TMI Blog2022 (7) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... or conversion of land into agricultural to nonagricultural on 05.09.2014 which is subsequent to the sale of land by the respondent. Recently the Hon ble Kerala High Court in the case of CIT vs. Cochin Malabar Estates and Industries Ltd. [ 2022 (2) TMI 1146 - KERALA HIGH COURT] after referring to the judgement of the Hon ble Madras High Court in the case of Mansi Finance Chennai Ltd. [ 2017 (1) TMI 1209 - MADRAS HIGH COURT] and MS. Srinivasa Naicker [ 2007 (1) TMI 149 - MADRAS HIGH COURT] Thus, the argument of the ld. CIT-DR that the land was used for non-agricultural purpose by the purchaser of the land has no impact in determining the issue whether the land is agricultural or not at the time of sale. The mere fact that the assessee company made huge amount of profit cannot be ground to treat the profit arising on sale of agricultural land as business income as held by the Hon ble Gujarat High Court in the case of PCIT vs. Heenaben Bhadresh Mehta [ 2018 (8) TMI 987 - GUJARAT HIGH COURT] Thus we are of the considered opinion that the assessee company had brought on record a conclusive proof to infer that the lands sold were agricultural lands. Accordingly, we uphold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis laid by the Ld. CIT(A) on the period of holding the land was more than 12 years is irrelevant because the assessee is a professional trader in land. 6. The order of the Ld. CIT(A) may be vacated and the Assessing Officer be restored. 7. The appellant craves leave to add, alter amend and modify any of the above grounds of appeal. 3. Briefly, the facts of the case are as under : The respondent-assessee is a Limited Liability Partnership (LLP) which came into existence on 21.08.2012 by converting the name of M/s. Renaissance Construction Pvt. Ltd. firstly into M/s. Renaissance Cultivation Pvt. Ltd. on 21.05.2012 and finally on 21.08.2012 in the name of above said LLP with its three partners, namely, Shri Fali J. Pastakiya, Shri Anand Mutha and Shri Rajendra U. Duggad having 45.10%, 36.70 and 18.20% of share holding respectively. It is engaged in the business of carrying on the building construction etc. The return of income for the assessment year 2013-14 was filed on 28.07.2013 declaring total income of Rs.Nil. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax, Central Circle- 2(1), Pune ( the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was major recession in real estate in the year 1995. He also stated that the land was situated in Khadkale, Pune. The Assessing Officer also deputed one of the Inspector of his office for spot verification of the land. The Inspector submitted a report dated 07.09.2015 stating that this is fully developed area. The Assessing Officer also, on verification of entries in 7/12 extracts of the land, found that some part of the land is PAD GAWATPAD and some part of land has BHAT JAWARI from 2000-01 at different parcels of impugned land. The Assessing Officer also observed that the respondent-assessee shown very meagre agricultural income for the assessment years 2010-11, 2011-12 and 2012-13 in the returns of income. The statements given by the directors of the respondent-assessee were retracted. The Assessing Officer based on the following observations held that the land is not agricultural land sold for profit and brought to tax as business income :- (i) The appellant company was formed only for the purpose of carrying on the business of promoters/builders. (ii) The land was situated in residential zone and because of its proximity to old Bombay Pune Highway and also proxi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer was not justified in holding that the land was not agricultural land. Accordingly, the ld. CIT(A) concluded that the gains arises on sale of land cannot be taxed under the head business income . 6. Being aggrieved by the decision of the ld. CIT(A), the Revenue is in appeal before us. 7. The ld. CIT-DR submitted that whether a particular land is agricultural or not is essential a question of fact which should be decided with reference to the entries in the Revenue Record of the actual operations carried on by the assessee on the land. He submitted the following facts which according to him clearly establishes the intention of the assessee to hold the asset as business asset :- (i) The objects of the company does not include the carrying on the agricultural activities. (ii) The fact that the directors of the assessee company already into the business of builders would indicate that the lands were purchased for the purpose of business. (iii) The assessee company had shown very meagre income from agricultural activities. (iv) The lands were situated only in the residential zone and it goes proximity to Railway Stations. (v) The statements given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue records as agricultural and whether it was subject to the payment of land revenue? Yes. But as held by various courts classification in revenue records is not a sole factor to decide the nature of land. Yes. The land was classified in the revenue records as agricultural and was also subjected to the payment of land revenue 2 Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (i)No, the land was not ordinarily used for agricultural purpose. (i) Yes, the Respondent has used the land for agricultural purposes. This fact is evident from the returns of income filed for various years wherein the Respondent has consistently disclosed agricultural incomeearned. (Please refer Page no.444 of Paper Book filed by the Respondent) (ii) The assessee was originally a company which was later converted as LLP and as per MoA, the main object was to construct, develop, purchase, sell, etc of immovable properties. (ii) The land has been used for cultivation for more than 10 years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he land was purchased by the Respondent in F.Y. 1994-95 which was initially treated as stock-in-trade. Subsequently, on realising that the development on the land was not feasible, the Respondent-converted the land into investment in the F.Y. 2000-01, after which the land has been used for cultivation for more than 10 years. Hence, Your Honours would appreciate that the agricultural activity cannotbe said to be of temporary character or by way of stop-gap arrangement. (ii) Cultivation was never the main object of the assessee. In fact the phrase 'cultivation' used in object clause 4 in MoA is in the context of developing the properties by planting, paving, drawing, farming, cultivating, etc. This is an Ancillary object which is incidental for attaining Main cultivation/farming object. So cultivation / farming cannot be a separate business activity of the company (iii) Notes to Accounts for financial statements clearly suggest that even if some crops/animal grass was produced, it was only on a minor portion of the land. (iv) Moreover, the directors had admitted that the land was purchased considering its po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OA on Page 292 and page 293 of the P.B. (iii)Later, the permission for non agricultural use was given on 05.09,2014 on a joint application made by Shri Fali Jehangir (in the capacity of self as well as in the capacity of partner, founder and main person of the assessee and M/s Namrta Realty (other Joint Development Partner) (kind reference to page 438 of PB filed by the assessee). (iv) Reference is also invited to the Power of Attorney dated 25.01.2013, granted by the assesse to Its development Partner for obtaining permission for non-agricultural from relevant authorities. It is clearly mentioned in POA that as the assessee is unable to attend to various matters related for sanction, so it is authorising the Namrta Developer for same. (Kind reference is invited to page 286 to 290 of PB filed by the assessee). (v)The said PoA is dated 25.1.2013 It is important that on the said date initial amount of Rs 7 crores was paid by the Joint developer as mentioned in final agreement to sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.2013 from Namrata Developer Thus, as per the ratio laid down by Hon'ble Bombay High Court CIT vs VA. Trivedi (1988) 38 Taxman 102 (Bom) as well as other case laws, the land ceased to be agricultural land before the relevant date The spot verification made by the Inspector clearly established that the land has been developed in 298 residential plots. (kind refence to para 5.4/page 12 of assessment order) This development is permanent. 7 Whether the land, though entered in revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes? The assessee is a company which was later converted as LLP. And as per MoA, the main object was to construct, develop, purchase, sell, etc of immovable properties. The Directors (now partners) of the assessee are established builders and not agriculturist. The land has always been used for agricultural purposes. This fact has also been accepted by the Department at the time of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when M/s. Namrata Realty had already started the construction activities. Hence, Your Honours would appreciate that reliance on the said report is misplaced. 10 Whether there were any previous sales of portions of land for non-agriculture use? Though, there was no actual sale of any portion of the said land in past. But, the assessee entered into development agreement not only with M/s Namrata Realty but with M/s Panchshil. Group as well. (Reference is invited to page 244 to 261 of paper book filed by the assessee). The assessee has neither during the post search investigation, assessment proceedings, or appellate proceedings has denied the existence of these agreements/MoUs. There was no sale of any portion of land in the past for non-agricultural purposes. 11 Whether permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained because the sale intended sale was in favour of nonagriculturist was for non- agricultural or agricultural use? It is not clear as to whether such permission was taken or not but, it may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld always endeavour to sell its investment for the maximum profit and doing so would not change the character of the asset from investment to stock-intrade . Reliance is placed on the judgement of the Hon ble Bombay High Court in the case of CIT v. Smt. Debbie Alemao [2011] 196 Taxman 230 (Bombay), wherein eventhough the assesse had sold the land for a price which was 10 times the purchase price within two years of purchase, the Hon ble Bombay High Court had characterised the land as agricultural land, being exempt from tax. The Hon ble Bombay High Court upheld the orders of the lower authorities wherein due consideration was given to other factors, being entry in revenue records, permission for nonagricultural use, etc. 10. We heard the rival submissions and perused the material on record. The only issue in the present appeal relates to whether or not in the facts of the present case can it be held that the profits arising on sale of lands in question to be taxable under the head business income . There is no dispute that the subject lands were classified in the revenue record as agricultural lands as per entries in 7/12 extracts of the lands. The entries in 7/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent treatment has no relevance in the matter of considering a capital asset. It is no doubt true that the purpose for which the purchaser had purchased was totally different from what the transferor had intended to use the lands in question but as held in the decisions cited above, with the admitted finding that the lands in question were under agricultural operation on the date of sale for the purpose of considering the meaning of capital assets, it matters very little how the subsequent purchaser intended the land in question to be put to use. 11. Therefore, in the light of the fact that the entries in the 7/12 extracts shows that lands were agricultural lands at the time of transfer and the lands have been put to agricultural operations, it can be said that the assessee company had discharged his burden and proved that the lands were agricultural lands. Further, the fact that the purchaser of the lands had used the lands for non-agricultural purpose has no bearing in determining the nature of assets sold by the assessee on the date of sale as held by the Hon ble Madras High Court in the case of M. S. Srinivas Naicker vs. ITO, 292 ITR 481 as extracted above. 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgement are as under : 9. As observed hereinabove, the land was sold as an agricultural land and in fact, what was sold was agriculture land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by the assessee on sale of agriculture land as business income. Similarly, merely because for whatever reason, the assessee has earned sufficient huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agriculture land as business income. 16. The submissions made on behalf of the respondent-assessee company detailing as to how in terms of the tests laid down by the Hon ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim Others vs. CIT, 204 ITR 631 (SC) the land is an agricultural land, remain uncontroverted by ld. CIT-DR. 17. In the light of above discussion, we are of the considered opinion that the assessee company had brought on record a conclusive proof to infer that the lands sold were agricultural lands. Accordingly, we uphold that the findings of the ld. CIT(A) that the lands sold were agricultural lands. 18. As regards to the finding of the A.O. that lands were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is an accepted position that the lands were originally held as stock-in-trade but converted into investments subsequently. (ii) Once the lands are held to be agricultural lands, the gains arising on sale of said lands cannot be brought to tax as business income as held by the Jurisdictional High Court in the case of CIT vs. Nitish Rameshchandra Chordia, 374 ITR 531 (Bom.) wherein, the Hon ble Bombay High Court after referring to the decision of the Hon ble Delhi High Court in the case of D.L.F. United Ltd. vs. CIT, 129 CTR 33 (Delhi) held that any gains arising on sale of agricultural land/property cannot be considered as business income. The relevant part of the said decision is reproduced as under :- 13. In the ruling in the case of DLF United Ltd. v. CIT [1995] 217 ITR 333/84 Taxman 379 the Hon'ble Delhi High Court referred to explanation to section 2(1A) relied upon by the Counsel for the Revenue and held that surplus of the compensation amount arising as a result of acquisition of agricultural land in question was capital asset and not the income at all. The question of change in the definition of agricultural income because of insertion of the explanation has n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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