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2015 (12) TMI 44 - ITAT CHENNAI

2015 (12) TMI 44 - ITAT CHENNAI - TMI - Sale of agricultural land - CIT(A) allowing the claim of the assessee that the land sold was agricultural land and profit on sale of land was not liable for tax - 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 - Held that:- dverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there i .....

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also an admitted fact that neither the impugned property was subject to any developmental activities at the relevant point of time of sale of the land.

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 intentio .....

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ction 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 and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the l .....

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gricultural 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 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 in .....

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year 2011-12. 02. The grievance of the Revenue in this appeal is with regard to allowing the claim of the assessee that the land sold was agricultural land and profit on sale of land was not liable for tax. 03. The facts of the case are that the Assessing Officer while framing the assessment noticed that the assessee shown the agricultural income on sale of agricultural land situated at No.55,Thandalam Village, Sriperumbudur Taluk, at ₹ 3,79,99,376/. The Assessing Officer called for infor .....

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ling with Agricultural activities. As per Agreement for sale, dated 03.07.2008 with M/s.Rajalakshmi Education Services Pvt Ltd, it was mentioned only as "Land" and not Agricultural land. Chitta Patta Adangal produced. In "pasali", it was mentioned as "uzhavu" in the column for nature of crop. Purpose of buying Agricultural land was not explained nor reflected in MOA. The assessee admitted Net Agricultural income at ₹ 8,03,730/- for which breakup of Gross recei .....

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reply dated 16.08.2013, the assessee s nature of business is financial business. So, the agricultural activity is not permitted in the main object ancillary/ incidental objects by the MOA. 5. The agricultural land was classified under the head "Land and Building" in the fixed asset Schedule of the Balance sheet. 6. The land in question shown as fixed asset in fixed asset schedule is ,the Capital asset under the provisions of Section 2(14) of the Act. 7. The assessee has not filed evide .....

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lege. However, the Assessing Officer not agreeing with the contention of the assessee s counsel brought the gain on sale of the land as long term capital gain. Against this, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 04. The Commissioner of Income Tax (Appeals) observed that the AO has nowhere disputed that as per revenue records the impugned lands were classified as agricultural land, Besides as per the certification of the VAO of Thandalam village, the sa .....

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ly prior to the sale of the impugned lands in the AY 2010-11 which illustrates that the impugned lands were indeed cultivated. As regards the contention of the AO that the appellant's claim of profit on sale of agricultural lands was contrary to the MOA of the assessee company, there is merit in the AR s contention that as a non-banking financing company, the assessee was entitled to purchase or deal with any property in whichever way it deemed fit for the purpose of making investments and t .....

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ther objects: "8. To invest the funds of the company in any manner as the company may think fit and/without prejudice to the said generally a. In the purchase of lands and buildings, or any interest therein or on ground rents or where else in the world." "13. To develop and turn to account any land acquired by the company or in which it is interested, and in particular by laying out and preparing the same for building purposes, constructing, pulling down decorating, maintaining, f .....

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ferred clauses of MOA of the assessee company and therefore the AO's argument that the sale of the impugned lands was contrary to the MOA is also not factually borne out from the relevant documentation as cited above. The AR s reliance on the jurisdictional High Court in the case of M.S. Srinivasa Naicker vs. ITO (2007) 292 ITR 481(Mad) to buttress his point that the intention of the buyer, in this instant case, M/s. Rajalakshmi Education Services Pvt. Ltd. in purchasing the impugned propert .....

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ree was to build an Engineering college. The relevant part of the judgement supra is reproduced hereunder:- It is no doubt true that the purpose for which the purchaser had purchased was totally different from what the transferor had intended to use the land in question but with the admitted finding that the lands in question were under the agricultural operation on the date of sale for the purpose of considering the meaning or capital assets, it matters very little how the subsequent purchaser .....

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f the above jurisdictional High Court judgement to the facts of the instant assessee, it was submitted that the intention of the purchaser of the land from the assessee was not really relevant in determining whether the impugned land was agricultural land or capital asset in the hands of the assessee. Further, the Commissioner of Income Tax (Appeals) observed that the instant assessee purchased lands in 2005-06 spread over 64 survey Nos. in Thandalam Village, Sriperumbudur Taluk classified in th .....

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for and also the assessee had shown lease rentals received from the said agricultural lands as agricultural income in the relevant assessment years including the two AYs i.e. 2009-10 and 2010-11 immediately prior to the sale of the said lands in AY 2011-12 as mentioned aforesaid. The same has also not been disputed by the AO and nor has he doubted that the assessee had paid taxes for cultivating crops individually on the said agricultural lands to the State government as evidenced by the tax re .....

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ultural land till the time of the sale. Fourthly it is also not disputed that the impugned lands were not situated as per limbs (a) and (b) of Section 2(14)(iii) of the Act. i.e. within the jurisdiction of a municipality or a cantonment board having population of not less than ten thousand or in an area not being more than eight kilometers from the local municipality / cantonment board limits. The Commissioner of Income Tax (Appeals) relied on the judgment in the case of Sakunthala Vedhachalam V .....

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he exemption and reasoned as follows: "Once the Tribunal had accepted that the classification of lands as per the revenue records were agricultural lands, which are evidenced by the adangal and the letter of the Tahsildar and satisfied other conditions of' Section 2(14) of the Income Tax Act, the court is of the view that the Tribunal had misdirected itself as stated above. " Apart from the rebuttals by the AR to the AO's reasoning for treating the impugned properties as capita .....

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t the sale of impugned lands as sale of agricultural lands, exempt from tax and allowed the claim of the assessee. Further, he also treated the agricultural land as lease rent of B8,03,730/- as income from agriculture as against claim of the Assessing Officer as income from other sources. Against this, the Revenue is in appeal before us. 05. The ld. Departmental Representative submitted that Tahsildar reported that lands in question was not used for agricultural purposes for the last eight years .....

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reated as capital assets u/s.2(14) of the Income Tax Act, 1961 and the Long Term Capital Gains on sale of land is brought to tax u/s.45 and also agricultural income is treated as income from other sources. The Departmental Representative further submitted that Commissioner of Income Tax (Appeals) failed to appreciate that no agricultural operations were carried out in the sold land for 8 years prior to the sale as confirmed by the Tahsildhar of Sriperumbudur and the statement of the VAO, who whe .....

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ld land and finally he also relied on the order of the Assessing Officer. 06. On the other hand, the ld. Authorised Representative submitted that till the assessee sold the land, agricultural operations, in fact, were carried out by the assessee. The assessing authority, in its order, stated that the land was actually under cultivation till the date of sale. A perusal of Sec.45 shows that the requirement as on the date of sale of transfer is that the asset must be capital asset, considering the .....

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admitted finding that the lands in questions were under agricultural operation on the date of sale for the purpose of considering the meaning of capital assets, it matters very little how the subsequent purchaser intended the land in question to the put to use. In the circumstances, there is no reason to accept the plea of the Revenue that the asset in question is a capital asset and attracts levy of capital gains tax, it having shed its character as an agricultural land on the sale effected. I .....

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cent lands are used by the owner therein is not a ground to come to a conclusion that the assessee s land are not agricultural in nature and further Authorised Representative relied on the judgments of jurisdictional High Court in the case of M.S. Srinivasa Naicker vs. ITO 292 ITR 481 and Sakunthala Vedachalam vs. Vanitha Manickavasagam 369 ITR 558. 07. We have heard both the parties and perused the material on record. It is an admitted fact that the land was held by the assessee as a capital as .....

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D.David. This agricultural land is situated beyond 08km from any municipal limits. The Assessee has not taken any permission from the Government for making plots, as the assessee company never had any intention to make the land into plots and carry on real estate business in respect of the land. Thus, the assessee never created an asset as stock in trade but treated it as capital asset (agricultural land). The assessee has sold said land in the assessment year. The same is reflected under the h .....

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9; for the following reasons: (i) Purchase and holding of land for a period and subsequent sale thereof itself cannot be an indicator to hold that the intention of the assessee was to carry on business with those assets. The intention cannot be presumed unless supported by evidence. In this case the treatment given by the assessee for this asset in the account books clearly indicate that the intention of the assessee is to hold the same as capital asset to have good returns from the same. (ii) T .....

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ed as an adventure in trade (iii) The expression adventure in the nature of trade occurs in the definition of business under section 2(13) but the expression adventure in the nature of trade has not been defined in the Act. It may be pertinent to mention here that a specific transaction partake the character of business or an adventure in the nature of trade or realization of capital asset or a mere conversion of asset has to be decided depending upon facts of each case. (iv) In deciding as to w .....

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the nature of trade. To make it more clear, sale of agricultural land by the assessee and realisation of good price would not alter the basic nature and characteristic of the transaction. In the case of the assessee, land was acquired by the assessee and reflected in the balance-sheets of the concern as fixed-assets. The assessee never treated the land as stock-in-trade and reflected in profit and loss account (closing stock). There was no element of trade attached to the activity of the assess .....

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ors like frequency of transactions, period of holding, intention for resale etc, which determine whether the gain arising of a transaction is in the process of realisation of investment or in the course of business. The mere fact that the person has purchased a land and subsequently sold it, giving rise to a substantial profit cannot change the character of the transaction. It is the general human tendency to earn profit out of capital asset. No one invests to incur a loss. If the market conditi .....

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7.2 From the above, it is clear that: (a) The assessee purchased agriculture land now under consideration situated beyond 8 km from the municipal limits. (b) The assessee treated the same as fixed asset in their books along with other agriculture land which was already acquired by them in the earlier years. (c) The land was identified as agriculture land in the revenue records. (d) The assessee carried on routine agriculture operations through Shri. D. David and the land was used for agricultur .....

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uired agricultural land. There is also no dispute that there was agricultural operation in this land before sale of this land. 7.4 The Assessing Officer was of the opinion that the amount received on sale of this agricultural property is nothing but on account of adventure in the nature of trade and the same was brought into income from business. In this case, the assessee held the land always as investment and not at all converted into stock-in-trade. The character of the land in the hands of t .....

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having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. We have to answer the question on a consideration of all of them, a process of evaluation and the inference has to be drawn on a cumulative consideration of all the relevant facts. It may be stated here that not all the factors or tests would be present or absent in any case and that in each case one or more of the factors may make appearance and that ultimate decisio .....

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of Siddharth J. Desai (supra) and has laid down 13 tests or factors which are required to be considered and upon consideration of which, the question whether the land is an agricultural land or not has to be decided or answered. We reproduce the said 13 tests as follows: "1. Whether the land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue? 2. Whether the land was actually or ordinarily used for agricultural purposes at or about .....

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r such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? 6. Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such lesser and/or alternative user was of a permanent or temporary nature? 7. Whether the land, though en .....

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s? 10. Whether there were any previous sales of portions of the land for non-agricultural use? 11. Whether permission under s. 63 of the Bombay Tenancy and Agricultural Land Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such nonagriculturists was for non-agricultural or agricultural user? 12. Whether the land was sold on yardage or on acreage basis? 13. Whether an agriculturist would purchase the land f .....

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cessarily fall back upon the general sense in which they have been understood in common parlance. The Supreme Court has observed that the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and raising on the land all products which have some utility either for someone or for trade and commerce. It will be seen that the term 'agriculture' receives a wider interpretation both in regard to its .....

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e, but if the basic operations are wanting, the subsequent operations do not acquire the characteristics of agricultural operations. The Constitution Bench of the Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence. 7.9 The Gujarat High Court in the case of Dr. Motibhai D. Patel v. CIT [1981] 127 ITR 671/5 Taxman 147 referring to the Constitution Bench of the Supreme Court had stated that if agricultural operations are being .....

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ow that the presumption rose from the long user of the land for agricultural purpose and also the presumption arising from the entries of the Revenue records are rebutted. 7.10 The Bombay High Court in the case of CWT v. H.V. Mungale [1984] 145 ITR 208/12 Taxman 201 held that the Supreme Court had pointed out that the entries raised only a rebuttable presumption and some evidence would, therefore, have to be led before taxing authorities on the question of intended user of the land under conside .....

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them was agricultural land not only as classified in the Revenue records, but also it was subjected to the payment of land revenue and that it was actually and ordinarily used for agricultural purpose at the relevant time. 7.11 We may also refer to the case of CIT v. Manilal Somnath [1977] 106 ITR 917(Guj.), wherein the Division Bench of the Gujarat High Court observed that the potential non- agricultural value of the land for which a purchaser may be prepared to pay a large price would not det .....

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o whether the transaction amounted to an adventure in the nature of trade. In other words, the price paid is not decisive to say whether the land is agricultural or not. 7.13 We may refer to a judgment of the Madras High Court in the case of CIT v. E. Udayakumar [2006] 284 ITR 511 where the Madras High Court has referred to the decision of the Punjab & Haryana High Court in the case of CIT v. Smt. Savita Rani [2004] 270 ITR 40/[2003] 133 Taxman 712and has observed and held as under : "8 .....

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out of her share in 23 karnals, 17 marlas land during the financial year 1990-91, relevant to the asst. yr. 1991-92, the sale was effected by three registered sale deeds. While filing her return of income, she claimed exemption from levy of capital gains under s. 54B of the Act on the ground that the land sold by her was agricultural land and the sale proceeds were invested in the purchase of agricultural land within two years. The AO rejected the claim of the assessee holding that the land sold .....

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partment showed that the assessee had declared agricultural income from this land in her returns for the preceding two years. The land being located in commercial area or the land having been partially utilised for nonagricultural purposes or that the vendees had also purchased it for nonagricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B. 10. It is seen from the aforesaid decision that the agricultural land sold by the assessee with an intent t .....

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to the facts of the present case, the land in question 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 by leasing the same to Shri.D. David and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It is also an admitted fact that the AO has not brought on record any evidence to show that the agricultural land was use .....

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sset 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, 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 .....

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4][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 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 'capi .....

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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 .....

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ackets 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 municipality. 7.18 From the facts and circumstances of the case, as narrated before us, it is important to note that what was th .....

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de; 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 intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intenti .....

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