TaxTMI 
TaxTMI 
2025 (3) TMI 2012
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....ing so the AO brought to tax as business income gains arising out of sale of land, of Rs. 11,29,16,575/- claimed to the exempt from tax by holding that the lands sold were not agricultural land. Similarly, the AO also made an adhoc disallowance of expenditure of Rs. 1,92,763/-. The AO had disallowed the loss claimed from business of card division of Rs. 7,50,000/-. The brief factual background leading to the above addition is as under: - Gains from sale of land 4. During the previous year relevant to the assessment year under consideration the assessee had sold properties situated in a place called 'Kakkanad' to a builder, details of which are given as under: - Date Purchaser Doc. No. Sale Amount Rs. Place 5.1.2008 Calista Real Estates (P) Ltd. 42/2008 47,53,800 Kakkanad 16.07.07 Amon Estates (P) Ltd. 33/2007 79,95,250 Kakkanad 21.07.07 Calista Real Estates (P) Ltd. 3380/07 16,14,57,250 Kakkanad 18.07.07 - do - 3311/07 1,97,74,250 Kakkanad 19,35,80,550 5. The said lands were situated in Thrikkakara Panchayat. The area of Thrikkakara Panchayat was notified a....
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.... up of the business. 9. Being aggrieved, an appeal was filed before the CIT(A), who on due consideration of the submissions of the appellant that there is a prevailing legislation in the state of Kerala, which prohibits conversion of agricultural land, especially paddy fields into non-agricultural except with the prior approval of the prescribed authority on the certificate issue by Revenue Department of the State government, whereas the land in question were classified as 'Nilam' (paddy field) and the purchase and sale documents have clearly describes the land as 'agricultural land'. The profits arising on sale of land classified as 'paddy field' are exempt from tax, while confirming taxability of gains arising on sale of balance of lands. The CIT(A) also directed the AO that out of the total disallowance of development expenditure of Rs. 42,25,059/- while computing the capital gain only Rs. 33,25,059/- is to be allowed and the balance amount of Rs. 9,00,000/- to be confirmed, as the same was claimed in respect of properties held to be agricultural land. The CIT(A) also held that the AO was not justified in disallowing the loss arising from the business of card division of Rs. ....
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....s were sold within three months from its purchase does not constitute adventure in the nature of trade. 2. Merely because the appellant is in real estate business, it does not mean that it cannot hold a piece of land as investment as it is possible for a tax payer to have two portfolios, an investment portfolio comprising lands to be treated as capital asset and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets placing reliance on CBDT Circular No. 4/2008 dated 15.06.2007 issued in the context of dealings in shares and securities. 3. The treatment given in the books of account clearly establish the intention of the appellant that the said lands were held as investment. 4. Since the lands were not converted to non-agricultural use as per the law prevailing in the state, the lands continues to be agricultural placing reliance on the decision of the Hon'ble Bombay High Court in the case of CIT v. Debbie Alimao 331 ITR 59. 5. The mere fact that the land was sold to the real estate developer will not change the character of the land, placing reliance on the decision of the Hon'ble Madras High Court in t....
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....ing of the provisions of sub-section (iii) of section 2(14) of the Act, it would be clear that only those lands, which come under clauses (a) & (b) of sub-clause (iii) can be considered as capital asset and the profits and gains arising from sale of such lands alone are taxable for income tax purposes. For better appreciation the relevant provisions of section 2(14) of the Act are extracted below: - "Definitions. 2. In this Act, unless the context otherwise requires,- ............ (iii) agricultural land in India, not being land situate- (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; or (b) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being m....
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....s for a reasonable span of time. From the findings given by the AO in para 2.1 of the assessment order that the mere fact the mere fact that vegetables or seasonal crops were available at the time of sale cannot make the property exempt clearly indicates that the AO himself had found that agricultural operations were actually carried on the subject lands. Thus, the findings of the AO that no agricultural operations were actually carried on are ipse dixit. Thus, there is clear evidence of agricultural operations being carried on and the land is also classified as agricultural in the Revenue records of the state government. That raises presumption in favour of the assessee which has to be rebutted by the Department to deny exemption. 24. The reasoning of the AO that the lands were sold for higher consideration for real estate purposes, therefore the character of lands would change cannot be accepted as it would not change the character of the land as held by the Hon'ble Jurisdictional High Court in the case of PCIT v. Kalathingal Faisal Rahman [2019] 416 ITR 311, wherein the Hon'ble High Court quoted the decisions of the Hon'ble Gujarat High Court in the case of CIT v.....
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....98. The assessee also discharged the onus of proving his intention at the time of purchase is to hold the lands as investment by showing this as a part of investment in the books of account. The treatment given in the books of account gives a clear picture of the intention of the assessee whether to hold this subject land as investment or as stock-in-trade. 29. Further, it is true that the assessee is also a dealer in lands but a dealer in lands can also hold a particular piece of land as investment and other part of his land as stock-in-trade. In this connection reference can be made to the CBDT Circular No. 4/2008 dated 15.06.2007 and decision of the Hon'ble High Bombay Court in the case of Gopal Prohit [2011] 336 ITR 287. 30. These facts clearly establish that the assessee had discharged onus in proving the intention at the time of purchase of land is only to hold the subject lands as investment and adduced necessary evidence on record in terms of the judgement of the Hon'ble Jurisdictional High Court in the case of Kalpetta Estates Ktd, v, CUT [1990] 185 ITR 318. Once the assessee had discharged burden of proving the intention to hold the lands as investment, then....
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.... use for agricultural purposes by the vendee, we are unable to accept the said submission of the Revenue In our under-standing, the test stipulates that the subject matter of land is capable of being used for agricultural purposes without inhibition both in fact by change of user and by law by orders of conversion from agricultural to non-agricultural. Any other future independent application of said tests, is impractical from the perspective of sale and purchase. The judgment of this court in Kalathingal Faizal Rahman case refers to the burden of proof, and that, what constitutes agricultural land essentially is a question of fact and the same has to be established by the assessee. While adverting to the future use, we are persuaded by the reasons given by the Madras High Court in M. S. Srinivasa Naicker and Mansi Finance Chennai Ltd." 32. Therefore, what can be deduced from the above decisions is that if the land is recorded as agricultural land in the Revenue records till the date of it sale and it used exploiting as agricultural land, if the owner of the land has not taken any step it, would indicate his intention to explore the land as nonagricultural land, such parcel of l....