9911796707
TMI Blog2013 (10) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... ot come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. This is supported by the order in the case of M.S. Srinivas Naicker vs. ITO [2007 (1) TMI 149 - MADRAS High Court]. Sale of agricultural land to fall within the head ‘Business Income’ – Held that:- 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments 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 has shown profit of Rs. 2,42,37,395. Further, from the break-up Rs. 2,43,85,865 shown in schedule-I, the AO noticed that a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue 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 the assessee, is located about 6 km from Ocean Park, which is a commercially developed area. 6. In the above context, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 land for the first time during the previous year 1999-2000. Further, in none of the above returns filed, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Inspector has pointed out that the land of the assessee is about 6 Km from Ocean Park which commercially developed area. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 during the previous year, it dearly shows, it was only the business motive on the part of the assessee behind such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 officer to arrive at the conclusion that the assessee made an adventure in trade. All the relevant facts lead to a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. All the land was situated at Janwada village, Shankarpalli Mandal. The land was sold on 7.6.2005 vide 9 Sale Deeds. Till then it was treated as a fixed asset and the AR drew our attention to the copies of financial statement for A.Y. 1997-98 to A.Y. 2005-06. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver had any intention to make the land into plots and carry on real estate business in respect of the land. Thus, the assessee never created an asset as stock in trade but treated it as capital asset (agricultural land). The assessee has sold land admeasuring 35.29 acres. 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 indica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the nature of trade. vi) Whether a transaction in respect of an asset is capital or business income being adventure in the nature of trade depends on the facts and circumstances of the case. There are many factors like frequency of transactions, period of holding, intention 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 docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of trade. The land was sold by the assessees in acreage and not by making plots. 25. Now the question as to whether a land is agricultural land or not is essentially a question of fact. The question has to be answered in each case having regard to the facts and circumstances 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 Guja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale to such non-agriculturists was for non-agricultural or agricultural user? 12. Whether the land was sold on yardage or on acreage basis? 13. Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever 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. 1998-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons were continued as on the date of sale. The land was sold on acreage basis only. The land was sold at prevailing market prices only. GO MS No. 111 prohibits/restricts real estate activity in that area. 30. Part of the assessee's main object is referred as one reason to disallow the claim of the assessee. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution Bench of the Hon'ble Supreme Court had stated that if agricultural operations are being carried on in the land in question at the time when the land is sold and further if the entries in the Revenue records show that the land in question is agricultural land, then, a presumption arises that the 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purposes of application of s. 54B. 9. In the abovesaid case, the assessee an individual sold 15 karnals, 18 marlas of land out of her share in 23 karnals, 17 marlas land during the financial year 1990-91, relevant to the asst. yr. 1991-92, the sale was effected by three registered sale deeds. While filing 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be changed by any State Government notification and the land owners are required to apply to the concerned Revenue authorities for the purpose of conversion of the agricultural land into non-agricultural land and there is no automatic conversion per se by State Government notification. 39. It is also an admitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land is not only located within the distance of 8 kms from the local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires the fulfilment of the condition that the Central Government has issued a notification under this Clause for the purpose of including the area up to 8 kms, from 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find out if it is being put to any use. If it is used for agricultural purposes there is a presumption that it is agricultural land. If it is used for non- agricultural purposes the presumption is that it is non- agricultural land. This presumption arising from actual use can be rebutted by the presence of other factors. There 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We also perused the meaning of the term local authority as referred in section 10(20) of the Act. (20) the income of a local authority which is chargeable under the head "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within such distance, not being more than 8 km from the local limit of any municipality or cantonment board as referred to in sub-clause (a) of section 2(14)(iii) of the Act, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification 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 powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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