Sri.Paul P.Abraham, Ernakulam vs Assessee

1 ITA No.194/Coch/2014

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN

Before Shri N.R.S. Ganesan (JM) and Shri Chandra Poojari (AM)

I.T.A No. 194/Coch/2014 (Assessment year 2008-09)

Shri Paul P Abraham vs ACIT, Cir.2(2) Palathullil House Kochi Brahmapuram, Ambalamedu Ernakulam Dist. 682 303 PAN : ACKPA9728R (Appellant) (Respondent)

Appellant by : Shri Ramesh Cherian John Respondent by : Shri K.K. John

Date of hearing : 17-11-2014 Date of pronouncement : 09-01-2015

ORDER

Per N.R.S. Ganesan (JM)

This appeal of the assessee is directed against the order of CIT(A)-

II, Kochi dated 12-12-2013 and pertains to assessment year 2008-09.

2. Shri Ramesh Cherian John, the ld.counsel for the assessee

submitted that the assessee sold 201 cents of land to M /s Global

Township Pvt Ltd for a total consideration of Rs.402 lakhs. According to

the ld.counsel, the assessee acquired the said land by means of a 2 ITA No.194/Coch/2014

settlement deed executed by his father on 02-05-2003. For the purpose of

computing capital gain the assessee estimated the cost of acquisition as

on 01-04-1981 at Rs.25,000 per cent. The assessee has also claimed

cost of improvement at Rs.27,30,885. According to the ld.counsel though

the assessee returned capital gain in the return of income during the

course of assessment proceedings, the assessee claimed that what was

transferred was an agricultural land, therefore, it is not liable for capital

gain tax. The assessing officer disallowed the claim of the assessee on the

ground that the exemption of capital gain for transfer of agricultural land

was not claimed in the return of income on the basis of the judgment of the

Apex Court in Goetze India Ltd vs CIT 284 ITR 323 (SC). The ld.counsel

further submitted that the assessee has also raised the very same issue

before the CIT(A). The assessee has also claimed exemption u/s 54F and

54B of the Act. According to the ld.counsel, the Village Officer,

Vadavukode panchayat certified that the land was used for agricultural

purpose till 2007. A member of grama panchayat, Vadavukode,

Puthencruz has also certified that the subject land was used for agricultural

purpose upto the financial year 2006-07. According to the ld.counsel, the

land was cultivated with pepper, rubber, cloves, nutmeg, etc. However,

the CIT(A) rejected the claim of the assessee on the basis of a recital

found in the registered sale deed dated 05-07-2007. According to the

ld.counsel, in the registered sale deed, the property was wrongly described 3 ITA No.194/Coch/2014

as "not agricultural land". According to the ld.counsel, in fact, the land is

an agricultural land and used for cultivation till 2007. Merely because the

description was wrongly given in the sale deed, according to the

ld.counsel, it will not lose its character as agricultural land; hence, the

assessee is entitled for exemption from capital gain tax. The CIT(A) has

also rejected the claim of the assessee u/s 54F and 54B on the ground

that these claims are available only for transfer of agricultural land. In the

case before us, the CIT(A) found that the subject land is not an agricultural

land, therefore, the claim of the assessee for deduction u/s 54F and 54B

was also rejected.

3. The ld.counsel further submitted that in the registered sale deed, the

copy of which is available at page 1 of the paper book it has been clearly

referred that the purchaser is entitled to take all the yields and profit from

the said land. The property was transferred with all trees and

improvements made thereon. According to the ld.counsel, when the

income which was not chargeable to tax under the Income-tax Act was

included in the total income computation, the assessee can very well bring

to the notice of the concerned authority during the course of assessment

proceedings that what was included in his total income was not chargeable

to tax. According to the ld.counsel, when the assessing officer issued

notice u/s 142(1) and 143(2), the assessee is entitled to make the claim of 4 ITA No.194/Coch/2014

exemption even though it is not claimed in the return as per the principles

laid down by the Apex Court in the case of CIT vs. Williamson Financial

Services & Ors 297 ITR 17 (SC). According to the ld.counsel, since the

agricultural land was transferred the gain arising out of such transfer of

agricultural land is exempt u/s 2(14) of the Act in view of the unambiguous

language employed in section 2(14)(iii)(a) of the Act. The ld.representative

submitted that the subject land is beyond 8 kms radius of notified

municipality. The ld.counsel placed his reliance on the judgment of the

Kerala High Court in CIT vs Murali Lodge 194 ITR 125 (Ker), judgment of

the Madras High Court in M.S. Srinivasa Naicker & Ors vs ITO (2007) 292

ITR 491 (Mad). The ld.representative further submitted that when the land

was recorded as agricultural land in the revenue records and in fact the

land was used for agricultural purpose it has to be treated as agricultural

land as held by the Bombay High Court in the case of CIT vs Smt. Debbie

Alemao (2011) 331 ITR 59 (Bom).

4. Referring to the judgment of the Apex Court in Goetze India Ltd

(supra), the ld.counsel submitted that merely because of the assessee

included the gain on transfer of the agricultural land in the computation, the

revenue cannot take advantage of the same since it cannot be a taxable

income. Referring to the judgment of the Kerala High Court in CIT vs K.N.

Narayana 150 ITR 105, the ld.counsel submitted that the officers of the 5 ITA No.194/Coch/2014

department must not take advantage of the ignorance of the assessee as a

matter of right. It is the duty of the assessing officer to assist a taxpayer in

every way particularly in the matter of claiming and securing the relief.

According to the ld.counsel, since there is no authority to collect tax on

transfer of agricultural land, ignorance of the assessee cannot be taken as

a ground for levying tax on the capital gain. According to the ld.counsel,

the CIT(A) observed that there is no proof of agricultural operation and

there is no evidence for sale of agricultural product. According to the

ld.counsel, this observation was made ignoring the certificate issued by the

Village Officer and the Member of the village grama panchayat. The

CIT(A) has also failed to take note of the purchase bill for sale of rubber

which is enclosed alongwith the return statement filed by the assessee

before this Tribunal. The ld.counsel further submitted that the assessee

has also raised an alternative contention claiming exemption u/s 54F and

54B of the Act. This was rejected by the CIT(A) on the wrong presumption

that exemption u/s 54B and 54F is available for sale of agricultural land.

According to the ld.counsel, section 54F deals with transfer of long term

capital asset whereas section 54B deals with transfer of land used for

agricultural purpose in the two immediately preceding years from the date

of transfer. The usage of the land for agricultural purpose for two years

immediately preceding the date of transfer of the land is evidenced by the

certificate issued by the Village Officer and the Member of the gram 6 ITA No.194/Coch/2014

panchayat. Therefore, according to the ld.counsel, the assessee is entitled

for exemption u/s 54B of the Act. Referring to the recital in the sale deed

at column 8, the ld.counsel submitted that the description of the land was

wrongly made. According to the ld.counsel, when the land was subjected

to actual cultivation, wrong description in the sale deed will not change the

character of the land.

5. On the contrary, Shri K.K. John, ld.DR submitted that what was sold

by the assessee is not agricultural land. In fact, the assessee himself

described the land at clause 7 of the sale deed as "not agricultural land".

The assessee has declared in the sale deed that apartments, commercial

establishments, villas and other buildings can be constructed on the

property without conversion for user of the land. Therefore, it is obvious

that the land itself is not classified as an agricultural land. If it is an

agricultural land, it cannot be used for construction of commercial

establishments, villas and apartments without reclassification. According to

the ld.DR, this is the admission made by the assessee in the sale deed.

The ld.DR placed his reliance on the judgment of the Kerala High Court in

Kunhasu vs CIT ITA No.94 of 2014 judgment dated 03rd September 2014,

copy of which is available on record and submitted that on identical set of

facts when the land was described as stadium land in the sale deed, this

Tribunal found that it cannot be treated as agricultural land which was 7 ITA No.194/Coch/2014

confirmed by the High Court. After referring to the certificate issued by the

Village Officer and the Member of the Grama Panchayat, the ld.DR

submitted that the High Court, after going through a similar certificate

found that these are all totally insufficient to conclusively prove that the

land in question was agricultural land at the time of sale. In view of this

judgment of the Kerala High Court, according to the ld.DR, since the

assessee himself admits that the land is not agricultural land, the certificate

obtained from the Village Officer and the Member of the Village Panchayat

may not be sufficient to prove that the land in question was agricultural

land and was used for cultivation at the time of sale.

6. We have considered the rival submissions on either side and also

perused the material available on record. It is not in dispute that in the

original return filed by the assessee, the assessee himself offered the profit

on sale of the land as capital gain. During the course of assessment

proceedings the assessee claimed before the assessing officer, by way of

a letter dated 09-11-2010 that the land in question was agricultural land,

therefore, the gain arising from sale of that land is not taxable. The claim

of the assessee to treat the land in question as agricultural land was

rejected by the assessing officer by placing reliance on the judgment of the

Apex Court in Goetze India Ltd (supra).

8 ITA No.194/Coch/2014 7. We have carefully gone through the judgment of the Apex Court in

Goetze India Ltd (supra). The Apex Court in this case expressly observed

that observation is limited to the power of the assessing authority and does

not impinge on the power of the Income-tax Appellate Tribunal u/s 254 of

the Income-tax Act, 1961. In fact, the Apex Court has observed as follows:

"The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs."

Thus, the power of this Tribunal to entertain a point of law on the basis of

the facts available on record has been upheld by the Supreme Court.

Moreover, the Apex Court in the case of CIT vs Shelly Products & Another

261 ITR 367 had an occasion to examine an identical situation. The Apex

Court found that by mistake or inadvertence, the assessee included in his

income another amount which is exempt from payment of Income-tax or 9 ITA No.194/Coch/2014

his net income within the contemplation of law, he may bring this to the

notice of the assessing authority. The assessing authority, if satisfied may

grant relief and refund the tax paid in excess. In fact, the Apex Court

observed as follows at page 382 of the ITR:

"....... Similarly, if he has any mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case when refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief..."

8. In view of the above Apex Court judgment, this Tribunal is of the

considered opinion that whenever an income which was exempt from

taxation was included in the total income computed, it is open to the

assessee to bring the same to the notice of the assessing authority. If the

assessing authority is satisfied that the income which was included by the

assessee is not subject to tax under the Income-tax Act, then the same

has to be excluded. Therefore, this Tribunal is of the considered opinion 10 ITA No.194/Coch/2014

that the assessing officer ought to have examined the claim of the

assessee on merit instead of rejecting the same on its threshold.

9. Now coming to the merit of the claim of the assessee that it is an

agricultural land, the assessee has filed certificate from the village officer.

The village officer's certificate dated 28-11-2013, the translated copy of

the certificate is available at page 23 of the paper book, shows that the

land in survey No.115/2-2, 115/3 to the extent of 14.17 Ares and 56.19

Ares respectively was owned by the assessee and was used for cultivation

till 2007. The village officer further certifies that the land was cultivated

with rubber and nutmeg, etc. From the copies of the certificate given by

Member, Grama Panchayat which is available at page 1 of the paper book

shows that apart from the land in survey No.115/2-2 and 115/3 the

assessee has also cultivated lands in survey No.115/8, 115/6, 1157, 115/2,

115/10. However, the copy of the sale deed, copy f which is available at

page 1 of the paper book, it appears that lands in Survey No.115/12,

115/13, 115/9-2, 115/14 was also sold and transferred.

10. The certificate issued by the member of Vadavukode Puthencruz

Grama Panchayat, it appears that the land in survey No.115/2-2, 115/3,

115/8, 115/10, 115/6, 115/7, 115/2 which said to be belonged to the

present assessee and Dr. Grace B Abraham was used for agricultural 11 ITA No.194/Coch/2014

purpose upto the financial year 2006-07. The land was cultivated with

pepper, cloves, nutmeg, etc. The Ward Member further claims that was

associated with people and their activities closely. From the two

certificates produced by the assessee it appears that some lands were

used for cultivation and the land in survey No.115/9, 115/12, 115/13,

115/14 are not used for agricultural purpose. It is also not known how the

land was classified in the revenue records of the state government. The

assessee in the sale deed at column 8 has described the land s follows:

"The vendors further covenant that apartments, commercial establishments, villas and other buildings can be constructed on the said property without conversion of user of the land. The said property is not n agricultural land."

11. This recital in the sale deed shows that without conversion of the

land in the revenue records the land can be used for construction of

commercial complex, apartments, etc. The assessee has also claims that

the land is not agricultural land.

12. Now the assessee claims before this Tribunal that this description of

the land in the sale deed, more particularly at column 8, is wrongly made.

Therefore, the same cannot be used against the assessee especially when

the land was actually subjected to cultivation on the basis of the certificate 12 ITA No.194/Coch/2014

issued by the village officer and the member of the village panchayat. The

assessee has also produced copies of the receipt for payment of tax as

agricultural land to the village officer, the copies of the same are available

at pages 61 to 63. The assessee has also filed a receipt issued by St.

Mary's Rubber Stores for sale of rubber. From the material available on

record, prima facie, it appears that a part of the land might have been

subjected to cultivation and the rubber was also sold. In the state of

Kerala, the state government is not maintaining any account / records for

cultivation. In fact, this Tribunal examined the issue elaborately in the case

of MThoms Vs DCIT ITA No.224/Coch/2011 dated 06-06-2014 and

found that in the absence of any record maintained by the state

government for cultivation, the certificate issued by the village officer and

the member of the panchayat cannot be ignored. This Tribunal found that

no other materials could possibly be produced by the assessee. If such

certificate is not considered, then the assessee being an agriculturist may

not be able to prove the fact that the land was subjected to cultivation for

earlier years. In fact, this Tribunal has observed as follows at paragraphs

18 to 29:

"18. The next issue would arise for consideration is whether the subject land is an agricultural land or not? If the subject land is not an agricultural land then it would fall within the 13 ITA No.194/Coch/2014

definition of capital asset. What is excluded is only the agricultural land and not all land. Therefore, we have to see whether the subject land is an agricultural land or not? The term agricultural land is not defined in the Income-tax Act. The Constitution of India, Article 366(1) defines agriculture income which reads as follows:

"Art.366(1). "agricultural income" means agricultural income as defined for the purpose of the enactment relating to income-tax."

In view of the above constitutional provision even for agricultural income we have to refer to the definition given in the Income-tax Act. In the absence of any express definition either in the Constitution of India or in the Income-tax Act in respect of agricultural land we have to take the meaning in common parlance. In common parlance, the land which is meant for cultivation is considered to be an agricultural land. This Tribunal finds a similar reference "Agricultural land" in Wealth-tax Act. Section 2(e) of the Wealth-tax Act, 1957 reads as follows:

"2. In this Act, unless the context otherwise requires,-

(a) to (d) xxxxxxxxxxxxxxxxxxx

(e) "assets" includes property of every description, movable or immovable, but does not include,-

(1) in relation to assessment year commencing on the 1st day of April, 1969, or any earlier assessment year -

14 ITA No.194/Coch/2014 (i) agricultural land and growing crops, grass or standing trees on such land:"

Therefore, agricultural land and growing crops, grass and standing trees on such land are excluded from the definition of "asset" even under the Wealth-tax Act. An occasion arose before the Apex Court in CWT vs Officer Incharge (Court of Ward Paigah (1976) 105 ITR 133 (SC) to consider the term "agricultural land" occurred in section 2(e) of the Wealth-tax Act. Therefore, this Tribunal is of the considered opinion that the interpretation given by the Apex Court in the case of CWT vs Officer Incharge (supra) in respect of agricultural land under the context of Wealth-tax Act would be more appropriate and proper for defining the term "agricultural land". The Apex Court, after referring to the provisions of the Constitution of India, more particularly entry 86, List I to 7th Schedule, found that agricultural land is only a species of land. The main question is whether it should stand for all lands which is capable of being utilized for agricultural purpose and or for some land which either is being actually used or has been set apart or prepared for use for agricultural purpose so as to indicate the intention of the owner or occupier of the land to put it to agricultural uses. Referring to the earlier judgment of the Apex Court in CIT vs Raja Binoy Kumar Suhas Roy (1957) 32 ITR 466 the Apex Court found that the determination of the character of the land according to the purpose for which it is meant or set up for and capable use is a matter which ought to be determined on the facts of each particular case. In fact, the Apex Court held as follows:

15 ITA No.194/Coch/2014 "....... What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of "assets", but its actual condition and intended user which has to be seen for purposes of exemption from wealth-tax."

In view of the above judgment of the Apex Court there should be an connection to indicate the intention of the owners or possessors so as to connect with agricultural purpose in respect of the land. The entries in the revenue record are prima facie evidence to indicate that the land in question is agricultural land.

19. We have also carefully gone through the provisions of section 10(37) of the Act which reads as follows:

10(37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head "Capital gains" arising from the transfer of agricultural land, where -

(i) such land is situated in any area referred to in item (a) or item

(b) of sub-clause (iii) of clause (14) of section 2;

(ii) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purpose by such Hindu undivided family or individual or a parent of his;

16 ITA No.194/Coch/2014 (iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India;

(iv) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.

Explanation.- For the purposes of this clause, the expression "compensation or consideration" includes the compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority;"

Section 10(37) was introduced for the first time in the statute book by Finance Act, 2004 with effect from 01-04-2005. Section 10(37) excludes the capital gain arising from transfer of agricultural land which was being used for agricultural purpose immediately two preceding years. In view of section 10(37) transfer of agricultural land which is situated within the jurisdiction of municipality are excluded from capital gain tax provided such land is used for agricultural purpose during the period of two years immediately preceding the date of transfer. However, this condition or requirement of using the land for agricultural purpose during the two years immediately preceding the date of transfer was not provided in respect of agricultural land which situate outside the jurisdiction of the municipal limits in section 2(14) of the Act. Section 10(37) was introduced in the statute book to mitigate the hardship faced by the land owners within the specified urban area. In the Memorandum explaining the provisions of the Finance Bill, 17 ITA No.194/Coch/2014

it has been clearly stated that section 10(37) was introduced with a view to mitigate the hardship faced by the farmers whose agricultural land situate in specified urban limit has been compulsorily acquired. Therefore, in respect of the agricultural land which was used for agricultural purpose during the two years immediately preceding the date of compulsorily acquisition under any law or transfer for a consideration which was determined or approved by Central Government or Reserve Bank of India, then such capital gain would not form part of the total income of the assessee.

20. Similarly, section 54B also requires the assessee who claims exemption to use the land for agricultural purpose for two year immediately preceding the date of transfer. However, such requirement of use of and for agricultural purpose for two years immediately preceding the transfer is expressly omitted by the Parliament in section 2(14) of the Act. It is well settled principles of law that a taxing statute should be strictly interpreted or construed. Equity, logic, ethic and morality have no role to play in interpretation of taxing statute. It is also well settled that nothing could be implied and plain language used by the Parliament has to be read as such. In fact, the Apex Court in Asst.Director of Inspection vs Kum. A.B. Shanthi (2002) 255 ITR 258 (SC) after referring to its earlier judgment in East India Tobacco Co vs State of Andhra Pradesh (1962) AIR 1962 SC 1733 found that Parliament has power to pick and choose districts, objects, persons, methods and even rate for taxation if it does so reasonably. By applying the above principle laid down by Apex Court, section 18 ITA No.194/Coch/2014

2(14) has to be interpreted strictly. Therefore, the requirement using the land for two years immediately preceding the date of transfer cannot be a pre-condition for the purpose of section 2(14) of the Act. Hence, the judgment of the Kerala High Court in Smt. Asha George (supra) which deals with section 54B and 54F may not be applicable to the facts of the case. This Tribunal is of the considered opinion that what is required for section 2(14) is connection with agricultural purpose.

21. The next question that would follow is that whether the subject land has any connection with agricultural purpose and whether it is used for agricultural purpose? The assessee claims that the state government has not maintained any records for cultivation of the landed properties except classification of the land as wetland, residential land, etc. The assessee also claims that the government is collecting agricultural workers' welfare fund from the land owners who cultivated the land. The basic tax register prepared by the village Administrative Officer for collection of tax also shows that the land is an agricultural land. The village Administrative Officer officer certifies that the land in question was a paddy field earlier and some of the lands were filled in subsequently and they have cultivated banana and ginger. In one appeal, the land was acquired by the government immediately after filling up for the purpose of cultivating the other crops, viz. banana and ginger. Therefore, the material now available on record to prove the usage of land for agricultural purpose or connection with agricultural purpose are -

19 ITA No.194/Coch/2014 (i) the certificate issued by the village administrative officer;

(ii) the certificate issued by the agricultural officer;

(iii) classification of land by the state government as agricultural land;

(iv) Receipt for payment of contribution to agricultural workers welfare fund; and (v) basic tax register.

22. Before independence, land which was under the direct control of the British Rule / administration, more particularly, the land which falls within the jurisdiction of erstwhile Madras Province, the British Rulers prescribed procedure method and forms for taking cultivation accounts. As per the procedure prescribed by the British rulers in the Revenue Board's Standing Orders, the village officer has to visit every agricultural land and take note of the cultivation made, standing trees, source of irrigation, etc. once in six months. The cultivation and other details had to be recorded in village account No.2 which would otherwise known as Adangal. Apart from this, the village officer has to maintain other records for collecting land revenue, water cess, irrigation tax, etc. The entry made by village officer has to be verified by Tahsildar or any officer from the Tahsildar office. The very same method of taking cultivation account once in six months was followed by the state governments after independence. Keeping this method followed by British rulers in mind, this Tribunal was of the opinion that some kind of material would be available with the state government with regard to the 20 ITA No.194/Coch/2014

cultivation made by the respective owners / possessors of the land which is in question now.

23. We are conscious that Cochin is an independent princely state under the Direct Administration of Cochin Maharaja during British Rule. Therefore, the forms and rules prescribed by British Authorities before Independence of India may not have been followed in the princely state of cochin. However, the princely state of Cochin is the first state who willingly joined itself with the independent India. After independence Government of India is taking statistical report about the food production in the country including the State of Kerala and projecting the statistical figure with regard to anticipated food production, anticipated demand and whether the food production would be short or excess. Therefore, in the state of Kerala also even though the subject land was situated in the erstwhile princely state of cochin, some kind of records should be available with state government atleast after independence for cultivation. Therefore, we called for a remand report directing the assessing officer to examine the concerned village Administrative Officer, Tahsildar, agricultural officer and any responsible officer in the collectorate. For the purpose of convenience, we are reproducing the order of the Tribunal calling for the remand report below:

"I.T.A. No.311/Coch/2011

Assessment year 2007-08

Dy.CIT, Cir.2(2), Ernakulam 21 ITA No.194/Coch/2014

Vs

Shri M.J. Thomas, Mukkadayil House St. Vincent road, Ernakulam

08-10-2013 The assessee claims that he was cultivating 4.448 acres of land at Kakkanad which was compulsorily acquired by Government for KINFRA Smart City project. According to the assessee, while paying the compensation for land acquisition, the District Collector has not deducted any tax at source since it was agricultural land. According to the assessee, the land at Kakkanad, which is subject matter of appeal is used for cultivation of banana, ginger, etc. and the assessee also returned agricultural income regularly. The assessee has also produced the certificate from the Village Officer to support the claim that the land in question was cultivated before acquisition. On a query from the bench whether the state government is maintaining any record for cultivation of land, the ld.representative for the assessee submitted that the state government is not maintaining any record for cultivation of the land. The DR also says no records were found to be maintained by the state government for cultivation of land. This Tribunal is of the considered opinion that the state government through the revenue department is maintaining cultivation account. In fact, the Village Officer has to record the cultivation in the respective account in the form prescribed by the state government. The accounts prepared by the village officer have to be verified by a higher authority at the Taluk level. Then there will be a statistical committee at 22 ITA No.194/Coch/2014

the taluk level to examine the food production of the taluk. The statistical committee at taluk level will consolidate all the reports received from the respective village officers and then forward the same to the District Collector. The statistical committee in the District headed by the District Collector would examine the details collected by the taluk office and will consolidate the expected food production of the district and the same would be forwarded to the state government. The state government, after consolidating all the reports received from the respective District Collector would forward the food production estimate to the Central Government. The Central Government, in turn, consolidates all the reports received from the respective state government and estimate the food production for the year. When this is the pattern of administration in this country, it is not known how the government in the State of Kerala is not maintaining any records for cultivation of land. If no record is maintained for cultivation of the lands then the food production in Kerala cannot be estimated. In that case, the statistical figure projected by the Government of India for food production in the country may not include the food production figure of Kerala State. This Tribunal is of the considered opinion that the Central Government will never exclude the expected food production of Kerala while estimating the food production of the country as a whole. Therefore, some kind of material would be prepared at the taluk level to record the cultivation of the lands.

23 ITA No.194/Coch/2014 2. Since the details are not forthcoming either from the assessee or from the department, this Tribunal is of the considered opinion that the examination of the respective Village Officer and the Tahsildar with regard to records maintained by the State Government for cultivation of land would throw some light for effective disposal of this appeal. Therefore, the assessing officer is hereby directed to summon the Village Officer, Kakkanad Village and the concerned Tahsildar in person and examine them in respect of the following aspect:

(1) Whether the Village Officer and the Tahsildar are maintaining any records for cultivation of land in their jurisdiction? If that is so, what kind of records are maintained and the copies of the respective records / accounts from the financial years 2003 to 2008 shall be obtained by the assessing officer for the land which is subject matter of appeal before this Tribunal?

(2) In case, no records are maintained for cultivation of land, then ascertain how the statistical report with regard to estimation of the food production of the taluk is prepared.

(3) What are the basic documents which are considered for estimation of the food production of the taluk while sending the statistical report to the District Collector.

(4) In case, the Tahsildar and Village Officer could not explain the matter it is open to the assessing officer to summon some responsible officer from the District Collector's 24 ITA No.194/Coch/2014

office, who is in-charge of the revenue administration including the concerned agricultural officer to find out the actual record which is maintained by the state government for cultivation of land in the State of Kerala.

(5) The assessing officer shall also ascertain from the village officer and Tahsildar with regard to cultivation said to be carried out by the assessee and the nature of crop cultivated on the land which is subject matter of appeal. The examination shall be made in the presence of the assessee or his representative and an opportunity to cross examine may be given if the assessee so desires. In case the assessee fails to appear after receiving notice from the assessing officer on the date of examination, the examination may be made in the absence of the assessee. The assessing officer, after examination of the respective persons as stated above, shall file his report along with the copies of the statement recorded including the documents, if any, obtained from the respective officers before this Tribunal on or before 29-11-2013 after serving a copy of the report to the assessee. If the assessee intends to file objection to the report filed by the assessing officer, he may do so on or before 06-12-2013. The registry is directed to post the appeal for further hearing on 09-12-2013.

3. The registry is further directed to forward the copy of this order to the assessing officer and the assessee.

Sd/- sd/- ACCOUNTANT MEMBER JUDICIAL MEMBER 25 ITA No.194/Coch/2014

24. In pursuance to the remand report, the assessing officer examined the village Administrative Officer, Kakkanad, Additional Tahsildar and Agricultural Officer. For the purpose of convenience, we are reproducing remand report filed by the assessing officer before this Tribunal:

"No.Remand Report/C-2(2)/2013-14 Dated:29-11-2013 To The Assistant Registrar, Income Tax Appellate Tribunal, Cochin Bench, Cochin Sir Sub: Calling for remand report in the case of - Sri M.J. Thomas for the Asst.Year 2007-08 - reg. -

Ref: ITA No.311/Coch/2011 dated 08/10/2013 ********** Kindly refer to the above.

A remand report has been called for by the Hon'ble ITAT in the case of Sri M.J. Thomas for the Asst.Year 2007-08 to carry out necessary verification regarding maintenance of records for cultivation of and by the State Govt. of Kerala. The Hon'ble ITAT directed the Assessing Officer to summon the Village Officer, Kakkanad Village and the concerned Tahsildar in person and examine them in respect of the following aspect:

(1) Whether the Village Officer and Tahsildar are maintaining any records for cultivation of land in their jurisdiction? If that is so, what kind of records are maintained and the copies of the respective records / accounts from the financial years 2003 to 2008 shall be obtained by the AO.

26 ITA No.194/Coch/2014 (2) In case, no records are maintained for cultivation of land, then how the statistical report with regard to estimation of the food production of the taluk is prepared.

(3) What are the basic documents which are considered for estimation of the food production of the taluk while sending the statistical report to the District Collector.

Accordingly, on the basis of the information and documents provided by the authority concerned, the remand report is submitted as follows:

1. The Village Officer, the Additional Tahsildar and the Principal Agricultural Officer were summoned and none of these people could shed any light whether the particular piece of land in question has been cultivated or not.

2. The concerned Village Officer and the Additional Tahsildar appeared before me and deposed that no records are maintained at their level. It is maintained at the level of Agricultural Officer who operates in individual panchayat at the Krish Bhavan and are responsible for implementation of the Centrally sponsored, State Govt. and Gram Panchayat scheme on agriculture and is headed by Principal Agricultural Officer at the district level.

3. The Additional Tahsildar as well as the Village Officer deposed that the only register available in this regard in their offices is the Kerala agricultural Workers Welfare Fund (KAWWF) register in which the levy cast upon the land owners are recorded. Further, they elaborated that this is a levy collected from land owners on behalf of agriculture labourers by the State, under the statute KAWWF Act. This is collected at the rate of Rs.15.00 per annum from land owners who own 27 ITA No.194/Coch/2014

more than 50 ares and less than 100 ares of land, and Rs.20.00 per annum from land owners who own more than 100 ares of and. An attempt was made by the assessee to equate this levy with agriculturists as it is a levy collected on behalf of agricultural labourers. However both the Village Officer and the Additional Tahsildar categorically stated that it is collected in a routine manner from all the land owners who own more than a threshold limit and not restricted to agriculturists alone and also that this levy has not been collected since 31.03.2005 in Kakkanad village.

4. The Village Officer deposed that he maintains no register except for Basic Tax Register (BTR) and Kerala Agricultural Workers Welfare fund (KAWWF). BTR records the basic character of land as 'Nilam' or 'Purayidom' which is 'wet land' and 'dry land' respectively. The wet land can be agricultural land which is paddy or otherwise and all other lands which are either water logged or likely to be water logged at some point of time in an year and also fallow land and also that they had no means of ascertaining whether this particular piece of land was fallow, cultivable or cultivated.

5. The Principal Agricultural Officer on being questioned deposed that she also does not have any record in her office or at the office of her subordinates to ascertain whether a particular piece of land was cultivated or not. However she deposed that a certificate is always granted by the Agricultural Officer of the panchayat for utilization of land after due inspection of property. Since the Agricultural Officer said that an inspection is always one before issuing, the certificate available in our record, issued by the then Agricultural Officer 28 ITA No.194/Coch/2014

on 04/10/2009, was shown and she was asked to express her opinion on it. She replied that the Agricultural Officer had termed the land as 'cultivable but left fallow'. She was asked to explain fallow land during cross examination against which she replied any land cultivable but not cultivated for the last 10-15 years can be termed as fallow land. And during re- examination she explained further that the land need not be cultivated at all to be termed as follow.

6. BTR is a fundamental register available in the office of Agricultural Officer. There is a farmer's register introduced since 2012 wherein the farmers are registered along with their details which also contributes to the estimation of food production of the district.

7. The Agricultural officer also do not have records of cultivation of individual properties, but has records of Padasheghram's (collection of paddy fields) and other properties. The extent of Padashegharam's are arrived at and yield is multiplied to reach the food production of the district.

8. Hence, my conclusion is that, on the basis of available records and certificates the land in question is fallow land, not cultivated for a long time atleast for a period of 10-15 years, bought and left fallow in anticipation of rise in prices due to urbanization and land price boom which was taking place during the period in question. The assessee is not an agriculturist by profession and the assessee has not indulged in agriculture practices or agriculture before or after the purchase and acquisition. Thus, the circumstantial evidences too along with available documents and evidences, are 29 ITA No.194/Coch/2014

against the assessee's claim of the said piece of land being an agriculture land.

9. Hence, on the basis of my investigation in the matter, I recommend that the said piece of land lying in Sy.Nos.645/4, 646/4, 646/5 & 646/6 and 647/1 amounting to total area of 173.08 ares may be considered as allow land, not cultivated and not agricultural land."

Yours faithfully, Sd/-

(V. SRIVIJAY) Assistant Commissioner of Income-tax Circle-2(2), Kochi Encls:

1. Copy of the reply of the Principal Agricultural Officer, Ernakulam

2. Copy of the reply of the Additional Tahsildar, Kanayannur Taluk.

3. Copy of the statement recorded from the Principal Agricultural Officer, Additional Tahsildar and Village Officer.

4. Copy of the levy collection report of Kerala Agricultural Labourer Welfare Board."

25. In order to give an opportunity to all the assessees copies of the remand report alongwith its enclosures were furnished to all the assessees. The assessee in the case of Shri M.J. Thomas has filed his objections / reply. In respect of 30 ITA No.194/Coch/2014

all other assessees they have not filed any reply. On a query from the bench, why they could not filed their reply / objection, they simply said that the remand report filed by the assessing officer is not against the assessees and the assessing officer has clarified that no records are maintained by the state government for the purpose of cultivation. Therefore, the effort taken by this Tribunal to find out the records maintained by the state government has ended in vain.

26. Now the question arises for consideration is in the absence of records maintained by the state government for cultivation whether the material filed by the assessees would be sufficient to prove to show that the assessees were using the land for agricultural purpose / and the land in question has any connection with agricultural purpose. All the assessees are individual assessees. Agriculture in this country is unorganised. Normally illiterate citizens of this country are engaged in agricultural activities. Though the respective state governments are taking steps to sell the agricultural produce in the markets, still, the sale of agricultural produce is not regulated properly. The agricultural labourers, who are engaged for cultivation, are also illiterate. In those circumstances, expecting material evidences from the agriculturists for cultivation may be far-fetched. In respect of corporate companies that are engaged in cultivation, may maintain evidence for purchase of fertilizers, payment of wages to labourers and in respect of sale of agricultural produces. However, such kind of evidence may not be expected from individual farmers so long as the government 31 ITA No.194/Coch/2014

does not regulate the cultivation of land and sale of agricultural produce in this country. This ground reality cannot be ignored by judicial authorities while adjudicating the dispute with regard to cultivation. Therefore, this Tribunal cannot blame the assessees for not maintaining records for cultivation.

27. The state government is expected to maintain cultivation account for the purpose of estimation of food production of the state and possible excess or deficit in the food production so as to make necessary arrangement for supply of food to the people. In spite of best efforts taken by this Tribunal, no evidence is coming forward from the revenue to show that the state government was maintaining any record. In fact, the assessing officer, after examining the Village Administrative Officer, Additional Tahsildar and Agricultural Officer, found that the Village Administrative Officer and Tahsildar are not maintaining any record for the purpose of cultivation. Even the Agricultural Officer is not maintaining any records for cultivation. The records available with the state government are only the register for collection of contribution towards Kerala Agricultural Workers' Welfare Fund, Basic Tax Register and the classification of land as agricultural land. Apart from these, there is no other material available with the state government. If that is so, it is not known how the food production of the state was estimated so as to ensure sufficient supply of food to the people of the state. The fact remains is that the revenue could not produce any evidence for cultivation of land maintained by Government 32 ITA No.194/Coch/2014

of Kerala. From the remand report filed by the assessing officer the food production of the state appears to have been estimated on the basis of the farmers, who were registered on the records of paddy field without considering the actual cultivation. Therefore, the state government for the purpose of food production considers the paddy fields and the agriculturists as a basis for food production. In those situations, the assessee has produced certificates from the village officer to show that the subject lands were under cultivation. This Tribunal is of the considered opinion that in the absence of any other record maintained by the state government for cultivation of the land, the certificate given by the Village Administrative Officer, who is personally acquainted with the land may be one of the factors to be taken into consideration. This Tribunal cannot ignore the certificate given by the Village Administrative Officer on the basis of his acquaintance with the field certifying that the subject lands were subjected to cultivation.

28. We have carefully gone through the judgment of the apex court in the case of Sarifabibi Mohmed Ibrahim And Others vs CIT (1993) 204 ITR 631 (SC). In the case before the Apex Court, the assessee sold a piece of land situated within the revenue limits of Navagaon village in the municipal limits of Surat municipality. In the year 1967, the assessee agreed to sell the land to a housing society. The assessee claimed the gain on transfer of such land as exempt u/s 2(14) of the Act. The Apex Court found that the assessee applying for permission to sell the land for non agricultural purpose and 33 ITA No.194/Coch/2014

immediately after application for conversion of land, the land was not cultivated for a period of four year. In those factual circumstances, the Apex court found that the land in question is not an agricultural land. In the case before us, the assessee has not applied for conversion of land for non agricultural purpose. The land in question is classified as agricultural land and the village officer certified that the land was subjected to cultivation. The assessee is contributing to the Agricultural Labourer's Welfare Fund and also paying revenue tax as agricultural land which is evidence from Basic Tax Register. In view of the material available on record disclosing the cultivation of land, this Tribunal is of the considered opinion that judgment of the Apex Court in the case of Sarifabibi Mohmed Ibrahim And Others (supra) may not be applicable to the facts of the case.

29. We have also carefully gone through the judgment of the Kerala High Court in the case of Smt. Asha George (supra). In the case before the Kerala High Court in the case of Smt. Asha George (supra), the question arose for consideration was exemptions u/s 54B and 54F of the Act. One of the pre-conditions for grant of exemptions u/s 54B and 54F is that the land should be used for cultivation immediately two years before the date of transaction. Such a condition is not available for treating the land as capital asset u/s 2(14) of the Act. Therefore, as observed earlier, what is required is the connection between the land and the agricultural purpose and if the land is cultivated in any of the earlier years, this Tribunal is of the considered opinion that the land has to be treated as 34 ITA No.194/Coch/2014

agricultural land. The material evidence produced by the assessees are - (i) the certificate issued by the Village Officer;

(ii) certificate issued by the Agricultural Officer; (iii) classification of land by state government as agricultural land;

(iv) receipt for payment of contribution to agricultural workers' welfare fund; and (v) Basic Tax Register. From these materials, it appears that the state government has classified the subject land as agricultural land. The government is collecting tax as agricultural land which is evident from the Basic Tax Register. The assessees are also contributing towards Agricultural Workers' Welfare Fund. The Village Officer certified that the subject lands were subjected to cultivation. In those circumstances, this Tribunal is of the considered opinion that the subject lands were agricultural lands beyond the municipal limits or beyond 8 kms radius of the notified municipality. Therefore, the subject land cannot be treated as capital asset within the meaning of section 2(14) of the Act; hence not liable for capital gain tax under the Income-tax Act."

13. In view of the above, the certificate issued by the village officer, the

member of the village panchayat, the receipt for payment of tax and the

classification of lands in revenue records assumes significance and the

same have to be considered before deciding whether the land in question

is an agricultural land or not? As rightly submitted by the ld.counsel for the

assessee, ignorance of the assessee or inadvertent reference about the

nature of the land in the sale deed cannot be taken advantage of by the 35 ITA No.194/Coch/2014

department in case the land is actually an agricultural land. Therefore, this

Tribunal is of the considered opinion that the matter needs to be examined

by the assessing officer in detail after considering the certificate issued by

the village officer, member of the village panchayat and the bills produced

by the assessee for payment of tax, sale of rubber, etc. The assessing

officer shall also ascertain the classification of the subject lnd in the state

revenue records.

14. We have carefully gone through the judgment of the Kerala High

Court in Kunhansu (supra). In the case before the Kerala High Court, the

assessment was made u/s 153C of the Act. The assessee claimed the

land in question was agricultural land. The assessee has also produced

certificate from the Agricultural Officer, Village Officer, Additional Tehsildar,

etc. After considering the documents, the Kerala High Court found that

these documents are insufficient to conclusively prove that the land in

question was agricultural land. This observation was made by the High

Court after considering the recital found in the sale deed that land in

question was used for conducting football tournament and it was also

described in the sale deed as stadium land. Therefore, even though it was

an agricultural land it was not used for agricultural purpose, the usage of

the land was converted into non agricultural purpose / stadium before the

date of sale for conducting football tournaments. In the case before us, it is 36 ITA No.194/Coch/2014

nobody's case that land was used for any other purpose. The assessee

claims that the land was used for agricultural purpose and description was

wrongly made in the sale deed. Moreover, in the state of Kerala, state

government is not maintaining any records for cultivation. Agriculture,

being a state subject under the Constitution, no records would be available

with the central government. In those circumstances, the certificate issued

by field level officers / peoples representative assumes significance. Of

course, the genuineness of the certificate needs to be examined by the

assessing officer. This Tribunal being a final fact finding authority, the

actual facts needs to be brought on record. Therefore, this issue needs to

be examined by the assessing authority. Accordingly, the orders of the

lower authorities are set aside and the issue whether the land is

agricultural land or not has to be examined by the assessing officer and

thereafter the assessing officer shall decide the issue in accordance with

law after giving a reasonable opportunity to the assessee. The assessing

officer shall also examine the claim of the assessee u/s 54F and 54B on its

merit in accordance with law.

15. With the above observations, the appeal of the assessee is allowed

for statistical purpose.

37 ITA No.194/Coch/2014 Order pronounced in the open court on this 09th January, 2015.

Sd/- sd/- (Chandra Poojari) (N.R.S. Ganesan) ACCOUNTANT MEMBER JUDICIAL MEMBER

Cochin, Dt : 09th January, 2015 pk/- copy to:

1. Shri Paul P Abraham, Palathullil House, Brahmapuram, Ambalamedu, Ernakulam Dist. 682 303

2. ACIT, cir.2(2), Kochi

3. The Commissioner of Income-tax, Kochi

4. The Commissioner of Income-tax(A)-II, Kochi

5. The DR (True copy) By order

Asstt. Registrar, Income-tax Appellate Tribunal, Cochin Bench