TMI Blog2015 (3) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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. As the land sold is not only agricultural in nature but is also situated beyond 12 kms from the limit of a municipality notified by the central govt. Hence, land sold by assessee not being a capital asset, the gain derived there from is not taxable at the hands of the assessee. - Decided in favour of assessee. - ITA No.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 agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable in the hard disk, the nature of 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 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 agricultural land as held by the Hon'ble Supreme Court in the case of Sarifabibi (204 ITR 631) and the decision of Hon'ble ITAT, Hyderabad in the case of M/s G.K.Properties Pvt Ltd in ITA No.773/Hyd/07, dated 27.06.2008 were mentioned on pages 13 and 14 of the asst. order. The AO also mentioned the decision of the Hon ble Supreme Court in the case of Rajas Mustafa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ullahpur 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 by the MRO, (iii) Certificate of Deputy Collector and MRO Qutubullapur Mandal dated 20/08/2005 stating that the land is agricultural land and that the assessee was raising crops like paddy, cattle feed, maize, Jowar and vegetables etc. and (iv) Certificate of Town Planning Officer, GHMC Qutubullapur Circle in G/1240/2008 dated 04.10.2008 stating that the said lands are not falling under GHMC limit. (v) The entire transaction was through Sub-Register of Medchal Revenue authorities and not through 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 clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. BCPL which owned another patch of land contiguous to the land owned by the appellant. The observations and the conclusions drawn therein were utilised 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 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 importantly, the VRO s statement has no value in light of the certificate given by the MRO and Dy. Collector who is the competent authority in the matter of issue of certificate. The said certificate is clear about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 land under the head business income , the assessee made the following submissions before the learned CIT(A) on the relevant factual and legal aspects- 11.2. The factual aspects are as under:- (a) The appellant is a housewife, her paltry sources of income were some earnings through 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be a clear case of capital accretion and not profit derived -from an adventure of trade. Cases of realization of investment consisting of purchase and resale, though profitable, are clearly outside the domain of adventure in the nature of trade. (d) It is not uncommon that due to rapid growth of urban area, agricultural lands in the vicinity of city are commanding a high price. 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 Pipe Co. Ltd. 107 ITR 179 Para 8(Bom) (g) Appellant also relied upon the following judicial decisions (i) B Narsimha Reddy Vs. ITO (47 ITD 398)(Hyd) (ii) CIT Vs Radhesham Morarka 127 ITR 111) (iii) K.Radhika Vs DCIT {47 SOT 180 (Hyd)} (iv) A Mohd. Mohideen - Madras High Court (h) The appellant als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assify the 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 specifically) The photographic evidence available in the sale deed itself wherein, the photograph of the land is made part of the sale deed. This contemporaneous evidence also does not indicate any agricultural activity on the land. It is evident that the land was idle and some wild bushes were seen. Agricultural activity at any point of time is absolutely invisible. 5 Land was sold in acres and not in sq. yds. The Hon'ble SC in the case of Sarifabibi had clearly stated that the description of land in revenue record does not matter. It is to be seen whether the land was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee/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 was really agricultural. The Hon ble SC had already stated that the revenue record, though, important is not conclusive evidence. The photographic evidence gathered by the investigation wing may be in 2009. But the pictures clearly show that the land was left idle and there is really no attempt to bring it under cultivation in whatsoever manner. More importantly, the purchase and sale deeds also have photographs pasted as part of sale deed. These are contemporaneous. They 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 gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head of income. The learned CIT(A) ought to have appreciated that such a claim by the appellant does not fall under any specific head as provided under 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 M/s. Varun Constructions. There was a similar agreement entered into by other 14 land owners, who were owners of the adjacent lands on the same date transferring their lands to M/s., Varun Constructions. The said fourteen parties had also claimed the profit arising from the transfer of their land to M/s. Varun Constructions as exempt on the ground that their lands, being agricultural lands, were not capital assets within the meaning of S.2(14). In their cases also, the claim was not allowed by the Assessing Officer and when the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gricultural 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 also prescribed the procedure for conversion of agricultural land into non-agricultural land. Being so, whenever the agricultural land to be treated as nonagricultural land, the same has to be converted in accordance with the provisions of Andhra Pradesh Agricultural Land (conversion for nonagricultural purposes) Act, 2006. If by a Government Notification, the nature and character of land changes from agriculture into non-agriculture then there is no question of conversion of this land for non-agricultural 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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 requires the fulfilment of the condition that the Central Government has issued a notification under this Clause for the purpose of including the area up to 8 kms, from the municipal limits, to render the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin 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 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 clause (a) was only municipality. 31. We also perused the meaning of the term local authority as referred in section 10(20) of the Act. (20) the income of a local authority which is chargeable under the head Income from house property , Capital gains or Income from other sources or from a trade or business carried on by it which accrues or arises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, and scope for, urbanisation of that area and other releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, 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; that intention must be present at the time of purchase. The mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 through the aforesaid order of the coordinate bench, we find the facts dealt upon by the tribunal is identical to the facts in the present case. Therefore, ratio laid down therein also equally applies to the facts of the present case as the land sold is not only agricultural in nature but is also situated beyond 12 kms from the limit of a municipality no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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