TaxTMI 
TaxTMI 
2015 (4) TMI 331
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.... gains, and the same was claimed to be exempt on the ground that the land sold, being an agricultural land, was not a capital asset under S.2(14) of the Act. During the course of assessment proceedings, the claim of the assessee for this exemption was examined by the Assessing Officer in detail, and on such examination, he recorded his findings/observations, which, as summarized by the learned CIT(A) in the impugned order, are as under- "(a) The appellant had purchased 6 acres 8 guntas in survey no.673/1 (Acre 1.20 guntas) and Survey no.665 (Acre 4.20 guntas) situated at Dundigal, RR Dist, for an amount of Rs. 9,88,800/- through registered sale deed dated 20/12/2004, in document no.16953/2004. (b) Assessee sold 1 acre 8 guntas out of the above 6 acres 8 guntas to M/s Varun constructions through the sale cum GPA dated 12.03.2007 in document no.4963/2007, for an amount of Rs. 1,20,00,000/-. (c) The appellant had purchased and transacted in the land which was contiguous to the land purchased and similarly transacted by M/s Bhavya Constructions Pvt Ltd (BCPL), Sri V Ananda Prasad (MD of BCPL), and other individuals, who all, like the assesseeappellant, were the investors in M/....
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....d not produce any evidence in support of the agricultural activity conducted on the said land and has stated that due to certain unforeseen circumstances, the entire crop got destroyed. (i) In her statement, she had also stated that she does not remember any expenditure for agricultural activity and nor did she produce any evidence of expenditure. (j) The AO seeing the coordinated activity undertaken by BCPL, its MD and other investors/share holders in dealing with land in such manner, came to the conclusion that M/s BCPL and its associates have performed an adventure in the course of normal professional activity which is buying and selling of land along with its associates. The AO observed that the land was bought by all the associates of BCPL in the same period at Bowrampet which was adjacent to the urban agglomeration sprawling around Hyderabad city. This indicated that all these individuals invested in this land keeping in view the rising real estate market. The AO also noticed that the rise in price of the land was around 100 times is less than 3 years. This fact only confirmed the intention of the investment. The AO had also held that the assessee has done a systematic ....
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....ies and 8 gram pachayats that were merged in Municipal Corporation of Hyderabad. He, therefore, discounted the question raised by the assessee regarding the notification of Qutubullahpur Municipality. (m) The AO finally, without prejudice to all the claims of the assessee held that assessee's transaction in sale of land as akin to business activity and assessed it as business income of the assessee. He again drew parallel to the activity undertaken by BCPL and the other individuals who all were investors in Bhavya Cements and the AO felt that the lands were purchased by various individuals with a view to make quick profit and the same profits were apparently invested in Bhavya Cements. He therefore, brought the sale proceeds to tax as under the head income from business." 3. On the basis of the above findings/observations, the Assessing Officer held that the land sold by the assessee was not an agricultural land and the activity of purchase and sale of the said land being an adventure in the nature of trade, profit arising therefrom was chargeable to tax in her hands as business income. Accordingly, such profit amounting to Rs. 1,18,24,340 was brought to tax by the Assess....
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.... the said land. This statement of appellant is contemporaneous evidence. The MRO certificate is an admissible evidence u/s. 35 of Evidence Act. The entries herein cannot be brushed aside. 2. Blank quotation for purchase of fertilizer found in the premises of Bhyavya Evidence was not found in possession of assessee and nor can it be sued against her as they were blank quotations. 3. Sworn statement of MD of Deccan Township whose lands were purchased by BCPL Not relevant to appellant as appellant did not buy land form Deccan Township nor is the treatment of land in their books, of any relevance to the appellant. 4. M/s. Varun Constructions had not carried out any agricultural operation Merely because another person had not carried any agricultural operation in the said land, the same would not lead to the conclusion that the appellant had also not carried out any agricultural operation. 5. Inspection of the state of land by the officers of Inv. Wing on 26.12.2009. The inspection was not made jointly. The veracity of the report cannot therefore be utilized against the appellant. Inspection was made in 2009 whereas the land was sold in 2007-08. The r....
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....me business income. (i) Just because an account of agricultural expenses was not maintained, and the appellant could not state the extent of expenditure, the Assessing Officer drew the inference that land is not agricultural. Since, the adjoining land was purchased by builder and there was a booming real estate market, the transaction of sale by the appellant cannot become a business transaction. It would remain gains from investment. 11.2 On the legal aspect, it was submitted that : (a) 2(13) defines business as including any trade, commerce or manufacture or any adventure or concern in the nature of trade or manufacture. It is the presence of absence of such element in a particular transaction in a question that would decide whether it is in the nature of trade or not. There is no such attribute or element in this transaction of sale of land by the appellant. The appellant never carried on any business in real estate. The word business connotes some real, substantial and systematic cause organized course of activity or conduct with a said purpose. An element of frequency is associated with business which is absent in this case. (b) Decisions of the Hon'ble SC in t....
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....d the same was in the nature of short term capital gains, as rightly claimed by the assessee. As regards the claim of the assessee that the land in question sold by her was an agricultural land, the learned CIT(A) identified the factors in favour of the assessee and against the assessee on this issue and summarized the same in a tabular form as under- Sl. No. Agricultural land Non-agricultural land 1. The MRO Certificate issued in 2005 states the land as agricultural and also the crops grown. The Hon'ble Supreme Court in the case of Sharifabibi had clearly stated that the description of land in revenue record does not matter. It is to be seen whether the land was used, is being used and whether it will be used for agriculture as it is this continued use for agriculture which is the rationale for giving exemption. 2. The pahanis indicate land as "Metta' - i.e. dry lands The Govt. classifies lands only into either those with irrigation facility or those which do not have irrigation facility i.e. "Metta lands". This classification by itself would not indicate whether any crop is grown. The crops cultivated are mentioned separately in the pahani. The Paha....
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....njana Sehgal (supra) that the expression 'from the local limits of any municipality" used in section 2(14)(iii)(b) of the Incometax Act denotes "any municipality or municipality of the District in which the land is situated 8. .... No evidence of any agricultural income. In fact, though the Assessing Officer had not mentioned this aspect, it is noted that the appellant assessee has filed a receipt and payment statement as well as capital account right form FY 004-05 onwards in course of asst. proceedings. In neither the receipt payment statement or in the balance sheet, the assessee has shown any agricultural income or any agricultural expenditure. The income tax records of the assessee do not indicate any income even in the receipt and payment account which were filed after the search. 7. Keeping in view the above factors, the learned CIT(A) held that the land in question sold by the assessee was not agricultural land by summarizing his observations in paragraph 9.5 as under- "9.5 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 and an MRO Certificate i....
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....t the income not assessable under 'adventure in the nature of trade' as done by the Assessing Officer, the learned CIT(A) ought to have deleted the addition allowing relief to the appellant on which issue appeal was preferred without treating the same under the head 'capital gain'. 5. The learned CIT(A) ought to have appreciated that his powers to decide an appeal are circumscribed as provided in section 251 which stipulates that the CIT(A) can confirm, reduce, enhance or annul the assessment. In the light of this, CIT(A) ought not have changed the head of income as determined by the AO as falling under 'adventure in the nature trade' to 'capital gain' 6. It is not a fact that the appellant claimed that the income is assessable under the head 'capital gain' as a ground to change the head of income. The claim of appellant was that the land being agricultural, the same cannot enter into computation under section 45 under the head 'capital gain'. This claim cannot be construed to mean that the appellant wanted the income to be assessed under capital gain to change the head of income. The learned CIT(A) ought to have appreciated that such a claim by the appellant does not fall un....
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....he revenue records but also in the pahanis. It is also a fact on record the assessee has shown income from agricultural operations carried on over the said land in the return of income filed for the impugned assessment year as well as the preceding assessment year which has been accepted by AO. In fact the AO has not totally ruled out agricultural operation, though according to him it is not substantial. In these circumstances, when the nature of land sold by the assessee still remains to be agricultural in the revenue records and the assessee has not applied for conversion of the land to non-agricultural it cannot be treated as non-agricultural land only because the AO was of the view that agricultural operation on the said land is not possible to the extent shown by the assessee. In this context it is to be noted that the certificate issued by the Dy. Collector and Mandal 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. ....
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....inent to mention here that earlier a bench of this Tribunal had an occasion to examine similar nature of dispute arising out of similar nature of transaction relating to sale of agricultural land located in the same area in case of some other assessees, namely, Smt. M. Vijaya and others Vs. DCIT (ITA Nos.306, 307, 309 & 311/Hyd/13 order dated 06/06/2014) who also sold their land to M/s Varun constructions. The Tribunal after examining the contentions of the parties and referring to a number of judgments held as under: "23. Adverting to the facts of the present case, the land inquestion 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 from this land in the return of income filed by the assessee for the AY 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 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 surroun....
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....oses has been brought on record. The nature of the crop and the person who cultivated the land are duly mentioned in the revenue records shows that at the relevant point of time the land was used for agricultural purposes only and nothing is brought on record to show that the land was put in use for nonITA agricultural purposes by the assessees. In view of the decision of the Hon'ble High Court in the case of Gopal C. Sharma vs. CIT (209 ITR 946) (Bom), it is also clear that the profit motive of the assessee in selling the land without anything more by itself can never be decisive to say that the assessee used the land for non-agricultural purposes. We may also refer to a decision of the Hon'ble Supreme Court in the case of N. Srinivasa Rao vs. Special Court (2006) 4 SCC 214 where it was observed that the fact that agricultural land 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. 26. Rec....
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....of such powers has issued the above notification, as amended latest by Notification No. 11186 dated 28.12.1999 clearly clarifies that agricultural land situation in rural areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the outer limits of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, in view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression 'capital asset', 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 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....
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....would not detract from its character as agricultural land at the date of the sale. The land in question was, therefore, agricultural land. 29. Further the word "Capital Asset" is defined in Section 2(14) to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include (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, specify in this behalf by notification in the Official Gazette; ....
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....so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less than ten thousand persons according to the last preceding census for which the relevant figures have been published before the first day of the previous year. The Central Government has been authorised to notify in the Official Gazette any area outside the limits of any municipality or cantonment board having a population of not less than ten thousand up to a maximum distance of 8 kilometres from such limits, for the purposes of this provision. 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 muni....
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....'. Accordingly, in view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression 'capital asset', 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 way 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 Madhuku....
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....agricultural land, hence, it is not liable for taxation. Accordingly, the addition made on this count is deleted in all the appeals under consideration. No evidence suggests that Dundigal village falls within Qutubullapur Municipality and also this Qutubullapur Municipality has not notified in the year under section 2(14)(iii) of the I.T. Act and Qutubullapur Municipality abolished and merged with Municipal Corporation of Hyderabad with effect from 16/04/2007. We have also gone through the record placed in the paper book at pages 76 & 77. At page 76, a copy of the intimation is placed issued by the Town Planning Officer, Quthbullapur , Circle - 15, GHMC vide Ref. No. G/1240/2008, dated 04/10/2008 informing that the land is not falling in the GHMC limits. At page 77, a copy of the agricultural land certificate is placed, issued by the Deputy Collector & Mandal Revenue Officer, Qutubullapur Mandal vide Ref. No. A/13607/2005, dated 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....