TaxTMI 
TaxTMI 
2013 (9) TMI 376
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....f Rs. 10 lakhs made by the Assessing Officer by resorting to an estimated disallowance from out of the miscellaneous expenditure. 2.1 The Revenue raised the following ground: The CIT(A) erred in law and on facts in accepting the land as agricultural land. Since the assessee sold the land to its one of the group companies i.e., M/s. Shilpa Shelters Ltd., which is doing real estate activity. Case laws relied upon Devendra Pal Singh vs. CIT (All) 243 ITR 127. 3. Brief facts of the case are that the assessee is a company engaged in the business of running chit funds and filed its return of income through e-filing for the assessment year 2009-10 on 24.09.2009 declaring total income of Rs. 5,30,90,090. The assessment was completed on 16.5.2011 u/s. 143(3) of the Act by disallowing of Rs. 12,97,908 towards defaulted subscriptions; Rs. 16,29,00,000 towards gain on sale of land; Rs. 10,00,000 towards disallowance of bid loss and Rs. 10,00,000 towards inadmissible expenditure and determined the total income of Rs. 21,92,87,998. On appeal, the CIT (A), while deleting additions towards sale of land as it is sale of agricultural land, he confirmed the action of the Assessing Officer wi....
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....r section 41(1), if any allowance or deduction given to the assessee in earlier assessment year in respect of any loss, expenditure or trading liability incurred by the assessee and subsequently assessee derived any benefit in respect of such trading liability by way of remission or cessation thereof, the benefit obtained by the assessee by way of that is to be considered as deemed income of the assessee. In the present case, the assessee withheld the amount payable to certain subscribers who stood guarantee to other subscribers to secure payment from the other subscribers. In the event the subscribers failed to pay subscription, the assessee intends to exercise lien on the payment due to the guarantor in respect of guarantor's chit. This is a continuous practice; the assessee has been following to safeguard its business interests. 5.4 First of all to invoke the provisions of section 41(1), the assessee shall have got the deduction in earlier assessment year while computing the income in respect of these payments. Unless and until the assessee got deduction even if there is a cessation or remission, it cannot be considered as income of the assessee. Further, in the present c....
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.... been claimed by the assessee as bid loss. This loss arose in the course of assessee's normal business and incurred wholly and exclusively for the purpose of its business and it cannot be considered as non- business expenditure and it is to be allowed u/s. 37 of the Act, as the amount is incurred wholly and exclusively for the purpose of its business. This ground of the assessee is allowed. 7. Disallowance of Rs. 10 lakhs towards inadmissible expenditure 7.1 The assessee claimed an amount of Rs. 6,47,68,153 under the head Miscellaneous Expenditure. When the information is gathered and verified, the Assessing Officer observed that the above amount included Rs. 57,73,909 under the sub-head "Miscellaneous Expenditure". The claim includes certain inadmissible expenditure like donations, marriage gifts, festival expenses, Inams, etc. It also included payment of Rs. 3,04,977 and Rs. 2,36,805 to Kakatiya School and Nakkalagutta land respectively which are clearly capital expenditure. The Assessing Officer disallowed an amount of Rs. 10,00,000 and added back to the income returned. 7.2 The CIT(A) observed that the Assessing Officer clearly mentioned his observations in his ord....
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....unicipal limits. 9.2 Before the Assessing Officer, the assessee argued that the intention of the assessee is only to hold the asset as capital asset to have returns from the same and thus realisation of better price in a booming market cannot be considered as an adventure in trade. The assessee further contended that the assessee never treated the land as stock-in-trade and reflected in Profit and Loss A/c. (closing stock)_ and there was no element of trade attached to the activity of the assessee in purchase and sale of the land. It was argued that the transaction in question could not be treated as sale of capital asset so as to tax the same as 'capital gains' nor it could be treated as an 'adventure in the nature of trade'. The summary of the assessee's arguments before the CIT(A) is as under: (a) The assessee purchased agriculture land now under consideration situated beyond 8 km from the municipal limits during the year 2005-06. (b) The assessee treated the same as fixed asset in its books along with other agriculture land which was already acquired by them in the earlier years. (c) The land was identified as agriculture land i....
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....rought to tax the entire profit/gain earned on sale of land as income from business. 9.5 On appeal to the CIT(A), the CIT(A) observed that the Assessing Officer mainly decided this issue by discussing in his order from pages 3 to 8. As per para 10 of the assessment order, the Assessing Officer mentioned that "it may be true that the land in question is situated in a small village with population of only 1500 and the village is also beyond 8 km from the Municipal Limits and some agricultural operations were carried out in the land." That means, as submitted by the assessee, the Assessing Officer basically accepted and not considered the fact that this land is beyond 8 km and agriculture land as submitted by the assessee. The Assessing Officer observed that the theory of agricultural operations appears to be only an afterthought to circumvent the provisions of the Act and claim exemption of the profit on sale of land. To support this, the Assessing Officer has not enquired or gathered any substantial evidence and simply concluded without any basis. From the audited annual report submitted by the assessee for the Financial Year 2008-09 and the details of the land sold during this y....
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....sing Officer and the Assessing Officer's findings were not supported by any evidence to prove that this land is not agriculture land and on the basis of evidences, the CIT(A) was of the opinion that this land is agricultural land. Therefore, the profit earned due to sale of agriculture land is not a subject matter of capital gains. There is no dispute that the land is not agriculture land which is not disputed by the Assessing Officer since, this land is situated beyond 8 km from municipal limits and agriculture operations were carried on. Therefore, the provisions of section 2(24) are not attracted and the case law relied on by the Assessing Officer is not applicable. Hence, the CIT(A) accepted the arguments from assessee's side during the appeal proceedings and deleted the addition on this count. Against this, the Revenue is in appeal before us. 9.8 We have heard both the parties and perused the material on record. It is an admitted fact that the land was held by the assessee as a capital asset from the date of purchase till the date of sale. This is evidenced by the entries reflected in the Balance Sheet of the assessee company. The assessee's contention is that i....
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....finition of business under section 2(13) but the expression adventure in the nature of trade has not been defined in the Act. It may be pertinent to mention here that a specific transaction partake the character of business or an adventure in the nature of trade or realization of capital asset or a mere conversion of asset has to be decided depending upon facts of each case. iv) In deciding as to whether a particular transaction is an adventure in the nature of trade, the Assessing Officer must consider all the relevant and proved facts and circumstances. Realization of investments consisting of purchase of agricultural land and resale, though profitable are clearly outside the domain of adventure in the nature of trade. v) The assessee treated the assets as investment in agricultural land. Therefore disposal of the same would not convert, what was a capital accretion, to an adventure in the nature of trade. To make it more clear, sale of agricultural land by the assessee and realisation of good price would not alter the basic nature and characteristic of the transaction. In the case of the assessee, land was acquired by the assessee and reflected in the balance-s....
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....expenditure incurred for agriculture transactions pertaining to financial year 2008-09 are furnished by the assessee in its Paper Book filed before us. 9.10 From the above, it is clear that: a) The assessee purchased agriculture land now under consideration situated beyond 8 km from the municipal limits. b) The assessee treated the same as fixed asset in their books along with other agriculture land which was already acquired by them in the earlier years. c) The land was identified as agriculture land in the revenue records. d) The assessee carried on routine agriculture operations such as growing jowar and paddy. Account furnished in respect of agriculture operations for the financial year 2008-09 support the same. Earlier to that there were certain teak plantations in the land. The teak plantations were continued in some part of the land and remaining part was used for agriculture operations. e) The assessee did not carry on any commercial activity with reference to that land such as getting of approval for converting into sites, plotting of the same into sites etc. Thus, the character of the land i.e., agriculture nature was contin....
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....red to be considered and upon consideration of which, the question whether the land is an agricultural land or not has 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 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 materia....
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....ertheless 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 Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence. 10.6 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 presumpti....
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....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. 10.10 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) 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 non-agricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B. 9. In the abovesaid 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. ....
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....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 at the relevant point of time of sale of the land. 10.12 The provisions of Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes) Act, 2006 also prescribed the procedure for conversion of agricultural land into non-agricultural land. Being so, whenever the agricultural land to be treated as non-agricultural land, the same has to be converted in accordance with the provisions of Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes) Act, 2006. If by a Government Notification, the nature and character of land changes from agriculture into non-agriculture then there is no question of conversion of this land for non-agricultural purposes by the Revenue authorities concerned. To our understanding nature of land cannot be changed by any State Government 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 t....
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....d 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 bought by Developer cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes. 10.14 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 th....
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....ral land of the assessee is outside the Municipal 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." 10.16 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 agricultu....
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....gures 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, specify in this behalf by notification in the Official Gazette; 10.18 It is very clear from the above that the gain on sale of an agricultural land would be exigible to tax only when the land transferred is located within the jurisdiction of a municipality. The fact that all the expressions enlisted after the word municipality are placed within the brackets starting with the words 'whether known as' clearly indicates that such expressions are used to denote a municipality only, irrespective of the name by which such municipality is called. This fact is further substantiated by the provisions contained under clause (b) wherein it has been clearly provided that the authority referred to in clause (a) was only municipality. 10.19 We also perused the meaning of the term local authority as referre....
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....ral 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". 10.21 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 ....
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.... 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). 10.23 From the facts and circumstances of the case, as narrated before us, it is important to note that what was the intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land and the relevant improvement/development taken place during this time is relevant for deciding the issue whether transaction was in the nature of trade. Though intention subsequently formed may be taken into account, it is the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade; that intention must be present at the time of purc....