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Uday (Lawyer)     29 August 2012

Mr.c.p.s.ramachary's article agricultural land


Why Section 31(i) of SARFAESI Act excludes security interest created in agricultural land ?






Supreme Court in CIT Vs. Rja Benoy Kumar Saha Roy [1952] 32 ITR 466 (SC) held that ‘agriculture’ in its primary sense denotes cultivation of the field and is restricted to cultivation of the land in the strict sense of the term, meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. In the judgment their Lordships also held that if the subsequent operations like weeding, digging soil around the growth, removal of undesirable undergrowth, preservation of the same from insects and pests, tending, pruning, cutting, harvesting and rendering the produce fit for the market and all such operations which foster the growth are carried on in conjunction with the basic operations, the same would constitute agriculture operations. These basic operations and subsequent operations require expenditure of human skill and labour upon the land Nature of the soil, its fertility, its suitability and adaptability for raising cash crops, the irrigation facility and such similar factors have great bearing on the valuation of an agricultural land : Gujarat High Court (in Commissioner of Income Tax Gujarat-II Vs. Siddarth J. Desai (1983) ITR Vol. 139 Page 628)








(Krishna Rao Vs. 3rd. Wealth Tax Officer : AIR 1965 Mysore III = ILR 1962 Kar. 926=1963 48 ITR 472 Kar.). Madras High Court in N.K.S.Rengeswaran Vs. Commissioner of Income Tax & Ors. (1998 ITR Vol.242 Pg.344) held that, the reference to the lands being classified as "tope" in the revenue records and the direction by the Commissioner of Agricultural Income-tax on the said basis, had no material to support it, except the classification of the lands as "tope". In the absence of any evidence to show that the lands were actually cultivated, the income could not have been treated as agricultural income without supporting evidence, classification of lands in revenue records is not conclusive proof to treat the lands as agricultural lands where there are no basic operations like tilling, sowing, planting carried out on the land or subsequent operations like tending, pruning, cutting, harvesting and rendering the produce fit for market.


   In Commissioner of Wealth Tax Andhra Pradesh Vs. Officer-in-charge (Court of Wards) Paigh (1976) 3 SCC 864 =[1957] 32 ITR 466(SC) Supreme Court held that entries in the revenue records without evidence of intended user are not sufficient grounds to draw conclusion that the subject lands are agricultural lands. Agricultural lands are exempted from wealth tax. In the instant case no agricultural operations are carried on the lands though the lands were capable of being so used. Hence the W.T.Officer treated the lands as non-agricultural lands and the Appellate Assistant Commissioner confirmed it. Setting aside the order of the Appellate Assistant Commissioner, the Full Bench of A.P. High Court held that the subject lands were agricultural lands based on 8 conclusions on question of law as under:


(1) The words ‘agricultural land’ occurring in Sec 2(e)(1)(i) of Wealth Tax ACT should be given the same meaning as the said expression bears in entry 86 of List I and given the widest meaning; (2) The said expression not having been defined in the Constitution, it must be given the meaning which it ordinarily bears in the English language and as understood in ordinary parlance; (3) The actual user of the land for agriculture is one of the indicia for determining the character of the land as agricultural land;(4) Land which is left barren but which is capable of being cultivated can also be agricultural land unless such land is actually put to some other non-agricultural purpose, like construction of buildings or an aerodrome, runway etc. thereon, which alters the physical character of the land rending it unfit for immediate cultivation; (5) If the land is assessed to land revenue as agricultural land under the state revenue law, it is a strong piece of evidence of its character as agricultural land; (6) Mere enclosure of the land does not by itself render it a non-agricultural land;(7)The character of the land is not determined by the nature of the products raised, so long as the land is used or can be used for rising valuable plants or crops or trees or for any other purpose of husbandry;(8) The situation of the land in a village or in an urban area is not by itself determinative of its character.


Reversing the above views of the High Court, the Supreme Court has held that, the first 4 conclusions are based on absence of any user for non-agricultural purposes. Hence they are inconclusive. Conclusion 5 seems to be real and positive test adopted by the Full Bench for determining the nature of the land. But mere revenue records alone are not deciding factors on usage of the land. The conclusions 6,7 and 8 are negative in character as they merely indicated what could not be conclusive in deciding whether the land was agricultural. But these conclusions do not formulate a test of what is agricultural land. They are only presumptions. The last future does not seem to provide some evidence of the character of the land from the point of view of its purpose. No evidence on usage of the land was called for in the cited case by the Wealth Tax department. Hence the matter was remanded to the Wealth Tax department for permitting the parties to adduce evidence of agricultural operations. Further the Supreme Court observed as follows:



"We think that it is not correct to give as wide a meaning as possible to terms used in the statute simply because the statute does not define an expression. The correct Rule is that we have to endeavour to find out the exact sense in which the words have been used in a particular context. We are entitled to look at the statute as a whole and give an interpretation in consonance with the purpose of the statute and what logically follows from the terms used. We are to avoid absurd results. If we were to give widest possible connotation to the words ‘agricultural land’ as Full Bench of A.P. High Court seemed inclined to give to the term ‘agricultural land’ we would reach the conclusion that practically all the land, even that covered by building is agricultural land inasmuch as its potential or possible use could be agricultural. The object of the Wealth Tax is to tax surplus wealth. It is clear that all land is not excluded from the definition of assets. It is only the agricultural land which could be exempted. Therefore it is imperative to give reasonable limits to the scope of the ‘agricultural land’ or in other words, this exemption had to be necessarily given a more restricted meaning than the very wide ambit given to it by Full Bench of AP."


The High Court of A.P. (following the judgments of Supreme Court in Commissioner of Wealth Tax Andhra Pradesh Vs. Officer-in-charge (Court of Wards) Paigh (1976) 3 SCC 864 and Commissioner of Income Tax Vs. Rja Benoy Kumar Saha Roy [1952] 32 ITR 466) held that patta & revenue receipts are of no help to claim exemption under Sec. 31(i) of the SARFAESI Act (Gajula Exim Vs. Andhra Bank : AIR 2008 AP 184).


Poultry farm also cannot be given such liberal and wide interpretation: In D. Ravichandran Vs. Indian Overseas Bank: (2006 2 M.L.J. 134) Madras High Court, following the above ruling of the Supreme Court and rejecting the contention of the borrower held that the credit facility availed for establishing poultry farm (ancillary to agricultural operations) by mortgage of agricultural lands cannot be given such liberal and wide interpretation (as relied on A.I.R. 1969 A.P.345), and held that, it is evident by taking stock of statement of object and reasons for enacting SARFAESI Act, such a wide interpretation cannot be given as the Act was enacted to enable the banks and financial institutions to realise the long-term assets, manage problems of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce the non-performing assets by adopting measures for recovery or reconstruction.


Kerala High Court in K.P. Muhammed Basheerr Vs Kannur Dist. Cooperative Bank Ltd & Anr. : AIR 2010 Kerala 118 held that, nature of the products cultivated is not criterion to determine if the land is agricultural land or not and any product derived out of land in agricultural operation and fit for market is sufficient to construe the land as agricultural land. Thus the land on which the rubber plants are grown is agricultural land exempted from enforcement under the Act.


Agriculture is "State subject" finding place in the "State List"/List –II of Seventh Schedule (Art.246) of Indian Constitution. It is clear from the Entry no.14 (Agriculture, including agricultural education and research, protection against pests and prevention of plant diseases) of List-II. Further, agriculture is excluded in Entries No.86, 87 and 88 (i.e. it is clear from the words "Taxes on the capital value of assets exclusive of agricultural land, of individuals and companies; taxes on capital of companies; Estate Duty in respect of property other than agricultural land; and Duties in respect of succession to the property other than agricultural land") in the Union List/List-I of Seventh Schedule of Constitution of India).


The Act being Central Legislation, the Parliament would have considered it fit to exclude security interest created in agricultural land as Center cannot make law in respect of the subjects which are enumerated in the State List-II.




(S.P. Watel Vs. State of U.P. : AIR 1973 SC 1293=1973 SCR(3 783).


The term "agricultural land" is not defined in the SARFAESI Act. Agriculture means the science and art of cultivating the soil


Classification of lands is one thing and utility of lands is some other thing. If the lands are not utilised for agricultural purpose even if they are classified as such cannot be treated as agricultural lands




 2 Replies

narendra.s.p (Chief Manager(Law))     30 September 2012

Revenue Lands in and around Bangalore are in fact Agricultural Lands but used for residential purpose and the Muncipal Corporation [ BBMP] issues a B-Khata to collect Land revenue as residential site. Banks have granted housing loans. 

Whether plots/sites on lands which are not converted for non agricultural purpose be proceed by banks under SARFAESI Act - for enforcement of security interest for the housing loan granted by the Bank after classifying the Housing loan as NPA.

RAJU O.F., (Advocate)     02 October 2012

Banks can proceed under SARFAESI Act on such NPA accounts since the land is not used for agricultural activities, but used for construction of house and loan granted was Housing loan.

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