TaxTMI 
TaxTMI 
2014 (12) TMI 9
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....as was returned in the original return of income filed for the impugned AY on 17/10/2009. During the assessment proceeding, AO noticed that assessee had purchased five acres of land at Bowrampet, Dundigal, R.R. District. Vide document No. 6522/05 dated 25/05/05. Out of the said five acres of land, assessee had sold three acres of land to M/s Varun Constructions through sale-cum-GPA executed on 12/03/2007 vide document No. 2794/08 for an amount of Rs. 3 crores. AO noted that land purchased and transacted by assessee was contiguous to the land purchased and similarly transacted by M/s Bhavya Constructions Pvt. Ltd.(BCPL) Shri V. Anand Prasad, MD of BCPL and other individuals who like assessee were investors in M/s Bhavya Cements Pvt. Ltd. company set up by Shri V. Anand Prasad. He further noted that all these persons had shown the sources of investment in share capital of M/s Bhavya Cements Pvt. Ltd. the sale proceeds of these lands. As noted by AO in the assessment order, on detailed investigation and from the evidences found, AO noted that no agricultural activity was undertaken on the land. The bills and vouchers towards purchase of fertilizers, etc. are only made to create fa&cce....
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....icultural produce and sale bills/vouchers, etc., which assessee was not able to produce. AO also observed that GHMC was formed on 16/04/07 by merger of Qutubullapur Municipality amongst 12 other municipalities and 8 Gram Panchayats. He, therefore, negated assessee's contention that agricultural lands are situated beyond 8 km from the limits of notified municipality. AO finally concluded that the gain derived from the sale of land has to be treated as business income of assessee. Being aggrieved of the assessment order, so passed, assessee preferred appeal before the first appellate authority by raising similar argument as advanced before the AO. 5. The learned CIT(A) after considering the submissions of assessee ultimately concluded that the land cannot be considered to be agricultural land by observing as under: "15. Thus, on summation of facts and circumstances both favourable and against the assessee/appellant, as per the above table, it is clear that other than its assertion, the appellant really does not have anything real and substantive to claim that the land was really agricultural. The Hon'ble Supreme Court had already stated that the revenue record, though, important is....
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....ted that since the issue in dispute is squarely covered by the decision of the Tribunal, the order passed by learned CIT(A) deserves to be set aside. 8. The learned DR, on the other hand, though agreed that facts and issues involved in the present appeal are identical to the facts and issues considered by ITAT in case of ACIT Vs. BCPL and others vide ITA No. 1751/Hyd/12 and others dated 28/08/14, he nevertheless submitted that both the AO and CIT(A) were justified in rejecting assessee's claim of exemption of gain derived on sale of land. 9. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other materials on record. On perusal of impugned assessment order as well as other materials on record, it is very much clear that the land, in question, gain from sale of which was subject matter of taxation is situated at Bowrampet Village, Dundigal Mandal, RR Dt. It is also evident from the assessment order that it is contiguous to the land sold by M/s BCPL and others to M/s Varun Constructions. It is also very much clear that while coming to conclusion that the land cannot be treated as agricultural land, AO has heavily relied u....
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....Revenue Officer, Qutubullapur Mandal ( at page 99 of assessee's paper book) clearly indicate that the land under the same survey nos. situated at Bowrampet Village are under cultivation by raising crops of paddy, cattle feed, maize, jowar etc. Further the pahanis also indicate the crops grown over the said land. When certificate has been issued by govt. authorities certifying cultivation of agricultural produce the AO was not correct in rejecting them without proper evidence. Moreover, certificate dt. 04/02/2009 issued by Dy. Collector and Tahsildar Qutubullapur Mandal ( at page 100 of assessee's paper book) and certificate dt. 04/10/2008 of Town Planning Officer, GHMC (at page 101 of paper book) clearly indicate that Bowrampet village where assessee's land is situated is beyond the limit of GHMC. It is a fact on record, in the original assessment order passed u/s 143(3) of the Act, the AO has examined the nature of transaction by conducting necessary enquiry and after proper application of mind had accepted the claim of the assessee that the asset being sold being agricultural land will not attract capital gain tax. The department has not brought any cogent evidence or material on....
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....admitted fact that the assessee has not applied for conversion of this agricultural land for nonagricultural purposes before sale of this property 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 at the relevant point of time of sale of the land as per the evidence brought on record. 24. 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 nonagricultural purposes by the Revenue authorities concerned. To our understanding nature of land cannot be changed by any State Govern....
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.... 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. 26. 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 Central Government has issued a notification under this Clau....
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.... 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." 28. 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-agricultural purposes the presumption is that it is non-agricultural land. This pr....
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.... 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; 30. 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. 31. 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 ot....
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....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". 33. 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 exten....
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....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). 35. 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 different, 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 purchase. The mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made sol....
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....ted 20/08/2005 stating that the lands are under cultivation by raising crops i.e. paddy, cattle feed, maize, jowar, vegeteables etc. 37. Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income. 14. On going through the aforesaid order of the coordinate bench, we find the facts dealt upon by the tribunal is identical to the facts in the present case. Therefore, ratio laid down therein also equally applies to the facts of the present case as the land sold is not only agricultural in nature but is also situ....
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....gal and 2 acres in Sy.No. 166 at Bowrampet, RR Dist. In 2005 vide sale deed No. 8807/2005 and 6522/2005 respectively. Out of the aforesaid land he has sold 1 acre land to M/s Varun Constructions for a consideration of Rs. 1 crore through agreement of sale-cum-GPA dated 12/03/07. As far as balance land is concerned, assessee along with 33 others entered into an agreement with M/s Amsri Developers vide Document No. 7110 dated 04/05/07 giving the land for development. AO noticed that the land purchased and sold by assessee was contiguous to the land purchased and similarly transacted by Bhavya Constructions Pvt. Ltd., Shri Anand Prasad and other individuals, who all like assessee were the investors in M/s Bhavya Constructions a company set up by Shri V. Anand Prasad. He noticed that all these persons had jointly entered into a development agreement with M/s Amsri Developers for development of their land totaling to 123 acres and 05 guntas. He noted that M/s Amsri Developers has paid refundable security deposit in furtherance of the development agreement. As per the registered document, the entire value of the project was Rs. 720 crores with a sharing ratio of 35% to the land owners on....
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....ement, which is clearly not operational, should be still insisted and considered as being valid enough to fasten the capital gains liability on the appellant? As on the date of assessment order, the appellant had drawn attention to the non performance of contract by the developer and the contemplation of filing of suit. The suit was subsequently filed in 2012. This only reinforced and provided evidence to the argument of the appellant that there is no progress on the development agreement and the agreement is itself in limbo and is being repudiated. 14.0. The basic works in any development project are (a) Clearing of land and survey of land (b) Formation of roads and drainage (c) demarcation of villa plots (d) Application for land usage conversion (e) Preparation of plans and drawings (f) Filing of such drawings for approval of municipal authorities (g) Filing of application for environment clearance since it is a project of more than 100 acres (h) grant of such approvals and (h) construction work. 15.0 Not a single work of the above was done even till 2011 or even to date according to the appellant. This lack of progress and unwillingness of developer led to the appellants and o....
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....nce the project within 5 years of date of development agreement. Clause (7) The defendant nO.1 (developer) is liable to pay damages for breach of contract. An amount of Rs. 13 lakhs per acre was furnished as I security for performance guarantee of the development I agreement. It is submitted that as the developer failed to perform its obligations, the deposit is forfeited. 17.0 The website of M/s AMSRI Developers was seen in course of appeal proceedings. Even as on 28th December, 2013, The website had two distinct classes of projects (a) Ongoing-under which 3 projects were listed and (b) Proposed projects-under which 9 projects were listed with the present project under discussion, being listed at SI.No.8 as AMSRI GLOBAL VILLAGE. The classification by the developer itself as "proposed", as distinct from "ongoing" is significant. 18.0 On further clicking the project on this website, the only description available is - "The project is being implemented at Bowrampet, Hyderabad, adjacent to Outer ring road as an integrated township spread over an area of 260 acres. This is proposed as a modern township complete with residential, commercial, retail, entertainment and schooling facili....
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....record, there is no evidence that the developer has taken any steps for development towards performance of his part of contract under the development agreement by undertaking any steps for development of the property. On the other hand, facts and materials clearly show that there is complete lack of willingness on the part of the developer in undertaking the development activity. In fact for that reason, assessee and other land holders instituted a suit against the developer seeking cancellation of development agreement. Further, on a perusal of the order passed by the coordinate bench in case of Sri R. Srinivasa Rao in ITA No. 1786/Hyd/12 and others (supra), we find that on considering identical facts and circumstances arising out of same development agreement with M/s Amsri Developers, the coordinate bench has given categorical finding while upholding the order of learned CIT(A) that there is no transfer as envisaged u/s 2(47)(v) since there is no willingness on the part of the developer to undertake the development activity. The observations of the coordinate bench in this regard are extracted hereunder in its entirety for the sake of clarity. "11. We have considered the submis....
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.... not only failed to perform but is also unwilling to perform his part of the contract. Therefore, when the developer has not performed or there is unwillingness to perform his part of the contract, it cannot be concluded that there is transfer of capital asset in terms with section 2(47(v) read with section 53A of the TP Act only because the assessee has entered into a development agreement or even handed over possession of the land to the developer during the previous year relevant to AY under dispute. As rightly held by the ld. CIT(A), handing over possession of the property is not the sole ctriteria but one of the criteria to construe 'transfer' u/s 53A of the T.P. Act. The ITAT Hyderabad Bench in case of Smt. K. Radhika Vs. DCIT (supra) has held as under: "48. We are in considered agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that 'willingness to perform' for the purposes of Section 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform ....
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....opment agreement in the assessment year under consideration. Nothing is brought on record by authorities to show that there was development activity in the project during the assessment year under consideration and cost of construction was incurred by the builder/developer. Hence it is to be inferred that no amount of investment by the developer in the construction activity during the assessment year in this project and it would amount to non-incurring of required cost of acquisition by the developer. In the assessment year under consideration, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in this assessment year had not shown its readiness or having made preparation for the compliance of the agreement. The developer has not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredient that make a person eligible and entitled to make the construction. The act and conduct of the developer in this assessment year shows that it had violated essential terms of the agreement which tend to subvert the relationship established by the development agreeme....
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....ment year. Once we come to the conclusion that the transferee was not 'willing to perform', as stipulated by and within meanings assigned to this expression under Section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the present assessment year, it is only a corollary to this finding that the development agreement dt. 11.5.2005 based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a "contract of the nature referred to in Section 53A of the Transfer of Property Act" and, accordingly, provisions of Section 2(47)(v) cannot be invoked on the facts of this case Chaturbhuj Dwarkadas Kapadia v. CIT's case (supra) undoubtedly lays down a proposition which, more often than not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of Section 53A of the Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. The very foundation....
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....ed. Mere receipt of refundable deposit, cannot be termed as receipt of consideration. Further, as submitted the Assessing Officer calculated the capital gain on the entire land, even though the assessee has retained 38% share to itself. The valuation was also disputed. There is, therefore, no accrual of income in favour of the assessee as per S.48 of the Act. Due to lapse on the part of the transferee, the construction has not taken place in the year under consideration, and it has not commenced even now. In the facts and circumstances of the present case, wherein while the assessee has fulfilled its part of the obligation under the development agreement, the developer has not done anything to discharge the obligations cast on it under the develop agreement, the capital gains cannot be brought to tax in the year under appeal, merely on the basis of signing of the development agreement during this year. We are supported in this behalf by the decision of the Tribunal dated 3rd January, 2014 in the case of Fibars Infratech Pvt. Ltd. (supra), wherein it was held as follows- 59. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the ....
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....me schedule is 30 months to complete construction with additional grace period of 6 months, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on the reason that the capital gains could not have been taxed in the in this assessment year in appeal before us." 13. In the light of the foregoing discussion, we set aside the impugned orders of the Revenue authorities and hold that the capital gains on the property in question cannot be brought to tax in the year under appeal, and consequently delete the addition made by the Assessing Officer and sustained by the CIT(A). Assessee's grounds on this issue are allowed. 13. On going through the aforesaid decisions of the coordinate bench, the ratio which em....