TaxTMI 
TaxTMI 
2012 (9) TMI 294
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....nished by the assessee, the Assessing Officer noticed that such profit has arisen from sale of land at Turkapally and at Kompally. In support of claim of agricultural land, the assessee has filed a certificate dated 24.12.2009 in that regard from the Tahasildar, Shameerpet Mandal. The assessee has also furnished the details of lands purchased at Turkapally village and at Qudbullapura village, Medchal Mandal. In response to query raised by the Assessing Officer to furnish details of agricultural operation carried out on the said land, the assessee has submitted that the said land has been leased out earlier and an income of Rs. 15,000 was earned. In response to further query raised by the Assessing Officer, the assessee has furnished the details of purchase and sale of agricultural lands made during earlier years. It has furnished the details of purchase of agricultural land during the previous years 2002-03 to 2003-04 and the sales made out of such land during the previous years 2004-05, 2005-06 and 2006-07. Such statement as furnished by the assessee is extracted by the Assessing Officer at page 5 & 6 of the assessment order. After considering such details furnished by the assesse....
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....een accepted in the previous assessments made in the case of the assessee. In the Wealth Tax returns filed for the Asst. Years 2003-04 to 2007-08, their claim about said lands being exempted assets, has been accepted. It was further stated that they have sold a part of the said lands and no capital gains was paid and their such claim was accepted by the department. It was further submitted that the buyer who has purchased the land has also indulged in agricultural activity. It was stated that the said agricultural lands in the case of the assessee, is not a capital asset within the meaning of section 2(14) of the Act. With these submissions, the assessee has contended that such profit earned from sale of those land during the previous year, cannot be taxed treating as business income. 5. However, the Assessing Officer did not accept such submissions of the assessee. He noted that purchase of lands at frequent intervals during the earlier years points to the intention of the assessee of engaging in business activity. He stated that such purchases made by the assessee, were with a motive to earn profit from sale of such lands at a later date. The said lands purchased by the assessee....
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....10.1.2006 3,75,000 7. The AR submitted that the Assessing Officer (AO) held that the assessee indulged in an Adventure in the nature of trade in buying the agricultural lands and in selling them later. Therefore he assessed the amount of Rs. 69,00,224/- as income from business. It is the assessee's contention that there is no object in the Memorandum of Association to do Business in Agricultural lands and that the Memorandum and Articles confine the activities to the business Real Estate, that the agricultural lands were purchased nearly after 10 years after the existence of the company as a matter of investment and also shown in the account Books accordingly through out the period of holding. The Income Tax Officer, i.e. AO proposed to treat the income from agriculture as income from business on the ground that the assessee indulged in an adventure in the nature of trade in buying and selling agricultural lands, that the "capital assets" shown in the balance sheet should be treated as "stock-in-trade of the business", that the agricultural activity carried out was of a minimal nature and that the ancillary activities in Clause 11 at page 3 of the Memorandum and Articles of Assoc....
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....ng statements while rejecting the contentions of the assessee. They are as follows: At page 4(ii): "the lands have not yielded any income whether exempt or not thereby indicating a possible change in their true 'character' from agricultural lands". At page 7(iv) : "the lands in fact were dry lands which have not yielded any agricultural income" At page 12 (e): "the description of the land in the official records though indicate the lands to be agricultural lands except certification the nature and extent of crops grown, yield per acre etc have not been furnished by the Tahsildar as there is no such activity in connection with agricultural during the year" 9. The AR submitted that at the same time the Assessing Officer made the following observations in his order which are at variance with the preceding observations: At page 4(iii): "the assessee has invested huge sums of money by purchasing agricultural lands and has earned mere income from lease". At page 5(vii): "mere receipt of lease income from alleged agricultural lands cannot determine the nature of the said lands as 'agricultural lands' whereas the fact remains that the same are dry lands". At page 7(iii) : "the lands....
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....de an incorrect statement in his reasons. At page 12(d) the Aa states that "the character of the adjoining land has also not proved since in the vicinity of the lands the activity of some real estate by way of huge building has been constructed". This is not correct as the adangal records of the State Revenue Authorities show. 13. Adangal register copies are filed before the Bench. The most significant evidence in the form of a letter from the Tahsildar of Shamirpet Mandal in reply to the AOs own letter calling for information u/s 133(6) of the IT Act (P 6 of the PB) has been omitted to be considered. The letter shows that as late as in December 2009 the lands in Turkapally which were sold by the assessee were under cultivation even by the purchasers from the assessee. The courts have held that even in a case where the seller-assessee sold the agricultural lands which were used by the purchasers for non-agricultural purposes would not render the seller - assessee as deriving non-agricultural income. The case of the assessee is on a better footing. In the case of the assessee as late as in December 2009, the lands transferred by it were with teak plantation, paddy cultivation, mang....
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....e. An adventure in the nature of trade cannot be the trade itself. The stock-in-trade is relevant only for trade and not if it is an adventure in the nature of trade. Trade cannot be adventure and an adventure does not involve stock-in-trade. 16. The AR relied on the judgement of Gujarat High Court in the case of CIT v. Siddhartha J Desai (139 ITR 628) where after considering a long catena of judgements, the High Court laid down several tests which are as follows: * classification in the revenue records * assessment to land revenue * usage of the land either actually or ordinarily at about the relevant time * period of user whether long or short or by way of stop gap arrangement * Proportion of income and investment * Whether permission for non-agricultural use of the land is obtained * whether the land also was put to alternative user * non-user of the land for agriculture at any time * whether the owner meant or intended to use the land for agricultural purposes * whether the land was in a developed area and the nature of user of the lands i....
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.... also Aurangabad District far away from the company's business activity. In the case of the assessee neither of these factors namely (a) acquisition or purchase of lands with an eye on the impending acquisition and the compensation amounts by the State Government or (b) the far-away nature from the place of business is present in this case. 19. The AR submitted that the CIT(A) has however observed mistakenly that the assessee was continuously selling lands during earlier years. The assessee sold the' lands only in one earlier year where the department has accepted the claim of exemption of the agricultural income. The CIT(A) has not denied that the agriculture operations were not carried out. His objection is that the lands were not personally cultivated by the assessee as in the cases relied on by him. The income froth land is agricultural if it is derived from agricultural operations. The nature of income from a particular land whether agricultural does not depend on the person, that is owner or lessee cultivating it. The character of income goes with the land and not with the person cultivating it. It is not correct to state that the agricultural operations were not carried out....
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.... statement regarding purchases and sales of land made during different years, as furnished by the assessee during the assessment proceedings, it is seen that the assessee was continuously purchasing lands at different villages during earlier years. It was also continuously selling lands during earlier years. As seen from the statement given at page 6 of the assessment order, the assessee has sold the alleged agricultural lands during the Asst. Years 2005-06, 2006-07 and 2007-08. 21. The DR submitted that as per the submissions of the AR, the assessee was engaged in real estate business. It has been submitted that such agricultural lands purchased by the assessee, is shown as fixed assets in the balance sheet. It is further stated that the same were purchased with an intention of investment. But, it has not been clarified as to what was the intention of the assessee for purchasing such huge agricultural lands during different years. It has not been explained as to why the assessee has made sales out of such lands, continuously during different years. In fact, on a careful appreciation of the entire facts of the case, it can be said that it was not the intention of the assessee to c....
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....intention of holding them as "capita asset" and only with an intention of earning huge profits on the said purchases, we do not find any infirmity with the finding of the Tribunal, that the reliance placed on the provisions of section 2(14)(iii)(a) and (b) is of no assistance to the assessee. If the lands, in question, were not purchased for the purpose of agriculture, with an intention to hold them as a "capital asset", we do not find any merit in the contention of the assessee, that the said agricultural lands were excluded from the definition of "capital asset" and, as such, the income from the sale thereof not liable to be taxed. In the result, we reject the contention of the assessee in the respect." (at page 570) 22. The learned DR submitted that the assessee made a reference to the assessment order passed in its case for the A.Y. 2005-06 in support of its plea but the principle of res-judicata are not applicable to income tax proceedings. Each assessment year is different and independent. Conclusions on certain issue in an assessment year, has to be arrived on the basis of prevailing facts during that year. Accordingly, the learned DR submitted that the profit arising from ....
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....ing discussions, and having regard to the ratio of said decision of Hon'ble Bombay High Court in the case of DCIT v. Gopal Ramnaryan Kasat [2010] 328 ITR 556, the Assessing Officer was justified in taxing the entire profit of Rs. 69,00,224, treating the same as business profit in the hands of me assessee in this case. 23. Further he submitted that the intention of the has to be seen to categorise the nature of income and due to change of economic conditions and boom in real estate market there was buying and selling of property around the city of Hyderabad for non-agricultural purposes. Admittedly, in this case the assessee's main object in the MOA is nothing but dealing in real estate and the assessee has to be considered as carrying out the activities as adventure in the nature of trade. He relied on 328 ITR 55.. 24. We have heard both the parties and perused the material on record. In this case the main issue is with regard to treatment of income arising out of sale of land is income from business or capital gain. The assessee firm is a private limited company having main object clause in the Memorandum of Association, as follows: "To do and be in Real Estate business and for....
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....sells at a profit, it would be a clear case of capital accretion and not profit derived from adventure in the nature of trade. Cases of realisation of investment consisting of purchase and sale, though profitable are clearly outside the domain of adventure in the nature of trade. While deciding the character of such transaction one has to see various relevant facts. We have to see whether buying and selling activities is in the course of main business activity of the assessee or incidental thereto. As we discussed earlier, the assessee firm is a private limited company with the main object to deal with in real estate. The land purchased by the assessee in the present case is subject matter of trade and it has purchased at regular intervals and it cannot be considered as investment activity of the assessee. Even after purchasing the agricultural land, the assessee cannot be said to be carrying on any agricultural operation. There were no activities connected with the land. Though the assessee taken a plea that the land was leased for agricultural operations, the evidence brought on record does not suggest that the agricultural operation was actually carried on the said land. Though ....