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TMI Blog2014 (12) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... nversion of the agricultural land for non-agricultural purposes before sale of this property and the assessee has not put the land to any purposes other than agricultural purposes - neither the property nor the surrounding areas were subject to any developmental activities at the relevant point of time of sale of the land as per the evidence brought on record. what was the 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 - when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Pvt. Ltd.(BCPL) Shri V. Anand Prasad, MD of BCPL and other individuals who like assessee were investors in M/s Bhavya Cements Pvt. Ltd. company set up by Shri V. Anand Prasad. He further noted that all these persons had shown the sources of investment in share capital of M/s Bhavya Cements Pvt. Ltd. the sale proceeds of these lands. As noted by AO in the assessment order, on detailed investigation and from the evidences found, AO noted that no agricultural activity was undertaken on the land. The bills and vouchers towards purchase of fertilizers, etc. are only made to create fa ade of agricultural activity when in reality there is no such activity. In this context, AO also relied upon the statements recorded from Sri R. Srinivasa Rao and B. Raghunanda Prasad. On going through the statements, AO noted that except for occasional grazing in monsoon for cattle/vegetables, these lands were neither used nor arable for cultivation. It was observed that except some grass for the cattle in this land, no agricultural activities were performed. AO relying on the decision of Hon ble Supreme Court in case of Sarifabibi 204 ITR 631 and ITAT Hyderabad Bench decision in case of M/s G.K. Propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar argument as advanced before the AO. 5. The learned CIT(A) after considering the submissions of assessee ultimately concluded that the land cannot be considered to be agricultural land by observing as under: 15. Thus, on summation of facts and circumstances both favourable and against the assessee/appellant, as per the above table, it is clear that other than its assertion, the appellant really does not have anything real and substantive to claim that the land was really agricultural. The Hon ble Supreme Court had already stated that the revenue record, though, important is not conclusive evidence. The photographic evidence gathered by the investigation wing may be in the year 2009. But the pictures clearly show that the land was left idle and there is really no attempt to bring it under cultivation in whatsoever manner. More importantly, the purchase and sale deeds also have photographs pasted as part of sale deed. These are contemporaneous. They too do not differ from the picture that the investigation wing took. The environment of the entire chunk of land not only appellant s but the other related investors of Bhavya Cements is identical. Further, the proximity to city ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perused the orders of the revenue authorities as well as other materials on record. On perusal of impugned assessment order as well as other materials on record, it is very much clear that the land, in question, gain from sale of which was subject matter of taxation is situated at Bowrampet Village, Dundigal Mandal, RR Dt. It is also evident from the assessment order that it is contiguous to the land sold by M/s BCPL and others to M/s Varun Constructions. It is also very much clear that while coming to conclusion that the land cannot be treated as agricultural land, AO has heavily relied upon observations made in the assessment order passed in case of M/s BCPL and others in the group. From the aforesaid facts, the picture which emerges is nature of land sold by assessee is similar to the land sold by BCPL and others within the group to M/s Varun Constructions. While dealing identical issue in the appeal filed by the department in case of BCPL and others in ITA No. 1751/Hyd/12 and others (supra), the coordinate bench of this Tribunal after considering the submissions of assessee and keeping in view the factual aspects of the issue and relying upon the other decisions of coordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s paper book) and certificate dt. 04/10/2008 of Town Planning Officer, GHMC (at page 101 of paper book) clearly indicate that Bowrampet village where assessee s land is situated is beyond the limit of GHMC. It is a fact on record, in the original assessment order passed u/s 143(3) of the Act, the AO has examined the nature of transaction by conducting necessary enquiry and after proper application of mind had accepted the claim of the assessee that the asset being sold being agricultural land will not attract capital gain tax. The department has not brought any cogent evidence or material on record to disprove assessee s claim either in respect of agricultural income earned through agricultural operation conducted on the said land or the fact that the land is situated beyond the prescribed limit of the nearest municipality notified by the Central Government. In the aforesaid circumstances, the finding of the CIT(A) remains uncontroverted. Therefore, it has to be held that as the land sold by the assessee is in the nature of agricultural land and is situated beyond the prescribed limit of any municipality notified by the central govt. it cannot come within the definition of capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for conversion of agricultural land into non-agricultural land. Being so, whenever the agricultural land to be treated as non-agricultural land, the same has to be converted in accordance with the provisions of Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes) Act, 2006. If by a Government Notification, the nature and character of land changes from agriculture into non-agriculture then there is no question of conversion of this land for nonagricultural 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. 25. 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 nonagricultural land at the relevant point of time when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (14) (iii) (a) of the Act covers a situation where the subject agricultural land is located within the limits of municipal corporation, 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 looke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anilal Somnath (106 ITR 917) as follows: Under the Income-tax Act of 1961, agricultural lend situated in India was excluded from the definition of capital asset 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 operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the brackets starting with the words 'whether known as' clearly indicates that such expressions are used to denote a municipality only, irrespective of the name by which such 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. 31. 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 (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of not less than 10,000 according to the last preceding Census of which the relevant figures have been published before the first day of the previous year. In other words, the land does not fall in sub-clause (a) 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. 34. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 different, 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 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 sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income. 14. On going through the aforesaid order of the coordinate bench, we find the facts dealt upon by the tribunal is identical to the facts in the present case. Therefore, ratio laid down therein also equally applies to the facts of the present case as the land sold is not only agricultural in nature but is also situated beyond 12 kms from the limit of a municipality notified by the central govt. Hence, land sold by assessee not being a capital asset, the gain derived there from is not taxable at the hands of the assessee. Accordingly, we uphold the order of the CIT(A) by dismissing the ground raised. 10. On going through the facts considered by the coordinate bench in case of ACIT Vs. BCPL and others (supra), we find that the facts involved in the present case are identical to that case. Learned DR has not brought any new facts or ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was contiguous to the land purchased and similarly transacted by Bhavya Constructions Pvt. Ltd., Shri Anand Prasad and other individuals, who all like assessee were the investors in M/s Bhavya Constructions a company set up by Shri V. Anand Prasad. He noticed that all these persons had jointly entered into a development agreement with M/s Amsri Developers for development of their land totaling to 123 acres and 05 guntas. He noted that M/s Amsri Developers has paid refundable security deposit in furtherance of the development agreement. As per the registered document, the entire value of the project was ₹ 720 crores with a sharing ratio of 35% to the land owners on the built up area and undivided land. AO on the basis of statement recorded from V. Anand Prasad, M.D. of Bhavya Constructions Pvt. Ld. and referring to decisions noted in the order held that there is a transfer of capital asset u/s 2(47)(v) of the Act and proceeded to compute short term capital gain at ₹ 21,84,10,621. Being aggrieved of the assessment order so passed assessee preferred appeal before the CIT(A). 15. Before the CIT(A), assessee took a specific plea that there cannot be any transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement is itself in limbo and is being repudiated. 14.0. The basic works in any development project are (a) Clearing of land and survey of land (b) Formation of roads and drainage (c) demarcation of villa plots (d) Application for land usage conversion (e) Preparation of plans and drawings (f) Filing of such drawings for approval of municipal authorities (g) Filing of application for environment clearance since it is a project of more than 100 acres (h) grant of such approvals and (h) construction work. 15.0 Not a single work of the above was done even till 2011 or even to date according to the appellant. This lack of progress and unwillingness of developer led to the appellants and other land owners seeking judicial remedy of cancellation of development agreement so that they would be free of the developer and can proceed to deal with someone else or to deal with the land in whatsoever manner they deem fit. 16.0 The Civil Suit filed in the Court of District Judge, Ranga Reddy in OS No.903/2012 is seen. The relevant extract from the suit are given below: Clause (2) The names of Plaintiffs (appellant and the other 33) were mutated in the revenue records as per pat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as on 28th December, 2013, The website had two distinct classes of projects (a) Ongoing-under which 3 projects were listed and (b) Proposed projects-under which 9 projects were listed with the present project under discussion, being listed at SI.No.8 as AMSRI GLOBAL VILLAGE. The classification by the developer itself as proposed , as distinct from ongoing is significant. 18.0 On further clicking the project on this website, the only description available is - The project is being implemented at Bowrampet, Hyderabad, adjacent to Outer ring road as an integrated township spread over an area of 260 acres. This is proposed as a modern township complete with residential, commercial, retail, entertainment and schooling facilities for the residents. The copies of website pages (2 nos.) are overleaf. The built up area details are mentioned as : - to be announced The approximate SFT price is also given as to be announced . 19.0 The above lends credibility to the stand of appellant that there was no willingness or part-performance on part of the developer during the relevant previous year or even for next 4 years finally leading to collapse of the agreement when a Suit seekin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a suit against the developer seeking cancellation of development agreement. Further, on a perusal of the order passed by the coordinate bench in case of Sri R. Srinivasa Rao in ITA No. 1786/Hyd/12 and others (supra), we find that on considering identical facts and circumstances arising out of same development agreement with M/s Amsri Developers, the coordinate bench has given categorical finding while upholding the order of learned CIT(A) that there is no transfer as envisaged u/s 2(47)(v) since there is no willingness on the part of the developer to undertake the development activity. The observations of the coordinate bench in this regard are extracted hereunder in its entirety for the sake of clarity. 11. We have considered the submissions of the parties and perused the materials on record along with the orders passed by the revenue authorities. We have also carefully applied our mind to the decisions placed before us. It is clear from the assessment order that the AO has computed capital gain in the impugned assessment year solely on the basis of the fact that assessee has entered into the development agreement with the developer 04/05/2007 and handed over possession of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the developer during the previous year relevant to AY under dispute. As rightly held by the ld. CIT(A), handing over possession of the property is not the sole ctriteria but one of the criteria to construe transfer u/s 53A of the T.P. Act. The ITAT Hyderabad Bench in case of Smt. K. Radhika Vs. DCIT (supra) has held as under: 48. We are in considered agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that 'willingness to perform' for the purposes of Section 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Section 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of Section 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it would amount to non-incurring of required cost of acquisition by the developer. In the assessment year under consideration, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in this assessment year had not shown its readiness or having made preparation for the compliance of the agreement. The developer has not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredient that make a person eligible and entitled to make the construction. The act and conduct of the developer in this assessment year shows that it had violated essential terms of the agreement which tend to subvert the relationship established by the development agreement. Being so, it was clear that in the year under consideration, there was no transfer of not only the flats as superstructure but also the proportionate land by the assessee under the joint development agreement. As per clause no. 12.11 and 19.1 of Development Agreement-cum Power of Attorney, time is the essence of the contract and as per clause No.12.11 the said property is to be developed and hand over the possessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a contract of the nature referred to in Section 53A of the Transfer of Property Act and, accordingly, provisions of Section 2(47)(v) cannot be invoked on the facts of this case Chaturbhuj Dwarkadas Kapadia v. CIT's case (supra) undoubtedly lays down a proposition which, more often than not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of Section 53A of the Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue's case is thus devoid of legally sustainable basis. 50. That is clearly an erroneous assumption, and an the provisions of deemed transfer under Section 2(47)(v) could not have been invoked on the facts of the present case and for the assessment year in dispute before us. In the present case, the situation is that the assessee has received only a meager amount' out of total consideration, the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has not taken place in the year under consideration, and it has not commenced even now. In the facts and circumstances of the present case, wherein while the assessee has fulfilled its part of the obligation under the development agreement, the developer has not done anything to discharge the obligations cast on it under the develop agreement, the capital gains cannot be brought to tax in the year under appeal, merely on the basis of signing of the development agreement during this year. We are supported in this behalf by the decision of the Tribunal dated 3rd January, 2014 in the case of Fibars Infratech Pvt. Ltd. (supra), wherein it was held as follows- 59. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under Section 53A of the Transfer of Property Act was not satisfied in this assessment year. Once we come to the conclusion that the transferee's 'willing to perform' the contract is ascertainable in the assessment year, as stipulated by and within the meanings assigned to this expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on the reason that the capital gains could not have been taxed in the in this assessment year in appeal before us. 13. In the light of the foregoing discussion, we set aside the impugned orders of the Revenue authorities and hold that the capital gains on the property in question cannot be brought to tax in the year under appeal, and consequently delete the addition made by the Assessing Officer and sustained by the CIT(A). Assessee s grounds on this issue are allowed. 13. On going through the aforesaid decisions of the coordinate bench, the ratio which emerges is unless there is willingness on the part of the developer to perform his part of the contract, there cannot be a transfer of capital asset as envisaged u/s 2(47)(v) read with section 53A of the TP Act. The ratio laid down as above squarely applies to the facts of the present case as the department has failed to controvert the finding of the learned CIT(A) by bringing material on record to show that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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