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PETITIONER: RAM BAI

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX

DATE OF JUDGMENT:       18/02/1999

BENCH: D.P. Wadhwa, M. Srinivasan

JUDGMENT:

Srinivasan.  J.

       The  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. He 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.

2.      On 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.

3.      The Revenue applied for reference to the High  Court on the following three questions :

       1.      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?

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       2.      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         High  court’s  decision  in  the  case  of  CIT  Vs.         Officer-in-charge (Court of wards)  versus  CWT  (72         ITR 552) which was not accepted by the Department?

       3.      Whether   on   the   facts   and   in    the         circumstances of the case, the Appellate Tribunal is         justified in holding that the lands are agricultural         lands?

4.      By  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.

5.      We  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.

6.      We  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.         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 1.1.54 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.         3599/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,

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       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.         I request the Commissioner to  accord  sanction  for         reopening the assessment under Sec.  147(1)."

6.      Apart from the said communication, there is  nothing on  record  to  disclose  the  material  on which the I.T.O. decided 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.

7.      An 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. Andhra 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 in C.W.T.   Vs.    Officer-in-charge (Court of wards) Paigah (supra) will be of no help to the Revenue.

8.      Learned counsel for the Revenue has placed  reliance on the judgment of this Court in Central Provinces Manganese Ore Co. Ltd. Vs. Income-tax Officer, Nagpur (1991)/91 I.T.R. 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.

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9.      The  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 of income.

10.     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 High Court.

11.     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.

12.     In  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.