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TMI Blog2015 (3) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchased 4 acres in survey no.668 (Ac 0.12 gts), Sy. No.669(Ac 0.09 guntas), Sy.no.6709Ac 2.10 gts) and Sy.No.671 (Ac 0.09 gts) situated at Bowrampet, Dundigal, RR Dist, from one Sri G.Srinivasa Rao, for an amount of Rs. 6,15,000/- through registered sale deed Doc. No.3898/2005, dated 02/04/2005. (b) Assessee sold 2 acres, i.e. in Sy. No.668 (Ac 0.12 gts), Sy. No.669 (Ac.1.09 guntas) Sy. No.670(Ac.2.10 gts) and Sy.No.671 (Ac 0.09 gts) to M/s Varun constructions through the sale cum GPAdated5.03.2008 in document no.2794/.20098 for an amount of Rs..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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealing with land in such manner, came to the conclusion that M/s BCPL and its associates have performed an adventure in the course of normal professional activity which is buying and selling of land along with its associates. The AO observed that the land 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 period of time in an established manner along with other associates. He, therefore, held that the activity carried on by the assessee has to be treated as carrying out of business and the income from sale of land should be treated as an adventure in the nature of trade. Accordingly, he brought it to tax under section 28 of the Act (Page 19 & 20 of asst. order). (i) In course of the assessment proceedings, the assessee stated that agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 land being an adventure in the nature of trade, profit arising therefrom was chargeable to tax in her hands as business income. Accordingly, such profit amounting to Rs. 1,96,92,500 was brought to tax by the Assessing Officer in the hands of the assessee as her business income in the assessment completed under S.143(3) read with S.153C of the Act, vide order dated 23.11.2011. 4. Against the order passed by the Assessing Officer under S.143(3) read with S.153C, an appeal was preferred by the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) Just because substantial gains were made, it does not become business income. (i) Just because, the adjoining land was purchased by builder and there was a booming real estate market, the transaction of sale by the appellant cannot become a business transaction. It would remain gains from investment. 11.2 On the legal aspect, it was submitted that : (a) 2(13) defines business as including any trade, commerce or manufacture or any adventure or concern in the nature of trade or manufacture. It is the presence of absence of such element in a particular transaction in a question that would decide whether it is in the nature of trade or not. There is no such attribute or element in this transaction of 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee and the material available on record, the learned CIT(A) found merit in the stand taken by the assessee that profit arising from the sale of land did not constitute the business income of the assessee and the same was in the nature of short term capital gains, as rightly claimed by the assessee. As regards the claim of the assessee that the land in question sold by her was an agricultural land, the learned CIT(A) identified the factors in favour of the assessee and against 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 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 land as "Metta' - i.e. dry lands The Govt. classifies lands only into either those with irrigation facility or tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, RR Dist. Vs. Assessee on 8 March, 2013 in ITA No.851/Hyd/2012 2007- 08 reaffirmed 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 which the land is situated No evidence of any agricultural income. In fact, though the Assessing Officer had not mentioned this aspect, it is noted that the appellant assessee has not shown any agricultural incoe or any agricultural expenditure. The income tax records of the assessee do not indicate any income even in the tax returns filed after the search in response to notice u/s. 153C 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 17 as under- "17.0 Thus, on summation of facts and circumstances both favourable an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer holding that the land is agricultural and does not constitute a capital asset. 4. Having come to a finding that the income not assessable under 'adventure in the nature of trade' as done by the Assessing Officer, the learned CIT(A) ought to have deleted the addition allowing relief to the appellant on which issue appeal was preferred 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 assessable under the head 'capital gain' as a ground to change the head of income. The claim of appellant was that the land being agricultural, the same cannot enter into computation under section 45 under the head 'capital gain'. This claim cannot be construed to mean that the appellant wanted the income to be assessed under capital gain to change the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income filed for the impugned assessment year as well as the preceding assessment year which has been accepted by AO. In fact the AO has not totally ruled out agricultural operation, though according to him it is not substantial. In these circumstances, when the nature of land sold by the assessee still remains to be agricultural in the revenue records and the assessee has 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing circumstances sold it to M/s Varun Constructions in the year under consideration. Therefore, none of the attributes of an adventure in the nature of trade 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 contentions of the parties and referring to a number of judgments held as under: "23. Adverting to the facts of the present case, the land inquestion is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the AY as agricultural income. It is also an admitted fact that the assessee has not applied for conversion of this agricultural land for non-agricultural p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime 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 nonagricultural purposes has been brought on record. The nature of the crop and the person who cultivated the land are duly mentioned in the revenue records shows that at the relevant point of time the land was used for agricultural purposes only and nothing is brought on record to show that the land was put in use for nonagricultural purposes by the assessees. In view of the 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 included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of time. Thus, the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the outer limits of any such municipality or cantonment 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till the date of the sale to change that character of the land. The potential nonagricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was, therefore, agricultural land. 29. Further the 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 a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer 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 cantonment board and which has a population of not less than ten thousand persons according to the last preceding census for which the relevant figures have been published before the first day of the previous year. The Central Government has been authorised to notify in the Official Gazette any area outside the limits of any municipality or cantonment board having a population 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 any municipality or cantonment board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. the outer limits of any such municipality or cantonment 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 outer limits of this Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset 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. This is supported by the order of Kolkata Bench of this Tribunal in the case of Arijit Mitra (cited supra), Harish V. Milani (supra) and M.S. Srinivas Naicker vs. ITO (292 ITR 481) (Mad). By borrowing the meaning from the above section, we are not able to appreciate that the land falls within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Accordingly, the addition made on this count is deleted in all the appeals under consideration. No evidence suggests that Dundigal village falls within Qutubullapur Municipality and also this Qutubullapur Municipality has not notified in the year under section 2(14)(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 certificate is placed, issued by the Deputy Collector & Mandal Revenue Officer, Qutubullapur Mandal vide Ref. No. A/13607/2005, dated 20/08/2005 stating that the lands are under cultivation by raising crops i.e. paddy, cattle feed, maize, jowar, vegete ..... X X X X Extracts X X X X X X X X Extracts X X X X
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