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TMI Blog2016 (7) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... controversy are that the assessee has been buying and selling immovable properties. The assessee claimed the gain on sale of agricultural lands exempt from tax as per the provisions of section 2(14) of the income tax act. During the course of assessment proceedings the AO examined the said issue and found that the properties have been converted from agricultural land to non- agricultural lands for a non-agricultural use prior to the sale by the assessee. Thus, the AO noted that as on the date of sale, the properties were capital asset as per the definition under section 2(14) of the income tax act. The AO was of the view that the sale proceeds and gain thereon are required to be treated under the head capital gain. Accordingly, the AO brought to tax the long term capital gain and sort term capital gain arising from the sale transaction of the lands in question. The assessee challenged the action of the AO before the CIT (appeals) and contended that though the land were converted from agricultural to non- agricultural (industrial) purpose, the lands have not been utilised for industrial purpose till the date of sale and continuous to be in agriculture use. In support of his contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of assessing the income offered by the assessing. Since the lands were continued to be agricultural land on the date of transfer/sale, it will not lose its character of agriculture land merely because the lands were converted into non-agricultural use. The purpose for which the purchaser has purchased the lands is irrelevant when the assessee intended to use the land and actually used the lands in question for agriculture purpose till the date of sale, then it will remain agricultural land for the purpose of the meaning of capital assets as per the provisions of section 2(14) of the income tax act. In support of his contention he has relied upon the following decisions: i. M.S. Srinivasa Naicker & Others Vs. ITO 292 ITR 481 (Mad). ii. Hindustan Industrial Resources Ltd Vs. ACIT 180 taxman 114 (Delhi) iii. Order dated 28/11/2006 in case of H S Vijay Kumar Vs. CIT in ITA No.108/Bangalore/2005. iv. Order dt.13/06/2040 in case of Sri M.R. Seetharam Vs. ACIT in ITA No.1654/Bang/2012 and C.O. No.43/Bang/2014. v. Order dt.12/11/2013 in case of Shri Alampalli Sathyanarayana Vs. ITO in ITA No. 21/Bang/2013. 5. We have considered the rival submissions as well as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng out the agricultural operations but it was only for resale of the same. While completing the assessment under section 143( 3) the AO had made the following additions: (i) Long term capital gain of Rs. 36, 70, 000/- (ii) Short term capital gain of Rs. 64, 67, 011/- The above addition clearly shows that the short term capital was almost double the amount of long term capital gain and therefore, the holding period of the lands was less than 3 years in majority of the cases. We further note that the lands in question were sold in terms of the agreement of sale dated 1/04/2005. There was a condition under clause 3 of the agreement that the buyer would buy the property only if the Seller would convert the property into non-agricultural i.e. industrial. For ready reference we reproduce clause 3 of the agreement as under: "3. The Buyer insisted to buy the property only if the seller get the property converted into non-agriculture i.e. industrial. In case the seller converts the entire agricultural land into industrial land within 24 months from the date of execution of this agreement, the buyer shall pay the entire sale consideration as agreed about. However, if any of the part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is not the mere potentiality, but its actual condition and intended user, which have to be seen for purposes of exemption. (emphasis * added). (c) "The person claiming an exemption of any property of his from the scope of his assets must satisfy the conditions of the exemption." (d) " The determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case." (e) The fact the land is assessed to land revenue as agricultural land under the State revenue law is certainly a relevant fact but it is not conclusive." In the said case the Hon'ble Supreme Court has held that land is assessed to land revenue as an agricultural land, is not a conclusive fact and the question is to be decided by considering various factors including whether the land is used for cultivation and agricultural operations. The actual use and the intended use of land has to be seen for the purpose of exemption. The Hon'ble Supreme Court has also considered the decision of Hon'ble Bombay High Court in case of CIT versus V.A Trievedi 172 ITR 95 at page no. 6 41 in case of Smt. Sarifabibi Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1968-69; absence of any evidence that it was put to any non-agricultural use by the appellants; that the land was actually cultivated till and including the agricultural year 1964- 65; that there were agricultural lands abutting the said land and that the appellants had no other source of income except the income from the said land. As against the above facts, the facts appearing against their case are: the land was situated within the municipal limits-it was situated at a distance of one kilometer from the Surat railway station; the land was not being cultivated from the year 1965-66, until it was sold in 1969; the appellants had entered into an agreement with a housing co- operative society to sell the said land for avowed non-agricultural purposes, namely, construction of house; they had applied in June, 1968, and March, 1968, for permission to sell the said land for non-agricultural purposes under section 63 of the Bombay Tenancy and Agricultural Lands Act and obtained the same on April 22. 1969; soon after obtaining the said permission they executed sale deeds in the following month, i.e., in May, 1969; the land was sold at the rate of Rs. 23 per Sq. yard and the purchaser-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of income-tax is liable to be decided with reference to the criteria laid down by judicial decisions of the Supreme Court and High Courts. The underlying object of the Act to exempt " agricultural income" from income-tax is to encourage actual cultivation or de facto agricultural operations. Actual user of the land for agricultural purposes or absence thereof at the relevant time is undoubtedly one of the crucial tests for the determination of the issue. It is well settled that the nature and character of the land may undergo a change depending upon its situation, growth of the locality or zone in which it is situated and its potentiality. According to recent decisions of the Supreme Court, the fact that the land is sold or transferred to a non- agriculturist for a non-agricultural purposes or that it is likely to be used for non-agricultural purposes in the remote past or it continues to be assessed to land revenue on the footing of agricultural land is not decisive." The Hon'ble High Court has decided the issue of agricultural land at pages 963 and 964 as under : " In our opinion, the principles laid down by the Supreme Court in the case of Smt. Sarifabibi Mohamed Ibrahim V. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encourage cultivation of land and agricultural operations. Therefore, for the purpose of granting exemption, a restricted meaning has to be given to the expression "agricultural land" as contemplated under section 2(14) (iiib) of the act. In the case in hand, the purchase and sale of land within a short span of period is not in dispute and further, the assessee got converted the land in question from agriculture to non-agricultural industrial purpose with the sole purpose and intent to sell the land for industrial purpose. When the land was already converted from agriculture to non-agricultural industrial use then merely it was wrongly shown in the revenue record as agricultural land would not change the actual fact of conversion from agriculture to non-agriculture purpose. Since the assessee has claimed to have some ancestral agricultural land which is not subject matter of the dispute in this case therefore, offering agriculture income and acceptance of the same wouldn't not change the character of the land in question at the time of sale. Considering the fact that the land in question were held by the assessee for a very short period of time and the intended future use is undis ..... 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