2011 (12) TMI 85 - AT - Income Tax

Capital gains - Nature of land - agriculture land or not - held that - There was no evidence regarding carrying out the agricultural operations in the impugned land. In the absence of evidence that it was put to agricultural use by the assessee and the land was actually cultivated till the sale of the land, we are not in a position to hold that the land is an agricultural land. In our opinion, the sale of the land for non agricultural purpose and the land was not subject to cultivation before sale, we have to draw conclusion that the sale of land cannot be considered as sale of agricultural land. In the circumstances, we have to hold that the sale of land is not sale of agricultural land and it is to be considered as capital asset and on that sale, capital gain is chargeable. Whether land development agreement is transfer u/s 2(47) read with S.53A of the Transfer of Property Act, 1882 - held that - the owners have entered into an agreement for development of the property and certain rights were assigned to the developer who in turn had made the substantial payment and consequently entered into the property and thereafter if the transferee has taken any steps in relation to construction of the flats, then it is to be considered as transfer u/s. 2(47)(v) of the I.T. Act. The fact that the legal ownership continued with the owners to be transferred to the developer at a future distant date really does not affect the applicability of s. 2(47)(v) - Matter restored to the file of CIT(A) to decide the same afresh in light the ratio laid down by the Hon ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (2003 -TMI - 12097 - BOMBAY High Court)

Summary

Issues Involved:
1. Chargeability of capital gains on the sale of land and land given for development.
2. Nature of the land (agricultural vs. non-agricultural).
3. Validity of assessment proceedings under different statuses (HUF vs. Individual).
4. Treatment of agricultural income as income from other sources.

Issue-wise Detailed Analysis:

1. Chargeability of Capital Gains on the Sale of Land and Land Given for Development:
The main issue in ITA No. 425/Hyd/2011 for the assessment year 2007-08 pertains to the chargeability of capital gains amounting to Rs. 1,20,94,810 on the sale of one acre of land and Rs. 16,93,17,260 on the land given for development. The assessing officer concluded that the land was not agricultural and thus treated it as a capital asset, computing long-term capital gains. The CIT(A) upheld this view, referencing several decisions, including the Hyderabad 'B' Bench of the Tribunal in the case of Shanta Vidyasagar Annam v. ITO.

2. Nature of the Land (Agricultural vs. Non-Agricultural):
The assessee contended that the land was agricultural and situated beyond 8 km from the municipal limits of Hyderabad. The assessing officer, however, found the land to be barren and not fit for agricultural activities, supported by the land revenue records and personal inspection. The CIT(A) agreed, noting the absence of agricultural operations and the falsity of the assessee's claims about selling paddy to a rice mill. The Tribunal upheld the lower authorities' view, stating that the land was not used for agricultural purposes and thus was a capital asset subject to capital gains tax.

3. Validity of Assessment Proceedings Under Different Statuses (HUF vs. Individual):
The assessee argued that the search proceedings were initiated in the name of Suresh Kumar D. Shah (HUF), but the assessment was made in the status of an individual, which was not the subject matter of the search proceedings. The Tribunal found that these grounds had not emanated from the order of the CIT(A) and thus could not be entertained at this stage, rejecting the contention.

4. Treatment of Agricultural Income as Income from Other Sources:
For the assessment years 2002-03 to 2006-07, the issue was whether the disclosed agricultural income should be treated as income from other sources. The assessing officer, based on the finding that the land was non-agricultural, treated the disclosed agricultural income as income from other sources. The Tribunal upheld this view, dismissing the appeals for these years and affirming the additions made by the assessing officer.

Conclusion:
The Tribunal concluded that the land in question was not agricultural and thus subject to capital gains tax. The development agreement constituted a transfer under S.2(47)(v) of the Income-tax Act, making capital gains exigible. The assessment proceedings under the status of an individual were upheld, and the treatment of agricultural income as income from other sources was confirmed. The appeal for the assessment year 2007-08 was partly allowed for statistical purposes, while the appeals for the other years were dismissed.