context was of the opinion that this conclusion No. 5 was the real or positive test based on entries in revenue records which the Full Bench actually adopted for determining the nature of the land. The Supreme Court did not agree with the Full Bench of the Andhra Pradesh High Court in giving a wide meaning to the term 'agricultural land' in the context of the W.T. Act. The Supreme Court, however, agreed with the Full Bench that 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. Since the High Court had not considered the question from the angle as to whether the land was never intended to be used for an agricultural purpose, as concluded by the taxing authorities, the conclusion was based on no evidence, nor had it given any reasons for rejecting the finding of the Tribunal, the Supreme Court remanded the matter to the High Court for examining it again.

4. Now coming to the decisions of this court, it is not necessary to refer to them elaborately since a Division Bench of this court consisting of P. D. Desai J. (as he then was) and D. H. Shukla J. in CIT v. Siddarth J. Desai [1983] 139 ITR 628, has tabularised as many as 18 judgments - reported as well as unreported - wherein relevant test have been evolved and applied for determining the nature of the land. The Division Bench, speaking through Desai J., stated broadly that the question has arisen in the context of four facts-situation in connection with the user of the land on the date of sale. The first category of cases is where the land in question was not being put to any use whatsoever and was lying idle on the relevant date. The basic decision in respect of this category is Rasiklal Chimanlal Nagri v. CWT [1965] 56 ITR 608. The second category of these cases pertains to the land being actually put to agricultural use on the material date; and no other factors dislodging the presumption flowing from the agricultural use of the land was brought on record. The leading decision in this category is CWT v. Narandas Motilal : [1971]80ITR39(Guj) . The third category pertains to the land which ceased to be used for agricultural purpose on the relevant date and the cesser of agricultural purpose on the relevant date and the cesser of agricultural use was of a permanent nature. This category is represented by the decision in Ranchhodbhai Bhaijibhai Patel v. CIT : [1971]81ITR446(Guj) . The fourth category pertains to land which, though being used for agricultural purposes on the relevant date, was only by way of a stop-gap arrangement pending the availability of buyers for the demarcated plots in question. This category was represented by a decision in Himatlal Govindji v. CWT : [1977]106ITR658(Guj) . The Division Bench in Siddarth J. Desai's case [1983] 139 ITR 628, after tabularising different tests, summed up the position in the following terms (at p. 637 of 139 ITR) :

'This bird's eye view of the cases decided by this court would indicate that the question has arisen mostly in the context of land situate in an urban conglomeration or on the periphery thereof. In quite a few cases, even such land has been held to be agricultural. A closer examination of the decisions would reveal that the final conclusion in each case was reached upon a balanced consideration of diverse factors, pro and con, present in the case. Since each case ultimately turned upon its own facts, a kaleidoscopic picture emerges from the catena of decisions and no precise formula can be extracted making it possible to deal with and decide future cases involving a similar question on the application of such formula. Indeed, this court has repeatedly observed that whether or not a particular land is agricultural must, in the ultimate analysis, depend upon the facts and circumstances of each case and that, in each case, the conclusion will have to be reached upon a balanced consideration of diverse factors. This is also the view of the Supreme Court as is evident from the decision in CWT v. Officer-in-Charge (Court of Wards), Paigah : [1976]10ITR133(SC) , wherein it was observed at p. 143 :

'.... 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.' It would thus appear that any attempt to devise any strait jacket formula, howsoever, precisely conceived and designed to cover all situations, would not prove to be a profitable exercise and that it may not always produce a correct answer.'

5. The Division Bench, thereafter, referred to the aforesaid decision and particularly emphasised the following observations of the Supreme Court (at p. 638 of 139 ITR) :

'It was further held that to be 'agricultural land', the land must be one 'which could be said to be either actually used or ordinarily used or meant to be used for agricultural purposes.'

6. The Division Bench, thereafter, extracted major factors which in its opinion have a bearing on the determination of the question. We need not state all the factors in extenso since the Division Bench has carefully noted that not all of these factors would be present or absent in any case and that in each case one or more of those factors may make appearance and that the ultimate decision will have to be reached on a balanced consideration of the totality of circumstances. The important factors which we should recapitulate are : (1) classification of the land in the revenue records as agricultural land; (2) actual or ordinary use of the land for agricultural purposes at or about the relevant time; (3) whether such user was for a substantial period or it was for a temporary duration only by way of a stop-gap arrangement; (4) rational proportion of income from the land to investment made therein; (5) permission under s. 65 of the Bombay Land Revenue Code for change of user, and when and by whom it has been obtained; (6) cessation of the agricultural use and converting the land to non-agricultural purpose; (7) non-use for agricultural purpose of the land though listed in revenue records as agricultural land; (8) its situation, physical characteristic and development in the vicinity; (9) permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, and when and by whom; (10) price of the land on sale, and whether the value was determined as a unit of the land or on yardage or on acreage basis One case which we would particularly like to refer in this connection is CIT v. Manilal Somnath : [1977]106ITR917(Guj) , to which one of us (B. K. Mehta J.) was a party. The Division Bench, speaking through Divan C.J., (as he then was), referred to Rasiklal Nagri's case [1965] 56 ITR 608, Narandas Motilal's case : [1971]80ITR39(Guj) , Ranchhodbhai Bhaijibhai Patel' case : [1971]81ITR446(Guj) and Himatlal Govindji's case : [1977]106ITR658(Guj) which represented these four categories of fact-situation as stated above. The Division Bench thereafter ruled as under at p. 930 of 106 ITR :

'In our opinion, the correct approach has been rightly indicated in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608. First, find out whether the land in question is being put to any use or not. If it is being put to agricultural use, ordinarily it would be agricultural land unless there are factors which dislodge that presumption. Similarly, if the land is being put to non-agricultural use, it would be non-agricultural land. The different tests which are mentioned in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 and other factors which require to be taken into consideration have applicability when the land is not being used for any purpose and lying idle. In Himatlal Govindji's case : [1977]106ITR658(Guj) , though the land was being put to agricultural use, since it was found that it was only by way of a stop-gap arrangement till a purchase of the plot which was already laid out came forward to purchase it, it was held that the land was not agricultural land. In each case, therefore, in the light of the facts and circumstances of the particular case, the question will have to be asked, whether the presumption from the use of the land arises or not and, secondly, whether such presumption flowing from the actual use of the land is dislodged by the presence of other factors in the case.'

7. It is in the light of this well-settled legal position that we have to examine whether in the reference before us, the land in question was rightly held by the Tribunal to be an agricultural land. It has been found as a matter of fact by the Tribunal that the land in question was classified as agricultural land in the revenue records maintained under the Bombay Land Revenue Code. It has also been found by the Tribunal that the sale deed supported by the Pani Patrak established that agricultural operations were being carried on up to the accounting year relevant to the assessment year 1966-67. The Tribunal has found, firstly, that the lands have been acquired by the family in the thirties. There is some evidence to hold that it was being put to agricultural use; and there is nothing to indicate that it was not so used in any of the intermediate years. Thirdly, the land has also been accepted to be an agricultural land right up to the assessment year 1966-67 (Re. wealth-tax assessment) and nothing has happened in this year except sale of land which would indicate that the character of the land was changed. The only adverse circumstance which the Tribunal has noted was that there was some construction activity around the land in question; and that the town planning scheme was applied to this land some years back. It is also found that the assessee had not applied for permission to convert this land into non-agricultural land. The Tribunal also recorded the factum of payment of Rs. 3,000 to the tenant in consideration of his handing over possession to the purchasers, which definitely supported the contention that the land was being put to agricultural use; and there was nothing on record to indicate to contrary. The Tribunal noted that there was no sub-plotting of land and it was sold as one unit and its value was also determined on the basis that it was a single unit of land and not on the basis of sq. yardage or per sq. metre basis. The land was accepted as an agricultural land in wealth-tax reference. We do not feel any doubt in our mind that in view of these findings of fact, it can be successfully contended, as was sought to be done on behalf of the Revenue, that the land is not an agricultural land.

8. The learned counsel for the Revenue, however, invited our attention to the fact that the land was included in the Town Planning Scheme since some years and that it was surrounded by buildings of private individuals and housing societies and that the land was sold to a co-operative housing society. It was a small parcel of land and, therefore, having regard to its size, it was not suitable for agricultural operations. The valuation of the land put up even by the assessees themselves in the wealth-tax returns was on the basis of sq. yardage and much higher than what could be the value of the agricultural land. We are afraid that it would be difficult merely on these facts for us to agree with the learned counsel for the Revenue that inclusion of the land in question in the Town Planning Scheme of the surrounding area being fully developed or the land had been valued for the purposes of wealth-tax return on sq. yardage basis, would rebut the presumption arising from the actual user of the land as an agricultural land and from its classification as agricultural land in the revenue records of the State Government. (See CWT v. Narandas Motilal : [1971]80ITR39(Guj) , CIT v. Manilal Somnath : [1977]106ITR917(Guj) , CIT v. Prakash Industries [1978] 114 ITR 316, Manibhai Motibhai Patel v. CIT : [1981]131ITR120(Guj) and Ramprasad C. Dalal v. CIT [1982] 136 ITR 663.

9. The learned counsel for the Revenue invited our attention to the three decisions of the Division Bench of this court, where the court has taken a view that the land which was the subject-matter of a reference before the Division Bench was held not to be an agricultural land. First decision is in Yaswanti R. Bhatt v. CWT : [1978]114ITR318(Guj) . In that case, the land was situated in Paldi area of Ahmedabad and included in the Town Planning Scheme and the surrounding area was fully developed for housing. The decision of the Division Bench in that case would not be applicable to the facts of the present case, since there was no cultivation being carried on on the said land for six out of eight years involved. The Division Bench was concerned with the assessment years 1963-64 to 1970-71. The Division Bench noted that the assessee had not placed any evidence to show that she had cultivated the land either personally or through tenants during the assessment years 1963-64 to 1968-69 and that the land was kept fallow during these years is not in dispute. For the remaining two assessment years, i.e., 1969-70 and 1970-71, there was some cultivation of juwar and vegetables; and the income realised was too meagre. It is under these circumstances, therefore, that the Division Bench held that having regard to its location, activities in the vicinity, its inclusion in the Town Planning Scheme, etc, that the land was not agricultural land. This is, therefore, a case which falls within the category of Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608, where the land is question was not being put to agricultural use and lying fallow at all the relevant time. We do not think, therefore, that this decision can be of any assistance to the case of the Revenue.

10. The second decision to which our attention has been invited is CIT v. Sarifabibi Mohmed Ibrahim : [1982]136ITR621(Guj) . In that case, the assessee inherited a block of land along with other co-owners. The land admeasuring 30,885 sq. yds. was situated at a distance of one kilometer from Surat Railway Station and was purchased in February, 1936, as agricultural land by the mother of the assessee. The assessee and her co-owners converted a parcel of the said land, i.e., about 2,607 sq. metres, to non-agricultural use after obtaining requisite permission under s. 65 of the Bombay Land Revenue Code in March, 1958. Residential chawls were constructed on this converted plot of land. The entire land was situated within the municipal limits and was included in the Town Planning Scheme. The Tribunal found that no agricultural operations were carried on since 1964-65 till the sale of the land in 1969. We do not think, therefore, this case also can take the case of the Revenue any further, since it also falls within the fact-situation of the category represented by Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608. Since the land was not being put to agricultural use at the relevant time and was lying fallow, other factors had an overpowering effect which weighed with the Division Bench in concluding that the land was not an agricultural land. The third decision which has been heavily relied upon on behalf of the Revenue is Arundhati Balkrishna v. CIT : [1982]138ITR245(Guj) . Though the assessment year described in the judgment is 1969-70, as a matter fact it should be 1970-71. The assessee sold her 1/2 share in a parcel of land admeasuring 8,578 sq. yds. situated within the Ahmadabad Municipal Corporation. It was, admittedly, covered by the draft Town Planning Scheme. The assessee claimed the land to be agricultural land and, therefore, not liable for capital gains arising out of the sale of the land. The assessee relied upon two factors, viz., the classification of land as agricultural land in the revenue records and its use at the relevant time for growing bajri and grass. The Tribunal found that a large block of land admeasuring acres 10-21 gunthas was purchased by father-in-law of the assessee as the karta of the HUF, comprising of himself and his three sons including the assessee's husband in the year 1944, for a total consideration of Rs. 2,67,321. Out of the said land, a substantial parcel thereof admeasuring acres 6-36 gunthas was acquired for public purpose for construction of houses by the Gujarat Housing Board as early as in 1962. There was a partial partition amongst the members of the bigger HUF and a portion of the remaining land came to the share of the smaller HUF. There was a further partial partition in 1963 in the smaller HUF headed by the husband of the assessee as a result of which the assessee and her husband acquired undivided 1/2 share in the parcel of land admeasuring 8,578 sq. yds. which was the subject-matter of the transaction effected in 1970 and in respect of which liability to capital gains arose. From 1963 to 1970 these lands continued to be assessed to land revenue even though residential buildings have already been constructed on the surrounding land and even though a portion of the original block of land had been acquired by the Housing Board and houses were coming upon the said portion. The gross agricultural income earned by the assessee during the financial years 1966-67 and 1967-68 and for the period between January 1, 1969, to January 31, 1970, was Rs. 100, Rs. 178 and Rs. 182, respectively. In this fact-situation, the Division Bench held that the land was not agricultural land applying the relevant tests prescribed in Rasiklal Nagri's case [1965] 56 ITR 608. It should be noted that the sale deed which was executed prior to March 1, 1970, was lodged for registration on March 20, 1970. In other words, on the relevant date, there was not agricultural use of the land. When the land belonged to the bigger HUF and before a partial partition took place, a substantial portion of the land was acquired by the Housing Board and houses were in fact constructed thereon. The gross agricultural income from the said land was very meagre. The Division Bench found that having regard to the fact that the assessee who was a lady and whose main source of income was from the dividends on shares and interest on securities, could not have intended to carry on agricultural operations on the land since there was no evidence to show that she possessed any agricultural implements, etc., and, therefore, the land was not meant for being used for agricultural purposes. These speaking circumstances, therefore, weighed with the court; and on an overall consideration, particularly which we have pointed out above, the Division Bench concluded that the land was not an agricultural land. We do not think that this decision can be of much assistance to the case of the Revenue on the facts and in the circumstances of the case before us.

11. The result, therefore, is that we must answer the reference made to us in the affirmative, i.e., in favour of the assessee and against the Revenue. The Commissioner shall pay cost of this reference to the assessee.


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