TMI Blog2017 (8) TMI 1301X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal in the case of M.J. Thomas (2014 (10) TMI 353 - ITAT COCHIN). Hon’ble Madras High Court in the case of Shakuntala Vedachalam vs. Vanitha Manickavasagam (2014 (9) TMI 3 - MADRAS HIGH COURT) has also held that classification of land in revenue records, was clearly indicative of the nature of the land. In the circumstances, we are of the opinion that the subject land could only be considered as agricultural. Since it was situated beyond 8 kms. from the municipal limits, sale thereof would not result in any capital gains. Surplus could not have been treated as income from business since assessee had not ventured into the business of real estate. For the very same reason, we are of the opinion that the agricultural income returned by the assessee could not have been added to the total income since it was exempt u/s. 10(1) of the Act. - Decided in favour of assessee. - I.T.A. No. 21/Coch/2017 - - - Dated:- 16-6-2017 - Shri Abraham P. George, AM And George George K., JM Assessee by : Shri R.Vijayaraghavan, CA Revenue by : Shri A. Dhanaraj, Sr. DR ORDER Per Abraham P. George, Accountant Member This appeal of the assessee is directed against an order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changes to it. As per the assessee, there was no conversion in the land records nor any plotting of land. Vis- -vis its main object mentioned by the Assessing Officer as a reason for treating the surplus as business income, reply of the assessee was that nothing in its Memorandum of Association prohibited it from using the land for agricultural purposes and such activity was covered by the objects which were incidental or ancillary to the main object. Further contention of the assessee was that it had procured the land with the intention of using it for agricultural purposes. Reliance was placed on the judgment of the Hon ble Madras High Court in the case of CIT vs. K.E. Sundara Mudaliar (18 ITR 259) (Mad.), Hon ble Gujarat High Court in the case of CIT vs. Rajshibhai Meramanbhai Odedra [(2013) 86 CCH 309)] and the decisions of the Panaji Bench of the Tribunal in the case of ACIT vs. Durgadas K.Prabhu Shastri (I.T.A. Nos. 129,130,144,156-161, 174, 175 178/2013), Jodhpur Bench of the Tribunal in the case of Supriya Sanwar (Smt.) vs. ITO (149 ITD 1) and that of the Hyderabad Bench of this Tribunal in the case of Harniks Park Pvt.Ltd. vs. ITO [(2014) 62 SOT 0015)]. 5. However, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instant case, (ii) The lands under reference were situated outside the stipulated boundary of 8 kilometres from the notified municipal area and were agricultural lands per the government records and Section 2( 14)(iii). CIT(A) Comments: The same reasons as in clause 7(gg)(i) above and the circumstances of fast-paced development and pursuant increases in land values stated in some of the judicial ratios found the conclusion that these facts alone will not result in tax-exemption u/s 10(1) on the sale of the impugned lands (iii)) 85 coconut trees were stated to be grown on the said land. The photographs or the lands taken on the date of their possession were submitted to the AO. The Appellant was stated to have earned agricultural income out of the said lands during the impugned A.Y. 2012-13, which income was stated to be the net or the proceeds of the sale of the coconuts less the attendant costs or sales and tree-maintenance expenses. CIT(A) comments: All of these do not prove the kernel fact and argument that there have been any agricultural operations. We only have static and meaningless visuals that project facts but reveal neither the essential nor the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive of the other objects specified CIT(A) comments: The fact that such pious statements have been made in the MoA are not denied but do not prove actual action on the ground.. No amount of syllogistic reasoning or legal interpretation on these can produce even a modicum of fact. The AO has only cited the MoA to explain the general context, circumstances and surroundings of the Appellant's existence, events and activities to in turn argue that against such a backdrop, the Appellant s sudden claims of interest and desire in agriculture appear unnatural and contrived and need to be viewed with misgivings and qualms by any reasonable person. The fact of immediate disposal of the purchased lands by the Appellant sans any activity to further its proclaimed interest only strcngthen the said skepticism. (vii) The said lands were purchased by the Appellant with the intent of using them for agricultural purposes, evidenced from the fact of the reporting of agricultural incomes in the returns of income and the certificate (referred to above) provided by the Agricultural Officer. CIT(A) comments: These have been already rejected. There have been no operations and only hollo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomatically predicate tax Exemption u/s. 10(1) of the Act, The no-alterations-on-land scenario has eventualized because of lack or opportunity and the shortage of time and the sudden and serendipitous arrival of a buyer armed with a good price. The manner in which the lands have been treated in the accounts is an artifice and will not hold as held by the Hon'ble Supreme Court above. Such land should rightfully have been classified and accounted for as stock-in-trade and the profits from their sale declared for tax purposes as being from an adventure in the nature of trade assessable under the head business income. (xi) The Appellant's opinion is that the Assessing Officer grossly erred by merely alleging that the intention of the appellant behind the purchase of land was real estate business. CIT(A) Comments: The AO needed to evaluate the facts and the evidences against the applicable circumstances. He has done so. The Appellant's raison d etre and alpha and omega were real estate activities. Although it (the Appellant) was not prevented from plunging into agricultural activities, any step taken in such direction needed to be distinguished as such through subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and obviously self-interested and in the absence of evidences as afore-stated do not survive the test of the independent audit, as the one carried out by the Assessing Officer. (xv) The Appellant's position is that the period of holding is irrelevant in determining the nature of the transaction. CIT(A) Cornmcnts: On the facts and circumstances of the case, and in a matter that seeks to determine the original intent as well as pit and distinguish amongst: a) investment and stock-in-trade, b) the purchase and sale of agricultural land and other real-estate transactions; c) an adventure in the nature of trade and a capital investment, et al, the period of holding is absolutely relevant in determining the nature or the transaction, (xvi) Per the Appellant, there are no restrictions imposed under the Income tax Act on the period of holding of agricultural land in determining its taxability. CIT(A) Comments:: This is true. However, the short period has also likely resulted in the Appellant carrying out no agricultural activity. The unseemly speed at which the land was sold when set against the background of overwhelming evidences of absence of agricultural op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l land. According to him, the status of the land when the assessee sold it, remained the same and the nature of the land was clearly indicated it to be agricultural. Relying on the copy of a certificate issued by the Agricultural Officer, placed at paperbook pg. no. 100, Ld. AR submitted that the Agricultural Officer clearly certified the cultivation of coconut palms in the subject land and also considered the assessee as a bona fide cultivator of the subject land. Reliance was placed on the decision of the co-ordinate Bench of the Tribunal in the case of M.J. Thomas vs. Dy. CIT (I.T.A No. 224/Coch/2014 dated 06/06/2014) and the judgment of the Hon ble Madras High Court in the case of Shakuntala Vedachalam vs. Vanitha Manickavasagam (369 ITR 558). 9. Per contra, Ld. DR strongly supporting the orders of the lower authorities, submitted that the CIT(A) had considered a host of judgments and had rightly reached a conclusion that the assessee could not show the land to be used for any agricultural purpose. As per the Ld. DR, the assessee being a real estate business, tit had no intention to do any agriculture, and the sale of land could only be considered as a part of its business.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. It has not been disputed by the assessee that its main object as per its Memorandum of Association was doing business in real estate. Admittedly, there were only two instances of sale of land during its entire existence. Further, one of the main arguments of the assessee is its main object of doing real estate business would not by itself convert its two instances of sale of agricultural land as a business or an adventure in the nature of business. At this juncture it will be appropriate to have a look at the Profit and Loss Accounts of the assessee, to have a better understanding of the actual nature of its activities. This has been summarized at paper book page no. 105 which is reproduced hereunder: A reading of the above, does in our opinion, show that, significant portion of its earnings, if not all, came from interest, commission, Dividend and agriculture, except for Financial Year ending 31st March 2013, when it had profit of ₹ 1,18,46,000 on sale of land. In our opinion, there is much strength in the argument of the Ld. AR that the assessee s income was more out of the investments and its operations did not reflect any real estate business. We cannot sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms from the municipal limits. Assessee was also having agricultural electricity connection as evidenced by a certificate issued by KSEB placed at paperbook pg. no. 103. At this juncture, it would be apposite to have a look at paragraph 18 of the decision of the Tribunal in the case of M.J. Thomas (supra) which is reproduced hereunder: 18. The next issue would arise for consideration is whether the subject land is an agricultural land or not? If the subject land is not an agricultural land then it would fall within the definition of capital asset. What is excluded is only the agricultural land and not all land. Therefore, we have to see whether the subject land is an agricultural land or not? The term agricultural land is not defined in the Income-tax Act. The Constitution of India, Article 366( I) defines agriculture income which reads as follows: Art. 366( I). Agricultural income means agricultural income as defined for the purpose of the enactment relating to income-tax. In view of the above constitutional provision even for agricultural income we have to refer to the definition given in the Income- tax Act. In the absence of any express definition either in the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: .What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only effect its valuation as part of assets , but its actual condition and intended user which has to be seen for purposes of exemption from Wealth-tax. In view of the above judgment of the Apex Court there should be a connection to indicate the intention of the owners or possessors so as to connect with agricultural purpose in respect of the land. The entries in the revenue record a prima facie evidence to indicate that the land in question is agricultural land. 28. We have carefully gone through the judgment of the apex court in the case of Sarifabibi Mohmed Ibrahim and Others vs CIT (1993) 204 ITR631 (SC). In the case before the Apex Court, the assessee sold a piece of land situated within the revenue limits of avagaon village in the municipal limits of Surat municipality. In the year 1967, the assessee agreed to sell the land to a housing society. The assessee claimed the gain on transfer of such la ..... X X X X Extracts X X X X X X X X Extracts X X X X
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