COMMISSIONER OF WEALTH TAX Vs. SITARAM N DESAI

JUDGEMENT

(1.) THIS is a reference under S. 27(1) of the WT Act, in which two questions have been referred to us for our determination, one at the instance of the CWT, Bombay City II, Bombay, and the other at the instance of the assessee and the two questions respectively are these :

(2.) THE facts giving rise to these two questions may be stated : The assessment years concerned in the case are the asst. yrs. 1960 61 and 1961 62, the corresponding valuation dates being 31st March, 1960, and 31st March, 1961. The assessee, Shri Sitaram N. Desai, owned extensive lands in several villages of Pahadi, Oshivara, Dindoshi, Goregaon, etc., within Greater Bombay. Till and inclusive of the asst. year 1959 60, the value of these lands were not included in the assessment of the assessee under the WT Act for the reason that these properties were admittedly agricultural lands. It appears that in the years under consideration the Department took the view that circumstances had altered and these agricultural lands had ceased to be agricultural properties and had become liable to be taxed under the WT Act. Principally, three reasons influenced the mind of the WT authorities in taking this view : One was that the assessee had entered into several agreements with different parties for the sale of different portions of lands for non agricultural purposes like starting of industries, etc. The second factor which weighed with the authorities was that except for land to the extent of one acre and 33 1/2 gunthas, all other lands were being used for agricultural purposes during the years in question, in that no agricultural crops were raised on those lands and, thirdly, the authorities were influenced by prospective use to which these lands were to be put, viz., construction of industrial units. In these circumstances, excluding from the total area 1 acre and 33 1/2 gunthas, all other lands were held by the WTO as land which had ceased to be agricultural lands and liable to be charged under the WT Act. The WTO considered these lands, barring 1 acre 33 1/2 gunthas, under two groups. In the first group were considered the lands with reference to which agreements for sale had been entered into by the assessee with New Standard Engineering Co. Ltd., Ciba of India and Nanubhai Industries and which lands ultimately were acquired by the three concerns by New Standard Engineering Co. Ltd. and Nanubhai Industries as a result of acquisition proceedings and by Ciba of India under a regular conveyance dt. 14th May, 1962. The other group consisted of the remaining land to the extent of 51,068 sq. yds. which was in the possession of the assessee on which no crop had been raised for several years. The WTO considered the lands falling in both these groups as non agricultural lands and were liable to be included in the assessment under the WT Act. It may be stated that in appeal that was preferred by the assessee to the AAC, out of the lands admeasuring 51,068 sq. yds., which fell in the second group, the assessee conceded that the lands to the extent of 10,753 sq. yds. were not used for agricultural purposes and were not agricultural lands, but the balance of 41,315 sq. yds., though not actually used for agricultural purposes in the year of account, according to the assessee, were still agricultural lands and were liable to be excluded for wealth tax purposes. As regards the lands falling in the first group in respect whereof agreements had been entered into, it was contended that the mere fact that agreements had been entered into with the aforesaid three parties had not changed the character of those lands, the ownership of those lands continued to rest with the assessee till either the conveyance was executed or till an award was made and possession obtained under the provisions of the Land Acquisition Act. Reliance was also placed upon the fact that the record of rights showed all those lands as agricultural lands, that all these lands had been assessed to land revenue and that no permission for converting the user thereof to non agricultural purpose had been sought or obtained and that in some portions agricultural operations were actually carried on. The AAC took notice of the fact that the lands were classified as agricultural lands, that they had been assessed to land revenue, that cultivation was being carried on in those lands till the year ending 31st March, 1959, and that no application was made to the Collector seeking permission from him for using these lands for non agricultural purposes. He, therefore, took the view that the mere stoppage of agricultural operations on those lands after 31st March, 1959, did not change its character. He further took the view that the mere execution of agreements for sale did not affect the appellant's title to these lands till a conveyance was executed or lands were finally acquired under the Land Acquisition Act and that the character of the lands did not change in any manner. He, therefore, held that the WTO's view that these lands had ceased to be agricultural lands as on the valuation dates could not be sustained. As regards the land admeasuring 1,43,000 sq. yds. which had been sold by the assessee to Ciba, the sale deed having been executed on 14th May, 1962, he held that the assessee continued to be the owner of the land till the date of conveyance and its value should not be assessed in the hands of the assessee as it was agricultural land. So far as the land which ultimately was acquired for Nanubhai Industries and New Standard Engineering Co. was concerned, he took the view that on a notification under S. 4 of the Land Acquisition Act being issued the assessee ceased to be the owner of these properties and the compensation amounts less the amounts due to the tenants would be assessable in the hands of the assessee. As regards the land to the extent of 40,315 sq. yds. he accepted the assessee's contention and held that the same was not includible in the assessment for the wealth tax purpose.

(3.) SO far the first question is concerned, it may be stated at the outset that so far as the lands which have been ultimately sold or acquired for Ciba of India, New Standard Engineering Co. and Nanubhai Industries are concerned, the question whether they are agricultural lands and, therefore, they are exempt under S. 2(e)(i) of the WT Act is required to be answered only for the asst. year 1960 61 and so far as the land sold to Ciba of India is concerned, the same question will arise for the asst. year 1961 62.