TMI Blog2011 (4) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... e drawn therefrom that on the date of sale, the entire piece of land was agricultural land - Decided in favour of the assessee - IT APPEAL NOS. 1076, 1078 TO 1080 AND 1094 (MDS) OF 2009 - - - Dated:- 26-4-2011 - DR. O.K. NARAYANAN, HARI OM MARATHA, JJ. K.E.B. Rengarajan for the Appellant. S. Sridhar for the Respondent. ORDER Hari Om Maratha, Judicial Member. This is a bunch of five appeals filed by the revenue, for assessment year 2006-07. As the facts and the issues involved in these appeals are entwined and interlinked in such a manner that it would be convenient to dispose of them by a common order for the sake of convenience and brevity. 2. Briefly stated, the common facts leading to these appeals are that one Shri K. Subramania Mudaliar, now deceased, had purchased lands measuring 60 acres and 4.5 cents during the period from 1963 to 1970 and 32 acres and 52 cents between the years 1982 to 2000. The description of this land(s) is as under: In Perumbakkam village Document Number Acres 1741/06 13.95 1742/06 00.25 14.20 Document Number Acres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1744/06 and 1745/06, a layout permission in No. 297/95 dated 8-9-1955 and planning permission in No. 375 dated 8-9-1955 from St. Thomas Mount Panchayat Union and MMDA authorities, were obtained by Late K. Subramania Mudaliar. However, this permission was admittedly never acted upon and entire land was sold as it existed when it was purchased by Late K. Subramania Mudaliar. To come out of the clutches of section 2(14)(ii) of the Act, it was explained as under: "First of all the agricultural lands were purchased by Late K. Subramania Mudaliar over a number of years from 1963 up to the year 2000 even after obtaining the permission in the year 1994, not only in his name but also in the name of his Wife, sons and daughters. Hence there could be inference of investment only. The purchases were made in more than 50 documents from different parties. Though the planning and layout permission was obtained in 1995 by K. Subramania Mudaliar only on a portion of lands at Perumbakkam Village and not in the lands at Arasankalani village neither Mr. K. Subramania Mudaliar or the legal heirs have never implemented nor indulge in any activity. Late K. Subramania Mudaliar did not plot out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Mudaliar nor the Legal Heirs were indulged in real estate activity." 6. The Assessing Officer was not convinced and has considered the sale consideration under section 2(14)(iii) of the Act holding that the lands are 'capital assets' as they fell within 8 kms. of Sholinganallur Town Panchayat and such Panchayats are not 'Panchayat' as has been excluded by the Act and explained by the Hon'ble Madras High Court in its decision rendered in the case of CIT v. P.J. Thomas [1995] 211 ITR 897, on which the assessees have relied. But he did not stop there and further considered these transactions of sale as 'Adventure in the Nature of Trade' so that 'profit' on sale could be taxed as business income. After giving various reasons for and against his proposition to consider this sale relatable to 'Adventure in the Nature of Trade' versus 'investment', he has finally concluded that it was the former and hence, he has taxed the profit under the head 'income from business', instead of capital gains and as against claimed 'NIL' tax as they sold only agricultural land. This action of the Assessing Officer has been challenged before the ld. CIT(A), who has not agreed with the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be treated as a capital asset or not. Section 2(14)(iii) of the Act defines 'capital asset' as under : "Definitions. 2. In this Act, unless the context otherwise requires, . (14) "capital asset" means property, of any kind held by an assessee, whether or not connected with his business or profession, but does not include (iii) agricultural land in India, not being land situate (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, urbanisation of that area and other relevant considerations, specify in this behalf by no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of 'municipality' in his own manner. Even though Sholinganallur Town Panchayat is notified for Urban Agglomeration, it is not a Municipality. This definition will not at all fall in the definition of 'capital asset' given in section 2(14)(iii)(b) of the Act . Admittedly, Perumbakkam and Arasankalani villages are separate Panchayats having population of less than 10,000 as stated above. Admittedly, the lands sold were agricultural lands and these were agricultural lands and doing cultivation was done thereon till the date of sale. A 'Panchayat' is entirely different from a 'Municipality'. Thus, Sholinganallur Town Panchayat cannot come within the purview of Municipality. The population of both the villages is less than 10,000. Both the villages are not notified by Central Government for urbanization which is a condition precedent for doing so. The intention of the legislature is to exclude transaction relating to agricultural land from capital gains, unless it falls within the notified area of 8 kms. of Municipal or Cantonment Boards. The words used 'municipality', 'municipal corporation', 'notified area committee', 'town area committee' and 'town committee' all refer to urban lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i K. Subramania Mudaliar had sought permission to develop this land but without taking any further action in that direction, the character of the land will not change and it will not become Adventure in the Nature of Trade. Even though the approval had been obtained the land to certain purchaser of the land in the year 1994 but it was admittedly abandoned and Late Shri K. Subramania Mudaliar never implemented nor acted upon the same. Even after forming layout, agricultural activities were done and all the lands were mentioned as agriculture lands only. Undisputedly, after layout approval, no plot was sold till the year 2005. It is also not the case of the Assessing Officer that the assessees had sold any such plot. The entire lands were sold as agricultural land only as has been certified by Tehsildar and which was further recognised by the Sub-Registrar for stamp duty value. In our opinion, mere obtaining permission for the layout does not change the character of the lands from agricultural lands. Had the deceased's intention to do business, no prudent businessman after obtaining layout permission will keep the lands without selling for more than 12 years. In our considered opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd, two decisions of Hon'ble Madras High Court, namely, CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578 and CIT v. A. Mohammed Mohideen [1989] 176 ITR 393/42 Taxman 1 (Mad.) are directly applicable. Further, the decisions of Hon'ble Madras High Court in the case of P.J. Thomas (supra) and CIT v. E. Udayakumar [2006] 284 ITR 511 (Mad.), are relevant. In these decisions, it has been held that a subsequent treatment of land sold has no relevance while considering a capital asset. The purpose of the transferor has to be looked into and not that of the purchaser. If the purchaser in this case has purchased the lands for any of the purpose other than agriculture purpose, this would not be relevant to decide the taxability of the sale consideration in question. The Hon'ble Punjab and Haryana High Court in the case of CIT v. Sushila Devi Jain [2003] 259 ITR 671/130 Taxman 120, has held that the properties are not purchased to sell but inherited and hence the transaction was not in the nature of adventure in the nature of trade. Because in this case, all the assessees have inherited this property which was admittedly sold jointly by them, this decision directly applies to the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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