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TMI Blog2014 (6) TMI 944X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 153C of the IT Act, the CIT(A) observed that that provision makes it clear that it comes into play in the following situation:- "I. Search is initiated in the case of A and documents/valuables are seized. II. These documents/valuables are found to belong to B." 3.3 The CIT(A) observed that If these twin conditions are satisfied, the AO of A is required to hand over such seized material to the AO of B who is entitled to proceed against B and assess his income as if search had been initiated in the case of B. In this case, the following facts are undisputed:- "I. Search had been initiated in the case of Bhavya Constructions Pvt. Ltd. and the impugned document was seized at its business premise situated at Bhramaramba Theatre. II. The document relates to land transaction between the assessee and Varun Constructions." 3.4 The CIT(A) observed that no member of A.V. Prasad group of cases was a party to the transaction as evidenced by the seized document in question, the AO was correct in concluding that it did not belong to them. Since the assessee was a party to the transaction, he was correct in concluding that it belonged to the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted upon A.V. Prasad Group cases u/s. 132 of the Act. Therefore, provisions of section 153C stand applicable in the case of present assessee to frame the assessment. 7.2 From a plain reading of sections 153A, 153B and 153C, we find that section 153A is procedural section which deals with the mode of assessment. A notice u/s. 153A of the Act can only be issued to such person where a search is initiated u/s. 132 of the Act or books of account or other documents or any assets are requisition u/s. 132A of the Act after 31st day of May, 2003, requiring him to furnish within such period as may be specified in the notice, return of income in respect of each assessment year following within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Thereafter assessment would be framed as per the provisions of section 143 of the Act. Section 153C deals with the situation where the AO is satisfied that any money, bullion, jewellery or other valuable articles or things or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n who has passed the order in the case of the searched person u/s. 153A of the Act is required to record the satisfaction note before completion of assessment u/s. 153A of the Act. The CIT(A) categorically held that/there was recording of satisfaction by the Assessing Officer of searched party and thereafter notice u/s. 153C was issued since the assessee was a party to a transaction as per the evidence seized in the course of search action u/s. 132 of the IT Act in the case of AV Prasad Group cases and the AR is not able to controvert these findings. Being so, it is to be held that invoking of provisions of section 153C in these cases is justified. 8. Another common ground raised in all these appeals is against the action of the CIT(A) in holding that the property represents a capital asset and the gain on transfer of the land is taxable under the head 'short term capital gain' and he ought to have held that the land is agricultural in nature and beyond the notified area and hence not a capital asset. 9. Briefly the facts relating to this ground are that the appellant is an individual who is practising homeopathy and has shown income from profession and has also shown agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them." 10. On appeal, the CIT(A) observed that the AO has treated the sale of land as 'adventure in the nature of trade'. On the perusal of the facts, it is seen that the appellant is not in the business of dealing in land nor is the land her stock-in-trade. She merely invested in the land and sold it later at a profit. Hence, the contention of the AO that it is in the adventure in the nature of trade is not sustainable. 10.1 The CIT(A) noted that the assessee has claimed that the land in question was agricultural land and thereby profit arising out of the sale of land is not taxable as per section 2(14) of the I.T. Act. It is seen that, when the land was purchased, it was agricultural and its cost of acquisition was equivalent to the circle rate applicable for stamp duty purposes for agricultural land. Thus, the market value of the land was ₹ 4 lakh per acre and the consideration paid for the purchase of total land (14.5 acres) was ₹ 63.51 lakh only. But, within one year, the same land was sold at exorbitant rate, i.e. for a total consideration of ₹ 13.77 crore which translates into appreciation of more than 22 times of the purchase value. Thus it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what purposes it was purchased and sold within a year of its holding. The fact of the case brings out an entirely different picture. As observed by the AO, no proof of agricultural activity was given by the assessee. Some vouchers for sale of paddy to a rice mill were produced before the AO. But a mere receipt by itself does not prove that paddy was grown by assessee or was grown on a particular piece of land. Even if it is accepted that the land was put to some agricultural use by the assessee for a short while, it is purely incidental and even then it will not mitigate the fact that the land was sold to a construction company at an exorbitant rate. The agreement with Varun Constructions shows that the assessee along with others, as per clause 9 of the sale agreement, had appointed/nominated Mr. P. Varunodaya as his lawful attorney to do various acts, deeds, things in his name. The contents of clause (9) are as under:- "a. That my Attorney is entitled to sell the "Schedule Property" in full or parts or in the shape of plotted areas and also to construct independent house/row houses/duplex houses/residential apartments/commercial complex or any other constructions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to agreement to sell the land with an option to develop the land and to sell the plotted areas to the vendees. She along with others bestowed an irrecoverable power of attorney for seeking permissions from the statutory bodies for construction and clearances for development of the land. Thus, the agreement of sale brings out the truth that the appellant had not purchased the land with the intention to do agriculture and more so at the time of the sale of the land within one year of the acquisition it was sold for purely commercial purposes. Thus the land ceased to be agricultural in nature and became a 'capital asset' in the hands of the appellant. A litmus test to ascertain the true character and nature of the land is by whether it has been put to use for agricultural purposes for a reasonable span of time prior to the relevant date and, further, whether on the relevant date the land was intended to be put to use for agricultural purposes for reasonable span of time in the future. The fact that the assessee by way of an agreement had agreed to sell the land to a builder (Vaun Construction) is enough evidence to show that it was not intended to be put to use for agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which was sold for a consideration of ₹ 3,02,81,250/-. After deducting the cost of acquisition of land at ₹ 13,96,252/-, she claimed the income of ₹ 2,88,84,998/- as exempt u/s. 2(14) of the IT Act. The main reasons for which the assessee claimed exemption u/s. 2(14) of the Act are:- "- the land sold was beyond 8 kms of any municipality - the said land is classified as agricultural land in revenue records - it was purchased as agricultural land and sold as agricultural land - Agricultural operations were carried out." The Assessing Officer did not accept the claim of the assessee mainly on the following grounds:- "- No evidence and verifiable proof was given by the assessee regarding of irrigation of land/crops grown with reference to season etc. - Land was not used for agricultural purposes. - All round urban development in and around these lands. GHMC was formed on 16/04/2007 by merging 12 municipalities and 8 gram Panchayats with Municipal Corporation of Hyderabad and Qutubullapur Municipality was one amongst them." 13. The Assessing Officer has treated the sale of land as 'adventure in the nature of trade'. On the perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, 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 cesser 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 characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? 9. Whether the land itself was developed by plotting and providing roads and other facilities? 10. Whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution 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 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 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. 18. The Bombay High Court in the case of CWT v. H.V. Mungale, [1984] 145 ITR 208: [1983] 12 Taxman 201 held that the Supreme Court had pointed out that the entries raised only a rebuttable presumption and some evidence would, therefore, have to be led before taxing authorities on the question of intended user of the land under consideration before the presumption could be rebutted. The Court further held that the Supreme Court had clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Punjab and Haryana High Court found that the finding that the land had been used for agricultural purposes was based on cogent and relevant material. The Revenue record supported the claim. Even the records of the IT Department showed that the assessee had declared agricultural income from this land in her returns for the preceding two years. The land being located in commercial area or the land having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners 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. 24. 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 the assessee. It is also an admitted position that the assessee had not applied for conversion of the land in question into non-agricultural purposes and no such permissions were obtained from the concerned authority. In the 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 the assessee. It is also not in dispute that there was no activity undertaken by the assessee of developing the land by plotting and providing roads and other facilities and there was no intention also on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Kms. 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 spelt out the reason as to why the 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." 26. Further the Kolkata Bench of the Tribunal in the case of Dy. CIT v. Arijit Mitra, [2011] 48 SOT 544: 16 taxmann.com 66 (Kol) held as follows:- "7. From the above, it is clear that agricultural land situated in areas lying within a distance not exceeding 8 kms from the local ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses 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 and sold 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 sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority 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 in section 3 of the Cantonments Act, 1924 (2 of 1924);" 31. 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 ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 kms 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. 33. 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 kms 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 situated in areas lying within a distance not exceeding 8 kms 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 Notifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations. Merely because of the fact that th ..... 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