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Manibhai Motibhai Patel Vs. Commissioner of Income-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 241 of 1976
Judge
Reported in(1981)22CTR(Guj)168; [1981]131ITR120(Guj)
ActsBombay Land Revenue Code - Sections 65; Income Tax Act, 1961 - Sections 2(1)
AppellantManibhai Motibhai Patel
RespondentCommissioner of Income-tax, Gujarat
Appellant Advocate K.C. Patel, Adv.
Respondent Advocate N.U. Rawal, Adv.
Cases ReferredMst. Subhadra v. Narsaji Chenaji Marwadi
Excerpt:
.....be changed only by specific order made by controller under section 65 - on date of sale disputed lands were agricultural lands - no application under section 65 - revenue records shows land to be agricultural land - nothing to rebut presumption that disputed lands were agricultural land - capital gains tax not to be levied - question answered in negative. - - the court had to be satisfied before any relief could be granted under the provisions of that act that the plot of lan which was leased was 'premises' within the meaning of s. thirdly, entries in the record of rights are good prima facie evidence regarding agricultural land and if the presumption raised either from actual user of the land or from agricultural use of the land is to be rebutted, there must be material on the..........filed his return for assessment year 1970-71, he made a note along with the reurn of income; sale of agricultural land during the year exempt u/s. 2(14)(iii). the ito examined the claim of the assessee in the light of the actual fact and came to the conclusion that the lands in question were not agricultural lands. he, accordingly, called upon the assessee to produce any evidence which could go to show that the lands were really agricultural lands. the assessee wrote the letter dated march 16, 1973, explaining the position and he claimed that the lands were agricultural lands and the sale of such lands could not result in capital gains under the i. t. act. the ito came to the conclusion that the surplus on the sale of lands was not agricultural income and the lands were not.....
Judgment:

Divan, C.J.

1. We are concerned in this case with assessment year 1970-71. The assessee is an individual. The relevant previous year is calendar year 1969. The assessee had income from share of profits form the partnership firm in which he was a partner, remuneration which he received from different sources, dividend income, income by way of interest and property income. The assessee was the joint owner along with three other individuals, namely, Vimalbhai Nagindas Shah, Gautambhai Vimalbhai Shah and Vikrambhai Vimalbhai Shah. The assessee was the owner to the extent of fifteen per cent. In the lands along with the other three co-owners. The respective shares of the co-owners were - Vimalbhai nagindas Shah, 25 per cent. Gautambhai Vimalbhai Shah, 30 per cent., Vikrambhai Vimalbhai Shah, 30 per cent. and the assessee 15 per cent. There four owners were the joint owners of five survey numbers, namely Survey Nos. 98/1, 98/2, 99, 107/1/2 and 107/2. All these survey numbers were of Shekhpur-Khanpur village, also called Navrangpura village. These lands were sold during the months of May and July, 1969, and the assessee received his share of the consideration after the sale of these lands. The lands were sold to different co-operative societies. At the time when the assessee filed his return for assessment year 1970-71, he made a note along with the reurn of income; Sale of agricultural land during the year exempt u/s. 2(14)(iii). The ITO examined the claim of the assessee in the light of the actual fact and came to the conclusion that the lands in question were not agricultural lands. He, accordingly, called upon the assessee to produce any evidence which could go to show that the lands were really agricultural lands. The assessee wrote the letter dated March 16, 1973, explaining the position and he claimed that the lands were agricultural lands and the sale of such lands could not result in capital gains under the I. T. Act. The ITO came to the conclusion that the surplus on the sale of lands was not agricultural income and the lands were not agricultural lands and, therefore, the assessee was liable to pay capital gains in respect of the profit made by him on his fifteen per cent. share from the sale of the five survey numbers. The assessee took the matter in appeal and the AAC held that the lands were agricultural lands and he, therefore, allowed the appeal and upheld the contention of the assessee regarding the profit that he had made from the sale of these lands. The revenue took the matter in appeal to the Appellate Tribunal and the Tribunal found that these five survey numbers were sold for the aggregate price of Rs. 3,48,000 to different co-operative societies and the societies purchased these different survey numbers for putting up houses for residential purposes. The Tribunal observed that the assessee had shown his share of the lands in his wealth-tax returns for some years by the Tribunal treated this as not a conclusive factor but merely as a piece of evidence to be considered in order to find out the intention of the assessee. Up to 1963-64, the land was shown for three years as the wealth of the assessee for wealth-tax purposes and as such it was admitted to be non-agricultural land. Thereafter, the assessee filed a revised return claiming that the land was agricultural land. It was found by the Tribunal that the agreement to sell these lands was executed on September 26, 1968, and the lands were sold to co-operative societies for construction of residential houses. The permission of the Collector under s. 63 of the Bombay Tenancy and Agricultural Lands Act was obtained on February 17, 1969, and the purpose for which the permission was obtained was for non-agricultural purpose by the intending purchasers and according to the Tribunal, when the lands came to be sold in May and July, 1969, they were non-agricultural lands. The Tribunal observed that the lands were covered by a town planning scheme, being Scheme No. 19, which had come into force on April 15, 1966, and the lands were within the municipal limits of Ahmedabad Municipal Corporation and residential localities were nearby the lands in question. Before the Tribunal reliance was placed on the affidavit made by one Laxmanji Ranaji Thakore who was the lessee of the lands in question and the affidavit was filed for the purpose of showing that Laxmanji, in his capacity as lessee, was carrying on agricultural operations on these lands. The assessee also relied upon the fact that in respect of these very lands a question had arisen in the City Civil Court, Ahmedabad, in a litigation concerning these lands as to whether the lands were agricultural lands, for the purposes of the Court Fees Act and the court fees inspector had made a report on March 30, 1970, that the land was put to agricultural use on the date of the suit which was filed in 1967, and juvar crop was growing on the land in 1967 and the court fees should be paid on the footing that the land was agricultural land. The Tribunal considered several decisions on the point and came to the conclusion that the lands were not agricultural lands. The Tribunal also relied on various decisions of the Tribunal cited in its order and ultimately it reversed the order of the AAC and restored the order of the ITO but remanded the matter to the AAC for determining the actual quantum of capital gains which had not been decided by the AAC. Thereafter, at the instance, of the assessee, the following question has been referred to us for our opinion:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the lands in question were non-agricultural lands and, therefore, liable to capital gains under the Income-tax Act, 1961 ?'

2. One error seems to have crept into the order of those Tribunal in para. 3 because there the Tribunal has observed that the affidavit of Laxmanji Ranaji Thakore was filed before the AAC whereas, in fact, appears from the letter of the assessee written to the ITO on March 26, 1973, the affidavit was enclosed with that letter and the affidavit was filed before the ITO.

3. In the instant case, inasmuch as the annexures to the reference show, on each of these five survey numbers agricultural operations, namely, the raising of juvar crops, was being carried on for agricultural years 1964-65, 1965-66, 1966-67 and 1967-68. Copies from the record of rights were produced on the record of the case and to each of these four years juvar crop was shown as being raised on these lands in question. It is common ground that till the date of the sale effected in May and July, 1969, these lands were being shown lands held for agricultural purposes and no permission for conversion to non-agricultural user was granted by the Collector under s. 65 of the Bombay Land Revenue Code. It is not disputed that there were residential localities surrounding these lands at the time when the sale was effected and it is not disputed that the lands were within the city municipal limits and were covered by a town planning scheme at the time when the sale was effected.

4. There are several decisions dealing with the question whether a particular plot of land can be said to be agricultural land or not. The earliest decision in point of time is the decision of the Supreme Court in Mst. Subhadra v. Narsaji Chenaji Marwadi : [1962]3SCR98 . Though this decision was reported in the AIR series in 1966, in fact it was rendered by the Supreme Court on August 9, 1961. The question which arose before the supreme Court in that case was under the provisions of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, and the question was whether the land in question came within the meaning of the word 'premises' as defined under the provisions of the Bombay Rent Act. The court had to be satisfied before any relief could be granted under the provisions of that Act that the plot of lan which was leased was 'premises' within the meaning of s. 5(8) and it was let out for residence, education, business, trade or storage. In para 2 of the judgment, Shah J., as he then was, speaking for the Supreme Court, observed:

'It is common ground that till November 11, 1949 (that being the date on which the Collector of Ahmedabad sanctioned conversion of the user from agricultural to non-agricultural purpose), the plot was assessed for agricultural purposes under the Bombay Land Revenue Code. In the year 1947, the plot was undoubtedly lying fallow, but on that account, the user of the land cannot be deemed to be altered. User of the land could only be altered by the order of the Collector granted under s. 65 of the Bombay Land Revenue Code.'

5. Thus, it is clear that in view of the position under the Bombay Land Revenue Code, even for the purposes of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the land was treated as agricultural land because the user could be changed from agricultural to non-agricultural only by a specific order made by the Collector under s. 65 of the Bombay Land Revenue Code.

6. After this decision of the Supreme Court in Mst. Subhadra's case, : [1962]3SCR98 , there has been a series of decisions of our High Court, starting from the decision in Rasiklal Chimanlal Nagri v. CWT [1965] 56 ITR 608, followed by the decisions in CWT v. Narandas motilal : [1971]80ITR39(Guj) CIT v. Manilal Somnath : [1977]106ITR917(Guj) , Smt. Chandravati Atmaram Patel v. CIT : [1978]114ITR302(Guj) and several other decisions. The latest of these decisions are the two decisions in Gordhanbhai Kahandas Dalwadi v. CIT : [1981]127ITR664(Guj) , and the decision in Dr. Motibhai D. Patel v. CIT : [1981]127ITR671(Guj) , decided on October 6, 1980. There is also the decision of the Supreme Court in what is known as the Begumpet Palace case : [1976]10ITR133(SC) , which throws considerable light on the question that has to be decided by us in the instant case.

7. In Smt. Chandravati Atmaram Patel v. CIT : [1978]114ITR302(Guj) , which was decided on September 15, 1977, the legal position was summarised as follows at p. 312 of the report:

'In this case, the law, therefore, is very clear. If the land is actually used for agricultural purpose as shown by Manilal Somnath's case : [1977]106ITR917(Guj) and also by the Supreme Court in Commissioner of Wealth-tax v. Officer-in-Charge (Court of Wards) Paigah : [1976]10ITR133(SC) , it can be said to be agricultural land, at least, prima facie, s agricultural land could be said to be land which is either actually used or ordinarily used or meant to be used for agricultural purposes. If it is actually used at the relevant date for agricultural purposes and there are no special features, for example, building plot being actually used as a stopgap arrangement for agricultural purposes or a building site being used for agricultural purposes, actual user of ordinary use or intention to use the land for agricultural purposes or land is meant to be used for agricultural purposes, it would be 'agricultural land'. Secondly, potential use of the land as agricultural land is totally immaterial. Thirdly, entries in the record of rights are good prima facie evidence regarding agricultural land and if the presumption raised either from actual user of the land or from agricultural use of the land is to be rebutted, there must be material on the record to rebut that presumption. The approach of the fact - finding authorities, namely, the income-tax authorities and the Tribunal should be to consider the question from the point of view of presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by the presence of other factors in the case.'

8. This legal position was once again reiterated in Dr. Motibhai D. Patel's case : [1981]127ITR671(Guj) . Smt. Chandravati Atmaram Patel's case : [1978]114ITR302(Guj) was considered and followed and the following propositions were laid down:

'(1) That the fact that permission was obtained under section 63 of the Bombay Tenancy and Agricultural Lands Act did not mean that the land ceased to be agricultural in character, because if for any reason the conditions laid down in the permission were not satisfied, the sanction would automatically be null and void and the land would again resume its agricultural character.

(2) That permission to convert the land into non-agricultural use was not obtained by the assessee and his co-owners prior to the date of sale on March 17, 1967, to the three co-operative societies.

(3) That the presumption raised from the long user of the land for agricultural purposes and the presumption arising from the entries in the revenue records were not rebut by the revenue.

(4) That the fact that development had caught up with the land could not be a ground for holding that the land had ceased to be agricultural in character. The high price of the land which was paid in 1967 might reflect the potentiality for non-agricultural use so far as these land was concerned, but such potentiality did not mean that the land had lost its character as agricultural land.

(5) That the fact that only a very small income, as compared to the investment made by the assessee and his co-owners, was derived from the land was totally irrelevant. The question whether the land is agricultural in character or not could be decided only by the use to which it was being put and not by the smallness or otherwise of the income which was derived by assessee from the same.'

9. In the case before us, the following features are very salient, namely, that right down to 1967-68, that is, till May, 1968, the land was being used for agricultural purposes and entries in the record of rights go to show that juvar crop was being grown on this land, at least, for the last four years preceding 1968. It has further been shown that no permission to convert this land to non-agricultural use was obtained under s. 65 of the Bombay Land Revenue Code and no materials were brought on the record by the revenue for the purpose of rebutting the presumption which arose in this case, both from the entries in the record of rights and the revenue records and from the actual user of the land. The affidavit of the tenant on the land in question went to show that he had taken a lease for agricultural purposes and was raising crops on this land and it further went to show that till the end of the agricultural season 1967-68 at least the land was being put to agricultural use. The lands were agricultural in character right from the beginning and the fact that development had caught up with the land and there were co-operative housing societies or building projects in the vicinity would not take away the character of agricultural land from these different plots of land. As has been pointed out in Manilal Somnath's case : [1977]106ITR917(Guj) and Chandravati Atmaram Patel's case : [1978]114ITR302(Guj) , the fact that the land was within the municipal city limits or that it was included in town planning scheme or that permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act had been obtained, each one of these factors, would be immaterial for the purpose of determining the question whether the land had ceased to be agricultural land. In Manilal Somnath's case : [1977]106ITR917(Guj) , this court had pointed out at p. 929 of the report:

'Under section 63 of the Tenancy Act, no sale of any land or interest therein shall be valid in favour of a person who is not an agriculturist unless the Collector or an officer authorized by the State Government in this behalf grants permission for such sale on such conditions as may be prescribed. Under section 2, sub-section (8), of the Tenancy Act, 'land' means land which is used for agricultural purposes and it is, therefore, obvious that it was for other sale of land used for agricultural purpose for which the City Deputy Collector acting under section 63 of the Bombay Tendency and Agricultural Lands Act granted permission, namely, March 24, 1967, and April 7, 1967, that is, the execution of the sale deed by the assessee in favour of Tarakkunj Co-operative Housing Society Ltd., agricultural operations which were being carried on were by way of stop - gap arrangement. We are not, in the present case, concerned with the question whether agricultural operations were such as a prudent agriculturist would carry out. The sole question that we have to decide is whether on the date of the sale by the assessee - Hindu undivided family to Tarakkunj Co-operative Housing Society Ltd. on April 7, 1967, the land was agricultural land or not. As T. U. Mehta J. has pointed out in Narandas Motilal's case : [1971]80ITR39(Guj) , the fact that the land was being used for agricultural purposes till the date of the sale raises a prima facie presumption that it was agricultural land. It has been pointed out by Mr. J. P. Shah on behalf of the assessee that in this case there was no regular road to the land in dispute and it was with the aid of a tractor that the agricultural operations were being carried on. There was a well located in the land under consideration and agricultural operations were being carried on in the neighbouring land also. This is not a case like exceptional use of a builiding site in a well - developed locality being put to agricultural usa. Here ancestral land received by the assessee on partition was consistently put to agricultural use right till the date of the sale and though the land was included within the draft town planning scheme, the development does not appear to have caught up with this land at the date of the sale. As Bhagwati C.J., as he then was, pointed out in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 , where the land is actually put to agricultural use, there is usually not much difficulty in ascertaining the nature or character of the land. If the land is used for agricultural purposes, ordinarily it would be correct to say that the land is agricultural land and vice versa.'

10. Applying the tests which have been evolved by these different decisions and particularly in the light of the decision of the Supreme Court in Begumpet Palace's case : [1976]10ITR133(SC) , and the principles laid down therein, it is obvious that in the instant case, on the date of the sale by the four co-owners of these five plots of land in May and July, 1969, the lands were agricultural lands. Nothing has been brought on the record by the revenue to rebut the presumption which would arise from the entries in the revenue records and from the actual user of the lands. Under these circumstances, the conclusion is inescapable that the lands in question were agricultural lands on the date when the sales were effected to the different co-operative societies in respect of these five survey number which we have mentioned above. It is obvious in view of the provision of the I. T. Act, 1961, as it stood at the relevant time, that if the land was agricultural land at the time of the sale, the profit made on the transaction could not be charged as capital gains in the hands of the seller. That legal position is not disputed before us.

11. Under these circumstances, it must be held that the Tribunal was in error when it reversed the finding of the AAC and held that on the date of the sale the land was not agricultural land and hence capital gains tax was liable to be paid by the assessee in respect of the profit which he made on the sale of these lands.

12. We, therefore, answer the question referred to us in the negative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.


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