Judgment:
1. This is a bunch of seven appeals filed by the assessee. These appeals arise out of regular assessments completed under s. 16(3) of the WT Act, 1957, and they are instituted against the common order of the CWT(A)-III, Hyderabad, dt. 20th March, 1997. The seven assessment years involved in these appeals are from 1986-87 to 1992-93.
2. The appellant is a private limited company, carrying on its business in financing activity. The appellant has purchased 46.69 acres of land situated at Vaddugapatti Village, Gandarvakottai Tq., Pudukottai District, Tamil Nadu, in the previous years relevant to asst. yrs.
1983-84 and 1984-85. The cost of the said land is Rs. 1,30,772. While filing the returns of net wealth for the impugned assessment years, the appellant claimed exemption for the value of the said landed property in the computation of net wealth, in terms of s. 2(e)(2) of the WT Act, 1957, on the ground that the lands are agricultural lands. The Finance Act, 1983, has revived the levy of wealth-tax in the case of closely held companies, but has excluded the agricultural lands from the purview of 'assets' by virtue of s. 40(3)(v) of the Finance Act, 1983.
It is in this context, the assessee-company has claimed exemption from the levy of wealth-tax, on the ground that the land purchased and possessed by it in Tamil Nadu is an agricultural land.
3. The appellant claimed that the land was purchased from 25 different parties for the purpose of setting up an explosive factory and to use the adjacent portion of the factory premises for agricultural purpose.
The assessee-company also stated before the AO that the land was classified in the revenue records as agricultural land, and it was not put to any alternative use, and as on the valuation dates, relevant for the assessment years under appeal, the land continued to be agricultural land only. It was also contended that the land was situated in an undeveloped area, where there is no possibility of converting it into house plots or putting to any other commercial use.
The adjoining lands were all being cultivated by the owners thereof.
The assessee-company also pleaded before the AO that for the immediately preceding wealth-tax assessment years, viz. 1984-85 and 1985-86, the land was treated as agricultural land and exemption was granted by the Department. The assessee also contended that the land was purchased by acreage basis and not on yard-basis and as per the purchase deeds, the lands were treated as agricultural lands.
4. The AO did not accept these contentions advanced by the assessee-company before him. He found that the assessee-company has not carried on any agricultural operations throughout the previous year periods relevant to the years under appeal, and the intention of the assessee-company in purchasing the land was not to carry on any agricultural operations, but to set up an explosive factory, as part of its business activities. Relying on the decision of the Gujarat High Court in Rasiklal Chimanlal Nagri vs. CWT (1965) 56 ITR 608 (Guj), the AO held that the capacity of land for being put to agricultural use is not the only determining factor in deciding the question whether the land was agricultural one or not, and if that is the correct test, even building sites assessed for non-agricultural purposes would be agricultural lands so long as those sites are not actually put to non-agricultural use, since it would always be possible to say that they are capable of being used for agricultural purposes. The AO also considered the case of the assessee in the light of the decision of the Supreme Court in CWT vs. Officer in Charge (Court of Wards) (1976) 105 ITR 133 (SC), according to which the determination of the character of the land has to be done on the facts of each particular case, depending on the purposes for which the land was meant or sought to be used. What is really required to be shown, as per the Hon'ble Supreme Court, is the connection with an agricultural purpose and user and not the mere possibility of use of land, by some possible future owner or possessor, for an agricultural purpose. Having found that the assessee-company had no intention to carry on agricultural operations, and in fact, the assessee has not carried on any agricultural operations, the AO held that the nature of the land is 'non-agricultural' and accordingly denied the exemption claimed by the assessee-company for all the years under appeal.
5. When the matter was taken up in appeal, the first appellate authority endorsed the view taken by the AO, and held that the assessee was not entitled for exemption as the land was non-agricultural in nature. The learned CWT(A) relied on the decisions of the Supreme Court in Officer in Charge (Court of Wards) case (supra), Sarifabibi Mohmed Ibrahim vs. CIT (1993) 204 ITR 631 (SC) and CIT vs. Gemini Pictures Circuit (P) Ltd. (1996) 220 ITR 43 (SC) and of the Bombay High Court in CIT vs. V. A. Trivedi (1988) 172 ITR 95 (Bom). Examining the facts of the case in the light of the decisions referred to above, the learned CWT(A) decided the issue in the following manner : "1.5. A reading of all these decisions would show that whether a particular land is agricultural is to be decided on a totality of the relevant facts and circumstances. The intended user of the land is a major factor to be taken into consideration. Classification of the land as agricultural in revenue records is not conclusive but only raises a rebuttable presumption. The intended user of the land by the purchaser is also a crucial evidence as held in Sarifabibi's case and Gemini Picture Circuit's case.
1.6. Keeping the above guidelines in mind, let us take into account the facts and circumstances in the instant case. The land has been purchased with an intention of constructing an explosive factory which has nothing to do with the agricultural (sic purpose). After purchase of the land from 1982-83, for all these years, no agricultural activities had been carried on. The assessee-company in its memorandum of association does not show agriculture as part of its business. Therefore, one is unable to accept the plea that after construction of the factory, the assessee intends to use the surrounding land for agricultural purposes. Thus, the conclusion is irresistible that the intended user of the land by the assessee is for non-agricultural purposes.
1.7. All these circumstances outweigh the factor, like entries in the revenue records or user of the land for agricultural purpose before the land came into possession of the assessee. Thus, without any doubt or ambivalence, this land should be treated as non-agricultural as rightly held by the AO. There is no dispute regarding the valuation of the land as such. Under the circumstances the AO's orders for all these years under consideration on this point are confirmed." 6. Accordingly, the learned CIT(A) confirmed the addition of Rs. 1,30,772 for each of the years under appeals, representing the value of the lands purchased by the assessee-firm.
7. It is against the above order of the learned CIT(A) that the assessee-company has come up in second appeal before this Tribunal.
8. The only issue to be considered in these appeals is whether the lands purchased by the assessee-company in Tamil Nadu for the purposes of setting up of an explosive factory, are agricultural lands, and whether the assessee is entitled to have the value of those lands excluded from the computation of net wealth for the purposes of levy of wealth-tax. With regard to this issue, effective grounds raised by the assessee in these appeals read as follows : "...... 2. The learned CIT(A) ought to have appreciated the facts placed before him with regard to the nature of the lands in proper perspective.
3. The decisions of the High Courts and the Supreme Court relied on by the learned CIT(A) are distinguishable on facts and have no application on the facts of the appellant's case.
4. The learned CIT(A) ought to have appreciated that it is not necessary to carry on the agricultural operations to claim the land as agricultural land, if the other conditions as canvassed by the appellant before both the WTO and the CIT(A) were satisfied.
5. For these and such other grounds that may be advanced at the time of hearing, the appellant prays that the addition of Rs. 1,30,772 made as the value of the alleged non-agricultural land may be deleted." 9. We heard Shri K. K. Viswanatham, the learned counsel appearing for the assessee-company, and Shri T. Jayashankar, the learned senior Departmental Representative for the Revenue. The learned counsel for the assessee submitted that the lands were used for agricultural purposes before the purchase of the land by the assessee-company, and the land was described in the revenue records as agricultural land. The assessee-company has not utilised the land for any non-agricultural purposes. The nature of the land, as such, before and after the purchase by the assessee, has not undergone any change, and by the efflux of time alone, the nature of land cannot change. According to the learned counsel, over the period of time, ownership of the land alone has changed on account of purchase by the assessee, and not the character of the land, and therefore, the land even during the years under appeal continued to maintain their original character, viz., of agricultural nature, and as such the assessee is legitimately entitled for the exemption provided under s. 2(e)(2) of the WT Act, 1957. The learned counsel submitted that the lower authorities have erred in placing heavy reliance on the decision of the Supreme Court in Officer in Charge (Court of Wards)'s case (supra). Distinguishing the said decision from the facts of the present case, he submitted that the question considered by the Supreme Court in that case was whether the property called 'Begumpet Palace' within the municipal limits of Hyderabad, consisting of 108 acres and also buildings enclosed in a compound wall, constituted agricultural land or not. In the said decision, the learned counsel submitted, the Court held that it is not the mere potentiality of a land for being used for agricultural purpose, that would go to decide the nature of the property. According to the learned counsel, the property involved in the cases on hand is in the midst and thick and thin of the agricultural lands, and it was consistently used for agricultural purposes when the assessee purchased the same, and it is situated in a remote village of Tamil Nadu, having no facilities to support the utilisation of land for non-agricultural purposes. He therefore, submitted that the property considered by the Supreme Court in the decision Officer In Charge (Court of Wards)'s case (supra) cannot be construed to be similar to the one involved in the instant case before us. As such, he submitted that the said decision is not applicable to the facts of the present case. As for the other decisions relied upon by the learned CWT(A), such as Sarifabibi Mohmed Ibrahim's case (supra) and Gemini Pictures Circuit (P) Ltd.'s case (supra), and V. A. Trivedi's case (supra) he submitted that those decisions related to the examination of the nature of property, in the context of eligibility of capital gains tax, and the facts and circumstances of those cases are entirely different, as compared to the facts on hand in the present cases. Referring to the decision in Gemini Pictures Circuit (P) Ltd.'s case (supra), he submitted that the property involved in that case was the one situated on Mount Road, Madras, and not in any remote village as in the present cases.
10. The learned counsel further argued that the factum of assessee's failure to carry on any agricultural operations on the land purchased by it, will not alter the character of the land from agricultural to non-agricultural nature. He submitted that the intention of the assessee alone is again not the determining factor, as the intention of the parties may change from time to time and the intention of the assessee and the purpose for which it was purchased, do not change the character of the land which is constant, unless and until the assessee-company has actually done something to change the character of the land, in pursuance of the object for which it purchased the land.
In support of these contentions, the learned counsel relied on the decision of the Bombay High Court in CWT vs. H. V. Mungale (1984) 145 ITR 208 (Bom), and submitted that merely because the land in question was not utilised by the assessee for agricultural purposes and the land was allowed to remain fallow after purchase by the assessee, it cannot be said to be non-agricultural land. He submitted that so long as the assessee has not converted or used the land for any non-agricultural purpose, the land did not cease to be an agricultural one and, as such, it has to be treated as an agricultural land. Placing reliance on the decision in Kalpetta Estate Ltd. vs. CIT (1990) 185 ITR 318 (Ker), he submitted that the material date with reference to which the question whether the particular land is an agricultural one or not, is the date of sale, and the assessee should prove that the land was an agricultural one at the time of transfer. Placing further reliance on the decision of the Delhi High Court in DLF United Ltd. vs. CIT (1986) 161 ITR 714 (Del) the learned counsel for the assessee submitted that an agricultural land does not lose its character before actual conversion for non-agricultural purposes. He also submitted, placing reliance on the decision of the Gujarat High Court in Gordhanbhai Kahandas Dalwadi vs. CIT (1981) 127 ITR 664 (Guj) that potential non-agricultural use does not alter the character of land, and where the land is shown as agricultural land in revenue records and permission for non-agricultural use has not been obtained, presumption must be that the land is agricultural in nature. In the circumstances, he submitted that the land of the assessee in Tamil Nadu is an agricultural land, and the lower authorities were not justified in denying the assessee's claim for exemption from wealth-tax in respect of the above land.
11. On the other hand, Shri T. Jayashankar, the learned senior Departmental Representative argued that principles for determination of the nature of land, viz., whether agricultural or not-have been clearly spelt out by the Hon'ble Supreme Court in the decision in Officer In Charge (Court of Wards)'s case (supra), and facts of the present case have to be examined in the light of those principles laid down by the apex Court. Disputing the points of distinction of the said decision canvassed by the learned counsel for the assessee, the learned Departmental Representative submitted that the principles laid down in that decision for determining the character of a land, hold good even in the context of the present case, and the AO was perfectly justified in applying those principles. He further argued that the decisions relied upon by the learned counsel are distinguishable from the facts of the present case. He submitted that as far as the present case is concerned, after the purchase of the land, the assessee-company has not at any time put the land to agricultural use, and the intention of the assessee while purchasing the land was to set up an explosive factory; that the assessee-company never had any intention to carry on agricultural activity on the said land, and that as rightly pointed out by the learned CIT(A), the assessee-company, being a limited company is governed by its memorandum of association, the objects clause of which do not include agricultural operations. In the light of these factual aspects of the matter, the learned Departmental Representative submitted that by any means, we cannot presume any intention on the part of the assessee-company to carry on any agricultural operations on the land in question. He further submitted that the assessee has not even set apart the land in question for agricultural purposes.
According to him, the lower authorities were very much correct in denying the claim of the assessee for exemption from wealth-tax, in respect of the land in question.
12. We considered the rival contentions in detail and perused the impugned orders of the lower authorities, and the decisions relied upon by the learned counsel for the assessee before us. Undisputed facts of this case in brief are that the assessee-company has purchased the land in Tamil Nadu, in respect of which exemption from levy of wealth-tax was claimed during the years 1982-83 and 1983-84. The said land was purchased for the purposes of setting up an explosives factory. Before the purchase of the said land, agricultural operations were carried on by the erstwhile owners on the said land. The sale deeds through which the land was purchased and the revenue records describe the land in question as an agricultural one. Neither at the time of purchase of the land nor any time thereafter, assessee has carried on any agricultural operations on the said land. It has no intention at any point of time to carry on agricultural operations on the land in question. For that matter, being a limited company, assessee is governed by its memorandum of association, and as fairly conceded by the learned counsel for the assessee, objects clause of the memorandum does not envisage any agricultural operations for being carried on by the assessee. Even though assessee could not set up the explosives factory on the land purchased by it, for want of finances, it has not abandoned the idea of setting up the factory on the said land, and it would set up the same as and when adequate finances are available with it. Therefore, necessary facts churning out of examination of facts and circumstances of this case are as follows : (i) The assessee-company has been holding the land for nearly a decade, till the end of the previous year relevant for the asst. yr.
1992-93, which is the last year with which we are concerned in these matters; (ii) After the purchase of the land, assessee-company has not carried out any agricultural operations : (iii) The property was purchased for a specific non-agricultural purpose; (iv) The assessee has no intention to abandon the idea of setting up the explosive factory, which is the non-agricultural purpose for which it was purchased; (v) There is a factual as well as legal inference that the assessee-company has no intention to carry on agricultural operations in future.
12. Bearing in mind the above factual aspects, we may examine the correctness of the view taken by the lower authorities with regard to the nature of land in question.
13. As already noted above, from the asst. yr. 1983-84, agricultural lands are excluded from the scope of the term 'assets' under s. 2(e) of the WT Act. As such, agricultural lands are entirely excluded from the computation of net wealth. It is in this context that the assessee-company has claimed exemption in respect of the land purchased by it sometime in the years 1982-83 and 1983-84, from the levy of wealth-tax. Now, the question is whether the said land, purchased by the assessee for the purpose of setting up an explosives factory can come within the scope of the term 'agricultural lands' exempted from the levy of wealth-tax. To decide this question, we have to examine whether it is the actual use or the intention of the owner of the land that determines the nature of the land to be an agricultural one, or whether the description of the land in revenue records or the nature of the land by itself with its suitability only for agricultural purposes, together with other features that clinch the issue about the agricultural nature of the land.
14. Setting judicial conflict at rest, in Officer In Charge (Court of Wards)'s case (supra), the Hon'ble Supreme Court held that to qualify as agricultural land, the land must have a connection with agricultural user or purpose. Minimal test of agricultural land is appropriation or setting apart of land for a purpose, which could be regarded as agricultural purpose for which the land could be reasonably used, without alteration of its character. What is required to be shown is the connection with an agricultural purpose of user, and not mere possibility of the land for being used as such, by some possible future owner or possessor. It is not mere potentiality, but it is actual condition and intended user, which has to be seen. Entries in revenue records, the Court held, are good prima facie evidence, but they are not conclusive in the matter. Even though nature of the property involved in the said decision rendered by the Hon'ble Supreme Court is not similar to the one involved in these matters before us, as contended by the learned counsel for the assessee, the guidelines and the ratio laid down by the apex Court in that case hold good even in these matters in determining the nature of the land.
15. In V. A. Trivedi's case (supra), it was held by the Bombay High Court that to ascertain the true character or nature of the land, it must be seen whether it has been put to use for agricultural purposes for a reasonable time prior to the relevant date. It must also be seen whether on the relevant date, the land was intended to be put to use for agricultural purposes for a reasonable span of time in future. The later rule of intention to carry on agricultural operation in future also is a necessary test for deciding the nature of land.
16. In the matter of Sarifabibi Mohmed Ibrahim's case (supra), the Hon'ble Supreme Court held that whether a piece of land is agricultural land or not is essentially a question of fact. Several tests have been evolved in the decisions of the Supreme Court and High Courts, but all of them are more in the nature of guidelines. The question has to be answered in each case, having regard to the facts and circumstances of the case. There may be factors both for and against a particular point of view. The Court has to answer the question, on a consideration of all of them, through a process of evaluation. The inference has to be drawn on a cumulative consideration of all the relevant facts.
17. In the subsequent decision in Gemini Pictures Circuit (P) Ltd.'s case (supra), the Hon'ble Supreme Court reiterated that the question whether a particular land is agricultural land, has to be decided on consideration of totality of relevant facts and circumstances. There may be circumstances for and against a view. They should be put together and a reasonable decision arrived at considering totality. One has to take a realistic view and see how the persons selling and purchasing it understood it. The decisions rendered by the Courts are in the nature of guidelines. No hard and fast rules can be laid down in the matter, for the reason that it is essentially a question of fact.
18. It is clear from a perusal of the above decisions that whether a particular land is an agricultural land or not is essentially a question of fact, which has to be answered on consideration of totality of facts and circumstances of the case, and weighing the points in favour of and against a particular view together. Further, it is not merely the potentiality of the land for being used for agricultural purpose, or its non-suitability for any other purpose that determines the nature of the land. Whether the land in question has been put to agricultural use for a reasonable span of time prior to the relevant date and whether on the relevant date, the land was intended to be put to use for agricultural purpose for a reasonable span of time in future, are also relevant factors for determining the issue. Even if the land is not actually used for agricultural purpose, it should at least be set apart for agricultural use, so as to qualify for being treated as agricultural land. A realistic view of the nature of the land has to be taken even on the basis of understanding of the persons buying and selling it.
19. In the case on hand, viewing the matter in the light of the above guidelines, we find that the assessee has not utilised the land either for agricultural purpose or for any purpose having connection with agricultural operations. He has not even set apart the land for agricultural operations. Assessee has purchased the land in 1982-83 and 1983-84, for the purpose of setting up of an explosives factory, which has no connection whatsoever with agriculture, and as such neither the sellers nor the purchaser, viz., assessee, could have understood the transaction of purchase by the assessee, as if it was for agricultural purpose. It may be true that prior to the purchase of the land by the assessee, erstwhile owners might be carrying on agricultural operations on the land, but merely on that count, we cannot say that during a reasonable span of time immediately prior to the relevant dates, viz., valuation dates for the assessment years under appeal, viz., from 1986-87 to 1992-93, the land in question was put to agricultural use.
The benefit of erstwhile owners carrying on agricultural operations during their tenure, cannot accrue to the assessee-company, much less at the distant points of time relevant for the years under appeal.
Since the assessee has purchased the land in question with avowed purpose of setting up an explosives factory, it cannot be said that the land was set apart for agricultural purposes. For this very reason, and for the reasons that objects clause of memorandum of association of the company does not permit carrying on of agricultural operations by the assessee; and that the assessee has not abandoned the intention of setting up of explosives factory on the land in question and it would proceed with the setting up of the factory as and when finances are available, it equally cannot be said that the land in question is likely to be used for agricultural purposes, much less for a reasonable span of time after the relevant valuation dates. Potentiality of the land for being used for agricultural purposes or non-suitability of land for any other purposes, much less the development in the area or the activities in the neighbouring lands, can come to the rescue of the assessee in determining the agricultural nature of the land in question, or consequential exemption from wealth-tax in relation thereto.
20. As for the case law relied upon by the learned counsel for the assessee, we are afraid, they are not of much help in the determination of the issue involved in these matters under WT Act. The decisions relied on by the learned counsel in Kalpetta Estates Ltd.'s case (supra), DLF United Ltd.'s case (supra) and Gordhanbhai Kahandas Dalwadi's case (supra) are all cases dealing with exigibility to capital gains tax. In the context of examining exigibility to capital gains tax, the nature of land has to be examined only once, with reference to the date of sale or purchase, and the examination in such cases is to find out whether the asset sold is an agricultural land or not. On the other hand, in determining liability to wealth-tax in respect of a particular land, one has to examine use or likely use by setting apart by the assessee of the said land for agricultural use, over a reasonable span of time. The position has to be examined on successive valuation dates year after year, so long as the assessee continues to be the owner of the land in question. It is a continuous process and the issue has to be determined considering cumulative facts and circumstance of the case. In the case of H. V. Mungale (supra), heavily relied upon by the learned counsel for the assessee in support of his contentions, facts involved are entirely different. It was a case where the assessee had left the land uncultivated for an intervening period. The property was purchased in 1955. Assessee carried on agricultural operations on the land till 1963. Thereafter, assessee did not carry on any agricultural operations. In those particular circumstances, the Court held that merely because the land remained fallow, it did not cease to be an agricultural land. The case of the assessee before us, is not one of temporary suspension of agricultural operations, but one of total lack of any intention to carry on agricultural operations at any point of time whatsoever after purchase of the land in 1982-83/1983-84, and even intention for purchase of land was not for agricultural operations. In any event, each case has to be determined, considering facts and circumstances peculiar to that case, and weighing points in favour of and against a particular view together, as per the guidelines laid down in various cases discussed above. Hence, considering totality of facts and circumstances of this case, we agree with the lower authorities that the land of the assessee in Tamil Nadu cannot be treated as an agricultural land. We accordingly uphold rejection of the claim of the assessee or exemption of the said land from levy of wealth-tax.