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2015 (4) TMI 331 - ITAT HYDERABAD

2015 (4) TMI 331 - ITAT HYDERABAD - TMI - Profit arising from sale of land - business income v/s short term capital gains - same was claimed to be exempt on the ground that the land sold, being an agricultural land, was not a capital asset under S.2(14) of the Act - Held that:- 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 .....

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t point of time when the land was sold by the assessee. It is also not in dispute that there was no activity undertaken by the assessee of developing the land by plotting and providing roads and other facilities and there was no intention also on the part of the assessees herein to put the same for non-agricultural purposes at time of their ownership that land. No such finding has been given by the Department. No material or evidence in support of the fact that the assessees have put the land in .....

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] 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 (3) TMI 727 - SUPREME COURT) 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 th .....

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taxable at the hands of the assessee. See Bhavya Commissioner Constructions Pvt. Ltd. case [2014 (9) TMI 85 - ITAT HYDERABAD] - Decided in favour of assessee. - ITA No.226/Hyd/14 - Dated:- 11-3-2015 - Shri P.M.Jagtap And Smt.Asha Vijayaraghavan JJ. For the Appellant : Shri K.C.Devdas For the Respondent : Shri Ramakrishna Bandi DR ORDER Per Asha Vijayaraghavan, J.M. : This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals) VII, Hydera .....

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₹ 3,07,910. In the said return, profit arising from sale of land amounting to ₹ 1,18,24,340 was declared by the assessee as short term capital gains, and the same was claimed to be exempt on the ground that the land sold, being an agricultural land, was not a capital asset under S.2(14) of the Act. During the course of assessment proceedings, the claim of the assessee for this exemption was examined by the Assessing Officer in detail, and on such examination, he recorded his findings .....

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document no.4963/2007, for an amount of ₹ 1,20,00,000/-. (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 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 .....

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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 bl .....

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on pages 15 and 16 of the asst. order. The AO thereafter concluded that the lands are not agricultural in nature. (f) The AO also held that the land was not suited for agricultural use and no agricultural activity was carried on. Therefore, alternatively, even the exemption u/s 2(14) is not available to BCPL and the land is therefore a capital asset in its hand. (g) The entire discussion on pages 2 to 16 was mentioning M/s BCPL but it was held that this applies in toto to most of the investors .....

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expenditure for agricultural activity and nor did she produce any evidence of expenditure. (j) The AO seeing the coordinated activity undertaken by BCPL, its MD and other investors/share holders in dealing 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 t .....

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th 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 16 ,17 & 18 of asst. order). (k) In course of the assessment proceedings, the assessee stated that agricultural land was purchased from one Gundala Nagaraju and 1 acre 8 guntas was sold to M/s. Varun Const .....

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ullapur 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 .....

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ore so, with verifiable evidences of agricultural produce, sale bills/vouchers etc. The assessee could not produce any proof for her claim of agricultural activity. The Assessing Officer also stated that greater Hyderabad Municipal Corporation was formed on 16/04/2007 and Qutubullapur Municipality was among the 12 municipalities and 8 gram pachayats that were merged in Municipal Corporation of Hyderabad. He, therefore, discounted the question raised by the assessee regarding the notification of .....

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vested 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 ₹ 1,18,24,340 was brou .....

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ssions 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 located beyond 8 kms of any notified municipality. It is therefore, not a capital asset u/s. 2(47) of the I.T. Act. (ii) The evidence on which the AO placed reliance and rested his conclusion were actually the findings in the asst. order in the case of M/s. BCPL which owned another patch of land contiguous to the land owned by the ap .....

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wn 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 .....

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ble evidence u/s. 35 of Evidence Act. The entries herein cannot be brushed aside. 2. Blank quotation for purchase of fertilizer found in the premises of Bhyavya Evidence was not found in possession of assessee and nor can it be sued against her as they were blank quotations. 3. Sworn statement of MD of Deccan Township whose lands were purchased by BCPL Not relevant to appellant as appellant did not buy land form Deccan Township nor is the treatment of land in their books, of any relevance to the .....

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s made in 2009 whereas the land was sold in 2007-08. The repot is therefore not contemporious evidence to draw inference against the appellant inv view of the certificate granted by the competent authority MRO. It was admitted in the report of Inspecting Officer and also in the asst. order that in the said land, some nominal agricultural operations were carried out in small fragment which actually corroborates the appellant s claim. 6. Lands fall within urban agglomeration of Hydera bad city and .....

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ur 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 .....

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fore sale were done. No systematic organized activity was undertaken. (e) The land was not converted into non-agricultural land before 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) Merely because substantial gains were made, it does not become business income. (i) Just because an account of agricultural expenses was not maintained, and .....

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he 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 ass .....

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purchase and resale, though profitable, are clearly outside the domain of adventure in the nature of trade." (c) 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". (d) Neither the profit motive nor the large profit does not change the transaction to a business .....

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- Madras High Court (g) The appellant also stated that if an income falls under two heads, it cannot be shifted from one head to another head merely because it is getting exempted under the statute under that head. (h) The burden of proof is on revenue to establish with positive proof that a transaction is adventure and has to go further to establish that it is in the nature of a trade. In a border line case involving a transaction in land, burden becomes that much more heavier. There is no roo .....

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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 i .....

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classification by itself would not indicate whether any crop is grown. The crops cultivated are mentioned separately in the pahani. The Pahani does not indicate any crop grown. 3. The purchase deed of 2004 as well as the sale deed of 2007 classify 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 st .....

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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 used, is being used and whether it will be used for agriculture as it is this continued use for agriculture which is the rationale for giving exemption. 6. There was no applicatio .....

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of land in March, 2007. This deals with location of agricultural land. Moreover, the Hon'ble ITAT, Hyderabad as recently as March 2013 in the case of Syed Nawab Hussain, 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. .....

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. proceedings. In neither the receipt payment statement or in the balance sheet, the assessee has shown any agricultural income or any agricultural expenditure. The income tax records of the assessee do not indicate any income even in the receipt and payment account which were filed after the search. 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 9.5 as under- 9.5 .....

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ation 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. Furt .....

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nsideration. 9. Aggrieved by the order of the learned CIT(A), the assessee has preferred this appeal before the Tribunal on the following grounds- 1. The order of the Learned CIT(A) is against law, weight of evidence and facts of the case. 2. The learned CIT(A) should have appreciated that the provisions of section 153C is not applicable in the case as a copy of registered development agreement, which is in public domain, cannot constitute an incriminating evidence to initiate proceeding under s .....

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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 t .....

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capital gain . This claim cannot be construed to mean that the appellant wanted the income to be assessed under capital gain to change the 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 .....

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un 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 matter reached the Tribunal in the case of six of the said assessees, namely, M/s.Bhavya Constructions Pvt. Ltd., Shri M.S.Raghava Reddy, Shri R.Srinivasa Rao, Shri R.Uma Maheswar, Shri P.Shivakumar and Shri G.C.Subbanaidu, the coordinate bench of this Tribunal vide its orde .....

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of the revenue authorities. We have also applied our mind to the decisions placed before us. On going through the order of the learned CIT(A) we do not find any infirmity either with regard to his conclusion in respect of the nature of land sold by the assessee or with regard to the issue as to whether the transaction is to be treated as an adventure in the nature of trade. As can be seen from the facts and materials placed on record, the nature of land at the time of purchase by the assessee fr .....

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ugh 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 .....

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e. 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 a .....

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aforesaid circumstances, the finding of the CIT(A) remains uncontroverted. Therefore, it has to be held that as the land sold by the assessee is in the nature of agricultural land and is situated beyond the prescribed limit of any municipality notified by the central govt. it cannot come within the definition of capital asset as envisaged u/s 2(14) of the Act. So far as the finding of the AO that the transaction entered into by the assessee is an adventure in the nature of trade, the same is al .....

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ars and only because of compelling 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, Sm .....

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as 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 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 r .....

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s) 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 for the purpose of conversion of the agricultural land into nonagricultural land an .....

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applied for conversion of the land in question into non-agricultural purposes and no such permissions were obtained from the concerned authority. In the Revenue records, the land is classified as agricultural land and has not been changed from agricultural land to nonagricultural land at the relevant point of time when the land was sold by the assessee. It is also not in dispute that there was no activity undertaken by the assessee of developing the land by plotting and providing roads and othe .....

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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 nonITA agricultural 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 .....

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icultural 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, to .....

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mits, to render the land as a Capital Asset. 11. In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14][iii] of the Act is not attracted. 12. However, though it is contended that it is located within 8 knits,, within the municipal limits of Dasarahalli City Municipal Council in the absence of any notification issued under Clause (b) to section 2(14)(iii) of the Act, it cannot be .....

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lear that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of such Municipalities or Cantonment Boards are covered by the amended definitions of 'capital asset', if such areas are, having regard to the extent of and scope for their urbanization and other relevant considerations, is notified by the Central Government in this behalf. Central Government in exercise of such powers has issued the above notification, as amended latest by Noti .....

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e 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 2(14)(iii) either under sub clause (a) or (b) of the Ac .....

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d 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 presumpt .....

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ied on in the land. There was no regular road to the land and it was with the aid of a tractor that agricultural operations were being carried on. The land was included within a draft town planning scheme. The assessee got permission of the Collector to sell the land for residential purposes and sold it. On the question whether the land was agricultural land: Held, that what had to be considered is not what the purchaser did with the land or the purchaser was supposed to do with the land, but wh .....

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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 .....

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t board referred to in item (a), as 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 a .....

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f 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 from the supply of a commodity or service [(not being water or Electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area]. [Explanation. - For the purposes of thi .....

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ent from the Memorandum explaining the provisions of Finance Act, 1970, whereby s. 2(14) was amended so as to include the agricultural lands located within the jurisdiction of a municipality in the definition of the expression 'Capital Asset'. The relevant portion of the said memorandum is reproduced hereunder: "30. ... The Finance Act, 1970 has, accordingly, amended the relevant provisions of the Income-tax Act so as to bring within the scope of taxation capital gains arising from .....

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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 .....

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9;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 .....

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otification issued by the Central Government u/s. 2(1A)(c) proviso (ii)(B) and 2(14)(3b) vide No. 9447 (F. No. 164/(3)/87/ITA-I) dated 6th January, 1994 as amended by notification No. 11186 dated 28th December, 1999. In the schedule annexed to the notification dated 6.1.1994, Entry No. 17 is relating to Hyderabad wherein mentioned that the areas up to a distance of 8 km from the municipal limits in all directions. In the notification 11186 dated 28.12.1999 there is no entry relating to Hyderabad .....

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ard 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 .....

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n 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 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 sup .....

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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 and the purchaser has no int .....

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ransaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations. Merely because of the fact that the land was sold in a short period of holding, it cannot be held that income arising from the sale of land was taxable as profit arising from the adven .....

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ls 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 Offic .....

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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 consi .....

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