TMI Blog2012 (9) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... record does not suggest that the agricultural operation was actually carried on the said land. Though the assessee shown the land as an investment in the Balance Sheet it cannot change the character of land as stock-in-trade. The entry in the books of account is not conclusive to hold that the assessee has not dealt with in land. The facts of case suggest that the assessee with a sole motive of dealing in land acquired the land and sold the same which can be nothing but adventure in the nature of trade and that the land dealt by the assessee is a stock-in-trade. Unable to appreciate this contention of the assessee that AO accepted the income arising out of sale of such land as income from agriculture in earlier year as each assessment year is a separate unit of assessment and principles of res judicata did not apply to the income-tax proceedings - against assessee. - IT APPEAL NO. 287 (HYD.) OF 2011 - - - Dated:- 31-8-2012 - CHANDRA POOJARI, Smt. ASHA VIJAYARAGHAVAN, JJ. ORDER Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order of the CIT ( A ) -III, Hyderabad dated 28.12.2010 for assessment year 2007-08. 2. The griev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultural lands. Such lands purchased by the assessee have neither yielded any substantial agricultural income nor they are fertile lands. The said lands, in fact, were dry lands. Mentioning that, the claim of receipt of agricultural income from alleged lease has not been substantiated by any evidence, he noted that the assessee has purchased such lands with the only intention to sell them at a later date to earn profit. He further noted that such lease of those lands in the case of the assessee was merely a stop gap arrangement, to sell that land at a higher profit margin later. He further mentioned that on a personal visit made by him of that land, he found that there were some real estate activities being carried out in the vicinity of that land. Further referring to sale deeds executed in respect of lands situated at Kompally and quoting the relevant portion from the same at page-9 of the assessment order, he noted that such land sold by the assessee , though claimed as agricultural land, in fact, was not agricultural land, but clearly falls within the meaning of urban land. With these observations he held that the claim of the assessee that such profit earned from sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax. Stating that it was the intention of the assessee at the time of purchase of said lands to earn profit by selling them subsequently and referring to the fact of real estate activity being carried out in the vicinity of the said lands, the Assessing Officer held that the profit from sale of those lands in the case he assessee, has to be taxed treating as business income. Accordingly, he rejected the claim of the assessee for exemption of such profit from tax. After adding the said amount of Rs. 69,00,224 treating the same as income from business, to the returned income of the assessee, he completed the assessment on a total income of Rs. 75,21,624, vide his order dated 31.12.2009 passed u/s. 143(3) of the Act. On further appeal, the CIT(A) confirmed order of the Assessing Officer. Against this the assessee is in appeal before us. 6. The learned AR submitted that the assessee is a Private Limited Company incorporated in 1992. The Memorandum and Articles of Association of the Company are furnished in the Paper Book from Page 132 till the end. The main object of the company is to do and be in Real Estate Business in respect of land or buildings. The objects are specified in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural lands in various years as per statement mentioned supra and that the said agricultural lands are purchased with an intention of investment It has shown agricultural income in the form of lease rentals and that the previous assessments have been completed by accepting the said claim. It had filed Wealth Tax returns for Assessment Year 2003-04 till 2007 -08 and that it has shown the said lands are exempted assets and that the claim was accepted. It had sold some part of these lands and that no capital gains was paid and that the claim was accepted by the department The personal visit of the assessing officer revealed that the buyer who purchased the lands has also carried out agricultural activity. The assessee relied on the ratio of the decision in the case of CIT Vs Tarachand Jain (123 ITR 567) (Patna) wherein it was held that the important factors that should be taken into consideration to determine whether a piece of land can be said to be agricultural or not are whether the land has been assessed to land revenue or not whether the agricultural operations are carried on in the land whether the land is capable of agricultural operations the intention of the owner or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure and characterstic of the lands which have been purchased with the only intention to sell them at a later date with profit margins. Even if the lands are given on lease, the arrangement can be nothing but a stop gap arrangement waiting to sell the same at a profit margin". 10. The AR submitted that, thus on one hand, the AO stated that no agricultural activity whatever was carried out and no income was derived whereas he also stated that lease income was received but not substantial. In any case, Courts have held that if the land is assessed to land revenue and classified as agricultural in revenue records, the land does not cease to be agricultural even if it is left lying as fallow. 11. The AR submitted that the Assessing Officer relied on certain assumptions for reaching his conclusions without any valid material. At page 4(ii): "the lands have not yielded any income whether exempt or not thereby indicating a possible change in their true 'characterstic' from agricultural lands". At page 4 (v): "the transactions of sale after some time out of some part of the land indicate that the assessee 'ventured' to sell the lands at a higher price keeping in view the growing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee's stand. He relied on another decision in the case of CIT v. R Ramaiah (146 ITR 39) (KAR). That decision is not at all applicable to the facts of the assessee's case because the land there was converted into a non-agricultural land. In the case of the assessee, the Tahsildar clearly stated (Page 6 of the PB) that the assessee did not apply for the conversion of the land for non-agricultural purposes. The AR submitted that the lands are assessed to land revenue, they are dry lands, cultivation is being carried on in the vicinity the land was sold on an acreage basis not on the basis of yardage and the land was not converted into plots Adangal registers Tahsildar's certificate and sale deeds prove the above facts. Therefore the income derived is clearly agricultural income. 14. The AR submitted that In the case of Raghottama Reddy v. ITO (169 ITR 174, 184) the Andhra Pradesh High Court held "Accordingly, we hold that the profit or gain resulting from sale of agricultural land is "revenue derived from land", i.e., it is agricultural income within the meaning of clause (1) in Sec 2 of the Act." 15. The AR submitted that the explanation - 1 ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold. 17. The AR submitted that it is very clear from the wide ranging and comprehensive tests laid down by the Gujarat High Court as above that the assessee's case for agricultural income is very well supported. Even in regard to the last factor, it is whether the agriculturists who purchased the land continued to carry on agricultural operations, it is stated by the Tahsildar in his letter that the lands were being used for agricultural purposes by the purchasers till Dec 2009. The Gujarat High Court went on to hold that "at the risk of repetition, we may mention that not all of these factors would be present or absent in any case and that in each case one or more of those factors may make appearance and that the ultimate decision will have to be reached on a balanced consideration of the totality of circumstances". As the assessee passes the test in almost all the above parameters the income is agricultural income only and therefore exempts u/s 10(1) of the IT Act . The schedule of fixed assets shows that the assessee spent far less amounts on agricultural l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision is not at all applicable to the facts because there the issue is not whether the income is from agriculture or from business and the agriculture activity was not in issue. In fact agricultural lands can never be stock-in-trade. Neither the AO nor the CIT (A) could lay hands on a single case where the purchase and sale of agricultural lands were held to be in the nature of business activity. Before deciding whether an activity would amount to an adventure in the nature of trade, courts have held that it is to be seen whether the commodity is normally understood as commercial item. It is submitted that agricultural land is not such a commercial commodity. Businessmen never carry on trade in agricultural lands. Further in order to constitute adventure in the matter of trade, it was held that the assessee must have made some improvements or alterations or conversion into plots to make it tradeable. This has not been done. The dry lands purchased were sold in the same state without any improvement or change what so ever. Having regard to all the above submissions, the AR submitted that the orders of the lower authorities be set aside and the claim of exemption of agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer for substantiating the claim of any agricultural operation, vide letter dated 21.12.2009, the assessee has merely submitted that it has given such lands on lease and has shown lease rentals at Rs. 15,000 as agricultural income. Such amount has been shown consistently from 2003-04 to 2006-07. From such submission of the assessee, it is thus clear that, it was not the intention of the assessee to cultivate such lands purchased by it. Such lands were purchased by it during those years, with the sole motive of earning substantial profit from sale of such lands during succeeding years. Having regard to this objective on part of the assessee, the facts of continuous purchase and sale of such lands carried out during different years and the fact of a series of sale transactions made by the assessee during the previous year, the said profit of Rs. 69,00,224 earned from sale of those lands made during the previous year, has. to be taxed in the hands of the assessee, treating the same as business profit and hence, as income from business. In fact, such transactions of sale of lands made by the assessee during the previous year, having regard to the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is exempt from tax, the assessee has relied on three decisions referred in para 4.2 of the CIT(A) order. However, as would be seen the facts in those cases are totally different from that of the assessee. In CIT v. Borhat Tea Co. Ltd., 7 Taxman 388 (Cal.), the assessee was engaged in business of cultivation, manufacture and sale of tea. In that case during the accounting year relevant to Asst. Year 1969-70, the assessee company sold a part of their agricultural land, under cultivation by them, to a company engaged in tea cultivation in adjoining areas. Under such facts, the Hon'ble Calcutta High Court held that resultant profit from sale of such land was not liable to capital gain tax. In the case of CIT v. Madhabhai H. Patel , 77 Taxman 408 (Guj), the assessee an individual, has sold certain agricultural lands under cultivation till the year 19967-68, personally by him. The said land belongs to his family and he got the same by way of inheritance. Since the said land was agricultural land and the same was under cultivation personally by the assessee, the Hon'ble Gujarat High Court held that the surplus arising from sale of such agricultural land was not liable for capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interested as owners, lessors, lessees, licensors, licencees, architects, builders, interior decorators and designers, as vendors. contractors, property developers, and Real Estate owners and agents whether such land or building or the development thereof be for or in respect of residential or commercial purposes. such as multi-storeyed buildings, complexes, houses, flats, offices, shops, garages, cinemas, theatres, hotels, restaurants, Motels or other structures of whatsoever description including prefabricated and precast houses, buildings, and erections and to enter into contracts, sub-contracts, and arrangements including the raising of finances-from whatsoever sources and giving of loans and advances to give effect and implement the said objects." 25. Thus, the main object clause suggests that the assessee's main business is to deal in real estate. After forming the company, the assessee started buying of land. The assessee has taken a plea before us that it has earned income by leasing these agricultural lands to other parties to carryon agricultural operations and the land was subjected to agricultural operations by other persons. Being so, the income earned by sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our opinion, the land dealt by the assessee is a stock-in-trade. It is carrying on business and making profit by buying and selling the land. The facts of case suggest that the assessee with a sole motive of dealing in land acquired the land and sold the same which can be nothing but adventure in the nature of trade. Further the facts of the case show that the land is situated in surrounding urban areas. Had the intention of the assessee is to carry on agricultural operations; it would not have left the land without cultivation. The assessee before us relied on various judgements of various courts. In our opinion, these judgements were delivered on their own set of facts. Whether a land is agricultural land or not is an essential 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. The court has to answer the question on a cumulative consideration of all of them. The various circumstances appearing for and against the assessee are to be considered. Though, in the present case the land registered as agricultural land in Revenue records, payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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