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TMI Blog2018 (11) TMI 1733X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction of purchase and sale of said agricultural land not a isolated single transaction but a systematic repeated transactions are with the motive and view to earn profit on resale. Incentive of exempting the agricultural land from definition of capital asset and consequently from chargeability of income tax is to encourage the cultivation of land and preserve the character of agricultural land to be used for cultivation and agricultural operations. Therefore, the scheme and the object of providing these incentives to keep the income arising from agricultural land exempt from tax is to promote more and more agricultural operations by the agriculturists and the sole object of this incentive is not to tax the agriculturists who is dealing, cultivating and carrying out the agricultural operations on the agricultural land and then in case if the said land is sold the same is excluded from the purview of income tax either on capital gain or agricultural income. Claiming the said exemption by business person merely because he has purchased the land and then sold it would be defeating the very purpose of the incentive which is only for the genuine cultivator of the land. Hence, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee claimed that the lands sold during the year does not fall in the ambit of capital asset as per Section 2(14) of the Income Tax Act, 1961 (in short the Act) and therefore, surplus of ₹ 1,94,72,000/- generated from the transfer of the land is exempt from income tax. The Assessing Officer did not accept this contention of the assessee and noted that the assessee has purchased these lands in his own names and individual capacity and thereafter sold the same to the company i.e. M/s Grass Field Fire Capital Developers Pvt. Ltd. and M/s Grass Field Fire Land Developers Pvt. Ltd. by executing separate sale deeds. Since there are series of transactions of purchases as well as sales, therefore, the Assessing Officer treated the activity of purchase and sale of land by the assessee as business of the real estate, accordingly, the surplus earned by the assessee from the sale of the land was treated by the Assessing Officer as business income and assessed to tax. Hence, the Assessing Officer has made an addition of ₹ 2,22,38,555/- as profit earned from the business activity of purchase and sale of land. 3. The assessee challenged the action of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that when the assessee has claimed the income as exempt then the onus is on the assessee to prove that the activity carried out by the assessee is not business activity. In support of his contention, he has relied upon the decision of the Hon'ble Supreme Court in the case of Khan Bahadur Ahmed Alladin Sons Vs. Commissioner of Income-tax 68 ITR 573 and submitted that when the activity of purchase and sale is well planned and under calculated scheme of profit making with the intention to exploit the properties then the transaction constitute an adventure in the nature of trade and any surplus got by sale of the property is liable to tax as business income. He has also relied upon the decision of Pune Benches of the Tribunal in the case of Dilip Battu Karanjule Vs ITO 161 ITD 172 (Pune Trib) as well as decision of Mumbai Benches of the Tribunal dated 18/7/2012 in the case of ITO Vs. Ratanshi Mulji Patel in ITA No. 5499/Mum/2011. The ld. DR has relied upon the decision of the Hon ble M.P. High Court in the case of Bhagirath Prasad Bilgaiya Vs CIT 139 ITR 916 (MP) and the decision of the Hon ble Gujarat High Court in the case of Hemachand Hirachand Shah Vs CIT 206 ITR 55 (G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not get the benefits of Section 2(14)(iii) of the Act. He has supported the order of the Assessing Officer. 6. On the other hand, the ld AR of the assessee has submitted that the lands sold by the assessee during the year under consideration were agricultural land and situated beyond 8 k.m. from the municipal limits and therefore, the same were not capital asset within the meaning of Section 2(14) of the Act. The ld AR has further contended that the assessee sold the lands to the companies against the equity shares allotted and not against the cash consideration, therefore, one capital asset and investment was converted into another investment and hence the activity of purchase and sale is not business activity but it was investment in the capital asset by the assessee. He has further contended that the assessee paid stamp duty at the time of purchase and therefore, it shows the intention of the assessee to purchase the land as an investor as against the trader who generally does not pay the stamp duty but acquired the lands on the basis of the agreement to sell and then the sell the same without payment of stamp duty twice. Therefore, it is an investment in land. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 order dated 29/05/2015. He has further submitted that even otherwise the income arising from sale and transfer of agricultural land is an agricultural income as per Section 2(1A) of the Act. Thus, the ld AR has submitted that the Hon ble Bombay High Court in the case of Manubhai A. Sheth Vs. N.D. Nirgudkar (supra) has held that profit or gain arising from transfer of land used for agricultural purposes is an agricultural income not to be included in the total income. A similar view has been taken by the Hon ble Andhra Pradesh High Court in the case of J.Raghottama Reddy Vs ITO (supra). Thus, the Hon'ble High Courts have held that the capital gains made on sale of lands used for agricultural purposes would be revenue derived from such land and therefore, agricultural income within the meaning of Section 2(1A) of the Act. Consequently, the said income is not liable to income tax. The ld AR has further submitted that the decisions relied upon by the ld DR are distinguishable on facts and not applicable to the facts of the assessee when the assessee has not done any improvement or development of the land before sale. He has further submitted that even the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25/05/2007 ₹ 9,65,790/- Khasra No. 522/4 6. Rajkishore Gothwal 25/05/2007 ₹ 2,86,180/- Khasra No. 365 7. Dinanath/Sitaram Nagar 31/05/2007 ₹ 57,275/- Khasra No. 542 8. Dinanath/Sitaram Nagar 31/05/2007 ₹ 1,93,455/- Khasra No. 553 9. Tej Singh 13/08/2007 ₹ 1,08,040/- Khasra No. 1504 10. Bhagwat 24/10/2007 ₹ 1,40,200/- Khasra No. 1505 11. Rajkishore Gothwal 28/05/2007 ₹ 32,30,025/- Khasra No. 825/1/6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1168151/- Khasra No.504 7. M/s Grass Field Fire Capital Developers Pvt. Ltd. 13/07/2007 ₹ 973459 Khasra No. 446 8. M/s Grass Field Fire Capital Developers Pvt. Ltd. 13/07/2007 ₹ 973459/- Khasra No. 446 9. M/s Grass Field Fire Capital Developers Pvt. Ltd. 13/07/2007 ₹ 614816/- Khasra No. 448 10. M/s Grass Field Fire Capital Developers Pvt. Ltd. 13/07/2007 ₹ 6,14,816/- Khasra No. 448 11. M/s Grass Field Fire Capital Developers Pvt. Ltd. 13/07/2007 ₹ 6,66,250/- Khasra No. 73 12. M/s Gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting as an interface to purchase the lands from the land owners and then converted in nonagricultural use and sold to these companies who are in the business of real estate. The ld AR has relied upon the decision of the Hon'ble Supreme Court in the case of Raja Bahadur Kamakhya Narain Singh Vs CIT (supra) and submitted that when the assessee has received the consideration in the shape of equity shares of these companies then it is a conversion of investment in land into investment in shares and cannot be treated as business activity, however, in our considered view the said decision cannot be applied to the facts of the present case as in the said case, the assessee initially purchased the government securities and on sale of the government securities, the assessee deposited the amount in the bank and the gain arising from the said sale of government securities was assessed by the Assessing Officer as business income. However, the Tribunal reversed the finding by holding the same as sale of capital asset. Subsequently the assessee in the said case purchased shares and debentures out of the sale proceeds of government securities and thereafter those shares were also sold and gol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to non-agriculture at the time of sale to the company. The assessee has contended that conversion charges were paid by the company and not by the assessee, however, it is not relevant once the assessee being the Director of those companies then the payment of conversion charges shown by these companies are also in furtherance of the purpose to be achieved by inflating the cost of acquisition in the hands of the company and maximum gain in the hand of the assessee so as to avoid the tax liability on the entire series of transactions by the assessee as well as by the companies. 7.1 In order to determine the real nature of transaction whether it is adventurous being business transactions or investment, various factors are to be taken into consideration. The intention of the assessee at the time of purchase, treatment of the land in question, holding period, actual use of land, location of land, surrounding circumstances and near future use of land etc. are the relevant criteria for the purpose of determining the nature of transaction. In the case in hand, there is no dispute that the assessee has purchased the lands in question with the intention to sell without holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in such big ticket land purchase without employing any fund of his own and almost immediate re-sale thereof clearly demonstrates the implicit intention of the assessee that the transaction entered was nothing but an 'adventure in the nature of trade' i.e. a business transaction under extended definition of S. 2(13) of the Act. Consequently, profits arising therefrom acquires the character of 'business income' chargeable under S. 28 of the Act. 9. Several judicial precedents were quoted on behalf of the assessee to support his case. As already noted, the issue is essentially factual and thus inference would vary from case to case depending on its own facts. The decision of co-ordinate bench of Tribunal in Anil R. Bihani v. ITO [IT Appeal No. 2502 (PN) of 2012, dated 11-4-2016] relied upon by assessee was rendered in its own set of facts and is clearly distinguishable. There is no reference to any borrowed funds for acquisition of asset in that case. The purchase was thus out of its own resources which fact serves as one of the crucial indicators of the intention read in conjunction with other facts in the present case. Similarly, decisions in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. In the case in hand when the facts clearly revealed the intention and patron of the transaction which is nothing but adventurous in nature then the large number of transactions were entered into within a short period of time shows that it was an organized business activity and there was no intention of the assessee to hold these lands as an investment. It appears that it was predetermined between the parties as the assessee has to play the role of an intermediary in these transactions of purchase and subsequently transferred to the companies and in this process, the assessee has earned a huge profit, which is not possible in the normal transaction of investment in such a short span of time. Therefore, in the totality of the facts and circumstances of the case, we are of the considered view that the transactions are carried out with a clear intention to earn the profit in a short period of time with a preplanned organized manner and activity, which is nothing but nature of business. The Hon ble Gujarat High Court in the case of Hemachand Hirachand Shah Vs CIT(supra) while considering the issue of purchase and sale of land is a business or an adventure in nature of trade or inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusions drawn by the Tribunal on the basis of such material is eminently reasonable and sustainable and it cannot be said that the Tribunal erred in law in arriving at such conclusion. 8. In the aforesaid premises, the question before us would be required to be answered in the affirmative. Accordingly, we hold that the Tribunal was right in law in holding that the assessee was carrying on a business or an adventure in the nature of trade when he purchased and sold certain agricultural lands. Accordingly, in view of the above discussion and following the decisions of Hon ble Gujarat High Court (supra) we set aside the impugned order of the ld. CIT(A) qua this issue and restore the finding of the Assessing Officer. 7.2 On the alternative plea that even if the activity of the assessee considered as business, the income derived from sale of the agricultural land is an agricultural income, we find that before going into the said issue whether the sale of agricultural land results in agricultural income or capital gain not liable to tax U/s 2(14)(iii) of the Act, the expression agricultural land itself has to be taken into consideration. The question wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred to as the Begumpet Palace case). It was an appeal from a Full Bench decision of the Andhra Pradesh High Court. The High Court had taken the view, following a decision of the Madras High Court in T. Sarojini Devi v. T. Sri Krishna AIR 1944 Mad. 401, that the expression 'agricultural land' should be given the widest meaning. It held that the fact that the land is assessed to land revenue as agricultural land under the State Revenue Law is a strong piece of evidence of its character as an agricultural land. On appeal, a Constitution Bench of this Court held that; (a) Inasmuch as agricultural land is exempted from the purview of the definition of the expression 'assets', it is 'impossible to adopt so wide a test as would obviously defeat the purpose of the exemption given'. The idea behind exempting the agricultural land is to encourage cultivation of land and the agricultural operations. In other words this exemption had to be necessarily given a more restricted meaning than the very wide ambit given to it by the Full Bench of the Andhra Pradesh High Court , (b) What is really required to be shown is the connection with an agricultural pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee with the Housing Society is the crucial circumstance since it showed that the assessee agreed to sell the land to Housing Society admittedly for utilisation for non-agricultural purposes. The sale-deeds were executed four months after the agreement of sale and even if any agricultural operations were carried on within the said span of four months, - the Bench held - it was evidently in the nature of a stop-gap arrangement. On the date the land was sold, the Bench held, the land was no longer agricultural land which is evident from the fact that the assessee had obtained permission even in August 1966 to convert the said land to non-agricultural purposes. The Hon ble Bombay High Court in the case of CIT Vs. V.A. Trivedi (supra) has laid down the principle for ascertaining the true character and nature of the land that it must be seen whether it has been put to use for agricultural purposes for a reasonable span of time prior to relevant date and further the land was intended to be put to use for agricultural purpose for a reasonable time period in future. If the principles laid down by the Hon'ble Supreme Court as well as the Hon'ble High Court are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) set out hereinbefore. In our opinion, the entering into the agreement to sell the land for housing purposes, the applying and obtaining the permission to sell the land for non-agricultural purposes under section 63 and its sale soon thereafter and the fact that the land was not cultivated for a period of four years prior to its sale coupled with its location, the price at which it was sold do outweigh the circumstances appearing in favour of the appellants' case. The aforesaid facts do establish that the land was not an agricultural land when it was sold. The appellants had no intention to bring it under cultivation at any time after 1965-66 certainly not after they entered into the agreement to sell the same to a Housing Co-operative Society. Though a formal permission under section 65 of the Bombay Land Revenue Code was not obtained by the appellants, yet their intention is clear from the fact of their application for permission to sell it for a non-agricultural purpose under section 63 of the Bombay Tenancy Agricultural Lands Act. We are, therefore, of the opinion that the High Court was right in holding that the said land was not an agricultural land at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon the Division Bench judgment of this Court in the case of CWT v. H.V. Mungale [19841145ITR 208, ratio of judgment of the Division Bench of this Court in the case of Wealth-tax Reference No. 5 of 1964 decided on 4-12-1973 and the judgment of this Court in CIT v. P.C. Joshi and B.C. Joshi [1993] 202 ITR 1017 . The thrust of the argument of the learned counsel for the assessee is that the fact that the land was lying vacant and not used for cultivation for several years was not of any legal consequence. The learned counsel for the assessee submitted that the Court must presume that the vacant land continued to be 'agricultural land' in nature and character once it was shown that the land was assessed to land revenue as an agricultural land. The learned counsel for the assessee relied upon the last two paragraphs from the judgment of Chandurkar, J. as his Lordship then was from H.V. Mungale's case (supra) wherein it was observed that unless the land was allowed to be converted for non-agricultural purpose by the order of Collector under the provisions of the Land Revenue Act, the initial presumption to the effect that the land was agricultural in nature would conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay High Court that the future use of land was non-agricultural purpose and therefore, the same cannot be categorized as agricultural land at the time of sale. This fact of future use of land is not in dispute in the case before us even the assessee not an agriculturist and has no intention to carry out the agricultural operations on the lands in question clearly established the intended future use for non-agricultural purpose. Therefore, in facts and circumstances of the present case and applying the test as laid down by the Hon'ble Supreme Court and the Hon'ble Bombay High Court we have no hesitation to hold that the land in questions does not fall under the exclusion clause (iii) of Section 2(14) of the Act being the agricultural land. Accordingly, the profit earned by the assessee of sale of such land cannot be regarded as exempt income U/s 2(14) or as an agricultural income in terms of definition U/s 2(1A) of the Act. The ld AR of the assessee has given much emphasis on the explanation to Section 2(1A) of the Act and also relied upon the decision of Hon ble Bombay High Court in the case of Manubhai A. Seth Vs N.D. Nirgudkar, Second ITO as well as decision of Hon ble An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1989, Explanation to section 2(1A) is inserted with effect from 1-4-1970 to supersede the view expressed in the order under appeal and several decisions setting out similar ratio. This declaratory amendment having retrospective operation though coming into force during the pendency of this appeal must be given effect to. The said Explanation clearly declares that the revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in section 2(14)( iii)(a) or (b). The upshot of the same is that income derived from sale of such agricultural lands cannot be treated as 'agricultural income'. Thus, the whole basis of the decision has been lost and, therefore, the order under appeal cannot be sustained and deserves to be set aside. 4. Shri Dhruv Mehta pointed out that by an artificial definition introduced into the Act what is agricultural income cannot be treated otherwise. He also sought to explain the scheme of the entries in the different lists of the Constitution in support of his contention. 5. The learned counsel for the appellants pointed out that under article 366( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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