INTRODUCTION:
The Delhi High Court in Pr. Commissioner of Income Tax Delhi-11 Vs Ms. Sangeeta Jain1, held that a sale deed primarily reflects a transaction between the parties and the terms of sale, but it does not, in itself, verify the land's classification as agricultural for the taxation purposes.
FACTS:
The Assessee, Ms. Sangeeta Jain ("Assessee"), carried on her business through a proprietary concern under the name and style "M/s Fashion Club Global". The Assessee filed her return of income on 30th September, 2013, declaring a total income of ₹ 2,64,51,220/-. The return of income was processed under Section 143(1) of the Income Tax Act, 1961 ("Act") and was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS). A notice under Section 143(2) of the Act was issued on 10th September, 2014. On 19th August, 2015, a notice under Section 142(1) of the Act was issued with a questionnaire forming part of it.
In response to the aforesaid notices, the Assessee informed the learned Assessing Officer ("AO"), inter alia, that she had earned long term capital gain of ₹ 10,72,76,180/- on the sale of agricultural land, which was situated beyond the prescribed municipal limits of Sohna District in Haryana. To support the same, she had enclosed a certificate issued by the Tehsilar, Sohna, which, as claimed by her, was to the effect that the land was situated beyond 8 kms of the municipal limits. The prescribed limit for Sohna District was 5 kms. Thus, the Assessee claimed that the land did not qualify as a capital asset defined under Section 2(14) of the Act, and was exempt from capital gains.
An order dated 7th December, 2015, was passed by the AO under Section 143(3) of the Act wherein the income of the Assessee was assessed at ₹ 2,67,48,740/-.
The Principal Commissioner of Income Tax-11 "PCIT"), on examination of the assessment record of the Assessee pertaining to the A.Y. 2013-14, issued a show cause notice on 25th September, 2016 under Section 263 of the Act, as in the view of the PCIT, the order dated 7th December, 2015, passed by the AO was erroneous as it was prejudicial to the interests of revenue.
In the show cause notice, the PCIT noted that the AO had accepted the Assessee's version of long- term capital gains viz. the land in question, without verifying the records. The PCIT further noted that the AO should not have relied solely on the certificate issued by the Tehsildar, which was issued in a routine manner and without any corroborative evidence.
The PCIT also observed that the Assessee had wrongly claimed the said income as exempt income on the ground that the land was situated beyond 8 kms of the municipal limits, in respect of which too, no verification was conducted by the AO. Even the AO had not taken into account the distance from any other municipality limit, other than Sohna District. Thus, the Assessee was given an opportunity of being heard and to show cause as to why the order passed by the AO be not modified or set aside under Section 263 of the Act by the PCIT.
During the course of proceedings, thePCIT found that necessary details regarding the land were not sought by the AO from the District Town Planner (Planning), Gurugram ("DTP"). The PCIT noted that the report of DTP confirmed that the land was within both the old and extended municipal limits of Gurugram, contradicting the Assessee's claim of land being agricultural land. The PCIT concluded that the evidence provided by the Assessee had no evidentiary value compared to the substantial evidence possessed by the department, which proved that no agricultural operations had been conducted by either the Assessee or the buyer on the land.
Vide an order dated 21st April, 2017 passed by the PCIT, under Section 263 of the Act, the PCIT held that the Assessee was liable for short term capital gain of ₹ 10,72,76,180/- and the AO was directed to modify the order passed by it under Section 143(3) of the Act.
Aggrieved by the order of the PCIT, the Assessee preferred an appeal, before the learned Income Tax Appellate Tribunal ("ITAT"). By way of the impugned order, the ITAT allowed the said appeal and quashed the order dated 21st April, 2017, passed by the PCIT ("Impugned Order").
Being aggrieved by the order of the ITAT, the Impugned Order was assailed by the Revenue in appeal before the Delhi High Court.
ISSUE FOR CONSIDERATION:
The main issue for consideration before the Delhi High Court was as follows:
- Whether the ITAT was justified in setting aside the order passed by the PCIT under Section 263 of the Act, on the ground that the assessment order was erroneous, inasmuch as it was prejudicial to the interest of the Revenue?
SUBMISSIONS ON BEHALF OF THE APPELLANT:
It was submitted that the certificate issued by Tehsildar, relied upon by the Assessee, was not a certificate, which was issued after conducting an inquiry by Tehsildar in respect of the land in question, and the AO ought not to have relied upon the said certificate which, in effect, contained no information, regarding the land's distance from the municipal area. In support of this submission, the decision in Gee Vee Enterprise v. Additional Commissioner of Income Tax2 was relied on.
It was further submitted that the ITAT had committed an error in substituting its own findings to justify the order passed by the AO, without recording any findings on the issues pointed out by the PCIT while passing the order under Section 263 of the Act.
It was submitted that the ITAT had committed an error in law and facts by holding that a certificate issued by any authority, such as Tehsildar could be relied upon by the AO without making any enquiry or verification. It was also submitted that the certificate issued by the Tehsildar was contrary to the report of the DTP as received by the PCIT during the proceedings under Section 263 of the Act.
SUBMISSIONS ON BEHALF OF THE RESPONDENT:
It was submitted on behalf of the Respondent that there was no infirmity in the impugned order passed by the ITAT.
It was submitted that the AO had taken a particular view in this regard on the basis of facts and documents presented before it, which revealed that the land in question was agricultural land situated beyond prescribed distance from Sohna District in Haryana.
It was further submitted that the certificate issued by the Tehsildar was unequivocal and unambiguous, and once it was issued by the said authority, there was no need for the AO for seeking any further corroboration by way of any other evidence or documentary proof. It was stated that the certificate clearly mentioned that the land in question was agricultural land and, therefore, it was rightly held by the ITAT that in absence of any proof that the land was non- agricultural land, the same could not have been assessed or brought to tax under capital gains.
It was submitted that that the PCIT had wrongly assumed jurisdiction under Section 263 of the Act, as the AO had conducted sufficient enquiries and verification and its order could not be held as erroneous. Thus, the order passed by the PCIT under Section 263 of the Act was bad in law, and the same was rightly quashed by the ITAT.
JUDGMENT:
The Delhi High Court observed that the taxability of capital gains hinged upon whether or not the land in question qualified as an agricultural land.
Section 2(14) of the Act provided as to what assets would not fall within the meaning of "capital assets" which included agricultural land. The sale of agricultural land did not make an assessee liable to pay capital gains tax, either short-term or long-term.
The Delhi High Court observed that to qualify as an agricultural land, the land must meet specific criterias, including its distance from the municipal areas, as stipulated under Section 2(14)(iii)(b) of the Act. As per the said provision (as it stood prior to its amendment i.e. at the time of AY 2013-14), if a land was situated within the distance of 8 kms from the local limits of any municipality, it would be treated as a capital asset and the assessee would be liable to pay the capital gains tax, otherwise the land would be treated as agricultural land, which did not fall within the meaning of "capital assets".
The Delhi High Court observed that the Assessee had claimed that the land in question was agricultural land, and thus not a capital asset, and she had earned long-term capital gain from its sale, which was exempt from tax. In support of this claim, the Assessee had placed reliance on the certificate issued by the Tehsildar in the year 2012. The said certificate merely mentioned that the land was out of the boundary of Sohna Municipal Corporation without mentioning the distance of the land from the municipal limit, which was a fundamental criterion under Section 2(14)(iii) of the Act to determine whether the land qualified as an agricultural land or not, for seeking exemption from capital gains tax.
The Delhi High Court further observed that the Assessee had also relied upon the sale deeds pertaining to the land in question. It observed that a sale deed was not a document issued by the revenue authorities or any government authority which would certify the agricultural nature of the land. A sale deed primarily reflected the transaction between the parties and the terms of sale, but it does not verify the land's classification as agricultural for taxation purposes.
In support of its observations, the Delhi High Court relied upon the decision in Sarifabibi Mohmed Ibrahim & Ors. v. CIT3 wherein it was held that the classification of land as agricultural depended on multiple factors. It was emphasized that each case must be evaluated based on its specific facts. A wide range of indicators would include the actual use of the land, whether the land was classified as agricultural in revenue records, and whether it was used for agriculture over a long period of time. Factors such as the land being under cultivation, being assessed as agricultural in revenue records, and the owner's intent to use it for agriculture played a crucial role. However, conversion of the land to non-agricultural use, selling it for housing development, and the absence of agricultural activities for several years would weigh against it being classified as agricultural land.
The Delhi High Court observed that it was apparent from the record, that various facts were completely overlooked by the AO while passing assessment order under Section 143(3) of the Act.
In view of the above, the Delhi High Court set aside the Impugned Order and held that the jurisdiction exercised by the PCIT could not be faulted.
Footnotes
1 ITA 1092 of 2018
2 (1975) 99 ITR 375
3 (1993) 204 ITR 631
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