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2015 (6) TMI 561 - ITAT HYDERABAD

2015 (6) TMI 561 - ITAT HYDERABAD - TMI - Profit from sale of agricultural land - business income OR capital gains - claimed by the assessee as exempt from tax - Held that:- As the land sold is not only agricultural in nature but is also situated beyond 12 kms from the limit of a municipality notified by the central govt. Hence, land sold by assessee not being a capital asset, the gain derived there from is not taxable at the hands of the assessee. See Commissioner of Income tax & Others Versus .....

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inst the order of the learned Commissioner of Income-tax (Appeals) III, Hyderabad dated 20.10.2014, whereby he confirmed the addition of ₹ 97,20,000 made by the Assessing Officer to the total income of the assessee on account of profit arising from sale of agricultural land treating the same as business income instead of capital gains claimed by the assessee as exempt from tax. 2. The assessee in the present case is an individual. A search and seizure action was conducted in the cases belo .....

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he 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 f 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 as under- (a) there is no agricultural activity in the land. (b) the land is not conducive for agriculture. .....

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was sold to M/s.Varun Constructions, the second acre was retained by the assessee only. 3. When the above findings /observations were confronted by the Assessing Officer to the assessee requiring her to show cause as to why the gains arising from the sale of land should not be treated as gain arising from adventure in the nature of trade, the following submission was made by the assessee. A) The said land in Survey No. 667 is situated beyond 8 kms from municipal limits as per the certificate gi .....

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e character of the land sold by the assessee. F) The land is not a capital asset within the definition of Section 2(14) (iii) of the Act. G) That she had not earned any agricultural income though maize crop has been grown on the said land. 4. The above submission of the assessee was examined and analysed by the Assessing Officer in the light of the facts of the case, the relevant provisions of law as well as judicial pronouncements and he recorded his findings/observations on the basis of such e .....

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lace. If it is found that the land is agricultural in nature only then will the discussion on distance from the municipal limit will become relevant. (b) The term 'agricultural land' has not been defined in the Act. Therefore, this has been the subject matter o various judicial proceedings and Courts have laid down various parameters, on the basis of which a view can be taken whether a3 land can be characterized has been agricultural in nature or not. (c) In the landmark decision rendere .....

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ricultural activity in the said land and in its vicinity either on the date of enquiry or in the near past. (ii) Whether such use of the land was for a long period or whether it was for a temporary character by way of a stop gap arrangement. The land was purchased vide deed no. 3895 dated 02.04.2005 and the land was sold on 12.03.2007. This shows that the holding period is below two years and cannot be classified as a long period. (iii) Whether the income derived from agricultural operations car .....

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ltural land. -Yes. A road passes immediately opposite to the land in question and the other side of the road falls under Jinna Ram Mandal. On this road, immediately opposite to the land in question, there is an industrial undertaking named 'Desai Fabritech', vide address Survey No. 180, 1-IDA,Khazipally, Jinna Ram Mandal, Hyderabad, Andhra Pradesh. There are other industrial undertakings in the vicinity including SMS Pharmaceuticals, Hetero Drugs etc. In the adjoining area also, there is .....

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ing sustenance from the farm income obtained: out of agricultural activities such as tilling, sowing and raising crops. Even if we assume that the land is a fertile land and if we consider a rough yield of Rs.,25,000/- per acre from such fertile land, the yield would not justify the purchase of land at such exorbitant rate if the land is meant to be used for the purpose of agricultural activity. Therefore, the sale of land at ₹ 1.00 crore per acre does not justify its characteristics as an .....

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sessee. It is also pointed out that, had the assessee undertaken any agricultural activity in the said land there would have been an element of agricultural income from the land which would have been reflected in her returns of income. However, it is seen from her returns that the assessee has not admitted any amount of income from the said land in question. This clearly adds to the discussion made in the foregoing paragraphs and leads to the conclusion that the assessee failed to demonstrate th .....

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ng Officer in her hands in the assessment competed under S.143(3) read with S.153C of the Act, vide order dated 30.9.2013. 6. Against the order passed by the Assessing Officer under S.143(3) read with S.153C, an appeal was preferred by e Assessing Officer before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) upheld the order of the Assessing Officer treating profit arising from the sale of land as busi .....

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land so far away from place of residence to carry on agricultural activities on a land purchased from a real estate business man. These gamut of facts and circumstantial evidences shows that the only intention of the appellant right from inception is to trade the said property but not to carry on any agricultural operations. Taking a cue from the ratio of the decision of the Hon ble ITAT, I am of the opinion that from inception, the appellant was to trade the property which is in the nature of a .....

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ved by the order of the learned CIT(A), assessee has preferred this appeal before the Tribunal . 7. 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 , the land in question was transferred by the assessee to M/s. Varun Constructions. There was a similar agreement entered into by other land owners, who were owners of the adjacent lands transferring their land .....

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inivasa Rao, Shri R.Uma Maheswar, 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 containe .....

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s can be seen from the 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 pre .....

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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 under the same survey nos. situated at Bowrampet Village are under cultivation by raising crops of padd cattle feed, maize, jowar etc. Further the pahanis also indicate the crops grown over the said land. When certificate has been issued by govt. au .....

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order passed u/s 143(3) of the Act, the AO has examined the nature of transaction by conducting necessary enquiry and after proper application of mind had accepted the claim of the assessee that the asset being sold being agricultural land will not attract capital gain tax. The department has not brought any cogent evidence or material on record to disprove assessee s claim either in respect of agricultural income earned through agricultural operation conducted on the said land or the fact that .....

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nding of the AO that 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 righ .....

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f 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 agricult .....

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fact that neither the impugned property nor the surrounding areas were subject to any developmental activities at the relevant point of time of sale of the land as per the evidence brought on record. 24. The provisions of Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes) Act, 2006 also prescribed the procedure for conversion of agricultural land into nonagricultural land. Being so, whenever the agricultural land to be treated as non-agricultural land, the same has to b .....

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to the concerned Revenue authorities for the purpose of conversion of the agricultural land into non-agricultural 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 nonagricultural purposes would not change the character of the agricultural land into non- agricultural land at t .....

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ispute 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 use for nonagricultural purposes has been brought on record. The nature of .....

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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 that the land in question in the instant case .....

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gricultural land is located within the limits of municipal corporation, notified area committee, town area committee, town committee, or cantonment committee and which has a population of not less than 10,000. 10. Section 2(14)(m)(b) of the Act covers the situation where the subject land is not only located within the distance of 8 kms from the local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires the fulfilment of the condition that the Central Governm .....

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icipal Council in the absence 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 o .....

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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 exc .....

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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. 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 .....

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l purposes there is a presumption that it is agricultural land. If it is used for nonagricultural 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 o .....

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to be considered is not 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 o .....

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(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 .....

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ated within the jurisdiction of a municipality. The fact that all the expressions enlisted after the word municipality are placed within the brackets starting with the words 'whether known as' clearly indicates that such expressions are used to denote a municipality only, irrespective of the name by which such municipality is called. This fact is further substantiated by the provisions contained under clause (b) wherein it has been clearly provided that the authority referred to in claus .....

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ply of water or electricity 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 f .....

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e relevant provisions of the Incometax 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 tho .....

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ing 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 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 c .....

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iii) of the Act as the land is outside of any municipality including GHMC. Further we have to see whether the land falls in clause (b) of section 2(14)(iii). This section prescribes that any area within such distance, not being more than 8 km from the local limit of any municipality or cantonment board as referred to in sub-clause (a) of section 2(14)(iii) of the Act, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant consid .....

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cipal limits in all 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 .....

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n 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 o 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 cap .....

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cation of Central Government as held by the Karnataka High Court in the case of Madhukumar N. (HUF) (cited supra). 35. From the facts and circumstances of the case, as narrated before us, it is important to note that what was the intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land and the relevant improvement/development taken place during this time is relevant for deciding the issue whether transac .....

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ase has been made 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 an .....

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g, it cannot 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 tha the land is an agricultural land, henc .....

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ook 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 .....

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