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2015 (3) TMI 836 - ITAT CHENNAI

2015 (3) TMI 836 - ITAT CHENNAI - TMI - Capital gain arising on sale of agricultural land - transfer of Power of attorney (POA) - treatment of sale of agricultural land as business income of the assessee - sale of land as such or plotted land - Held that:- Power of attorney is coupled with interest makes the assessee is owner u/s 2(47) of the Act. Further there is no dispute with regard to the ownership and enjoyment of property. Sec. 2(47) of the Income tax Act provides for taxation of Power of .....

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the returns of income filed by him. Further, the assessee has also filed certificates obtained from Village administrative officer to prove the fact of use as agricultural lands.

Some of the lands sold by the assessee have been categorized as “residential land” by the Sub-registrar Office for the purpose of collection of Stamp duty and hence such classification would not determine the character of land. The fact remains that the assessee has cultivated the lands and has declared agri .....

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abad bench of ITAT in the case of DCIT Vs. M. Kalyan Chakravarthy [2014 (11) TMI 338 - ITAT HYDERABAD]. In the case of Mrs. Sakunthala Vedachalam and Mrs. Vanitha Manickavasagam (2014 (9) TMI 3 - MADRAS HIGH COURT), the Hon’ble jurisdictional High Court has held that the manner in which the adjacent lands are used by the owner therein is not a ground to come to a conclusion that the assessees’ lands are not agricultural lands. The principle that the assessee can hold assets either as “Stock in t .....

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hat the assessee should have incurred huge expenditure, without which he could not have sold the plots.we are of the view that the ld CIT(A) was not correct in deleting the entire amount of disallowance by simply following the decision in the case of M/s Jubilee Plot and Housing Pvt. Ltd., assessee’s sister concern. Since there is failure on the part of the assessee also, we are of the view some disallowance is called for in order to cover up the deficiencies, if any and also to put this issue a .....

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Cross Appeals are directed against the order dated 26.12.2011 passed by Ld CIT(A)-III, Chennai and they relate to the assessment year 2008-09. Both the appeals were heard together and are being disposed of by this common order, for the sake of convenience. 2. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the assessment of Capital gain arising on sale of agricultural land as business income of the assessee. 3. The revenue is aggrieved by the decision of Ld CIT(A) in deleti .....

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viz., Kundrathur Village, Perumbakkam village and Thirumudivakkam village. The AO compared the Gross Profit rate and Net Profit rate declared by the assessee in both the activities, i.e., in the activity of development and sale of land and in the sale of agricultural land. He found that the rate of profit shown on sale of agricultural land was very high. Hence, the AO formed the view that the profit declared on sale of agricultural land did not appear to be credible. 5. Before the AO, the assess .....

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nt and Stock in trade . The assessee further submitted a certificate obtained from local panchayat office also to show that these lands were held as agricultural land only. The assessee had also declared agricultural income from out of these lands. 6. However, the AO was not convinced with the explanations of the assessee and accordingly held that the gain arising on sale of these lands should also be assessed as business income. The reasoning of the AO is summarized below:- (a) The lands have b .....

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led by the assessee, they have been categorized as wet land - single crop. (e) The lands have been sold in small plots, which points out that the land has been purchased by the intending purchaser for investment or construction and not for carrying on agricultural activity. (f) The lands have been sold at around 1.75 lacs to 2 lacs per cent and normally agricultural lands do not fetch such a high price. (g) The lands are situated in a fast developing area where industries are coming up. (h) The .....

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upon cumulative consideration of number of facts. In the case of Sarifabibi Mohamed Ibrahim (supra), the assessee therein was not a person engaged in the business of trading of land. However, in the instant case, the assessee is engaged in the business of trading of land. Thus it is seen that the assessing officer has taken the view that the assessee has held these lands as his business assets only. Though the AO has not expressly stated that the impugned lands were not agricultural lands, but t .....

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me. From the computation of business profits, the AO noticed that the assessee has claimed development expenses of ₹ 26.56 crores, which was about nine times of the cost of land. Hence, the AO considered the same on higher side and accordingly called for details. However, the assessee did not furnish the details called for by AO. The AO further noticed that identical issue was considered by him in the assessee s sister concern named M/s Jubilee Plot and Housing Pvt Ltd, wherein the assesse .....

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in the business of development of lands. He further held that the agricultural income declared by the assessee was only incidental. He further held that the method of exploitation of land is of least significance, when the intention of the assessee is only to enjoy the fruits of appreciation and not to reap the benefit by way of cultivation. Accordingly he upheld the action of the AO in assessing the Capital gains realized on sale of impugned lands as business income of the assessee. Thus, it i .....

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011 relating to AY 2007-08 and 2008-09 respectively. Accordingly, by following the decision of Ld CIT(A) rendered in the case of M/s Jubilee Plot & Housing Pvt Ltd, the first appellate authority also deleted the disallowance made by the AO out of development expenses. Aggrieved by the order of Ld CIT(A), both the parties have filed these appeals on the points decided against each of them. 9. We shall first take up the appeal filed by the assessee. The Ground no. 1 is general in nature and he .....

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the parties that the impugned lands were located beyond the prescribed municipal limits. If these lands were considered to have been held by the assessee as Stock in trade , then the profit realized on their sale is assessable as business profits of the assessee, even if the character of land remains agricultural land. On the other hand, if they were considered to have been held by the assessee as Investment , the gain realized on their sale would result in taxable Capital gains, if they are no .....

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mpt from taxation. This bifurcation, prima facie, would show that the assessee has held the lands both as Investment and as Stock in trade . We also notice that the assessee has submitted that he has demarcated lands as Stock in trade and Investment in the books of accounts. 11. We notice that both the tax authorities have rejected the contentions of the assessee, mainly on the reasoning that the assessee, being engaged in the business of land development and sale, could not have purchased any l .....

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rial Development Company (P) Ltd (82 ITR 586), where in the Hon ble Apex Court has observed as under:- Whether a particular holding of shares is by way of investment or forms part of the stock in trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock in trade and those which are held by .....

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ares or investments. Though the above said circular was issued and the decision of Hon ble Madras High Court was rendered in the context of Share transactions, yet we are of the view that the principle laid down therein equally applies to the present case also. In the instant case, the assessee is engaged in the business of land development and sale and hence the normal presumption would be that he would have purchased the land only with the intention to hold the same as Stock in trade. However, .....

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ock in trade . In this regard, the settled proposition is that the answer to the above said question would depend upon cumulative consideration of a number of facts. The Circular issued by the CBDT and the Courts have listed out various criteria for this purpose. We may observe that the criteria so listed out are not the exhaustive list, but they were in the nature of guiding factors only. One has to consider all the factors in a holistic manner in order to decide the above said question. 13. We .....

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ess profit, as held by the Hon ble Bombay High Court in the case of CIT Vs. Yatish Trading Co. Pvt Ltd (ITA No. 1007 of 2011 dated 28-01- 2013). 14. The JODHPUR BENCH (THIRD MEMBER) of the Tribunal, in the case of Smt. Supriya Kanwar V/s ITO in IT APPEAL NO. 362 (JU) OF 2010 (AY 2007-08) vide order dated 20.3.2014 has considered an identical issue. The relevant observations made by the Third Member are extracted below:- The issue as to whether a particular transaction amounts to mere sale of inv .....

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t a single plunge in the waters of trade may partake of the character of an adventure in the nature of trade but at the same time cautioned that the 'single plunge must be in the waters of trade'. The Hon'ble court observed that it is impossible to evolve any formula which can be applied in determining the character of isolated transactions; if a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case .....

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er, by any act subsequent to the purchase, improve the quality of the land and thereby made it more readily resaleable? What were the incidents associated with the purchase and resale? - etc. will have to be taken into consideration and a holistic view has to be taken. 15. We shall examine the facts prevailing in the instant case under various factors/criteria. (a) We notice that the assessee, in his activity of development of land and sale, was used to divide the land into different plots of sm .....

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In fact, the assessing officer himself has disallowed a major part of development expenses. However, it is an admitted fact that the assessee did not develop the lands held as Investments and he has sold them in the same condition in which they were purchased. (b) We have already noticed that the assessee has submitted that he has demarcated the lands held as stock in trade and that held as Investment in separate account. (c) Further, we notice that the assessee has submitted that the lands hel .....

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land without approach roads only proves that he has sold the lands as land only. (d) The lands held as Stock in trade has been sold within 1 - 3 years. However, the lands held as Investments have been sold after expiry of 4 years. If the assessee had intended to hold the lands as Stock in trade, he would have started the development activities immediately after its purchase, so that he could make quick profit there from. The fact that the assessee did not carry on any development activity coupl .....

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agricultural land, which further fortifies the fact that the assessee has intended to hold the land as Investment only. All the above said factors support the case of the assessee that he has held the impugned lands as Investment only. 16. The next issue that requires to be considered is about the character of land. In this regard we may gainfully refer to the decision rendered by the Hon ble jurisdictional Madras High Court in the case of Mrs. Sakunthala Vedachalam & Mrs. Vanitha Manickava .....

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were casuarinas crops grown in those lands as shown in the chitta adangal, which indicated that the lands were agricultural lands. Accordingly, the Ld CIT(A) allowed the claim of the assessee, but his decision was reversed by the Tribunal by following the decision of Hon ble Gujarat High Court in the case of CIT Vs. Siddharth J Desai (139 ITR 628). The Hon ble Gujarat High Court, in the above cited case had laid down various tests that have to be considered in order to ascertain the true nature .....

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tors are: (1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (3) Whether such user of land was for a long period or whether it was of temporary character or by way of a stop-gap arrangement? (4) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion .....

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the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such user and/or alternative user was of a permanent or temporary nature? (7) Whether the land, though entered in revenue records, had never been there were actually used for agriculture, that is, it had never been plo1ughed or tilled? Whether the owner meant or intended to use it for agricultural purposes? (8) Whether the land was situate in a developed area? Whether its physica .....

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? If so, whether the sale or intended sale to such non-agriculturists was for non-agricultural or agiculture user? (12) Whether the land was sold on yardage or on acreage basis? (13) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield? At the risk of repetition, we may mention that not all of these fact .....

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s actually or ordinarily used for agricultural purposes. This view of the Tribunal was not acceptable to the Hon ble Madras High Court. The relevant observations made by the High Court in this regard are extracted below:- 13..…..This reasoning does not appear to be correct in view of the above said decision of the Gujarat High Court, wherein it was clearly held in clause (1) in paragraph 11 that whether the land was classified in the revenue records as agricultural and whether it was subj .....

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Tribunal has misconstrued the judgment of the Gujarat High Court (supra) that all conditions laid down in paragraph 11 should be satisfied, which is not a correct interpretation. The Hon ble Madras High Court further rejected the contentions of the revenue that he adjacent lands are put to commercial use by way of plots. The following observations made by the High Court are relevant here:- 17. Yet other reason given by the Tribunal is that the adjacent lands are put to commercial use by way of p .....

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g given by the Tribunal No agriculturists would have purchased the land sold by the assessee for pursuing any agricultural activity is based on mere conjectures and surmises. 18. The plea of the learned standing counsel appearing for the Revenue that there was no agricultural operations prior to the date of sale is of no avail as the definition under section 2(14) of the Income tax Act has the answer to such a plea raised. Furthermore, it is also on record that the lands are agricultural lands c .....

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le of being used for raising any valuable plants or trees or for any other purpose of husbandry (See Sarojinidevi V. Shri Krishna Anjanneya Subrahmanyam and other (1) and Megh Raj V. Alla Rakhia (2)) . Accordingly, the Hon ble Madras High Court reversed the decision of the Tribunal and restored the order of Ld CIT(A) 17. We shall now apply the principles discussed by the Hon ble Madras High Court in the case of Mrs. Sakunthala Vedhachalam and Mrs. Vanitha Manickavasagam (supra) to the facts prev .....

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sessee for the year under consideration was ₹ 4,60,000/- and the cost of investment in purchase of lands was ₹ 1.36 crores. The correctness or otherwise of this income was not ascertainable. (e) The assessee has submitted that he has sold the lands as agricultural lands only and no permission was obtained for nonagricultural use of the land. (f) There is no finding of tax authorities that the land has been ceased to be put to agricultural use. (g) There is no finding of tax authoriti .....

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ned lands for non-agricultural use. (k) No permission was obtained for non-agricultural use before sale. (l) The lands have not been sold on yardage basis, but have been sold on cents/acreage basis. (m) The question as to whether an agriculturist would purchase the land for agricultural purposes at the prices at which the land was sold, was not ascertainable. Thus, we notice that the lands sold by the assessee satisfy most of the criteria prescribed by the Hon ble Gujarat High Court. We have als .....

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ubmissions made by the assessee in that regard. (a) The lands have been acquired through power of attorney or sale agreement and were not registered in the name of the assessee. Submisssion of the assessee:- Power of attorney is coupled with interest makes the assessee is owner u/s 2(47) of the Act. Further there is no dispute with regard to the ownership and enjoyment of property. Sec. 2(47) of the Income tax Act provides for taxation of Power of attorney transactions. Right to exploit is a Cap .....

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hold these agricultural lands as Investment only. (c) The assessee did not carry on any agricultural activity. Submission of the assessee:- The assessee has declared agricultural income in the returns of income filed by him. Further, the assessee has also filed certificates obtained from Village administrative officer to prove the fact of use as agricultural lands. (d) Some of the lands sold by the assessee have been categorized as residential land by the Sub-registrar Office. However, in respec .....

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icer. (e) The lands have been sold in small plots, which points out that the land has been purchased by the intending purchaser for investment or construction and not for carrying on agricultural activity. Submission of the assessee:- This is against the facts. The assessee did not develop these lands by forming roads etc., but has sold as agricultural lands only in cents and acres and not in square feet , which is the normal case in case of housing plots. Lands have been sold in continuous stre .....

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No.362/JU/2010 dated 13.5.2014). In the case of M. Kalyan Chakravarthy (supra), the Hyderabad bench has followed the decision rendered by the Hon ble Madras High Court rendered in the case of M.S. Srinivasa Naicker and Others Vs. ITO (292 ITR 481). (g) The lands are situated in a fast developing area where industries are coming up. Submission of the assessee:- In the case of Mrs. Sakunthala Vedachalam and Mrs. Vanitha Manickavasagam (supra), the Hon ble jurisdictional High Court has held that t .....

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ets either as Stock in trade or as Investment is now recognized. 19. On a combined consideration of the reasons given by the assessing officer and the submissions made by the assessee, we are of the view that there is merit in the submissions of the assessee, in view of the principles discussed in various decisions rendered by the Hon ble High Courts, which we have discussed in detailed manner in the earlier paragraphs. Further, we notice that the ld CIT(A) has upheld the view of the assessing o .....

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Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete assessment of gain arising on sale of agricultural land. 20. Now we shall take up the appeal filed by the Revenue. We have already noticed that the AO has disallowed the claim of development expenditure to the tune of ₹ 12.09 crores. The assessee had claimed the development expenses of ₹ 26.56 crores in his business venture of land development and sale. Before the AO, the assessee did not furni .....

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(A) noticed that the identical disallowance made in the assessee s sister concern M/s Jubilee Plot and Housing Pvt. Ltd has been deleted by him and accordingly he deleted the addition made in the assessee s case also. Aggrieved, the revenue has filed appeal challenging the decision of Ld CIT(A) on this issue. 22. The ld. DR submitted that the assessee in the present case did not furnish evidences to substantiate the claim of development expenses. However, in the case of M/s Jubilee Plot and Hous .....

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passed in the case of M/s Jubilee Plot and Housing Pvt. Ltd. The addition so made in the hands of above said assessee has been deleted by the Ld CIT(A) and his order has since been approved by the Tribunal vide its order dated 21.6.2013 passed in ITA No.1097/Mds/2011 and ITA No.1315/Mds/2011 relating to assessment years 2007-08 and 2008-09 respectively. Accordingly, the ld. AR submitted that there was no basis or material with the AO to make the impugned disallowance and accordingly prayed that .....

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M/s Jubilee Plot and Housing Pvt. Ltd. for computing the disallowance i.e. the AO allowed only 43.06 % of the total receipts as development expenses, meaning thereby the assessing officer has accepted the expenditure claim to the tune of about 57% only. There should not be any dispute that the quantum of development expenses would vary from place to place and the same would depend upon various factors, like characteristics of the land i.e., whether they are plain or not, its depth from the road .....

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