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TMI Blog2013 (9) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... r, as agricultural land within the meaning of section 2(l4)(iii) of Income Tax Act, 1961 3. That the Learned Commissioner of Income Tax (Appeals) has erred in allegedly treating the profits from sale of rural agricultural land beyond municipal limits as Income from "adventure in the nature of trade". 4. That the Learned Commissioner of Income Tax (Appeals) has erred in upholding the assessment without considering and interpreting all the information/submission, placed on records and without giving proper opportunity to the assessee on the matters, on which additions have been made. 5. That the Learned Commissioner of Income Tax (Appeals) has erred in upholding the addition of Interest on FDRs received during the year whereas the same had been deducted by the assessee from the Interest expense shown in the books. 6. That the Learned Commissioner of Income Tax (Appeals) has erred in upholding the addition of electricity /rent charges received as reimbursement whereas the assessee had already deducted the same from the corresponding revenue expense claimed during the year." 4. Ground Nos. 2, 3 & 4 : After hearing both the parties, we find that during the year, assessee had sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords and without giving proper opportunity to the assessee on the matters, on which additions have been made. 5. That the appellant craves leave to add, amend, alter or withdrawn any ground of appeal before final hearing." 3. The brief facts of the case are that the assessee sold certain lands purchased by him in the State of Himachal Pradesh. The assessee earned short term capital gains of Rs.82,01,796/- on the sales of these lands. The assessee claimed that the lands in question is not a capital asset u/s 2(14)(iii) of the Income-tax Act,1961 and, hence, surplus realization from the sale of such lands, is not taxable income. The AO, made a reference to the definition of the term "Capital Asset", as provided u/s 2(14)(iii) of the Act and after perusal of various decisions of Hon'ble High Courts and Supreme Court and treated the income from the sale of such lands, as business income. Ld. CIT(A) upheld the findings of the AO and, hence, the assessee filed these two appeals before the Tribunal. 4. In the course of present appellate proceedings, the ld. 'AR' contended that Ground No. 1 and 5 are general in nature, hence, no separate adjudication is required. Accordingly, these grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The abovesaid land was regularly used for agricultural purposes. (h) The above land falls under rural area and at that time was not developed and all the lands surrounding these were used for agricultural purposes. (i) Above land has not developed into any plots and roads. (j) No (k) The permission for purchase of land is obtained by non- agriculturist purchaser. (l) The land was sold according to the bighas biswas and not by yards. (m) The land is purchased and sold on the basis of average value. Therefore the report is prepared after investigating the revenue records and is submitted for further action." 5(i). Similarly, ld. 'AR' referred to pages 20 & 21 (English version of page 22). This letter was issued to, Shri Sunil Kumar Sood, the present appellant, under RTI Act on 19.2.2008. Though the letter is in Hindi language, the English version of this letter is reproduced hereunder : "With due respect and as per directions and after search of Revenue records and a visit of site the item wise report is submitted as under: 1. Accordingly to directions Village Bhatoli Kalan Pargana Dharmpur, Tehsil Nalagarh, Distt. Solan the certified copies of Jamabandi of land bearing k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly perused the rival submissions, facts of the case and the relevant record, including Paper Book filed by the assessee. The AO, after a reference to the decisions in the case of Sarifabibi Mohmed Ibrahim & others V CIT (2004) 204 ITR 631 (S.C); Begumpet Palace 105 ITR 133 ; Sidharath J.Desai 139 ITR 628 (Guj) ; & CIT V V.A.Trivedi 172 ITR 95 (Bom) held that the land sold by the appellant is not agricultural land. The findings of the AO as incorporated in the assessment order at page 12 are; "In the light of the above facts and unambiguous position of law, it is clear that the lands under consideration are not agricultural in nature even though they fall under the criteria laid down under Section 2(14)(iii) of the Act. Therefore, the profit on sale of land cannot be claimed as exempt." The AO followed the guidelines and general tests laid down, by the Hon'ble Supreme Court, in the case of Sarifabibi Mohmed Ibrahim & others V CIT (supra) to arrive at such findings. The AO observed that the assessee is a practicing Chartered Accountant and effected purchase and sale of number of properties. As noticed by the AO, the land was actually not under cultivation in the assessment year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in the nature of trade. AO also referred to the decision of the Hon'ble Supreme Court in the case of Karam Chand Thapar & Brothers Pvt.Ltd. V CIT (1971) 83 ITR 899, wherein it was held that the assessee had shown certain assets as investment in its books of account, is not in itself a conclusive circumstance but relevant circumstance. The present appellant has shown the impugned land as Fixed Asset in the books of account and the balance-sheet. Ld. CIT(A), upheld the findings of the AO by making reference to the same case laws and the definition of the capital asset, as contained u/s 2(14)(iii) of the Act. 8. We have carefully perused the findings of the CIT(A), as contained in para 6 to 7.2, from pages 28 to 36 of the appellate order and found that the ld. CIT(A) has placed reliance on the factors, which inspired the AO, to conclude that the impugned land is not agricultural one. Ld. CIT(A), has reiterated and repeated the findings and observations of the AO. However, relevant findings of the CIT(A) are reproduced hereunder : "6. I have carefully considered arguments of the counsel for the appellant and the observations and findings of the AO in the assessment order. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that no agriculturist would purchase the land for agricultural purposes at the price at which the land was sold by the assessee and only industrial houses can purchase it at such a high price. The assessee has sold the land because of its commercial value and not sold it valuing it as property yielding agricultural produce. The AO held that the land though entered in the revenue record has never been actually used for agricultural purposes. The owner never intended to use it for agricultural purposes. The AC finally held that the lands are situated in an area, the surroundings of which are highly industrialized. The physical characteristics and the surrounding areas and the use of lands in the adjoining areas indicate that the sale of land is not for the purpose of agriculture but for the big industrial houses to set up their units in the area. The AO concluded that the lands under consideration are not agricultural in nature even though they fall under the criteria laid down under section 2(14)(iii) of the Act. 6.1 The counsel for the appellant on the other hand has argued that the appellant is a bonafide agriculturist and purchased the lands for agricultural purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's case because in that case the land was within the municipal limits of Hyderabad and had buildings enclosed with compound walls and was not ploughed or tilled. The counsel relied on the decision of the Hon'ble Madras High Court in the case of M.S. Srinivasa Naicker and others v. Income Tax Officer (2007) 292 ITR 481 in which it was held that character of the land at the time of sale was relevant. If till the date of sale, agricultural operations were carried out on the land and lands were registered as agricultural land in revenue records it was not relevant that purchaser was going to use the land for non-agricultural purposes. In the rejoinder to the remand report" the counsel argued that as per the report of the revenue authorities agricultural operations had been carried out regularly on these lands since last many years and the produce from the land was consumed by the assessee's family and was also distributed amongst the relatives and the persons attending to the agricultural operations, it was explained that maize was produced from the agricultural land which was consumed by the family and was also distributed amongst the relatives and the persons attending to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant are mentioned on pages 7 & 8 (supra). It is common knowledge that the prices of the real estate started shooting up in and around Chandigarh from 2003 onwards till 2007 and the prices of real estate properties increased by more than five times during a period of 2 to 3 years. The appellant being a Chartered accountant purchased lands in Himachal Pradesh near Nalagarh which is an industrial town of Himachal Pradesh and enjoying tax concessions. New industries are coming u&, near the existing industries to avail the tax concessions. The intention of the appellant in purchasing the lands is very clear that he had no intention of carrying out agricultural activities but he wanted to earn profit on sale of lands since the real estate prices were moving up. The AO has clearly brought on record the fact that the lands were not under cultivation. The contention of the appellant that maze was grown and used for self consumption is a made up story. No agricultural income has been shown by the appellant from the agricultural land which he was supposed to do even if the produce was used for self consumption. The AO has clearly brought on record the fact the land was purchased at low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cases where me purchase has been made solely and exclusively with the intention of resale at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying it or using it, the presence of such intention is a relevant factor and unless it is off-set by the presence of other factors, it would raise a strong presumption that the transaction is adventure in the nature of trade. The AO held that the assessee has purchased the lands just few months before the sale at a very low cost from marginal fanners and consolidated into large chunks to sell it 13 to big industrial houses at huge profit. The assessee purchased land but never got it registered in his name. The assessee got the power of attorney from the sellers in the name of one Sh Harish Aggarwal, resident of village Jharmajri, Tehsil Nalagarh, District, Solan. A new buyer was found by the assessee in the same year of purchase and the land was directly registered in the name of the buyer. This has been admitted by me assessee. This shows that the assessee had no intention to have the ownership of the asset but to dispose it off at the earliest. The AO relied on the decision in the case of Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 & 8 (supra). These details clearly show that the intention of the appellant was to earn profit on sale of the land. It is further Interesting to note that the appellant did not get the sale deeds of lands executed in his own name but purchased the land on power of attorney in the name of one Harish Aggarwal and sold that the land by getting the sale deeds executed directly in the name of purchasers through the power of attorney. This action of the appellant clearly shows that he never had intention co hold the land for agricultural purposes but to sell them for earning profit. The entries in the revenue records are nothing but evidence created by the appellant who happens to be a Chartered Accountant. The argument of the counsel that the agricultural lands purchased during the year 2003-2004 were classified as the fixed assets in the books of account as well as in the balance sheet and that these were CLC capital assets and were not meant for trading purposes is devoid of any merit and is rejected. Passing of entries in the books of account or the balance sheet ear-not determine the intention of the appellant since it is the substance which has to govern the field and not the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any basis and treated the surplus, emanating from the sale of lands, as business profit. 9 (ii) It was again reiterated by the appellant that the land is not capital asset, within the meaning of Section 2(14)(iii) of the Act. It was also contended before the CIT(A) that the general tests or guidelines laid down by the Hon'ble Supreme Court, in the case of Sarifabibi Mohmed Ibrahim & others V CIT (supra) are not applicable to the facts of the present case, the facts being different and distinguishable. In that case, the land in question was situated within the municipal limits of Surat and the same was not cultivated for four years prior to sale and also the owners were not bonafide agriculturists. The Hon'ble Apex Court, after considering various decisions, laid down general guidelines and tests, for the purpose of determination of the land as agricultural land or otherwise, depending on the facts of each case. The AO also referred to the decision, in the case of Begumpet Palace (supra) wherein the land in question was situated within the municipal limits of Hyderabad and had buildings enclosed within the combined walls and was not ploughed or tilled. However, the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Nalagrh, but no reference of the same has been made in the assessment order passed by her. The report submitted to the AO had been secured by the assessee under RTI Act. We have already reproduced the said report in the foregoing paragraphs. The said report demolishes the findings of the AO. The assessee referred to the decision of the Madras High Court in the case of M.S.Srinivasa Naicker V ITO (2007) 292 ITR 481, in which the Hon'ble High Court held that character of land, at the time of sale is relevant. Till the date of sale, agricultural operations were carried out, on the lands and lands were registered as agricultural land in the revenue records, it was not relevant that purchaser was going to use the land for non-agricultural purposes. It was stressed that the AO, in the present case over-emphasized on the potential use of the land in question by the purchaser, after its sale. It is the nature and character of the land, on the date of purchase and sale, which is relevant and not the potential use by the purchaser of the said land, for the purpose of determining whether the land is agricultural one or otherwise. The assessee had distinguished all the case laws relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said plot was sold to a non-agriculturist for non agricultural purposes. It is sold to a Cooperative Housing Society for construction of houses and buildings. The said land was sold on per square yard basis at Rs.23/- per sq.yd., on May 30,1969. No agriculture operations had been carried on for the last four years. An application for permission to sell the land to a housing society u/s 63 of Land Revenue Code was made in August, 1968, some 9 months before the actual sale effected in May, 1969 and it was granted on Feb. 24, 1969, about a month prior to the actual sale. Application to convert the land under transaction to non-agricultural user, was not made before the Sale Deed was executed on May 30, 1969. It was subsequently made by the purchaser housing society much later ( but then, permission could have been applied for, if so desired and could have been refused arbitrarily; it is common experience that it is granted almost as a matter of course ). In fact, it is on record that the purchaser society commenced actual construction on June 2, 1969, i.e. within 3 days of the execution of the Sale Deed in its favour by the assessee, in anticipation of the permission. No agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural purposes. The above land has not developed into any plots or roads. The permission for purchase of land is obtained by non-agriculturist purchaser. Land was sold according to the bighas or biswas and not by yards. 12. Having regard to the above facts, it is evident that the decision of Hon'ble Apex Court, in the case of Sarifabibi Mohmed Ibrahim & others V CIT (supra) is not applicable to the facts of the present case, including the tests and guidelines laid down by the Hon'ble Supreme Court, therein. In the present case, the land does not fall under the definition of capital asset, as contained u/s 2(14)(iii) (a) (b) of the Act. The revenue failed to bring on record any material, to rebut the clear contents and contentions of the letter, emanating from the office of Tehsildar, in the matter. The said case law relied upon by the revenue was decided by the Apex Court whereby the land was situated within the municipal limits of Surat. In the present case, land is situated outside the municipal limit. In the case law relied upon by the revenue, plot was sold on per sq.yd. basis whereas, in the present case, land was purchased and sold on bigha basis. In the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces clearly suggests that the land in question is agricultural land and the land does not fall under the definition of capital asset, within the meaning of Section 2(14)(iii) of the Act. It is, further, mentioned that the fact that the land was sold to industrialist for setting up industrial units, is of no legal consequence, in determining the nature and character of the land in question. The land remained agricultural land till it was sold to various parties. The future use by the purchaser is also irrelevant and immaterial for the purpose of determination of true character and nature of the land in question. The Hon'ble High Court of Bombay, in the case of CIT V Smt. Debbie Alemao (2011) 239 CTR (Bom) 2326 held that land, which was shown as agricultural land in the revenue records and never sought to be used for non agricultural purposes by the assessee, till it was sold, has to be treated as agricultural land, even though no agriculture income was shown by the assessee from this land and therefore, no capital gain was taxable on the sale of the said land. Similarly, Hon'ble Gujrat High Court in the case of Sercon Pvt. Ltd. V CIT 136 ITR 881 held that it is well settled law tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above legal and actual discussions, we are of the considered opinion that findings of the CIT(A), based on bare assertions, in the face of documentary evidence, filed by the assessee, to support his claim, as discussed above, cannot be upheld. Accordingly, appeal of the assessee is allowed. 16. As the facts and grounds of appeal raised in ITA No. 228/Chd/2010 are similar to that of raised in ITA No. 227/Chd/2010, findings given in ITA No. 227/Chd/2010 would apply mutatis mutandis to ITA No. 228/Chd/2010. 17. In the result, both appeals of the assessee are allowed." 8. Since the facts in the present year are also identical to the facts in the earlier year, therefore, following the above order, we decide this issue in favour of the assessee. Ground Nos. 5 & 6 9. After hearing both the parties, we find that during the year, assessee was constructing a commercial complex in the name of Home Land City Mall, which was under construction during the year. In the balance sheet, the same was shown as 'building under construction'. Various administrative expenses during the construction stage were shown as pre-operative expenses. It was noticed that a sum of Rs. 490,320/- on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uticorin Alkali Chemicals & Fertilizers Ltd. Vs CIT 227 ITR 172. 11. On appeal, the order of Assessing Officer was confirmed by ld. CIT(Appeals). 12. Before us, ld. counsel for the assessee submitted that matter maybe remitted to the file of Assessing Officer to verify if there was any nexus between interest received and interest expended. 13. On the other hand,, ld. DR, while strongly supporting the order of CI T(Appeals) also submitted that issue is squarely covered against the assessee by the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs CIT (supra). 14. We have heard the rival submissions and do not find any force in the submission of ld. counsel for the assessee as there is no material to show that there was any nexus. In fact, it is a case where interest has been received on FDRs which has been reduced from the pre-operative expenses, which is not permissible in view of the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs CIT (supra). In that case, the Hon'ble Supreme Court made the following observations : "Income-tax is attracted at the point when the income is earned. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable under section 56. In other words, if the capital of a company is fruitfully utilised, instead of being kept idle, the income thus generated will be of a revenue nature and not an accretion to capital. Whether the company raised the capital by issue of shares or debentures or by borrowing, will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be a capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilizing borrowed capital. It is true that the company will have to pay interest on the money borrowed by it. But that cannot be a ground for exemption of interest earned by the company by utilizing the borrowed funds as its income. Any set-off or deduction of any expenditure can only be made in accordance with the provisions of the Act." 15. In view of the above observations, we decide this issue against the assessee. ITA 735/Chd/2013 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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