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TMI Blog2014 (10) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the nature of trade. 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 Assessee The intention of Assessee from the inception was to carry on agricultural operations - Merely because of the fact that the land was sold in a short period of holding, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade or capital gain - The period of holding should not suggest that the activity was an adventure in the nature of trade. The land is not situated within the Qutubullapur municipality, but, the same situated in the Dundigal village and the evidence brought on record suggest that the land is an agricultural land, hence, it is not liable for taxation - the addition made is deleted in all the appeals - No evidence suggests that Dundigal village falls within Qutubullapur Municipality and also this Qutubullap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e development agreement entered with M/s. Raaga constructions vide agreement dated 08.12.2004. Apparently, in course of search operation in the premises of Bhavya Constructions P. Ltd., it was found that assessee along with his wife has entered into development agreement with M/s. Raaga Constructions. According to the said development agreement, assessee was to receive a built-up area of 6457 sq. ft. for transferring the land for development. Assessee received the built-up area (flats) and subsequently sold it in the F.Y. 2006-07 and offered the long term capital gains of ₹ 69,68,373 in AY 2007-08. Assessee had also claimed exemption under section 54F on purchase of house at Kondapur. The A.O. however, did not agree to the claim of assessee that the capital gain had arisen in the A.Y. 2007-08. A.O. relied on the order of the Coordinate Bench of the Tribunal in the case of Dr. Maya Shenoy in ITA.No.266/Hyd/2005 dated 24.10.2008 as also the decision of Authority for Advanced Rulings in the case of Jasbeer Singh Sarkaria reported in 294 ITR 196 wherein it has been held that the liability of capital gains arises in the year of execution of development. Accordingly, it was held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have gone through this issue and I find that the AO while holding that the capital gain arises in the AY 05-06 in respect of the Development Agreement has relied on the decision of the jurisdictional Tribunal in the case of Dr.Maya Shenoy as also the decision of AAR in the case of Jasbeersingh Sarkaria. The AO has also discussed in detail the applicability of section 2( 47)(v). It is not disputed that Assessee along with the wife has given possession of the land for development and in my view the same constitutes transfer within the meaning of section 2(47)(v). This view has also been confirmed by ITAT, Hydeabad A Bench in the case of Shantha Annam (ITA No.885/Hyd/2003. The Hon'ble Mumbai Tribunal in the case of Chaturbhuj Dwarakadas Kapadia Vs CIT (2003) 260 ITR 491 (Bombay) has observed that if the contract indicate passing of or transferring of complete control over the property in favour of the developer then the date of contract would be relevant to decide the year of chargeability. The view held by the ITAT in the case of Dr.Maya Shenoy has been affirmed by the ITAT , Hyderabad in the case of K.Radhika others in ITA No.208 to 211 and 328/Hyd/2011, wherein, it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of present assessment proceedings, Ld. Counsel, without conceding, admitted that the facts of the case are similar to the decision of Hon'ble High Court in the case of Potla Nageswara Rao vs. DCIT (2014) 89 CCH 022 APHC wherein the Hon'ble High Court has upheld levy of capital gain in the year of entering into agreement when the possession was given and the development agreement was executed without any problem. Considering this, we are of the opinion that there is no need to differ from the order of Ld. CIT(A) and accordingly assessee's grounds raised in both appeals on the issue of levy of capital gains in the impugned A.Y. 2005-06 are rejected. 5.1 In A.Y. 2005-06 assessee has raised additional ground as under : The A.O. having brought to tax the capital gains on the basis of development agreement in the A.Y. 2005-06, ought to have allowed the exemption u/s.54 or 54F as applicable on the capital gains so determined. It was submitted that assessee by mistake has raised the ground in A.Y. 2007-08 in ITA.No.1745/Hyd/2013 and 1701/Hyd/2012 on the wrong impression that deduction was allowable in that year and this can also be considered in A.Y. 2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains on the lands sold by assessee along with others to M/s. Varun Constructions. 10. Briefly stated, while computing the taxable income of Assessee for the year under consideration, the A.O. has made the addition of ₹ 6,11,25,000/- on account of sale of land by Assessee, treating the same as in the nature of adventure in nature of trade, after rejecting the claim of Assessee that the gain arising out of the transaction is exempt from tax since the land is agricultural in nature and situated beyond 8 kms from the notified municipality. While coming to such a conclusion, the AO has fully relied on the post-search enquiries and investigation conducted in the case of Bhavya Constructions Pvt Ltd (for short BCPL) for the AY 2007-08 on the ground that Assessee who happens to be Managing Director of Bhavya Constructions Pvt Ltd along with 33 others had also sold their lands in the same area to the same purchaser i.e. M/s Varun Constructions. AO applied the findings in the case of BCPL and treated the transactions of Assessee as adventure in the nature of trade as was held in the case of BCPL for the AY 2007-08. In fact the AO has reproduced the findings of BCPL in the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructions P. Ltd., in ITA.No.1751/Hyd/2012 dated 28.08.2014 wherein the Tribunal has held as under : 13. We have heard the parties and perused the materials on record as well as the orders of Revenue authorities. We have also applied our mind to the decisions placed before us. On going through the order of the learned CIT(A) we do not find any infirmity either with regard to his conclusion in respect of the nature of land sold by Assessee or with regard to the issue as to whether the transaction is to be treated as an adventure in the nature of trade. As can be seen from the facts and materials placed on record, the nature of land at the time of purchase by Assessee from M/s Deccan Properties Ltd. and also at the time of sale to M/s Varun Constructions, remained the same i.e. agricultural not only in Revenue records but also in the pahanis. It is also a fact on record Assessee has shown income from agricultural operations carried on over the said land in the return of income filed for the impugned assessment year as well as the preceding assessment year which has been accepted by AO. In fact the AO has not totally ruled out agricultural operation, though according to him it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is an adventure in the nature of trade, the same is also without merit for the strong and valid reasons recorded by the CIT(A). On a perusal of the assessment order, it appears, that the AO has treated the transaction as an adventure in the nature of trade only to overcome assessee's claim of exemption from capital gain on the ground that the asset sold is not a capital asset within the meaning of section 2(14) of the Act. As rightly observed by the learned CIT(A), the facts clearly indicate that Assessee has held the asset for more than two years and only because of compelling circumstances sold it to M/s Varun Constructions in the year under consideration. Therefore, none of the attributes of an adventure in the nature of trade is present in the transaction. It will be pertinent to mention here that earlier a bench of this Tribunal had an occasion to examine similar nature of dispute arising out of similar nature of transaction relating to sale of agricultural land located in the same area in case of some other assessees, namely, Smt. M. Vijaya and others Vs. DCIT (ITA Nos. 306, 307, 309 311/Hyd/13 order dated 06/06/2014) who also sold their land to M/s Varun constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o non-agricultural purposes and no such permissions were obtained from the concerned authority. In 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 Assessee. It is also not in dispute that there was no activity undertaken by Assessee of developing the land by plotting and providing roads and other facilities and there was no intention also on the part of Assessees herein to put the same for non-agricultural purposes at time of their ownership that land. No such finding has been given by the Department. No material or evidence in support of the fact that Assessees have put the land in use for non- agricultural purposes has been brought on record. The nature of the crop and the person who cultivated the land are duly mentioned in Revenue records shows that at the relevant point of time the land was used for agricultural purposes only and nothing is brought on record to show that the land was put in use for non-agricultural purposes by Assessees. In view of the decision of the Hon'ble High Court in the case of Gopal C. Sharma vs. CIT (209 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 27. 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 definitions of 'capital asset', if such areas are, having regard to the extent of and scope for their urbanization and other relevant considerations, is notified by the Central Government in this behalf. 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 situation 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 i.e. the outer limits of any such municipality or cantonment board etc., still co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 time and nothing had happened till the date of the sale to change that character of the land. The potential non-agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was, therefore, agricultural land. 29. Further the word Capital Asset is defined in Section 2(14) to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard as defined in section 3 of the Cantonments Act, 1924 (2 of 1924); 32. 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 lands 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 arising from the transfer of agricultural land situated in certain areas. For this purpose, the definition of the term capital asset in section 2(14) has been amended so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less than ten thousand persons according to the last preceding census for which the relevant figures have been published before the first day of the previous year. The Central Government has been authorised to notify in the Official Gazette any area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations 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 situation 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 i.e. the outer limits of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, in view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression 'capital asset', the agricultural land situated in rural areas continues to be excluded from that definition. And as in the present case, admittedly, the agricultural land of Assessee is outside the Municipal Limits of Hyderabad Municipality and that also 8 km away from the outer limits of this Municipality, assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case it cannot be considered as an adventure in the nature of trade. The intention of Assessee from the inception was to carry on agricultural operations. Merely because of the fact that the land was sold in a short period of holding, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade or capital gain. The period of holding should not suggest that the activity was an adventure in the nature of trade. 36. In view of our above discussion, in our opinion, the land is not situated within the Qutubullapur municipality, but, the same situated in the Dundigal village and the evidence brought on record suggest that the land is an agricultural land, hence, it is not liable for taxation. Accordingly, the addition made on this count is deleted in all the appeals under consideration. No evidence suggests that Dundigal village falls within Qutubullapur Municipality and also this Qutubullapur Municipality has not notified in the year under section 2(14)(iii) of the I.T. Act and Qutubullapur Municipality abolished and merged with Municipal Corporation of Hyderabad with effect from 16/04/2007. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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