By TIOL News Service

CHENNAI, NOV 04, 2016: THE ISSUE IS - Whether certificate of Revenue authorities will supersede Departmental Inspector's report, for purpose of measuring the distance of agricultural land from the municipal limits, so as to determine exemption on capital gain arising from sale of such land? YES is the verdict.

Facts of the case:

The assessee, a HUF, had filed its original return for the A.Y 2008-09, admitting income under the head "income from other sources" of Rs 8,72,770/- and NIL income under the head "long term capital gain". The assessee had also disclosed that the sale of its agricultural land at Keeantham village for Rs 9,25,47,000/- and the capital gain arising from the sale of the land, as exempt, because the assets sold was agricultural land situated beyond 8 Kms of municipal limit. Since the AO reasoned to believe that the land was situated within 8 Kms of municipal limit, a notice u/s 148 was issued. The AO thereafter requested the Inspector of Survey and Land Records, Coimbatore, to furnish the distance with respect to lands located at Keeranam Pudupalayam village to the nearest Coimbatore Corporation limits. Responding to the query, the Inspector of Survey and Land Records mentioned the distance road route to the said agricultural land as 9.13 Kms. However, the AO relied on the report of the investigation wing, which reported that the land was located within 8 Kms from City bakery, which was not more than 100 meters from the Corporation limits of Coimbatore. Finally, assessment was made u/s 143(3) r/w/s 147, wherein, the AO held that the land was situated within 8 Kms of the municipal limit and the assessee was liable to capital gain tax and accordingly, assessed the long term capital gain as Rs.9,25,19,770/-. On appeal, the ITAT held the land sold by the assessee was an agricultural land and situated beyond 8 Kms from the Corporation municipal limit, therefore, the capital gain arising from the sale of the aforesaid land was exempt from capital gain tax.

High Court's holding:

1. it is seen that the Survey inspector as well as the Tehsildar officer has issued a certificate stating that the agricultural lands having the SF Numbers, containing a total area of 4.02 hectare are situated at a distance of 8.4 KM from the Coimbatore corporation limits. Though the assessee has submitted that the abovesaid documents to prove that the distance between agricultural land and municipal limit was more than 8 Kms, the AO has only relied on the report of the Inspector of Income-Tax. Though the AO has sought for clarifications from the Inspector of Survey and Land Records Maintenance, Coimbatore, regarding the place, where the Corporation limits ends, as to whether, Gopalkrishna Mills/city bakery or beyond Ramakrishna Mills at LGB Nagar Pirivu-Gowtham tower or Aishwarya bakery or Jayam medicals, which has also been responded, stating that the distance between the municipal limits and the agricultural lands, is 9.13 Kms., the AO has totally ignored the report of the Inspector of Survey and Land Records Maintenance. On an appeal preferred by the assessee, the CIT(A) was of the opinion the AO erred in taking a decision in favour of the Revenue based on the Departmental Report which is not properly authenticated. The Inspector of Income Tax report against the clarification by various State Government Authorities, cannot be accepted. Since it is very clearly proved that the lands are agricultural land situated beyond 8 KMs from the Corporation Municipal Limits, the income on sale of the agricultural land is exempt from taxation. The AO was accordingly directed to delete the addition. When the matter was taken on appeal before the ITAT, after considering the submission of the departmental representative that the finding of the Revenue would supersede the certificates given by the state government departments, the Tribunal confirmed the order of the CIT(A).

2. in the light of the decisions of the Courts, as to whether, both the fact finding authorities, are right in accepting the reports of the Tahsildar and on the aspect, as to how, the distance between the agricultural land and the nearest Municipality has to be measured, vis-a-vis, the report of the departmental inspector, we are of the view that the decision of the fact finding authorities that there cannot be any justifiable reason to reject the certificates produced, is correct. As rightly contended by the assessee, Revenue department and survey authorities are competent to measure the land and issue appropriate certificates, and the same cannot be ignored by the AO, by relying on the report of the investigation wing. In such matters, it would be appropriate, to take the assistance of the survey authorities, to arrive at the conclusion. On the facts and circumstances of this case, we also wish to state that in the matter giving weightage to the evidence adduced in this regard, report of the departmental inspector vis-a-vis certificates of the revenue authorities, produced before the AO, the latter should be given weightage and accepted, unless the contrary is proved. A substantial question of law does not arise on the findings of fact, unless it is substantiated that there is perversity. Therefore, the question of law raised is answered in favour of the assessee.

(See 2016-TIOL-2719-HC-MAD-IT)