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TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 587
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....he remand report, called for by him, as well as nature ofthe subject land. b) The learned CIT (A) erred in not considering the material fact that the appellant has, all along, been showing the subject land, being agricultural, in its Balance Sheet right from the date of purchase, under Fixed Assets" schedule, thereby making its intentions clear. c) The learned CIT (A) erred in not considering the very fact that the subject land has all along been agricultural in nature, supported by Adangal, copy of the same was produced before the Assessing Officer in the course of assessment proceedings. d) The learned CIT (A) erred in not considering the material Fact that the subject land, being agricultural in nature, is not a capital asset, at all, more particularly because of its situation, warranting inclusion of the same in the taxable income. e) Without prejudice to the above, the learned CIT (A) erred in not considering the fact that not all the sales have taken place during the year under consideration. In other words, the learned CIT (A) erred in confirming the addition made under "Adventure in the nature of Trade" in this year, without considering the fact that all the sales....
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....here was no agricultural activities on the land and the land was not fit for agricultural operations. The assessee has also not claimed any agricultural income in its return of income. She further observed that soon after purchase, the assessee entered into oral agreement with Mr. K.Maruthapandian and Mr. Raja for developing lands during the year 2010 itself, which is clear from the sworn statement recorded from purchaser. She further observed that intention of the assesse company to purchase land was not for the purpose of carrying out agricultural operations, but for the purpose of real estate development, which is evident from the fact that directors of the company are into real estate business in their individual capacity. After purchasing land in the name of the company, they had also purchased adjacent lands in their individual capacity with an intention of reselling for making huge profit. If they had any intention of doing any agricultural activity, they could have brought it by executing sale deed and kept it as investment. Therefore, she opined that purchase and sale of land and subsequent transactions between the assessee and buyer is very clear that the assessee has dea....
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....es, while its more consistent with the price fetched for urban plots than for agricultural land. 5) Character of the land. 6) The purpose for which the land was held by the present owner, A firm/company which holds it may well be presumed to have held it as stack-in- trade and not for carrying out agricultural operations. 7] As regards to use of the land for agricultural purposes prior to sale, mere use in remote post though and revenue is paid, would not make it agricultural. 8) Mere capability of being used as agricultural land is not enough. 14. The underlying object of exemption for agricultural land, it was held is to encourage cultivation so that the interpretation should accord with such object. The applicability of the above mentioned tests is a pre-condition to consider a land as agricultural land. It is not the mere potentiality but its actual condition and intended use which have to be seen for purposes of exemption. 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. It must be seen whether it has been put to use f....
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....er connection for agriculture was entertained. Also. since the power connection was for agricultural orations, which have to be provided free of cost TNEB already under severe financial losses was not committing for the same. Hence, the Assessee was not in a position to dig bore-wells and commence agricultural operations. The caretaker of the land was however growing small crops (cholam) and cattle grass to meet his living apart from grazing of cattle. This growing of small craps is reflected in the Adangal extracts issued by the respective VAOs. In the Revenue records the land is agriculture in nature and your good-selves have already collected proof for the same. Thus the property is an Agricultural land situated outside 8 Kms limit from the nearest Municipality and is not a Capital Asset U/s.2(14) of the IT Act,1951." 18. The AR has enclosed a certificate from Dr.P.Sivasubramanian, Professor and Head, Department of Agricultural Entomology dated 28th February 2009. A letter addressed to The Chief Manager State Bank of Mysore, Tirupur dated 23rd March 2009 enquiring about Agricultural Loan and the reply from the banker dated March,2009 was also enclosed. These certificate an....
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....availability of power supply in the area. please ensure power supply before submitting your application before dipping borewells." It is very clear from the above that the assessee was well aware about the non availability of power, much before the purchase of land on 06/10/2009 Therefore the submission of the AR, which is reiterated below is far from truth. The Assessee was advised to dip 10 bore-wells on the land so that each bore-well can cater to 5 acres of land. The Assessee approached TNEB far power connection. However, since the entire State of Tamilnadu was reeling under terrific power shortage, no new power connection for agriculture was entertained. Also since the power connection was far agricultural operations, which have to be provided free of cost, TNEB already under severe financial losses was not committing for the some. Hence, the Assessee was not in a position to dig bore-wells and commenced agricultural operations" 22. Purchasing the land after knowing very well the non availability of power and thereby not in a position to dig borewells to do agriculture, is a pointer to the fact that the intention of the assessee was never to do agriculture. Further the f....
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....e company, respectively and separately. The owner of the adjoining land who had received Rs. 6 crates from the buyer paid that amount to the company on 5/06/2012, supported by a power of attorney dated 05/06/2012. These statements of the AR is absolutely false. Why should Mr. K. Maruthupandian, one of the developer pay 6 crores to Mr.C.Udayasankar, who was holding adjoining lands on power? Later, exactly on 03.06.2012, the adjoining Land holder paid it back to the company and on the same day company gave power of attorney to Mr.K.Maruthupandian, the developer. During the Asst Year 2012-13, 6 crores received as advance was not reflected in the books of the assessee company. When this was raised at the time of hearing, AR has come up with the story of making the payment to adjoining land holder. Since the adjoining land holder Sri.C. Udhayasankar happened to be the Managing Director of the assessee company who is holding 40.82% of shares in the assessee company, and has received 6 crores of company's money during the Asst Year 2012-13 and Later returned back on 5.06.2012, applicability of deemed dividend U/s2(22)(e) in the hands of the director has to be seen as the company was hav....
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....e asset for more than 2 years and S months and hence cannot be called as stock-in -trade is not at all acceptable . Though the power of Attorney was given only on 05/06/2012, the developers were allowed to develop the land much before. The first instalment of Rs. 2 crores was received on 14.10.2011. Even the assessee bad agreed that the developers paid the money to the company by collecting it from the prospective purchasers of housing plot. Unless the land was developed and converted as housing plot, no one will be interested in investing in that land and the developers could not have collected 8 crores. Details of registrations collected from SRO, palladam shows that the developer , Mr.K. Maruthapandian, on receiving the power of attorney, sold about 310 plots in a span of 6 months. Initial registration of housing plots of 1200 sq.ft starts from 15/06/2012 onwards. 41 plots were sold in the month of June, 2012 itself. Therefore it is definite that the development of land had taken place before giving the power of attorney to the developer. e) Another contention of the AR of the assessee is as follows: basically, a housing layout con be developed only if that area or nearby ar....
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....ion of the assessee was only to sell the land and to make huge profit out of that. The assessee had never even attempted to do any agricultural activities to claim that the intention of the purchase was for doing agriculture. In the light of the aforesaid facts, assessee's claim of ` 6,27,72,525/- as exempted income, being proceeds from sale of agricultural land is not accepted and is treated as business income from adventure in the nature of trade." 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before, the learned CIT(A), the assessee has filed elaborate written submissions on the issue, which has been reproduced at para 5 on page 6 to 10 of learned CIT(A) order. The sum and substance of arguments of the assessee before the learned CIT(A) are that profit derived from sale of land is exempt from tax, because the land was agricultural land and any income derived from transfer of agricultural land is outside the scope of tax as per the provisions of section 2(14) of the Income Tax Act, 1961. The learned CIT(A), after considering relevant submissions of the assessee and also taken note of certain judicial precedents held that ....
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....ral land as per revenue records and further, same was situated beyond 8 kms from the vicinity of nearby municipality and hence, the same is outside the definition of capital asset as defined under section 2(14) of the Act and thus, any profit on sale of such land is outside the scope of capital gain tax. 7. The AR further referring to various observations of the Assessing Officer submitted that observations made by Assessing Officer in light of statement of purchaser that land was used for business purposes after the purchase, is not based on any evidence, because what is relevant to decide the issue is whether the land in question was agricultural land when it was sold, but subsequent development or purpose of buyer is immaterial to decide nature of income. No doubt, purchaser of the land subsequent to the date of purchase may have used the land for business purposes, but subsequent decision of the purchaser is no way alter the characteristic of the land or position of taxation of profit derived from sale of land. Therefore, he submitted that Assessing Officer as well as learned CIT(A) were completely erred in coming to the conclusion that land in question is although agricultura....
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....he head income from business as adventure in the nature of trade or commerce or capital receipt which is outside the scope of taxation under the provisions of Section 2(14) of the Income Tax Act, 1961. Admittedly, as per revenue record, impugned land in question was agricultural land, when it was purchased in the year 2009 and remains agricultural land, when it was sold in the year 2012-13. Further, the land is situated beyond 8 kms from the nearest municipality and is excluded from the definition of capital asset as per section 2(14) of the Act. In fact, the Assessing Officer as well as learned CIT(A) never disputed the fact that land in question was agricultural land and situated beyond 8 kms. from nearest municipality. But, the Assessing Officer has assessed profit derived from sale of land under the head income from business on the ground that activity of purchase and sale of land is in the nature of adventure in the nature of trade or commerce and profit derived from such activity is assessable under the head income from business. The Assessing Officer has given various reasons to come to the conclusion that assessee has purchased the land with an intention to commercially exp....
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....ectricity and water, but every land in this country is not connected with electricity and water. The agriculturists in this country are carrying out agricultural operations with the help of rain water, wherever land is not connected with electricity and water facility. Even, agricultural operations can be carried out without electricity connection. Therefore, we are of the considered view that reasons given by the Assessing Officer to come to the conclusion that purpose of purchase of land is not for carrying out agricultural operations is not well founded and supported by any evidences. 11. Coming back to another observation of the Assessing Officer. The learned Assessing Officer has observed that the assessee has purchased land with an intention to commercially exploit it . For this purpose, she has taken support from the fact that immediately after purchase of land in the year 2009, the assessee has entered into oral agreement with the proposed buyer in the year 2010 for development of the land. To arrive at such conclusion, the Assessing Officer has taken statement from the purchaser recorded u/s. 131 of the Act, where he has stated that he had entered into oral agreement wit....
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....t the time of event needs to be considered, but not subsequent events which are not in the control of the assessee. In this case, there is no dispute with regard to the fact that land was agricultural land when it was purchased and sold and thus, profit derived from sale of such land is outside the scope of taxation, because the same is capital receipt as per the provisions of section 2(14) of the Income Tax Act. Insofar as observations of the Assessing Officer that assessee had transferred land through unregistered sale agreement and power of attorney, we find that registered power of attorney given in favour of the purchaser with all rights over the land is good conveyance for transferring rights over the land. It is not necessary to transfer the land by sale deed, even in a case where land is transferred by registered power of attorney, the moment power of attorney is given to any person, the assessee looses its right over the land. Therefore, we are of the considered view that merely for the reason that land was transferred through a registered power of attorney without any registered sale deed, does not alter the characteristic of the land and consequent income derived from tr....
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....received from the bank are ample proof to prove that purpose of purchase of land was to carry out agricultural operations. The land was shown under head fixed asset and not as current asset as stock-in-trade in the books of account. The land was actually fit for cultivation and the land cannot be used for any purpose other than agriculture. It is a black cotton soil and thus, suited for cotton crop. Therefore, we are of the considered view that evidences filed before us clearly prove that land in question was agricultural land and was held for the purpose of carrying out agricultural operations. The subsequent usage of land for non- agricultural purposes and the potential non- agricultural value of the land for which purchaser may be prepared to pay a large price would not detract from its character as agricultural land on the relevant date of sale. Further, profit motive of the assessee selling the land without anything more by itself can never be decisive for determination of issue as to whether transaction amounted to adventure in the nature of trade. In other words, price paid is not decisive to say whether land is agricultural or not. From the above, it is very clear that rea....
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....rposes 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." 14. The assessee has also relied upon the decision of the Hon'ble Jurisdictional High Court of Madras in the case of PCIT Vs KPR Developers Ltd. (supra), where the Hon'ble High Court held that where assessee sold agricultural land and claimed capital gain from sale as exempt, since Tahsildar while submitting report to the Assessing Officer had enclosed copies of patta, which showed that land was wet land and deemed to be agricultural land, merely because agricultural activity could not be done on the said land for various reasons including natural causes, it was not ....