TMI Blog2013 (9) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of the land in question. Lands in question do not constitute capital asset within the meaning of Section 2(14)(iii) of the Act. Therefore, surplus realized on sale of such lands cannot be taxed as capital gains u/s 45 r.w. Section 10(37) of the Act. The provisions of Section 10(37) were inserted by the Finance Act 2004 (No.2) w.e.f. 1.4.2005. The revenue merely made an assertion and treated the surplus realized from the sale of rural agricultural lands as business profit, which don't fall u/s 2(14) of the Act. Therefore, having regard to the fact-situation of the present case, relevant record and judicial verdicts, the surplus realized on sale of such land, is not taxable receipts – Appeal of the assessee is allowed – Decided in favor of Assessee. - ITA No.734/CHD/2013, ITA No.735/CHD/2013 - - - Dated:- 13-9-2013 - Shri Bhavnesh Saini And Shri T. R. Sood,JJ. For the Petitioner : Shri Ajay Jain For the Respondent : Shri Akhilesh Gupta ORDER Per T. R. Sood, AM. These two appeals filed by the assessee are against the order dated 10.05.2013, passed by the ld. CIT(Appeals) Panchkula u/s 250(6) of the Income-tax Act,1961 ( in short 'the Act' ). Both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee's own case for assessment year 2007-08 in I TA No. 998/Chd/2010. On the other hand, ld. DR relied on the order of the Assessing Officer. 7. After hearing rival submissions, we find that identical issue came up for consideration of the Tribunal in assessee's own case for assessment year 2007-08 in ITA No. 998/Chd/2010. The issue was decided vide para 4, which is as under : "4. We have carefully perused the facts of the case, relevant records. On perusing the decision referred to above and stated by the ld. 'AR', we are of the opinion that the issues raised in these two appeals are squarely covered by the order in assessee's own case. For ready reference, the contents of the same are reproduced hereunder : "The captioned two appeals have been filed by the same assessee, against the consolidated order dated 29.01.2010 passed by the ld. CIT(A), Panchkula u/s 250(6) of the Income-tax Act,1961 (in short 'the Act') for the assessment years 2005-06 2006-07. As the facts and the issues, including the grounds of appeal, in both the appeals are identical, the same are taken up together, for disposal, for the sake of convenience. 2. The grounds of appeal, as raised i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ula. The relevant part of the said letter is reproduced hereunder, for the purpose of proper appreciation of its texts and nature thereof : "Sr.No. 107-109 Office of Tehsildar Nalagarh,Distt.Solan Issued to Shri Sunil Kumar Sood Under RTI Act Nalagarh 7 t h January,2008 Sd/- Public Information Officer Cum SDO(C) Nalagarh Distt.Solan (HP) 19/02 To, Asstt. Commissioner of Income Tax Panchkula Circle, Panchkula. On the above cited subject refer your office letter No. ACIT/PKL/Cir/Pkl/07-08/1A/3073 dated 31.10.2007 and in this regard, we have got investigated the information from our field employees and the report is as under: 1. Copy of Jamabandi of land bearing khasra 1341/3, 1341/2- 1338-1339-1336-1337-1335-1319-1345/1, 1347/1, in village Bhatoli Kalan is prepared and submitted. 3(a) The above land does not fall under M.C.Corporation, NAC. (b) Nagar Panchayat Baddi to above khasra (land) the distance is approx, 10 K.M. (c) Distance of land is more than 8 KM. 4. The land is away from Nagar Panchayat. The details of census are not available. 5. (a) The above sold land was used for agricultural purposes before selling. (b) The abovesaid land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are paid by the owners to the Government. 4. The sold land had been used for agricultural purpose. 5. On said land the agricultural activity had been carried out since long time. 6. Not applicable and not related to records. 7. Himachali Agriculturist does not require any permission from Government while buying or selling of land but if the purchaser is non-agriculturist then it is a necessity that he has to obtain permission from Government U/s 118 of H.P. Tenancy and Land Reforms Rules 1972. The above said land was agricultural land at the time of purchase and sale. 8. On relevant date the above land was agricultural land and the laser has purchased this land for setting up an Industrial unit and 'when the industry is set up on khasra number then that land becomes non-agriculture land. 9. The above said land was regularly used for agriculture purposes. 10. The above land fall under rural area and at that time was not developed and all the lands surrounding these lands were used for agricultural purposes. 11. No 12 No 13. The permission for purchase of land is obtained by non- agriculturist purchaser. 14. The land was sold according to the bighas biswas and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for agriculture purpose, but was lying vacant, without any agricultural activity carried thereon. Thus, as per AO, there was no agricultural activity, on the said land. The AO, further, pointed out that the land was sold to industrial houses, for non-agriculture purpose, hence it does not satisfy the general tests laid down in the case of Sarifabibi Mohmed Ibrahim others V CIT (supra). The AO, further, highlighted that these lands were purchased at a very low cost and sold for huge profits, to industrial houses. The AO was of the view that no agriculturist would purchase the land for agricultural purposes, at the price at which the land was sold by the assessee. It was, further, observed by the AO that though the land was entered in the land revenue record, but the same was not used for agricultural purpose. The land had not been ploughed, neither the owner intended to use it for agricultural purpose. The AO, further, recorded that the lands are situated in an area, the surroundings of which are industrialized. The surrounding lands enjoy exemption by the State and Central Government for setting up of industrial units. The physical characteristics and surrounding areas and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussed the principles laid down in the following judicial decisions:- (i) Sarifabibi Mohmed Ibrahim and others versus CIT 204 ITR 631 (SC) (ii) Begumpet Palace case 105 ITR 133 (SC) (iii) CIT v. Siddharth J. Desai 139 ITR 628 (SC) (iv) The Full Bench of Andhra Pradesh High Court 72 ITR 552 (v) CIT v. V. A. Trivedi 172 ITR 95 (Bom.) After discussing the gist of the above decisions and the principles laid down for determining whether the land is agricultural land, the AO observed that the land was actually not under cultivation in the assessment year under consideration as admitted by the assessee in his reply dated 12/09/2007. The AO further held that the land was not under cultivation even before the A.Y. under cultivation which is clear from the Jamabandi of 1998-99 as per which neither any lagan was paid nor any revenue was paid on [his land. The assessee had become the owner of these lands just a few months before they were sold. The assessee being a practicing chartered accountant had no practical experience of agriculture. The AO observed that the assessee had not given these lands on lease for agriculture which has been admitted by him. The AO observed that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Attorney was taken in the name of third person Sh. Harish Aggarwal so that the lands can be registered in the name of assessee as and when required. The lands were permanently used for agricultural purposes at me time of purchase and also during the holding by the assessee and classified as agricultural land being used for agricultural purposes, in the revenue records. The lands were shown as fixed assets in the respective Balance sheets and not as stock in trade, hence the book keeping records also support the intention of the assessee. Sale of some of these lands was made to buy other agricultural lands so as to improve the quality of the holding and for consolidation so that agricultural activities can be done smoothly in future. The assessee as on date has consolidated agricultural land measuring 90.12 bighas and has net agricultural income of Rs.42,000/- which was declared in the A.Y. 2007-08. At the time of sale the character of the lands was agricultural and even today some lands on which factories have not been established are classified as agricultural lands in revenue records. The counsel further argued that the AC called information from the revenue authorities but no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the A.O. has erred in her judgment and has ignored a vital fact that the agricultural lands were always classified as fixed assets. The lands were not put to non agricultural use. The assessee did not purchase these lands at a low cost from marginal farmers and consolidated into large chunks to sell them but to consolidate into a bigger piece of land as any agriculturist would have done. The surroundings of the land were such as to indicate that the land was agricultural. 6.2 On careful consideration of facts and submissions 1 find that the AO has rightly held that the lands sold by the appellant are not agricultural lands within the meaning of Section 2(14)(iii) of the I.T. Act. The Hon'ble Supreme Court and various other Courts have laid down general principles for deciding whether the land is agricultural or not? The Hon'ble Supreme Court in the case of Sarifabibi Mohmed Ibrahim and others versus CIT(204 ITR 631) has observed as under:- " Whether a land is an agricultural land or not is essentially a question of fact. Several tests have been evolved in the decisions of this court and the High Courts, but all of them are more in the nature of guidelines. The question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained by the appellant to create a defense that the lands sold are agricultural, in the present case, the facts as they actually exist are different from the arrangement made by the appellant in the form of revenue records and hence it is the substance which has to govern the field and not the form. In the present case, the substance is that the appellant purchased and sold lands for earning profit and not for agricultural purposes though in form he has created evidence in the shape of revenue records to show that the lands are agricultural. The contention of the appellant are rejected. The AO has rightly held that the lands sold by the appellant are not agricultural and hence the profit earned on the sale of lands is not exempt within the meaning of section 2(14)(iii) of the I.T. Act. The first ground of appeal is rejected. 7. The second ground of appeal is that the AO has erred in treating the profits on sale of lands as business income of the assessee and net exempt income. The AO observed that the Courts have laid down various tests or factors to be taken into account in determining whether the assessee is indulging in a business activity and the nature of his income is busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of making profit on their sale and thus is engaged in a business activity. 7.1 The counsel for the appellant on the other hand firstly argued that the decisions relied upon by the AO in the cases G. Venkataswaniy Naidu Company v. CIT (35 ITR 594), Karam Chand Thapar and brothers (P) Ltd. V. CIT (1971) 83 ITR 899 and the decision of the Authority for Advance Rulings (AAR) (282 ITR641) are not applicable since the facts are different. Secondly the counsel argued that the agricultural lands purchased during the year 2003-2004 were classified as the fixed assets in the books of account as well as in the balance sheet. Therefore, the holding of these lands as fixed assets and not as stock in trade supports the contention of the assessee that these were the capital assets and were not meant for trading purposes. The agricultural land was purchased in bighas and was sold in bighas without there being any attempt to develop the land and cutting it into plots and then to sell it. No attempt was made to provide any amenities or to develop any colony. A normal opportunity arose in the market for sale of these agricultural lands to increase the wealth. Thirdly the counsel argued that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rural agriculture land in Himachal Pradesh beyond municipal limits or cantonment board. The land was purchased with the intention to do agriculture operations and the same was shown as fixed asset, in the audited balance sheet, as on 31.3.2004. During the relevant A.Y. 2005-06 (F.Y. 2004-05), the assessee sold 52.06 bighas of land and purchased 28.17 bighas of land and the land was shown as fixed asset, in the audited balance- sheet as on 31.3.2005. The assessee stated that the purpose of purchasing the land was to carry out agricultural activities, on a larger chunk. It was, further, contended by the assessee that the agricultural lands were situated beyond municipal limits, at village Bhatoli Kalan (HP) and were being used for agricultural activities, at the time of purchase and sale, classified in the revenue records as agriculture lands. Hence, the said land is not capital asset within the meaning of Section 2(14)(iii) of the Act. The assessee at page 23 of the Paper Book, filed in form No. II, khasra girdawari from 2002 to 2007 in respect of `lands under the head Mauja; Bhatoli Kalan, Hadbast No. 214, Pargna Dharampur, The. Baddi, Distt. Solan, indicating full details of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mohmed Ibrahim others V CIT (supra). The Hon'ble Supreme Court observed that; "whether a land is agricultural land or not, is essentially a question of fact. Several decisions have been evolved in the decisions of this Court and High Courts, but all of them are more in the nature of guidelines. 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 the particular point of view. The Court has to answer the question on considering of all of them by a process of valuation. The inference has to be drawn on a cumulative consideration of all the relevant facts." 10. It was contended by the assessee that the appellant is a bonafide Himachali agriculturist and purchased land for agricultural purposes. A person who is not a Himachali, cannot purchase agricultural land, in the State of Himachal. The lands were purchased from the owners, who themselves were cultivating these lands, since many years. The lands in question were situated in rural backward area of village Bhatoli Kalan, which falls beyond the municipal limits of any Nagar Panchayat or Cantonment Board. The lands were purchased for use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. No amenities were provided for the purpose of developing any colony on such lands. Therefore, general tests or guidelines laid down, in the decision of the Hon'ble Supreme Court, in the case of Sarifabibi Mohmed Ibrahim others V CIT (supra) clearly demonstrate that the land of the present appellant is agricultural land. The AO, as well as the CIT(A), placed reliance on the decision of the Hon'ble Supreme, Court in the case of Sarifabibi Mohmed Ibrahim others V CIT (supra) to support their findings in the matter. However, the facts of the present case do not have the semblance, of resemblance to the facts of the case, relied upon by the revenue authorities. The Hon'ble Supreme Court, in the case of Sarifabibi Mohmed Ibrahim others V CIT (supra), was dealing with a case where the appellants were co-owners of a plot of land, inherited from an ancestral, through their father. On March 15, 1967, they agreed to sell the land, to a housing cooperation society and, to enable them to complete the transactions, they applied in June, 1968 and March, 1969 for permission to transfer the land for non-agricultural purposes and the permission was granted in April,1969. The appellant ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled for such information u/s 133(1) of the Act, in the case of the assessee appellant, for the purpose of supporting her findings while framing the impugned assessments. However, on receipt of such information, the AO did not discuss such information and no reliance was placed on such information emanating from the office of Tehsildar, while passing the assessment order, for the reasons best known to her. The assessee called for such information under RTI Act. The contents of the said letter have been reproduced above. A bare perusal of the letter in question reveals that the Tehsildar submitted a copy of Jamabandi of land bearing khasra No. 1341/3, 1341/2 - 1338 - 1339 - 1336 - 1337 - 1335 - 1319 - 1345/1, 1347/1 in village Bhatoli Kalan, to the ACIT, Panchkula, it is categorically mentioned in the said letter that the above land does not fall under the Municipal Corporation, NAC, Nagar Panchayat, Baddi, to above khasra land is approximately 10 KM. The distance of the land is more than 8 KM. The land is away from Nagar Panchayat. The said land was used for agricultural purposes before selling. It is further indicated in the letter that the Himachali agriculturist does not require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Land Revenue Code. In the present case, no such permission was ever applied for by the appellant. It is, further, added that 15 years back, a parcel of 2607 sq.yd. out of this very land, in the case relied upon by the revenue, was converted by the assessee, to non-agricultural use, by constructing a chawl on it, by the owner themselves. There is no such conversion of land in the present case. In view of this, the facts of the present case are materially different and distinguishable and hence, the decision of the Hon'ble Supreme Court, in the case of Sarifabibi Mohmed Ibrahim others V CIT (supra) is not applicable to the facts of the present case. The assessee had adduced evidence in the form of letter from Tehsildar, referred to above, and khasra Girdawari (PB-23) whereby unrebuttable details and information had been adduced by the assessee. Revenue has failed to rebut such relevant and material evidences contained in the said letter/document. This letter is a documentary evidence, emanating from the office of Tehsildar and the same cannot be rebutted by oral evidences, as has been done by the revenue. In the case of Paramjit Singh V ITO (2010) 323 ITR 588 (P H), the Hon'ble j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax. 14. The revenue has failed to bring material on record to demonstrate that the assessee is a dealer in lands. The assessee has shown the lands in his audited balance sheet as fixed assets and this factum remained unrebutted by the revenue, and is a relevant factor in unfolding the intention of the assessee. Mere frequency of purchase and sale of land is not a conclusive evidence of carrying on business activities as trader or dealer in land. The Hon'ble Bombay High Court, in the case of Indian Hume Pipe Co. Ltd. V CIT, 195 ITR 386 (Bom) held that where no development has been carried out, to make the land readily marketable and sale of the plot of lands during different years, would not constitute transactions as a trader. Similarly, Madhya Pradesh High Court in the case of CIT V Smt. Bilkishbai 225 ITR 570 (MP) held that repeated sales and purchases of agricultural land is not adventure in nature of trade, as no systematic business activities involve. Therefore, the surplus on sale of land cannot be assessed as business income. Similar view has been held by the jurisdictional High Court, in the case of CIT V Sushila Devi Jain 259 ITR 671. 15. Having regard to the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial complex and FDR given as security for securing credit facilities from bank and also interest on the same has already been included in bank interest debited in preoperative expenses. This interest is directly linked to the business of the assessee i.e. construction of commercial complex and is much lower than the interest given to the bank/others Rs. 17,47,480/- debited in preoperative expenses, on the credit facilities taken for construction of the same commercial complex. Both the receipt of interest and payment of interest are of revenue nature and for the same business activity and hence, directly related to each other and by applying the 'Matching Principle' only net interest expenses should from part of the preoperative expenses, which ultimately from the cost of the project after completion. In view of the above, the interest receipts is not the income of the assessee but a receipt to be reduced/netted with the expense of the same nature. Also ultimate revenue effect is nil because if it is not reduced from preoperative expenses but considered as income, then preoperative expenses i. e. cost of finished goods will increase and at the time of sale, net profit will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and the interpretation of the term "income" given in a large umber of decisions of the High Courts, the Privy Council and the Supreme Court. Interest income is always of a revenue nature, unless it is received by way of damages or compensation. If a person borrows money for business purposes but utilises that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilized by the assessee whichever way he likes. He may or may not dis-charge his liability to pay interest with this income. Merely because it was utilised to repay the interest on the loan taken by the assessee, it did not cease to be his income. When the question is whether a receipt of money is Taxable or not or whether certain deductions from that receipt, are permissible in law or not, the question has to be decided according to the principles of law, and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of the Income-tax Act. Under the Income-tax Act, 1961, the total income of a company is chargeable to tax under section 4. The total income has to be computed in accordance with the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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