1. In this departmental appeal the contention of the revenue is that the Commissioner (Appeals) erred in holding that the ITO had no reasonable belief that income had escaped assessment in initiating the proceedings under Section I47(a) of the Income-tax Act, 1961 ('the Act') for the assessment year 1965-66. Another contention raised is that the Commissioner (Appeals) erred in holding that the land in question was agricultural land even though no agricultural operations were conducted therein.
2. Let us first take up the first contention for consideration. The ITO had initiated proceedings under Section 147(a) for the following reasons recorded by him on 17-3-1973 : In this case the assessee owned 16 acres 33 guntas in Nacharam Village near Hyderabad. This was acquired by the Government with effect from 27-10-1964. The assessee was awarded a final compensation of Rs. 2,10,361 on 7-7-1967. The land in question is not agricultural land and has not been subjected to agricultural operations. The capital gains are chargeable to income-tax. The value as on 1-1-1954 is estimated at Rs. 1,000 per acre and the total value of the entire land as on 1-1-1954 would be about Rs. 16,500. Thus the assessee made a net capital gain of Rs. 1,93,860.
Besides the amount of interest that accrued year to year will have to be included as a protective basis. The assessee has filed a return disclosing an income of Rs. 3,599, being interest on belated compensation on 17-2-1972. As this has been filed beyond the period prescribed under Section 139(4) the return has been treated as invalid and filed. I have, therefore, reason to believe that income chargeable to tax has escaped for the assessment year 1965-66 and that such escapement was by reason of the omission or failure on the part of the assessee to make a valid return under Section 139 for the assessment year 1965-66. I request the Commissioner to accord sanction for reopening the assessment under Section 147(1).
The contention of the assessee was that at the time when the ITO initiated the above proceedings the Full Bench decision of the Andhra Pradesh High Court in the case of Officer-in-Charge (Court of Wards) v.CWT [1969] 72 ITR 552, was holding the field, that in accordance with the above decision and the facts available before the ITO at that time the ITO's forming the opinion that capital gains assessable to tax had escaped assessment was not based on good faith but was merely a pretence based on suspicion and that therefore the requirements of Section 147(a) were not fulfilled. It was contended that the proceedings under Section 147(a) were ab initio void. The Commissioner (Appeals) observed that, according to the interpretation of law laid down by the Andhra Pradesh High Court in the above Full Bench decision, which was holding the field at the time of the initiation of the proceedings under Section 147(a), the ITO could not have reason to believe that the land in question was not agricultural land and consequently the gains therefrom were chargeable to tax had escaped assessment. In this view of the matter, he accepted the assessee's contention and held that the proceedings under Section 147(a) were not validly initiated. Aggrieved by this finding of the Commissioner (Appeals), the revenue has come on appeal before us.
3. The departmental representative, Shri C. Satyanarayana, vehemently urged that the decision of the Full Bench of the Andhra Pradesh High Court relied upon by the Commissioner (Appeals), in the case of Officer-in-Charge (supra) was not accepted by the department and that the matter was pending in appeal before the Supreme Court. He further submitted that the Supreme Court had set aside the aforesaid Full Bench decision of the Andhra Pradesh High Court on 6-8-1976 and the same is reported in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 (SC). He urged that in view of the fact that the department has not accepted the decision of the Andhra Pradesh High Court, the ruling cannot be said to be binding on the ITO and at any rate it cannot be said that the ITO had no reasonable belief that income chargeable to tax had escaped assessment. On behalf of the assessee, reliance was placed on the order of the Commissioner (Appeals). The learned counsel, Shri T. Raman, further submitted that till the decision of the Full Bench of the Andhra Pradesh High Court relied on by the Commissioner (Appeals) was actually reversed by the Supreme Court, it cannot be said that the decision of the Andhra Pradesh High Court was not binding on the ITO. He also pointed out that as a matter of fact the Supreme Court has not actually reversed the Andhra Pradesh High Court judgment in Officer-in-Charge's case (supra). He urged that the law on material point of time alone should be taken into consideration for deciding whether the ITO would have formed a reasonable belief that income had escaped assessment and that in this case at the point of time when proceedings were initiated, Section 147(a), as per the law then prevailing, the ITO could not be said to have had reasonable belief that income chargeable to tax had escaped assessment.
4. We have considered the rival submissions. It is common ground that at the time when the ITO initiated proceedings under Section 147(a) the Full Bench decision of the Andhra Pradesh High Court in the case of Officer-in-Charge (supra), which was rendered on 26-11-1968 was holding the field. The entire facts of the case relating to the land in question were available before the ITO at that time. As rightly held by the Commissioner (Appeals) as per the tests laid down by the Andhra Pradesh High Court in the above Full Bench judgment, it cannot be said that income chargeable to tax had escaped assessment for the assessment year 1965-66. In other words, the ITO could not reasonably come to a belief that income had escaped assessment in the face of the above Full Bench decision of the Andhra Pradesh High Court as applied to the facts available before him. The chief point urged on behalf of the revenue before us is that because the above judgment of the Andhra Pradesh High Court was not accepted by the department and an appeal was pending before the Supreme Court it was open to the ITO to keep the matter alive by reopening the assessment. Shri C. Satyanarayana appearing for the revenue strenuously urged before us that only the judgment of the Supreme Court could be said to be constitutionally binding and not a judgment of the High Court. It is no doubt true that the only judgment of the Supreme Court is constitutionally binding on the subordinate courts as per Article 141 of the Constitution of India which reads as under : Law declared by Supreme Court to be binding on all courts,-The law declared by the Supreme Court shall be binding on all courts within the territory of India.
What we are concerned with in this case is whether the ITO when he initiated proceedings under Section 147(a) could have formed a reasonable belief that income had escaped assessment as per the law, law laid down for the Andhra Pradesh by the Full Bench decision of the Andhra Pradesh High Court. When the Supreme Court renders a judgment in an appeal from a judgment of a High Court the Supreme Court only declares the law of the land and it must be held to have always been the law of the land. However the judgment of the Supreme Court cannot be placed on the same footing as a retrospective piece of legislation and the legal fiction which goes with retrospective legislation cannot arise in the case of a Supreme Court decision declaring what the law of the land is. If the action taken by the ITO for initiating reassessment proceedings was invalid at that time a subsequent judgment of the Supreme Court cannot validate it. In fact the converse position arose in the case of CIT v. Maneklal Harilal Spg. & Mfg. Co. Ltd. [1977] 106 ITR 24. The Gujarat High Court held that the decision of the Supreme Court cannot operate as retrospective legislation and that it cannot render invalid the action of the ITO in initiating reassessment proceedings which were valid when they were started. In the instant case the reassessment proceedings were not valid when they were started and the subsequent decision of the Supreme Court in Officer-in-Charge's case (supra) on which much reliance was placed by the learned departmental representative cannot render the action of the ITO valid retrospectively. We, therefore, uphold the order of the Commissioner (Appeals) on this issue. Though this finding is enough to dispose of this appeal, yet we proceed to dispose of the other contention raised on behalf of the revenue before us for the sake of completeness and also because the Commissioner (Appeals) had also dealt with the same.
5. Let us now take up the second contention raised by the revenue, viz., that the Commissioner (Appeals) erred in holding that the lands in question were agricultural lands even though no agricultural operations were conducted thereon. The Commissioner (Appeals) had referred to the following circumstances relied on by the assessee in support of her stand that the lands under consideration are agricultural lands : 1. The assessee had acquired the lands on 3-5-1950 by purchase from Shri Syed Abdul Sattar [an English translation of the sale deed which is in Urdu and which was furnished to the Commissioner (Appeals)].
2. Before effecting the sale the vendor obtained permission of the Collector, Hyderabad District under the Prevention of Agricultural Land Alienation Act 3 of 1349 Fasli (1939 A.D.).
3. It was clear from the sale deed that the vendor was paying land revenue of Rs. 47 on the above lands.
4. The lands were dry lands and that grass and other products were raised on the lands and grass was collected as mentioned in the assessee's letter dated 17-9-1973 addressed to the ITO. 5. The receipts for payment of land revenue during the entire period right from the time of acquisition were produced before the ITO as also Pahani Patrikas for all the years. Before the ITO the assessee had brought to his notice that third parties had claimed before the courts from which it was evident that the lands were agricultural lands and that the ITO had discussed the points in paragraph 14 of the assessment order.
6. The Pahani Patrikas maintained by the State Revenue Department showed that excepting 10 guntas in SI. No. 58 and 8 guntas in SI. No. 59 the balance was dry land and grass was shown as the crop grown therein. In the last year 1963-64 the Pahani Patrika showed that the lands were fallow and that, therefore, the ITO's observation that in all the years in column relating to the crops grown no crops were shown and the lands were shown as fallow were not factually correct.
7. The land revenue receipts produced also showed that the kharif crops were grown.
8. That while the assessee had produced the evidence and also referred to circumstances which indicated that the lands were agricultural in nature the revenue has not discharged the onus of showing the contrary.
9. Reliance was placed on the decision of the Kerala High Court in the case of CIT v. Fagoomal Lakshmichand [1978] 112 ITR 9, the Patna High Court in the case of Addl. CIT v. Tarachand Jain [1980] 123 ITR 567 and the Gujarat High Court in the case of CIT v. Vajulal Chunlal, HUF [1979] 120 ITR 21.
The Commissioner (Appeals) found substantial merit in the above points urged on behalf of the assessee. He found that the ITO had not brought on record any evidence to rebut the inference raised on the data produced by the assessee that the lands in question were agricultural lands. The Commissioner (Appeals) further found that the inference drawn by the ITO on some circumstances referred to in the assessment order was not justified. The Commissioner (Appeals) then referred to the ruling of the Supreme Court in the case of CWT v. Officer-in-Charge (supra). The Commissioner (Appeals) thereafter referred to the tests laid down by the Supreme Court in the above decision. Applying the said tests laid down by the Supreme Court to the facts of the instant case, the Commissioner (Appeals) observed that there was great force in the arguments of the assessee that the various facts relating to the purchase of land and its later holding by the assessee showed that the preponderance of probability of the case was in favour of treating the lands as agricultural and the ITO had not brought any evidence on record to displace this probability. He therefore, accepted the assessee's claim that the lands were agricultural. The revenue has come on appeal before us against this finding of the Commissioner (Appeals).
6. The learned departmental representative, Shri C. Satyanarayana strenuously urged before us that the Commissioner (Appeals) had erred in holding that the lands were agricultural in nature. He referred to the letter of the assessee addressed to the ITO dated 17-9-1973 which according to him indicated that there was no extensive cultivation done by the assessee in the lands under consideration. He also referred to the proceedings of the Special Deputy Collector dated 20-11-1965 in which it was stated that the lands were uneven to a large extent and unsuitable for agriculture He further pointed out that the award also made it clear that there were no crops and trees on the land. The learned departmental representative also produced before us the Pahani Patrikas filed by the assessee for the years 1958-59 onwards. In particular he submitted that though for 1958-59 Kushki grass was said to have been grown, for the year 1959-60 the name of the crop was mentioned as nil and under the column use of land it was merely mentioned grass. For the year 1960-61 Kushki grass was shown for the entire year. For the year 1961-62 use of land was referred to as grass.
For the year 1962-63 the same was the position. For 1962-63 the name of the crop was shown as fallow. He further pointed out that for 1958-59 toddy trees were shown in 16 acres but in 1963-64 there were no trees.
He, therefore, strongly urged that there was no cultivation done by the assessee in the lands and, therefore, the lands should be treated as non-agricultural. On behalf of the assessee reliance was placed on the order of the Commissioner (Appeals). The learned counsel at the outset pointed out that the assessee's father's and mother's lands in SI. Nos.
49, 56 were contiguous to the assessee's lands and those lands were also agricultural lands. He submitted that the revenue has accepted that the above lands belonging to assessee's father and mother were agricultural lands and there is no justification for treating the assessee's lands alone as non-agricultural. The learned counsel referred us to the permission obtained by the vendor of the assessee for selling the land to the assessee on 8-5-1950 from the District Collector Hyderabad District under the Prevention of Agricultural Land Alienation Act 3 of 1349 Fasli (1939 A.D). and the payment of Rs. 47 as land revenue by the above vendor clearly proved that the lands were agricultural. The learned counsel also referred us to the judgment of the Andhra Pradesh High Court in CCC Appeal No. 13 of 1968 dated 6-10-1970 in the appeal filed by the Special Deputy Collector Land Acquisition against the father of the assessee Shri Panduranga Rao. He submitted that in that judgment the Hon'ble Andhra Pradesh High Court had held that the mere fact that there were no sales of land adjacent to the father's land cannot be a ground to hold that the above lands were useful only for agricultural purposes and that their value had not correspondingly increased. Later in the same judgment the High Court had proceeded to observe that the acquisition of these lands for industrial development would necessarily show that though these lands were used as agricultural lands they were potential industrial sites even from the year 1958. The above passage in the judgment of the Andhra Pradesh High Court in respect of the lands belonging to the father which were contiguous to the assessee's lands indicated that the assessee's lands were also agricultural lands. Referring to the Pahani Patrikas the learned counsel pointed out that they constituted prima facie evidence to show that the lands were agricultural in nature. He submitted that grass was grown in the lands which indicated clearly that agricultural operations were carried on. The learned counsel also referred to the assessment order in paragraph 9 in which the ITO referred to the receipts produced before him in respect of the land revenue of the kharif crop of the lands of the assessee as well as her parents. He also referred to paragraph 15 of the assessment order in which the ITO had referred to the claim made by the third parties before the Courts, claiming ownership of the lands in which the nature of the lands was referred to as agricultural. He particularly emphasised that the ITO had mentioned that the claim petition showed that the lands were used for raising grass or grazing and income was derived from the lands. He further referred to paragraph 16 of the assessment order in which the ITO has referred to the orders passed by the appellate authority in the wealth-tax assessments for 1968-69 to 1971-72 in which the AAC had observed that the compensation was received by the assessee as a result of acquisition by the Government of her agricultural lands. He also referred us to the following rulings in support of his stand : CIT v. Sutton & Sons Ltd. [1981] 127 ITR 57 (Cal.), Dr. Motibhai D. Patel v. CIT [1981] 127 ITR 671 (Guj.), Addl.
CIT v. Tarachand Jain [1980] 123 ITR 567 (Pat.), CIT v. Fagoomal Lakshmichand [1978] 112 ITR 9 (Ker.) and Gemini Pictures Circuit (P.) Ltd. v. CIT [1981] 130 ITR 686 (Mad.). He also referred us to the ruling of the Calcutta High Court in the case of Probhat Chandra Barua AIR 1924 Cal. 668 in which it was held that even pasture lands would be agricultural lands. In reply the learned departmental representative relied on the ruling of the Andhra Pradesh High Court in the case of CIT v. Suri Mukundgirji [1978] 2 ITJ 174 in support of his submission that mere payment of land revenue would not be sufficient to show that the property was agricultural.
7. We have considered the rival submissions. The point that arises for decision is whether the 41 acres 16 guntas of dry land in SI. Nos. 55, 58 and 59 situated at Nacharam village belonging to the assessee are agricultural lands as claimed by the assessee or are non-agricultural as claimed by the revenue. The Supreme Court had considered the scope of 'agricultural land' in the case of CWT v. Officer-in-Charge (supra) a case which went up from Andhra Pradesh. The Supreme Court referred to its earlier ruling in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 in which it was held that the wider meaning given to agricultural operations, such as breeding and rearing of live-stock, poultry farming or dairy farming would not be applicable and the correct test would be to find our whether human labour had been applied to the land itself in order to extract from its natural powers, added to or aided by other natural or artificial sources of strength to the soil, a product which can yield an income. The Supreme Court observed that in the case before it which was under the wealth-tax there was no definition of agricultural land yet it did not mean that the land to be considered could be divorced from its actual or natural or ordinary user. The Supreme Court observed that if all land, which was capable of being used for agriculture, could be intended to be excluded from 'assets', practically every type of land, including that covered by buildings, would fall within that class and, therefore, it would be impossible to adopt such a wide test. The Supreme Court observed that it could not give a wide meaning as sought to be given by the Full Bench of the Andhra Pradesh High Court to the term 'agricultural land'. The Supreme Court observed that the final view of the Full Bench of the Andhra Pradesh High Court was that only such land could cease to be agricultural land as had actually become unfit for immediate use for an agricultural purpose. The Supreme Court further observed that the Full Bench of the Andhra Pradesh High Court was not correct in adopting the view expressed in Sarojini Devi v. K A. Subrmanyam ATR 1944 Mad. 401 by the Madras High Court where it was held that it was enough to show that the land under consideration was capable of being used for agricultural purposes. The Supreme Court observed that the Full Bench of the Andhra Pradesh High Court had given excessive weight to considerations which had a bearing only on potentialities of the land for use for agricultural purposes. The Supreme Court held that the determination of character of lard, according to the purpose for which it was meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case and that what was really required to be shown was 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 agricultural purposes. The Supreme Court further observed that if there was neither anything in the condition nor anything in evidence to indicate the intention of its owners or possessors so as to connect it with an agricultural purpose, the land could not be 'agricultural land'. The Supreme Court also held that entries in revenue records are, however, good prima facie evidence.
Observing further that the above considerations were not kept in view by the taxing authorities in deciding the question of fact and that the High Court should have sent back the case to the assessing authorities for deciding the question of fact after stating the law correctly, the Supreme Court set aside the judgment of the Andhra Pradesh High Court and held that the Tribunal should determine afresh from a correct angle the question of fact whether any of the lands under consideration were 'agricultural' or not for the purposes of the Act before it. From the above decision it is evident that the Supreme Court had not actually overruled the Full Bench decision of the Andhra Pradesh High Court as claimed by the revenue before us. The Supreme Court has held that the determination of the character of land is a matter which should be determined on the facts of each particular case and that the actual condition and intended user of the land has to be seen. The Calcutta High Court in the case of Sutton & Sons (supra) had held that the question whether a land is agricultural land or not is a question of fact to be determined by the cumulative effect of all the relevant factors but the basic factor to be taken into consideration is whether the land is such where agricultural operations were carried on, on the land or capable of being carried on. The Gujarat High Court reiterated the above position in the case of Smt. Chandravati Atmaram Patel v. CIT [1978] 114 ITR 302. The Gujarat High Court in the case of Motibhai (supra) had referred to the ruling of the Supreme Court in Officer-in-Charge's case (supra) referred to above and had laid down four tests to find out whether the lands are agricultural in character.
The Patna High Court in the case of Tarachand (supra) had again referred to the above ruling of the Supreme Court in the case of Officer-in-Charge (supra) and referred to certain criteria which should be applied to find out if the land in a particular case is agricultural or not. The Patna High Court proceeded to observe that if the surrounding lands were agricultural lands the presumption would be in favour of holding that the land in question was also agricultural land.
The Patna High Court also stated that it would depend on all the facts and circumstances of the case and an overall view of the situation pertaining to the land. The Kerala High Court in the case of Fagoomal (supra) also referred to the above ruling of the Supreme Court in the case of CWT v. Officer-in-Charge (supra) and observed that what is agricultural land should be determined on the basis of the present connection of the land with an agricultural purpose and user and not the mere possibility of user in the uncertain future and the burden is on the department to adduce cogent evidence to support its case that the land acquired was not an agricultural property. The Madras High Court in the latest case of Gemini Pictures (supra) also referred to the above ruling of the Supreme Court in the case of Officer-in-Charge (supra). The Madras High Court observed that once it was established that the land is agricultural in the hands of the assessee until some act on the part of the assessee had been established which has converted the property into non-agricultural property or the user of the land was actually changed or other definite indications to the contrary are available the land will be presumed to remain as agricultural land and that once the assessee proved that the lands were agricultural lands the burden of proving that it was not agricultural land was on the revenue.
8. Applying the tests laid by the Supreme Court and the various High Courts referred to above to the facts of the instant case we are of the opinion that the Commissioner (Appeals) has correctly concluded that it has not been shown that the lands were non-agricultural in character.
The adjoining lands belonging to the parents of the assessee were found to be agricultural lands by the Andhra Pradesh High Court in CCC Appeal No. 113 of 1968 dated 26-10-1970. The assessee had purchased the lands in question from her vendor on 8-5-1950. The vendor had obtained permission to sell the lands to the assessee from the Collector of Hyderabad District under the Prevention of Agricultural Land Alienation Act 3 of 1349 Fasli (1939 A.D). This clearly indicated that the lands were agricultural at that time. There is no material brought on record to show that the lands were converted into non-agricultural lands or put to any non-agricultural user. The assessee had produced land revenue receipts for all the years before the income-tax authorities.
In this connection the ruling of the Andhra Pradesh High Court in Suri Mukundgirji (supra) relied on before us on behalf of the revenue would not support the stand of the revenue that the lands in question should be treated as non-agricultural lands. In that case the Hon'ble Andhra Pradesh High Court was referring to its earlier Full Bench decision in the case of Officer-in-Charge (supra) which was set aside by the Supreme Court, in the case of CWT v. Officer-in-Charge (supra). In that connection the Andhra Pradesh High Court observed that it never said that where there were no agricultural operations on land and where buildings were put upon the land merely for the reason that the revenue records described the land as agricultrual land, it should be treated agricultural land. The ratio of that decision was that the Tribunal should not be guided solely by the fact that land revenue was being paid on the property. In the instant case, we are not deciding the issue about the nature of the land merely on the basis of the payment of the land revenue. Further Pahani Patrikas had also been produced before the lower authorities. The nature of the crop grown has been shown as Kushki grass and grass. As pointed out earlier the lands were purchased as agricultural lands by the assessee in the year 1950 and even as late as till the date of acquisition grass was being grown and collected from the lands. This position clearly indicates that tilling of the soil was done during all these years. Further the ITO, as pointed out on behalf of the assessee, had in para 9 of the assessment order referred to the receipt produced towards land revenue which indicated that kharif crop was grown on the lands belonging to the assessee and her parents. Again in paragraphs 15 and 16 the ITO had referred to the claims made by others and the orders passed by the appellate authority under the wealth-tax assessment which indicated that the lands were used for raising grass and grazing and the income was derived therefrom. Against this material the revenue has not brought on record any shred of evidence to rebut the case of the assessee that the lands were agricultural in nature. The stress laid down on behalf of the revenue to the observation of the Special Deputy Collector in the award dated 20-11-1965 to the effect that the lands were uneven and unsuitable for agriculture cannot amount to proof that the lands were non-agricultural in nature. The above observation was made by the Special Deputy Collector with reference to the entire area acquired of 560.35 acres in general. From the stray observation of the Special Deputy Collector that the lands acquired were dry but considered unsuitable for agriculture would not lead to the conclusion that the lands belonging to the assessee and under consideration of 41 acres and 16 guntas were not agricultural lands. Equally non-mention of any value for crops, etc., in the award would not disprove the assessee's case that the lands were agricultural in nature. In considering whether the lands were agricultural or not the cumulative effect of all the circumstances should be taken into consideration.
Having considered the entirety of the circumstances of the case as stated above we are in agreement with the finding of the Commissioner (Appeals) that the preponderance of the probability of the case is in favour of treating the land as agricultural and the ITO had not brought any evidence on record to displace the same. We, therefore, uphold the order of the Commissioner (Appeals).
1. I agree with the conclusions on all issues as arrived at by my learned brother.
2. On the point as to whether proceedings were validly initiated under Section 147(a) of the" Income-tax Act, 1961 ('the Act'), I would like to add a few words to highlight certain facets. In the present case, the assessee had filed a return on 17-2-1972 showing income of Rs. 3,599 being interest received on belated payment of compensation for the lands of the assessee which had been acquired by the Government. As the return filed was beyond the period prescribed under Section 139(4) of the Act, the ITO treated the same as invalid.
3. The ITO thereafter recorded reasons for initiating proceedings under Section 147(a) which have been set out in paragraph 2 of the order of my learned brother and which would bear repetition as under : In this case the assessee owned 16 acres 33 guntas in Nacharam Village near Hyderabad. This was acquired by the Government with effect from 27-10-1964. The assessee was awarded a final compensation of Rs. 2,10,361 on 7-7-1967. The land in question is not agricultural land and has not been subjected to agricultural operations. The capital gains are chargeable to income-tax. The value as on 1-1-1954 is estimated at Rs. 1,000 per acre and the total value of the entire land as on 1-1-1954 would be about Rs, 16,500. Thus the assessee made a net capital gain of Rs. 1,93,860.
Besides the amount of interest that accrued year to year will have to be included as a protective basis. The assessee has filed a return disclosing an income of Rs. 3,599 being interest on belated compensation on 17-2-1972. As this has been filed beyond the period prescribed under Section 139(4) the return has been treated as invalid and filed. I have, therefore, reason to believe that income chargeable to tax has escaped for the assessment year 1965-66 and that such escapement was by reason of the omission or failure on the part of the assessee to make a valid return under Section 139 for the assessment year 1965-66. I request the Commissioner to accord sanction for reopening the assessment under Section 147(1).
Eventually, the ITO computed capital gains in respect of the compensation amount received on the acquisition of 42 acres 6 guntas of land at Rs. 2,19,070. To this he purported to add interest on compensation as admitted, disallowing expenses claimed for want of details computed at Rs. 8,832, but by mistake, instead of arriving at a total income of Rs. 2,27,902, he fixed the total income at Rs. 2,10,238 by subtracting Rs. 8,832 from Rs. 2,19,070 instead of adding the same.
The computation of the amount of Rs. 8,832 is not subject of appeal before us, nor is the computation of total income. So, we would leave the matter there as far as we are concerned.
4. The ITO, in the reasons recorded, has made a categoric statement that the land in question was not agricultural land and has not been subjected to agricultural operations and, therefore, capital gains were chargeable to income-tax. He has not spelt out as to how he came to the conclusion that the land in question was not agricultural land and was not subjected to agricultural operations. The ITO can reopen an assessment only if he has reason to believe that income had escaped assessment consequent (in the present case) to return not having been filed earlier. The legal position in this regard, which was explained by the Supreme Court in S. Narayanappa v. CIT[1967] 63 ITR 219, was reiterated in Kantamani Venkata Narayana & Sons v. First Addl. ITO [1967] 63 ITR 638 at pages 641 and 642 as under : In a recent judgment of this court in S. Narayanappa v. CIT [1967] 63 ITR 219 Ramaswami J., speaking for the court, observed : ...the legal position is that if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under Section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again the expression 'reason to believe' in Section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith : it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under Section 34 of the Act is open to challenge in a court of law.
An appellate body has to see whether there are in fact some reasonable grounds for the Income-tax Officer to form the belief that he did but whether those grounds are adequate or not is not a matter for the appellate body to investigate. We have, therefore, to keep these principles in mind in examining the issue further.
5. As I have already observed, the reasons in coming to the conclusions that he did, viz., the land was not agricultural, etc., had not been spelt out in the reasons recorded by the ITO. But, the reasons referred to the award of final compensation of Rs. 2,10,361 on 7-7-1967. We find that the date 7-7-1967 is the date of the judgment of the Second Additional Chief Judge, City Civil Court, on the reference coming up before him relating to the acquisition made by the Special Deputy Collector. We have, therefore, to look into this judgment and the award of the authorities below as well as the grounds of appeal which documents one has to assume were in the mind of the ITO in coming to the conclusion that he did.
6. The Special Deputy Collector, Land Acquisition, in his order dated 20-11-1965, has made an observation as under : The lands under acquisition are dry and morum chelka, uneven to a large extent and uns-uitable for agriculture. They do not have any value from the building point of view either as they are uneven or far off from the village.
Thereafter, he fixed a value of Rs. 500 per acre having regard to other comparable cases. In the grounds seeking a reference under Section 18 of the Land Acquisition Act, it was contended by the assessee that the compensation of grass and earnings which is affected injuriously by this acquisition has not been awarded and that the trees have not been correctly counted and reasonably awarded as prayed for.
In the judgment, the Second Addl. Chief Judge, City Civil Court, Hyderabad, noticed that the Land Acquisition Collector had stated that the land was dry morum chelka uneven to a large extent and unsuitable for agriculture. Then he referred to the value of Rs. 500 per acre being fixed and thereafter observed as follows : The L.A. Collector could have explained these lands and the basis on which he fixed the market value at Rs. 500 by examining himself or by examining the village officers or other persons acquainted with the land acquirea' and other lands which he has referred to. No such attempt is made in spite of taking adjournments. I have, therefore, no hesitation in coming to the conclusion that the fixation of the market value of land at Rs. 500 an acre not being based on any date, cannot be sustained.
Had the award by the Land Acquisition Officer remained without any further action being taken thereon, the ITO would have been justified in drawing the inference that the land to a large extent was unsuitable for agriculture. However, the assessee sought a reference on this point and specifically stated that compensation for grass and earnings affected injuriously had not been awarded and that trees had not been properly counted. This is suggestive of agricultural operations on the land. The Second Addl. Chief Judge, in his judgment an extract of which we have set out, was categoric that the value of the land fixed at Rs. 500 per acre was without any data and the Land Acquisition Deputy Collector had not established his contentions either by examining himself or examining the village officers or other persons acquainted with the land acquired and other lands referred to. The effect of these observations is that the statement of the Land Acquisition Officer that the lands to a large extent were not capable of agriculture stands effacted as not supported or substantiated by evidence.
7. In this state of facts, we have to consider the issue in the light of the unanimous decision of the Full Bench of the Andhra Pradesh High Court in Officer-in-Charge (Court of Wards) v. CWT (supra) which, as succinctly stated in the headnote, insofar as it is relevant, is as under : (3) the actual user of the land for agriculture is one of the indications for determining the character of the land as agricultural land ; (4) land which is left barren but which is capable of being cultivated can also be 'agricultural land' unless the said land is actually put to some other non-agricultural purpose, like construction of building or an aerodrome, runway, etc., thereon, which alters the physical character of the land rendering it unfit for immediate cultivation ; (5) if land is assessed to land revenue as agricultural land under the State revenue law, it is a strong piece of evidence of its character as agricultural land ; (6) mere enclosure of the land does not by itself render it a non-agricultural land ; (7) the character of land is not determined by the nature of the products raised, so long as the land is used or can be used for raising valuable plants or crops or trees or for any other purpose of husbandry ; (8) the situation of the land in a village or in an urban area is not by itself determinative of its character.
As far as item (3) is concerned, there is no definite evidence regarding the actual user of the land at the time the ITO issued the notice, in view of what we have stated earlier. As far as item 4 is concerned, even if the land was barren, looking to the large area, in the absence of any material to the contrary, it has to be considered that the land is one which is capable of being cultivated because there is no material to show that the land was actually put to any other non-agricultural use. Regarding item (5), there is no material on record before the ITO at the material item, nor regarding item (6). As far as item (7) is concerned, again, the nature of the products is not relevant as long as the land is used and can be used for raising plants, crops or trees which in the absence of any other material, it has to be considered, is possible in the present case. The situation of course, is not determinative of the character. There was, therefore, in our view, no material on the record before the ITO by which, applying the aforesaid tests, he could have formed the belief that the land was not agricultural land and unless there was reason for such belief, the assessment could not have been reopened, if the binding decision of the Andhra Pradesh High Court which was holding the field at that time was to be followed.
8. Subsequently, the decision of the Supreme Court in Officer-in-Charge (supra) has modified the aforesaid tests. The question that arises is whether we should judge the action of the ITO with reference to the subsequent judgment of the Supreme Court.
9. This is a question of some difficulty, but fortunately, we have the judgment of the Gujarat High Court in CIT v. Maneklal Harilal Spg. & Mfg. Co. Ltd. [1977] 106 ITR 24 where the Court has explained the effect of a subsequent decision of the Supreme Court in this regard by stating at page 31 that though a decision of Supreme Court declares what the law of the land is, that declaration cannot render in invalid the action of the ITO in initiating reassessment proceedings though on the date on which the proceedings were initiated, his action was valid.
The Court then pointed out (p. 32) that though the effect of the Supreme Court decision by virtue of the provisions of the Constitution is that the Supreme court declares the law of the land and it must be held to have been always the law of the land, once it has so declared, it cannot be placed on the same footing as a retrospective piece of legislation and the legal fiction which goes with retrospective legislation cannot arise in the case of the decision of the Supreme Court declaring what the law of the land is. Following the same ratio, the subsequent judgment of the Supreme Court in Officer-in-Charge (supra) cannot, therefore, be taken into consideration for determining whether the ITO, at the time he reopened the assessment, when the decision of the Andhra Pradesh High Court was before him, had reason to believe that there was escapement of income or not. The decision of the Andhra Pradesh High Court (in the present case a decision of the Full Bench thereof) was binding on the ITO. Whatever may be the individual or personal views of the ITO were insofar as matters covered by the said decision which was binding on him, he had to examine the facts with reference to the same and if, on the ratio of the said judgment, a certain conclusion had to emerge, in our view, he could not say he had reason to believe that the contrary would be the proper conclusion merely because the judgment of the Andhra Pradesh High Court may have been the subject of appeal at that time before the Supreme Court.
10. Therefore, I come to the conclusion that the material time the ITO, having regard to the ratio of the judgment of the Andhra Pradesh High Court in the case of Officer-in-Charge (supra) could not have had reason to believe that the land was not agricultural land. We are not pronouncing on the adequacy of the reasons and since the conclusion is that the ITO could not have had reason to believe that the land is not agricultural land. I agree with my learned brother that the reopening cannot stand.