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2015 (3) TMI 887 - ITAT HYDERABAD

2015 (3) TMI 887 - ITAT HYDERABAD - TMI - Nature of land - sale of land should be treated as an adventure in the nature of trade - AO thereafter concluded that the lands are not agricultural in nature - Held that:- It is observed that by an ‘Agreement of sale with possession-cum-Irrevocable power of attorney’ dated 12th March, 2007, the land in question was transferred by the assessee to M/s. Varun Constructions alongwith other 13 land owners who were owners of the adjacent lands. The said thirt .....

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i P.Shivakumar and Shri G.C.Subbanaidu, the coordinate bench of this Tribunal vide its order [2014 (9) TMI 85 - ITAT HYDERABAD] decided similar issue in favour of the assessee, holding that the land sold by the said assessees were agricultural lands, and therefore, the profits arising from the transfer of such lands, was not chargeable to tax in the hands of the assessee.

In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure i .....

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t 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 tr .....

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he 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 27.12.2013. 2. The assessee in the present case is an individual. A search and seizure action was conducted in the cases belonging to Venigalla Anand Prasad group on 7.10.2009. During the course of the said search, certain docu .....

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g 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. .....

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n the land which was contiguous to the land purchased and similarly transacted by M/s Bhavya Constructions Pvt Ltd (BCPL), Sri V Ananda Prasad (MD of BCPL), and other individuals, who all, like the assesseeappellant, were the investors in M/s Bhavya Cements Pvt Ltd, a company set up by Sri V Ananda Prasad. All these persons had shown the sources of investment in the share capital of M/s Bhavya Cements as sale proceeds of these lands. (d) The detailed investigation and the evidences found relatin .....

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ure 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 .....

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re. (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 including the assessee Smt. (h) The AO seeing the coordinated activity undertaken by BCPL .....

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ested 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 .....

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ing land as agricultural land, (ii) Pattadar pass book issued by the MRO, (iii) Certificate of Deputy Collector and MRO Qutubullapur Mandal stating that the land is agricultural land and that the assessee was raising crops like paddy, cattle feed, maize, Jowar and vegetables etc. 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 o .....

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ere claim of these lands as agricultural based as per old record without giving credence to the visible physical appearance and all round urban development in and around these lands is not justified. He also held that traces of agricultural activity has to be visibly seen, physical felt as per geographical terrain, soil conditions and more so, with verifiable evidences of agricultural produce, sale bills/vouchers etc. The assessee could not produce any proof for her claim of agricultural activit .....

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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 tax as under the head income from business. 3. On the basis of the above findings/observati .....

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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 assessee in this regard, as summarized by the learned CIT(A) in the impugned order, were as under- (i) The asset transferred is agricultural land loca .....

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(iii) The appellant submitted that she is an agriculturist and the family as originally depending upon the income derived from agricultural operations. (iv) The assessee carried on agricultural operation. (v) The AO made the assessment keeping the quantum of consideration received on sale of land which is not relevant for determining the nature of land. In support of the above submissions, the assessee once again filed before the learned CIT(A), copies of the pattadar pass book, MRO certificate .....

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CIT(A) on the relevant factual and legal aspects- 11.2. The factual aspects are as under:- (a) The appellant is a lady, who derived income form house property and some itnt income. (b) She had never carried on a business in real estate either before or after this land transaction. (c) Agricultural land was purchased as an investment and not as stock in trade. Even the sale proceeds are realization of investment and not business income. (d) No developmental activity like making of roads, providin .....

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ness 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 transacti .....

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enkata Swamy Naidu & Co. (35 ITR 594) and Sree Meenakshi Mills Ltd (31 ITR 28) were cited. In the case of G.Venkata Swamy Naidu it was held that - If a person invest money in land intend to hold it, enjoys it for some time and sell for profit, 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 trad .....

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100 ITR 706(SC)}. (e) Extent of land held as investment cannot be criteria cannot be held as same was held as stock in trade -Indian Hume Pipe Co. Ltd. 107 ITR 179 Para 8(Bom) (f) Appellant also relied upon the 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 (v) Tulla Veerender Vs,. Adnl CIT Range-6 ITA (ITAT Hyd) in ITA No.550/Hyd/2012 dt. 0 .....

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ion in land, burden becomes that much more heavier. There is no room for any doubt or debate particularly when a transaction is such that it may fall under two heads -one a primary head and a secondary or alternative head as in the instant case of the appellant. 6. After taking into consideration the submissions made by the assessee and the material available on record, the learned CIT(A) found merit in the stand taken by the assessee that profit arising from the sale of land did not constitute .....

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cultural 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 th .....

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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 .....

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being agricultural in nature. 5 Land was sold in acres and not in sq. yds It is seen that though it was sold in acres and not in sq. yds , the rate paid was no less at 1 crore per acre which actually works out to more than ₹ 2,000/- sq. yd. 6 There was no application either before or after for conversion of land to nonagricultural land. The buyer was a company in real estate and construction business. Usually, instead of incurring further expense, any land owner would leave such hassles of .....

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t 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 Assessin .....

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on summation of facts and circumstances both favourable and against the assessee/appellant, as per the above table, it is clear that other than its assertion and an MRO Certificate issued in a routine manner that too in 2005, the appellant really does not have anything real and substantive to claim that the land 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 .....

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he proximity to city, the merger within GHMC within a month of sale (when the proposal for such merger and the drafting of such bill must have been in news much before ) clearly show the development activity taking place around and which is a key factor in assessing the general environment around the land and its use. 8. The learned CIT(A) thus held that the profit arising to the assessee from the sale of land was chargeable to tax in her hands as short term capital gains in the year under consi .....

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ion 153C of IT Act without proper satisfaction. 3. The learned CIT(A) ought not have ignored the evidences filed by the appellant that the land is agricultural which were duly supported by the certificates of revenue authorities and other evidences available in the departmental records accepting such claim in respect of contiguous land basing on which his predecessors in office and the Assessing Officer have exempted the income arising out of transfer holding that the land is agricultural and do .....

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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 c .....

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judication 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 sa .....

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war, Shri P.Shivakumar and Shri G.C.Subbanaidu, the coordinate bench of this Tribunal vide its order dated 28.8.2014 decided similar issue in favour of the assessee, holding that the land sold by the said assessees were agricultural lands, and therefore, the profits arising from the transfer of such lands, was not chargeable to tax in the hands of the assessees. The elaborate observations/findings recorded by the Tribunal, while coming to this conclusion, as contained in paragraphs 13 and 14 are .....

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facts and materials placed on record, the nature of land at the time of purchase by the assessee from M/s Deccan Properties Ltd. and also at the time of sale to M/s Varun Constructions, remained the same i.e. agricultural not only in the revenue records but also in the pahanis. It is also a fact on record the assessee has shown income from agricultural operations carried on over the said land in the return of income filed for the impugned assessment year as well as the preceding assessment year .....

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tent shown by the assessee. In this context it is to be noted that the certificate issued by the Dy. Collector and Mandal Revenue Officer, Qutubullapur Mandal (at page 99 of assessee s paper book) clearly indicate that the land under the same survey nos. situated at Bowrampet Village are under cultivation by raising crops of paddy, cattle feed, maize, jowar etc. Further the pahanis also indicate the crops grown over the said land. When certificate has been issued by govt. authorities certifying .....

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(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 agricultural operation conducted on the said land or the fact that the land is situated .....

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

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g 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 i .....

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e 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 accorda .....

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

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activity undertaken by the assessee of developing the land by plotting and providing roads and other facilities and there was no intention also on the part of the assessees herein to put the same for non-agricultural purposes at time of their ownership that land. No such finding has been given by the Department. No material or evidence in support of the fact that the assessees have put the land in use for nonagricultural purposes has been brought on record. The nature of the crop and the person .....

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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 that the land in question in the instant case is bought by Developer c .....

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ed 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 notifica .....

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ence of any notification issued under Clause (b) to section 2(14)(iii) of the Act, it cannot be looked in as a capital asset within the meaning of Section 2(14)(iii)(b) of the Act also and therefore though the Tribunal may not have spelt out the reason as to why the subject land cannot be considered as a capital asset be giving this very reason, we find the conclusion arrived at by the Tribunal is nevertheless the correct conclusion." 27. Further the Kolkata Bench of the Tribunal in the cas .....

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ernment 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 .....

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not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. Accordingly, we quash the assessment order qua charging of capital gains on very jurisdiction of the issue is quashed. The cross objection of the assessee is allowed." 28. It was held in the case of CIT v .....

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sumption that it is agricultural land. If it is used for non-agricultural purposes the presumption is that it is non-agricultural land. This presumption arising from actual use can be rebutted by the presence of other factors. There may be cases where land which is admittedly non-agricultural is used temporarily for agricultural purposes. The determination of the question would, therefore, depend on the facts of each case. 'The assessee, Hindu, undivided family, had obtained some land on a p .....

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what the purchaser did with the land or the purchaser was supposed to do with the land, but what was the character of the land at the time when the sale took place. The fact that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purposes for a long time and nothing had happened till the date of the sale to change tha .....

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n 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 distanc .....

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ion 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 municipali .....

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tricity within or outside its own jurisdictional area]. [Explanation. - For the purposes of this clause, the expression "local authority" means - (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonm .....

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s of the Income-tax Act so as to bring within the scope of taxation capital gains arising from the transfer of agricultural land situated in certain areas. For this purpose, the definition of the term "capital asset" in section 2(14) has been amended so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less than ten thousand persons accor .....

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xtent of, and scope for, urbanisation of such area, and, when any such area is notified by the Central Government, agricultural land situated within such area will stand included within the term "capital asset". Agricultural land situated in rural areas, i.e., areas outside any municipality or cantonment board having a population of not less than ten thousand and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, wi .....

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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 relevant considerations, specify i .....

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

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#39;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 withi .....

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al 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 .....

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de solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances .....

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be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade or capital gain. The period of holding should not suggest that the activity was an adventure in the nature of trade. 36. In view of our above discussion, in our opinion, the land is not situated within the Qutubullapur municipality, but, the same situated in the Dundigal village and the evidence brought on record suggest that the land is an agricultural land, hence, it is no .....

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s 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 .....

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s, 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 equall .....

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