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TMI Blog2017 (5) TMI 1688X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural land or not is essentially a question of fact. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. We have to answer the question on a consideration of all of them, a process of evaluation 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 to be determined by using the tests or methods laid down by the Courts from time to time. Land in question cannot be considered as stock in trade in the hands of assessee or capital asset liable for taxable capital gains on its transfer. It is nothing but transfer of agricultural land in terms of Sec.2(14)(iii) r.w.s. 10(37) of the Act and transfer of that land cannot lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm by assessee company. 3.2 As per the books of account maintained by the company, out of the agricultural lands and other immovable properties acquired by succession from the erstwhile partnership firm, the company has retained the rural agricultural lands as fixed assets and classified the non-agricultural lands as stock-in-trade. The classification of fixed assets and stock-in-trade are reflected in the audited balance sheet of the company as on 31.3.2009, 31/3/2010 and 31.3.2011. During the year 2010-11, the assessee company has sold 32.37 acres of rural agricultural land at Kittampalayam Village, Sulur Taluk, out of the lands classified as fixed assets in the books of account and claimed exemption us/.2(14)(iii) of the Act, 1961. The rural agricultural land was not a capital asset for the purpose of capital gains tax. The above said agricultural land was transferred against the consideration of ₹ 15,50,00,000/- to M/s. K.P.R. Mills Ltd. and listed as Public Ltd. Company for issue of cumulative non convertible preference shares. The AO made investigation to prove that there was no agricultural operations in the said agricultural lands of 32.37 acres at Kittampalayam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his office records, no agricultural activity was carried out during the year and also no crop like maize was ground by the assessee since 2005-06. He further observed that no land development activity was taken by the assessee company during the year and the assessee company was given an opportunity to cross-examine the VAO. On 11.2.2014, the ld. AR of the company pointed out in the register maintained by the VAO, certain important points / details are not updated like mutation entry and therefore the ld. AR claimed that the register maintained by the VAO cannot be accepted as conclusive evidence since it was not updated regularly. 5.1 The CIT(A) has examined a statement on oath recorded by the AO. The CIT(A) observed that the AO has questioned the VAO regarding the agricultural operations carried on in Survey Nos. 266/2K, 273/3, 273/1, 275 and 276, Kittampalayam Village. The VAO stated in his answer that no agricultural operations were carried out for the above mentioned Survey Nos. for the years from 2006-06 to 2011-12. There is no dispute regarding the fact that the land mentioned in the assessment order was situated beyond 10 kms from Sulur and 30 kms from Coimbatore Municip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other details to substantiate his claim that the lands under question was really agricultural land. Assessee company has not produced any kind of evidence to show that, it had paid Government of Tamilnadu any kind of land revenue on the crops grown during assessment year or prior to that period . When the ld. AR was asked regarding the observation of the AO, it was submitted that no details regarding land revenue receipts were asked for by the AO during the course of assessment proceedings. The assessee submitted the copies of the land revenue paid for the earlier asst. years and also land revenue / kist paid for the agricultural land during the relevant asst. year and subsequent asst. years. Even after the sale of land, there was no land conversion by M/s. K.P.R. Mills Ltd. hence, land revenue was paid in the status of agricultural land. The AO at para 6(iii) of his order observed that, in the present case, there is not a single evidence to show that there was probability of agricultural activities carried out by the assessee. Since, those lands cannot be considered as agricultural land, exemption u/s.2(14)(iii) of the Act cannot be claimed by the assessee company . The AO has co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. The AO has not brought in any instance on record to show that the assessee has developed the lands, made any commercial activity / change the use of land or was involved in real estate activity prior to the sale of this land. 5.4 According to the CIT(Appeals), u/s.2(13) of the Act, business includes adventure or concern in the nature of trade . The expression adventure in the nature of trade has not been defined in the Act but there is a large number of cases decided by various High Courts and the Supreme Court wherein the Courts have opined that, no single universally applicable test can be laid down to determine that a given transaction as an adventure in the nature of trade and that each case has to be decided on its own merits by taking into account several relevant factors. To determine the nature of transaction, the dominant intention of the assessee has to be seen. If the intention is to embark on a venture in the nature of trade as distinguished from a capital investment, it would make no difference even if the transaction is a single or isolated one . There is no necessity of adventure in the nature of trade if the purchase was made with the intention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be considered as adventure in the nature of trade. There is nothing on record to suggest that the assessee has done any act to convert the land for non-agricultural use. Every assessee would like to make profit on a transaction. Mere sale of land on huge profit cannot be a factor to conclude that the intention of the assessee was to carry on adventure in the nature of trade, in other words, the subsequent making of profit cannot be a decisive factor. The assessee also filed a Sale Deed between M/s. K.P.R. Mills Ltd. and M/s. Velavan Distributors (P) Ltd. The rate per acre paid to the assessee company was 50 lakhs per acre and the same amount was also paid to the unrelated party i.e. M/s. Velavan Distributors (P) Ltd. to acquire the land in the adjoining area, during the same period. The assessee also filed another Sale Deed executed on 17.12.2012 between third parties, where the market rate per acre of land (for 90 cents) was sold for a value of 157.50 lakhs. This land is adjoining the land sold by the assessee company in 2010. The sudden increase in value of lands in 2010 was on account of SEZ being formed by M/s. Suzlon Energy Pvt. Ltd. 5.6 The AO in his order stated, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... folio of land as stock-in-trade and as investment portfolio and the sale of investment portfolio is always taxed as capital gains. The ld. AR submitted that no efforts have been done by the assessee to change the nature of land and to improve the quality of the land thereby making it more readily saleable. There is nothing on record to prove that the assessee company has done any act to convert the land for nonagricultural use. The ld. AR further argued that purchase of land and sale thereafter at a profit cannot without anything more be assumed to be an adventure in the nature of trade. The Madras High Court judgment in the case of CIT vs. Katuri Estates (P) Ltd., 62 ITR 578, is squarely applicable to the facts of the assessee s case. 5.10 In the Explanation inserted by the Finance Act, 1989 retrospectively w.e.f. 1.4.1970, it was mentioned that for removal of doubts, it is hereby declared that the revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of land referred to in item (a) or item (b) of sub clause (iii) of clause (14) of this section. Sub Clause (iii) of Section 2(14) was also inserted w.e.f. 1.4.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company. There were no instances of sale of land in bits to prove that the real estate activities were carried on by the company. The land sold by the company was recorded in the books of account as fixed asset. Hence, the AO is not justified in bringing the surplus on the sale of the land as business income. During the course of appellate proceedings, the AO was furnished the submissions of the assessee and was asked to submit a Remand Report vide CIT(A) s letter dated 14.11.2014. The AO in his Remand Report dated 4.12.2014 referred to the decision of the Apex Court in the case of CIT vs. R.Venkataswamy Naidu (9 ITR 529) (SC) and also the decision in the case of Sarifabibi Mohamed Ibrahim vs. CIT (204 ITR 631) as well as the decision of the Gujarat High Court in the case of CIT vs. Siddharth J. Desai (139 ITR 628). 5.15 The CIT(Appeals) observed that the ld. AR in his submissions made on 19.12.2014 submitted that the AO in his assessment order has stated that M/s. K.P.R. Mills Ltd., is a closely held company, but it is a widely held public limited company and the shares of the company are listed in the NSE and Bombay Stock Exchange. The management of the company is cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gricultural lands. The assessee s gains were profits from sale of specified agricultural land, which does not come within the definition of asset as prescribed u/s.2(14) of the Act. 5.19 Further, the assessee has declared agricultural income from 150 acres of land at ₹ 13.75 lakhs. The AO rejected the claim of agricultural income and treated it as income from other sources as the assessee has not furnished any evidence regarding sales vouchers to claim agricultural income. However, the ld. CIT(A) observed that the AO has proved that the claim of agricultural income in 30 acres of land was to be false and however, there was agricultural income in the remaining land measuring of 120 acres and restricted the same to the tune of ₹ 5 lakhs. Aggrieved, the Revenue is in appeal before us. 6. We have heard both the parties and perused the material on record. It is the contention of the AR that the land was held by the assessee as an agricultural land and it is not falling within 8 KMs from the local limits of any Municipal or Cantonment Board as referred in section 2(14)(iii)(a) of the Income Tax Act and also not falling within the notified area as per provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be led to conclusion that agricultural land was sold as non-agricultural land when the classification of land shown in revenue record as agricultural land. Even temporary stoppage of the agricultural activities due to un-favourable conditions, the land cannot be treated as non-agricultural land. The assessee has shown the agricultural income, when the agricultural operations were carried on the said land. The purpose for which the purchaser used the land cannot be a reason to treat the agricultural land as non agricultural land. The assessee intents to carry on agricultural operations. This agricultural land is situated beyond the municipal limits. The Assessee has not taken any permission from the Government for making plots, as the assessee never had any intention to make the land into plots and carry on real estate business in respect of the land. The assessee has sold land as it is condition. Copies of Sale Deeds of the above said land were brought on record by the assessee before the lower authorities to prove the fact that the land held/sold by the assessee is agricultural land. 6.2. The AR submitted that the sale transaction effected by the assessee in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anization. This is absent in the transaction of sale of land by the assessee. Therefore, although there is profit in the transaction the transaction cannot be characterized as an adventure in the nature of trade. vi) Whether a transaction in respect of an asset is capital or business income being adventure in the nature of trade depends on the facts and circumstances of the case. There are many factors like frequency of transactions, period of holding, intention for resale etc, which determine whether the gain arising of a transaction is in the process of realisation of investment or in the course of business. The mere fact that the person has purchased a land and subsequently sold it, giving rise to a substantial profit cannot change the character of the transaction. It is the general human tendency to earn profit out of capital asset. No one invests to incur a loss. If the market condition suddenly goes up or down, it is always the tendency of a person to take a quick decision so that the realization on the investment is maximum or the loss is minimum. vii) As already mentioned the assessee carried on agricultural operations in the said agriculture land and declared agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed on a balanced consideration of the totality of the circumstances. 6.7. The expression 'agricultural land' is not defined in the Act, and now, whether it is agricultural land or not has to be determined by using the tests or methods laid down by the Courts from time to time. 6.8. 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 to be decided or answered. We reproduce the said 13 tests as follows: (i) Whether the land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue? (ii) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (iii) 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? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not changed in Adangal maintained by the Assessing Officer. Further, even after construction of building during the FY 2011-12, the lands are shown as dry land (Tharisu) as on date. Whereas in Adangal and Patta pass book maintained at the concerned Thasildar office in computer are reflecting the correct ownership and possession, against the VAO Adangal. Furhter, it was noted that the VAO, who has issued the certificate to the assessee is working at Kittampalayam village for the 7 months from the date of statement recorded on 11.2.2014. But the building constructed by the assessee for the new project at S.F No.273/1, 275 276 during 2011-12 is not reflected and recorded till 2013 -14 but mentioned in the revenue records continuously as dry land. It is also stated in Answer to Question No.27 that certificate was issued to the assessee without proper field audit. Further, Answer to Question No.12 it was admitted by VAO that regular procedure was not followed by the previous VAO and ownership name was not changed in the revenue records and certain columns not filled fin the Adangal. On this count, it is to be observed that VAO has not discharged the duty properly. 7.1 Further, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on agricultural activities in the said land, for which was no dispute as the assessee declared income from agricultural operations. Since the intention of the assessee was not to use the agricultural land for non-agricultural purposes, there is no question of taking of any permission for conversion of the land. 8. The A.R submitted that assessee carried on agricultural operations in the land upto this assessment year. The owner intended to use it for agricultural purposes only and the intention of the owner is fulfilled since the agricultural activities generated income. The land was situated in a area wherein lot of agricultural activities are being carried on. No development of the land was done by making plots and providing roads and other facilities. It is wrong to conclude that work has been done aiming to plotting, developing infrastructure because the land development was done in other land. There was no previous sale of the portions of the land for non-agricultural use. The land was sold only as agricultural lands at the time of sale and agricultural operations were continued as on the date of sale. The land was sold on acreage basis only. The land was sold at prevaili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 127 ITR 671 (Guj) referring to the Constitution Bench of the Hon'ble 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 Hon'ble 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. 8.3. The Hon'ble Bombay High Court in the case of CWT vs. H. V. Mungale (1983) 32 CTR (Bom) 301 : (1984) 145 ITR 208 (Bom) held that the Hon'ble 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 consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 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 High Court, the Punjab 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax, Sulur Company Circle Range IV Race Course Road Coimbatore. Ref No, 447/14/A2 dated:27 .01.2014 Sir, Sub: Income Tax assessment in the case of M/s.KPR Developers Ltd., Coimbatore For assessment year 2011-12 calling for information u/s.133(3) of the Income Tax Act, 1961 send -regarding Ref: Your letter No.AA DCK.4094L, dated 21.01.14 With reference to the above, I am furnishing the following details. 1 Chitta, adangal copies for the Survey Nos noted. 2. Distance from karumathampatti Panchayat is 4 KM. 3. Market Value of the Survey Nos noted as on 30.08.2010 is ₹ 20,00,000/-(Rupess Twenty Lakhs) 4, PAN No. ARI PA 2850P. 5. Assessing Officer: Collector, Coimbatore, End: As above. Yours faithfully Sd/- Tahsildar,Sulur Copy submitted to the Revenue Divisional Officer, Coimbatore. 10.1 Contrary to this, there is a certificate dated 29.01.2014 which reads as under:- From To Thiru J. Abihurkahman, B.A., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he land by plotting and providing roads and other facilities and there was no intention also on the part of the assessees herein to put the same for non-agricultural purposes at time of their ownership that land. No such finding has been given by the Department. No material or evidence in support of the fact that the assessees have put the land in use for non-agricultural purposes has been brought on record. At the relevant point of time the land was used for agricultural purposes only and nothing is brought on record to show that the land was put in use for non-agricultural purposes by the assessee. 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 non-agricultural 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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