TMI Blog2014 (9) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 – relying upon Gopal C. Sharma vs. CIT [1993 (10) TMI 41 - BOMBAY High Court] - 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. 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 - no capital gain tax can be charged on the sale transaction of this land entered by the assessee – relying upon Deputy Commissioner of Income-tax, Circle 8, Kolkata Versus Arijit Mitra [2011 (8) TMI 556 - ITAT, KOLKATA] - 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. Merely because of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led a revised return of income declaring total income of ₹ 2,89,62,423. During the assessment proceeding, AO noticed that assessee has purchased land admeasuring 57.2625 acres at Bowrampet under a number of sale deeds during the FY 2004-05. Out of the total land held, assessee has sold land admeasuring 30.2 acres to M/s Varun Constructions through an agreement of sale cum GPA dt. 12/03/2007 for total consideration of ₹ 30,20,00,000. Further, AO noticed that in the return of income filed for AY 2007-08, assessee has claimed the entire sale proceed as exempt from capital gain, though sale proceeds was reflected in the capital account/balance sheet. Exemption from capital gain was claimed on the ground that land sold being agricultural in nature is not a 'capital asset' as defined u/s 2(14) of the Act. Assessee's contentions during the assessment proceeding in this regard are as under: a) It is submitted that the land purchased is an agricultural land and it does not fall within definition of the capital asset u/s 2(14)(iii) of the IT Act, 1961. The said land is agricultural land and situated at Bowrampet Village not situated within 8 km of the local limits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in possession of the assessee, a part of which was sold to M/s Varun Constructions, are fallow lands not amenable for cultivation or grazing that too in the midst of urban agglomeration. The AO observed that major part of the land was purchased by the assessee and others from M/s Deccan Townships Pvt. Ltd., a real estate company engaged in the purchase and sale of lands near urban agglomerations. In this context, the AO also examined the MD of M/s Deccan Townships Pvt. Ltd., in course of which, he stated that the land was treated as stock- in-trade in the books of account of the company and the profit on sale of land was shown as income under the head 'business and profession'. As mentioned by the AO, the MD of M/s Deccan Townships Pvt. Ltd. also stated that no agricultural operations were carried out in the land sold by the company. Further, the AO observed that the total extent of land acquired by M/s Varun Constructions, was around 255 acres out of which an extent of 90 acres was taken outright possession whereas the remaining extent of 163 acres was taken for development. On examining the Managing Partner of M/s Varun Constructions and Managing Director of M/s Amsri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital asset within the meaning of section 2(14) of the Act. Further, the AO held that the sale of land by the assessee being an adventure in the nature of trade the gains derived there from is to be treated as business income of the assessee. Accordingly, the AO held that the profit on sale of land amounting to ₹ 29,78,00,000/- is to be treated as undisclosed income of the assessee for the impugned assessment year. Being aggrieved of such addition, the assessee preferred appeal before the CIT(A). 6. Before the CIT(A) the submissions of the assessee broadly were as under: AO has examined the VRO, dealers in fertilizers and utilized their statements while concluding that the nature of land is not agricultural in nature and the assessee was not involved in any agricultural activity. However, no opportunity was given to the assessee to cross-examine these persons. The AO completely ignored the fact that the Assessee had been showing income from agricultural activities and such income shown was also accepted by the AO. By merely relying upon the blank bills of Prakash Fertilisers and blank quotation from Surya Fertilizers and Satya Sai Seeds Store an inference can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains arose. In the search assessment u/s 153A, the AO without having any further material or information cannot take a different view as it amounts to review of the original assessment order. As the assessee had purchased agricultural land only and also sold it as agricultural land without changing its nature and character the transaction cannot be treated as adventure in the nature of trade. Though in the assessment year under consideration the AO has treated the part of land sold as a business asset and as such the activity relating to sale of such asset as adventure in the nature of trade but in the subsequent AY i.e. 2008-09, the AO himself has held a part of the same land for which assessee has entered into a development agreement as a capital asset and subjected it to capitalisation. Therefore, the stand taken by the AO is self contradictory. The assessee relied upon a number of decisions in support of his contentions. 8. The CIT(A) after considering the submissions of the assessee vis- -vis the facts and materials on record and in the light of ratio laid down in a number of judicial precedents, found that the assessee prior to the search as well as aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Sarifabibi Mohmed Ibrahim and others (supra) the buyer started construction within 3 days of execution of sale deed which indicates that all the formalities were completed at the time of sale of land whereas in assessee's case the nature of land still remains to be agricultural and the assessee has not applied for conversion of the nature of land. 10. The CIT(A) on considering the aforesaid facts concluded that the nature of land being agricultural and the land being situated more than 8 kms away from a notified municipality, is not a capital asset as per section 2(14) of the Act. So far as, AO's conclusion in treating the transaction as an adventure in nature of trade, the CIT(A) found that land sold by the assessee to M/s Varun Constructions was originally purchased from M/s Deccan Townships P. Ltd. vide registered document no. 3050 dated 09/12/2004 and was held for almost two years before being sold to M/s Varun Constructions through registered agreement of sale cum GPA dated 12/03/2007. He further noted that out of 57 acres of agricultural land held, assessee sold 30.02 acres and the balance land was still held by the assessee for agricultural operation. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and character of land at the time of purchase and sale by the assessee remained same viz. agricultural in the government records. Assessee has also not applied for conversion of land to non-agriculture. It was submitted that land in question is also situated beyond 8 kms from a notified municipality. It was submitted that Qutubullapur municipality was brought into the GHMC limits by notification dated 16/04/2007 i.e. after the sale of land by the assessee. Even otherwise also, the land situated at Dundigal and Bowrampet village are beyond 8 kms from the limit of the nearest notified municipality. In this context, the learned AR referred to the certificate issued by the Dy. Collector, and Tahsildar, Qutubullapur Mandal dated 04/02/2009 certifying that Bowrampet village is situated beyond 12 kms from the limits of Qutubullapur Municipality. He also referred to the certificate issued by town planning officer GHMC, Qutubullapur Circle 04/10/2008 mentioning that Bowrampet Gram Panchayat and Dundigal Gram Panchayat are not falling in the GHMC limits. The learned AR submitted that in case of similar transaction entered into by other associates with M/s Varun Constructions in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at agricultural operation on the said land is not possible to the extent shown by the assessee. In this context it is to be noted that the certificate issued by the Dy. Collector and Mandal Revenue Officer, Qutubullapur Mandal ( at page 99 of assessee's paper book) clearly indicate that the land under the same survey nos. situated at Bowrampet Village are under cultivation by raising crops of paddy, cattle feed, maize, jowar etc. Further the pahanis also indicate the crops grown over the said land. When certificate has been issued by govt. authorities certifying cultivation of agricultural produce the AO was not correct in rejecting them without proper evidence. Moreover, certificate dt. 04/02/2009 issued by Dy. Collector and Tahsildar Qutubullapur Mandal ( at page 100 of assessee's paper book) and certificate dt. 04/10/2008 of Town Planning Officer, GHMC (at page 101 of paper book) clearly indicate that Bowrampet village where assessee's land is situated is beyond the limit of GHMC. It is a fact on record, in the original assessment order passed u/s 143(3) of the Act, the AO has examined the nature of transaction by conducting necessary enquiry and after proper applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute 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 AY 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 before sale of this property 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 property nor the surrounding areas were subject to any developmental activities at the relevant point of time of sale of the land as per the evidence brought on record. 24. The provisions of Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes) Act, 2006 also prescribed the procedure for conversion of agricultural land into non-agricultural land. Being so, whenever the agricultural land to be treated as non-agricultural land, the same has to be converted in accordance with the provisions of Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes) Act, 2006. If by a Government Notification, the nature and character of land changes from agriculture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of time. Thus, the fact that the land in question in the instant case is bought by Developer cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes. 26. Recently the Karnataka High Court in the case of CIT vs. Madhukumar N. (HUF) (2012) 78 DTR (Kar) 391 held as follows: 9. An agricultural land in India is not a capital asset but becomes a capital asset if it is the land located under Section 2(14)(iii)(a) (b) of the Act, Section 2(14) (iii) (a) of the Act covers a situation where the subject agricultural land is located within the limits of municipal corporation, notified area committee, town area committee, town committee, or cantonment committee and which has a population of not less than 10,000. 10. Section 2(14)(m)(b) of the Act covers the situation where the subject land is not only located ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;, 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 Rajarhat Municipality and that also 2.5 KM away from the outer limits of the said 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. Accordingly, we quash the assessment order qua charging of capital gains on very jurisdiction of the issue is quashed. The cross objection of the assessee is allowed. 28. It was held in the case of CIT vs. Manilal Somnath (106 ITR 917) as follows: Under the Income-tax Act of 1961, agricultural lend situated in India was excluded from the definition of capital asset and any gain from the sale thereof was not to be included in the total income of an assessee tinder the head capital gains . In order to determine whether a particular land is agricultural land or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette; 30. It is very clear from the above that the gain on sale of an agricultural land would be exigible to tax only when the land transferred is located within the jurisdiction of a municipality. The fact that all the expressions enlisted after the word municipality are placed within the brackets starting with the words 'whether known as' clearly indicates that such expressions are used to denote a municipality only, irrespective of the name by which such municipality is called. This fact is further substantiated by the provisions contained under clause (b) wherein it has been clearly provided that the authority referred to in claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 area is notified by the Central Government, agricultural land situated within such area will stand included within the term capital asset . Agricultural land situated in rural areas, i.e., areas outside any municipality or cantonment board having a population of not less than ten thousand and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, will continue to be excluded from the term capital asset . 33. Further it is nobody's case that the property falls within any area which is comprised within the jurisdiction of a municipality or cantonment board or which has a population of not less than 10,000 according to the last preceding Census of which the relevant figures have been published before the first day of the previous year. In other words, the land does not fall in sub-clause (a) of section 2(14)(iii) of the Act as the land is outside of any municipality including GHMC. Further we have to see whether the land falls in clause (b) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of this Tribunal in the case of Arijit Mitra (cited supra), Harish V. Milani (supra) and M.S. Srinivas Naicker vs. ITO (292 ITR 481) (Mad). By borrowing the meaning from the above section, we are not able to appreciate that the land falls within the territorial limit of any municipality without notification of Central Government as held by the Karnataka High Court in the case of Madhukumar N. (HUF) (cited supra). 35. From the facts and circumstances of the case, as narrated before us, 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 different, 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; tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Circle - 15, GHMC vide Ref. No. G/1240/2008, dated 04/10/2008 informing that the land is not falling in the GHMC limits. At page 77, a copy of the agricultural land certificate is placed, issued by the Deputy Collector Mandal Revenue Officer, Qutubullapur Mandal vide Ref. No. A/13607/2005, dated 20/08/2005 stating that the lands are under cultivation by raising crops i.e. paddy, cattle feed, maize, jowar, vegeteables etc. 37. 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 as business income. 14. On going t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
