TaxTMI 
TaxTMI 
2017 (5) TMI 1688
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....acres and formed a Partnership Concern on 27.2.2008 by contributing the assets of the firm at the time of formation. 3.1 The three brothers formed the Partnership Firm through a Deed of Partnership dated 27.2.2008 by contributing the lands in their names towards their respective capital. Only after entering into the Partnership Deed, the contributions came into existence and at the instance of formation of Partnership, the lands were embedded in the Partnership Firm. Because of the parties contribution of immovable property towards the capital of the firm, the deed was got registered optionally u/s.17(2)(v) of the Registration Act, 1908 by paying 1% fees on the authorized capital of the firm. It is not a case where a partner brought in his personal asset into an existing partnership firm as his contribution to its capital resulted where an asset which originally was subject to the entire ownership of the partner and on contribution to the capital of the firm subjected to the rights of other partners. The subsequent conversion of the partnership firm into limited company by operation of law is a succession of firm by assessee company. 3.2 As per the books of account maintained....
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....TR 283) [Allahabad] ix) Bhogical H. Patel vs. CIT (74 ITR 692)(Bom) x) CIT vs. Yatish Trading Co. Pvt. Ltd. (7 Tax Corp (DT) 54084(Bombay) xi) CIT vs. Sutlej Cotton Mills Supply Agency Ltd. (100 ITR 705)(SC) xii) CIT vs. Mohammed Mohideen (74 CTR 129)(Mad) xiii) CIT vs. MLM Mahalingam Chettiar (107 ITR 236)(Mad) xiv) CIT vs. Kasturi Estates (P) Ltd. (62 ITR 578)(Mad) Further, the ld. AR submitted before the CIT(Appeals) that the promoters have invested money in the agricultural lands with the intention to hold an enjoy its income, then converted in to a company in order to administer the properties in a professional manner, and then sold it on profit. Hence, it would be a case of capital accretion on the rural agricultural land, accordingly, the rural agricultural land situated outside the municipal limits up on sale give rise to agricultural income only. 5. On appeal, the CIT(Appeals) observed that the AO after verifying the chitta and adangal submitted by the assessee made investigations with the VAO, Kittampalayam Village, Sulur Taluk, regarding the agricultural activity carried out during the year. The VAO admitted tha....
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.... the VAO. Whereas in the adangal and patta passbook maintained at the concerned Tahsildar's office, the correct ownership of the land was reflected. The ld. AR, also pointed out that the VAO, who has issued the certificate to the assessee is working at Kittampalayam Village for the past 7 months from the date of statement recorded on 11.2.2014. Invariably the VAO has to go to the field every year in the month of June /July. In July 2013, he might have inspected the field and sent the records to Tahsildar's office. Also he should have recorded in his office records. But the building constructed by M/s. K.P.R. Mills Ltd. for their new project at S.F.No.273/1, 275 and 276 during 2011- 12 is not inspected and recorded till 2013-14 but mentioned in the revenue records continuously as dry land. Hence, the ld. AR submitted that the field inspections by the VAO was only a procedure which was not followed by the VAO. Hence, the ld. AR submitted that the adangal reported by the VAO is not reliable regarding crop grown in the said land. 5.2 The AO at para 6 of the order has stated "It is important to note that apart from VAO's certificate and chitta / adangal, assessee company has not prod....
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....the evidence furnished by the ld. AR, it is clear that the company returned agricultural income for the asst. years 2009-10 and 2010-11. Even the 3 Directors, who were co-owners of the land were filing return showing agricultural income. Apart from the 32.37 acres of land, which is the point of dispute, there was other agricultural land held by the 3 Directors of the company and also by the assessee company. The AO has stated that the management of the assessee company knows the commercial potential of the land and sold it off for a higher amount and hence, held the transaction as adventure in the nature of trade or business. In further discussion, the AO stated that the assessee company is mainly a real estate developing company and having lands with it as stock-in-trade. In such cases, according to the CIT(A), it is immaterial to see that what treatment has given by the assessee in its books of account. However, the CIT(A) observed that from the balance sheet reflected by the assessee company it is seen that the lands were held as stock-in-trade and also under the head 'fixed assets'. The lands sold during the year (32.37 acres were shown under the head 'fixed assets' by the asse....
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.... other objects of the assessee company, doing agriculture in the lands was also mentioned as one of the activities. It is seen from the balance sheet that the land having the value of Rs. 5,80,71,463/- was kept as fixed asset and the rest of the land was valued at Rs. 4,42,25,808/- and is treated as stockin- trade by the assessee. The AO in the written submission stated that once the lands were brought into the Partnership Firm as business assets, it is not relevant as to whether the said lands are agricultural lands or nonagricultural lands and the sale of such lands are to be treated as adventure in the nature of trade or business, even though, the said assets were classified as fixed assets in the books of account. Further, it is seen from the facts that the Partnership Firm was succeeded by the assessee company with effect from 21.5.2008. The Partnership Firm was existing for less than 3 months and in the balance sheet of the assessee company the land sold to M/s. K.P.R. Mills Ltd. was shown as fixed asset. There was no development of the land after the formation of the company nor was there any regular business of trading activity to come to the conclusion that the land s....
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....30.11.2000 and 20.1.2006, the said land in question was acquired by the promoters of M/s. K.P.R. Developers Ltd. as agricultural land. The CIT(Appeals) relied on the judgment of the Jurisdictional High Court of Madras in the case of Combined Industries (P) Ltd. vs. CIT (115 ITR 358). In the case of the assessee company the original lands were purchased by promoters in the years 2000 and 2006. 5.8 Regarding the extent of 15 acres of land purchased in 2000, the assessee filed chitta and adangal registers showing that the land in Survey Nos.273/1, 273/3, 266/2K were cultivated by the purchasers during the Financial Year 2001-2002 and 2002-2003. Subsequently because of lack of irrigation facilities and adverse weather conditions, no cultivation was done by the assessee. However, the land remained as agricultural land till they were sold by the assessee company in the relevant Financial Year. Land revenue was also paid to the Govt. On these lands recorded as agricultural land in the revenue records. 5.9 He placed reliance on the judgement of Delhi High Court in the case of Delhi Apartments (P) Ltd. in ITA ANo.569/2012 dated 7.3.2013 held that real estate companies can also hold se....
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....d distance from the municipal limit. The assessee also relied on the decision of the Tribunal, Panaji Bench in the case of Shri Durgadas K Prabhu and Others in 5.13 The CIT(Appeals) placed reliance on the judgment of the Delhi High Court in the case of M/s. Hindustan Industrial Resources Ltd. vs. ACIT (335 ITR 77(Delhi). The CIT(Appeals) observed that the assessee did not carry out any agricultural operations, did not alter the character of the land. The nature of land at the time of purchase as well as at the time of sale being agricultural and that such agricultural land not being a capital asset and therefore such surplus arising from such sale of land cannot be taxed. 5.14 After going through the facts of the case, considering the provisions of sec.2(14)(iii), the CIT(Appeals) observed that the land cannot be considered as capital asset as per the amended provisions of the Income-tax Act, 1961, since, it is beyond 8 kms of the municipal limits of Coimbatore and also any municipality. It is recorded as agricultural land in the revenue records at the time of purchase and till the date of sale by the assessee company. Land revenues were paid during all the relevant asst. yea....
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....3. ii) The land till the date of sale was recorded as agricultural land in the revenue records. iii) Absence of any evidence that it was put to any nonagricultural use by the assessee company. iv) There was agricultural land abetting the said land of the assessee. v) The land was sold on a acreage basis. vi) There were no previous sales of portions of the land for non-agricultural use. As against the above facts, the facts appearing against the assessee are : a) The AO has proved with evidence that no agricultural operations were done from the Financial Year 2005-06 till the date of sale i.e. F.Y. 2010-2011. b) The land was never ploughed or tilled although entered as agricultural land in revenue records. 5.18 After taking into account all the above judicial decisions and relying on the decision of the Madras High Court in the case of Smt. Sakunthala Vedachalam in TC(A) No.566 and 567 of 2013 dated 6.8.2014, the CIT(Appeals) directed the AO to treat the land sold by the assessee as agricultural land and therefore, they are exempted from capital gains tax. The land do not come under the purview of provision of sec.....
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....randum of Association, the main objects of the assessee is to carry on real estate business. There was also mentioned in the other objects of the assessee company doing agriculture in the lands .In the Balance Sheet, the land having the value of Rs. 5,80,71,463/- was kept as fixed asset and the rest of the land was valued at Rs. 4,42,25,808/- was treated as stock-in-trade by the assessee. The land sold was shown as fixed assets in the assessee Balance sheet. 6.1 The land was actually used for agricultural purposes and the land is capable of use for the purpose of agriculture till the date of sale. The future scope of the area to use the land for non-agricultural purposes do not reflect that the land is not an agricultural land .The assessee never made any plot out of the impugned land and the land was sold in cents and not as square feet. The assessee has not made any roads or any facilities and it was undeveloped land fit to use for agricultural purpose at the time of sale. The entire land was sold as it was brought into assessee books. The assessee sold the land only because of favourable marketing conditions as the land was fetched a higher price and the getting up higher pri....
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.... trade occurs in the definition of business under section 2(13) but the expression adventure in the nature of trade has not been defined in the Act. It may be pertinent to mention here that a specific transaction partake the character of business or an adventure in the nature of trade or realization of capital asset or a mere conversion of asset has to be decided depending upon facts of each case. iv) In deciding as to whether a particular transaction is an adventure in the nature of trade, the Assessing Officer must consider all the relevant and proved facts and circumstances. Realization of investments consisting of purchase of agricultural land and resale, though profitable are clearly outside the domain of adventure in the nature of trade. v) The assessee treated the land as fixed asset. 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 realization of good price would not alter the basic nature and characteristic of the transaction. There was no element of trade attached to the activity of the assessee in purchase and sale ....
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....the amount received on sale of this agricultural property is nothing but long term capital gains on transfer of such an agricultural land and the same was brought into income from business. In this case, the assessee held the land always as fixed asset 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 in respect of this land 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. 6.6. 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 ....
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....cultural purposes? (viii) Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the land in the adjoining area were such as would indicate that the land was agricultural? (ix) Whether the land itself was developed by plotting and providing roads and other facilities? (x) Whether there were any previous sales of portions of the land for nonagricultural use? (xi) 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 non-agriculturists was for non-agricultural or agricultural user? (xii) Whether the land was sold on yardage or on acreage basis? (xiii) 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. In the present case, on cross examination of Shri S A Bhupathi, VAO on 11.2.2014 by Authorised Repres....
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....ration, i.e.12.05.2008 from the said land. However, the revenue authorities were not recorded the growing of grass in the record as it is not necessary and recorded as "dry land". But this classification does not make the agricultural land as non agricultural land. 7.3 It is brought to our notice that the distance of Municipality to the impugned land is more than 8 Kms. Specifically the assessee filed a Google map Thirupura municipal corporation to Kitta pallaym 23 Km by road; Sulur to Kittapallyam 23 Km from road and no municipality within 8 Km from Kittapallyam village. 7.4 Further, regarding the distance of Municipality from the situation of land at Kittapalayam village, one need not to be measured only in a straight line or horizontal plane and the distance has to be measured only through the access to road and not in a straight or horizontal plane as held by the jurisdictional High Court in the case of CIT vs. Dr.R.Rengarajan in TC No.491 of 2016 dated 3.8.2016. 7.5 In the present case, there is no dispute that the assessee's lands were classified as agricultural land in the Revenue Records. As held by the Apex Court, when the land is assessed to the land revenue ....
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....ral sense in which they have been understood in common parlance. The Hon'ble Supreme Court has observed that the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and raising on the land all products which have some utility either for someone or for trade and commerce. It will be seen that the term 'agriculture' receives a wider interpretation both in regard to its 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 Hon'ble Supreme Court in the aforesaid case observed t....
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....arge price would not detract from its character as agricultural land on the relevant date of sale. 9.1. We may also refer to the case of Gopal C. Sharma vs. CIT (1994) 116 CTR (Bom) 377 : (1994) 209 ITR 946 (Bom), in which, the case of Smt. Sarifabibi Mohamed Ibrahim & Ors. vs. CIT (supra) was referred to and relied, amongst other cases. In this case, the Division Bench of the Bombay High Court has stated that the profit motive of the assessee selling the land without anything more by itself can never be decisive for determination of the issue as to whether the transaction amounted to an adventure in the nature of trade. In other words, the price paid is not decisive to say whether the land is agricultural or not. 9.2. We may refer to a judgment of the Hon'ble Madras High Court in the case of CWT vs. E. Udayakumar (2006) 284 ITR 511 (Mad) where the Hon'ble Madras High Court has referred to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Smt. Savita Rani (2004) 186 CTR (P&H) 240 : (2004) 270 ITR 40 (P&H) and has observed and held as under : "8. It is well settled in the case of CIT vs. Smt. Savita Rani (2004) 186 CTR (P&H) 24....
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....vant." 10. Adverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is dispute regarding this issue and cultivation has been carried on this land upto this assessment year and income was declared from this land in the return of income filed by the assessee for the assessment year as agricultural income. It is also an admitted fact that the AO has brought on record by way of letter dated 27-01-2014 from Tehsildar, Coimbatore that the land was within 4 KMS from municipal corporation and he further submitted that as per records of his office there was no agricultural activities carried out by the assessee company for any year prior to Financial Year 2010-11 as per adangal details annexed with the reply of the Tehsildar, there is agricultural activity since 2005-2006. There is also statement recorded by the Assessing Officer u/s.131 of the Act from VAO wherein he said that there is no agricultural activities carried on this land. This statement does not have the date on which it was recorded. The certificate issued by the Tehsildar on 27.01.2014 wherein he stated that distance of the land from the nearest Mu....
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....an admitted position that mere inclusion or proximity of land to any development area without any infrastructure development thereupon or without establishing and proving that the land was put into use for non-agricultural purposes by the assessee does not and cannot convert the agricultural land into non-agricultural land. In the instant case, at the relevant point of sale of the land in question, because the surrounding area was totally developed and mere possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into nonagricultural land, when the land was sold by the assessee. It is also an admitted position that the assessee had not applied for conversion of the land in question into non-agricultural purposes and no such permissions were obtained from the concerned authority. In the Revenue records, the land is classified as agricultural land and has not been changed from agricultural land to non-agricultural land at the relevant point of time when the land was sold by the assessee. It is also not in dispute that there was no activity undertaken by the assessee of developing the land by plotting and providing road....