AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 1301
X X X X Extracts X X X X
X X X X Extracts X X X X
....s exempt receipts in its return of income. Assessee had taken a stand that the surplus arose out of the sale of an agricultural land and was not exigible to tax. However, the Assessing Officer was of the opinion that surplus arising on sale of land by the assessee could be considered only income arising on an adventure in the nature of trade. Assessing Officer was of the opinion that the land which was sold was purchased on 04/11/2011 and sold on 04/03/2013, and the profit of Rs. 1,18,46,000/- had to be considered as business income. Assessing Officer also noted that the main object of the assessee was real estate business and hence the surplus could not be considered under any head other than 'Income from business'. 4. Explanation of the assessee was sought. Reply of the assessee was that the land of 2.86 acres sold by it, which gave rise to the surplus, was held by it as fixed asset in its books of accounts. As per the assessee, the land which was situated in Kotuvally, North Paravur, Ernakulam, could not be considered considering the definition of capital asset considering given in Section 2(14)(iii) of the Income Tax Act (in short 'the Act'). Further, as per the assessee, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. Assessing Officer also picked holes in the certificate issued by the Agricultural Officer produced by the assessee. According to him, Agricultural Officer did not certify that agricultural operations were carried out by the assessee. Ld. Assessing Officer came to a conclusion that the intention behind the purchase of land was only an adventure in the nature of trade and assessee had indulged in frequent purchases and sale of properties. According to him, if the intention of the assessee was to pursue an agricultural activity, it would not have sold the land within a short period of 16 months. As per the Assessing Officer, there was no intention to do any agricultural operation and purchase as well as sale were a part of assessee's business. He added the amount of Rs. 1,18,46,000/- as profits under the head 'income from business'. He also considered the agricultural income of Rs. 1,80,200/- shown by the assessee as income from business and denied exemption claimed on such amount u/s. 10(1) of the Act. 6. Aggrieved the assessee moved in appeal before the CIT(A). Arguments taken by the assessee before the CIT(A) and comments of the CIT(A) are summarized as under: "(i) The provisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the statistics, including the yields and accounts of such cultivation are completely missing. It is readily apparent from the artificial-looking rounded figures of the "agricultural incomes" earned and reported that the Appellant has not bothered about maintaining any proper records and accounts or its operations and activities, Besides, why the Agricultural Officer has disconnectedly certified in favour of the individual Shri E. P. George instead of the Appellant company is telling, misleading and statutorily unacceptable. (v) The land was purchased as agricultural land and sold as such without making any changes and thus the character of the land had not changed. CIT(A) Cornments: This argument does not help the Appellant, particularly because the trading and/or speculative intent in the transaction that are apparent have been accepted in this Order to be the real intent leading to the treatment or the transactions in the lands as business income, It is therefore in the interest of the Appellant to make no changes or perhaps it did not have the need or the opportunity to make any changes.. (vi) The Appellant's professed objects in its MoA do not prohibit it from acquiring ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was to be held as business Income, "there should be any activity in rhe nature of any adventure or concern in the nature of trade, commerce or' manufacture" (sic), which was not the case in the present instance. CIT(A) Comments: The fact of the purchase of the land with the retro-announced intent of carrying out agriculture, the lack or any subsequent agricultural operations/activities, the non-maintenance of accounts and records, the piped up and likely non-existent and faked figures of agricultural incomes, the absence of material evidences and the unusually quick and post-haste disposal of the lands can lead to only one presumption, that of an "adventure in the nature of trade" which has not been rebutted in any manner. (x ) It has been submitted using various judicial ratios, as interpreted by [he Appellant in its favour, that a) where an agricultural land is used for cultivation; b) the land is agricultural as per the records of the authorities, c) no alterations had been made in the land by the assessee concerned, d) the land sold was reflected as fixed assets in the statements of accounts; and e) there were agricultural operations carried out on the said land as per av....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... residents being independent third parties, their versions are extremely relevant to evaluate the unilateral and self-interested assertions of the Appellant about alleged agricultural activities by it. (xiii) That the Appellant sold most of its properties, including the land in question, in the past and in subsequent years, to earn profits were stated by the Appellant to be not relevant in determining whether the land in question was an agricultural land or not, CIT(A) Comments: The Appellant is a mode of denial and is talking through its hat. It is for the Appellant to show why its contrarian explanations of agricultural activism and tax-exempt incomes in respect of the referenced lands alone need to be accepted against the backdrop of its frequent buying and selling of lands including agricultural lands in its capacity as a real estate trader. "Once a real estate trader, always a real estate trader" is a valid presumption, unless and until rebutted. Any and all exceptions need to be conclusively distinguished and proved through valid evidences and reasons, (XIV) The Appellant had riled its return of income disclosing the profits on sale of agricultural land under the head "Cap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... object was real estate business and hence profits of Rs. 1,18,46,000/- was rightly treated by the Assessing Officer as business income. CIT(A) also upheld the disallowance of agricultural income of Rs. 1,80,200/-. 8. Now before us, Ld. AR, strongly assailing the order of the lower authorities submitted that there were only two instances of sale of land done by the assessee in its entire period of existence. Even these two sales were part and parcel of a single transaction. As per the ld. AR, one instance of sale would not be sufficient to hold that the assessee was doing a real estate business. Relying on pg. no. 105 which is a statement of Profit and Loss Account for years ending 31-03-2011, 31-03-2012 and 31-03-2013, Ld. AR pointed out that income of the assessee were from interest, agriculture, commission and dividend. As per the Ld. AR, profits on sale of land appeared only in two years. Thus according to him, the dominant business of the assessee was as an investment company and not as a real estate company. According to him object clause in the Memorandum of Association would not be sufficient to consider the sale of an agricultural land as a business adventure. Ld. AR poin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....96725 0 180245 0 2010-11 69173280 5832000 5266920 160000 0 5426920 2011-12 9124700 3270022 5394600 790363 170000 0 375294 2012-13 32667700 23543000 4585410 0 180200 0 0 2013-14 19513700 3897588 0 180200 0 11846000 2014-15 17830427 3312959 0 180200 0 0 11. It has not been disputed by the assessee that its main object as per its Memorandum of Association was doing business in real estate. Admittedly, there were only two instances of sale of land during its entire existence. Further, one of the main arguments of the assessee is its main object of doing real estate business would not by itself convert its two instances of sale of agricultural land as a business or an adventure in the nature of business. At this juncture it will be appropriate to have a look at the Profit and Loss Accounts of the assessee, to have a better understanding of the actual nature of its activities. This has been summarized at paper book page no. 105 which is reproduced hereunder: A reading of the above, does in our opinion, show that, significant portion of its earnings, if not all, came from interest, commission, Dividend ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....85 nos. of coconut palms in an area of 2.86 acres were all spontaneous growth and the coconut palms were yielding coconuts merely by the grace of nature with no effort whatsoever by humans is something impossible to believe. Admittedly, the property was situated beyond a distance of 8 kms from the municipal limits. Assessee was also having agricultural electricity connection as evidenced by a certificate issued by KSEB placed at paperbook pg. no. 103. At this juncture, it would be apposite to have a look at paragraph 18 of the decision of the Tribunal in the case of M.J. Thomas (supra) which is reproduced hereunder: 18. The next issue would arise for consideration is whether the subject land is an agricultural land or not? If the subject land is not an agricultural land then it would fall within the definition of capital asset. What is excluded is only the agricultural land and not all land. Therefore, we have to see whether the subject land is an agricultural land or not? The term agricultural land is not defined in the Income-tax Act. The Constitution of India, Article 366( I) defines agriculture income which reads as follows: "Art. 366( I). "Agricultural income" means agricult....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 466 the Apex Court found that the determination of the character of the land according to the purpose for which it is meant or set up for and capable use is a matter which ought to be determined on the facts of each particular case. In fact, the Apex Court held as follows: "....What is really required to be shown is the connection with an agricultural 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, which will only effect its valuation as part of "assets", but its actual condition and intended user which has to be seen for purposes of exemption from Wealth-tax." In view of the above judgment of the Apex Court there should be a connection to indicate the intention of the owners or possessors so as to connect with agricultural purpose in respect of the land. The entries in the revenue record a prima facie evidence to indicate that the land in question is agricultural land." "28. We have carefully gone through the judgment of the apex court in the case of Sarifabibi Mohmed Ibrahim and Others vs CIT (1993) 204 ITR631 (SC). In the case before the Apex Court, the as....