Himatlal Govindji v. Commissioner Of Wealth-Tax, Gujarat I.

1. The question which arises in this reference is whether a piece or parcel of land of which the assessee is a co-owner is agricultural land within the meaning of section 2(e)(i) of the Wealth-tax Act, 1957, and, therefore, exempt from assessment to wealth-tax under the said Act. The question has arisen in the course of the assessee's assessment to wealth-tax for assessment years 1963-64 and 1964-65 and is required to be determined in the light of the facts which are set out hereunder.

2. The assessee and his brothers had jointly purchased a plot of land situate on Jamnagar Road within the municipal limits of the city of Rajkot. The assessee had one-half share in the land. After the plot was purchased, two applications were made to the Collector of Rajkot for permission to put the land to non-agricultural use. These applications were made on 12th August, 1958, and 2nd September, 1959. the Collector of Rajkot granted the necessary permission by his order dated 11th November, 1959, subject to certain conditions. The relevant conditions which are required to be noted for the purpose of the present reference were that the land should be used only for the purpose of erection of residential buildings, that such buildings should be constructed only one-third portion of the land and that one-third portion of the land should be set apart for laying out public roads etc. The assessee accepted these conditions and the acceptance was recorded in an agreement executed on 13th January, 1960. The plot of land admeasured 1,58,752 sq. yds. and out of that an area of about 53,955 sq. yds. was set apart for lying out roads, parks and other projects of public utility. The remaining portion of the land was then parcelled out into 108 plots. Out of those plots, 48 plots totally admeasuring 45,372 sq. yds. were sold by the assessee in S. Y. 2016 (1960-61), 21 plots totally admeasuring 19,683 sq. yds. were sold by the assessee in S. Y. 2017 (1961-62), 1,757 sq. yds. of land was sold by the assessee in S. Y. 2019 (1962-63) and one plot of land admeasuring 955 sq. yds. was sold by the assessee in S. Y. 2021 (1965-66). The remaining plots totally admeasuring 37,985 sq. yds. were sold in 1966-67.

3. In the course of proceedings for assessment to wealth-tax, the assessee claimed that the plots of land which had been sold till the relevant assessment years were agricultural land within the meaning of section 2(e)(i) and as such they were exempt from assessment to wealth-tax. The Wealth-tax Officer did not accept the contention of the assessee since the land, according to him, was situated within the limits of Rajkot Borough Municipality, it was "converted by the Collector of Rajkot into non-agricultural land in November, 1959" and the assessee had parcelled out the land into plots. The Wealth-tax Officer found that the plots were situated in the vicinity of a development area in which important public and private buildings were situated and, therefore, the plots had ceased to be agricultural land within the meaning of section 2(e)(i) of the Wealth-tax Act and were not exempt from liability to pay tax, under the said Act.

4. The assessee carried the matter in appeal to the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner, the assessee produced copies of pahani patrak (revenue record) as well as receipts evidencing payment of the land revenue. The assessee also produced sale memos (ankadas) issued by commission agents in respect of sale of agricultural produce made in October and November, 1963, and October, 1964, as also receipts issued by the Rajkot Borough Municipality evidencing payment of octroi duty. The assessee contented that the materials produced by him showed that the assessee had cultivated the land in question and raised agricultural crops thereon during S. Ys. 2017, 2018 and 2019 (1961-62, 1962-63 and 1963-64) and the land was, therefore, agricultural land. The Appellate Assistant Commissioner found that the land in question was primarily agricultural land and that on the relevant valuation dates, the assessee had continued to use the land for agricultural purposes. In the opinion of the Appellate Assistant Commissioner, there was no justification for treating the land as non-agricultural land on the relevant valuation dates only on the ground that the assessee had obtained permission to convert the land to non-agricultural use and parcelled it out into plots of various dimensions with a view to using it for non-agricultural purposes at an opportune time in future. The Appellate Assistant Commissioner, therefore, held that the plots of land were agricultural land within the meaning of section 2(e)(i) and directed that they should be excluded from the assessee's net wealth.

5. The revenue carried the matter in appeal to the Appellate Tribunal. The revenue urged before the Tribunal that the nature and character of the land, which was originally agricultural land, had changed completely and that it had ceased to be agricultural land notwithstanding the fact that the assessee had continued to carry on agricultural operations thereon. The Tribunal observed that the totally of the circumstances emerging from the record indicated that there was a change in the nature and character of the land in question and that even though the land was continued to be put to agricultural use by the assessee, it had ceased to be agricultural land. The circumstances which, according to the Tribunal, led to the aforesaid inference were that the land was situated within municipals limits, permission was granted for its non-agricultural use, pursuant to the permission the land was divided into 108 plots of various sizes a portions of land was set apart for lying out roads, etc., prior to the relevant valuation dates, 69 out of the 108 plots were already sold out to the plots were in the vicinity of important private and public buildings and were bounded on one side by a plot reserved for construction of railway quarters. In the opinion of the Tribunal, these circumstances indicated that the land in question was non-agricultural land although it continued to be cultivated by the assessee "till such time as be found purchasers" for it. The Tribunal, therefore, set aside the order of the Appellate Assistant Commissioner and restored the order of the Wealth-tax Officer.

6. The assessee thereupon moved the Tribunal for a reference and the Tribunal had referred the followings question of law to this court :

"Whether, on the facts and in the circumstances of the case, the findings of the Tribunal that the lands in dispute were non-agricultural lands within the meaning of section 2(e)(i) is, in law, justified ?"

7. The question as to what is the true meaning and connotation of the expression "agricultural land" occurring in section 2(e)(i) of the Act fell for consideration before a Division Bench of this Court in Rasiklal Chimanlal Nagri v. Commissioner of Wealth-tax [1965] 56 ITR 608, 614, 615, 616 (Guj). The question in that case also was whether the land held by the assessee was agricultural land within the meaning of section 2(e)(i) of the Wealth-tax Act and the test for determining whether a particular land is agricultural land was formulated in the following words in that decision :

"One thing is clear that the intention of the owner of the land to put it to any particular use at a given point of time cannot be the determining factor. Whether a land is agricultural land or not cannot depend on the fluctuating or ambulatory intention of the owner of the land. The criterion must be something more definite, something more objective, something related to the nature or character of the land and not varying with the intention of the owner as to the use to which he wants to put the land at a particular point of time. Of course when we say this we must not be understood to mean that the intention as to user altogether an irrelevant consideration; it is certainly a factor which would bear on the nature or character of the land but it is not afford a sole or exclusive criterion for determining whether a land is agricultural land or not. Where the land is actually put to use, there is usually not much difficulty in ascertaining the nature of character of the land. If the land is used is used for agricultural purposes, ordinarily it would be correct to say that the land is agricultural land and vice versa. But even this test may not always furnish a correct answer, for there may be cases where land admittedly non-agricultural (such as a building site) may be used temporarily for agricultural purposes. In such cases it would be correct to say that merely because the land is in fact being used for agricultural purposes, it is agricultural land. But as a general proposition it may be stated without any fear of contradiction that, ordinarily, the actual user to which the land is being put would furnish prima facie evidence of the true nature or character of the land and, therefore, whenever a question arises whether a particular land is agricultural land or not, primarily regard must be had to the purpose for which the land is being actually used at or about the relevant time and that would ordinarily provide a satisfactory answer to the problem......... Whether a particular land is agricultural land or not must depend on the general nature or character of the land, and various factors would have to be taken into account. The development and use of the lands in the adjoining area and the surroundings and situation of the land would be an important factor which would have a bearing on the question whether the land is agricultural land or not...... Then the physical characteristics of the land would be another factor to be taken into account......... Then the intention of the owner as gathered form all the relevant circumstances would also have a bearing on the general nature or character of the land............ The fact that the land is assessed for agricultural purposes would also be a relevant consideration and due effect would have to be given to this factor in arriving at the conclusion whether the land is agricultural land or not. But we cannot agree that the capacity of the land for being put to agricultural use is a determinative factor in deciding whether the land is agricultural land or not."

8. It is apparent from these observations that the intentions of the owner of the land to put it to any particular use, though not an irrelevant consideration, is not the determinative factor. The actual use of the land for a particular purpose are or about the relevant time would furnish prima facie evidence of the true nature and character of the land and would ordinarily provide a satisfactory answer to the question whether the land is agricultural land or not. But that factor also may not always furnish correct guidance in all cases since a piece or parcel of land which, having regard the relevant factors may be non-agricultural land might be conceivably used for agricultural purposes temporarily or for a short period. In the ultimate analysis, therefore whether a particular land is agricultural land or not must depend, inter alia, upon the purpose for which the land is being actually used at the relevant time, the development and use of the land in the adjoining area, the surroundings and situation of the land, the physical characteristic of the land, the intention of the owner in regard to its use and the nature of assessments levied on the land. These are some of the relevant factors and the cumulative effect of all them would have to be considered to find a satisfactory answer to the question whether a particular land is agricultural land or not.

9. Let us now proceed to consider the question whether the land in the present case is agricultural land or not by application of the aforesaid test to the facts found by the Tribunal. It is true that on the relevant valuation dates, the remaining portion of the land which had not been sold was used by the assessee for agricultural purposes and it was assessed to land revenue. The Tribunal has found, however, that the use of the land for agricultural purposes was by way of a stop-gap arrangements till the assessee found necessarily be for a temporary period or short duration and cannot in the very nature of things be decisive. It would, therefore, be necessary to take into account the other relevant circumstances to which reference has been made by the Tribunal. The most important circumstances is that after the assessee and his brothers jointly purchased the land, the total area of which was 1,58,752 sq. yds., permission for non-agricultural use of the land was sought for and granted to the assessee on November 11, 1959, subject to certain conditions. In accordance with the said the terms and conditions, an area admeasuring 53,955 sq. yds. was set apart for roads, parks and other projects of public utility. The remaining portion of land was thereafter parcelled out into 108 plots. Before the relevant valuations dates, about 70 out of the said plots totally admeasuring 66,812, sq. yds. were sold out by the assessee and only about 38 plots with an aggregate area of 37,985 sq. yds. were left with the assessee. It is common ground that the plots of land were sold out to different purchasers for construction of residential houses and that the sale price was fixed not on the basis of acre, bigha or guntha but the square yards. These circumstances indicate plainly and unmistakably that there was a change in the nature and character of the land in question ever since permission for non-agricultural use was obtained from the Collector and that the land was at no time thereafter intended to be used for agricultural purposes. This conclusion is further reinforced by the fact the land is within the municipal limits of Rajkot and in the vicinity of the land various buildings of public and private ownership are situated. The adjacent plot of land is reserved for railway quarters. The land is, therefore, situated in an area which was already developed. There is one more aspect to which also reference may be made. If the land had continued to be agricultural the assessee could not have sold it to non-agricultural in view of the provisions of section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, and it is evident that the assessee obtained permission from the Collector for non-agricultural use under Section 65 of the Bombay Land Revenue Code, 1879, only with a view to overcoming the bar of the Tenancy Act. The intention of the assessee in obtaining permission for non-agricultural use obviously was that the land should ceased to be covered by the definition of the expression "land" in Section 2(8) of the Tenancy Act and it must follow necessarily that, even according to the assessee's own intention, as manifested by his conduct, the assessee had at no time desired to use the land for agricultural purposes after obtaining the permission for non-agricultural use. In our opinion, the totality of the circumstances mentioned above clearly establish that the in spite of the fact that the remaining area of land was put to agricultural use by the assessee on the relevant valuation dates since buyers were not found for it, the land had ceased to be agricultural land and become non-agricultural land.

10. Mr. Kaji, learned advocate appearing on behalf of the assessee, urged that since the land in question was actually used for agricultural purposes, there was prima facie evidence that the land was agricultural land. Merely because the land was situated within municipal limits and it was parcelled out into plots intended to be used for construction of residential buildings, the prima facie presumption about agricultural character of the land could not be said to have been displaced. The parceling out of the land into small intention would not necessarily alter the intrinsic character of the land since the assessee was entitled to adopt all possible means to realise best price for the land. In support of his submission Mr. Kaji relied upon the decision of this court in Commissioner of Wealth-tax v. Narandas Motilal [1971] 80 ITR 39 (Guj).

11. We are unable to accede to the submission made on behalf of the assessee. As pointed out earlier, the Tribunal has found as a matter of fact that the assessee had put the land in question to agricultural use only by way of a stop-gap arrangements till the assessee found ready and willing buyers for the remaining plots laid out in the land. Such user of land cannot furnish prima facie evidence about the nature and character of the land. That apart, the cumulative effect of the totality of circumstances referred to above plainly and clearly indicates that the land in question had ceased to be agricultural land was non-agricultural land on the relevant valuation dates. It may be that in all cases the mere fact that the land was plotted out and sold on yardage basis may not furnish evidence about the real character of the land. To illustrate, a land which is used continuously over years for agricultural purposes and which is situated in an area where there is no building activity in the vicinity, any still continue to retain the character of an agricultural land even if it is parcelled out and may have been included within the municipal limits. The question ultimately is a question of fact to be decided on the totality of circumstances and no single factor, however, relevant or important would by it self be conclusive or determinative of the nature and character of the land. In the present cas, having regard to the circumstance mentioned above, namely, that after purchased of the land permission for non-agricultural use was obtained, the land plotted out, a large number of plots were sold for building purposes, there was considerable building activity in the area surroundings the that land and fact that the intention of the assessee was to sell the land as non-agricultural land, there is no doubt that the land had ceased to be agricultural land at the relevant time.

12. The decision in Narandas Motilal's case [1971] 80 ITR 39 (Guj), on which reliance has been placed on behalf of the assessee., is clearly distinguishable on facts. In that case a similar question had arisen in respect of the three plots of land which the assessee inherited in the year 1952. In the month of August, 1959, a draft town planning scheme was made applicable to the area in which the plots were situate but the scheme was finalized as a late as in the year 1966. The assessee plotted out the land some time in 1959 and only a few plots were sold between 1959 to 1965. Agricultural operations were carried out on the land in question right from 1952 up to 1963-64. Throught out this period, there was no building activity in the vicinity of the land and there was not even an approaches road to the land. In the course of proceedings for assessment to Wealth-tax for assessment year 1957-58 to 1963-64, the assessee contended that the land was agricultural land. The Wealth-tax Officer and, on appeal, the Appellate Assistant Commissioner rejected the assessee's contention, but in second appeal, the Tribunal accepted it. The matter thereupon came to this court on a reference at the instance of the Commissioner. This court held that, having regard to the circumstances noted above, the prima facie presumptions which arose on account of the present use of the land was not displaced merely because the land was plotted out and sold on yardage basis and that circumstances was not sufficient to change the nature and character of the land. The factors which were present in Narandas Motilal's case [1971] 80 ITR 39 (Guj) are not present here and the decision cannot help the assessee in the present case.

13. We are, therefore, of the opinion that the Tribunal was right in coming to the conclusion that the assessee had failed to show that on the relevant valuation dates the land in question was agricultural land within the meaning of section 2(e)(i). Our answer to the question referred to us is, therefore, in the affirmative. The assessee will pay the costs of the reference to the Commissioner.