Vs. Commissioner of Income-Tax  INSC 42 (18 February 1999)
M. Srinivasan Srinivasan. J.
appellant owned certain lands in Nacharam village near Hyderabad. The Govt. of Andhra Pradesh
acquired the same under the provisions of the land Acquisition Act. A sum of Rs.
25,25,240/- was awarded as compensation by the Land Acquisition officer on
20.11.65. On a reference at the instance of the appellant the civil court
enhanced the compensation to Re. 2,72,136/- including solatium and interest.
The same was affirmed on appeal by the High Court on 16.10.70. The appellant
filed a return under Section 139 (4) of the Income-tax Act (hereinafter
referred to as the 'Act') On 17.2.72 disclosing the interest on belated payment
of compensation as her income. The I.T.O. rejected it as invalid as it was
filed beyond the period prescribed under S.139 (4) of the Act. The I.T.O.
initiated proceedings under Section 147(a) of the Act for the year ending
31.3.65 in March '1973 and issued a notice under Sec. 148 on 21.4.73.
sought the sanction of the Commissioner on the ground that the land acquired
was not agricultural land as it had not been subjected to agricultural
operation and the capital gains thereon were chargeable to income -tax.
4.9.78, the I.T.O. made an order of assessment holding that a sum of Rs. 2,43,934/-
was payable as tax and initiated penalty proceedings. On appeal by the assessee,
the commissioner of Income-tax (Appeals) held that the I.T.O. could not have
had any reason to believe that there was escapement of income as there was no
material whatever at that time to indicate that the lands were
non-agricultural. The Commissioner allowed the appeal and cancelled the order
of assessment under S.147(a). The Department approached the Income-tax
Appellate Tribunal with an appeal but in vain as the Tribunal agreed with the
Commissioner and confirmed his order.
Revenue applied for reference to the High Court on the following three questions
Whether on the facts and circumstances of the case, the Income-tax Appellate
Tribunal is correct in holding that the reassessment proceedings were not valid
by considering only a part of the Income-tax Officer's note?
Whether on the facts and circumstances of the case, the Income-tax holding that
the Income-tax Officer had no reason to believe that the land was not
agricultural and in view of the Andhra Pradesh Officer-in-charge (Court of
wards) versus CWT (72 ITR 552) which was not accepted by the Department?
Whether on the facts and in the circumstances of the case, the Appellate
Tribunal is justified in holding that the lands are agricultural lands?
a detailed order, the Tribunal rejected the application with reference to
Questions 2 & 3 but referred only the first question by recasting it as
follows:- "Whether on the facts and in the circumstances of the case the
Appellate Tribunal was right in holding that the reassessment proceedings
initiated by the Income-tax Officer in this case were not valid in law? The
High Corut by its judgment dated 1.4.91 answered the question in the negative
in favour of the Revenue and against the assessee. Aggrieved by this the assessee
filed this appeal on Special Leave.
have earlier referred to the fact that the Tribunal referred only one question
to the High Court for its decision and refused to refer the toher two questions
as desired by the Revenue. The High Court has mentioned in its judgment that
the counsel appearing before it made a representation that the other two question
were also subject-matter of another reference. The High Court has recorded in
its judgment that the particulars about the other alleged reference were not
furnished and thus the only question to be considered was that referred to it
by the Tribunal.
have already mentioned that the I.T.O. sought sanction of the Commissioner to
reopen the matter. That was by a communication dated 17.3.73 in which the
relevant part read as follows :- "In this case the assessee owned 16 acres
33 cents in Nacharam village near Hyderabad. This was acquired by the Govt. with effect from 27.10.1964.
was awarded a final compensation of Rs.
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 1.1.54 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.
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 the income chargeable to
tax has escaped for the assessment year 1965-66 and that such escapement was by
reason of omission or failure on the part of the assessee to make a valid
return under Section 139 for the assessment year 1965-66.
request the Commissioner to accord sanction for reopening the assessment under
Apart from the said communication, there is nothing on record to disclose the
material on which the I.T.O.
to reopen the assessment. He has made an assertion in the said communication
that the land in question was not subjected to agricultural operation and that
he had reason to believe, the income chargeable to tax had escaped for the
assessment year 1965-66 by reason of omission or failure on the part of the assessee
to make a valid return. But for such assertion on reference has been made to
any material on the basis of which he proceeded to invoke the provisions of
Sec. 147(1) of the Act. Even the assertion as such was a bare one without any
reference to the materials on the basis of which he made the said assertion.
attempt was made on behalf of the Revenue to show that the land in question did
not satisfy the test prescribed by this Court in Commissioner of Wealth-tax.
Pradesh Versue Officer-in-charge (Court of wards) Paigah (1976) 105 I.T.R. 133.
In that case this Court laid down that for the purposes of Wealth Tax Act
agricultural land should be shown to have connection with an agricultural
purpose and user in order to be considered as an agricultural land and the mere
possibility of user of land by some possible future owner or possessor for an
agricultural purpose was not sufficient. The Court said that it was not the
mere potentiality which will affect its valuation as part of the assets but its
actual condition and intended user had to be seen for purposes of exemption
from wealth tax. By that judgment this court reversed the judgment of the A.P.
High Court in Officer-in-charge (court of wards). vs. Commissioner of
wealth-tax (1969) 72 I.T.R. 552 (F.B.). The Full Bench of the High Court had in
its judgment held that actual user of the land for agricultural purposes was
not necessary for making it an agricultural land and it was sufficient if the
land could have been put to agricultural use. The judgment of this Court was
rendered only on August
6, 1976 long after the
re-opening of the assessment by the I.T.O. in the present case. Thus when he
invoked Section 147(a) of the Act, the aforesaid judgment of the Full Bench of
the AP High Court was holding the field. Hence the I.T.O. could not have
applied a test different from that laid down by the said Full Bench for
determining whether the land in question in this case was an agricultural land.
Consequently, the decision of this Court (supra) will be of no help to the
Learned counsel for the Revenue has placed reliance on the judgment of this
Court in Central Provinces Manganese 662. It was held on the facts in that case
that the reasons recorded in the notice issued under Section 147(a) and the
material on record justified the issue of such notice. That ruling will not
help the Revenue in this case as there is no material whatever on record to
justify the issue of notice by the I.T.O. under Sec. 147 of the Act.
Commissioner of Income-tax (Appeals) and the Appellate tribunal have discussed
the matter in great detail and pointed out several facts which were sufficient
to show that the land in question was an agricultural land. In the face of such
materials if the ITO wanted to reopen the assessment he should have at least
some materials to the contrary which could enable him to say that he had reason
to believe that the lands were non-agricultural lands and there was escapement
The High Court has while answering the reference completely ignored and
overlooked the findings of fact rendered by the Commissioner of Income-tax
(Appeals) and Appellate Tribunal and proceeded to discuss the matter as if it
was sitting in appeal over the order of the Tribunal. The High Court has also
assumed that the ITO has looked into the Revenue records and other connected
records on the basis of which he came to the conclusion that the reopening of
the assessment was necessary. We are unable to agree with the reasoning of the
The learned counsel for the Revenue has attempted to support the order of the
High Court by stating that the interest accrued from year to year on the compensation
paid to the assessee would have to be brought to assessment on protective basis
and the same was sufficient to reopen the assessment. There was no such
argument before any of the authorities or the High Court.
the circumstances, the order of the High Court requires to be upset and
accordingly we allow this appeal and set aside the judgment of the High Court.
The question referred to the High Court by the Tribunal is answered in the
positive in favour of the assessee. There will be no order as to costs.