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2016 (6) TMI 175 - ITAT BANGALORE

2016 (6) TMI 175 - ITAT BANGALORE - TMI - Capital gain - transfer of capital asset - change of the physical characteristics of the land from agricultural to non-agricultural - Held that:- The JDA was also finally cancelled vide Deed of Cancelation dated 5.5.2015 and copy of which is available at pages 240 to 254 of the compilation and the refundable security received by the assessee was returned back to the developer. Through JDA, though it was agreed to hand over possession of land to the devel .....

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he CIT(Appeals) has properly adjudicated the issue and we do not find any mistake therein. We accordingly confirm the order of the CIT(Appeals). - Decided in favour of assessee. - ITA Nos. 1169 to 1172/Bang/2015, CO Nos. 220 to 223/Bang/2015 - Dated:- 27-5-2016 - Shri Sunil Kumar Yadav, Judicial Member And Shri A. K. Garodia, Accountant Member For the Revenue : Shri Sanjay Kumar, CIT-III(DR) For the Assessees : Shri V. Chandrashekar, Advocate ORDER Per Bench These appeals are preferred by the Re .....

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Hon'ble High Court of Karnataka? 3. For these and such other ground that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 4. The appellant crave leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal. 2. The facts in brief borne out from the record are that the assessees are the HUFs .....

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velopment of 190 acres of land belonging to them, the AO reopened the assessments u/.s 147 of the Income-tax Act, 1961 [hereinafter referred to as the Act ] by issuing notices u/s. 148 of the Act. Accordingly, reassessments were framed in which the AO determined the long term capital gain for the assessees share and brought it to tax, in addition to income disclosed in the returns. 3. Aggrieved, the assessees preferred appeals before the CIT(Appeals) with the submission that the land which was s .....

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y stand converted in view of the fact that conversion was resorted only for the purpose of either selling lands or for developing the same and the assessee has not done anything by itself to change the physical characteristics of the land from agricultural to non-agricultural. It was also contended that the possession of land was not given to developers and finally the JDA was cancelled and the refundable money was also refunded to the Developer. 4. Being convinced with the explanations of the a .....

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Agreement (JDA) are held to be Agricultural Lands & not Capital Assets u/s 2(14) of the Act in the appellant s own case by the Hon ble Income Tax Appellate Tribunal [ITAT] in ITA No.1652/Bang/2012, dated 21/11/2014 for the A.Y. 2008-09. The Hon ble ITAT has, apart relying upon several other decisions of different co-ordinate benches on the same issue, followed the decision of the Jurisdictional Karnataka High Court in the case of Leelavathi in 21 Taxmann.com.148 (Kar) in coming to the conclu .....

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converted & sold were Capital assets exigible to Capital gains or not. The Hon'ble ITAT held that these lands were not Capital Assets u/s 2(14) of the Act, despite the fact that they stood converted as on the date of sale in view of the fact that the appellant had not done anything by itself to change the physical characteristics of the land from Agricultural to Non agricultural. The Lands which are the subject matter of JDA are contiguous to those lands which were subject matter of the .....

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e findings are also brought out by the ITAT in para 7.3.7 of the said order. It is further submitted when the Income arising out of sale of lands was held as not taxable u/s 45 of the Act by the ITAT in the above cited case of the appellant, the question of taxing any income arising out of the mere signing of this JOA, when no activity of development is carried out, as Capital Gains also does not arise. In view of these incontrovertible facts & the position in law that the lands which formed .....

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e case of M.R.Seetharam (HUF) (supra) [i.e. ITA.No.1654/Bang/2012 dated 13/6/2014], the co-ordinate bench of this Tribunal at paras 7.3.8 to 7.3.10 of its order has also found merit in the arguments put forth by the learned Authorised Representative therein that owing to the peculiar features of law prevailing in the state, an agriculturist in the state of Karnataka has to necessarily get his agricultural land converted if he has to sell the same to a non-agriculturist and hence is placed at a d .....

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l lands in the respective States. To illustrate further, in Karnataka, non-agriculturists and industrial companies are prohibited from purchasing of lands which are classified as 'agricultural' in the revenue record". If an agriculturist intends to sell his agricultural lands to a company/nonagriculturist for the use of non-agricultural purposes, he must possess a conversion order obtained from the revenue authorities to utilise the subject land for non-agricultural purposes. Howeve .....

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cannot do so due to the Land Reforms Act prevailing in the State. As such, an agriculturist in Karnataka is on a different footing from his counterparts in other States. If one were to conclude that since the present assessee had obtained a conversion order to enable it to sell its lands to a non-agriculturist and, thus become a Capital asset, though the subject land remains an agricultural land, the assessee then stands discriminated in the eyes of law vis-a-vis its counter-parts in other Stat .....

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agricultural operation and conversion was done only to facilitate sale of subject property to a corporate entity/non-agriculturist. In substance, the Income-tax Act - a Central Act - is to be administered in such a manner to ensure that an assessee is not subjected to suffer due to different State laws. 7.3.10 Taking into account all the aspects as discussed in the fore-going paragraphs and also in conformity with the judicial pronouncements on the issue (supra), we are of the view that though .....

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sion that mere conversion of land from agriculture to non-agriculture could not be taken as the sole criteria to hold it as a capital asset under section 2(14) of the Act and that if that land is used for agricultural purposes till the date of sale, despite the fact that it is converted to non-agricultural use are agricultural lands and not capital assets under section 2(14) of the Act." 4.8 On going through the submissions and also the evidence produced in support of the submissions, I fin .....

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amp; u/s 147 of the IT Act respectively. In the Wealth Tax assessment order (a copy of the same has been filed by the appellant), the Assessing Officer has taken a stand that these lands are owned and possessed by the appellant and are exigible to wealth tax in its hands. The AO has also assessed the Wealth arising out of the valuation of these lands as Wealth escaping assessment and has brought the same to tax. The stand taken by the AO for the very same assessment year in the Wealth Tax Assess .....

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r that the Wealth Tax assessment order supports the appellant and is opposed to the stand of the AO in the Income Tax Assessment for the very same assessment year. 4.9 It is significant to note from the decision of the Hon'ble ITAT that the mere act of obtaining a conversion order from the competent authority of the State Government does not render the land nonagricultural in view of the mandatory condition laid down by the State Government that the land not only ceases to be non-agricultura .....

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sed to tax by the application of section 45 of the Act, which provides for taxing an income arising out of the sale or transfer of a capital asset. The appellant has also placed on record a copy of the Partition Deeds dated 18/11/2005 and 28/6/2006 and also Gift Deeds executed by Smt.Gowramma and Shri M.R. Ramaiah. These documents confer and explain the title of the appellant to the impugned lands and further demonstrate that these impugned lands are contiguous to the agricultural lands, which a .....

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rs of the Tribunal have personally inspected the physical characteristics of these lands in the year 2014, which is a good seven years after the date of JDA, and found that these lands are under cultivation with fruit-bearing and coconut trees in abundance. 4.11 In fact, as submitted by the appellant, the Hon'ble ITAT has held in ITA NO.1654/Bang/2012 that no capital gains will arise from the sale/transfer of land, which is an agricultural land and not a capital asset u/s 2(14) of the Act. T .....

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does not arise. 4.12 The appellant has made additional submissions as under: "Further to the Written Submissions filed earlier, the appellant would like to place a decision of the Jurisdictional ITAT Bangalore Bench in support of its legal contentions. The Appellant relies on the decision of the Hon'ble ITAT Bangalore Bench in the case of K.N.Nagaraj & Smt.Sathya Prema in ITA NO.136 & 137/Bang/2012 by an order dated 14/8/2014, where the Hon'ble ITAT in para 20 observes " .....

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e parties just by making a casual observation that the substance of the transaction has to be seen over the form of transaction. The legal consequences flowing out from the written agreement cannot be brushed aside by the CIT just because it suits the interest of the revenue". In para 24 they observe that "The condition necessary for application of section 53A of the Transfer of Property Act cannot be presumed to exist and the Tax authorities cannot blindly apply these provisions by me .....

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case the CIT had ordered reopening u/s 263 relying upon the decisions of T.K.Oayalu & Chaturbhuj Kapadia. The Fact that the Tribunal has held that the agreement between the parties would decide as to when Possession is intended to be given is of great importance to determine the year of taxability of Capital gain. In the present instance the parties have clearly agreed that the developer will get possession only upon completion of the construction of the Owners share of the Constructed area .....

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ble ITAT in the appellant's own case, where these lands have been treated as agricultural lands, I delete the addition of ₹ 6,88,23,857/- made by way of LTCG to the income returned by the appellant in the reassessment proceedings." 5. Aggrieved, the Revenue has preferred appeals before the Tribunal. The ld. DR, besides placing reliance upon the assessment order, has contended that in view of the judgment of the jurisdictional High Court in the case of CIT v. Dr. T.K. Dayalu [2011] .....

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JDA was executed by the assessees with Pingyao Developers & Traders Pvt. Ltd. of Mumbai, who was later on called as the developer . In this JDA, it was agreed upon that the developer would pay an interest-free refundable security deposit of a sum of ₹ 45 crores as per the terms stipulated in the JDA. 7. Consequent to the JDA, Power of Attorneys were also executed in favour of the developer to facilitate execution of the work, but unfortunately this JDA was not materialized and constru .....

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dable security deposit and not the sale consideration on account of transfer of land to the developer. Possession of the land has never been transferred to the developer. In these circumstances, provisions of section 2(47)(v) of the Act cannot be invoked. 8. We have also carefully perused the judgment of Hon'ble High Court of Karnataka in the case of CIT v. Dr. T.K. Dayalu (supra) and we find that in that case, the agreed sum was received by the assessee as a nonrefundable deposit and in add .....

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ssession was finally transferred in the A.Y. 1997-98, the capital gain is to be taxed in the year in which the non-refundable money was received or the project was completed. 9. But in the instant case, the issue in dispute is with regard to chargeability of the capital gain on the impugned transaction. Our attention was drawn to the order of the Tribunal in the connected cases i.e., Shri M.R. Seetharam v. ACIT in ITA No.1654/Bang/2012 dated 13.6.2014, in which the Tribunal has held that the agr .....

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assessee to sell its agricultural lands without conversion to a corporate as in the case of other States, the assessee would not then be required to get the land converted merely to facilitate its sale to a corporate and the gains arising from such sale could not have been exigible to capital gains tax which is the subject of a Central Act. The Tribunal has also observed in that case that, even after conversion the assessee was carrying on agricultural operation and conversion was done only to .....

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xtent of 6 acres and 1 gunta for a total consideration of ₹ 45,58,12,500/- vide a registered Sale Deed dated 12.4.2007 and, accordingly, admitted an income of ₹ 14,17,87,795/- as Capital Gains from the above transaction in its original return of Income furnished to the Department. Subsequently, in its revised return of Income dated 15.6.2009, the assessee had admitted income of ₹ 22,90,570/-, on the ground that the capital gains which arose on the sale of the said lands was wro .....

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'BIAAPA' as a municipality? 7.2.2. Before analysing the arguments of the assessee on the issue, we shall now proceed to deal with the sequence of events which apparently took place, chronologically, as under: 7.2.3. The assessee had in its possession certain acres of agricultural lands, out of which, lands to the extent of 6 acres and 1 gunta situated at Akkalenally and Mallenahally converted as nonagricultural vide Conversion order No.ALN(D) SR 30/2004-05 dated 19.7.2004 [source: Page 8 .....

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d in 1970 and after the death of Sri M.S. Ramaiah, the lands were further portioned [Refer: Para 3.2. of the Asst. order]. Even though, the subject property, among others, was converted as non-agricultural lands way back in 2004, agricultural activities, deriving agricultural income from the said lands, were continued unabatedly by the assessee and incomes admitted by it from such operations were accepted by the revenue from the AYs 2004-05 to 2009-10, the details of which are as under: Asst. ye .....

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pparently, the assessee had continued the agricultural operations in the converted lands also which is evident from the fact that incomes derived from such agricultural operations on the said lands declared by the assessee in its returns of Income were accepted by the revenue for the AYs 2004-05 to 2009-10 (supra). No evidence was brought on record by the Revenue to suggest that the subject lands were utilized for any other purposes other than that of cultivation after conversion. This is eviden .....

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jack-fruit, apple, guava etc., appear to be existing in the subject property even on the date of sale. This clearly attributes the assessee's assertion that even on the date of transfer, the subject land was held to be agriculture. In this regard, we would like to refer to the Certificate of Senior Assistant Director of Horticulture (Zilla Panchayat) Devanahalli, Government of Karnataka, dated 23.4.2014 wherein it has been certified as under: "This is to certify that M.R.Seetharam, s/o .....

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conversion of the land for nonagricultural purposes, the assessee has been carrying on agricultural operations and also admitting incomes from such lands in its returns of income. The AO's stand that once the agricultural lands were converted into non-agricultural, even though agricultural activities continued; the lands cannot be termed as agricultural land is, in our view, not the correct proposition of law. This is apparent from the fact that one of the mandatory conditions contained in .....

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ject land is agricultural or otherwise is essentially a question of fact. In coming to a definite conclusion, a number of tests will have to be undertaken as laid down by the Hon'ble Supreme Court in the case of Sarifabibi Mohamed Ibrahim v. CIT reported in 204 ITR 631 (SC). The tests prescribed by the Hon'ble Supreme Court as under: (i) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (ii) Whether the land .....

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when and by whom [the vendor or the vendeej; whether 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; (vi) 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 ceaser and / or alterative user was of a permane .....

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lf was developed by plotting and providing roads and other facilities; (x) Whether there were any previous sales of portions of the land for non-agricultural use? (xi) Whether permission under Tenancy and Agricultural Lands Act was obtained because the sale or intended sale was in favour of non-agriculturist, if so, whether the sale or intended sale to such non-agriculturist was for non-agricultural or agricultural user? (xii) Whether the land was sold on yardage or on acreage basis? & (xiii .....

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and. The land in question was inherited by the assessee (HUF), among others, as the same having been purchased by his father as an investment. As could be seen from earlier documents of purchase which explicitly exhibit that the subject land had put to exclusive use for agricultural purposes only and in fact a grove [orchard] had been grown with fruits-yielding trees such as mangoes, sapota, coconuts, jack-fruits, etc., Incidentally, the surrounding lands were also subjected to agricultural acti .....

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hough agricultural activity continues, the lands cannot be considered as agricultural lands. Countering the AO's assertion, the learned AR had argued that as per the mandatory conditions mentioned in the Certificate of conversion, if the subject land was not put to non-agricultural use within a period of two years from the date of conversion order, the conversion itself will become null and void. In this connection, the learned AR had placed strong reliance on the judgment of the Hon'ble .....

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le despite a fact that the land stands converted for non-agricultural purpose. 7.3.2. In the present case, as already discussed, even though the subject property was converted for non-agricultural purpose vide Conversion Order dated 19.7.2004, the assessee continued the agricultural operations in the converted lands which was evident on our site visit and also from the fact that incomes derived from such agricultural operations on the said lands declared by the assessee in its returns of income .....

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were not fulfilled by the assessee prior to the sale of the said land. It is observed that permission has been accorded for residential purposes and whereas the sale has been made to Indian Oil Corporation for putting up a service station. This contradiction itself goes to show that the permission accorded does not militate against the land becoming nonagricultural land. The first appellate authority also went by the fact that the land was sold on yardage basis to Indian Oil Corporation. This s .....

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ld against the assessee. This is too short period and it is not the case of the revenue that land revenue has (have) not consciously levied agricultural land tax. No adverse inference can be drawn. The ld. Counsel for the assessed tried to demonstrate that as per the Karnataka Land Revenue Act, 1964, section 83(2) read with sec. 95(2) mandates that the land holder should continue to pay the land revenue even after conversion. We need not go into this aspect for the reason that the period is too .....

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capital asset within the meaning of sec. 2 (14) of the Income-tax Act. The issue whether a particular land is agricultural land or not has been the subject matter of dispute in many a cases. In each of the judgments broad outlines have been given and it is suffice to say that the unanimous view of all the Hon'ble Courts is that the issue should be decided on the facts and circumstances of the case. As we find that the facts of the case clearly point out that the land in question continued to .....

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racter of the land. For example, the Government has notified many areas for setting up of special economic zones or industrial parks or for infrastructural developments such as road ways and railways. After identifying particular areas, the Government notifies that a particular area would be used for non-agricultural purposes. It is thereafter only that the acquisition start and accordingly the land of farmers are acquired. It would be travesty of justice, if a view has to be taken that when onc .....

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45 and 48 of the Act. Briefly, the substantial questions of law raised by the Revenue before the Hon'ble Court was that - "1. Whether the appellate authorities were correct in holding that the land which is the subject-matter of sale is agricultural land as on the date of sale without taking into consideration the conversion of land to non-agricultural purpose and consequently recorded a perverse finding? & 2. Whether the appellate authorities were correct in holding that though th .....

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missioner as well as the Tribunal followed an earlier ruling of the Tribunal rendered on December 30, 2009, in the case of T. Suresh Gowda [ITA NO. 262/ Bang/ 2009] wherein it appears, the question was resolved by looking into the date of permission for conversion as the cut-off line to decide as to whether the land was an agricultural land or otherwise. 6. It appears, the Tribunal had opined that the land retained its agricultural character till the date of order permitting nonagricultural use .....

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A 12G 23A 22G 7.4.2000 4 2.6.2000 4 Rs. 50,00,000 Rs.1,82,50,000 Rs.2,32,50, 000 In respect of the sale transaction dated June 2,2004, it was taken as a sale of capital asset as this sale was after the date of permission for non-agricultural use granted by the Asst. Commissioner, viz., after May 10,2004, whereas the earlier sale transaction dated April 7, 2004, is held to be in respect of an agricultural land. We do not find the reasoning and the principle enunciated by the Tribunal for making a .....

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earlier Bench of this Tribunal, in its findings in ITA 1464, 1465/B/08; 177,178,262 & 305/B/09 dated 30.12.2009, had dealt with an identical issue to that of the present issue under consideration. The main issue before the earlier Bench was: Whether the land sold by the assessee was agricultural in nature or not? .After duly analysing the rival submissions and also various judgements of judiciary as mentioned in its findings and also deliberating upon the sections 80 and 84 of the Karnataka .....

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use of Tibetan Childrens' Village for the setting up of educational institutions and other related purposes. According to the assessee, the land in his hands had retained the agricultural ITA 1464, 1465/ B/ 08; 177,178,262 & 305/B/09 Page - 47 character till the date of sale, for the reason that the assessee was doing agricultural activity. We have hereinabove in para 34 mentioned that the department had estimated the agricultural income at ₹ 53 lakhs for 2004-05 and estimated agri .....

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he DR, in the case of Gordhanbhai Kahandas Dalwadi v. Commissioner of Income-tax (1981) )27 ITR 664, the Hon'ble High Court held that the potential non-agricultural use does not alter the character of the land. This was a case wherein the land was purchased in 1954 and, subsequently, sold in 1969. The entries in the revenue records showed that the land was agricultural continued to be so. The land revenue paid was for agricultural use, but permission for non- agricultural use was obtained bu .....

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s totally immaterial. Entries in the record of rights are good prima facie evidence regarding land being agricultural and if the presumption raised either from actual user of the land or from entries in revenue records is to be rebutted, there must be material on the record to rebut the presumption. The approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal, should to consider the question from the point of view of presumption arising from entries in the re .....

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the intended purpose within two years, otherwise the original character of the land, i.e., agricultural nature, would be restored. Then the assessee or the subsequent purchased has ITA 1464,14651 El 08, 177, 178, 262 & 3051 El 09 Page - 49 to pay penalty and make a further application to obtain permission to revive the land for intended purpose. The assessee has not done this even according to the revenue. This was done by the subsequent purchaser i.e., Tibetan Childrens' Village, which .....

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by the subsequent purchaser after making an application for the second time to revive the nature of the land which is evidenced by the letter dt 1.3.2005 which was written to the Secretary, Manchanayakanahally Gram Panchayat by the Tibetan Childrens' Village. In the case decided by the Hon'ble High Court, it was held that the correct test to be applied was whether on the date of sale of the land whether the land was agricultural or nonagricultural and not the intended purpose and how the .....

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case, the assessing officer noticed that the assessee had sold land measuring 40 acres and 20 guntas at Seshagirihalli for ₹ 4, 50, 00, 000/ - on 7.4.04 to Tibetan Childrens' village and claimed exemption from capital gains which worked out to ₹ 3,68,01,771/- on the ground that the land situated in a rural area i.e., 8 Kms away from the limits of Bangalore Mahanagara Palike and the land is located as notified u/ s 2 (14)(iii)(b) of the Act as the transaction relates to sale of I .....

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eaning of s. 2 (14)(iii)(b). ......................................................................................................... 54. On similar issues in the connected case, we had held that the evidence produced by the assessee before the assessing officer and Commissioner of Income-tax (A) to the effect that assessee was doing cultivation of ragi etc., was sufficient to treat the land as agricultural land in the hands of the assessee, particularly because in the document, the nature of t .....

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tural land and the reasons given is applicable in the instant case of the assessee as the facts are identical ............. 7.3.7. The fact that the assessee had continued the agricultural operations unabated in the subject property on the date of sale even though the said land was converted for non-agricultural purposes by a Conversion Order of the State Government way back in 2004 [19.7.2004] with a rider that the land should be used for the purpose for which the conversion was granted within .....

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ral purposes within two years for which conversion was granted. 7.3.8. Finally, the most important aspect which requires to be considered is that agriculture is a State subject and different States have different reforms (laws) as to who can purchase / own agricultural lands in the respective States. To illustrate further, in Karnataka, nonagriculturists and industrial companies are prohibited from purchasing of lands which are classified as 'agricultural' in the revenue records. If an a .....

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ds to non-agriculturists /Corporates without obtaining a conversion order. 7.3.9. Thus, it is evident from the fact that the agriculturists in other States can sell their agricultural lands without getting the same converted whereas the agriculturists in Karnataka cannot do so due to the Land Reforms Act prevailing in the State. As such, an agriculturist in Karnataka is on a different footing from his counterparts in other States. If one were to conclude that since the present assessee had obtai .....

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uld not then be required to get the land converted merely to facilitate its sale to a corporate and the gains arising from such sale would not have been exigible to Capital Gains tax which is the subject of a Central Act (Income-tax Act).In the instant case as mentioned earlier even after conversion, assessee was carrying on agricultural operation and conversion was done only to facilitate sale of subject property to a corporate entity/non agriculturist. In substance, the Income-tax Act - a Cent .....

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