9911796707
TMI Blog2013 (10) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... ,690/- as income from business. 5. The learned CIT(A) ought to have seen that the appellant held the agricultural lands as investments and the income derived from the sale of agricultural lands cannot be considered as business income. The learned CIT(A) ought to have considered the fact that the said agricultural land is not a capital asset within the meaning of sec. 2(14) of the I.T. Act. 6. The learned CIT(A) ought to have accepted the plea of the appellant that the amount of Rs. 2,41,02,690 is derived on sale of agricultural lands is exempt from tax. 3. Brief facts of the issue are that the assessee company has filed its return of income for the A.Y. 2006-07 on 6.11.2006 showing loss of Rs. 3,93,288, after claiming exemption for an amount of Rs. 2,42,92,865 shown as agricultural income. During the assessment proceedings, from the profit & loss account filed by the assessee for this assessment year, the AO noticed that it has shown agricultural income at Rs. 2,46,85,865, other income at Rs. 1,45,930 and profit from sale of land at Rs. 43,13,600. From the aggregate of these three amounts at Rs. 2,88,45,395, after claiming deduction for expenses at Rs. 46,08,000, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. CIT (1993) 204 ITR 631, he noted that though said lands of the assessee were classified as agricultural land in the revenue records, the assessee has not filed any evidence of payment of land revenue. It has not furnished any details regarding use of land for agricultural purpose. He further mentioned that in the 'Pahani' copy furnished by the assessee there are no details of crops grown etc. The agricultural income shown at Rs. 2,83,175 is very meagre when compared to the total land area. The assessee has not furnished any details including evidences for the claim of agricultural expenses made at Rs. 93,000. It has not furnished any proof for sale of agricultural produce. In absence of such details and further evidences in that regard, he noted, the claim of the assessee regarding use of such land for agricultural purpose cannot be accepted. Further, referring to the huge amount of Rs. 9,04,021/- claimed towards land development expenses and an amount of Rs. 6,55,000 claimed towards administrative expenses, he noted that, it indicates the main activity of the assessee as 'commercial' rather than agricultural. In this context, he further mentioned that the said land in case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been submitted that the income arising from profit from sale of such lands made during the previous year, is exempt from tax. It is stated that the same cannot be treated as business income in the hands of the assessee. 9. From perusal of assessment records of earlier years, the CIT(A) found that the assessee has filed returns of income for A.Ys. 1998-99, 1999-2000 and 2000-01 on 27.11.2000. In the return filed for Asst. Year 1998-99, the assessee, under fixed assets, has shown land at Rs. 5,41,250 and has shown agricultural income of Rs. 68,500/-. In the said return filed for A.Y. 1999-2000, under fixed assets, value of land and development was shown at Rs. 18,87,050 and agricultural income was shown at Rs. 1,48,000. In the return filed for A.Y. 2000-01, agricultural income was shown at Rs. 2,65,00/- and profit on sale of agricultural land was shown at Rs. 1,16,150/-. Under fixed assets, value of land and development was shown at Rs. 25,28,200/-. As per schedule C, relating to fixed assets filed with the return, additions are shown at Rs. 9,00,000/- and deductions are shown at Rs. 2,58,850/-. The CIT(A) observed that, from this, it shows, the assessee has started disposing of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment. 11. Further, from the documents filed by the assessee, the CIT(A) observed that those lands, though stated to be agricultural lands, are dry lands. Under the circumstance, it cannot be said that it was the objective of the assessee to carry on agricultural activities on such lands. Even though it is stated that such lands have been sold after 5-6 years, it is apt to mention here that the assessee has waited for some time so as to enable him get a much higher price, when the price of the land is increasing year after year. Further as noted above, the assessee has also sold land in an earlier year. 12. As regards, reference by the assessee to the said GO. MS. No. 111 is concerned, the same, in the view of the CIT(A), has no relevance in this case. The assessee submitted that as per the said GO, there is restriction on land use, in respect of lands situated in that locality and surrounding villages. However, it may be noted that as pointed out by the Inspector of Income Tax in his enquiry report dated 30.12.2008, he noticed, boom in real estate activity in that area. The assessee has remained silent with reference to this observation of the Inspector. Further, the Inspecto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on agricultural operation on that land. Lastly, as may be seen, the assessee has submitted that it has got income from sale of Cucumber, Tomato and Red Pumpkin grown on such lands. It is difficult to believe that the assessee has actually purchased such lands at high investment for growing the same. In any case, no evidence has been filed to conclusively prove growing of such crops by the assessee on the said land. Under the circumstance the CIT(A) observed that the claim of the assessee for cultivating the said land itself, cannot be accepted. The CIT(A) observed that, though the said land sold by the assessee at Janwada village, is stated to be agricultural lands, having regard to the circumstances of the case, the fact of engaging in real estate business during the previous year and keeping in mind the sole intention of the assessee of earning profit from sale of those lands, purchased a few years back, the CIT(A) was of the opinion that the transactions of such sales carried on by the assessee on those lands admeasuring 37.09 acres, have to be considered as business transactions. Further, in absence of any reply furnished by the assessee for the reason for selling those lands d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same was purchased in acres and not in square yards. The CIT(A) ought to have taken into consideration the fact that the assessee sold the land measuring 35.29 acres to various software companies. The lands were held by assessee as an asset from the date of purchase till the date of sale and not as stock in trade. The conclusion of the CIT(A) that the intention of the assessee in acquiring the property was for trading is erroneous in the absence of any supporting evidence. The land was sold in acreage and if the assessee had any intention to carryon real estate business in respect of that land it would have obtained permission from the concerned authorities for making the same into plots. The claim of the assessee that the land was agriculture in nature was supported by Revenue Records issued by State Revenue Authorities. The agricultural land was purchased as an asset and the same was supported by the entry in balance sheet submitted by the assessee for earlier years. There was unexpected spurt in the prices of lands in and around twin cities and therefore the assessee sold away the agricultural land for a good price and that itself should not be a ground for the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. According to the AR, even if the assessee is in real estate business, sale of the impugned agricultural land held by the assessee is capital asset and sale of that land cannot be construed as business transaction carried on by the assessee so as to tax the same under the head 'business income'. He submitted that the assessee is not precluded from holding agricultural land as capital asset and sell the same as capital asset. For this purpose, he relied on the order of the Tribunal in the case of M/s. SSPDL Ltd. vs. DCIT, in ITA No. 976/Hyd/2012 dated 5.4.2013 specifically on para 32 which is as under: "32. We have to see the intention of the assessee at the time of acquiring the asset. The intention of he assessee herein is to construct a building for setting up of its corporate office and it was always a fixed asset and not a stock-in-trade. Even if the assessee is in the business of real estate, the property acquired by the assessee for the purpose of setting up of a corporate office cannot be construed as a trading asset. The profit realised by sale of current assets in the line of trading is income from business. On the other hand, if the assessee sells a capital asset as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cres. The same is reflected under the head fixed assets in the Balance Sheet in various financial years. Copies of Sale Deeds of the above said land are brought on record by the assessee to prove the fact that the land held/sold by the assessee is agricultural land. 21. The AR submitted that the sale transaction effected by the assessee in respect of the above agriculture land constituted only sale of agriculture land, and by no stretch of imagination it can be treated as adventure in trade and so as to treat the same as 'business transaction' for the following reasons: i) Purchase and holding of land for a period and subsequent sale thereof itself cannot be an indicator to hold that the intention of the assessee was to carry on business with those assets. The intention cannot be presumed unless supported by evidence. In this case the treatment given by the assessee for this asset in the account books clearly indicate that the intention of the assessee is to hold the same as capital asset to have good returns from the same. ii) The assessee held land for considerable time. The asset acquired was agriculture land as per the evidence brought on record. It was sold in the A.Y. 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention for resale etc, which determine whether the gain arising of a transaction is in the process of realisation of investment or in the course of business. The mere fact that the person has purchased a land and subsequently sold it, giving rise to a substantial profit cannot change the character of the transaction. It is the general human tendency to earn profit out of capital asset. No one invests to incur a loss. If the market condition suddenly goes up or down, it is always the tendency of a person to take a quick decision so that the realization on the investment is maximum or the loss is minimum. vii) As already mentioned the assessee company carried on regular agricultural operations in the said agriculture land. In that process the assessee company itself involved in the primary operation such as ploughing, tilling, sowing, watering etc. The assessee has produced before the lower authorities the documents of purchase, sale bills for agricultural produce and expenditure bills. viii) By selling the above agriculture produce the assessee earned agriculture receipts which were brought into the account books of the assessee. In the process of carrying on the agriculture oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that case. There may be factors both for and against a particular point of view. We have to answer the question on a consideration of all of them, a process of evaluation and the inference has to be drawn on a cumulative consideration of all the relevant facts. It may be stated here that not all the factors or tests would be present or absent in any case and that in each case one or more of the factors may make appearance and that ultimate decision will have to be reached on a balanced consideration of the totality of the circumstances. 26. The expression 'agricultural land' is not defined in the Act, and now, whether it is agricultural land or not has to be determined by using the tests or methods laid down by the Courts from time to time. 27. The Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim (204 ITR 631) has approved the decision of a Division Bench of the Hon'ble Gujarat High Court in the case of CIT vs. Siddharth J. Desai (1982) 28 CTR (Guj) 148 : (1983) 139 ITR 628 (Guj) and has laid down 13 tests or factors which are required to be considered and upon consideration of which, the question whether the land is an agricultural land or not has to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold the land valuing it as a property yielding agricultural produce on the basis of its yield?" 28. In the present case, the assessee's lands were classified as agricultural land in the Revenue Records, the fact of which was also confirmed in the Assessing Officer. As held by the Apex Court, when the land is assessed to the land revenue as agricultural land under State Revenue Law, it is certainly a relevant factor but not conclusive. The land was already classified as agricultural land in the Revenue Records and the assessee carried on agricultural activities in the said land, which was confirmed by the VRO, Janwada. The certificate issued by the VRO, Janwada Village mentioned that the lands in question were used for agricultural activities and also mentioned the details of crops grown on the said lands. The assessee also earned income from agricultural operations since A.Y. 1998-99. From this it is clear that the land was actually used for agricultural purposes at the relevant time. The revenue earned from agricultural operations was reflected in the return of income filed before the Department. In the assessment order it was stated that as per the report of the Inspect of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. But in fact the part of the object which is not taken up is only referred. The other part of the main object "to purchase agricultural land and carry on agricultural activities and sell the agricultural proceeds" which is actually taken up is not referred. The assessment order referred about the buyers and not considered at all the real situation at all and the contents of GO MS No. 111. Non production of evidence for agricultural expenditure which was actually incurred does not make an agricultural land a non-agricultural one. The land development expenditure incurred in a land other than the land that was sold. The evidence for receipt of agricultural income is on record. Simply because income was less "one cannot make an agricultural income as a business income". What has to be seen here is whether the income was received on agricultural activity or not instead of seeing the ratio. Administrative expenditure is inevitable in running a company. Meeting of expenditure which is inevitable will not prove the commercial activities of any assessee. It was submitted by the AR that the contents of the paper advertisement and report of the Inspector were not in the knowledge of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he land is agricultural in character and unless that presumption is rebutted by evidence led by the Revenue, it must be held that the land was agricultural in character at the time when it was sold. The Division Bench of the Hon'ble Gujarat High Court further held that there was nothing on record to show that the presumption rose from the long user of the land for agricultural purpose and also the presumption arising from the entries of the Revenue records are rebutted. 33. The Hon'ble Bombay High Court in the case of CWT vs. H. V. Mungale (1983) 32 CTR (Bom) 301 : (1984) 145 ITR 208 (Bom) held that the Hon'ble Supreme Court had pointed out that the entries raised only a rebuttable presumption and some evidence would, therefore, have to be led before taxing authorities on the question of intended user of the land under consideration before the presumption could be rebutted. The Court further held that the Supreme Court had clearly pointed out that the burden to rebut the presumption would be on the Revenue. The Hon'ble Bombay High Court held that the ratio of the decision of the Supreme Court was that what is to be determined is the character of the land according to the purpose f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng her return of income, she claimed exemption from levy of capital gains under s. 54B of the Act on the ground that the land sold by her was agricultural land and the sale proceeds were invested in the purchase of agricultural land within two years. The AO rejected the claim of the assessee holding that the land sold by the assessee was not agricultural land and this was upheld by the CIT(A). On further appeal, the Tribunal accepted the claim of the assessee holding that the transaction in question duly fulfilled the conditions specified for relief. On further appeal to the High Court, the Punjab & Haryana High Court found that the finding that the land had been used for agricultural purposes was based on cogent and relevant material. The Revenue record supported the claim. Even the records of the IT Department showed that the assessee had declared agricultural income from this land in her returns for the preceding two years. The land being located in commercial area or the land having been partially utilised for non-agricultural purposes or that the vendees had also purchased it for nonagricultural purposes, were totally irrelevant consideration for the purposes of application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmitted position that mere inclusion or proximity of land to any Special zone without any infrastructure development thereupon or without establishing and proving that the land was put into use for non-agricultural purposes by the assessee does not and cannot convert the agricultural land into non-agricultural land. In the instant case, at the relevant point of sale of the land in question, the surrounding area was totally undeveloped and except mere future possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into non-agricultural land at the relevant point of time when the land was sold by the assessee. It is also an admitted position that the assessee had not applied for conversion of the land in question into non-agricultural purposes and no such permissions were obtained from the concerned authority. In the Revenue records, the land is classified as agricultural land and has not been changed from agricultural land to non-agricultural land at the relevant point of time when the land was sold by the assessee. It is also not in dispute that there was no activity undertaken by the assessee of developing the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the municipal limits, to render the land as a "Capital Asset. 11. In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14][iii] of the Act is not attracted. 12. However, though it is contended that it is located within 8 knits,, within the municipal limits of Dasarahalli City Municipal Council in the absence of any notification issued under Clause (b) to section 2(14)(iii) of the Act, it cannot be looked in as a capital asset within the meaning of Section 2(14)(iii)(b) of the Act also and therefore though the Tribunal may not have spelt out the reason as to why the subject land cannot be considered as a 'capital asset' be giving this very reason, we find the conclusion arrived at by the Tribunal is nevertheless the correct conclusion." 41. Further the Kolkata Bench of the Tribunal in the case of DCIT vs. Arijit Mitra (48 SOT 544) (Kol) held as follows: "7. From the above, it is clear that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of such Municipalities or Cantonment Boards are covered by the amended defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here may be cases where land which is admittedly non-agricultural is used temporarily for agricultural purposes. The determination of the question would, therefore, depend on the facts of each case. 'The assessee, Hindu, undivided family, had obtained some land on a partition in 1939. From that time, up to the time of its sale, agricultural operations were carried on in the land. There was no regular road to the land and it was with the aid of a tractor that agricultural operations were being carried on. The land was included within a draft town planning scheme. The assessee got permission of the Collector to sell the land for residential purposes and sold it. On the question whether the land was agricultural land: Held, that what had to be considered is not what the purchaser did with the land or the purchaser was supposed to do with the land, but what was the character of the land at the time when the sale took place. The fact that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purposes for a long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of a commodity or service [(not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area]. [Explanation. - For the purposes of this clause, the expression "local authority" means - (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924); 46. It is also evident from the Memorandum explaining the provisions of Finance Act, 1970, whereby s. 2(14) was amended so as to include the agricultural land located within the jurisdiction of a municipality in the definition of the expression 'Capital Asset'. The relevant portion of the said memorandum is reproduced hereunder: "30. ... The Finance Act, 1970 has, accordingly, amended the relevant provisions of the Income-tax Act so as to bring within the scope of taxation capital gains ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification in the Official Gazette. 48. We have carefully gone through the notification issued by the Central Government u/s. 2(1A)(c) proviso (ii)(B) and 2(14)(3b) vide No. 9447 (F. No. 164/(3)/87/ITA-I) dated 6th January, 1994 as amended by notification No. 11186 dated 28th December, 1999. In the schedule annexed to the notification dated 6.1.1994, Entry No. 17 is relating to Hyderabad wherein mentioned that the areas up to a distance of 8 km from the municipal limits in all directions. In the notification 11186 dated 28.12.1999 there is no entry relating to Hyderabad. It is clear from these notifications that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of Hyderabad Municipality (GHMC) is covered by the amended definitions of 'capital asset'. Central Government in exercise of such powers has issued the above notification, as amended latest by Notification No. 11186 dated 28.12.1999 clearly clarifies that agricultural land situated in rural areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance notified by Central Government from local limits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf 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 the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, 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 su ..... 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