TaxTMI 
TaxTMI 
2014 (6) TMI 944
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....f account etc., were found and seized and are related to/belonging to assessee Smt. Dr. P. Radha. A copy of the agreement between the appellant and 3 the other persons on the one hand and Varun Constructions on the other was seized from the business premises of Bhavya Constructions Pvt. Ltd. (BCPL), a company forming part of the A.V. Prasad Group. The agreement figures at the page number 121-132 of Annexure A/BMT/PO-03 of the seized documents. Proceeding u/s. 153C of the IT. Act was initiated in this case on the basis of that document. 3.1 In the assessment order, the Assessing Officer has made the following observation:- "During the search and seizure operations certain documents, books of account etc. were found and seized and are related/belonging to the assessee Smt. Dr. P Radha. Subsequently, this case has been centralised with this circle. Notice u/s. 153C has been issued to the assessee for the AY 2007-08 dated 26.07.2011 and served on 29.07.2011." 3.2 Referring to the provisions of section 153C of the IT Act, the CIT(A) observed that that provision makes it clear that it comes into play in the following situation:- "I. Search is initiated in the case of A and do....
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....ucted in the case of VA Prasad, and its group cases on 07/10/2009. Incriminating material and documents were found and seized. Consequently, 153C notice was issued to the assessee on 26/07/2011 and served on 29/07/2011. Before issuing the notice, the AO of searched party shall record satisfaction note recording undisclosed income of this assessee so as to issue notice u/s. 153C of the Act to the present assessee. 7.1 In order to understand the scheme of framing the assessment in the case of search conducted u/s. 132 of the Act and documents requisitioned u/s. 132A of the Act, we have to examine the provisions of sections 153A to 153D of the Act brought on Statute by the Finance Act, 2003 w.e.f. 1.6.2003. These provisions have replaced the earlier provisions relating to special procedure for assessment of search cases in section 158B to 158BI of the Act. In the instant case, the action was taken in the hands of the assessee u/s. 153C r.w.s. 153A of the Act consequent to the search conducted upon A.V. Prasad Group cases u/s. 132 of the Act. Therefore, provisions of section 153C stand applicable in the case of present assessee to frame the assessment. 7.2 From a plain reading of....
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....t and demonstrative material is germane to the Assessing Officers' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 153C of the Act. The bare reading of the provision of section 153C indicates that the satisfaction note could be prepared by the Assessing Officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 153A of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the Assessing Officer who has passed the assessment order u/s. 153A in the case" of searched person cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of account were made under Section 132A of the Act. In other words, the person who has passed the order in the case of the searched person u/s. 153A of the Act is required to record the satisfaction note before completion of assessment u/s. 153A of the Act. The CIT(A) categorica....
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....educting the cost of acquisition of land at Rs. 13,96,252/-, she claimed the income of Rs. 2,88,84,998/- as exempt under section 2(14) of the IT Act. The main reasons for which the assessee claimed exemption u/s. 2(14) of the IT Act are:- "- The land sold was beyond 8 kms of any municipality. - The said land is classified as agricultural land in revenue records. - It was purchased as agricultural land and sold as agricultural land. - Agricultural operations were carried out." 9.2 The Assessing Officer did not accept the claim of the assessee mainly on the following grounds:- "(i) No evidence and verifiable proof was given by the assessee regarding of irrigation of land/crops grown with reference to season etc. (ii) Land was not used for agricultural purposes. (iii) All round urban development in and around these lands. GHMC was formed on 16.04.2007 by merging 12 municipalities and 8 gram Panchayats with Municipal Corporation of Hyderabad and Qutbullabur Municipality was one amongst them." 10. On appeal, the CIT(A) observed that the AO has treated the sale of land as 'adventure in the nature of trade'. On the perusal of the facts, it is seen that t....
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....tural purpose and user and not the mere possibility of user of land by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality but its actual condition and intended user which has to be seen for purposes of exemption, (emphasis supplied) (c) The person claiming an exemption of any property of his from the scope of his assets must satisfy the conditions of the exemption, (d) The determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case, (e) The fact that the land is assessed to the land revenue as agricultural land under the state revenue law is certainly a relevant fact but it is not conclusive". 10.4 The CIT(A) observed that the assessee has been showing agricultural income in the assessment years, but this does not prove that agricultural activity was carried out on the land in question or for what purposes it was purchased and sold within a year of its holding. The fact of the case brings out an entirely different picture. As observed by the AO, no proof of agricultural activity was given by the ....
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....ule Property" after receiving the entire sale consideration at the time of execution of the sale deed. e. That our Attorney's is entitled to approach the concerned municipal authorities HUDA and other competent authorities and obtain necessary building construction permission from the authorities and to sign all such applications, forms, petitions etc pertaining to the "Schedule Property" or the developed areas as stated in clause A or as required by my attorney from time to time. f. That our attorney is entitled to approach AP Transco/Electricity Deptt., Revenue Deptt., Water Board, Police Dept and other competent authorities in order to obtain necessary permissions, installations, protection and other connected things in order to develop and protect the "Schedule Property"." 10.5 According to CIT(A), a perusal of Clause 9 of the sale agreement clearly brings out the fact that the assessee entered into agreement to sell the land with an option to develop the land and to sell the plotted areas to the vendees. She along with others bestowed an irrecoverable power of attorney for seeking permissions from the statutory bodies for construction and clearances for developmen....
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....fore, it was an agricultural land at the time of sale and was thus it is not liable for any taxation. The learned AR drew our attention to the following orders of the coordinate bench wherein under similar circumstances the Tribunal held that sale of property as an agricultural land exempt for capital gain tax:- "1. Tulla Veerender v. Addl. CIT, [2013] 144 ITD 440: 36 taxmann.com 545 (Hyd.) 2. Harniks Park (P.) Ltd. v. ITO, [2014] 62 SOT 15: 41 taxmann.com 109 (Hyd.) 3. Kapil Chit Funds (P.) Ltd. v. ITO, [2014] 146 ITD 529: [2013] 38 taxmann.com 194 (Hyd.)" 12.1 Further he drew our attention to the order of CIT(A) dated 28/09/2012 in the case of searched party i.e. Bhavya Constructions Pvt. Ltd. for AY 2007-08 wherein the CIT(A) held that in the hands of the purchaser the sale of land is an agricultural land. 12.2 Further it was submitted that assessee's share of land was 3.1875 acres of land which was sold for a consideration of Rs. 3,02,81,250/-. After deducting the cost of acquisition of land at Rs. 13,96,252/-, she claimed the income of Rs. 2,88,84,998/- as exempt u/s. 2(14) of the IT Act. The main reasons for which the assessee claimed exemption u/s. 2(14) o....
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.... the Gujarat High Court in the case of CIT v. Siddharth J. Desai, [1983] 139 ITR 628:[1982] 10 Taxman 1 (Guj.) and has laid down 13 tests or factors which are required to be considered and upon consideration of which, the question whether the land is an agricultural land or not has got 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....
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....s operation as well as the result of the same. Nevertheless 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 Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence. 17. The Gujarat High Court in the case of DR. Motibhai D. Patel (No. 2) v. CIT, [1981] 127 ITR 671: 5 Taxman 147 (Guj.) referring to the Constitution Bench of the 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....
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.... the nature of trade. In other words, the price paid is not decisive to say whether the land is agricultural or not. 21. We may refer to a judgment of the Madras High Court in the case of CIT v. E. Udayakumar, [2006] 284 ITR 511 where the Madras High Court has referred to the decision of the Punjab and Haryana High Court in the case of CIT v. Smt. Savita Rani, [2004] 270 ITR 40: [2003] 133 Taxman 712 (Punj. and Har.) and has observed and held as under:- "8. It is well-settled in the case of CIT v. Smt. Savita Rani, [2004] 186 CTR (PandH) 240: [2004] 270 ITR 40 (P. and 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. yr. 1991-92, the sale was effected by three registered sale deeds. While filing her return of income, she claimed exemption ....
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....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. 23. 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 agricultural into non-agricultural 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 there is no automatic conversion per se by State Government notification. 24. In the instant case, at the ....
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....tly the Karnataka High Court in the case of CIT v. Madhukumar N. (HUF), [2012] 208 Taxman 394: 23 taxmann.com 341 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) and (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 Clause for the purpose of including the area up to 8 kms, from the municipal limits, to render the land as a "Capital Asset". 11. In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) t....
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....ng 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." 27. It was held in the case of CIT v. Manilal Somnath, [1977] 106 ITR 917 (Guj.) 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 presumption arising from actual use can be rebutted by the presence of other factors. There may be cases where land which is admittedly non-agricultural is used temporarily for agricultural purposes. The determination of the questi....
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....siderations, specify in this behalf by notification in the Official Gazette." 29. 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 dearly provided that the authority referred to in clause (a) was only municipality. 30. 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 other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from t....
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....e 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"'. 32. 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 kms 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 extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. 33. We have carefully gone throug....
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....alls 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). 34. 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 solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding t....