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Smt. R. Srivalli Versus Dy. Commissioner of Income-tax

2015 (3) TMI 758 - ITAT HYDERABAD

Sale of land - 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 land being an adventure in the nature of trade, profit arising therefrom was chargeable to tax in her hands as business income - Held that:- Section 2(14)(iii)(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 th .....

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nder 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 o .....

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.229/Hyd/14 - Dated:- 11-3-2015 - Shri P.M.Jagtap And Smt.Asha Vijayaraghavan JJ. For the Appellant : Shri K.C. Devdas & Shri A Srinivas For the Respondent : Shri Ramakrishna Bandi DR ORDER Per P.M.Jagtap, Accountant Member : This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals) VII, Hyderabad dated 29.11.2013. 2. The assessee in the present case is an individual. A search and seizure action was conducted in the cases belonging to .....

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m 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 exemption was examined by the Assessing Officer in detail, and on such examination, he recorded his findings/observations, which, as summarized by the learned CIT(A) in the impugned order, are as under- (a) The appellant had acquired from Smt.R.Uma Devi .....

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f 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 investment in the share capital of M/s Bhavya Cements as sale proceeds of these lands. (d) The detailed investigation and the evidences found relating to the claim of Bhavya Construction and Sri V Ananda Prasad were narrated in full from page 2 of the asst. order onwards. The Assessing officer re .....

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tographic 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" copy of a bill of a firm and blank bills of another firm dealing in agricultural inputs led to the conclusion that suspicious and bogus claim of expenditure is made to create a facade of agricultural activity, when, in reality, there was no such activity. (e) The legal position regarding a .....

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he assessee. 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 applies in toto to most of the investors in Bhavya Cements Ltd inclu .....

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rampet which was adjacent to the urban agglomeration sprawling around Hyderabad city. The land gifted to the appellant was also bought by one such associate. 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 th .....

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der the definition of capital asset u/s.2(14) of the I.T. Act, 1961 as the said lands are not situated in notified area. It was also stated that the lands sold by the assessee are agricultural lands only and the same are certified by the Dy. Collector and MRO Qutubullahpur Mandal, as agricultural lands. 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 b .....

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Hyderabad Revenue authorities. The jurisdictional authority is Qutubullapur Municipality and not Hyderabad Municipality. It was also submitted that Qutubullapur Municipality was not notified by the Central Govt. The appellant therefore claimed 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 .....

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l the claims of the assessee held that assessee's transaction in sale of land as akin to business activity and assessed it as business income of the assessee. He again drew parallel to the activity undertaken by BCPL and the other individuals 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 ta .....

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usiness income in the assessment completed under S.143(3) read with S.153C of the Act, vide order dated 30.10.2011. 4. Against the order passed by the Assessing Officer under S.143(3) read with S.153C, an appeal was preferred by the Assessing 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 .....

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against the appellant, which is incorrect. The appellant had nothing to do with those findings. The counsel however rebutted these evidences also as summarized in the table given below: Sl. No. Evidence on which Assessing Officer placed 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 .....

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rown. The Pahanis (land records) show that the land is Metta land (dry land). Metta land is not irrigated but is cultivable like dry crops like maize. In the sworn statement date 17.11.2009, the in answer to q.no.10 and 11, the appellant 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 brushe .....

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l operation Merely because another person had not carried any agricultural operation in the said land, the same would not lead to the conclusion that the appellant had also not carried out any agricultural operation. 5. Inspection of 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 .....

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scounting The nearest municipality is Qutubullapur which is not a notified municipality. Even otherwise, the land was sold on 12.03.2007 and GHMC was notified w.e.f. 16.04.2007. In support of the above submissions, the assessee once again filed before the learned CIT(A), copies of the pattadar pass book, MRO certificate dated 20.8.2005, 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 .....

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h home tuitions (she is a post graduate) which was accepted by the AO. (b) She had never carried on a business in real estate either before or after this land transaction. (c) Agricultural land was gifted to her and she had sold it the same day. It was not her stock in trade (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 at .....

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of that transaction or because of the end purpose for which the buyer bought land from her. It would remain gains from investment. 11.2 On the legal aspect, it was submitted that : (a) Initial intention of Acquisition of land is a vital factor. Here, it was acquired as gift. There has to be an intention to trade at the time of purchase and the onus is on the department to prove it (CIT V/s. V.A. Trivedi 172 ITR 95(Mumbai)). Transaction of gifted property and an isolated instance of sale, even t .....

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sale of land by the appellant. The appellant never carried on any business 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. (c) 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 h .....

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ce. The pace of urbanization is not in the control of holders of agricultural land. If "large profits are made it does not become business income". (e) 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)}. (f) Extent of land held as investment cannot be criteria cannot be held as same was held as stock in trade -Indian Hume Pi .....

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revenue to establish with positive proof that a transaction is adventure 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 .....

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the assessee on this issue and summarized the same in a tabular form as under- Sl. No. Agricultural land Non-agricultural land 1 The MRO Certificate issued in 2005 states theland 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 agric .....

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he land as agriculture. The assessee in its first statement stated that she 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 specificall .....

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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. 6 There was no application either before or after for conversion of land to nonagricultural 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 l .....

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d its own decision in the case of Smt Gousia Begum & Ors. Vs. DCIT 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 No evidence of any agricultural income. In fact, though the .....

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earch. 7. Keeping in view the 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 under- 12.8 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 substantiv .....

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y too do not differ from the 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 environmen .....

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he provisions of section 153C 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 ac .....

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without treating the same 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 ass .....

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section 14. 7. In the light 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 5.3.2008, the land in question was transferred by the assessee to .....

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the Assessing Officer and when the matter reached the Tribunal in the case of six of the said 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 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 trans .....

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d to his conclusion in respect of the nature of land sold by the assessee or with regard to the issue as to whether the transaction 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 al .....

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s not applied for conversion of the land to non-agricultural it cannot be treated as non-agricultural land only because the AO was 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 ar .....

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icer, 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 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 a .....

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situated beyond the prescribed limit of any municipality notified by the central govt. it cannot come within the definition of capital 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 n .....

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e is present in the transaction. It will be pertinent to mention here that earlier a bench of this Tribunal had an occasion to examine 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 conte .....

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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 nonagricultural purposes) Act, 2006 .....

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gricultural purposes by the Revenue authorities concerned. To our understanding nature of land cannot be changed by any State Government 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 .....

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ified as agricultural land and has not been changed from agricultural land to nonagricultural land at the relevant point of time when 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 bee .....

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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 in .....

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ital 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 wit .....

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e, Clause (a) to section 2(14][iii] of the Act is not attracted. 12. However, though it is contended that it is located within 8 knits,, 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 .....

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s 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 .....

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t 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 assess .....

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quot;capital gains". In order to determine whether a particular land is agricultural land or not one has to first find out if 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-agricu .....

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nning scheme. The assessee got permission of the Collector to sell the land for residential purposes and sold it. On the question 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 .....

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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 .....

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lf 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 whi .....

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from a trade or business carried on by it which accrues or arises from the supply of a commodity or service [(not being water or 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 .....

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n the definition of the expression 'Capital Asset'. The relevant portion 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 .....

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ation 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 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 an .....

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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 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 .....

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ted 28th December, 1999. In the schedule annexed to the notification dated 6.1.1994, Entry No. 17 is relating to Hyderabad wherein 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 .....

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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 way from the ou .....

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aicker 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 .....

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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 .....

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adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations. 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 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 opi .....

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4)(iii) of the I.T. Act and Qutubullapur Municipality abolished and merged with Municipal Corporation of Hyderabad with effect from 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 certific .....

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icultural 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 .....

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