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TMI Blog2013 (10) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... se, admittedly, the agricultural land of the assessee is outside the Municipal Limits of Hyderabad Municipality and that also 8 km away from the outer limits of this Municipality, assessee's land does not 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the current assessment year, the assessee sold this land for a consideration of Rs. 1,32,32,500. The assessee claimed this transaction is to be the purchase and sale of agricultural land and also stated that from the beginning it had treated the land as a capital asset in its balance sheet. Its intent was to exploit this asset as a capital asset. Accordingly, some agricultural operations were being carried out. The Assessing Officer, on the other hand, disagreed with this contention and held that the assessee had not disclosed any agricultural activity and agricultural income in its return of income. The Assessing Officer was also of the opinion that motive of the assessee behind this transaction was doing business in the real estate, and held that the transaction of purchase and sale of land was a business transaction. Accordingly, by reducing the cost of acquisition from sale consideration, the AO made an addition of Rs. 1,23,48,500 treating the same as agricultural income. 4. On appeal, the CIT(A) confirmed the order of the AO by placing reliance on the judgement of Supreme Court in the case of G. Venkataswami Naidu Co. vs. CIT (35 ITR 594) and Deepak Jyoti Arati Trust vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such infrastructure was allocated to this land. The only explanation is that some agricultural operations were carried out, some produce was there and the sale price of the produce equalled the cost of price of the inputs. Therefore, no agricultural income was shown. It is clear from this explanation that far from standing on any legs of evidence, it does not even provide any details whatsoever. What was the produce, where it was sold, for how much, what was the nature of the inputs, at what cost, etc., all these are unanswered questions. Moreover, the important thing to note is that the inputs of labour, seed, land levelling, water, manure, etc. enter into the operations before the produce is there and sold. It is not clear as what was the source for payment regarding all these inputs. There are no debits in the bank accounts or in the books of account of the assessee pertaining to these expenses. From all these facts, it is clear that the assessee did not make any effort and did not indulge in organized activity or for that matter any activity whatsoever to build the land purchased into a proper agricultural asset which would provide the assessee with an income stream over the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The CIT(A) further held that the transaction was definitely in the nature of business or trade and has been rightly classified by the AO. The CIT(A) relied on the ratio laid down by the Apex court in the case of Saroj Kumar Mazumdar vs. CIT (37 ITR 242) (SC), wherein it has been held that if the transaction is in the assessee's line of business, even a single transaction of dealing in land estates is, an adventure in the nature of trade. Accordingly, he sustained the addition made by the Assessing Officer. Against this, the assessee is in appeal before us. 7. The learned AR submitted that the order of the CIT(A) is erroneous in law as well as on facts of the case. The CIT(A) ought to have accepted the contention of the assessee that the land purchased was agriculture land as the 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 in two transactions as two bits. The land was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l statement for A.Ys. 2004-05, 2005-06 and 2006-07. Further, 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 investor it is income from capital gain. The dominant or even the sole intention to resell is a relevant factor and raises a strong presumption but by itself is not conclusive proof of trading. The intention to resell would, in conjunction with the conduct of the assessee and other circumstances, point to the business character of the transaction. Profit made by sale of capital asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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 on 22.12.2006 which was acquired on 22.8.2003. Thus, the assessee held the agriculture land for about 4 years. According to the AR, during that period the assessee carried on regular agricultural operations in the land. In the light of favourable market conditions the assessee thought it good to sell the asset to realize a good amount. Realization of better price in a booming market cannot be considered as an adventure in trade iii) The expression adventure in the nature of trade occurs in the definition of business under section 2(13) but the expression adventure in the nature of trade has not been defined in the Act. It may be pertinent to mention here that a specific transaction partake the character of business or an adventure in the nature of trade or realization of capital asset or a mere conversion of asset has to be decided depending upon facts of each case. iv) In deciding as to whether a particular transaction is an adventure in the nature of trade, the Assessing Officer must consider all the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he municipal limits. b) The assessee treated the same as fixed asset in their books along with other agriculture land which was already acquired by them in the earlier years. c) The land was identified as agriculture land in the revenue records. d) The assessee carried on routine agriculture operations in the said land. e) The assessee did not carry on any commercial activity with reference to that land such as getting of approval for converting into sites, plotting of the same into sites etc. Thus, the character of the land i.e., agriculture nature was continuing till the same was sold by the assessee company. f) Because of favourable market conditions the assessee sold the land and the same fetched them a good price. 15. Therefore, in the present case there is no dispute that the assessees acquired agricultural land. There is also no dispute that there was agricultural operation in this land before sale of this land by growing paddy and grass which does not require investment. The amount fetched to the assessee used to be enough for meeting the expenditure for agriculture. 16. The Assessing Officer was of the opinion that the amount received on sale of this agricult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her it was of a temporary character or by any of a stopgap arrangement? 4. Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? 5. Whether, the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? 6. Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such lesser and/or alternative user was of a permanent or temporary nature? 7. Whether the land, though entered in Revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes? 8. Whether the land was situated in a developed area? Whether its physical chara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence. 21. The Hon'ble Gujarat High Court in the case of Dr. Motibhai D. Patel vs. CIT (1982) 27 CTR (Guj) 238 : (1981) 127 ITR 671 (Guj) referring to the 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. 22. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40 (P H), wherein it is held that the land being located in a commercial area or the land having been partially utilised for non-agricultural purposes or that the vendees had also purchased it for non- agricultural purposes, were totally irrelevant consideration for 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racter of land changes from agriculture into non-agriculture then there is no question of conversion of this land for non-agricultural purposes by the Revenue authorities concerned. To our understanding nature of land 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. 28. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, notified area committee, town area committee, town committee, or cantonment committee and which has a population of not less than 10,000. 10. Section 2(14)(m)(b) of the Act covers the situation where the subject 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 spel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and any gain from the sale thereof was not to be included in the total income of an assessee tinder the head "capital gains". In order to determine whether a particular land is agricultural land or not one has to first 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... municipality is called. This fact is further substantiated by the provisions contained under clause (b) wherein it has been clearly provided that the authority referred to in clause (a) was only municipality. 34. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 2(14)(iii) of the Act as the land is outside of any municipality including GHMC. Further we have to see whether the land falls in clause (b) of section 2(14)(iii). This section prescribes that any area 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. 37. 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 sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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