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Negotiation agreement between parties on final sale consideration will not per se alter character of acquisition of land from compulsory acquisition to voluntary sale: ITAT

2019-TIOL-1555-ITAT-COCHIN

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH, COCHIN

ITA No.572/Coch/2018
Assessment Year: 2013-2014

INCOME TAX OFFICER
WARD 1(3), TRIVANDRUM

Vs

SRI VINOD BALAKRISHNAN
PONNAMKULAM HOUSE, PARASUVAKKAL PO
PARASSALA, TRIVANDRUM – 695508
PAN NO: AEVPB1839B

Chandra Poojari, AM & George George K, JM

Date of Hearing: June 06, 2019
Date of Decision: June 06, 2019

Appellant Rep by: Smt A S Bindhu, Sr. DR
Respondent Rep by:
 Sri Mathew Joseph

Income Tax – Section 10(37)

Keywords – Compulsory acquisition – Negotiation agreement – Sale consideration – Transfer of agricultural land

THE assessee along with his wife, was in possession of 47.54 acres of land. The land was sold by executing a sale deed in favour of Vizhinjam International Seaport. The assessee had filed its return for the AY 2013-2014, claiming the entire sale consideration received as exempt from tax. It was claimed that the said property, which was taken over by Vizhinjam International Seaport, was an agricultural land and was compulsorily acquired by the Government of Kerala. Therefore, the assessee would be entitled to the benefit of section 10(37). The AO, however rejected the contentions of the assessee and completed the assessment u/s 143(3). It was held by the A.O. that the land transferred falls within the limit of Trivandrum Municipal Corporation and the assessee’s claim for exemption u/s 10(37) was not admissible for the reason that it was not a compulsory acquisition, but a sale through negotiated settlement. On appeal,the CIT(A) concluded in favour of the assessee.

On appeal, the Tribunal held that,

Whether mere negotiation agreement between parties regarding final sale consideration, would alter the character of acquisition of land from ‘compulsory acquisition’ to ‘voluntary sale’ – NO: ITAT

Whether assessee is entitled for exemption u/s 10(37), when the land in question is agricultural land as per Government records and Agricultural officer has issued a certificate showing nature of land – YES: ITAT

++ it is noted that though the acquisition proceedings were taken under the Land Acquisition Act, the final price was fixed upon negotiated sale agreement. As regards denying of benefit u/s 10(37) for that reason that the land was not compulsorily acquired but by executing a sale deed, this Tribunal placed reliance on the Judgement of the Apex Court in the case of Balakrishnan v. Union of India & Others held that “….merely because the sale price was fixed through a negotiated settlement, the character of acquisition would still remain compulsory.…” respectfully following the ratio of the Apex court this Tribunal hold that the acquisition of the urban agricultural land was a compulsory acquisition;

++ it is also noted that the AO had held that the land as non-agricultural land on the basis of inspection report after 45 months from the date of transfer. The CIT(A) had allowed the claim of deduction u/s 10(37) based on the certificate produced by the assessee and the details of agricultural income returned for AYs 2011-2012 to 2013-2014. The assessee and his wife were maintaining the entire agricultural operation and both of them had shown agricultural income in the return. The agricultural income returned by the assessee from this land for AY 2011-2012 is Rs 1 lacs for AY 2012-2013 is Rs 2.65 lacs and for AY 2013-2014 is Rs.45,000. The assessee has also produced the certificate issued by the Agricultural Officer and the copy of the list of the survey number showing the nature of land. The land in question under survey No.606/04 as per the Government records is agricultural land. Therefore, considering the said reasons, this Tribunal hold that the CIT(A) is justified in holding the land is an agricultural land and agricultural operation was carried out on the it.

Revenue’s appeal dismissed

Case followed:

Balakrishnan v. Union of India – 2017-TIOL-45-SC-IT

ORDER

Per: George George K:

This appeal at the instance of the Revenue is directed against the Commissioner of Income-tax (Appeals)’s order dated 12.10.2018. The relevant assessment year is 2013-2014.

2. The solitary issue raised in this appeal is whether land that was acquired, was entitled to the benefit of section 10(37) of the Income-tax Act?

3. Brief facts of the case are as follows:-

The assessee along with his wife, was in possession of 47.54 Ares of land at Survey No.606/4 in Vizhinjam village. The same was sold by executing a sale deed in favour of Vizhinjam International Seaport for a total consideration of Rs.3,22,99,490, out of this the share of the assessee is Rs.1,61,49,745. For the assessment year 2013-2014, the assessee filed return of income claiming the entire sale consideration received as exempt from tax. It was claimed that the said property, which was taken over by Vizhinjam International Seaport, was an agricultural land and was compulsorily acquired by the Government of Kerala. Therefore, it was submitted that the assessee was entitled to the benefit of section 10(37) of the I.T.Act. The Assessing Officer, however, rejected the contentions of the assessee and completed the assessment u/s 143(3) of the I.T.Act, vide order dated 24.02.2016, wherein the A.O. had worked out the long term capital gains at Rs.1,40,05,853. It was held by the A.O. that the land transferred falls within the limit of Trivandrum Municipal Corporation and the assessee’s claim for exemption u/s 10(37) of the I.T.Act was not admissible for the reason that it was not a compulsory acquisition, but a sale through negotiated settlement. Further, the A.O. held that no agricultural operations were carried out in the impugned land based on a visit by Inspector of Income-tax on 28.01.2016 (i.e. four years after the transfer).

4. Aggrieved by the assessment order, the assessee preferred an appeal to the first appellate authority. The CIT(A), by following the judgment of the Hon’ble Apex Court in the case of Balakrishnan v. Union of India [(2017) 391 ITR 178 (SC) = 2017-TIOL-45-SC-IT and finding that impugned land was agricultural land, where agricultural operations were carried on, concluded that the assessee was entitled to the benefit of section 10(37) of the I.T.Act. Hence, it was held by the CIT(A) that the assessee would not be liable for long term capital gains on the acquisition of the impugned land.

5. The Revenue being aggrieved, has filed the present appeal before the Tribunal. The learned Departmental Representative strongly relied on the assessment order. The learned AR, on the other hand, submitted that land which was acquired by the Vizhinjam International Seaport, was admittedly agricultural land and the CIT(A) had accepted the impugned land to be agricultural land after perusing certificate issued by the Agricultural Officer showing the nature of land at the time of acquisition. It was further submitted that the assessee had declared agricultural income from the said land for assessment years 2011-2012 to 2013-2014. It was stated that the sale deed executed in favour of the Vizhinjam Port Trust also grants compensation for loss of standing trees. Hence, it was submitted that the impugned land was admittedly a agricultural land and agricultural operation was carried on it prior to the date of acquisition of the same. As regards the finding of the A.O. that the land in question was not compulsorily acquired, but by executing a sale deed in favour of Vizhinjam International Seaport, the learned AR submitted that the issue was squarely covered in favour of the assessee by the judgments of the Hon’ble Apex Court in the case of Balakrishnan v. Union of India [(2017) 391 ITR 178 (SC)] = 2017-TIOL-45-SC-IT and Union of India v. Infopark Kerala [81 Taxmann.com 51 (SC)] = 2017-TIOL-171-SC-IT. It was contended that the Hon’ble Apex Court in above cases had clearly held that since the entire procedure fixed under Land Acquisition Act was followed, the character of acquisition from that of compulsory acquisition to voluntary sale would not change though the price was fixed on negotiated settlement.

6. We have heard the rival submissions and perused the material on record. The assessee’s land in question at Vizhinjam Village was notified for compulsory acquisition by Government of Kerala for developing Vizhinjam International Seaport. Though the acquisition proceedings were taken under the Land Acquisition Act, the final price was fixed upon negotiated sale agreement. As regards denying of benefit u/s 10(37) of the I.T.Act, for that reason that the impugned land was not compulsorily acquired but by executing a sale deed, we find that the issue is covered in favour of the assessee by the judgment of the Hon’ble Apex Court in the case of Balakrishnan v. Union of India & Others (supra). Hon’ble Apex Court in the case of Balakrishnan v. Union of India & Others (supra) had categorically held merely because the sale price was fixed through a negotiated settlement, the character of acquisition would still remain compulsory. The relevant finding of the Hon’ble Apex Court reads as follows:-

“8. In our view, insofar as acquisition of the land is concerned, the same was compulsorily acquired as the entire procedure prescribed under the LA Act was followed. The settlement took place only qua the amount of the compensation which was to be received by the appellant for the land which had been acquired. It goes without saying that had steps not been taken by the Government under Sections 4 and 6 followed by award under Section 9 of the LA Act, the appellant would not have agreed to divest the land belonging to him to Techno Park. He was compelled to do so because of the compulsory acquisition and to avoid litigation entered into negotiations and settled the final compensation. Merely because the compensation amount is agreed upon would not change the character of acquisition from that of compulsory acquisition to the voluntary sale. It may be mentioned that this is now the procedure which is laid down even under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 as per which the Collector can pass rehabilitation and resettlement award with the consent of the parties/landowners. Nonetheless, the character of acquisition remains compulsory.”

6.1 In the instant case, the entire procedure prescribed under the Land Acquisition Act was followed, only price was fixed upon a negotiated settlement. Therefore, in view of the above judgment of the Hon’ble Apex Court (supra), we hold that the acquisition of the urban agricultural land was a compulsory acquisition.

6.2 The Assessing Officer had also held that the impugned land as non-agricultural land. The said conclusion of the Assessing Officer was based on the Inspector’s report dated 28.01.2016. It is a fact that the land acquired was consisting of yielding coconut trees and banana. The total consideration received by the assessee also includes the cost of standing trees and loss of agricultural income. The sale deed clearly shows the existence of standing coconut trees in the said land. The said property was sold to Vizhinjam Port Trust on 31.07.2012. The Assessing Officer’s finding that the said land is not an agricultural land is based on inspection report after 45 months from the date of transfer i.e. on 28.01.2016. The CIT(A) had allowed the claim of deduction u/s 10(37) based on the certificate produced by the assessee and the details of agricultural income returned for assessment years 2011-2012 to 2013-2014. The assessee and his wife were maintaining the entire agricultural operation and both of them had shown agricultural income in the return of income. The agricultural income returned by the assessee from this land for assessment year 2011-2012 is Rs.100,000, for assessment year 2012-2013 is Rs.2,65,000 and for the period upto 31.07.2012 (date of sale) i.e. for assessment year 2013-2014 is Rs.45,000. The assessee has also produced the certificate issued by the Agricultural Officer and the copy of the list of the survey number showing the nature of land. The land in question under survey No.606/04 as per the Government records is agricultural land. For the aforesaid reasons, we hold that the CIT(A) is justified in holding the impugned land is an agricultural land and agricultural operation was carried out on the same.

6.3 Therefore, we find that two reasons given by the Assessing Officer for denying the benefit of deduction u/s 10(37) of the I.T.Act is not correct. Hence, we find no reason to interfere with the order of the CIT(A) and we uphold the same as correct and in accordance with law. It is ordered accordingly.

7. In the result, the appeal filed by the Revenue is dismissed.

(Order pronounced on this 06.06.2019)

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