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TMI Blog2016 (9) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... red on 01.04.2008 to M/s.OMR Mall Developers Pvt Ltd., and received consideration as follows:- 1,45,295 Sq.ft. Rs.13,68,00,280/- i) Rs. 1,44,00,000/- received as advance. ii) Rs. 4,45,13,280/- received in the form of 5,56,416 shares of Rs. 10 each at premium of Rs. 70 each. iii) Rs. 7,78,87,000/- received as debentures of 77,887 Rs. 1,000/- each 56,503.44 Sq. ft. Rs. 5,31,99,720/-, i) Rs. 56,00,000/- received as advance ii) Rs. 1,73,10,720/- received as 2,16,384/- shares of Rs. 10 each with premium of Rs. 70/-. iii) Rs. 3,02,89,000/- received as 30,289 Debentures of Rs. 1,000/- each. The assessee claimed that the said property was sold, which is an agricultural land and there is no liability of capital gains tax. More so, the assessee originally entered into JDA with M/s.Allied Majestic Promoters on 09.07.2005 and according to the assessee, the transfer took place in the assessment year 2006-07 and not in the assessment year 2009-10. The AO disagreeing with the contention of the AO observed that the transfer took place vide registered sale deed dated 01.04.2008 to M/s.OMR Mall Developers Pvt Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is only the continuation and culmination of the transaction already entered with M/s. Allied Megistic Promotors. This can further be visualized from the following facts:- * The GPAs executed as per the Joint Development Agreement on 09.07.2005 are still in force and in fact they were being used even after the final registration of the lands in the name of M/s.OMR Mall Developers P Ltd. * The advance of Rs. 2 00 00000 June 2005 (by M/s.Allied Megistic Promotors) was shown as the advance paid by M/s.OMR Mall Developers P Ltd. * M/s.OMR Mall Developers P Ltd. is only nominee of Megistic Promotors and has been nominated by M/s.Ailied Megistic Promotors. Further, the ultimate beneficiaries of M/s.Allied Megistic Promotors and M/s.OMR Mall Developers P Ltd are one and the same. * When the developer M/s.Allied Megistic Promotors nominated M/s.OMR Mail Developers P Ltd for the purpose of registration, the assessee has no option but register the lands in the name of the said nominee. Ld.CIT(A) observed that M/s. Allied Megistic Promoters, has never failed to deliver his part ofcontract. Therefore, handing over the possession of the property, based on the Joint Development Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land has changed subsequent to the JDA and at the time of transfer on 01.04.2008, it was non-agricultural land. Further, ld.D.R contended that the sale deed executed on 01.04.2008 mentioned the property as vacant site and not agricultural land. Ld.D.R pointed out that the Developer had not fulfilled his part of the agreement viz. handing over the 27% of the constructed area and hence no consideration could be said to have passed on to the owner as on the date of JDA to invoke the provisions of the section 2(27)(v) of the Act. Ld.D.R submitted that there was no transfer in terms of Section 2(47)(v) of the Act in respect of impugned property, though the registration was done on 01.04.2008 which was in continuation of the Joint Development Agreement (JDA) entered by the assessee on 09.07.2005 with the developer. Ld.D.R relied on the decision of the Tribunal, Hyderabad Bench in the case of Ms.K.Radhika Vs. CIT (2011)(13 Taxmann 92) and Hon'ble Apex Court in the case of Sardar Govindrao Mahadik Vs. Devi Sahal (AIR 1982-SC-989) and argued in support of the order of ld. Assessing Officer. 5. On the other hand, ld.A.R submitted that the transfer was 'actually' took place when the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27% of the constructed area, transferred 73% of the land to the builder and handed over the physical possession. Therefore, it is an exchange of property between the parties. In other words, the assessees exchanged 73% of the landed area for 27% of the constructed area. According to A.R, there is a transfer within the meaning of Section 2(47) (i) of the Act on the date on which the agreement dated 09.07.2005 was executed. Even otherwise, the joint venture agreement has the effect of transferring 73% of the landed area to the builder. The assessee cannot take back 73% landed area on which the builder has commenced construction. At the best, the assessees would get only 27% of the constructed area and 27% landed area proportionate to the constructed area. He contended that the transaction between the assessees and the builder is by way of arrangement or agreement which has the effect of transferring the landed property for enjoyment of the builder. In other words, the assessees transferred 73% of the land area to the builder for its enjoyment. He stated that there was a transfer on 09.07.2005 within the meaning of Section 2(47)(i) and 2(47)(vi) of the Act. Therefore, the relevant tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (Rupees Sixty Lakhs only) on signing this agreement. - b) Rs. 60,00,000/- (Rupees Sixty Lakhs only) on the plans being approved. 3. The Developer further agrees that out of the 73% builtup area retained by the Developer, the Developer have agreed to share equally with the Owners the sale proceeds over and above at Rs. 2,350/- per sq.ft. That is, if for example, the Developer sells out of their 73% builtup plint area to any prospective buyer at the rate of Rs. 2500/- per sq.ft. then the Developer shall share (2500-2350= 150/2) Rs. 75/- per sq.ft. 4. The owners agree to execute and register necessary Power of Attorney Jointly in favour of the Nominee of the Developer and the Nominee of the Owner for selling 73% of the Undivided share of the land. morefully described in the Schedule A hereunder to the Nominees of the Developer and a separate Power of Attorney in favour of the Nominee of the Developer for applying and obtaining Building sanction plan, Service connection etc., The Owners have this day handed over possession of the entire agricultural lands, subject matter of this agreement. 5. The Developer shall for the purpose of Development immediately be at liberty at its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d building or in any other manner deemed fit by the developer, Subject only to the condition that the developer shall construct and deliver to the owner the 27% share in the built up area. The allotment of exact spaces for the developer and the owners would be mutually agreed upon after the approved drawings are obtained from the concerned authority. 15. The Developer shall be entitled to apply to the authorities concerned for the necessary approvals, sanctions and permits in respect of plans for construction of any building whether storey3ed or otherwise, on the said property. 20. The Developer shall be entitled to correspond with and receive any correspondence or other intimation from the authorities concerned regarding the plans, sanctions, approvals or permits for construction of any building on the said property or for the provision of any amenities or facilities thereto. 21. The Developer shall be entitled to pay such fees, charges or levies and to furnish securities/ in money or otherwise as and when required by the authorities concerned for any demolition or construction activity to be carried out on the said property or for the provision of amenities or facilities th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Owner's Association to be formed after the completion of construction. As per above, the possession is given by the assessee vide this JDA dated 09.07.2005 and also authorized the developer to get necessary approvals for the purpose of construction. The assessee also received substantial amount of Rs. 120 lakhs as refundable deposit. The time is essence of the contract within 30 days from the date of giving vacant position of the property. The Developer has to get the permission for construction of the property. After getting permission for construction in the said property, the developer has to complete the construction within 36 months handed over the assessee's share of the constructed portion of building to the assessee, otherwise it attracts damages, it shall be two lakhs per month till the delivery of the building. The assessee has also undertaken to register the property at the cost of developer or anly person or nominated of the developer. Therefore, it is obivious that the physical possession of the property as well as management of the property was not in the hands of the assessee. 6.1 We have gone through the provisions of the section 2(47) of the Act which defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Magistic Promoters during the assessment year in respect of Development of agricultural lands at Ekattur Village and handed over the possession of the property. She has also executed a Power of Attorney in favour of the Developers though the deemed sale is complete during the assessment year. As per the para it is exempted as it is an agricultural lands and it is not a capital asset as per the sec.2(24) of the IT Act." 6.2 As seen from the above, there is a fair disclosure by the assessee regarding the sale of the impugned property. In that assessment year i.e.2006-07, it is said to be accepted by the Department that as there was no transfer of capital asset as an agricultural land. It is not the case of the Department that it was subject to any rectification or revision subsequently. Unless the Department disturbed the assessment for assessment year 2006- 07, the Department has precluded from treating the transfer of same land as a transfer in terms of Sec.2(47)(v) of the Act in the assessment year 2009- 10 for whatever reason stated by the AO. In our opinion, merely because an agreement of sale has not been registered, which otherwise in nature of agreement referred in Sec.53A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation and the inference has to be drawn on a cumulative consideration of all the relevant facts. It may be stated here that not all the factors or tests would be present or absent in any case and that in each case one or more of the factors may make appearance and that ultimate decision will have to be reached on a balanced consideration of the totality of the circumstances. The expression 'agricultural land' is not defined in the Act, and now, whether it is agricultural land or not has got to be determined by using the tests or methods laid down by the Courts from time to time. 6.5 The Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim (204 ITR 631) has approved the decision of a Division Bench of the Hon'ble Gujarat High Court in the case of CIT vs. Siddharth J. Desai (1982) 28 CTR (Guj) 148 : (1983) 139 ITR 628 (Guj) and has laid down 13 tests or factors which are required to be considered and upon consideration of which, the question whether the land is an agricultural land or not has got to be decided or answered. We reproduce the said 13 tests as follows: 1. Whether the land was classified in the Revenue records as agricultural and whether it was subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vs. Officer- in-charge (Court of Wards) (105 ITR 138) (SC) wherein the Constitution Bench of the Hon'ble Supreme Court stated that the term 'agriculture' and 'agricultural purpose' was not defined in the Indian IT Act and that we must necessarily fall back upon the general sense in which they have been understood in common parlance. The Hon'ble Supreme Court has observed that the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and raising on the land all products which have some utility either for 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 operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilalSomnath (1977) 106 ITR 917 (Guj), wherein the Division Bench of the Hon'ble Gujarat High Court observed that 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 on the relevant date of sale. 7. We may also refer to the case of Gopal C. Sharma vs. CIT (1994) 116 CTR (Bom) 377 : (1994) 209 ITR 946 (Bom), in which, the case of Smt. Sarifabibi Mohamed Ibrahim &Ors. vs. CIT (supra) was referred to and relied, amongst other cases. In this case, the Division Bench of the Bombay High Court has stated that the profit motive of the assessee selling the land without anything more by itself can 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. 7.1 We may refer to a judgment of the Hon'ble Madras High Court in the case of CWT vs. E. Udayakumar (2006) 284 ITR511 (Mad) where the Hon'ble Madras High Court has referred to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Smt. Savita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the assessee is entitled to claim exemption from the WT Act for the assessment of wealth-tax.That the land in question is adjacent to the hospital is totally irrelevant." 7.2 Adverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It is also an admitted fact that the assessee has not applied for conversion of this agricultural land for non-agricultural purposes 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. 7.3 The State Government also prescribed the procedure 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 provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the decision of the Hon'ble High Court in the case of Gopal C. Sharma vs. CIT (209 ITR 946) (Bom), it is also clear that the profit motive of the assessee in selling the land without anything more by itself can never be decisive to say that the assessee used the land for nonagricultural purposes. We may also refer to a decision of the Hon'ble Supreme Court in the case of N. Srinivasa Rao vs. Special Court (2006) 4 SCC 214 where it was observed that the fact that agricultural land in question is included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of time. Thus, the fact that the land in question 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. 7.5 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 agric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 the assessee is outside the Municipal Limits of Rajarhat Municipality and that also 2.5 KM away from the outer limits of the said Municipality, assessee's land does not come within the purview 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." 7.8 It was held in the case of CIT vs. Manilal Somnath (106ITR 917) as follows: "Under the Income-tax Act of 1961, agricultural lend situate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), 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; 8. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rised to notify in the Official Gazette any area outside the limits of any municipality or cantonment board having a population of not less than ten thousand up to a maximum distance of 8 kilometres from such limits, for the purposes of this provision. Such notification will be issued by the Central Government, having regard to the extent of, and scope for, urbanisation of such area, and, when any such area is notified by the Central Government, agricultural land situated within such area will stand included within the term "capital asset". Agricultural 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". 8.3 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. This is supported by the order of Kolkata Bench of this Tribunal in the case of ArijitMitra (cited supra), Harish V. Milani (supra) and M.S. SrinivasNaicker vs. ITO (292 ITR 481) (Mad). By borrowing 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). 8.5. 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 intentio ..... 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