TMI Blog2013 (8) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... [2007 (1) TMI 149 - MADRAS High Court ] etc. It is important to note that what was the intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land and the relevant improvement/development taken place during this time is relevant for deciding the issue whether transaction was in the nature of trade. Though intention subsequently formed may be taken into account, it is the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade; that intention must be present at the time of purchase. The mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal consideration of ₹ 24,81,60,000. A Photocopy of the sale deed is herewith enclosed. The said lands are situated more than 8 Km from the local limits of any Municipality or Cantonment Board. Mankal village, having less than 10,000 population due to which the agricultural lands in question are outside the definition of the asset within the meaning of sec. 2(14) of the IT Act. The Agricultural lands are actually grape gardens which are assessed to revenue also, as such any gain whether Long term or short term is not gain taxable under the Act. These lands were purchased by the assessee during the A.Y. 2006-07 for a total consideration of ₹ 5,25,61,860 and the same fact had been disclosed in the IT Return filed for the A.Y. 2006-07. The net gain of ₹ 19,55,98,140 is not taxable as such the same is not considered in the computation of income. 4. On verification of facts and records, it was noticed by the Assessing Officer that the assessee, along with his brother Sri Vijayender Tulla, aunt Dr. E. Adilakshmi, and brother-in-law Sri M. Ravindcr, had purchased total area of acres 85.23 guntas agricultural land from Sri B.K. Khosla, his wife Satish Khosla an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch. 6. On 25.10.2005, a lease deed had been entered between all the four owners of freshly purchased land, viz., Dr. E. Adilakshmi, Sri Veerender Tulla, Sri M. Ravinder and Sri Vijayender Tulla, as lessors, with M/s. VVT as lessee, wherein the entire grape orchard admeasuring acres 85 and 22 guntas was given on lease with effect from 25.10.2005 on the following terms: a) Yearly rent for this entire land was fixed at ₹ 12.80 lakhs. Each lessor was to receive following annual lease rent: Dr.E.Adilakshmi - Rs. 3,50,000 M. Ravinder - ₹ 1,50,000 T. Vijayender - ₹ 3,97,500 T. Veerender - ₹ 3,82,500 These payments were exclusive of all taxes and other maintenance of the premises. b) That the lease is commenced from 26.10.2005 for a period of one year. However, lessee shall be entitled to exercise his option by giving 2 months advance written notice to the lessors to continue the lease for a maximum pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 15.9.2006, that is exactly within one year of purchase of the land by assessee, between Sri M. Ravinder, E. Adlakhshmi and Sri T. Vijayender and a private limited company viz., M/s. Prajay Holding Pvt. Ltd., wherein it is mentioned that due to various financial commitments of the party of the first part, the owners have decided to sell the scheduled property. It was also mentioned that the company, being a leading developer in the city and a renowned construction company, anticipating good development opportunity in the said property, have decided to buy the scheduled property from the owners. A second Memorandum of Understanding was entered between Sri T. Vijayender and the same company i.e., M/s. Prajay Holding Pvt. Ltd., expressing the intention to sell and buy the property on the same date. At the time of these MOUs on 15.09.2006, an advance of ₹ 3,00,00,000 was received by Sri Vijayender, besides the advance of ₹ 2.5 crores each by Sri T. Veerender and Dr. E. Adilakshmi and one crore by Sri M. Ravidner. 10. It was noticed that the sale consideration had been fixed at ₹ 96 lakhs per acre and the entire amount of ₹ 23,54,40,000 was received by Sri T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85.32 11. On a consideration of the above facts, the Assessing Officer observed that land of about 25 acres had been purchased for more than ₹ 5 crores in September, 2005, given on petty lease to a newly created company, and sold after one year in September, 2006 for about ₹ 24 crores to a real-estate builder. Significantly, she noted that the assessee and Sri M. Ravinder had kept about 2.13 and 3.27 acres of land, respectively, with them and had given it for development purposes to the same company, within the same Integrated Township. They were to get back 30 to 40% of the constructed area from the developer in the said Township. She, therefore, opined that the entire arrangement with the leading real estate developer of the city showed the acumen of the assessee as a seasoned business person to exploit the then over hyped real- estate economy of Hyderabad and its surrounding areas. 12. During the course of assessment proceedings, the Assessing Officer proceeded to find out the intention of the assessee behind these transactions, whether the same was to hold the land as an investment and earn agricultural income there from or it was a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-04 7,16,142 3,18,141 14. The Assessing Officer noted that since entire land was with the said three firms, and on the entire land grape gardens had been grown, the year wise income from these lands was almost more than ₹ 50 lakhs, consistently for several years. In some years, in fact, it was close to ₹ 70 lakhs to ₹ 80 lakhs also. The Assessing Officer felt that these figures are significant to know the true capacity of the lands to give agricultural revenue and to arrive at the intention of assessee by seeing what treatment was accorded by assessee to land of such productivity. 15. It was further noted by the Assessing Officer that the crop grown was of a high quality and was being exported to Europe by M/s. Eastern Exports, a family concern of the earlier owners. A certificate of quality production had also been issued by EUREPGAP, some European body. The details of income from grape cultivation on these lands for all the above years clearly showed that rich harvests were being received year after year. The land, therefore, was very strongly established for its good quality grape cultivation. 16. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying out agricultural activities did not come in April, 2006, but existed since the time of purchase of land itself, as otherwise, no prudent agriculturist would have given the land on rent of merely three lakh Rupees per year, even though it was giving income of several more times consistently for past several years. 19. In view of the above findings, the Assessing Officer issued a show-cause letter dated 05-11-2009 to the assessee, requiring him to explain as to why the deal should not be considered as an adventure in the nature of business in the light of facts of the case. The submissions of the assessee vide his letter dated 13-11-2009 have been reproduced in the assessment order as under: b) Basically assessee is from agriculture family and the land was purchased as an investment. The main view in purchasing the grape gardens was to export grapes. Since, it is difficult to export grapes individually and also to export grapes in huge quantity the assessee has floated a company with himself and brother as promoters. Further, both the promoters have taken on lease the grape gardens from their auntie (Dr. E. Adilakshmi) and brother-in- law (M. Ravinder). These lands w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly outside the domain of adventure in the nature of trade. In deciding the character of such transactions several factors are treated as relevant-- The following case laws have been quoted; a) Venkata Swamy Naidu Co. vs. CIT, 35 ITR 594 (SC) b) Michael A. Kallivayalil vs. CIT, 102 ITR 202 (Ker) c) Saroj Kumar Mazumdar vs. CIT, 37 ITR 594 (SC) d) Janaki Ram Bahadur Ram vs. CIT 57 ITR 21 (SC) e) CT vs. Dhable, Bobde, Parose, Kale, Lute and Chowdary, 202 ITR 98 (Bom) f) Fort Properties Pvt. Ltd. vs. CIT 208, ITR 232 (Bom) g) CIT vs. Kasturi Estates Pvt. Ltd., 62 ITR 578 (Mad) h) CIT vs. Mohanuned Mohiddeen, 176 ITR 393 (Mod) i) ACIT vs. Ashok Motilal Kataria, 308 ITR (AT) 298 (Pune) 7. To sum up ordinarily whether a person acquired land with a view to selling it later after developing it and actually divided the land into plots and sold the same in parcels the activity could only be described as a business adventure. Generally, speaking the original intention of the party in purchasing the property, the magnitude of the purchase of the property, the nature of the property, the length of its ownership and holding, the condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds upon which agriculture has been carried on and these lands are not situated in any of the areas specified in sub-clause (iii) of clause 14 of section 2. 5. The lands are classified as agricultural lands in the revenue records. The land has not been subjected to any plotting or development by way of roads and other facilities. In fact the lands have farm buildings comprising of workers' quarters and office besides machinery to grade and process the grapes for export. The lands are used exclusively for agricultural operations for growing grapes and processing them for export. No other activities are permitted on the said lands by the assessee or the lessee (VVT Agritech). 6. On the basis of the above facts it is submitted that the land is agricultural land and the gain sale. thereof is characterized as agricultural income in terms of section 2(1A) and exempt under section 10(1) of tile Act. In this connection, the assessee draw support from the decision of Bombay High Court in the case of CIT vs. Minguel Chandra Pais (282 ITR 618) (2006) wherein the court laid certain criteria for deciding whether a land constitutes agricultural land on the basis of Supreme Court de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting grapes to U.K. and the container of grapes for export from India to U. K. will normally take two to three weeks to reach its destination and by the time they reached the grapes are unfit for human consumption. Mealy bug which has affected the assessee farm severely and in spite of treatment could not be eradicated completely. The assessee has taken preventive medicines like Methomyl 40 SP (Trade name Lannate 40 SP), Dichlorvos (Trade name Nuvan) other medicines and predators (Useful insects). Though all the records relating to VVT Agritech are with you out of remembrance we are able to furnish the above information. The above medicines have been purchased by the assessee adequately from M/s. Vanasri Seeds (P) Ltd., Hyderguda, Hyderabad and Rekha Corporation Pvt. Ltd., Basheerbagh, Hyderabad for the prevention and eradication of Mealy bug. In spite of his efforts the assessee could not totally eradicate the pest mealy bug and it is only on the advice of Grape Consultant Mr. A. Appa Rao, Msc. (Agri), Banjara Hills, Hyderabad was seriously contemplating to destroy the entire plantation. This was happened in the later part of April-2006. 2) Due to the mealy bug the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the IT Act is correct and justified. There is no justification to hold the profit from the sale of land as business profit instead of capital profit. 23. The Assessing Officer has summarised the assessee's contentions in the above submissions as under: (a) Intention of the assessee in the beginning was to do agriculture. (b) Low income from sale of grape in Assessment Year 2007-08 was due to Mealy Bug disease. (c) Due to the disease the crop was destroyed and assessee decided to sell the land. (d) At this time assessee started getting good price for the land and therefore decided to sell it. (e) Assessee is an agriculturist and he is from an agricultural family. (f) He is not a dealer in real estate business. (g) Assessee is basically an investor. (h) Since it is difficult to export grapes individually a company was floated with brother and had taken grape gardens from Aunt and Brother-in-law. (i) The reason for floating company shows that land was for investment and not for sale. (j) Agriculture land was shown as investment in the balance sheet. (k) CBDT's instruction No. 1827 dated 31-08-99 was quoted in his defence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any agriculturist, who buys land with an intention to do agriculture, will invest in the land only after knowing what returns it will give to him as return. In the instant case, however, considering the agreed lease rentals of ₹ 12.8 lakhs it was clear that the assessee was not even aware of potential of income from the land, or, in fact, he was not bothered about it. She, therefore, concluded that if the assessee knew the real income being generated from this land, a low rental of ₹ 12.8 lakhs could not be justified. She held that the ignorance or carelessness on account of assessee to know the extent of income being generated clearly showed that his intention was never to earn agriculture income from this land. He actually wanted to sell it from the beginning and earn profit from the sale. That is why extent of agricultural income was immaterial to him. 27. The Assessing Officer further observed that even if a disease hits the crop, a genuine agriculturist will not immediately sell away the land, especially in the light of consistent agricultural income being drawn from it. She noted that the National Research Centre for Grapes (NRCG), Pune, which is an arm of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of doing agriculture. Similarly, the treatment of land as 'investment' in the balance sheet is also immaterial, particularly when the assessee's conduct speaks otherwise. She felt that even in view of the CBDT Circular dated 31.8.2009, the real conduct of the assessee is to be seen and in the assessee's case, it was clear that the real and true intention at the time of purchase of land was to sell it to earn profit from it. Similarly, she opined that purchase of land in subsequent year is also in consequential 31. As regards, the argument of the assessee that the earlier owners also could have anticipated the price rise. The Assessing Officer opined that the same is only an attempt to put various facts of the case in a distorted way. She felt that there cannot be any comparison between status of earlier owners and the assessee, because there are crucial differences between them. She noted that the earlier owners were all residents of Delhi and Sri Khosla was doing his business from far off Delhi in all the three years. Since they were not residents of Hyderabad, and their knowledge of the city and the economic boom could not be compared with first had kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even though the courts have laid down certain principles, those have to be interpreted in the light of particular facts and it is only with the conjunction of facts with the principles that a particular decision can be arrived at in a particular case. She particularly noted the decision of the Hon'ble Supreme Court in the case of G. Venakataswamy Naidu vs. CIT (35 ITR 594), wherein it was opined that .... The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive, and it is conceivable that, on considering all the facts and circumstances in the case, the court may despite the said initial intention, be inclined to h old that the transaction was an adventur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on profit in view of, the then, real-estate boom in and around Hyderabad. c) Actually no intention to do agriculture done; the floating of company VVT Agritech was a facade. d) Claim of sale due to destruction of crop by mealy bug is contrary to his stated intention of doing agriculture. Any person doing agriculture of grapes would be dealing with this disease in a routine way. e) Sale within a year to real-estate company for huge profit reflects the true state of entire adventure. f) Keeping of a small part of land by Shri Vijayender Shri M. Ravinder and giving it on development of Hi-end villas to same real estate company proves the point that it was adventure in trade and, therefore, the profits earned in this transaction are treated as adventure in the nature of trade and held as business income. 37. In the light of the above, the profit on sale of the impugned land of ₹ 19,55,98,140 was assessed as business income, being adventure in the nature of trade by the Assessing Officer. Similar is the position in the case of Sri T. Vijayender except change in figures. 38. On appeal to the CIT(A), it was observed by the CIT(A) that the assessee is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the circumstances, mere affliction of the crop by such a disease could not have resulted in discarding of the so-called intention of carrying out agricultural operations altogether, and selling the land acquired at a huge cost. This strengthens the view that the initial intent in purchase of the land was not to pursue agriculture but to earn quick profits from sale of land in view of the emerging market conditions. 40. The CIT(A) observed that the entire scheme of the assessee, therefore, proves that while the basic intention was to earn huge profits by undertaking the above transactions, the assessee arranged the events in a manner to give it the colour of an intention of carrying out agricultural operations on the land acquired as an investment. However, the facts of the case clearly show that in substance the transaction only an adventure in the nature of trade. 41. He further observed that as regards the contention that the land so purchased had been treated as an 'investment' in balance sheet, it is a trite law that the treatment or nomenclature given by the assessee to any transaction in his books of accounts is not conclusive and is not the sole test to deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al land. (5) Character of the land. (6) The purpose for which the land was held by the present owner. A firm which holds it may well be presumed to have held it as stock in trade and not for carrying out agricultural operations. (7) As regards use of the land for agricultural purposes prior to sale, more use in remote past though land revenue is paid, would not make it agricultural. (8) Mere capability of being used as agricultural land is not enough. 44. The CIT(A) observed that applying the tests mentioned above, it can be seen that the land was sold at a time when there was a real estate boom in land around the city of Hyderabad and the Government was issuing various notifications for urban development, which included the Maheswaram village for Special Development meant for in and around the International Airport at Shamshabad. It was for this reason only that it was sold to a construction or Real Estate company, who purchased it not for agricultural operations, but obviously for developing the same. The criteria regarding 'measure of sale of land' in the instant case is not of much importance, as in this case the land was acquired in its entirety ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of the present assessee, the Government notifications and the imminent development of the area indeed establish that the land sold by the assessee in the said area was not agricultural land at the time of sale. 47. The CIT(A) observed that the case laws relied upon by the representative of the assessee, it is seen that the Assessing Officer has duly distinguished those from the facts of the assessee case. So far as the decision in the case of ITO vs. Anthony John Parera (24 SOT 459) (Mum) is concerned, it is seen that in the said case 450 acres of agricultural land had been purchased by that assessee between 1986 to 1992 and a part thereof was sold during the year. The land in question was away from the developed area and was in a green zone, surrounding whereof had not been developed. Besides, the assessee had been earning agricultural income therefrom, which was being shown in the returns of income. There was no other activity on the land for the last 9 years, and hence, there was found no intention to do any business. It was under these facts that the Mumbai of ITAT held that the entries in Revenue records gave a presumption in favour of the assessee, which could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said land was obtained for the first time by the Verca Holiday Beach Resort P. Ltd., the purchaser, only after the purchase of land. Accordingly, they held that prior to such permission, the land was agricultural only. In the case of the present assessee, however, the facts are totally different, as there was no such restriction regarding exclusive agricultural user of the land. On the other hand, the lands of the area had been notified by the Government for development. 50. Similarly, the reliance of the representative of the assessee on the recent decision of the Jurisdictional ITAT, Hyderabad in the case of K. Radhika Ors. vs. DCIT (65 DTR 250) (Hyd) is misplaced. From the order of the ITAT, it can be seen that the assessee therein had been purchasing lands right from the year 1995, which were sold in subsequent years. The ITAT opined that had the assessee being in real estate business, she would not have kept the land for such a long period. With regard to the lands sold within short time, it was found that sales were made under compelling such circumstances, as those were falling under Bio Conservation Zone/Green Belt, of which the assessee was not aware. Therefore, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even as on the date of sale and they were sold on acreage basis. In fact, there was actual cultivation at the relevant point of time, not only by the assessees but also by M/s. VVT and the assessee derived agricultural income from such land. Mere selling of land by the assessees for non-agricultural purposes, cannot be a reason for treating the sale of land by the assessee as adventure in the nature of trade. The AR further submitted that the impugned land was sold, in fact, not voluntarily but was made under compelling circumstances. There was a boom in the real estate market and at the same time the yield from the grape garden has been drastically affected due to mealy bug disease. The assessee could not continue agricultural activities instead proposed to sell the land to avoid future loss and to get advantage of higher rising prices. If the assessee misses this opportunity they would have suffered huge financial losses. In view of this he submitted that the assessee used the opportunity and sold the land for better price and mere capability of land being used for other than agricultural purposes cannot be a reason to hold that the assessee is engaged in buying and selling of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -operative society to sell the land for construction of houses, they had applied in June, 1968, and March, 1969, for permission to sell the land for non-agricultural purposes and soon after obtaining permission they executed the sale deeds in May, 1969: and the land was sold at a rate of ₹ 23 per sq. yard and the purchasing society commenced construction operations within three days of purchase. On a consideration of the contending factors the High Court held that the land was non- agricultural land and tax was leviable on the capital gains arising from the transfer. On appeal to the Supreme Court: Held, affirming the decision of the High Court, that the entering into the agreement to sell the land for housing purposes, the applying for and obtaining permission to sell the land for non-agricultural purposes, 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 and the price at which it was sold outweighed the circumstances appearing in favour of the appellants' case and established that the land was not agricultural land when it was sold. The appellants had no intention to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 58. The expression 'agricultural land' is not defined in the Act, and now, whether it is agricultural land or not has got to be determined by using the tests or methods laid down by the Courts from time to time. 59. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield? 60. A reference could be made to the case of CWT vs. Officer- in-charge (Court of Wards) (105 ITR 138) (SC) wherein the Constitution Bench of the Hon'ble Supreme Court stated that the term 'agriculture' and 'agricultural purpose' was not defined in the Indian IT Act and that we must necessarily fall back upon the general sense in which they have been understood in common parlance. The Hon'ble Supreme Court has observed that the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and raising on the land all products 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 cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, obvious that the assessee had abundantly proved that the subject land sold by them was agricultural land not only as classified in the Revenue records, but also it was subjected to the payment of land revenue and that it was actually and ordinarily used for agricultural purpose at the relevant time. 63. We may also refer to the case of CIT vs. Manilal Somnath (1977) 106 ITR 917 (Guj), wherein the Division Bench of the Hon'ble Gujarat High Court observed that the potential non- agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land on the relevant date of sale. 64. We may also refer to the case of Gopal C. Sharma vs. CIT (1994) 116 CTR (Bom) 377 : (1994) 209 ITR 946 (Bom), in which, the case of Smt. Sarifabibi Mohamed Ibrahim Ors. vs. CIT (supra) was 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 trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid decision that the agricultural land sold by the assessee with an intent to purchase another land within two years had also been permitted to claim exemption under s. 54B of the IT Act, 1961. In the instant case, even though there was no sale as such, the assessee owned agricultural land within the limits of Tirunelveli Corporation and he had not put up any construction thereon, the assessee is entitled to claim exemption from the WT Act for the assessment of wealth-tax. That the land in question is adjacent to the hospital is totally irrelevant. 66. Adverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the earlier 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acilities 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. The nature of the crop and the person who cultivated the land are duly mentioned in the assessment order shows that 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 assessees. 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 inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot exceeding 8 km from the local limits of such Municipalities or Cantonment Boards are covered by the amended definitions of 'capital asset', if such areas are, having regard to the extent of and scope for their urbanization and other relevant considerations, is notified by the Central Government in this behalf. Central Government in exercise of such powers has issued the above notification, as amended latest by Notification No. 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 sub-clause (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 Munici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purposes for a long time and nothing had happened till the date of the sale to change that character of the land. The potential non-agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was, therefore, agricultural land. 72. Further the word Capital Asset is defined in Section 2(14) to mean 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortion of the said memorandum is reproduced hereunder: 30. ... The Finance Act, 1970 has, accordingly, amended the relevant provisions of the Income-tax Act so as to bring within the scope of taxation capital gains arising from the transfer of agricultural land situated in certain areas. For this purpose, the definition of the term capital asset in section 2(14) has been amended so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less than ten thousand persons according to the last preceding census 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly 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 sub-clause (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 the order of Kolkata Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure at that point of time. It was due to certain compelling circumstances came into picture at a later stages, the assessees were forced to sell the land. Merely because of the fact that the land was sold in a short period of holding, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade. 79. Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
