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2013 (8) TMI 1119

..... M. This appeal filed by the assessee against the Order of the CIT(A)-VI, Hyderabad dated 25.09.2012 for the assessment year 2009-2010. The assessee has raised the following two effective grounds. 1. The learned CIT(A) is not justified in holding that the land in question was not agricultural land, and thus confirming the computation of capital gains. 2. The learned CIT(A) is not justified in treating the agricultural income as income from other sources and holding as irrelevant the other issues regarding the location of the land in question. 2. In ground No.1 the assessee has challenged the action of the revenue authorities in holding that the land transferred by the assessee is not agricultural land but a capital asset within the meaning of section 214 of the Act. 3. Briefly the facts are, the assessee is an individual. For the impugned assessment year he filed his return of income on 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 wa .....

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..... e and other relevant considerations. Hence, HADA and HMDA is a Government notified local authority and a municipality within the meaning of section 2(14)(iii)(a) of the Act. The Assessing Officer further quoted that the land having been sold which transferred for utilisation in nonagricultural purpose. It cannot be considered as agricultural land. With the aforesaid observation, the Assessing Officer computed capital gain on the consideration received on sale of land by determining the same at ₹ 1,58,04,630/-. The assessee being aggrieved of the assessment order, preferred an appeal before the CIT(A). 4. In the course of hearing of the appeal before the CIT(A), it was contended by the assessee that the agricultural operations had been conducted on the land and the assessee had regularly disclosed agricultural income from the said land. Further, the land had been earmarked as bio-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 .....

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..... ve shifted to the Assessing Officer to prove that the land was not agricultural land. The CIT(A) observed that the assessee had leased out the land to M/s. Prakash Farms and no evidence has been produced either during the assessment proceedings or during appellate proceedings to show that M/s. Prakash Farms has regularly been conducting regular operations in the land immediately prior to its sale. The CIT(A), therefore, held that in the circumstances, the land can at best described as potential agricultural land but not actually sold. The learned CIT(A) further was of the view that even though the land was engaged in the revenue records as agricultural land which may be a relevant factor to hold the land to be agricultural land but cannot be conclusive in view of the ratio laid down by the Hon ble Supreme Court in the case of Sarifa Bibi Mohammad Ibrahim & Others. 5. But on the contrary, 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 .....

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..... agricultural land. 8. The learned DR on the other hand, strongly supporting the Orders of the lower authorities submitted that the findings recorded by the Assessing Officer as well as CIT(A) clearly established the fact that the land was not held for the purpose of agriculture and therefore, it clearly attracts the provisions of section 2(14) of the Act. 9. We have considered the submissions of the parties and perused the material available on record. Perusal of the assessment order reveals the fact that the Assessing Officer held the land in question to be a nonagricultural land being clearly influenced by the fact that it is within the jurisdiction of HADA (now HMDA) and as such, cannot be considered to be agricultural land as per section 2(14)(iii)(b) of the Act. The CIT(A) though does not dispute the fact that the land is recorded as agricultural land in the revenue records and has 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 o .....

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..... t or absent in any case and that in each case one or more of the factors may make appearance and that ultimate decision will have to be reached on a balanced consideration of the totality of the circumstances. 43. The expression agricultural land is not defined in the Act, and now, whether it is agricultural land or not has got to be determined by using the tests or methods laid down by the Courts from time to time. 44. The Hon ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim (204 ITR 631) has approved the decision of a Division Bench of the Hon ble Gujarat High Court in the case of CIT vs. Siddharth J. Desai (1982) 28 CTR (Guj) 148 : (1983) 139 ITR 628 (Guj) and has laid down 13 tests or factors which are required to be considered and upon consideration of which, the question whether the land is an agricultural land or not has got to be decided or answered. We reproduce 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 .....

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..... in the Indian IT Act and that we must necessarily fall back upon the general sense in which they have been understood in common parlance. The Hon ble Supreme Court has observed that the term agriculture is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and raising on the land all products which have some utility either for someone or for trade and commerce. It will be seen that the term agriculture receives a wider interpretation both in regard to its operation as well as the result of the same. Nevertheless there is present all throughout the basic idea that there must be at the bottom of its cultivation of the land in the sense of tilling of the land, sowing of the seeds, planting and similar work done on the land itself and this basic conception is essential sine qua non of any operation performed on the land constituting 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 S .....

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..... pay a large price would not detract from its character as agricultural land on the relevant date of sale. 49. We may also refer to the case of Gopal C. Sharma vs. CIT (1994) 116 CTR (Bom) 377 : (1994) 209 ITR 946 (Bom), in which, the case of Smt. Sarifabibi Mohamed Ibrahim & Ors. vs. CIT (supra) was referred to and relied, amongst other cases. In this case, the Division Bench of the Bombay High Court has stated that the profit motive of the assessee selling the land without anything more by itself can never be decisive for determination of the issue as to whether the transaction amounted to an adventure in the nature of trade. In other words, the price paid is not decisive to say whether the land is agricultural or not. 50. We may refer to a judgment of the Hon ble Madras High Court in the case of CWT vs. E. Udayakumar (2006) 284 ITR 511 (Mad) where the Hon ble Madras High Court has 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 .....

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..... quot; 51. Adverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared in the return of income filed by the assessee for the past several years as agricultural income. It is also an admitted fact that the assessee has not applied for conversion of this agricultural land for non-agricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property nor the surrounding areas were subject to any developmental activities. 52. Further, we are inclined to mention herein that there is no dispute with regard to facts that the assessee has been carrying on agricultural operations on the impugned property and agricultural 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 au .....

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..... master plan in turn, would stipulate the use to which the respective areas shown in it can be put. These include commercial, residential, industrial, recreational uses, etc., and each of the areas are called zones. The types of construction that can be made in the respective zones are also enlisted. Once an area is shown in a particular zone in the master plan, it cannot be put to a different use (Section 15). For example, in the residential zone, establishment of an industry cannot be permitted. The power to convert land use in a particular zone to a different one, is vested in the Government. Section 49 of the 1975 Act contains a provision, which directs that, if agriculture is being carried on any land within the area covered by master plan, it can be continued without any inhibition, irrespective of the zone in which it is shown. The 2006 Act, on the other hand, is intended to regulate 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 sti .....

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..... Act, 1975 with a view to promoting and securing planned development of the area in and around the proposed international Airport at Shamshabad. The State Government have declared the areas covered by GO MS 352 (MA) dated 30.7.2001 fall under the jurisdiction of HADA which is a statutory body. HADA Board consists of Special Chief Secretary to Government, Transport, Roads and Buildings Department as the Chairman, the Principal Secretary to Government, Municipal Administration and Urban Development Department; the Managing Director of APIIC and the Vice Chairman, HUDA, as members. The Vice Chairman of HUDA is also the Vice Chairman of HADA. The jurisdiction of HADA is 458 sq. km and covers 89 revenue villages from 7 Mandals all falling in Rangareddy District. If by GO cited supra the nature of land covered by this notification changes from agriculture into non-agriculture then there is no 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 agricu .....

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..... and in question is included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of time. Thus, the fact that the land in question in the instant case is brought in special zone cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes. 55. Recently the Karnataka High Court in the case of CIT vs. Madhukumar N. (HUF) (2012) 78 DTR (Kar) 391 held as follows: "9. An agricultural land in India is not a capital asset but becomes a capital asset if it is the land located under Section 2(14)(iii)(a) & (b) of the Act, Section 2(14) (iii) (a) of the Act covers a situation where the subject agricultural land is located within the limits of municipal corporation, notified area committee, town area committee, town committee, or cantonment committee and which has a population 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 C .....

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..... unicipal Limits of Rajarhat Municipality and that also 2.5 KM away from the outer limits of the said Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. Accordingly, we quash the assessment order qua charging of capital gains on very jurisdiction of the issue is quashed. The cross objection of the assessee is allowed." 57. It was held in the case of CIT vs. Manilal Somnath (106 ITR 917) as follows: Under the Income-tax Act of 1961, agricultural lend situated in India was excluded from the definition of " capital asset" and any gain from the sale thereof was not to be included in the total income of 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 .....

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..... agricultural land into non-agricultural land. Admittedly, in the present case, the land has not been converted to non-agricultural land under the provisions of A.P. Agricultural Land (Conversion for Non-Agricultural Purposes) Act, 2006. It is also a fact on record as observed by the learned CIT(A) that the purchaser has admitted that the land has not been used for any development activity and the said land comes within the bio-conservation zone which restricts the user of the land only for agricultural or greenary purpose. In these circumstances, the conclusion arrived at by the revenue authorities that the land in question was sold for non-agricultural purposes is without any basis. Furthermore, so far as the Assessing Officer s observation to the effect that HADA is a Municipality as defined in section 2(14)(iii)(a) of the Act, the Co-ordinate Bench held as under : 60. We find force 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 refere .....

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..... Chairpersons of the Committees constituted under clause (5) of article 243S: Provided that the persons referred to in paragraph (i) shall not have the right to vote in the meetings of the Municipality; (b) the manner of election of the Chairperson of a Municipality." Further, it is categorically provided that all the state laws dealing with the municipalities should be consistent with the provisions contained in Part- IXA. 62. We also perused the meaning of the term local authority as referred in section 10(20) of the Act. (20) 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]. [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 i .....

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..... d with the performance of civic duties and functions which would otherwise be Governmental duties and functions. Finally, they 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. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority. 64. Thus, it was laid down by the Supreme Court in the case of Union of India vs. R.C. Jain [(AIR) (1981) SC 951] the following five ingredients, which are required to be fulfilled cumulatively before an authority can be said to be a 'local authority', in the light of the definition of 'local authority' as given under section 3(31) of the General Clauses Act, 1897: (1) The authority must have separate legal existence 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 qu .....

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..... e relevant laws laid down by the respective state governments, AP Municipalities Act,1965 in the instant case, should be in consistency with such provisions. The term 'Municipality' is defined u/s. 2(22) of AP Municipalities Act,1965 to mean a municipality of such grade as may be declared by the Government, from time to time, by notification in the Andhra Pradesh Gazette on the basis of income and such other criteria as may be prescribed. Thus, in the state of Andhra Pradesh, a municipality has to be mandatorily constituted in terms of s. 3 of AP Municipalities Act,1965, as per the guidelines laid down in the constitution, and has to be so notified by the Government whereas setting up of a Development/ Special Area Authority is not mandatory. A state Government may decide to constitute such Authority for a specified purpose, depending on the specific requirements for which it is 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 .....

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..... ovision. Such notification will be issued by the Central Government, having regard to the extent of, and scope for, urbanisation of such area, and, when any such area is notified by the Central Government, agricultural land situated within such area will stand included within the term "capital asset". Agricultural land situated in rural areas, i.e., areas outside any municipality or cantonment board having a population of not less than ten thousand and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, will continue to be excluded from the term "capital asset". 67. Further it is very clear that the area comprised in the jurisdiction of HADA was essentially rural in nature, the economy of which was predominantly agriculture based. Further, the GO makes it abundantly clear that HADA was entrusted with 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 .....

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..... shall strictly exercise the powers transferred to it under sub- section (1) within the area under the territorial jurisdiction of the local authority concerned. " 69. As per the above section, only in the event of suspension of any of the powers and functions of a local authority of any area and subsequent delegation thereof to a Special Area Authority, it would be deemed to be such local authority, to the limited extent of performing/exercising the functions/powers so entrusted. In the instant case, the village in which the agricultural land was located was comprised in the area within the jurisdiction of Gram Panchayat of Mankhal village and as such the Special Area Authority, being HADA, shall be deemed to be such Gram Panchayat, to the extent of execution of the delegated function of granting technical approval for constructions/ development of lay-outs. 70. Further, Hyderabad 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 Municipal .....

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..... ipality within the meaning of the section. Therefore, to find a solution to the problematic dispute, we have to give a meaning to the word "municipality" which stands undefined in the Act. Generally understood, 'municipality' means a legally incorporated or duly authorised association of inhabitants of a limited area for local governmental or other public purposes. (Black's Law Dictionary). The above definition more or less is reflected in the provisions contained in Chapter III of the Kerala Municipalities Act, 1960. The council constituted under section 7 with the assistance of the standing committee of the council, chairman, commissioner, etc., will administer the provisions of the Act. The council consists of such number of members as are prescribed. They are called councillors. They are elected by the residents of the area coming within the jurisdiction of the 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 s .....

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..... rea Authority, being HADA, shall be deemed to be such Gram Panchayat, to the extent of execution of the delegated functions, if any. As per Part-IX of the Indian Constitution, Panchayat refers to rural self government, as distinct from municipality, which refers to urban self-government and as such agricultural land located within the jurisdiction of a village panchayat is not covered by the definition of Capital Asset u/s 2(14). 75. It was held in the case of CIT vs. UP Forest Corporation (230 ITR 945) as follows: 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 the Income-tax Act. Section 3(31) of the General Clauses Act, however, defines "loc .....

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..... like health, education, town planning, markets, transportation etc. Finally, and which is more important, the respondent does not have the power to raise funds by levying taxes, rates, charges or fees. In the case of the respondent-Corporation, the Act does not enable it to levy any tax, cess or fee. It is the income from the sale of the forest produce which goes to augment its funds. It has no power under the Act of compulsory exaction such as taxes, fees, rate or charges. Like any commercial organisation it makes profit from sale of forest produce and it has been given the power to raise loans. Whereas municipal or local funds are required to be spent for providing civic amenities, there is no such obligation on the respondent to do so. Merely because section 17 of the U. P. Forest Corporation Act states that the fund of the Corporation "shall be a local fund" that would not 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 .....

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..... the agricultural land situated in rural areas continues to be excluded from that definition. And as in the present case, admittedly, the agricultural land of the assessee is outside the Municipal Limits of Hyderabad Municipality and that also 8 km away from the outer limits of this Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. This is supported by the order of Kolkata Bench of this Tribunal in the case of Arijit Mitra (cited supra), Harish V. Milani (supra) and M.S. Srinivas Naicker vs. ITO (292 ITR 481) (Mad). By borrowing the meaning from the above section, we are not able to appreciate that the land falls 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/ .....

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..... learned Tribunal on fact, found that the land in question at the time of transfer did not lose the character of agricultural one. Further, it was held on fact that the Hyderabad Airport Development Authority (HADA) is not a local body. It was further held that the land in question was not a capital asset as defined under section 2(14)(iii) of the Act. Section 2(14)(iii)(a) and (b) reads as follows : (iii) agricultural land in India not being, land situate - (a) In any area, which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (b) 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, spe .....

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