TaxTMI 
TaxTMI 
2002 (12) TMI 197
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....he head 'income from capital gains'. The learned Commissioner (A) ought to have held that as the lands sold being beyond the notified area, the surplus of sale would not be liable to tax under the head 'income from capital gains', and without prejudice, even assuming that the appellant was liable to be assessed under the head 'business', the cost of land should have been considered at the market value on the rate of conversion by division of land into small pieces and relevant expenditure incurred for improvement should have been allowed as deduction. 2. The appellant/assessee is a Karta of Hindu Undivided Family engaged in agricultural activities as well as share trading activities, filed its return of income on 2-11-1998 for the assessment year under consideration admitting a net loss of Rs. 11,21,244 from business and a loss of Rs. 7,83,457 from agriculture. The matter was processed under section 143(1)(a) on 6-10-1999 and later on taken up for scrutiny. During the course of hearing before Assessing Officer the assessee filed a revised working of income according to which the net loss was worked out at Rs. 6,97,444. As per the assessment order, it was found by the Assessing O....
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.... started its business, but since the firm has been incurring the loss, there is no taxable income from the partnership firm." The assessee vide its letter dated 13-12-2000 further clarified as follows:- "So far as loans to others are concerned, there are several other creditors to whom the assessee has not been paying any interest. Therefore, it is difficult to specifically identify the interest bearing loan and non-interest bearing loan. The interest paid of Rs. 61,867 as already mentioned in our letter, is after deducting Rs. 70,000 interest received from Estate Club. The interest is not received from Estate Club and Resorts. Estate Club and Resorts is a separate Partnership Firm, whereas the assessee is one of the Partner. The payment of interest is in respect of certain loans, which has also been lent to Estate Club and therefore, netting off the interest is in order." 3. As per the assessment order, the assessee had claimed expenses towards sale of developed plantation land at Rs. 1,48,360 in the Capital Account furnished along with the balance sheet. Clarification was sought from the assessee and was found that the expenditure were claimed in respect of land at Hosur....
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....tural operation and even the development expenses has been incurred for the purpose of agriculture only. Even now on the balance of land the agricultural operation is being carried out. Since the assessee has been incurring loss in agricultural operation and has incurred huge liability, to clear such liability some portion of the land was made into plantation plots and sold." 4. The assessee further claimed that the capital gains arising out of the agricultural land are to be considered as capital gains and not as profit arising out of business operation and further told that since the land is situated beyond 10 kms. from the local limits, the capital gains arising out of this land is exempt from income tax. The reply of the assessee could not find favour with the Assessing Officer. The Assessing Officer opined that though the land is called plantation land, the same is sold after developing them to be fit enough for use for non-agricultural purposes, and hold that the sale of land is treated as adventure in the nature of trade and assessed accordingly. The assessee carried the same unsuccessfully before the first appellate authority. Now the assessee is in further appeal before....
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....bsp; 15,05,610.10 10. 1999-00 4,46,650.00 11. 2000-01 9,67,701.78 ----------------- Total 2,28,88,182.81 ----------------- Further attention was drawn to page 45 showing expenditure for the said period which is also reproduced below as shown at page 45 of the paper book of the assessee:- ------------------------------------------- Sl.No. Year Amount ------------------------------------------- 1. 1990-91 11,1....
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....Mr. Parthasarathi further told that the revenue has accepted the same as capital gains for earlier years. Mr. Parthasarathi further argued that the assessee planted coffee, papaya and other plants such as coconut etc. and the trees are even available today. Mr. Parthasarathi also told that there was no purchaser of land in 1977 when the assessee was having the major portion of the land and this is a part of green belt area and the assessee had to borrow loan from Vysya Bank and had to repay the same after selling of land. Mr. Parthasarathi further told that when the assessee could not get enough income from agriculture, he made investment in other activities and could only get buyers - after fragmentation Act. At the same time it was also pointed out that the buyers are not debarred from purchasing agricultural land. We were also informed that some of the persons, who has purchased the land constructed farm houses and not houses and due to erosion of capital, the assessee was forced to sell the property. Mr. Parthasarathi further requested to inspect the site/agricultural land even today. Mr. Parthasarathi also told that without proper roads, light, it was not possible to develop f....
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....; Loss 1. 1981-82 Rs. 0.00 Rs. 189,058.57 2. 1982-83 Rs. 396,718.52 3. 1983-84 Rs. 481,200.00 4. 1984-85 Rs. 513,161.00 5. 1985-86 Rs. 127,515.00 6. 1986-87 Rs. 457,011.00 7. 1987-88 Rs. 629,084.00 8. 1988-89 &nbs....
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....otting was done to clear the huge liability incurred on account of purchase of land and development thereof as is borne out from the record and the liability towards loan and sundry creditors are increased to Rs. 50,26,598 as on 31-3-2000. We do not agree with the contention of the learned counsel for the revenue that the assessee was waiting for passing of Karnataka Prevention of Fragmentation and consolidation of holding (Repeal) Act of 1990 as the land was purchased from the year 1977 onwards. How can an agriculturist presume that after so many years the fragmentation and consolidation Act will come into effect? At the same time we agree with the contention of Mr. Amitabh Kumar that the intention was to earn maximum profit. This is the intention of every person who undertakes any activity whatsoever. This fact is not disputed that different kinds of plants/trees were available on the land such as coffee, papaya, coconut etc. At the same time, the land under consideration is on green belt and cannot be converted into non-agricultural purposes. This is also a fact that the assessee never applied for conversion of land for non-agricultural purposes. If the assessee would have appli....
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....ss. The order of the CIT(A) was set aside in favour of the assessee. The Hon'ble High Court of Bombay in the case of CIT v. V.A. Trivedi [1988] 172 ITR 95 wherein the nature of land is relevant in determining whether the land is agricultural land or not. In this case the assessee obtained permission to convert the land to non-agricultural use and thereafter an agreement to sell to Building Society was entered. Therefore, it was held that the profit on sale of this land was not agricultural and was taxable since the land was not agricultural land. In this case the assessee transferred the land to various purchasers as plantation land only and not as agricultural land. The Hon'ble High Court held that as long as there was no evidence to prove that the purchase of land was made with the intention to resell, the purchase and sale cannot be termed as adventure in the nature of trade. Therefore such profits cannot be assessed as income from business. In the present case before us certainly this is a green belt and the assessee never applied for conversion of land use and the same is an accepted position supports the case of the assessee. The Income-tax Appellate Tribunal, Pune Benc....
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....nue (ii) whether agricultural operations are carried on (iii) intention of the owner (iv) character of the adjoining land. In this case, the revenue records classify the land as agricultural land and it was being used for agricultural operations and the land was not sold as agricultural land to a company. It was held that just because the buyer was a company could not alter the character of the land as on the date of transfer. The Hon'ble Tribunal held that the capital gains arising on transfer of land is not taxable. The Hon'ble High Court of Delhi in the case of CIT v. Krishan Kumar Kapoor [2001] 251 ITR 150 held that when the revenue records show that the land was agricultural land and transfer is also made as agricultural land, the capital gains should be considered as exempt being capital gains on sale of agricultural land. In the present case before us also, as per revenue record the land has been shown as agricultural land even the assessee never applied for conversion of land use, certificate from the Tahsildar, all supports the case of the assessee. We do not agree with the contention of the learned counsel for the revenue that some of the purchasers has ere....
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....arnataka Land Revenue Act of 1964, the occupant and owner of an agriculture land is entitled by himself, his servants, tenants, agents or other legal representatives to erect farm buildings for the better cultivation of the land or its more convenient use for the purpose of agriculture/improvement of the land." For construction of Farm House in agriculture land no sanction or permission is required under the relevant rules and as such no authority is invested with the powers of giving permission for construction of farm house on agriculture land. 10. As per the Karnataka Land Reforms Act, 1961 the purchase of agriculture land by the following persons is prohibited under section 80 of the Karnataka Land Reforms Act:- (1) One who is not an agriculturist (2) One being an agriculturist holds land exceeding ceiling limits (54 acres - 'D' Clause land) (3) One who is not an agricultural labourer (4) One whose annual income from non-agricultural sources exceeds Rs.50,000 (earlier the limit was Rs. 12,000 the same has been increased through KLR (2nd Amendment) 1950 Karnataka Act of 1991 w.e.f. 5-2-1991. New Limit Rs. 2 lakhs. The learned counsel for the assessee has als....
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....sel for the revenue Mr. Amitabh Kumar relied upon the decision of the Hon'ble High Court of Karnataka in the case of CIT v. B. Narasimha Reddy [1984] 150 ITR 347. In this case the assessee along with his son jointly purchased a plot of land in 1962 from an agriculturist as agricultural land, which was located within the urbanized area adjacent to big factories, but no attempt was made to cultivate the land. The land was left fallow up to 1969 in which year the assessee obtained permission to convert the land for non-agricultural purposes. Immediately thereafter, he formed a layout for house sites and sold the sites to the workers in the nearby factories. The assessee claimed before the ITO that he made the investment in agricultural land with the intention of cultivating it and, therefore, the income realized from the sale of the land should be assessed as capital gains. The ITO rejected the claim of the assessee on the ground that the transaction was an adventure in the nature of trade and, hence, assessed the income as business profits. The AAC upheld the order of the ITO. The Tribunal allowed the appeal of the assessee on the ground that it was a case of realisation of investmen....
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....purchased the land to build a theatre or hotel converted the land into house sites and sold thereof. The Tribunal held that the intention of the assessee was to divide the land into house sites and to sell the same on profit and, therefore, the profit realized therefrom was assessable as income. It was held that the transaction of purchase and sale of land was an adventure in the nature of trade and the profit realized therefrom was assessable as income. In this case the land was purchased on March 15,1968 and immediately the assessee divided the land into plots and sold the same during the previous year ending March 31,1970. But in the present case before us, the land was purchased from 1977 to 1992 for agricultural purposes. But in the case of P. Kannan, the land was purchases to build a theatre or hotel. From the facts before us we agree with the contention of the learned counsel for the assessee that the agriculture land was purchased in the year 1977 and the assessee is an agriculturist for the last about three decades and had to sell the land to clear the debts loans so is distinguishable. 13. The learned counsel for the revenue also relied upon the decision of the Hon'ble....
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....The learned counsel for the revenue has also relied upon the decision of the Hon'ble High Court of Allahabad in the case of Rani Ratnesh Kumari. In this case, the assessee, an individual, had purchased a house property of an area of about 20,000 square yards comprising two bungalows, a servants' quarters and a vast piece of vacant land in the city of Jaipur. The consideration was Rs. 87,999. Later on, the assessee divided a portion of the vacant land into sub-plots and made some improvements therein and sold a total area of 10,830.75 sq. yards by means of six sale deeds. It was held that neither the AAC nor the Appellate Tribunal considered the nature of the transactions with reference to the changed circumstances and subsequent conduct of the assessee. In this case we feel that the assessee purchased two bungalows and a servants' quarters and a vast piece of land in the city of Jaipur, but in the present case before us, the agriculture land was purchased and that was far away from city and was also purchased from 1977 to 1992. The assessee is basically an agriculturist and had to sell the land to clear the liabilities. The land was also situated in green belt, no land conversion w....
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....n land owned by the assessee. The assessee made regular plantation since beginning and there is no iota of evidence to show that there was an intention of the assessee to make plots and to sell the same at later stage. The coffee plants, coconut trees and other trees like papaya, pepper etc. were grown regularly and from the expenditure shown by the assessee, it is clear that all these activities are agricultural operation only. We are convinced that the character of nature of land and its use is very much relevant in determining whether the land is agricultural land or not. As the assessee had been incurring losses in agriculture operation and had incurred huge liabilities and to clear the same, some portion of the land was made into plantation plots and was sold, after such a long time as has been discussed above. We are convinced that such profit/activity cannot be assessed as income from business. We are also convinced by the bold assertion on the part of the learned counsel for the assessee that the land in question may be inspected even today, which was opposed by the learned counsel for the revenue by saying that it will waster the time of the Bench. 19. The Income-tax Ap....
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....at the inception that is crucial. One of the essential elements in an adventure in the nature of trade is the intention to trade; that intention must be present at the time of the purchase. The mere circumstance that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception." Various factors are to be taken into consideration while deciding this issue though no hard and fast rules can be laid down. However, we would like to see the observation of Hon'ble Supreme Court of India in the case of G. Venkataswami Naidu & Co. which are being reproduced as under:- "If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are relevant, such as e.g., whether the purchaser was a trader and t....
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....ing various trees and plants and even there was no intention to sell the land in future, keeping in view the duration of period etc. It was due to certain compelling circumstances came into picture at a later stages, the assessee was forced to purchase another land and to sell the same along with the land purchased earlier. Merely because the fact that the land was sold in plot, 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 mere frequency of sale by itself should not suggest that the activity was an adventure in the nature of trade as held by the Hon'ble Apex Court in the case of N. Holck Larsen. The Hon'ble High Court of Madras in the case of Sri Gajalakshmi Ginning Factory Ltd. v. CIT [1952] 22 ITR 502 has held that if a person buys lands with a view to sell them and thereafter carries on certain operations so as to bring greater profit and facilitate the sale of plots, it can be said, if it is a single transaction, that his activity is an adventure in the nature of trade, for, the essence of a trade, buying and selling for profit, is present in that activity. But if a person buys land w....