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2015 (3) TMI 642 - ITAT HYDERABAD

2015 (3) TMI 642 - ITAT HYDERABAD - TMI - Sale of land - Assessing Officer in bringing to tax the short term capital gains arising from the sale of agricultural land under the head ‘business income’ - CIT(A) changed the head of income as determined by the AO as falling under ‘adventure in the nature trade’ to ‘capital gain’ - Held that:- It is observed that by an ‘Agreement of sale with possession-cum-Irrevocable power of attorney’ dated 12th March, 2007, the land in question was transferred by .....

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assessees, namely, M/s.Bhavya Constructions Pvt. Ltd., Shri M.S.Raghava Reddy, Shri R.Srinivasa Rao, Shri R.Uma Maheswar, Shri P.Shivakumar and Shri G.C.Subbanaidu, the coordinate bench of this Tribunal vide its order [2014 (9) TMI 85 - ITAT HYDERABAD] decided similar issue in favour of the assessee, holding that the land sold by the said assessees were agricultural lands, and therefore, the profits arising from the transfer of such lands, was not chargeable to tax in the hands of the assessee. .....

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suggest that the activity was an adventure in the nature of trade. The land is not situated within the Qutubullapur municipality, but, the same situated in the Dundigal village and the evidence brought on record suggest that the land is an agricultural land, hence, it is not liable for taxation. 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 la .....

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ut of this transaction as business income. the land in question sold by the assessee, being agricultural land, the profit arising from the sale of the same, is not chargeable tot ax in the hands of the assessee as capital gain - Decided in favour of assessee. - ITA No.228/Hyd/14 - Dated:- 4-3-2015 - Shri P.M.Jagtap And Smt.Asha Vijayaraghavan JJ. For the Appellant : Shri K.C.Devdas For the Respondent : Shri Ramakrishna Bandi DR ORDER Per P.M.Jagtap, Accountant Member : This appeal filed by the a .....

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urn of income for the year under consideration was filed by the assessee, declaring total income of ₹ 1,64,950. In the said return, profit arising from sale of land amounting to ₹ 1,97,30,168 was declared by the assessee as short term capital gains, and the same was claimed to be exempt on the ground that the land sold, being an agricultural land, was not a capital asset under S.2(14) of the Act. During the course of assessment proceedings, the claim of the assessee for this exemptio .....

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the sale cum GPA dated 12.03.2007 in document no.4963/2007, for an amount of ₹ 2,00,00,000/-. (c) The appellant had purchased and transacted in the land which was contiguous to the land purchased and similarly transacted by M/s Bhavya Constructions Pvt Ltd (BCPL), Sri V Ananda Prasad (MD of BCPL), and other individuals, who all, like the assesseeappellant, were the investors in M/s Bhavya Cements Pvt Ltd, a company set up by Sri V Ananda Prasad. All these persons had shown the sources of .....

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business of M/s Bhavya Construction, the revenue records and the .statement of Village Revenue Officer (page 5), the past owner of such land the future owner of such land transacted by Bhavya construction, photographic evidence of the actual state of lands gathered by the Investigation Wing. Photographic evidences clearly indicated that no agricultural activity was undertaken on this land, copies of the photos indicating the state of land were on pages 8 to 11 of the asst. order. The "soft .....

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yd/07, dated 27.06.2008 were mentioned on pages 15 and 16 of the asst. order. The AO thereafter concluded that the lands are not agricultural in nature. (f) The AO also held that the land was not suited for agricultural use and no agricultural activity was carried on. Therefore, alternatively, even the exemption u/s 2( 14) is not available to BCPL and the land is therefore a capital asset in its hand. (g) The entire discussion on pages 2 to 16 was mentioning M/s BCPL but it was held that this ap .....

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was bought by all the associates of BCPL in the same period at Bowrampet which was adjacent to the urban agglomeration sprawling around Hyderabad city. This indicated that all these individuals invested in this land keeping in view the rising real estate market. The AO also noticed that the rise in price of the land was around 100 times is less than 3 years. This fact only confirmed the intention of the investment. The AO had also held that the assessee has done a systematic activity in this per .....

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and on 12/3/2007, 2 acres was sold to M/s. Varun Construction as agricultural land. The assessee also submitted the following in support of the claim that the land is agricultural - (i) Purchase and sale deed describing land as agricultural land, (ii) Pattadar pass book issued by the MRO, (iii) Certificate of Deputy Collector and MRO Qutubullapur Mandal stating that the land is agricultural land and that the assessee was raising crops like paddy, cattle feed, maize, Jowar and vegetables etc. An .....

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laimed that these are agricultural lands and are exempt from being treated as capital asset in terms of provisions of section 2(14) of the I.T. Act, 1961. (j) The AO however, did not accept the claim and stated that mere claim of these lands as agricultural based as per old record without giving credence to the visible physical appearance and all round urban development in and around these lands is not justified. He also held that traces of agricultural activity has to be visibly seen, physical .....

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dividuals who all were investors in Bhavya Cements and the AO felt that the lands were purchased by various individuals with a view to make quick profit and the same profits were apparently invested in Bhavya Cements. He therefore, brought the sale proceeds to tax as under the head income from business. 3. On the basis of the above findings/observations, the Assessing Officer held that the land sold by the assessee was not an agricultural land and the activity of purchase and sale of the said la .....

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sessing Officer before the learned CIT(A) and detailed submissions were made by her before the learned CIT(A) in support of the stand that the land in question was agricultural land. The submissions made by the assessee in this regard, as summarized by the learned CIT(A) in the impugned order, were as under- (i) The asset transferred is agricultural land located beyond 8 kms of any notified municipality. It is therefore, not a capital asset u/s. 2(47) of the I.T. Act. (ii) The evidence on which .....

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ed reliance to draw adverse conclusion Appellant s submission and counsel s argument 1. Statement of VRO Bowrampet regarding nature of land and agricultural operation. Non-mention of crops grown in the pahani was because the records were not updated since 2004 and this does not mean that no crops were grown. The VROs statement was recorded on 17.12.2009 after the sale of land in March, 2007. The statement therefore, cannot be accepted the position of clarifying the land before sale. More importa .....

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nt stated that the land purchased is agricultural in nature and she has grown maize on the said land. This statement of appellant is contemporaneous evidence. The MRO certificate is an admissible evidence u/s. 35 of Evidence Act. The entries herein cannot be brushed aside. 2. Blank quotation for purchase of fertilizer found in the premises of Bhyavya Evidence was not found in possession of assessee and nor can it be sued against her as they were blank quotations. 3. Sworn statement of MD of Decc .....

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the state of land by the officers of Inv. Wing on 26.12.2009. The inspection was not made jointly. The veracity of the report cannot therefore be utilized against the appellant. Inspection was made in 2009 whereas the land was sold in 2007-08. The repot is therefore not contemporious evidence to draw inference against the appellant inv view of the certificate granted by the competent authority MRO. It was admitted in the report of Inspecting Officer and also in the asst. order that in the said .....

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sessee once again filed before the learned CIT(A), copies of the pattadar pass book, MRO certificate dated 28.8.2005, certificate dated 4.10.2005 issued by the Town Planning Officer, Qutubullapur Circle; Certificate dated 4.2.2005 issued by the Deputy Tahsildar and Qutubullapur stating that Bowrampet village is 12 Kms from Qutubullapur municipal limits. 5. While challenging the action of the Assessing Officer in bringing to tax the short term capital gains arising from the sale of agricultural l .....

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nt and not business income. (d) No developmental activity like making of roads, providing amenities before sale were done. No systematic organized activity was undertaken. (e) The land was not converted into non-agricultural land before sale. (f) No attempt was made to improve the quality of land making it more suitable for sale. (g) There was no repetition of the transaction except selling of a portion of land acquired in the year 2004. (h) Merely because substantial gains were made, it does no .....

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ness in real estate. The word business connotes some real, substantial and systematic cause organized course of activity or conduct with a said purpose. An element of frequency is associated with business which is absent in this case. (b) Decisions of the Hon'ble SC in the case of G.Venkata Swamy Naidu & Co. (35 ITR 594) and Sree Meenakshi Mills Ltd (31 ITR 28) were cited. In the case of G.Venkata Swamy Naidu it was held that - If a person invest money in land intend to hold it, enjoys i .....

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ltural land. If "large profits are made it does not become business income". (d) Neither the profit motive nor the large profit does not change the transaction to a business transaction (Janakiram Bahadurram Vs CIT (57 ITR 21)(SC)} and CIT Vs. Sutlej Cotton Mills Supply Agency {100 ITR 706(SC)}. (e) Extent of land held as investment cannot be criteria cannot be held as same was held as stock in trade -Indian Hume Pipe Co. Ltd. 107 ITR 179 Para 8(Bom) (f) Appellant also relied upon the .....

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e and has to go further to establish that it is in the nature of a trade. In a border line case involving a transaction in land, burden becomes that much more heavier. There is no room for any doubt or debate particularly when a transaction is such that it may fall under two heads -one a primary head and a secondary or alternative head as in the instant case of the appellant. 6. After taking into consideration the submissions made by the assessee and the material available on record, the learned .....

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Sl. No. Agricultural land Non-agricultural land 1. The MRO Certificate issued in 2005 states the land as agricultural and also the crops grown. The Hon'ble Supreme Court in the case of Sharifabibi had clearly stated that the description of land in revenue record does not matter. It is to be seen whether the land was used, is being used and whether it will be used for agriculture as it is this continued use for agriculture which is the rationale for giving exemption. 2. The pahanis indicate .....

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has grown maize. The photographic evidence available in the asst order indicates that the land was not put to use for cultivation at all. The assessee in the statement also stated that the crop was destroyed and does not remember any agriculture expenses. 4. The AO has also stated that certain vegetables and crops were grown by watchman, signifying that land was agricultural (Not applicable to appellant s case specifically) The photographic evidence available in the sale deed itself wherein, th .....

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d, is being used and whether it will be used for agriculture as it is this continued use for agriculture which is the rationale for giving exemption. 6. There was no application either before or after for conversion of land to non-agricultural land. They continue to be as agricultural land in revenue records. The buyer was a company in real estate and construction business. Usually, instead of incurring further expense, any land owner would leave such hassles of getting such conversion certifica .....

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T in ITA No.s 1024 to 1026/Hyd/2011 and ITA Nos.1268 to 1271/Hyd/2011. wherein it cited the decision of Hon'ble Punjab & Haryana High Court in the case of CIT V/s. Smt. Anjana Sehgal (supra) that the expression from the local limits of any municipality used in section 2(14)(iii)(b) of the Incometax Act denotes any municipality or municipality of the District in which the land is situated 8. …. No evidence of any agricultural income. In fact, though the Assessing Officer had not me .....

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above factors, the learned CIT(A) held that the land in question sold by the assessee was not agricultural land by summarizing his observations in paragraph 13 as underITA 13.0 Thus, on summation of facts and circumstances both favourable and against the assessee/appellant, as per the above table, it is clear that other than its assertion and an MRO Certificate issued in a routine manner that too in 2005, the appellant really does not have anything real and substantive to claim that the land wa .....

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e picture that the investigation wing took. The environment of the entire chunk of land -not only appellant s but the other related investors of Bhavya cements is identical. Further, the proximity to city, the merger within GHMC within a month of sale (when the proposal for such merger and the drafting of such bill must have been in news much before ) clearly show the development activity taking place around and which is a key factor in assessing the general environment around the land and its u .....

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3C is not applicable in the case as a copy of registered development agreement, which is in public domain, cannot constitute an incriminating evidence to initiate proceeding under section 153C of IT Act without proper satisfaction. 3. The learned CIT(A) ought not have ignored the evidences filed by the appellant that the land is agricultural which were duly supported by the certificates of revenue authorities and other evidences available in the departmental records accepting such claim in respe .....

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under the head capital gain . 5. The learned CIT(A) ought to have appreciated that his powers to decide an appeal are circumscribed as provided in section 251 which stipulates that the CIT(A) can confirm, reduce, enhance or annul the assessment. In the light of this, CIT(A) ought not have changed the head of income as determined by the AO as falling under adventure in the nature trade to capital gain 6. It is not a fact that the appellant claimed that the income is assessable under the head capi .....

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t of above, the addition made under head capital gain by CIT(A) is liable to be deleted. 8. The appellant craves leave to add/alter/modify any of the grounds as may be necessary for adjudication of the case. 10. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that by an Agreement of sale with possession-cum-Irrevocable power of attorney dated 12th March, 2007, the land in question was transferred by the assessee to M/s. Varun Constru .....

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tructions Pvt. Ltd., Shri M.S.Raghava Reddy, Shri R.Srinivasa Rao, Shri R.Uma Maheswar, Shri P.Shivakumar and Shri G.C.Subbanaidu, the coordinate bench of this Tribunal vide its order dated 28.8.2014 decided similar issue in favour of the assessee, holding that the land sold by the said assessees were agricultural lands, and therefore, the profits arising from the transfer of such lands, was not chargeable to tax in the hands of the assessees. The elaborate observations/findings recorded by the .....

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n is to be treated as an adventure in the nature of trade. As can be seen from the facts and materials placed on record, the nature of land at the time of purchase by the assessee from M/s Deccan Properties Ltd. and also at the time of sale to M/s Varun Constructions, remained the same i.e. agricultural not only in the revenue records but also in the pahanis. It is also a fact on record the assessee has shown income from agricultural operations carried on over the said land in the return of inco .....

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of the view that 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 ov .....

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it 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 application of mind had accepted the claim of the assessee that the asset being sold being agricultural land will not attract capital gain tax. The department has not brought any cogent evidence or material on record to disprove assessee s claim either in respect of agricultural income earned through agri .....

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ital asset as envisaged u/s 2(14) of the Act. So far as the finding of the AO that the transaction entered into by the assessee is an adventure in the nature of trade, the same is also without merit for the strong and valid reasons recorded by the CIT(A). On a perusal of the assessment order, it appears, that the AO has treated the transaction as an adventure in the nature of trade only to overcome assessee s claim of exemption from capital gain on the ground that the asset sold is not a capital .....

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mine similar nature of dispute arising out of similar nature of transaction relating to sale of agricultural land located in the same area in case of some other assessees, namely, Smt. M. Vijaya and others Vs. DCIT (ITA Nos.306, 307, 309 & 311/Hyd/13 order dated 06/06/2014) who also sold their land to M/s Varun constructions. The Tribunal after examining the contentions of the parties and referring to a number of judgments held as under: 23. Adverting to the facts of the present case, the la .....

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poses 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 nonagricultural purposes) Act, 2006 also prescribed the procedure for conversion of agricultural land into non-agricultural land. Being so, whenever the agricultural .....

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rnment notification and the land owners are required to apply to the concerned Revenue authorities for the purpose of conversion of the agricultural land into nonagricultural land and there is no automatic conversion per se by State Government notification. 25. In the instant case, at the relevant point of sale of the land in question, the surrounding area was totally undeveloped and except mere future possibility to put the land into use for non-agricultural purposes would not change the charac .....

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hen the land was sold by the assessee. It is also not in dispute that there was no activity undertaken by the assessee of developing the land by plotting and providing roads and other facilities 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 nonagric .....

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otive 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 included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of time. Th .....

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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 within the distance of 8 kms from the local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also require .....

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nits,, within the municipal limits of Dasarahalli City Municipal Council in the absence of any notification issued under Clause (b) to section 2(14)(iii) of the Act, it cannot be looked in as a capital asset within the meaning of Section 2(14)(iii)(b) of the Act also and therefore though the Tribunal may not have spelt out the reason as to why the subject land cannot be considered as a capital asset be giving this very reason, we find the conclusion arrived at by the Tribunal is nevertheless the .....

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t 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 munici .....

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.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 cro .....

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it is being put to any use. If it is used for agricultural purposes there is a presumption that it is agricultural land. If it is used for non-agricultural purposes the presumption is that it is non-agricultural land. This presumption arising from actual use can be rebutted by the presence of other factors. There may be cases where land which is admittedly non-agricultural is used temporarily for agricultural purposes. The determination of the question would, therefore, depend on the facts of e .....

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whether the land was agricultural land: Held, that what had to be considered is not what the purchaser did with the land or the purchaser was supposed to do with the land, but what was the character of the land at the time when the sale took place. The fact that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purpos .....

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ted 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 publishe .....

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d 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 bee .....

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Electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area]. [Explanation. - For the purposes of this clause, the expression "local authority" means - (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Gover .....

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quot;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 cant .....

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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 .....

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ords, 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 section 2(14)(iii). This section prescribes that any area within such distance, not being more than 8 km from the local limit of any municipality or cantonment board as referred to in sub-clause (a) of section 2(14)(iii) of the Act, as the Central Government may, having regard to the extent of, an .....

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mentioned that the areas up to a distance of 8 km from the municipal limits in all directions. In the notification 11186 dated 28.12.1999 there is no entry relating to Hyderabad. It is clear from these notifications that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of Hyderabad Municipality (GHMC) is covered by the amended definitions of 'capital asset'. Central Government in exercise of such powers has issued the above notificatio .....

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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 way from the outer limits of this Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub claus .....

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alls 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 .....

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w, 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 presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not co .....

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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 or capital gain. The period of holding should not suggest that the activity was an adventure in the nature of trade. 36. In view of our above discussion, in our opinion, the land is not situated within the Qutubullapur municipality, but, the same situated in the Dundigal village and the eviden .....

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m 16/04/2007. We have also gone through the record placed in the paper book at pages 76 & 77. At page 76, a copy of the intimation is placed issued by the Town Planning Officer, Quthbullapur , 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 .....

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er 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 through the aforesaid order of the coordinate bench, we find the facts dealt upon by the tribunal is identic .....

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