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Gemini Pictures Circuit P. Ltd. Vs. Commissioner of Income-tax, Tamil Nadu-i - Court Judgment

LegalCrystal Citation
Overruled ByC.I.T. Madras v. Gemini Pictures Circuit Pvt. Ltd.
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 695 of 1976 (Reference No. 563 of 1976)
Judge
Reported in(1981)20CTR(Mad)301; [1981]130ITR686(Mad)
ActsIncome Tax Act, 1961 - Sections 2(14) and 45; Tamil Nadu Act, 1966; Income Tax (Amendment) Act, 1970
AppellantGemini Pictures Circuit P. Ltd.
RespondentCommissioner of Income-tax, Tamil Nadu-i
Advocates:T. Srinivasamurthy, Adv.
Excerpt:
the income-tax officer brought to capital gains tax, the proceeds of certain sales of vacant land situate in the heart of the madras city, sold by the assessee-company on the ground that the lands were not assessed to land revenue, the lands were subjected to urban land tax, the lands were sold at fabulous price and that the lands were not agricultural lands as contended by the assessee. on appeal by the assessee the appellate assistant commissioner held that the lands. in question were not agricultural lands and confirmed the assessment. on further appeal, the income-tax appellate tribunal confirmed the order. at the instance of the assessee, the tribunal referred to the high court, for its opinion, the following questions; ; (i) whether the lands sold during the year of account was not.....venugopal, j.1. under a sale deed dated 2nd september, 1944, mrs. gulab bhai mukund rao rane of bombay purchased a property known as spencer's hotel, comprising of over 17 acres, 16 grounds and 825 sq. ft., in mount road, madras, for a sum of rs. 7,65,000. from that lady, the assessee purchased a portion comprising of an extent of 79 grounds 242 sq. ft. for rs. 5,53,705 under a registered sale deed dated october 27, 1950. the property purchased was comprised in door no. 151, mount road, madras. at the time of purchase, there was a hotel building on a portion of it and the rest was all vacant land. after purchase, the assessee put up two buildings on an extent of 20 grounds on the northern extremity of the property. one of it was occupied by the assessee for the business and the other.....
Judgment:
Venugopal, J.

1. Under a sale deed dated 2nd September, 1944, Mrs. Gulab Bhai Mukund Rao Rane of Bombay purchased a property known as Spencer's Hotel, comprising of over 17 acres, 16 grounds and 825 sq. ft., in Mount Road, Madras, for a sum of Rs. 7,65,000. From that lady, the assessee purchased a portion comprising of an extent of 79 grounds 242 sq. ft. for Rs. 5,53,705 under a registered sale deed dated October 27, 1950. The property purchased was comprised in door No. 151, Mount Road, Madras. At the time of purchase, there was a hotel building on a portion of it and the rest was all vacant land. After purchase, the assessee put up two buildings on an extent of 20 grounds on the northern extremity of the property. One of it was occupied by the assessee for the business and the other occupied by its sister concern. A common road of a width of 25 feet leading from Mount Road was formed at the western extremity of the property consisting of about 7.6 grounds, and an extent of 9.8 grounds of the lands was utilised as frontage for the two buildings. In the remaining 39.1 grounds to the south of the office building, the assessee was growing good varieties of plantains and bananas. From 1962 onwards, vegetable cultivation was carried on in the land using good quality seeds and modern insecticides and also getting expert advice from competent person. The assessee sold, (a) 19.74 grounds on April 29, 1966, to India Cement Ltd., (b) 10.05 grounds on April 29, 1966, to Imperial Tobacco India Ltd., and (c) 3.89 grounds on March 27, 1967, to Handicrafts Emporium. Before the ITO, the assessee contended that the lands sold were agricultural lands, and hence, not capital assets within the meaning of s. 2(14) of the I. T. Act, 1961, as it stood at the relevant time and there was no liability to capital gains. As the lands were situated in the heart of the city and were not assessed to land revenue and were only subjected to urban land tax, and also taking into account the fact that the lands were sold by the assessee at a fabulous price of Rs. 75,000 per ground and the assessee's intention in purchasing the land in 1950 was not with a view to grow plantains or vegetables and the sale deed under which the property was purchased by the assessee never described the lands agricultural lands, the ITO rejected the contention of the assessee. On appeal, the AAC, taking into account : (a) the physical characteristics of the land; (b) the development and use of the lands in the adjoining area and the situation of the land; (c) the intention of the owner regarding the user of the lands; and (d) the fixation of price in the sale deed at Rs. 75,000 per ground, came to the conclusion that the land in question was not agricultural land at the time of sale and confirmed the assessment made by the ITO. There was an appeal to the Income-tax Appellate Tribunal. The Accountant Member held that the main test to be applied to determine the question was the actual user of the land and as the land had been actually used for growing plantains and later, vegetables till the date of sale, the land must be held to be agricultural land with no liability to capital gains on the profits arising from the sale of such land. The Judicial Member, however, differed from the Accountant Member and held that whether the land was agricultural or not had to be decided taking into consideration the character and nature of the land, its location, the development and nature of the are in which it was located, the price for which it had been acquired and sold also the intention of the owner as gathered from all the relevant circumstances and applying these tests, came to the conclusion that the land sold was a capital asset within the meaning of s. 2(14) of the I. T. Act, and the profits arising out of the sale of the land were liable to tax under s. 45 of the I. T. Act, 1961. The Judicial Member has also held that growing of plantains and vegetables was only a casual and non-prudent user of the land and the original non-agricultural character of the land had not been converted into agricultural land by such user. The fact that the land was not described as an agricultural land in the sale deed executed in favour of the assessee was also taken as a circumstances against the assessee's contention. Since the Accountant Member and Judicial Member had differed, the matter was referred to third Member, the Vice-President of the Tribunal, under s. 255(4) of the I. T. Act, 1961. The Vice-President agreed with the view of the Judicial member and held that what was relevant was not the use to which the land was put at any point of time but it was the general character of the land that should be taken into account, and if the general character of the land was otherwise, it would not become agricultural in character merely because it was used at some point of time for agricultural purpose. He further held that apart from the factual agricultural user of the land which alone was not conclusive, the character of the land had to be determined on the cumulative basis of, (a) the environment and situation (b) the intention of the assessee at the time of purchase; (c) the nature and character of the land; (d) the previous, present and future use to which the land was put; (e) its potential value; and (f) its assessment to land revenue.

2. At the instance of the assessee, the following questions of law have been referred to this court for opinion under s. 256(1) of the I. T. Act, 1961 :

'i. Whether, on the facts and the circumstances of the case, the lands sold during the year of account was not 'agricultural land in India' during the year of assessment, and, hence, not liable to be excluded from the definition of the words 'capital asset'?

ii. Whether the surplus realised on the sale of land in the year of account is not exempt from capital gains ?'

3. The fact found by the Tribunal are as under :

The property known as Spencer's Hotel comprised of over 17 acres and 16 grounds on the Mount Road, Madras, out or which the assessee purchased 79 grounds. The hotel building was on a portion and the rest was all vacant land. After construction of two office buildings and setting apart 7.6 grounds for the formation of a road and 10 grounds as frontage for the two buildings, in the remaining portion plantains were grown from 1953 till 1963, and thereafter vegetables have been grown till the date of sale in 1966. The cultivation was carried on in an organised manner by using quality seeds and insecticides and with expect advice and assistance from technical experts. The municipal records show that the front portion of the land was used for growing vegetables. Though the land have not been subjected to land revenue, it has been assessed to urban land which is used or is capable of being used as a building site and includes garden lands appurtenant to a building. Holding that the current factual user of the land for the agricultural purpose was not conclusive for determining the character of the land, the Vice-President has applied other tests such as (a) environment and situation; (b) the intention of the assessee at the time of purchase; and (c) the potential value of the land and the past and future user of land. These tests evolved by the Gujarat High Court in Rasiklal Chimanlal Nagri v. CWT [1965] 56 ITR 608 are applicable to a case where the land was not actually put to any use and was laying idle on the relevant date and they cannot apply to a case where the land was put to agricultural use at the relevant point of time. This has been made abundantly clear in the two subsequent decisions of the same High Court : CWT v. Narandas Motilal : [1971]80ITR39(Guj) and CIT v. Manilal Somnath : [1977]106ITR917(Guj) . In Himatlal Govindji v. CWT : [1977]106ITR658(Guj) , though the land was put to agricultural use, the finding of fact was that it was by way of a stop-gap arrangement and not as a regular agricultural use and it was on the basis of this finding of fact that the tests enunciated in Rasiklal Chimanlal Nagri v. CWT [1965] 56 ITR 608 were applied. Another test applied by the Vice-President, viz., that the assessee purchased the land in question for the purpose of construction a cinema theatre has no relevance for determining the character of the land at the time of his purchase of sale by the assessee. As pointed out in Himatlal Govindji v. CWT : [1977]106ITR658(Guj) , what has to be considered is not what the purchaser did with the land, but what was the character of the land at the time when the sale took place. Yet another test applied by the Vice-President is that the sale price paid by the assessee was incompatible with the agricultural character of the land. As pointed out by the Gujarat High Court in CIT v. Manilal Somnath : [1977]106ITR917(Guj) , if the lands has been used for agricultural purposes for along time and nothing had happened till the date of sale to change the character of the land, the potential non-agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land on the date of sale. A further test applied for rejecting the contention of the assessee was that the agricultural operations carried on in the land were such that no prudent agriculturist would carry out on the land. The only High Court which has evolved and applied this test is the Kerala High Court in the lone decision reported in Venugopala Varma Rajah v. CED : [1967]64ITR358(Ker) . The Gujarat High Court in the later decision, CIT v. Vajulal Chunilal : [1979]120ITR21(Guj) , has pointed out that it was not concerned with the question whether the agricultural operations carried on were such as a prudent agriculturist would carry out on the land and the sole question to be decide was whether on the date of sale the land had retained its agricultural character. Whether the current agricultural user of the land by the assessee was a prudent user of the land is not germane to the issue in question.

4. Now the question turns on what then are the tests to be applied when it is established that the land has been consistently used for agricultural purpose throughout the relevant period. In Rasiklal Chimanlal Nagri v. CWT [1965] 56 ITR 608, the Gujarat High Court has held as follows (p. 615) :

'Where the land is actually put to 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. But even this test may not always furnish a correct answer, for, there may be cases where land admittedly non-agricultural (such as a building site) may be used temporarily for agricultural purposes. In such cases it would not be correct to say that merely because the land is in the fact being used for agricultural purposes, it is agricultural land but as a general proposition if may be stated without any fear of contradiction that ordinary the actual user to which the land is being put would furnish prima facie evidence of the true nature or character of the land, and therefore, whenever a question arises whether a particular for which the land or not, primarily regard must be had to the purpose for which the land is being actually used at or about the relevant time and that would ordinarily provide a satisfactory answer to the problem.'

5. The test laid down in Ranchhodbhai Bhaijibhai Patel v. CIT : [1971]81ITR446(Guj) , for the purpose of determining whether a particular land is agricultural or not is first to ascertain what is the use to which the land is actually being put. If it is being used for agricultural purposes or even if the agricultural use has ceased, but it is apparent that the land is meant to be used for agricultural purposes, it would be agricultural land. If, on the other hand, the land is being used for non-agricultural purpose, it would be a string 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, having regard to the various factors referred to in Rasiklal Chimanlal Nagri v. CWT [1965] 56 ITR 608, whether the general nature of character of the land is such that it can be regarded as agricultural land. In CWT v. Narandas Motilal : [1971]80ITR39(Guj) , it was pointed out (p. 47) :

'.... if once the assessee becomes successful in showing that the land is consistently used for agricultural purpose throughout the relevant period then that fact can be taken as furnishing some prima facie evidence to determine the character of the land in question. However, this may not be considered as sufficient looking to other facts and circumstances of the case. For instance, if a building site which is situated in the midst of a fully developed residential locality is subjected to agricultural use, then the prima facie presumption about the agricultural character of the land would at once be displaced.'

6. In Syed Rafiqur Rahman v. CWT : [1970]75ITR318(Patna) , the land in question was situated in the heart of the town surrounded by residential buildings and excepting the presence of some trees on the land, there was no integrated activity of agriculture undertaken and performed on that land. The court rejected the contention that the land in question was agricultural land, not on the ground that it was situated in the heart of the town surrounded by residential buildings, but on the ground that no integrated activity which constituted agriculture as laid down by the Supreme Court in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 446, was carried on in that land. In CWT v. Narandas Motilal : [1971]80ITR39(Guj) , the lands were within the municipal limit and situated in the western extremity of the town which had developed into a residential locality. The lands were plotted out by the assessee and sold on yardage basis. Since it was established that right from the date the assessee inherited the land they were put into cultivation, the fact that the draft town planning scheme was applied to that area and the lands were plotted out by the assessee and sold on the basis of yardage is not potent enough to displace the presumption about the agricultural character of the land arising from its actual user. In Avtar Singh Rangwala v. CIT , the lands were situated within the municipal limits of Amritsar and grass was grown on the land and after requisition by the Government, it was used as a parade ground and year the land was held to be agricultural land. It was pointed out that the fact that the land was situated within the municipal limits does not lead to the conclusion that since agricultural lands can exist in urban areas and within municipal limits. In CIT v. K. Ananthan Pillai : [1974]94ITR122(Ker) , the property was situated within the municipal limits of Trivandrum town in a fairly important and developed locality with facilities like electricity and tap water. The property was a garden land having two wells and a tank. It had 300 coconut trees, a few jack-fruit trees and other fruit bearing trees. It was held that since the assessee had planted coconut and other fruit bearing trees on the property and had been watering and tending then and in the hands of the assessee. It was further held that until some act on the part of the assessee has been established, which has converted the property into non-agricultural property, it is not safe to hold that the property into non-agricultural by the mere intention of the assessee to convert it into housing site. In Shiv Shankar Lal v. CIT : [1974]94ITR433(Delhi) , the property in question called Amba Prasad Garden, comprised of an extent of 14,716 sq. yards, contained a garden house covering an area of 312 sq. yards and was situated at Subzimandy, old Delhi. In the whole of this land, there were 100 fruit bearing trees which were grown, watered, manured and maintained. A portion of the property, including the garden house was rented out to M/s. Ganesh Flour Mills. Later, the mills agreed to take the entire land including the fruit trees, on lease and the rent was fixed at Rs. 900 p.m. for the building and for the rest of the land at Rs. 500 per annum. 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 assessee sold the property to two companies, New Delhi Theatres Private Ltd. and M/s. Ganesh Flour Mills Company Ltd., at the rate of Rs. 60 per sq. yard. The municipal tax on the building in the land was paid as the property was situated within the municipal area. At the same time, land revenue and cancel water charges were being regularly paid in respect of the land. Out of the total extent of 15 bighas of land, vegetables were grown on some portions of the land. From these facts, the Tribunal came to the conclusion that the land sold by the assessee to the company was agricultural land on the date of sale and this finding was accepted by the High Court. In CWT v. P. Sankaran Nair : [1976]103ITR366(Mad) , the revenue contended that the area was included in the Corporation limits and the presence of big factories and quarters for company executive in the joining tracts of land and in that absence of any tilling or any agricultural operations performed during the relevant year, together with the negligible nature of income and expenditure from these lands, showed that the land was not agricultural land. It was further contended by the revenue that the presence of Palmyrah trees, which dotted the entire landscape near Madras, were standing on the land partly because of absence of agricultural operations. Negativing the contention of the revenue, this court pointed out that the situation of the land within the Corporation is too wide to be accepted and if the land in question is shown to be agricultural land, it continues to be agricultural land until it is shown that the owner has taken steps to convert the land into building plots or factory site. In CWT v. Officer-in-charge (Court of Wards), Paigah : [1976]10ITR133(SC) , the property called Begumpet Palace was within the municipal limits of Hyderabad consisting of vacant lands of about 108 acres and also buildings enclosed in compound walls. The land had two wells in it and was assessed to land revenue and was not put to any use. The Supreme Court pointed out that it was not enough to show that the land under consideration was capable of being used for agricultural purposes and it must be shown that the actual condition of the land and intended user had connection with an agricultural purposes and user and the Supreme Court without determining the issue on the basis of the physical characteristics of the land, its location and its adjoining area and the intention of the owner, as gathered from all the relevant circumstances, sent the case back to the Tribunal to determine the actual condition of the land and whether the intended user had connection with an agricultural purpose. The decision of the Supreme Court only emphasis how the actual and current user of the land has a great bearing and relevance in the determining the agricultural character of the land.

7. The resultant legal position emerging from the cases cited above can be stated us under : Once the assessee establishes that the land is continuously used for agricultural purpose, then the prima facie presumption arising from such user is that the land in question continues to be agricultural land. The presumption is not rebutted by placing emphasis on the environment and situation of the land such as the and being situated in a well developed area within the municipal or city limits or by showing the intention of the assessee at the time of purchase, or the price at which the property has been purchased or sold by showing that the current agricultural user of the land is not a prudent user of the land. The presumption can be rebutted only by showing that the land purchased or inherited by the assessee was not agricultural that (such as building site or factory site) and the current agricultural user of the land was a stop-gap arrangement pending availability of a buyer for the land in question. Once it is established that the land is agricultural land in the hands of the assessee, until some act on the part of the assessee has been established, which has converted the property into non-agricultural property or the user of the land was actually changed or other definite indications to the contrary are available, the land will be presumed to remain as agricultural land.

8. As pointed out by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards), Paigah : [1976]10ITR133(SC) , once the assessee establishes that the land is agricultural land, the burden of proving that if is not agricultural land is on the revenue. So the two questions that arise for consideration in the present case are :

'1. Whether the assessee has established that the land purchased by him was an agricultural land and

2. Whether the revenue has dislodged the presumption of the continued agricultural character of the land arising from the fact that the land was purchased by the assessee as agricultural land and was used as agricultural land till the date of sale ?'

9. Taking up the first question, there is no clear finding by the learned Accountant Member as to the character of the land (agricultural or non-agricultural) at the time of purchase by the assessee. The learned Judicial Member has recorded a finding that the land purchased by the assessee was not agricultural land as it has not been so described in the sale deed in favour of the assessee. This circumstances by itself is not conclusive to establish that the land purchased by the assessee was not agricultural land. The other two circumstances relied on by the learned judicial Member, viz., the high price paid by the assessee and the fact that later on the assessee put up two constructions on the northern extremity, are not relevant consideration for determining the agricultural character of the land at the time of its purchase by the assessee. The learned Vice-President has not recorded any specific finding regarding the character of the land at the time of purchase by the assessee. However, his observation : 'At the beginning I was inclined to accept the assessee's contention because it appears difficult to say that land which is, and has for quite some years together been, used for agricultural purpose is not agricultural.' (vide para. 7 of his order) seem to suggest that he was inclined to the view that the land had characteristics of agricultural land at the time of its purchase by the assessee. The year of purchase of the property in question by the assessee was 1950 and the year of raising the plantain garden is stated to be 1953. The year of putting up two construction by the assessee in the northern extremity is not indicated. It is not clear from the findings recorded by the Tribunal whether the plantain garden was in existence even at the time when the two constructions were put up by the assessee. The property known as Spencer's Hotel originally comprised of 17 acres 16 grounds and 825 sq. ft. Out of this total extent, the assessee had purchased an extent of 79 grounds. Out of the total extent of 79 grounds purchased by the assessee there was only the hotel building and the rest of the land remained as vacant land. The sale deed in favour of the assessee makes specific reference about the existence of wells, water installations and water courses in the property a relevant piece of material not taken into account by the Tribunal. The assessee's contention that out of a total extent of 79 grounds, Spencer's Hotel was lying only on a small portion and the rest of the land lying vacant was being used as garden land utilising the well water is not so preposterous as to merit outright rejection. The fact that from 1953 till the date of sale it was used as a garden land by the assessee and the further fact that the Corporation records show that vegetables were grown on the land, are circumstances probabilising the truth in the contention of the assessee. It is no doubt true that the land is not assessed to land revenue. However, it is subjected to urban land tax. The Tamil Nadu Urban Land Tax Act (Act No. 12 of 1966) defines 'urban land' as to mean 'any land which is used or is capable of being used as a building site and includes garden or gardens, if any, appurtenant to a building but does not include any land which is registered as wet in the revenue accounts of the Government and used for the cultivation of the wet crops.' The assessee's contention that the vacant land abutting the property known as Spencer's Hotel was used as garden land is quite compatible with the fact that the land was assessed to urban land tax in view of the wide definition of the term 'urban land' under the Tamil Nadu Act 12 of 1966. We are, therefore, inclined to accept the contention of the assessee that the land in question at the time of its purchase was garden land retaining its agricultural character.

10. Taking up the second question, the circumstances relied on by the revenue such as the time of purchase and situation of the land, the intention of the assessee at the time of the purchase and the high price paid, etc., are not sufficient to dislodge the presumption of the continued agricultural character of the land arising from the fact that the land was purchased as agricultural land and was put to agricultural use consistently from the year 1953 onwards till the date of sale. The case in question is somewhat akin to the case, Shiv Shankar Lal v. CIT : [1974]94ITR433(Delhi) , where the property known as Amba Prasad Garden, situated at Subzimandy, Old Delhi, consisting of a building fetching a rent of Rs. 900 p.m., and the rest of the land abutting the building having fruit bearings trees and being utilised for growing vegetables was construed as agricultural land, and upheld by the High Court. We are fully conscious that it may sound somewhat paradoxical and odd to construe a plot of land in Mount Road as agricultural land. Without laying under emphasis on any single aspect and also bearing in mind that no single test evolved by courts is conclusive of the matter, we have persuaded ourselves to the conclusion though not without difficulty, that it is possible to construct the 30.44 grounds of land mentioned in the assessee's letter dated 16th July 1969, to the ITO, as agricultural land.

11. The learned counsel for the revenue contended that from the questions referred by the Tribunal to the High Court, it is not open to this court to go into the question as to the correctness of facts found by the Tribunal and it is for the Tribunal to find facts and for this court has no jurisdiction to go behind or to question the statements of facts made by the Tribunal and it is not within the province of this court to review the evidence on record and come to different conclusions on question of fact. It was further contended that the finding of fact by the Tribunal will be defective in law if there is no evidence to support it or if the finding is perverse and it is not open to the assessee to challenge such a finding of fact, unless the assessee has applied for a reference raising the specific question challenging the findings of fact on the ground that the finding of fact are vitiated for the reasons set out in the question. As the assessee in the instant case has not expressly raised the question about the validity of the findings of the Tribunal, this court, so it is argued, cannot embark upon a reappraised of the evidence and interfere with the findings of fact arrived at by the Tribunal. Whether a particular property is agricultural land or not is not a pure question of fact and the High Court is not precluded from considering the correctness of the findings of the Tribunal in the light of the tests which have been laid down for determining whether a particular property comes within the ambit of agricultural land. The very fact that there is voluminous case law on this question and various High Courts have laid down various tests for determining the nature of the property indicates that the findings of the Tribunal whether a particular property is agricultural land or not is not building on the High Court and it is 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 findings of the Tribunal with regard to facts may be binding on the High Court. But the conclusion drawn by the Tribunal on such facts is not binding on the High Court and it is certainly open to the High Court to examine the correctness of such a conclusion. The High Court can interfere with the finding of the Tribunal if it is shown that the criteria adopted by the Tribunal for determining the character of the land were erroneous. Where the land on the relevant date was lying idle without any cultivation, the tests applicable in such cases have been wrongly applied in this case where the factual and current user of the land showed that the land was being used for agricultural purposes. As the correct criteria of the Tribunal is vitiated under law and this court can certainly interfere with such findings of the Tribunal. The contention raised by the learned counsel for the revenue is accordingly rejected.

12. In the result, both the questions referred to us are answered in the negative and against the revenue. The assessee will be entitled to its costs. Counsel's fee Rs. 500.


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