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TMI Blog2013 (8) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... 214 of the Act. 3. Briefly the facts are, the assessee is an individual. For the impugned assessment year he filed his return of income on 10.03.2010 declaring the total income of ₹ 5,24,036/-. In the said return of income, the assessee though reported capital gain on sale of land at Shamshabad but at the same time claimed it as exemption under section 1-(37) of the Act by claiming it as agricultural land. Initially, the return was processed under section 143(1) of the Act. However, subsequently the assessee s case was selected for scrutiny assessment. In the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee had purchased ac.2.20 guntas of land in Tondapally village, Shamshabad Mandal, Ranga Reddy District on 15.07.1998 for a sum of ₹ 3,25,000/- from Smt. Najamunnisa. This land was sold by the assessee along with plinth area admeasuring 1224.50 sq. ft. Constructed of RCC rooms and plinth area admeasuring 544 sq. ft. With ACC sheds to M/s. Symed Labs Limited, Hyderabad for a total consideration of ₹ 1,62,50,000/- vide sale deed dated 19.12.2008. The assessee however, had not offered any capital gain to tax by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations had been conducted on the land and the assessee had regularly disclosed agricultural income from the said land. Further, the land had been earmarked as bio-conversation use zone and could not be used of any other purpose other than non-agriculture or for greenery. It was submitted that the land used has been specified in G.O.Ms.No.111, M.A. dated 08.03.1996 and again in G.O.Ms.No. 470, M.A. dated 09.07.2008 under master-plan for Hyderabad Outer Ring Road Growth Corridor and was confirmed as such by the HMDA in its Lr.No.9194/LUC/P5/HMDA/2011 dated 20.12.2011 issued in response to a specific request by the assessee. It was further submitted that the sale deed itself described the land as agricultural land and the land is also categorised as agricultural land in the Land Revenue Records. With regard to the Assessing Officer s conclusion that HADA was a local authority, it was contended by the assessee that though HADA was a local authority but not a Urban Development Authority created for Urbanisation. It was further submitted that section 2 (13)(iii)(a) refers to Municipality, Municipal Corporation, notified area committee, town area committee and town committee. HADA/HMDA ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be conclusive in view of the ratio laid down by the Hon ble Supreme Court in the case of Sarifa Bibi Mohammad Ibrahim Others. 5. But on the contrary, the intention of the purchaser in purchasing the land and the location in a business centre were considered to be relevant factors for deciding the nature and character of the land. The CIT(A) finally concluded that applying the ratio in the case of the assessee, the location of the land being adjacent to the Shamshabad area with a new International Air Port. The intention of the purchaser to purchase the land for investment purpose and the substantial consideration for which it was sold would decide the issue against the assessee. Accordingly, the CIT(A) held that the land in question it was sold by the assessee is not an agricultural land and therefore, is a capital asset subject to capital gain tax. 6. The learned AR submitted before us that the Assessing Officer basically has come to a conclusion that the land sold by the assessee is not agricultural land basically on the ground that it is situated within the area of HADA (now HMDA) which is a local authority coming within the definition of Mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as such, cannot be considered to be agricultural land as per section 2(14)(iii)(b) of the Act. The CIT(A) though does not dispute the fact that the land is recorded as agricultural land in the revenue records and has been specified within the bio conservation zone and further records the fact that the information obtained from purchaser also reveal that no development activity has been carried-on on the land in question. However, the learned CIT(A) has refused to treat the land in question as agricultural land on the following grounds : (i) The Assessee has not produced any evidence to show that agricultural operations were conducted regularly on the said land prior to its sale. (ii) The location of the land adjacent to the International Air Port. (iii) The intention of the purchaser to purchase the land for investment purpose. 10. From the aforesaid discussions of the lower authorities, it becomes clear that so far as the nature and character of the land is agriculture land as recorded in the revenue records, has not been disputed. It is also not disputed that the land in question comes within the bio-conservation zone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts 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 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 Hon ble Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence. 46. The Hon ble Gujarat High Court in the case of Dr. Motibhai D. Patel vs. CIT (1982) 27 CTR (Guj) 238 : (1981) 127 ITR 671 (Guj) referring to the Constitution Bench of the Hon ble Supreme Court had stated that if agric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 50. We may refer to a judgment of the Hon ble Madras High Court in the case of CWT vs. E. Udayakumar (2006) 284 ITR 511 (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 Rani (2004) 186 CTR (P H) 240 : (2004) 270 ITR 40 (P H) and has observed and held as under : 8. It is well settled in the case of CIT vs. 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 non-agricultural purposes or that the vendees had also purchased it for nonagricultural purposes, were totally irrelevant consideration for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn of income filed by the assessee for the past several 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. 52. Further, we are inclined to mention herein that there is no dispute with regard to facts that the assessee has been carrying on agricultural operations on the impugned property and agricultural income was declared by the assessee in her return of income from this land from year to year. Further it is important to mention that mere inclusion of impugned property in the HADA vide GO MS No. 352 (M.A.) dated 30.7.2001 cannot change the character of the property. According to the lower authorities HADA has been constituted as a Special Area Development Authority by the A.P. Government u/s. 3A of the A.P. Urban Areas (Development) Act, 1975 and the lower authorities observed that notification to this effect has been issued by the Mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that can be made in the respective zones are also enlisted. Once an area is shown in a particular zone in the master plan, it cannot be put to a different use (Section 15). For example, in the residential zone, establishment of an industry cannot be permitted. The power to convert land use in a particular zone to a different one, is vested in the Government. Section 49 of the 1975 Act contains a provision, which directs that, if agriculture is being carried on any land within the area covered by master plan, it can be continued without any inhibition, irrespective of the zone in which it is shown. The 2006 Act, on the other hand, is intended to regulate the conversion of an agricultural land for non-agricultural purposes. That Act operates, vis- -vis the lands situated in rural as well as urban areas. It is different matter that the Act in its operation does not reflect the intended purposes. A perusal of the same discloses that, if a stipulated amount is paid, the concerned authority has no option, whatever, except to accord permission. In a way, the Act turned out to be a money generating devise, than the one, to prevent or curb indiscriminate conversion of ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have declared the areas covered by GO MS 352 (MA) dated 30.7.2001 fall under the jurisdiction of HADA which is a statutory body. HADA Board consists of Special Chief Secretary to Government, Transport, Roads and Buildings Department as the Chairman, the Principal Secretary to Government, Municipal Administration and Urban Development Department; the Managing Director of APIIC and the Vice Chairman, HUDA, as members. The Vice Chairman of HUDA is also the Vice Chairman of HADA. The jurisdiction of HADA is 458 sq. km and covers 89 revenue villages from 7 Mandals all falling in Rangareddy District. If by GO cited supra the nature of land covered by this notification 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 this notification and the land owners 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 this notification. 54. It is also an admitted position that mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, the fact that the land in question in the instant case is brought in special zone cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes. 55. 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, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 57. 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 non-agricultural purposes the presumption is that it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land into non-agricultural land. Admittedly, in the present case, the land has not been converted to non-agricultural land under the provisions of A.P. Agricultural Land (Conversion for Non-Agricultural Purposes) Act, 2006. It is also a fact on record as observed by the learned CIT(A) that the purchaser has admitted that the land has not been used for any development activity and the said land comes within the bio-conservation zone which restricts the user of the land only for agricultural or greenary purpose. In these circumstances, the conclusion arrived at by the revenue authorities that the land in question was sold for non-agricultural purposes is without any basis. Furthermore, so far as the Assessing Officer s observation to the effect that HADA is a Municipality as defined in section 2(14)(iii)(a) of the Act, the Co-ordinate Bench held as under : 60. We find force in the argument of the AR that clarifying within the brackets in the section 2(14)(iii)(a) is for the apparent reason that the name of the local body varies based on the nature of the area for which it is constituted and also for the reason that there is a lack of uniformity all over India with refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the members of the Council of States and the members of the Legislative Council of the State registered as electors within the Municipal area; (iv) the Chairpersons of the Committees constituted under clause (5) of article 243S: Provided that the persons referred to in paragraph (i) shall not have the right to vote in the meetings of the Municipality; (b) the manner of election of the Chairperson of a Municipality. Further, it is categorically provided that all the state laws dealing with the municipalities should be consistent with the provisions contained in Part- IXA. 62. 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 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]. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc. Broadly they may be entrusted with the performance of civic duties and functions which would otherwise be Governmental duties and functions. Finally, they must have the power to raise funds for the furtherance of their activities and the fulfilment of their projects by levying taxes, rates, charges, or fees. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority. 64. Thus, it was laid down by the Supreme Court in the case of Union of India vs. R.C. Jain [(AIR) (1981) SC 951] the following five ingredients, which are required to be fulfilled cumulatively before an authority can be said to be a 'local authority', in the light of the definition of 'local authority' as given under section 3(31) of the General Clauses Act, 1897: (1) The authority must have separate legal existence as a corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. As submitted by the AR that the above provisions of the Constitution leave no room for any doubt that 'Municipality' is a constitutional body concerning urban self government; the creation of which is mandatory. The provisions governing the constitution, composition and functioning of municipalities are contained in part IX-A of the Constitution and the relevant laws laid down by the respective state governments, AP Municipalities Act,1965 in the instant case, should be in consistency with such provisions. The term 'Municipality' is defined u/s. 2(22) of AP Municipalities Act,1965 to mean a municipality of such grade as may be declared by the Government, from time to time, by notification in the Andhra Pradesh Gazette on the basis of income and such other criteria as may be prescribed. Thus, in the state of Andhra Pradesh, a municipality has to be mandatorily constituted in terms of s. 3 of AP Municipalities Act,1965, as per the guidelines laid down in the constitution, and has to be so notified by the Government whereas setting up of a Development/ Special Area Authority is not mandatory. A state Government may decide to constitute such Authority for a specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsus for which the relevant figures have been published before the first day of the previous year. The Central Government has been authorised 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 . 67. Further it is very clear that the area comprised in the jurisdiction of HADA was essentially rural in nature, the economy of which was predominantly agriculture b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to be the local authority concerned; the Chairman of the Authority shall be deemed to be the Standing Committee of the Municipal Corporation or the Chairman of the Municipality or the Sarpanch of the Gram Panchayat or President of the Panchayat Samithi or Chairman of the Zilla Parishad as the case may be and the Vice-Chairman of the Authority shall be deemed to be the Executive Authority and the Authority shall strictly exercise the powers transferred to it under sub- section (1) within the area under the territorial jurisdiction of the local authority concerned. 69. As per the above section, only in the event of suspension of any of the powers and functions of a local authority of any area and subsequent delegation thereof to a Special Area Authority, it would be deemed to be such local authority, to the limited extent of performing/exercising the functions/powers so entrusted. In the instant case, the village in which the agricultural land was located was comprised in the area within the jurisdiction of Gram Panchayat of Mankhal village and as such the Special Area Authority, being HADA, shall be deemed to be such Gram Panchayat, to the extent of executio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly elected member, which is against the provisions of Part-IXA of the Constitution of India read with those of AP Municipalities Act. The Hon'ble High Court of Kerala, while dealing with the similar issue, held, in the case of Commissioner of Income-tax v. Murali Lodge 194 ITR 125, as under: But all local authorities cannot be called municipalities. Only those local authorities which have all the trappings of a municipality can be treated as a municipality within the meaning of the section. Therefore, to find a solution to the problematic dispute, we have to give a meaning to the word municipality which stands undefined in the Act. Generally understood, 'municipality' means a legally incorporated or duly authorised association of inhabitants of a limited area for local governmental or other public purposes. (Black's Law Dictionary). The above definition more or less is reflected in the provisions contained in Chapter III of the Kerala Municipalities Act, 1960. The council constituted under section 7 with the assistance of the standing committee of the council, chairman, commissioner, etc., will administer the provisions of the Act. The council ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74. As per the above section, only in the event of suspension of any of the powers and functions of a local authority of any area and subsequent delegation thereof to a Special Area Authority, it would be deemed to be such local authority, to the limited extent of performing/exercising the functions/powers so entrusted. In the instant case, the village in which the agricultural land was located was comprised in the area within the jurisdiction of Gram Panchayat of Mankhal village and as such the Special Area Authority, being HADA, shall be deemed to be such Gram Panchayat, to the extent of execution of the delegated functions, if any. As per Part-IX of the Indian Constitution, Panchayat refers to rural self government, as distinct from municipality, which refers to urban self-government and as such agricultural land located within the jurisdiction of a village panchayat is not covered by the definition of Capital Asset u/s 2(14). 75. It was held in the case of CIT vs. UP Forest Corporation (230 ITR 945) as follows: Under the provisions of section 10(20) of the Income-tax Act, 1961, the income of a local authority which is chargeable under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Held, allowing the appeals, ii) that the assessee was not a local authority within the meaning of section 3(31) of the General Clauses Act. Firstly, the members of the respondent Corporation are not wholly or partly, directly or indirectly, elected by the inhabitants of the area. The second essential attribute, which is lacking in the present case, is that the respondent does not have the functions and duties which are usually entrusted to the municipal bodies such as providing civic amenities to the inhabitants of the locality like health, education, town planning, markets, transportation etc. Finally, and which is more important, the respondent does not have the power to raise funds by levying taxes, rates, charges or fees. In the case of the respondent-Corporation, the Act does not enable it to levy any tax, cess or fee. It is the income from the sale of the forest produce which goes to augment its funds. It has no power under the Act of compulsory exaction such as taxes, fees, rate or charges. Like any commercial organisation it makes profit from sale of forest produce and it has been given the power to raise loans. Whereas municipal or local funds are required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 11186 dated 28.12.1999 clearly clarifies that agricultural land situation in rural areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the 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 subclause (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 Hyderabad Municipality and that also 8 km away from the outer limits of this 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. This is supported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers such agricultural land as it is and where it is basis, and also it is not the transfer of any share in the right in the development of such land through any joint development agreement, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset. 12. The aforesaid decision of the Coordinate Bench was challenged by the department before the Hon ble A.P. High Court. While affirming the decision of the Co-ordinate Bench, the Hon ble Jurisdictional High Court in I.T.T.A. No. 297 of 2013 dated 17.07.2013 has held as under : The learned Tribunal on fact, found that the land in question at the `time of transfer did not lose the character of agricultural one. Further, it was held on fact that the Hyderabad Airport Development Authority (HADA) is not a local body. It was further held that the land in question was not a capital asset as defined under section 2(14)(iii) of the Act. Section 2(14)(iii)(a) and (b) reads as follows : (iii) agricultural land in India not being, land situate (a) In any area, which is comprised within the jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X
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