M/S Hindustan Industrial ... vs The Assistant Commissioner Of ...
2009 Latest Caselaw 36 Del

            THE HIGH COURT OF DELHI AT NEW DELHI

%                                  Judgment delivered on: 09.01.2009

+            ITA 1130/2006

M/S HINDUSTAN INDUSTRIAL
RESOURCES LTD                                               ... Appellant

                                   - versus -


THE ASSISTANT COMMISSIONER
OF INCOME TAX                                               ... Respondent

Advocates who appeared in this case:

For the Appellant : Mr Rajesh Banati with Mr Hari Mohan For the Respondent : Ms Prem Lata Bansal with Mr M. P. Gupta, Mr Sanjeev Rajpal and Ms Anshul Sharma

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether Reporters of local papers may be allowed to see the judgment ?

2. To be referred to the Reporter or not ?

3. Whether the judgment should be reported in Digest ?

BADAR DURREZ AHMED, J

1. The substantial question of law which arises in this appeal

is:-

"Whether the order passed by the Income Tax Appellate Tribunal holding that the land acquired from the ownership of the appellant was not agricultural land, is perverse?"

2. The issue which arose before the Income Tax Appellate

Tribunal was with regard to the treatment to be given to the land owned

by the assessee company with the future intention of setting up an

industry thereon. The said land was acquired under the Land

Acquisition Act, 1894. The Assessing Officer charged capital gains

thereon to the extent of Rs 18,57,932/-. The assessee has throughout

maintained that the land in question was land falling within the

definition of „agricultural land‟ given in Section 2 (14)(iii) of the

Income Tax Act, 1961 (hereinafter referred to as the „said Act‟). It was

therefore, contended by the assessee that no capital gains could be

charged in respect of the land.

3. The land in question which is situated in Tugalpur, Tehsil of

Greater Noida, was purchased by the assessee company on 15.03.1989.

Shortly thereafter it was acquired by the Greater Noida Authority and

compensation was paid to the assessee company. It may be relevant to

note that the Award was passed by the District Collector (Land

Acquisition), Greater Noida, U. P. on 01.04.1992 and that the Award

clearly established that the land in question was agricultural land.

4. According to the Assessing Officer, the assessee company

had purchased the said land under long term planning to set up an

industry and no agricultural operations had been carried out by the

assessee since the purchase of land in the year 1989-1990. The

Assessing Officer also noted that no agricultural income had been

shown by the assessee in its returns of income. The Assessing Officer

was of the view that the land ceased to be agricultural land when the

assessee company purchased it from the agriculturist for setting up an

industry. He, therefore, rejected the assessee‟s contention that the land

in question was exempt from capital gains inasmuch as the Assessing

Officer was of the view that the same was not agricultural land in the

hands of the assessee company.

5. The Commissioner of Income Tax (Appeals) upheld the

assessment order. He was of the view that the land in question ceased

to be agricultural land on 15.03.1989 when it was purchased with the

intention of setting up an industry. He noted that no agricultural

operations had been carried out by the assessee on the land in question

as no income from that source had been declared. The Commissioner

of Income Tax (Appeals) also noted that the assessee had never

intended to carry out any agricultural operations on the land in

question. Consequently, he confirmed the finding of the Assessing

Officer that the said land was not agricultural land and, therefore, liable

to capital gains.

6. The Income Tax Appellate Tribunal also upheld the view

taken by the authorities below. However, while doing so, the Tribunal

noted in paragraph 7 of its order that the Award dated 01.04.1992

passed in the acquisition proceedings, is a document which clearly

establishes beyond doubt that the land in question was agricultural

land. However, the Tribunal did not follow up this conclusion with any

decision in favour of the assessee merely on the plea that the purpose of

acquisition itself was for the establishment of planned industrial

development. Consequently, the Tribunal held that, though to begin

with, prior to its purchase by the assessee in 1989, the land in question

was agricultural land, notice under Section 4 of the Land Acquisition

Act, 1894 was issued by the Land Acquisition Collector and by that

time the intention of the acquiring authority was clear that the land

sought to be acquired was for the purposes of planned industrial

development. The Tribunal took the view that though the intention of

the assessee might not have been paramount, the fact remained that all

through no agricultural operations had been carried out. The Tribunal

was also impressed by the fact that the acquisition was also for the very

same purpose, that is, for planned industrial development. The

Tribunal was of the view that while the presumption did arise that the

land in question was agricultural land, the same stood amply rebutted

because, according to the Tribunal, the assessee never used the same as

agricultural land. Moreover, the intention of the assessee was to

develop the land for industrial purposes. The Tribunal was also of the

view that the intention of the land acquisition authorities for acquiring

the land was for planned industrial development. Consequently, the

Tribunal concluded that the intention in respect of this land, both of the

assessee as well as of the acquiring authorities, was to use it for

industrial purposes. The Tribunal held that it is this intention which

had acquired the status of a presumption and even if it be construed as

a rebuttable presumption, the assessee had failed to rebut this

presumption. Consequently, the assessee‟s appeal was rejected.

7. We have heard the learned counsel for the parties at length.

The learned counsel for the assessee/ appellant submitted that intention

to use a particular piece of land for a non-agricultural purpose cannot

by itself alter the character of the land. It was submitted by him that

what is to be seen is what was the nature and character of the land on

the date the same was acquired. The learned counsel submitted that

this issue had been considered by this Court on several occasions, as

indicated in the decisions reported in D.L.F Housing and Construction

(P) Ltd v. Commissioner of Income-tax Delhi (Central): 141 ITR 806;

D.L.F. United Limited v. Commissioner of Income-tax: 161 ITR 714

and D.L.F. United Ltd v. Commissioner of Income-tax: 217 ITR 333.

The decision in 141 ITR 806 (supra) has been followed in the other

two cases. In 141 ITR 806 (supra), this Court, in similar circumstances,

observed that the assessee therein had not, till the date of the Award,

made any attempt to convert or alter the character of the land as it was

used for agriculture alone throughout. The Court observed that the

mere circumstance that the land in question may have been purchased

with a view to develop it later on and sell it at a profit in the shape of

plots would be hardly enough to justify the inference that it was a

trading asset or a venture in the nature of trade. On the strength of

these decisions, the learned counsel for the appellant/ assessee

submitted that the intention to use the land in a particular way in future

was not what was relevant. The important point to be noted was what

was the character of the land on the date when it was acquired.

8. Mrs Bansal, the learned counsel appearing on behalf of the

revenue, submitted that the facts of the present case were

distinguishable from the facts of the three decisions cited by the learned

counsel for the appellant. She submitted that in all those cases

although the intention was to use the land for non-agricultural

purposes, but nothing had been done till the date of acquisition for

altering the manner in which the land had hitherto been used i.e., for

agricultural purposes. She submitted that in the present case although

it is true that the land, when purchased by the assessee, was agricultural

land, the assessee did not carry out any agricultural operations thereon.

Thus, according to her, the nature of the land stood altered by this fact.

This, according to her, was a distinguishable factor between the present

case and the three decisions relied upon by the learned counsel for the

appellant/ assessee. She also placed reliance on G. Venkataswami

Naidu & Co. v. The Commissioner of Income-tax : 35 ITR 594,

wherein the Supreme Court observed that in cases where the purchase

had been made solely and exclusively with an intention to resell at a

profit and the purchaser had no intention of holding the property for

himself or otherwise enjoying or using it, presence of such an intention

is no doubt a relevant factor and unless it is offset by the other factors,

it would raise a strong presumption that the transaction is an adventure

in the nature of trade. The Supreme Court, however, held that the

presumption was not conclusive and it was quite conceivable that, on

considering all the facts and circumstances in the case, the court may,

despite the said initial intention, be inclined to hold that the transaction

was not an adventure in the nature of trade. The Supreme Court held

that such a presumption was rebuttable. Mrs Bansal submitted that this

decision of the Supreme Court makes it clear that intention is a relevant

factor. At this juncture itself we may point out that we are not so much

concerned with the nature of the transaction as to whether it was an

adventure in the nature of trade or not but whether the land in question

was agricultural land or not? Therefore, the observations of the

Supreme Court would not be strictly applicable to the case at hand.

However, we do note that the Supreme Court itself has observed that

despite the said intention, even while considering the question of

whether the transaction was or was not an adventure in the nature of

trade, the Court may arrive at a different conclusion considering the

attendant facts and circumstances of each case. The presumption, in

any case, was rebuttable.

9. Having considered the arguments advanced by the counsel

for the parties, we are of the view that the assessee‟s contentions

deserve to be upheld and the findings returned by the Income Tax

Appellate Tribunal ought to be reversed. We are conscious that we are

not merely reversing a finding of fact, what we are intending to do is to

point out that the Tribunal‟s finding of fact is contrary to its own record

and, therefore, is in the realm of perversity. This is so because the

Tribunal clearly held that at the point of time when the assessee

purchased the said land, it was agricultural land. There is no dispute

with regard to this. The Tribunal also noted that the Award passed on

01.04.1992 by the District Collector (Land Acquisition), Greater

Noida, Bulandshar, was a document which established beyond doubt

that the land in question was agricultural land. Thus, on the date of

purchase, the land in question was agricultural land and on the date of

acquisition, the character of the land continued to be agricultural.

When these two clear findings have been returned, it is apparent that in

the transitional period, that is, between purchase and acquisition, the

nature and character of the land did not change. The fact that the

appellant/ assessee intended to use the land for industrial purposes did

not in any way alter the nature and character of the land. The further

fact that the appellant/ assessee did not carry out any agricultural

operations did not also result in any conversion of the agricultural land

into an industrial land. It is nobody‟s case that the appellant/ assessee

carried out any operations for setting up any plant or machinery or of

the like nature so as to lead to an inference that the nature and character

of the land had been changed from agricultural to industrial. The mere

fact that the appellant/ assessee did not carry out any agricultural

operation did not alter the nature and character of the land. In any

event, this discussion is not relevant in the backdrop of the clear

finding given by the Tribunal that on the date of the purchase and as

also on the date of acquisition, the land in question was agricultural

land. Having come to such a conclusion, the Tribunal ought not to

have gone into question of intention of the appellant/ assessee and

definitely not into the question of intention of the land acquiring

authority, the latter being a wholly irrelevant consideration.

10. In these circumstances, we decide the question in favour of

the appellant/ assessee and against the revenue. The appeal is allowed

with costs. The impugned order passed by the Income Tax Appellate

Tribunal is set aside.

BADAR DURREZ AHMED, J

RAJIV SHAKDHER, J January 09, 2009 SR