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TMI Blog2015 (12) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... mental activities at the relevant point of time of sale of the land. 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 considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 from Tahsildar stated that the above land are not cultivated for the past 8 years. Consequent to this, the Assessing Officer called for the comments of the assessee on this report. The assessee submitted as under:- 1. As per Main Object and Ancillary /incidental to attainment of main object is to money lending business and not dealing with Agricultural activities. As per Agreement for sale, dated 03.07.2008 with M/s.Rajalakshmi Education Services Pvt Ltd, it was mentioned only as Land and not Agricultural land. Chitta Patta Adangal produced. In pasali , it was mentioned as uzhavu in the column for nature of crop. Purpose of buying Agricultural land was not explained nor reflected in MOA. The assessee admitted Net Agricultural income at ₹ 8,03,730/- for which breakup of Gross receipt, expenditure made with bills/vouchers for sowing, ploughing, seeding, etc., and harvesting the crops cultivated and sold. 2. At the time of purchase, it was mentioned in the sale deed as Land or vacant Land . The assessee's claim of profit on sale of Agricultural land by carrying agricultural activity is contrary to the MOA of the company. 3. The assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contrary to the MOA of the assessee company, there is merit in the AR s contention that as a non-banking financing company, the assessee was entitled to purchase or deal with any property in whichever way it deemed fit for the purpose of making investments and there was no limitation or restriction on the nature of assets that the company could hold as investment which fact becomes clear from the following clauses in the Memorandum of Association of the assessee company: Under objects incidental or ancillary to the attainment of the main objects: 12. To invest and deal with the money of the company not immediately required in such manner and upon such security or without security at all as the company may from time to time think fit Under other objects: 8. To invest the funds of the company in any manner as the company may think fit and/without prejudice to the said generally a. In the purchase of lands and buildings, or any interest therein or on ground rents or where else in the world. 13. To develop and turn to account any land acquired by the company or in which it is interested, and in particular by laying out and preparing the same for building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee was using if or intending to use it for non-agricultural purposes, it is difficult to accept the stand of the Department. Therefore correlating the ratio of the above jurisdictional High Court judgement to the facts of the instant assessee, it was submitted that the intention of the purchaser of the land from the assessee was not really relevant in determining whether the impugned land was agricultural land or capital asset in the hands of the assessee. Further, the Commissioner of Income Tax (Appeals) observed that the instant assessee purchased lands in 2005-06 spread over 64 survey Nos. in Thandalam Village, Sriperumbudur Taluk classified in the revenue records as wet agricultural land as certified by the jurisdictional Tahsildar and VAO extracts which is reproduced at para 7 of the assessment order. The VAO had also certified vide certificate dated 18.11.09 that it was also fit for cultivation. Secondly as seen from the records furnished at the time of appellate hearing that the' said lands were given on lease with specification that the said lands were to be used only for agricultural purpose which it was indeed used for and also the assessee had show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s reasoning for treating the impugned properties as capital assets and its sale of long term capital gains in the foregoing paragraphs which has considerable merit, the four undisputed facts obtained in the case as discussed immediately above as also the ratio off the jurisdictional court cited supra is persuasive enough in treating the impugned properties as agricultural lands and therefore, the profits of its sale as profits derived by the transfer of agricultural lands and not of capital assets as held by the AO. The AO is therefore directed to treat the sale of impugned lands as sale of agricultural lands, exempt from tax and allowed the claim of the assessee. Further, he also treated the agricultural land as lease rent of B8,03,730/- as income from agriculture as against claim of the Assessing Officer as income from other sources. Against this, the Revenue is in appeal before us. 05. The ld. Departmental Representative submitted that Tahsildar reported that lands in question was not used for agricultural purposes for the last eight years i.e from 2005 and filed objection with proof on 21.03.2014. When it is put to the assessee by Assessing Officer he has no response. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n questions were under agricultural operation on the date of sale for the purpose of considering the meaning of capital assets, it matters very little how the subsequent purchaser intended the land in question to the put to use. In the circumstances, there is no reason to accept the plea of the Revenue that the asset in question is a capital asset and attracts levy of capital gains tax, it having shed its character as an agricultural land on the sale effected. In the absence of any contra indication that the assessee was using it or intending to use it for non agricultural purposes, it is difficult to accept of the Department. Further, he submitted that the assessee cannot be denied exemption from capital gains tax once it has been accepted by Revenue authorities that the classification of lands as per the Revenue records was agricultural lands and it satisfies other conditions of Sec.2(14) of the Income Tax Act in this regard. The manner in which adjacent lands are used by the owner therein is not a ground to come to a conclusion that the assessee s land are not agricultural in nature and further Authorised Representative relied on the judgments of jurisdictional High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired was agriculture land as per the evidence brought on record. Thus, the assessee held the agriculture land for more than 3 years. During that period the assessee carried on regular agricultural operations in the land by leasing for agricultural purpose. 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 relevant and proved facts and circumstances. Realization of inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account books of the assessee. Such income was offered to income tax. 7.2 From the above, it is clear that: (a) The assessee purchased agriculture land now under consideration situated beyond 8 km from the 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 through Shri. D. David and the land was used for agriculture operations. (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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts as follows: 1. Whether the land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue? 2. Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? 3. Whether such user of the land was for a long period or whether 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? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r someone or for trade and commerce. It will be seen that the term 'agriculture' receives a wider interpretation both in regard to its operation as well as the result of the same. Nevertheless there is present all throughout the basic idea that there must be at the bottom of its cultivation of the land in the sense of tilling of the land, sowing of the seeds, planting and similar work done on the land itself and this basic conception is essential sine qua non of any operation performed on the land constituting agricultural operation and if the basic operations are there, the rest of the operations found themselves upon the same, but if the basic operations are wanting, the subsequent operations do not acquire the characteristics of agricultural operations. The Constitution Bench of the Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence. 7.9 The Gujarat High Court in the case of Dr. Motibhai D. Patel v. CIT [1981] 127 ITR 671/5 Taxman 147 referring to the Constitution Bench of the Supreme Court had stated that if agricultural operations are being carried on in the land in question at the time when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never be decisive for determination of the issue as to whether the transaction amounted to an adventure in the nature of trade. In other words, the price paid is not decisive to say whether the land is agricultural or not. 7.13 We may refer to a judgment of the Madras High Court in the case of CIT v. E. Udayakumar [2006] 284 ITR 511 where the Madras High Court has referred to the decision of the Punjab Haryana High Court in the case of CIT v. Smt. Savita Rani [2004] 270 ITR 40/[2003] 133 Taxman 712and has observed and held as under : 8. It is well settled in the case of CIT v. Smt. Savita Rani (2004) 186 CTR (P H) 240: (2004) 270 ITR 40(P H), wherein it is held that the land being located in a commercial area or the land having been partially utilised for nonagricultural 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property was subject to any developmental activities at the relevant point of time of sale of the land. 7.15 Recently the Karnataka High Court in the case of CIT v. Madhukumar N. (HUF) [2012] 208 Taxman 394/23 taxmann.com 341held 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 7.18 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 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 show, an intention to trade at the inception. In a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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