TMI Blog2014 (4) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... ly sold the land tempted by the offer made by the Vedic Village Developers Pvt. Ltd. but mere sale of land on a profit cannot be a factor to conclude that the intention of the assessee was to carry on an adventure in the nature of trade. In other words, the subsequent making of profit cannot be a decisive factor. Thus, taking a holistic view of the matter, it is of the view that the learned Judicial Member had correctly come to the conclusion that the transaction was not an adventure in the nature of trade. The learned Judicial Member rightly observed that the impugned land will not fall within the purview of capital asset, being the land situated beyond the prescribed municipal limits and thus the sale proceeds thereof are not assessable to tax. For the above reasons question No. 1 is answered accordingly. - ITA No. 362/JU/2010 - - - Dated:- 29-4-2014 - Shri D. Manmohan, Vice President (As Third Member) Appellant by: Shri K. Sampath Respondent by: Dr. Deepak Sehgal O R D E R Per D. Manmohan, V.P. On account of difference of opinion between Hon'ble Judicial Member and the Hon'ble Accountant Member, the Hon'ble President was pleased to nomina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006 to 5th April, 2006. The assessee showed the purchase of agricultural land as 'fixed asset'. In the preceding year the assessee earned ₹ 70,000/- on sale of crops which was shown as agricultural income in the return filed by the assessee, which was accepted by the Revenue. In this year ₹ 22,000/-was declared on sale of standing crop and accepted by the AO. In fact, another crop was standing at the time of sale which was passed on to the purchaser of the land and hence no agricultural income from this crop was shown in the return as the land was sold along with the crop though the same was declared for rate purposes, for computing tax liability. If the intention of the assessee was to carry on an adventure in the nature of trade she would have applied for conversion of land use and drawn up the requisite plotting scheme, engaged professional architects for preparing site plan approval and would have commenced preliminary development works whereas no such activity was undertaken by the assessee which shows that the intention of the assessee at the time of purchase of land was only to retain the land and it was not purchased for the purpose of resale as an adven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultivation. Since she was engaged in the business of real, estate development the impugned purchase was with the full knowledge that the values are likely to appreciate rapidly as these fall within the new town of National Capital Region (NCR), the global city, on national highway No. 8. He also observed that the investment was made out of borrowed funds. 5. The case of the assessee was that no step has been taken to change the character of the land and hence it continued to remain as agricultural land till the date of sale to Vedic Village Developers Pvt. Ltd. and the assessee did not make any effort to locate the buyer and because of the attractive price which was offered by Vedic Village Developers Pvt. Ltd. assessee was persuaded to sell the land. 6. The learned Accountant Member referred to the decision in the case of G. Venkataswamt Naidu Co. v. CIT [1959] 35 ITR 594 (SC), and other decisions on similar lines to draw a conclusion that if an assessee has not carried on any agricultural operation it would reflect that he is not interested in obtaining any return from these lands and on sale thereof it can very well be considered as adventure in the nature of trade. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to either make the land suitable for agricultural operations or to carry on activity in future. He thus concluded that the lands were not intended to carry on agricultural operations. 9. The next question is whether the assessee is a dealer in land since she was an employee Director of a company which is engaged in real estate development. In this regard the learned Accountant Member observed that no attempt was made by the assessee to install facilities for irrigating the land and borrowed funds were utilised for purchasing various pieces of land. The assessee is otherwise engaged in the business of real estate and hence the impugned purchases were not with the intention of carrying on agricultural operations which is evident from the fact that the lands fall in the NCR and a global city was coming up in the area and the gap between the purchase and sale was about one year. In his opinion the issue, as to whether it was purchased as agricultural land or with an intention to carry on adventure in the nature of trade depends upon the facts of each case and inferences have to be drawn depending upon the circumstances that culminated into the deal. He thus concluded that stres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espective of the findings as to whether the impugned transaction is on capital account or an adventure in the nature of trade ? 12. The case was accordingly posted for hearing on 20th March, 2014. The learned counsel for the assessee submitted that the land was situated beyond the prescribed municipal limit and it was also recorded as agricultural land in the Revenue records. In fact the assessee purchased the agricultural land with standing crops thereon and income on sale of the standing crops was shown as agricultural income in the immediately preceding year, which was accepted by the tax authorities. Even in the year of sale of land the first standing crop was sold by the assessee and income therefrom was shown as agricultural income and the AO having accepted the nature of income it cannot now be said that it is not agricultural land the assessee intended to earn business income thereon. He also submitted that the land being agricultural in nature sale thereof gives rise to agricultural income within the meaning of section 2(1A) read with Explanation (14)(iii)/10(1) of the Act. Explanation 1 to Section 2(1A) defines 'agricultural income', which includes revenue de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that there is no difference of opinion, in the orders passed by the learned Judicial Member and the learned Accountant Member, on this aspect, i.e. (a) the fact that it is agricultural land situated beyond eight kilometres from the local limits of the municipality, (b) at the time of purchase as well as at the time of sale it was shown as agricultural land in the Revenue records and no application was made for conversion of the land for non-agricultural use, and (c) the assessee sold standing crops and offered it as agricultural income. In the light of these undisputed facts the answer to other question is of academic importance since irrespective of the decision as to whether it was on capital account or not the sale proceeds are liable to be treated as agricultural income. In the alternative it was contended that it is not a 'capital asset', within the meaning of section 2(14) of the Act, and thus the sale proceeds cannot be assessed to tax either under the head capital gains or as business profit. 13. On the other hand the learned CIT-DR strongly relied upon the order passed by the learned Accountant Member and submitted that whether the transaction is an adven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re treated as relevant - Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it? Did the purchaser, by any act subsequent to the purchase, improve the quality of the land and thereby made it more readily resaleable? What were the incidents associated with the purchase and resale? - etc. will have to be taken into consideration and a holistic view has to be taken. Though, in the facts of the case the court observed that the transaction in question is an adventure in the nature of trade but the decision was rendered by taking into consideration the contentions of the Revenue, i.e. there was series of transactions undertaken by the assessee who was in a position to influence the mills to purchase his properties and hence they have not done anything to develop the property; the assessee just allowed the property to remain unutilized. These factors were taken into consideration to come to the conclusion that it was an adventure in the nature of trade. The Apex Court as well as various High Courts have reiterated the basic principle and observed that it is impossible to evolve any formula which can be app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may legislate. In the aforementioned case the court observed that the land being situated within the municipal limits income arising from transfer of agricultural land falls within the terms of items (a) and (b) of sub-clause (iii) of clause 14 of section 2 and falls outside the ambit of revenue derived from land, therefore, outside the ambit of 'agricultural income' and consequently liable to capital gain tax under section 45 of the Act. The learned counsel for the assessee placed reliance upon the aforecited decision to submit that the impugned land sold by the assessee was situated beyond eight kilometres from the nearest municipal limit and hence the income arising from transfer of agricultural land falls within the ambit of revenue derived from land and, therefore, has to be treated as agricultural income in which event it has to be considered for rate purposes only. 16. The Hon'ble Bombay High Court in the case of Gopal C. Sharma v. CIT [1994] 209 ITR 946, on the other hand, observed that the expression 'agricultural land' is not defined in the Income Tax Act and, going by the intention of the Legislature, i.e. encouraging cultivation, sale of agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 ITR 98 (sic). By virtue of the amendments to section 2(14)(iii) of the Act, only agricultural land situated within the municipal limits gets excluded from the definition of agricultural land. Per contra, agricultural land situated outside the municipal limits, upon sale, gives rise to agricultural income only. 18. Having carefully considered this issue I am of the firm view that the impugned land cannot be treated as capital asset since it is situated beyond eight kilometers from the municipal limits and it was purchased as agricultural land and sold accordingly without making any changes such as conversion in the land records, plotting of land, etc. In fact the learned counsel for the assessee stated that even at the time of purchase of the land it cannot be inferred that the assessee intended to make enormous profit by selling the land within a short span. He also submitted that National Capital Region master plan was prepared in 2002 and notified in 2010 and it was to come into effect from 2031 whereas the land was purchased in 2006 by which time even the master plan was not notified. It is also not in dispute that the assessee earned agricultural income in the immediately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate view, on an analysis of provisions of section 2(1A)/2(14)(iii) (a) (b)/10(1). When two views are possible a view which is in favour of the assessee has to be taken in the light of the decision of the Apex Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. Under these circumstances I answer question No. 2 in the affirmative by holding that the surplus arising on sale of the impugned agricultural land gives rise to agricultural income and not assessable to tax. Thus the view of the learned Judicial Member, on this issue, reflects the correct legal position. 19. In the light of the above findings, though it is not necessary to consider the other aspect arising out of question No. 1, for the sake of completeness I proceed to discuss the facts necessary for disposed of the said issue. It is not in dispute that the assessee purchased the land with standing crops thereon and it was shown in the Khasra Girdawari records as a land cultivated throughout the period of holding by the assessee. No efforts have been taken by the assessee to change the nature of land. Income from the standing crops was offered for rate purpose as agricultural income. It is not in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of agriculture land simplicitor or it was an adventure in the nature of trade. The learned Judicial Member rightly observed that the land was actually cultivated throughout the period of holding by the assessee, which is evident from the fact that the agricultural income was offered for rate purpose and accepted by the Revenue. It is, therefore, difficult to appreciate the observation of the learned Accountant Member that the assessee did not take any active step to get returns from the land. The learned Accountant Member has given emphasis to the fact that the assessee sold the land within a short span out of free will. In my considered opinion whether the land was sold out of compulsion or out of free will, will not alter the character of the transaction. Every assessee would like to make profit on a transaction, given an opportunity. In the instant case the assessee purchased the land with standing crops but ultimately sold the land tempted by the offer made by the Vedic Village Developers Pvt. Ltd. but mere sale of land on a profit cannot be a factor to conclude that the intention of the assessee was to carry on an adventure in the nature of trade. In other words, the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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