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TMI Blog2015 (6) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 20.10.2014, whereby he confirmed the addition of ₹ 97,20,000 made by the Assessing Officer to the total income of the assessee on account of profit arising from sale of agricultural land treating the same as business income instead of capital gains claimed by the assessee as exempt from tax. 2. The assessee in the present case is an individual. A search and seizure action was conducted in the cases belonging to Venigalla Anand Prasad group on 7.10.2009. During the of the said search, certain documents relating to the assessee were found and seized. Consequently, a notice under S.153C was issued by the Assessing Officer on 19.7.2012 in response to which return of income for the year under consideration was filed by the assessee, declaring total income of ₹ 2,31,276 as originally returned. In the said return, profit arising from sale of land amounting to ₹ 97,20,000 was declared by the assessee as short term capital gains, and the same was claimed to be exempt on the ground that the land sold, being an agricultural land, was not a capital asset under S.2(14) of the Act. During the course f assessment proceedings, the claim of the assessee for this exemption wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y land beyond 8 kms is not a capital asset. It was stated that agricultural land beyond 8 kms is not a capital asset. So the assessee's contention that the land being 8 kms beyond from the municipal limits, as certified by the Municipal Authorities, will bring it outside the purview of being a capital asset, is misplaced. It is important to verify whether the land is agricultural land in the first place. If it is found that the land is agricultural in nature only then will the discussion on distance from the municipal limit will become relevant. (b) The term 'agricultural land' has not been defined in the Act. Therefore, this has been the subject matter o various judicial proceedings and Courts have laid down various parameters, on the basis of which a view can be taken whether a3 land can be characterized has been agricultural in nature or not. (c) In the landmark decision rendered by the Supreme Court of India in the case of Sarifabibi Mohammad Vs. CIT, the Apex Court referred to various tests evolved by the Gujarat High Court in the case of CIT Vs. Sidharth J. Desai (1983) 139 ITR 62. According to those test, some of the important factors which stand against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assume that the land is a fertile land and if we consider a rough yield of Rs.,25,000/- per acre from such fertile land, the yield would not justify the purchase of land at such exorbitant rate if the land is meant to be used for the purpose of agricultural activity. Therefore, the sale of land at ₹ 1.00 crore per acre does not justify its characteristics as an agricultural land. It is also per pertinent to - point out here, even at the cost of repetition that the assessee during the period in which she held the land, has not offered an agricultural income from the said land, thereby clearly showing that the agriculture yield from the land is NIL. It can be seen from the above that the land in question does not qualify being characterized as an agricultural land . Mere mentioning it in the pahani as agricultural land would not come to rescue of the assessee. It is also pointed out that, had the assessee undertaken any agricultural activity in the said land there would have been an element of agricultural income from the land which would have been reflected in her returns of income. However, it is seen from her returns that the assessee has not admitted any amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantiate vis-a-vis the assessment order the additional grounds to be considered for admission under rule 46A. The AO had given adequate opportunities to the appellant during the assessment proceedings and hence the necessity of additional evidence at the appeal stage does not hold water. Aggrieved by the order of the learned CIT(A), assessee has preferred this appeal before the Tribunal . 7. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that by an Agreement of sale with possession-cum-Irrevocable power of attorney , the land in question was transferred by the assessee to M/s. Varun Constructions. There was a similar agreement entered into by other land owners, who were owners of the adjacent lands transferring their lands to M/s. Varun Constructions. The said land owners had also claimed the profit arising from the transfer their land to M/s. Varun Constructions as exempt on the ground that their lands, being agricultural lands, were not capital assets within the meaning of S.2(14). In their cases also, the claim was not allowed by the Assessing Officer and when the matter reached the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bowrampet Village are under cultivation by raising crops of padd cattle feed, maize, jowar etc. Further the pahanis also indicate the crops grown over the said land. When certificate has been issued by govt. authorities certifying cultivation of agricultural produce the AO was not correct in rejecting them without proper evidence. Moreover, certificate dt.04/02/2009 issued by Dy. Collector and Tahsildar Qutubullapur Mandal ( at page 100 of assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned 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. 24. The provisions of Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes) Act, 2006 also prescribed the procedure for conversion of agricultural land into nonagricultural 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 agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion in the instant case is bought by Developer cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes. 26. Recently the Karnataka High Court in the case of CIT vs.Madhukumar N. (HUF) (2012) 78 DTR (Kar) 391 held as follows: 9. An agricultural land in India is not a capital asset but becomes a capital asset if it is the land located under Section 2(14)(iii)(a) (b) of the Act, Section 2(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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w 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. Accordingly, we quash the assessment order qua charging of capital gains on very jurisdiction of the issue is quashed. The cross objection of the assessee is allowed. 28. It was held in the case of CIT vs. Manilal 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 nonagricultural 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette; 30. It is very clear from the above that the gain on sale of an agricultural land would be exigible to tax only when the land transferred is located within the jurisdiction of a municipality. The fact that all the expressions enlisted after the word municipality are placed within 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al land situated in rural areas, i.e., areas outside any municipality or cantonment board having a population of not less than ten thousand and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, will continue to be excluded from the term capital asset . 33. Further it is nobody's case that the property falls within any area which is comprised within the jurisdiction of a municipality or cantonment board or which has a population 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, urbani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the meaning from the above section, we are not able to appreciate that the land falls within the territorial limit of any municipality without notification of Central Government as held by the Karnataka High Court in the case of Madhukumar N. (HUF) (cited supra). 35. From the facts and circumstances of the case, as narrated before us, it is important to note that 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. 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the lands are under cultivation by raising crops i.e. paddy, cattle feed, maize, jowar, vegeteables etc. 37. Further, we make it clear that 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 is and where it is basis, in such circumstances, in ou 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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