Income Tax Appellate Tribunal - Hyderabad
Smt. R. Srivalli, Hyderabad vs Assessee on 11 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER
AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No.229/Hyd/14 : Assessment year 2008-09
Smt. R.Srivalli, Hyderabad V/s. Dy. Commissioner of Income-tax
Central Circle 5, Hyderabad
(PAN - AIRPR 9818 C )
(Appellant) (Respondent)
Appellant by : Shri K.C. Devdas &
Shri A Srinivas
Respondent by : Shri Ramakrishna Bandi DR
Date of Hearing 24.2.2015
Date of Pronouncement 11.3.2015
ORDER
Per P.M.Jagtap, Accountant Member :
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals) VII, Hyderabad dated 29.11.2013.
2. The assessee in the present case is an individual. A search and seizure action was conducted in the cases belonging to Venigalla Anand Prasad group on 7.10.2009. During the course of the said search, certain documents relating to the assessee were found and seized. Consequently, a notice under S.153C was issued by the Assessing Officer on 30.8.2010 in response to which return of income for the year under consideration was filed by the assessee, declaring total income of Rs.1,20,320. In the said return, profit arising from sale of land amounting to Rs.70,00,000 was declared by the assessee as short term capital gains, and the same was claimed to be exempt on the ground that the land sold, being an agricultural land, was not a capital asset under S.2(14) of the 2 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad Act. During the course of assessment proceedings, the claim of the assessee for this exemption was examined by the Assessing Officer in detail, and on such examination, he recorded his findings/observations, which, as summarized by the learned CIT(A) in the impugned order, are as under-
"(a) The appellant had acquired from Smt.R.Uma Devi, by way of gift 0.28 guntas of land vide document no.2792 dated 5.3.2008
(b) Assessee sold this land of 28 guntas to M/s Varun Constructions through the sale cum GPA document No..2795 dated 5.03.2008 for an amount of Rs.70,00,000/-. The assessee claimed the sale proceeds and consequent capital gains as exempt.
(c) The appellant had transacted in the land which was contiguous to the land purchased and similarly transacted by M/s Bhavya Constructions Pvt Ltd (BCPL), Sri V Ananda Prasad (MD of BCPL), and other individuals, who all, like the assessee-
appellant, were the investors in M/s Bhavya Cements Pvt Ltd, a company set up by Sri V Ananda Prasad. All these persons had shown the sources of investment in the share capital of M/s Bhavya Cements as sale proceeds of these lands.
(d) The detailed investigation and the evidences found relating to the claim of Bhavya Construction and Sri V Ananda Prasad were narrated in full from page 2 of the asst. order onwards. The Assessing officer relied upon the evidences gathered by the investigation wing like state of land, blank bill of a fertilizer vendor and seed company with the soft copy of this bill available in the hard disk, the nature of business of M/s Bhavya Construction, the revenue records and the .statement of Village Revenue Officer (page 5), the past owner of such land the future owner of such land transacted by Bhavya construction, photographic evidence 3 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad of the actual state of lands gathered by the Investigation Wing. Photographic evidences clearly indicated that no agricultural activity was undertaken on this land, copies of the photos indicating the state of land were on pages 8 to 11 of the asst. order. The "soft" copy of a bill of a firm and blank bills of another firm dealing in agricultural inputs led to the conclusion that suspicious and bogus claim of expenditure is made to create a facade of agricultural activity, when, in reality, there was no such activity.
(e) The legal position regarding agricultural land as held by the Hon'ble Supreme Court in the case of Sarifabibi (204 ITR 631) and the decision of Hon'ble ITAT, Hyderabad in the case of M/s G.K.Properties Pvt Ltd in ITA No.773/Hyd/07, dated 27.06.2008 were mentioned on pages 13 and 14 of the asst. order. The AO also mentioned the decision of the Hon'ble Supreme Court in the case of Rajas Mustafa Ali Khan Vs. CIT (176 ITR 330) at page 15 of the assessment order to emphasise that no agricultru4rl operations were done by the assessee. The AO thereafter concluded that the lands are not agricultural in nature.
(f) The AO also held that the land was not suited for agricultural use and no agricultural activity was carried on. Therefore, alternatively, even the exemption u/s 2(14) is not available to BCPL and the land is therefore a capital asset in its hand.
(g) The entire discussion on pages 2 to 16 was mentioning M/s BCPL but it was held that this applies in toto to most of the investors in Bhavya Cements Ltd including the assessee Smt. R.Venkata Ramani (Page 16 of the asst. order).
(h) The AO seeing the coordinated activity undertaken by BCPL, its 4 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad MD and other investors/share holders in dealing with land in such manner, came to the conclusion that M/s BCPL and its associates have performed an adventure in the course of normal professional activity which is buying and selling of land along with its associates. The AO observed that the land was bought by all the associates of BCPL in the same period at Bowrampet which was adjacent to the urban agglomeration sprawling around Hyderabad city. The land gifted to the appellant was also bought by one such associate. This indicated that all these individuals invested in this land keeping in view the rising real estate market. The AO also noticed that the rise in price of the land was around 100 times is less than 3 years. This fact only confirmed the intention of the investment. The AO had also held that the assessee has done a systematic activity in this period of time in an established manner along with other associates. He, therefore, held that the activity carried on by the assessee has to be treated as carrying out of business and the income from sale of land should be treated as an adventure in the nature of trade. Accordingly, he brought it to tax under section 28 of the Act (Page 15 & 16 of asst. order).
(i) In course of the assessment proceedings, the assessee stated that agricultural land was sold by the assessee does not fall under the definition of capital asset u/s.2(14) of the I.T. Act, 1961 as the said lands are not situated in notified area. It was also stated that the lands sold by the assessee are agricultural lands only and the same are certified by the Dy. Collector and MRO Qutubullahpur Mandal, as agricultural lands. The assessee also submitted the following in support of the claim that the land is agricultural - (i) Purchase and sale deed describing land as agricultural land, (ii) Pattadar pass book issued by the MRO, (iii) Certificate of Deputy Collector and MRO Qutubullapur Mandal dated 20/08/2005 stating 5 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad that the land is agricultural land and that the assessee was raising crops like paddy, cattle feed, maize, Jowar and vegetables etc. and (iv) Certificate of Town Planning Officer, GHMC Qutubullapur Circle in G/1240/2008 dated 04.10.2008 stating that the said lands are not falling under GHMC limit. (v) The entire transaction was through Sub-Register of Medchal Revenue authorities and not through Hyderabad Revenue authorities. The jurisdictional authority is Qutubullapur Municipality and not Hyderabad Municipality. It was also submitted that Qutubullapur Municipality was not notified by the Central Govt. The appellant therefore claimed that these are agricultural lands and are exempt from being treated as capital asset in terms of provisions of section 2(14) of the I.T. Act, 1961.
(j) The AO however, did not accept the claim and stated that mere claim of these lands as agricultural based as per old record without giving credence to the visible physical appearance and all round urban development in and around these lands is not justified. He also held that traces of agricultural activity has to be visibly seen, physical felt as per geographical terrain, soil conditions and more so, with verifiable evidences of agricultural produce, sale bills/vouchers etc. The assessee could not produce any proof for her claim of agricultural activity.
(k) The AO finally, without prejudice to all the claims of the assessee held that assessee's transaction in sale of land as akin to business activity and assessed it as business income of the assessee. He again drew parallel to the activity undertaken by BCPL and the other individuals who all were investors in Bhavya Cements and the AO felt that the lands were purchased by various individuals with a view to make quick profit and the same profits were apparently invested in Bhavya Cements. He therefore, brought the sale proceeds to tax as under the head income from business."
6 ITA No.229/Hyd/2014Smt. R.Srivalli, Hyderabad
3. On the basis of the above findings/observations, the Assessing Officer held that the land sold by the assessee was not an agricultural land and the activity of purchase and sale of the said land being an adventure in the nature of trade, profit arising therefrom was chargeable to tax in her hands as business income. Accordingly, such profit amounting to Rs.70,00,000 was brought to tax by the Assessing Officer in the hands of the assessee as her business income in the assessment completed under S.143(3) read with S.153C of the Act, vide order dated 30.10.2011.
4. Against the order passed by the Assessing Officer under S.143(3) read with S.153C, an appeal was preferred by the Assessing Officer before the learned CIT(A) and detailed submissions were made by her before the learned CIT(A) in support of the stand that the land in question was agricultural land. The submissions made by the assessee in this regard, as summarized by the learned CIT(A) in the impugned order, were as under-
"(i) The asset transferred is agricultural land located beyond 8 kms of any notified municipality. It is therefore, not a capital asset u/s. 2(47) of the I.T. Act.
(ii) The evidence on which the AO placed reliance and rested his conclusion were actually the findings in the asst. order in the case of M/s. BCPL which owned another patch of land contiguous to the land owned by the appellant. The observations and the conclusions drawn therein were utilised against the appellant, which is incorrect. The appellant had nothing to do with those findings. The counsel however rebutted these evidences also as summarized in the table given below:
Sl. No. Evidence on which Appellant's submission and counsel's Assessing Officer placed argument reliance to draw adverse conclusion
1. Statement of VRO Non-mention of crops grown in the Bowrampet regarding pahani was because the records were not nature of land and updated since 2004 and this does not agricultural operation. mean that no crops were grown. The VROs statement was recorded on 17.12.2009 after the sale of land in March, 2007. The statement therefore, 7 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad cannot be accepted the position of clarifying the land before sale. More importantly, the VRO's statement has no value in light of the certificate given by the MRO and Dy. Collector who is the competent authority in the matter of issue of certificate. The said certificate is clear about the nature of land in the revenue records and the crops grown.
The Pahanis (land records) show that the land is "Metta land" (dry land). Metta land is not irrigated but is cultivable like dry crops like maize. In the sworn statement date 17.11.2009, the in answer to q.no.10 and 11, the appellant stated that the land purchased is agricultural in nature and she has grown maize on the said land. This statement of appellant is contemporaneous evidence. The MRO certificate is an admissible evidence u/s. 35 of Evidence Act. The entries herein cannot be brushed aside.
2. Blank quotation for Evidence was not found in possession of purchase of fertilizer assessee and nor can it be sued against found in the premises of her as they were blank quotations. Bhavya
3. Sworn statement of MD Not relevant to appellant as appellant did of Deccan Township not buy land form Deccan Township nor is whose lands were the treatment of land in their books, of purchased by BCPL any relevance to the appellant.
4. M/s. Varun Constructions Merely because another person had not had not carried out any carried any agricultural operation in the agricultural operation said land, the same would not lead to the conclusion that the appellant had also not carried out any agricultural operation.
5. Inspection of the state of The inspection was not made jointly. The land by the officers of veracity of the report cannot therefore be Inv. Wing on 26.12.2009. utilized against the appellant. Inspection was made in 2009 whereas the land was sold in 2007-08. The repot is therefore not contemporious evidence to draw inference against the appellant inv view of the certificate granted by the competent authority MRO. It was admitted in the report of Inspecting Officer and also in the asst. order that in the said land, some nominal agricultural operations were carried out in small fragment which actually corroborates the appellant's claim.
6. Lands fall within urban The nearest municipality is Qutubullapur agglomeration of Hydera which is not a notified municipality. Even bad city and discounting otherwise, the land was sold on 8 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad the appellant's submi- 12.03.2007 and GHMC was notified w.e.f.
ssion at the time of 16.04.2007.
assessment regarding
Qutubullapur Mandal.
In support of the above submissions, the assessee once again filed before the learned CIT(A), copies of the pattadar pass book, MRO certificate dated 20.8.2005, certificate dated 4.10.2005 issued by the Town Planning Officer, Qutubullapur Circle; Certificate dated 4.2.2005 issued by the Deputy Tahsildar and Qutubullapur stating that Bowrampet village is 12 Kms from Qutubullapur municipal limits.
5. While challenging the action of the Assessing Officer in bringing to tax the short term capital gains arising from the sale of agricultural land under the head 'business income', the assessee made the following submissions before the learned CIT(A) on the relevant factual and legal aspects-
"11.2. The factual aspects are as under:-
(a) The appellant is a housewife, her paltry sources of income were some earnings through home tuitions (she is a post graduate) which was accepted by the AO.
(b) She had never carried on a business in real estate either before or after this land transaction.
(c) Agricultural land was gifted to her and she had sold it the same day. It was not her stock in trade
(d) No developmental activity like making of roads, providing amenities before sale were done. No systematic organized activity was undertaken.
(e) The land was not converted into non-agricultural land before sale.9 ITA No.229/Hyd/2014
Smt. R.Srivalli, Hyderabad
(f) No attempt was made to improve the quality of land making it more suitable for sale.
(g) There was no repetition of the transaction except selling of a portion of land acquired as a gift.
(h) Merely because substantial gains were made, it does not become business income.
(i) It is not a material fact for the appellant's case that the adjoining land was purchased by builder and there was a booming real estate market. The transaction of sale by the appellant cannot become a business transaction because of that transaction or because of the end purpose for which the buyer bought land from her. It would remain gains from investment.
11.2 On the legal aspect, it was submitted that :
(a) Initial intention of Acquisition of land is a vital factor.
Here, it was acquired as gift. There has to be an intention to trade at the time of purchase and the onus is on the department to prove it (CIT V/s. V.A. Trivedi 172 ITR 95(Mumbai)). Transaction of gifted property and an isolated instance of sale, even though the land was plotted and sold, still would not come under within "adventure in the nature of trade"-(CIT Vs. Suresh Chand Goyal(298 ITR 277))
(b) 2(13) defines business as including any trade, commerce or manufacture or any adventure or concern in the nature of trade or manufacture. It is the presence of absence of such element in a particular transaction in a question that would decide whether it is in the nature of trade or not. There is no such attribute or element in this transaction of sale of land by the appellant. The appellant never carried on any business in real estate. The word business connotes some real, substantial and systematic cause organized course of activity or conduct with a said purpose. An element of frequency is associated with business which is absent in this case.
(c) Decisions of the Hon'ble SC in the case of G.Venkata Swamy Naidu & Co. (35 ITR 594) and Sree Meenakshi Mills Ltd (31 ITR 28) were cited. In the case of G.Venkata Swamy Naidu it was held that - If a person invest money in land intend to 10 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad hold it, enjoys it for some time and sell for profit, it would be a clear case of capital accretion and not profit derived -from an adventure of trade. Cases of realization of investment consisting of purchase and resale, though profitable, are clearly outside the domain of adventure in the nature of trade."
(d) It is not uncommon that due to rapid growth of urban area, agricultural lands in the vicinity of city are commanding a high price. The pace of urbanization is not in the control of holders of agricultural land. If "large profits are made it does not become business income".
(e) Neither the profit motive nor the large profit does not change the transaction to a business transaction (Janakiram Bahadurram Vs CIT (57 ITR 21)(SC)} and CIT Vs. Sutlej Cotton Mills Supply Agency {100 ITR 706(SC)}.
(f) Extent of land held as investment cannot be criteria cannot be held as same was held as stock in trade -Indian Hume Pipe Co. Ltd. 107 ITR 179 Para 8(Bom)
(g) Appellant also relied upon the following judicial decisions
(i) B Narsimha Reddy Vs. ITO (47 ITD 398)(Hyd)
(ii) CIT Vs Radhesham Morarka 127 ITR 111)
(iii) K.Radhika Vs DCIT {47 SOT 180 (Hyd)}
(iv) A Mohd. Mohideen - Madras High Court
(h) The appellant also stated that if an income falls under two heads, it cannot be shifted from one head to another head merely because it is getting exempted under the statute under that head.
(i) The burden of proof is on revenue to establish with positive proof that a transaction is adventure and has to go further to establish that it is in the nature of a trade. In a border line case involving a transaction in land, burden becomes that much more heavier. There is no room for any doubt or debate particularly when a transaction is such that it may fall under two heads -one a primary head and a secondary or alternative head as in the instant case of the appellant."
11 ITA No.229/Hyd/2014Smt. R.Srivalli, Hyderabad
6. After taking into consideration the submissions made by the assessee and the material available on record, the learned CIT(A) found merit in the stand taken by the assessee that profit arising from the sale of land did not constitute the business income of the assessee and the same was in the nature of short term capital gains, as rightly claimed by the assessee. As regards the claim of the assessee that the land in question sold by her was an agricultural land, the learned CIT(A) identified the factors in favour of the assessee and against the assessee on this issue and summarized the same in a tabular form as under-
Sl. Agricultural land Non-agricultural land No.
1. The MRO Certificate The Hon'ble Supreme Court issued in 2005 states the in the case of Sharifabibi had land as agricultural and clearly stated that the also the crops grown. description of land in revenue record does not matter.
It is to be seen whether the land was used, is being used and whether it will be used for agriculture as it is this continued use for agriculture which is the rationale for giving exemption.
2. The pahanis indicate land The Govt. classifies lands as "Metta' - i.e. dry lands only into either those with irrigation facility or those which do not have irrigation facility i.e. "Metta lands".
This classification by itself
would not indicate whether
any crop is grown. The crops
cultivated are mentioned
separately in the pahani. The
Pahani does not indicate any
crop grown.
12 ITA No.229/Hyd/2014
Smt. R.Srivalli, Hyderabad
3. The purchase deed of The photographic evidence
2004 as well as the sale available in the asst order
deed of 2007 classify the indicates that the land was
land as agriculture. The not put to use for cultivation
assessee in its first at all. The assessee in the
statement stated that she statement also stated that
has grown maize. the crop was "destroyed" and
does not remember any
agriculture expenses.
4. The AO has also stated The photographic evidence
that certain vegetables available in the sale deed
and crops were grown by itself wherein, the
watchman, signifying that photograph of the land is
land was agricultural (Not made part of the sale deed.
applicable to appellant's This contemporaneous
case specifically) evidence also does not
indicate any agricultural
activity on the land. It is
evident that the land was idle
and some wild bushes were
seen. Agricultural activity at
any point of time is
absolutely invisible.
5. Land was sold in acres The Hon'ble SC in the case of and not in sq. yds. Sarifabibi had clearly stated that the description of land in revenue record does not matter.
It is to be seen whether the land was used, is being used and whether it will be used for agriculture as it is this continued use for agriculture which is the rationale for giving exemption.
6. There was no application The buyer was a company in either before or after for real estate and construction conversion of land to non- business. Usually, instead of agricultural land. They incurring further expense, continue to be as any land owner would leave agricultural land in such hassles of getting such revenue records. conversion certificate to the user real estate company to deal with such things.
13 ITA No.229/Hyd/2014Smt. R.Srivalli, Hyderabad
7. Land was beyond 8 kms of This deals with location of notified municipality an agricultural land. Moreover, Qutubullapur mandal was the Hon'ble ITAT, Hyderabad not part of GHMC as on as recently as March 2013 in the dte of sale of land in the case of Syed Nawab March, 2007. Hussain, RR Dist. Vs. Assessee on 8 March, 2013 in ITA No.851/Hyd/2012 2007- 08 reaffirmed its own decision in the case of Smt Gousia Begum & Ors. Vs. DCIT in ITA No.s 1024 to 1026/Hyd/2011 and ITA Nos.1268 to 1271/Hyd/2011.
wherein it cited the decision of Hon'ble Punjab & Haryana High Court in the case of CIT V/s. Smt. Anjana Sehgal (supra) that the expression 'from the local limits of any municipality" used in section 2(14)(iii)(b) of the Income-
tax Act denotes "any municipality or municipality of the District in which the land is situated
8. .... No evidence of any agricultural income. In fact, though the Assessing Officer had not mentioned this aspect, it is noted that the appellant assessee has filed a receipt and payment statement as well as capital account right form FY 004-05 onwards in course of asst.
proceedings. In neither the receipt payment statement or in the balance sheet, the assessee has shown any agricultural income or any agricultural expenditure. The income tax records of the assessee do not indicate any income even in the receipt and payment account which were filed after the search.
14 ITA No.229/Hyd/2014Smt. R.Srivalli, Hyderabad
7. Keeping in view the above factors, the learned CIT(A) held that the land in question sold by the assessee was not agricultural land by summarizing his observations in paragraph 13 as under-
"12.8 Thus, on summation of facts and circumstances both favourable and against the assessee/appellant, as per the above table, it is clear that other than its assertion and an MRO Certificate issued in a routine manner that too in 2005, the appellant really does not have anything real and substantive to claim that the land was really agricultural. The Hon'ble SC had already stated that the revenue record, though, important is not conclusive evidence. The photographic evidence gathered by the investigation wing may be in 2009. But the pictures clearly show that the land was left idle and there is really no attempt to bring it under cultivation in whatsoever manner. More importantly, the purchase and sale deeds also have photographs pasted as part of sale deed. These are contemporaneous. They too do not differ from the picture that the investigation wing took. The environment of the entire chunk of land
-not only appellant's but the other related investors of Bhavya cements is identical. Further, the proximity to city, the merger within GHMC within a month of sale (when the proposal for such merger and the drafting of such bill must have been in news much before ) clearly show the development activity taking place around and which is a key factor in assessing the general environment around the land and its use."
8. The learned CIT(A) thus held that the profit arising to the assessee from the sale of land was chargeable to tax in her hands as short term capital gains in the year under consideration.
15 ITA No.229/Hyd/2014Smt. R.Srivalli, Hyderabad
9. Aggrieved by the order of the learned CIT(A), the assessee has preferred this appeal before the Tribunal on the following grounds-
"1. The order of the Learned CIT(A) is against law, weight of evidence and facts of the case.
2. The learned CIT(A) should have appreciated that the provisions of section 153C is not applicable in the case as a copy of registered development agreement, which is in public domain, cannot constitute an incriminating evidence to initiate proceeding under section 153C of IT Act without proper satisfaction.
3. The learned CIT(A) ought not have ignored the evidences filed by the appellant that the land is agricultural which were duly supported by the certificates of revenue authorities and other evidences available in the departmental records accepting such claim in respect of contiguous land basing on which his predecessors in office and the Assessing Officer have exempted the income arising out of transfer holding that the land is agricultural and does not constitute a capital asset.
4. Having come to a finding that the income not assessable under 'adventure in the nature of trade' as done by the Assessing Officer, the learned CIT(A) ought to have deleted the addition allowing relief to the appellant on which issue appeal was preferred without treating the same under the head 'capital gain'.
5. The learned CIT(A) ought to have appreciated that his powers to decide an appeal are circumscribed as provided in section 251 which stipulates that the CIT(A) can confirm, reduce, enhance or annul the assessment. In the light of this, CIT(A) ought not have changed the head of income as determined by the AO as falling under 'adventure in the nature trade' to 'capital gain'
6. It is not a fact that the appellant claimed that the income is assessable under the head 'capital gain' as a ground to change the head of income. The claim of appellant was that the land being agricultural, the same cannot enter into computation under section 45 under the head 'capital gain'. This claim cannot be construed to mean that the appellant wanted the income to be assessed under capital gain to change the head of 16 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad income. The learned CIT(A) ought to have appreciated that such a claim by the appellant does not fall under any specific head as provided under section 14.
7. In the light of above, the addition made under head capital gain by CIT(A) is liable to be deleted.
8. The appellant craves leave to add/alter/modify any of the grounds as may be necessary for adjudication of the case."
10. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that by an 'Agreement of sale with possession-cum-Irrevocable power of attorney' dated 5.3.2008, the land in question was transferred by the assessee to M/s. Varun Constructions. There was a similar agreement entered into by other 14 land owners, who were owners of the adjacent lands on the same date transferring their lands to M/s., Varun Constructions. The said fourteen parties had also claimed the profit arising from the transfer of their land to M/s. Varun Constructions as exempt on the ground that their lands, being agricultural lands, were not capital assets within the meaning of S.2(14). In their cases also, the claim was not allowed by the Assessing Officer and when the matter reached the Tribunal in the case of six of the said assessees, namely, M/s.Bhavya Constructions Pvt. Ltd., Shri M.S.Raghava Reddy, Shri R.Srinivasa Rao, Shri R.Uma Maheswar, Shri P.Shivakumar and Shri G.C.Subbanaidu, the coordinate bench of this Tribunal vide its order dated 28.8.2014 decided similar issue in favour of the assessee, holding that the land sold by the said assessees were agricultural lands, and therefore, the profits arising from the transfer of such lands, was not chargeable to tax in the hands of the assessees. The elaborate observations/findings recorded by the Tribunal, while coming to this conclusion, as contained in paragraphs 13 and 14 are as under-
17 ITA No.229/Hyd/2014Smt. R.Srivalli, Hyderabad "13. We have heard the parties and perused the materials on record as well as the orders of the revenue authorities. We have also applied our mind to the decisions placed before us. On going through the order of the learned CIT(A) we do not find any infirmity either with regard to his conclusion in respect of the nature of land sold by the assessee or with regard to the issue as to whether the transaction is to be treated as an adventure in the nature of trade. As can be seen from the facts and materials placed on record, the nature of land at the time of purchase by the assessee from M/s Deccan Properties Ltd. and also at the time of sale to M/s Varun Constructions, remained the same i.e. agricultural not only in the revenue records but also in the pahanis. It is also a fact on record the assessee has shown income from agricultural operations carried on over the said land in the return of income filed for the impugned assessment year as well as the preceding assessment year which has been accepted by AO. In fact the AO has not totally ruled out agricultural operation, though according to him it is not substantial. In these circumstances, when the nature of land sold by the assessee still remains to be agricultural in the revenue records and the assessee has not applied for conversion of the land to non-agricultural it cannot be treated as non-agricultural land only because the AO was of the view that agricultural operation on the said land is not possible to the extent shown by the assessee. In this context it is to be noted that the certificate issued by the Dy. Collector and Mandal Revenue Officer, Qutubullapur Mandal (at page 99 of assessee's paper book) clearly indicate that the land under the same survey nos. situated at Bowrampet Village are under cultivation by raising crops of paddy, cattle feed, maize, jowar etc. Further the pahanis also indicate the crops grown over the said land. When certificate has been issued by govt. authorities certifying cultivation of agricultural produce the AO was not correct in rejecting them without proper evidence. Moreover, certificate dt.04/02/2009 issued by Dy. Collector and Tahsildar Qutubullapur Mandal ( at page 100 of assessee's paper book) and certificate dt. 04/10/2008 of Town Planning Officer, GHMC (at page 101 of paper book) clearly indicate that Bowrampet village where assessee's land is situated is beyond the limit of GHMC. It is a fact on record, in the original assessment order passed u/s 143(3) of the Act, the AO has examined the nature of transaction by conducting necessary enquiry and after proper application of mind had accepted the claim of the assessee that the asset being sold being agricultural land will not attract capital gain tax. The department 18 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad has not brought any cogent evidence or material on record to disprove assessee's claim either in respect of agricultural income earned through agricultural operation conducted on the said land or the fact that the land is situated beyond the prescribed limit of the nearest municipality notified by the Central Government. In the aforesaid circumstances, the finding of the CIT(A) remains uncontroverted. Therefore, it has to be held that as the land sold by the assessee is in the nature of agricultural land and is situated beyond the prescribed limit of any municipality notified by the central govt. it cannot come within the definition of capital asset as envisaged u/s 2(14) of the Act. So far as the finding of the AO that the transaction entered into by the assessee is an adventure in the nature of trade, the same is also without merit for the strong and valid reasons recorded by the CIT(A). On a perusal of the assessment order, it appears, that the AO has treated the transaction as an adventure in the nature of trade only to overcome assessee's claim of exemption from capital gain on the ground that the asset sold is not a capital asset within the meaning of section 2(14) of the Act. As rightly observed by the learned CIT(A), the facts clearly indicate that the assessee has held the asset for more than two years and only because of compelling circumstances sold it to M/s Varun Constructions in the year under consideration. Therefore, none of the attributes of an adventure in the nature of trade is present in the transaction. It will be pertinent to mention here that earlier a bench of this Tribunal had an occasion to examine similar nature of dispute arising out of similar nature of transaction relating to sale of agricultural land located in the same area in case of some other assessees, namely, Smt. M. Vijaya and others Vs. DCIT (ITA Nos.306, 307, 309 & 311/Hyd/13 order dated 06/06/2014) who also sold their land to M/s Varun constructions. The Tribunal after examining the contentions of the parties and referring to a number of judgments held as under:
"23. Adverting to the facts of the present case, the land inquestion is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the AY as agricultural income. It is also an admitted fact that the assessee has not applied for conversion of this agricultural land for non-agricultural purposes before sale of this property and the 19 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property nor the surrounding areas were subject to any developmental activities at the relevant point of time of sale of the land as per the evidence brought on record.
24. The provisions of Andhra Pradesh Agricultural Land (conversion for non- agricultural purposes) Act, 2006 also prescribed the procedure for conversion of agricultural land into non-agricultural land. Being so, whenever the agricultural land to be treated as non- agricultural land, the same has to be converted in accordance with the provisions of Andhra Pradesh Agricultural Land (conversion for non- agricultural purposes) Act, 2006. If by a Government Notification, the nature and character of land changes from agriculture into non-agriculture then there is no question of conversion of this land for non-agricultural purposes by the Revenue authorities concerned. To our understanding nature of land cannot be changed by any State Government notification and the land owners are required to apply to the concerned Revenue authorities for the purpose of conversion of the agricultural land into non- agricultural land and there is no automatic conversion per se by State Government notification.
25. In the instant case, at the relevant point of sale of the land in question, the surrounding area was totally undeveloped and except mere future possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into non- agricultural land at the relevant point of time 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 roads and other facilities and there was no intention also on the 20 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad part of the assessees herein to put the same for non-agricultural purposes at time of their ownership that land. No such finding has been given by the Department. No material or evidence in support of the fact that the assessees have put the land in use for non- agricultural purposes has been brought on record. The nature of the crop and the person who cultivated the land are duly mentioned in the revenue records shows that at the relevant point of time the land was used for agricultural purposes only and nothing is brought on record to show that the land was put in use for non- agricultural purposes by the assessees. In view of the decision of the Hon'ble High Court in the case of Gopal C. Sharma vs. CIT (209 ITR 946) (Bom), it is also clear that the profit motive of the assessee in selling the land without anything more by itself can never be decisive to say that the assessee used the land for non-agricultural purposes. We may also refer to a decision of the Hon'ble Supreme Court in the case of N. Srinivasa Rao vs. Special Court (2006) 4 SCC 214 where it was observed that the fact that agricultural land in question is included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of time. Thus, the fact that the land in question in the instant case is bought by Developer cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes.
26. Recently the Karnataka High Court in the case of CIT vs.Madhukumar N. (HUF) (2012) 78 DTR (Kar) 391 held as follows:
"9. An agricultural land in India is not a capital asset but becomes a capital asset if it is the land located under Section 2(14)(iii)(a) & (b) of the Act, Section 2(14) (iii) (a) of the Act covers a situation where the subject agricultural land is located within the limits of municipal corporation, notified area committee, town area committee, town committee, or cantonment committee and which has a population of not less than 10,000.
10. Section 2(14)(m)(b) of the Act covers the situation where the subject land is not only located within the distance of 8 kms from the local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires 21 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad the fulfilment of the condition that the Central Government has issued a notification under this Clause for the purpose of including the area up to 8 kms, from the municipal limits, to render the land as a "Capital Asset.
11. In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14][iii] of the Act is not attracted.
12. However, though it is contended that it is located within 8 knits,, within the municipal limits of Dasarahalli City Municipal Council in the absence of any notification issued under Clause
(b) to section 2(14)(iii) of the Act, it cannot be looked in as a capital asset within the meaning of Section 2(14)(iii)(b) of the Act also and therefore though the Tribunal may not have spelt out the reason as to why the subject land cannot be considered as a 'capital asset' be giving this very reason, we find the conclusion arrived at by the Tribunal is nevertheless the correct conclusion."
27. Further the Kolkata Bench of the Tribunal in the case of DCIT vs. Arijit Mitra (48 SOT 544) (Kol) held as follows:
"7. From the above, it is clear that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of such Municipalities or Cantonment Boards are covered by the amended definitions of 'capital asset', if such areas are, having regard to the extent of and scope for their urbanization and other relevant considerations, is notified by the Central Government in this behalf. Central Government in exercise of such powers has issued the above notification, as amended latest by Notification No. 11186 dated 28.12.1999 clearly clarifies that agricultural land situation in rural areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the outer limits of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, in view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression 'capital asset', the agricultural land situated in 22 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad rural areas continues to be excluded from that definition. And as in the present case, admittedly, the agricultural land of the assessee is outside the Municipal Limits of Rajarhat Municipality and that also 2.5 KM away from the outer limits of the said Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. Accordingly, we quash the assessment order qua charging of capital gains on very jurisdiction of the issue is quashed. The cross objection of the assessee is allowed."
28. It was held in the case of CIT vs. Manilal Somnath (106 ITR 917) as follows:
"Under the Income-tax Act of 1961, agricultural lend situated in India was excluded from the definition of "capital asset" and any gain from the sale thereof was not to be included in the total income of an assessee tinder the head "capital gains". In order to determine whether a particular land is agricultural land or not one has to first find out if it is being put to any use. If it is used for agricultural purposes there is a presumption that it is agricultural land. If it is used for non-agricultural purposes the presumption is that it is non-agricultural land. This presumption arising from actual use can be rebutted by the presence of other factors. There may be cases where land which is admittedly non-agricultural is used temporarily for agricultural purposes. The determination of the question would, therefore, depend on the facts of each case. 'The assessee, Hindu, undivided family, had obtained some land on a partition in 1939. From that time, up to the time of its sale, agricultural operations were carried on in the land. There was no regular road to the land and it was with the aid of a tractor that agricultural operations were being carried on. The land was included within a draft town planning scheme. The assessee got permission of the Collector to sell the land for residential purposes and sold it. On the question whether the land was agricultural land:
Held, that what had to be considered is not what the purchaser did with the land or the 23 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad purchaser was supposed to do with the land, but what was the character of the land at the time when the sale took place. The fact that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purposes for a long time and nothing had happened till the date of the sale to change that character of the land. The potential non- agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was, therefore, agricultural land.
29. Further the word "Capital Asset" is defined in Section 2(14) to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include (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 according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or
(b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item
(a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;
30. It is very clear from the above that the gain on sale of an agricultural land would be exigible to tax only when the land transferred is located within the jurisdiction of a municipality. The fact that all the expressions enlisted after the word municipality are placed within the brackets starting with the words 'whether known as' clearly indicates that such expressions are used to denote a municipality only, irrespective of the name by which such municipality is called. This fact is further substantiated by the provisions contained under clause (b) wherein it has 24 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad been clearly provided that the authority referred to in clause (a) was only municipality.
31. We also perused the meaning of the term local authority as referred in section 10(20) of the Act.
(20) the income of a local authority which is chargeable under the head "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service [(not being water or Electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area].
[Explanation. - For the purposes of this clause, the expression "local authority" means -
(i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or
(ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or
(iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or
(iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924);
32. It is also evident from the Memorandum explaining the provisions of Finance Act, 1970, whereby s. 2(14) was amended so as to include the agricultural lands located within the jurisdiction of a municipality in the definition of the expression 'Capital Asset'. The relevant portion of the said memorandum is reproduced hereunder:
"30. ... The Finance Act, 1970 has, accordingly, amended the relevant provisions of the Income-tax Act so as to bring within the scope of taxation capital gains arising from the transfer of agricultural land situated in certain areas. For this purpose, the definition of the term "capital asset" in section 2(14) has been amended so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board and which has 25 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad a population of not less than ten thousand persons according to the last preceding census for which the relevant figures have been published before the first day of the previous year. The Central Government has been authorised to notify in the Official Gazette any area outside the limits of any municipality or cantonment board having a population of not less than ten thousand up to a maximum distance of 8 kilometres from such limits, for the purposes of this provision. Such notification will be issued by the Central Government, having regard to the extent of, and scope for, urbanisation of such area, and, when any such area is notified by the Central Government, agricultural land situated within such area will stand included within the term "capital asset".
Agricultural land situated in rural areas, i.e., areas outside any municipality or cantonment board having a population of not less than ten thousand and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, will continue to be excluded from the term "capital asset".
33. Further it is nobody's case that the property falls within any area which is comprised within the jurisdiction of a municipality or cantonment board or which has a population of not less than 10,000 according to the last preceding Census of which the relevant figures have been published before the first day of the previous year. In other words, the land does not fall in sub-clause (a) of section 2(14)(iii) of the Act as the land is outside of any municipality including GHMC. Further we have to see whether the land falls in clause (b) of section 2(14)(iii). This section prescribes that any area within such distance, not being more than 8 km from the local limit of any municipality or cantonment board as referred to in sub-clause (a) of section 2(14)(iii) of the Act, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette.
34. We have carefully gone through the notification issued by the Central Government u/s. 2(1A)(c) proviso (ii)(B) and 2(14)(3b) vide No. 9447 (F. No. 164/(3)/87/ITA-I) dated 6th January, 1994 as amended by notification No. 11186 dated 28th December, 1999. In the schedule annexed to the notification dated 6.1.1994, Entry No. 17 is relating to 26 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad Hyderabad wherein mentioned that the areas up to a distance of 8 km from the municipal limits in all directions. In the notification 11186 dated 28.12.1999 there is no entry relating to Hyderabad. It is clear from these notifications that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of Hyderabad Municipality (GHMC) is covered by the amended definitions of 'capital asset'. Central Government in exercise of such powers has issued the above notification, as amended latest by Notification No. 11186 dated 28.12.1999 clearly clarifies that agricultural land situation in rural areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the outer limits of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, in view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression 'capital asset', the agricultural land situated in rural areas continues to be excluded from that definition. And as in the present case, admittedly, the agricultural land of the assessee is outside the Municipal Limits of Hyderabad Municipality and that also 8 km way from the outer limits of this Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub clause
(a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. This is supported by the order of Kolkata Bench of this Tribunal in the case of Arijit Mitra (cited supra), Harish V. Milani (supra) and M.S. Srinivas Naicker vs. ITO (292 ITR 481) (Mad). By borrowing the meaning from the above section, we are not able to appreciate that the land falls within the territorial limit of any municipality without notification of Central Government as held by the Karnataka High Court in the case of Madhukumar N. (HUF) (cited supra).
35. From the facts and circumstances of the case, as narrated before us, it is important to note that what was the intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land and the relevant improvement/development taken place during this time is relevant for deciding the issue whether transaction was in the nature of trade. Though intention subsequently formed may be different, it is the intention at the inception is crucial. One of the essential elements in an adventure of the 27 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad trade is the intention to trade; that intention must be present at the time of purchase. The mere circumstances 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. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations. Merely because of the fact that the land was sold in a short period of holding, 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 or capital gain. The period of holding should not suggest that the activity was an adventure in the nature of trade.
36. In view of our above discussion, in our opinion, the land is not situated within the Qutubullapur municipality, but, the same situated in the Dundigal village and the evidence brought on record suggest that the land is an agricultural land, hence, it is not liable for taxation. Accordingly, the addition made on this count is deleted in all the appeals under consideration. No evidence suggests that Dundigal village falls within Qutubullapur Municipality and also this Qutubullapur Municipality has not notified in the year under section 2(14)(iii) of the I.T. Act and Qutubullapur Municipality abolished and merged with Municipal Corporation of Hyderabad with effect from 16/04/2007. We have also gone through the record placed in the paper book at pages 76 & 77. At page 76, a copy of the intimation is placed issued by the Town Planning Officer, Quthbullapur , Circle - 15, GHMC vide Ref. No. G/1240/2008, dated 04/10/2008 informing that the land is not falling in the GHMC limits. At page 77, a copy of the agricultural land certificate is placed, issued by the Deputy Collector & Mandal Revenue Officer, Qutubullapur Mandal vide Ref. No. 28 ITA No.229/Hyd/2014 Smt. R.Srivalli, Hyderabad A/13607/2005, dated 20/08/2005 stating that the lands are under cultivation by raising crops i.e. paddy, cattle feed, maize, jowar, vegeteables etc.
37. Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income.
14. On going through the aforesaid order of the coordinate bench, we find the facts dealt upon by the tribunal is identical to the facts in the present case. Therefore, ratio laid down therein also equally applies to the facts of the present case as the land sold is not only agricultural in nature but is also situated beyond 12 kms from the limit of a municipality notified by the central govt. Hence, land sold by assessee not being a capital asset, the gain derived there from is not taxable at the hands of the assessee. Accordingly, we uphold the order of the CIT(A) by dismissing the ground raised."
11. At the time of hearing before us, learned counsel for the assessee has submitted that the issue involved in the case of the assessee as well as all the material facts relevant thereto are similar to the cases of these six assessees, which have already been decided by the Tribunal in favour of the assessees, vide its common order dated 28.8.2014, and this position is not disputed by the Learned Departmental Representative. The issue involved in ground no.3 of the assessee's appeal thus is squarely covered in favour of the assessee by the decision of the coordinate bench of this Tribunal dated 28.8.2014 (supra) and respectfully following the same, we decide the issue involved in ground No.3 in favour of the assessee and allow the same.
29 ITA No.229/Hyd/2014Smt. R.Srivalli, Hyderabad
12. Keeping in view our decision rendered above on ground No.3 that the land in question sold by the assessee, being agricultural land, the profit arising from the sale of the same, is not chargeable tot ax in the hands of the assessee as capital gain, the other issues raised by the assessee have become infructuous, as agreed by the learned representatives of both the sides. We, therefore, do not consider it necessary or expedient to adjudicate upon the same.
13. In the result, appeal of the assessee is allowed.
Order pronounced in the court on 11th March, 2015
Sd/- Sd/-
(Asha Vijayaraghavan) (P.M.Jagtap)
Judicial Member Accountant Member
Dt/- 11th March, 2015
Copy forwarded to:
1. Smt. R.Srivalli, plot No.32, Maitri Nagar, Kukatpally, Hyderabad.
2. Dy. Commissioner of Income-tax Central Circle 5, Hyderabad
3. Commissioner of Income-tax(Appeals) VII Hyderabad
4. Commissioner of Income-tax Central, Hyderabad
5. Departmental Representative, ITAT, Hyderabad.
B.V.S