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2013 (8) TMI 1119

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..... 10.03.2010 declaring the total income of ₹ 5,24,036/-. In the said return of income, the assessee though reported capital gain on sale of land at Shamshabad but at the same time claimed it as exemption under section 1-(37) of the Act by claiming it as agricultural land. Initially, the return was processed under section 143(1) of the Act. However, subsequently the assessee s case was selected for scrutiny assessment. In the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee had purchased ac.2.20 guntas of land in Tondapally village, Shamshabad Mandal, Ranga Reddy District on 15.07.1998 for a sum of ₹ 3,25,000/- from Smt. Najamunnisa. This land was sold by the assessee along with plinth area admeasuring 1224.50 sq. ft. Constructed of RCC rooms and plinth area admeasuring 544 sq. ft. With ACC sheds to M/s. Symed Labs Limited, Hyderabad for a total consideration of ₹ 1,62,50,000/- vide sale deed dated 19.12.2008. The assessee however, had not offered any capital gain to tax by claiming the property sold as agricultural land. The Assessing Officer, however, did not accept the submissions of the assessee. The Assessing Officer ta .....

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..... conversation use zone and could not be used of any other purpose other than non-agriculture or for greenery. It was submitted that the land used has been specified in G.O.Ms.No.111, M.A. dated 08.03.1996 and again in G.O.Ms.No. 470, M.A. dated 09.07.2008 under master-plan for Hyderabad Outer Ring Road Growth Corridor and was confirmed as such by the HMDA in its Lr.No.9194/LUC/P5/HMDA/2011 dated 20.12.2011 issued in response to a specific request by the assessee. It was further submitted that the sale deed itself described the land as agricultural land and the land is also categorised as agricultural land in the Land Revenue Records. With regard to the Assessing Officer s conclusion that HADA was a local authority, it was contended by the assessee that though HADA was a local authority but not a Urban Development Authority created for Urbanisation. It was further submitted that section 2 (13)(iii)(a) refers to Municipality, Municipal Corporation, notified area committee, town area committee and town committee. HADA/HMDA are merely local authorities and not a municipality within the meaning of section 2(14)(iii)(a). It was also submitted that the assessee fulfilled all the tests laid .....

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..... trary, the intention of the purchaser in purchasing the land and the location in a business centre were considered to be relevant factors for deciding the nature and character of the land. The CIT(A) finally concluded that applying the ratio in the case of the assessee, the location of the land being adjacent to the Shamshabad area with a new International Air Port. The intention of the purchaser to purchase the land for investment purpose and the substantial consideration for which it was sold would decide the issue against the assessee. Accordingly, the CIT(A) held that the land in question it was sold by the assessee is not an agricultural land and therefore, is a capital asset subject to capital gain tax. 6. The learned AR submitted before us that the Assessing Officer basically has come to a conclusion that the land sold by the assessee is not agricultural land basically on the ground that it is situated within the area of HADA (now HMDA) which is a local authority coming within the definition of Municipality as provided under section 2(14)(iii)(a) of the Act. Further, the land has been sold for non-agricultural purpose. Hence, it is a capital asset under section 2(14) of the .....

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..... s been specified within the bio conservation zone and further records the fact that the information obtained from purchaser also reveal that no development activity has been carried-on on the land in question. However, the learned CIT(A) has refused to treat the land in question as agricultural land on the following grounds : (i) The Assessee has not produced any evidence to show that agricultural operations were conducted regularly on the said land prior to its sale. (ii) The location of the land adjacent to the International Air Port. (iii) The intention of the purchaser to purchase the land for investment purpose. 10. From the aforesaid discussions of the lower authorities, it becomes clear that so far as the nature and character of the land is agriculture land as recorded in the revenue records, has not been disputed. It is also not disputed that the land in question comes within the bio-conservation zone. Only because it is within the limit of HADA (now HMDA) and further it is alleged to have been sold for non-agricultural purpose and had a considerable high value, the lower authorities have denied the assessee s claim with regard to character of land as non-agriculture land . .....

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..... 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 the relevant time? 3. Whether such user of the land was for a long period or whether it was of a temporary character or by any of a stopgap arrangement? 4. Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? 5. Whether, the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? 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? 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 cesser and/or alternative user was of a permane .....

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..... onstituting agricultural operation and if the basic operations are there, the rest of the operations found themselves upon the same, but if the basic operations are wanting, the subsequent operations do not acquire the characteristics of agricultural operations. The Constitution Bench of the Hon ble Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence. 46. The Hon ble Gujarat High Court in the case of Dr. Motibhai D. Patel vs. CIT (1982) 27 CTR (Guj) 238 : (1981) 127 ITR 671 (Guj) referring to the Constitution Bench of the Hon ble Supreme Court had stated that if agricultural operations are being carried on in the land in question at the time when the land is sold and further if the entries in the Revenue records show that the land in question is agricultural land, then, a presumption arises that the land is agricultural in character and unless that presumption is rebutted by evidence led by the Revenue, it must be held that the land was agricultural in character at the time when it was sold. The Division Bench of the Hon ble Gujarat High Court further held that there was nothing on record to show that the presum .....

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..... as referred to the decision of the Hon ble Punjab & Haryana High Court in the case of CIT vs. Smt. Savita Rani (2004) 186 CTR (P&H) 240 : (2004) 270 ITR 40 (P&H) and has observed and held as under : "8. It is well settled in the case of CIT vs. Smt. Savita Rani (2004) 186 CTR (P&H) 240 : (2004) 270 ITR 40 (P&H), wherein it is held that the land being located in a commercial area or the land having been partially utilised for non-agricultural purposes or that the vendees had also purchased it for nonagricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B. 9. In the above said case, the assessee an individual sold 15 karnals, 18 marlas of land 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 hold .....

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..... ultural income was declared by the assessee in her return of income from this land from year to year. Further it is important to mention that mere inclusion of impugned property in the HADA vide GO MS No. 352 (M.A.) dated 30.7.2001 cannot change the character of the property. According to the lower authorities HADA has been constituted as a Special Area Development Authority by the A.P. Government u/s. 3A of the A.P. Urban Areas (Development) Act, 1975 and the lower authorities observed that notification to this effect has been issued by the Municipal Administration and Urban Development (II) Department vide GO MS No. 352 M.A. dated 30.7.2001 wherein 87 villages from 7 Mandals in the vicinity and surrounding International Airport at Shamshabad have been notified as special development area. Srinagar of Maheswaram Mandal is included in the above notification. According to the lower authorities the property loses its original character. In our opinion mere inclusion of the property in the HADA by State Government notification does not change the character of the property if the property still continues to be agricultural land at the point of sale of said property. Nothing has been br .....

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..... late the conversion of an agricultural land for non-agricultural purposes. That Act operates, vis-à-vis the lands situated in rural as well as urban areas. It is different matter that the Act in its operation does not reflect the intended purposes. A perusal of the same discloses that, if a stipulated amount is paid, the concerned authority has no option, whatever, except to accord permission. In a way, the Act turned out to be a money generating devise, than the one, to prevent or curb indiscriminate conversion of agricultural lands to other uses. Once the authority under that Act accords permission to convert an agricultural land, the matter ends there, and it would not at all be concerned, whether the land is put to industrial, residential, commercial or any such other use. It is lastly urged by the petitioners that insistence on clearance under the 2006 Act, even where a land ceased to be agricultural, prior to the enactment of that legislation cannot be sustained in law. In this regard, it needs to be observed that there is no indication to the effect that the enactment is retrospective in operation. It is only from the date on which the Act came into force, that no pie .....

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..... o question of conversion of this land for nonagricultural purposes by the Revenue authorities concerned. To our understanding nature of land cannot be changed by this notification and the land owners are required to apply to the concerned Revenue authorities for the purpose of conversion of the agricultural land into non-agricultural land and there is no automatic conversion per se by this notification. 54. It is also an admitted position that mere inclusion of land in the special zone without any infrastructure development thereupon or without establishing and proving that the land was put into use for non-agricultural purposes does not and cannot convert the agricultural land into non-agricultural land. In the instant case, at the relevant point of sale of the land in question, the surrounding area was totally undeveloped and except mere future possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into non-agricultural land at the relevant point of time when the land was sold by the assessee. It is also an admitted position that the assessee had not applied for conversion of the land in question into non-agricul .....

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..... 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 local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires the fulfilment of the condition that the Central Government has issued a notification under this Clause for the purpose of including the area up to 8 kms, from the municipal limits, to render the land as a Capital Asset. 11. In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14][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 capital asset be giving this very reason, we find the .....

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..... an assessee tinder the head "capital gains". In order to determine whether a particular land is agricultural land or not one has to first find out if it is being put to any use. If it is used for agricultural purposes there is a presumption that it is agricultural land. If it is used for non-agricultural purposes the presumption is that it is non-agricultural land. This presumption arising from actual use can be rebutted by the presence of other factors. There may be cases where land which is admittedly nonagricultural is used temporarily for agricultural purposes. The determination of the question would, therefore, depend on the facts of each case. 'The assessee, Hindu, undivided family, had obtained some land on a partition in 1939. From that time, up to the time of its sale, agricultural operations were carried on in the land. There was no regular road to the land and it was with the aid of a tractor that agricultural operations were being carried on. The land was included within a draft town planning scheme. The assessee got permission of the Collector to sell the land for residential purposes and sold it. On the question whether the land was agricultural land: He .....

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..... in the argument of the AR that clarifying within the brackets in the section 2(14)(iii)(a) is for the apparent reason that the name of the local body varies based on the nature of the area for which it is constituted and also for the reason that there is a lack of uniformity all over India with reference to the nomenclature of the urban local authority. In fact, municipality is known by different names in various parts of the country. This fact is also evident from Art.243Q of the Constitution of India, dealing with creation of municipalities. The term 'municipality' is not defined u/s 2(14) of the Act. However, the same is defined under article 243 P(e) of the Constitution of India, which is reproduced hereunder: "243 P(e): "Municipality" means an institution of self- Government constituted under article 243Q. " Since "Municipality" is defined to mean an institution constituted under Article 243Q, the same is extracted hereunder: "243Q. Constitution of Municipalities.- (1) There shall be constituted in every State,- (a) a Nagar Panchayat (by whatever name called) for a transitional area, that is to say, an area in transition from a rural .....

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..... om the supply of water or electricity within or outside its own jurisdictional area]. [Explanation. - For the purposes of this clause, the expression "local authority" means - (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924); 63. Under the provisions of section 10(20) of the Income-tax Act, 1961, the income of a local authority which is chargeable under the head 'Income from house property', 'Capital gains' or 'Income from other sources' or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service not being water or electricity within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area, is exempt from income-tax. The expression "local authority" is not defined in .....

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..... ence as a corporate body. It must be a legally independent entity. (2) The body must function in a defined area and ordinarily, wholly or partly, directly or indirectly be elected by the inhabitants of the area. (3) The body must enjoy a certain degree of autonomy, with freedom to decide for itself questions of policy affecting the area administered by it. (4) The body must be entrusted by statute with such Governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc. Broadly such body may be entrusted with the performance of civic duties and functions, which would otherwise be Governmental duties and functions. (5) The body must have the power to raise funds for the furtherance of their activities and the fulfilment of their projects by levying taxes, rates, charges, or fees. Essentially, control or management of the funds must vest in such body. 65. In the light of the above decision in the case of R.C. Jain (supra) we have to see t .....

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..... s proposed to be set up, by way of a simple notification and the power to notify such Authority is drawn from an Act specially legislated for the said purpose. State Government is having power to regulate method of recruitment, conditions of service, etc, of officers so appointed u/s. 4 of the Andhra Pradesh Urban Areas (Development) Act, 1975. The exercise of power by the Board so constituted by the State Government is not only subject to the provisions of the Andhra Pradesh Urban Areas (Development) Act, 1975 but also subject to the control of the State Government. Thus, the Board has to comply with such directions as may be issued to it by the State Government from time to time. The object and activities carried on by the HADA are also with reference to the said Act. The State Government will exercise superintendent and control over the HADA at all times. Thus, HADA is basically and essentially a creation of the Act of State Legislature consisting of persons appointed by the State Government on salary basis. The Board Members are not elected by the people and there is no element of people choice being represented in any manner in the constitution of the Board. The Board function .....

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..... ith only the job of granting technical sanction or approval for any proposed construction or development in the area, in order to regulate and ensure planned development in and around the proposed airport and the role of concerned local authorities was not done away with. Thus, HADA is only entrusted with the responsibility of preparing draft Master Plans and granting technical approval for any proposed construction or development in its jurisdiction. It does not have any power or ability to collect taxes nor is it responsible for provision of civic amenities which would be within the exclusive domain of the local authorities. 68. Further a careful and comprehensive reading of S.8 and S.36 of Andhra Pradesh Urban Areas (development) Act, 1975 clearly suggests that HADA, being a Development/Special Area Authority constituted under the said Act, cannot be either equated with a distinct municipality or considered as a complete substitute of a municipality or any other local authority. S.8 provides that the Special Area Authority constituted under the Act may cover an area comprised in more than one local authority, whether municipality or panchayat, and in such event makes it mandator .....

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..... Airport Development Authority (HADA) has been constituted, under the provisions of the Andhra Pradesh Urban Areas (development) Act, 1975, as a Special Area Authority by the state Government, and notified as such vide G.O.Ms. No. 352, MA, dt. 30-07- 2001. It was neither constituted under AP Municipalities Act nor was it notified as a municipality by the state government. Further, the Development/ Special Area Authority can be dissolved, on achieving the purpose for which it is created, by way of a notification, as per S.60 of the Andhra Pradesh Urban Areas (development) Act, 1975, which is reproduced hereunder, whereas it is not possible in case of a municipality: "S.60 (1) Where the government are satisfied that the purpose for which the Authority is constituted under this Act, has been substantially achieved so as to render the continued existence of the Authority, in the opinion of the Government, unnecessary, the Government may by notification, declare that the said Authority shall be dissolved with effect on and from such date as may be specified in the notification; and the Authority shall be deemed to be dissolved accordingly. 71. The constitution and appointment of mu .....

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..... e municipality. The chairman and vice-chairman of the municipality are elected by the members of the council. The commissioner is appointed by the Government in consultation with the council. It is the duty of the commissioner to carry into effect the resolutions of the council unless it be that the said resolution is suspended or cancelled by the Government. The municipality contemplated under section 2(14)(iii) (a) must be one which satisfies the above requirements. All the local authorities included in the brackets must satisfy the above requirements to be known as a 'municipality'....... The Guruvayur township, constituted under the Guruvayur Township Act, considered in this backdrop, cannot be said to be a municipality. The Guruvayur township is not an autonomous body like a municipality. It is constituted by the Government by a notification issued under the Guruvayur Township Act. To put it differently, the members of the township committee are not elected representatives of the residents of the area" 72. Since the facts of the case are similar to those of the case cited above and the provisions of AP Municipalities Act, concerning the constitution and appointmen .....

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..... within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area, is exempt from income-tax. The expression "local authority" is not defined in the Income-tax Act. Section 3(31) of the General Clauses Act, however, defines "local authority" as under: 'Local authority' shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund. The test for determining whether a body is a local authority have been laid down in Union of India v. R.C. Jain's [1981] 2 SCR 854. First, the authorities must have separate legal existence as corporate bodies. They must not be mere Governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area. Next they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete .....

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..... t make it a local fund (IS contemplated by 3(31) of the General Clauses Act. Therefore, the High Court was not correct in coming to the conclusion that the respondent was a local authority and entitled to exemption under section 10(20) of the Act. 76. Further it is nobody's case that the property falls within any area which is comprised within the jurisdiction of a municipality or cantonment board or which has a population of not less than 10,000 according to the last preceding Census of which the relevant figures have been published before the first day of the previous year. In other words, the land does not fall in sub-clause (a) of section 2(14)(iii) of the Act as the land is outside of any municipality including GHMC. Further we have to see whether the land falls in clause (b) of section 2(14)(iii). This section prescribes that any area within such distance, not being more than 8 km from the local limit of any municipality or cantonment board as referred to in sub-clause (a) of section 2(14)(iii) of the Act, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by not .....

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..... s within the territorial limit of any municipality without notification of Central Government as held by the Karnataka High Court in the case of Madhukumar N. (HUF) (cited supra). 78. Further, the Visakhapatnam Bench in the case of Tadavarthy Kanakavalli w/o. T. Dasaratha Rama Rao in ITA No. 74/Vizag/2011 and CO No. 3/Vizag/2011 considered the similar issue of taxability of agricultural land on sale covered by this Notification No. GO MS 352 (MA) dated 30.7.2001. Vide order dated 4.7.2011 the Tribunal held in para 4 as follows: "4. The grounds numbered as 1, 2 and 7 in the appeal of the revenue are general in nature and hence require no adjudication. In the grounds numbered as 5 and 6, the revenue is raising a new claim that the impugned lands fall within the limits of area declared as special development area by G.O. Ms. No. 352, MA, dtd. 30-7-2001 issued by the Municipal administration and urban development, Government of Andhra Pradesh. However, we notice that this was not the case of the assessing officer for bringing the impugned gain on sale of land. Secondly, it was not shown that the authority concerned with the development of the areas is a municipality as defined u/s .....

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..... 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), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. Hyderabad Airport Development Authority, is therefore, not a Body within the meaning of clauses (a) and (b) of the said Section. Therefore, the learned Tribunal has held that the proceeds of sale of agricultural land do not form capital gain, as they do not relate to capital asset. We are of the view that the Tribunal has come to the correct conclusion. There is no element of law involved in this appeal, for which, decision of this Court is required. 13. The ratio laid down by the Co-ordinate Bench in the case of Smt. T. Urmila (supra), clearly applies to the facts of the present case. In aforesaid view of the matter, we respectfully following the decision of the Co-ordinate Bench in the case of Smt. T. Urmila (supra) hold that the land sold by the assessee being agriculture in nature cannot be considered to be a capital asse .....

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