TaxTMI 
TaxTMI 
2017 (1) TMI 1209
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....ed a copy of the Memorandum of Articles of the Company, financials with reports, ledger accounts of parties, copies of purchase and sale deed of agricultural lands, donation receipt, Demat account, details of loans, copy of Village Administrative Officer Certificate, stating that the lands are fit for agricultural operations, copy of lease agreement, and other documents. The assessee Company has admitted income from financing business and income from other sources. They have also admitted agricultural income of Rs. 8,03,730/-, in Schedule 11 - "other income" and also the profit on sale of agricultural land for Rs. 3,79,99,376/-, shown in other in Schedule 11 of the profit and loss account. However, they claimed the same, in the statement of total income. 3. The assessing officer has called for information from the Tahsildar and the report of the Tahsildar was received on 12.03.2014. Reports of the Tahsildar, Sri Perumpudur Taluk, Village Administrative Officer, Thandalam and Revenue Inspector, Thandalam and copies of Revenue Records, were shown to the assessee's authorised representative. The assessee was asked to show cause, as to why, the profit on sale of agricultural lan....
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....ural land in Thandalam Village from various parties in the financial year 2005-06 and that they have sold the agricultural land to M/s.Rajalakshmi Education Services Pvt. Ltd., and during the interregnum period, they used the lands in question for agricultural purposes. The assessee had also given the lands on lease to one Mr.D.David, vide lease deed, dated 06.04.2008, with a condition that the lands were to be used only for agricultural purposes. Reliance has been made to Clauses (v) and (vii) of the said lease deed, which are as follows: "(v) To use the farm for agricultural purpose only. (vii) To farm cultivate manure and manage the farm in a good and husband like manner according to the most approved methods of cultivation, so as to keep the farm in good condition." Therefore, it was contended that till the lands were sold in the financial year 2010-11, they were used for agricultural purpose and not capital assets. 8. Before the appellate authority, a further contention has been made that the assessee had disclosed and claimed exemption, in respect of lease rentals received from the agricultural lands, in the returns filed for the assessment years 2009-....
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....authority, the appellant has submitted that it was perplexing, as to how, the Village Administrative Officer of Thandalam Village, who had given a certificate, dated 18.11.2009, stating that the lands in question were cultivable and also certified during the Fasili, evidencing that agricultural activities were carried on by the assessee, has purportedly stated that the subject lands were not cultivated for past eight years and on that basis, the Tahsildar, has issued a letter, dated 12.03.2014. 12. Before the appellate authority, a further contention has been made that when the assessee, vide letter, dated 19.03.2014, prayed to the assessing officer, for an opportunity to cross examine the above statement of the Tahsildar, relied on by the assessing officer, allegedly obtained on the back of the assessee, the assessing officer has refused to provide such opportunity, which is in violation of the principles of natural justice. 13. On the said aspect, the assessee has relied on a decision of the ITAT, Hyderabad in Ramakrishnaiah v. ITO reported in [2010] 39 SOT 379, wherein, the Tribunal observed that, "Natural justice requires cross-examination of witnesses, if ....
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.... Agricultural Officer; (iii) classification of the land by state government as agricultural land; (iv) receipt for payment of contribution to agricultural workers' welfare fund; and (v) Basic Tax Officer. From these materials, it appears that the State Government has classified the subject land as agricultural land." 16. Perusal of the order of the Commissioner of Income-Tax (Appeals), dated 25.03.2014, shows that there was no representation, on behalf of the department to rebut anyone of the submissions, extracted supra. After considering the materials on record, submissions of the authorised representative of the assessee and the decisions relied on, the Commissioner of Income Tax (Appeals), vide order dated 25.03.2014, allowed the appeal filed by the assessee, the summary of the same, extracted in the impugned order, before us, is as follows: "04. The Commissioner of Income Tax (Appeals) observed that the AO has nowhere disputed that as per revenue records the impugned lands were classified as agricultural land. Besides as per the certification of the VAO of Thandalam village, the said lands were cultivable or in other words fit for cultivation, which again has n....
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....by as the same was very much covered by the above referred clauses of MOA of the assessee company and therefore the AO's argument that the sale of the impugned lands was contrary to the MOA is also not factually borne out from the relevant documentation as cited above. The ARs reliance on the jurisdictional High Court in the case of M.S. Srinivasa Naicker vs. ITO (2007) 292 ITR 481(Mad) to buttress his point that the intention of the buyer, in this instant case, M/s. Rajalakshmi Education Services Pvt. Ltd. in purchasing the impugned property for the purpose of construction of Engineering College was irrelevant in determining the character of the impugned lands, is quite pertinent in the context of the present case, as undisputedly it was the intention of the assessee to earn income by way of agricultural activities which matters and it does not shed its character as agricultural land on the sale effected or even on the basis of use it is subsequently put to by the transferee, which in the case of the instant assessee's transferee was to build an Engineering college. The relevant part of the judgement supra is reproduced hereunder:- It is no doubt true that the pu....
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....ther indicates that the said lands were indeed put to use for agricultural purposes, albeit not by the assessee directly but by the lessee, which Is a normal practice adopted in large parts of the country including Tamil Nadu, by absentee landlords which the assessee in the instant case is. Thirdly there is also no dispute that the impugned lands was not converted into non-agricultural land prior to the sale and therefore it retained its character as agricultural land till the time of the sale. Fourthly it is also not disputed that the impugned lands were not situated as per limbs (a) and (b) of Section 2(14)(iii) of the Act. i.e. within the jurisdiction of a municipality or a cantonment board having population of not less than ten thousand or in an area not being more than eight kilometers from the local municipality / cantonment board limits. The Commissioner of Income Tax (Appeals) relied on the judgment in the case of Sakunthala Vedhachalam Vs Vanitha Manickavasagam [2014] 90 CCH 0038 (Mad) relied on by the AR. wherein the Madras High Court held that the assessee cannot be denied exemption from capital gains tax, once it has been accepted by revenue authorities that the classif....
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....uthority, the Revenue Tahsildar and hence the lands are treated as capital assets u/s.2(14) of the Income Tax Act, 1961 and the Long Term Capital Gains on sale of land is brought to tax u/s.45 and also agricultural income is treated as income from other sources. The Departmental Representative further submitted that Commissioner of Income Tax (Appeals) failed to appreciate that no agricultural operations were carried out in the sold land for 8 years prior to the sale as confirmed by the Tahsildhar of Sriperumbudur and the statement of the VAO, who where competent authority in this regard. The Commissioner of Income Tax (Appeals) also failed to appreciate that the land was shown in schedule to the balance sheet in the fixed assets and as such should be treated as capital asset. The Departmental Representative further submitted that the Commissioner of Income Tax (Appeals) failed to appreciate that the assessee has not given any evidence during the assessment proceedings to prove that agricultural operations were actually carried out in the sold land and finally he also relied on the order of the Assessing Officer." 18. Rebutting the same, before the Tribunal, the authorised repre....
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....d the material on record, the Tribunal, vide order in I.T.A.No.1560/Mds/2015, dated 20.11.2015, held as follows: "07. 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. There is no dispute on this aspect that it is evidenced by the entries reflected in the Balance Sheet of the assessee company. The assessee's contention is that it is intended to retain the agricultural land acquired as a capital asset. The assessee never treated the land as stock in trade. The assessee reflected the same in the Balance Sheet as a fixed asset. The assessee carried on agricultural operations though leasing the same to Shri. D.David. This agricultural land is situated beyond 08km from any municipal limits. The Assessee has not taken any permission from the Government for making plots, as the assessee company never had any intention to make the land into plots and carry on real estate business in respect of the land. Thus, the assessee never created an asset as stock in trade but treated it as capital asset (agricultural land). The assessee....
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....side 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-sheets of the concern as fixed-assets. The assessee never treated the land as stock-in-trade and reflected in profit and loss account (closing stock). There was no element of trade attached to the activity of the assessee in purchase and sale of the land. A continuous business requires more activity and greater organization. This is absent in the transaction of sale of land by the assessee. Therefore, although there is profit in the transaction the transaction cannot be characterized as an adventure in the nature of trade. (vi) Whether a transaction in respect of an asset is capital or business income being adventure in the nature of trade depends on the facts and circu....
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.... of adventure in the nature of trade and the same was brought into income from business. In this case, the assessee held the land always as investment and not at all converted into stock-in-trade. The character of the land in the hands of the assessees has not changed. There is no material on record to show that the assessee carried on activities of buying and selling of land in a systematic manner so as to justify the action of the AO in treating the activities of the assessee as adventure in the nature of trade. The land was sold by the assessees in acreage and not by making plots. 7.5 Now the question as to whether a land is agricultural land or not is essentially a question of fact. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. We have to answer the question on a consideration of all of them, a process of evaluation and the inference has to be drawn on a cumulative consideration of all the relevant facts. It may be stated here that not all the factors or tests would be present or absent in any case and that in each case one or more of the fact....
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.... characteristics, surrounding situation and use of the land in the adjoining area were such as would indicate that the land was agricultural? 9. Whether the land itself was developed by plotting and providing roads and other facilities? 10. Whether there were any previous sales of portions of the land for non-agricultural use? 11. Whether permission under s. 63 of the Bombay Tenancy and Agricultural Land Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such nonagriculturists was for non-agricultural or agricultural user? 12. Whether the land was sold on yardage or on acreage basis? 13. Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield?" 7.8 A reference could be made to the case of CWT v. Officer-incharge (Court of wards) [1976] 105 ITR 133(SC) wherein the Constitution Bench of the Supreme Court stated that the term 'agriculture' a....
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....me Court had pointed out that the entries raised only a rebuttable presumption and some evidence would, therefore, have to be led before taxing authorities on the question of intended user of the land under consideration before the presumption could be rebutted. The Court further held that the Supreme Court had clearly pointed out that the burden to rebut the presumption would be on the Revenue. The Bombay High Court held that the ratio of the decision of the Supreme Court was that what is to be determined is the character of the land according to the purpose for which it was meant or set apart and can be used. It is, therefore, obvious that the assessee had abundantly proved that the subject land sold by them was agricultural land not only as classified in the Revenue records, but also it was subjected to the payment of land revenue and that it was actually and ordinarily used for agricultural purpose at the relevant time. 7.11 We may also refer to the case of CIT v. Manilal Somnath [1977] 106 ITR 917(Guj.), wherein the Division Bench of the Gujarat High Court observed that the potential non- agricultural value of the land for which a purchaser may be prepared to pay a la....
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....for agricultural purposes was based on cogent and relevant material. The Revenue record supported the claim. Even the records of the IT Department showed that the assessee had declared agricultural income from this land in her returns for the preceding two years. The land being located in commercial area or the land having been partially utilised for nonagricultural purposes or that the vendees had also purchased it for nonagricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B. 10. It is seen from the aforesaid decision that the agricultural land sold by the assessee with an intent to purchase another land within two years had also been permitted to claim exemption under s. 54B of the IT Act, 1961. In the instant case, even though there was no sale as such, the assessee owned agricultural land within the limits of Tirunelveli Corporation and he had not put up any construction thereon, the assessee is entitled to claim exemption from the WT Act for the assessment of wealth-tax. That the land in question is adjacent to the hospital is totally irrelevant." 7.14 Adverting to the facts of the present case, the land in que....
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.... spelt out the reason as to why the subject land cannot be considered as a 'capital asset' be giving this very reason, we find the conclusion arrived at by the Tribunal is nevertheless the correct conclusion." 7.16 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 situated (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 r....
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....idering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade. 7.19 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, suc....
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....IT, 204 ITR 631, which has laid down various tests for determining the nature of a land. One of the tests laid down by the Honble Supreme Court is whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time. In the instant case, it is clear that the subject land was not ordinarily used for agricultural purposes. This fact is more relevant in the light of the fact that the assessee company never had the intention to treat the property as an asset, generating agricultural income. There was no evidence shown and produced to prove that the land was used for agricultural purposes or to show that any agricultural operations were carried on in the land. An entry in the revenue record as agriculture will not be sufficient evidence to hold that the land was agricultural in nature, when actual agricultural use was not proved. (ii) The Tribunal has misplaced the decision in Sakunthala Vedachalam v. ACIT [(2014) 53 Taxmann.com 62 (Mad.), and erred in granting exemption. (iii) The lands in question were not purchased for the purpose of agriculture and it was purchased with an intention to hold them as capital assets. When there is ....