2016 (9) TMI 704 - AT - Income Tax

Capital gains arise for assessment on transfer of land by the assessee along with other person - Transfer in terms of Section 2(47)(v) - Joint Development Agreement (JDA) entered by the assessee on 09.07.2005 with the developer - Held that - What was the intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land and the relevant improvement/development taken place during this time is relevant for deciding the issue whether transaction was in the nature of trade. Though intention subsequently formed may be taken into account, it is the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade; that intention must be present at the time of purchase. The mere circumstances, that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to certain compelling circumstances came into picture at a later stages, the assessees were forced to sell the land. Merely because of the fact that the land was sold in a short period of holding, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade. Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income. Accordingly, the ground raised by the Revenue is dismissed..

Summary

Issues Involved:
1. Determination of the date of transfer of property for capital gains tax purposes.
2. Classification of the land as agricultural land and its implications on capital gains tax.

Issue-wise Detailed Analysis:

1. Determination of the Date of Transfer of Property for Capital Gains Tax Purposes:
The primary issue in this appeal is whether the transfer of the impugned property occurred in the assessment year 2006-07 or 2009-10. The assessee contended that the transfer took place in 2006-07 when they entered into a Joint Development Agreement (JDA) with M/s. Allied Majestic Promoters on 09.07.2005. The Assessing Officer (AO) disagreed, stating that the transfer occurred on 01.04.2008 when the sale deed was registered with M/s. OMR Mall Developers Pvt. Ltd. The Commissioner of Income-tax (Appeals) [CIT(A)] concluded that the transfer took place in 2006-07 under Section 53A of the Transfer of Property Act, as the JDA constituted part performance. The CIT(A) noted that the property was handed over to the developer, who was a nominee of M/s. Allied Majestic Promoters, and that the sale deed in 2008 was merely a continuation of the JDA. The Tribunal upheld the CIT(A)'s findings, stating that the physical possession and management of the property were transferred to the developer in 2005, and there was no transfer in the assessment year 2009-10.

2. Classification of the Land as Agricultural Land and Its Implications on Capital Gains Tax:
The second issue is whether the land in question was agricultural land and thus exempt from capital gains tax. The CIT(A) found that the land was agricultural, as per revenue records and continuous agricultural use until it was handed over to the developer in 2005. The CIT(A) emphasized that the land was transferred as agricultural land with standing crops and was never converted for non-agricultural use. The Tribunal agreed, citing various legal precedents and tests to determine the nature of agricultural land. It was noted that the land was classified as agricultural in revenue records, used for agricultural purposes, and no conversion for non-agricultural use was applied for or obtained. The Tribunal concluded that the land was agricultural and not a capital asset under Section 2(14) of the Income Tax Act, and thus, no capital gains tax was applicable for the assessment year 2009-10.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming that the transfer of the property occurred in the assessment year 2006-07 under the JDA and that the land was agricultural, exempting it from capital gains tax in the assessment year 2009-10.