Kapil Chit Funds Pvt. Ltd, Hyderabad V. I.T.O. Ward-1, Karimnagar

ITA 1424/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69798 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Gift; Business income; Depreciation; Business expenditure; Deemed to accrue or arise in india; Capital expenditure
• Section: 143(3); 54B; 2(14); 14A; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1424/HYD/2012 ASSESSMENT YEAR 2009-10 M/S. KAPIL CHIT FUNDS PVT. LTD., KARIMNAGAR PAN: AABCK9489K VS. THE ITO WARD-1 KARIMNAGAR APPELLANT RESPONDENT ITA NO. 1480/HYD/2012 ASSESSMENT YEAR 2009-10 THE ITO WARD-1 KARIMNAGAR VS. M/S. KA PIL CHIT FUNDS PVT. LTD., KARIMNAGAR PAN: AABCK9489K APPELLANT RESPONDENT ASSESSEE BY: SRI S . RAMA RAO REVENUE BY: SRI D. SUDHAKAR RAO DATE OF HEARING: 26 .0 6 .2013 DATE OF PRONOUNCEMENT: 05.09.2013 O R D E R PER CHANDRA POOJARI, AM: THE APPEALS ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, HYDERABAD DATED 13.7.2012. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 12,97,908 UNDER THE HEAD 'DEFAULTED SUBSCRIPTION'. 3. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE SAID AMOUNT IS ALLOWABLE AS A DEDUCTION AND HENCE SHOULD HAVE BEEN ALLOWED. ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 2 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 10 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF CHIT BID LOSS. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING ADDITION OF RS. 10 LAKHS MADE BY THE ASSESSING OFFICER BY RESORTING TO AN ESTIMATED DISALLOWANCE FROM OUT OF THE MISCELLANEOUS EXPENDITURE. 2.1 THE REVENUE RAISED THE FOLLOWING GROUND: THE CIT(A) ERRED IN LAW AND ON FACTS IN ACCEPTING THE LAND AS AGRICULTURAL LAND. SINCE THE ASSESSEE SOLD THE LAND TO ITS ONE OF THE GROUP COMPANIES I.E ., M/S. SHILPA SHELTERS LTD., WHICH IS DOING REAL ESTA TE ACTIVITY. CASE LAWS RELIED UPON DEVENDRA PAL SINGH VS. CIT (ALL) 243 ITR 127. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF RUNNING CHIT FUNDS AND F ILED ITS RETURN OF INCOME THROUGH E-FILING FOR THE ASSESSMENT YEAR 2009-10 ON 24.09.2009 DECLARING TOTAL INCOME OF RS. 5,30,90,09 0. THE ASSESSMENT WAS COMPLETED ON 16.5.2011 U/S. 143(3) O F THE ACT BY DISALLOWING OF RS. 12,97,908 TOWARDS DEFAULTED SUBS CRIPTIONS; RS. 16,29,00,000 TOWARDS GAIN ON SALE OF LAND; RS. 10,0 0,000 TOWARDS DISALLOWANCE OF BID LOSS AND RS. 10,00,000 TOWARDS INADMISSIBLE EXPENDITURE AND DETERMINED THE TOTAL INCOME OF RS. 21,92,87,998. ON APPEAL, THE CIT (A), WHILE DELETING ADDITIONS TO WARDS SALE OF LAND AS IT IS SALE OF AGRICULTURAL LAND, HE CONFIRM ED THE ACTION OF THE ASSESSING OFFICER WITH REFERENCE TO THE OTHER A DDITIONS. AGAINST THE DELETION OF THE ADDITION, THE REVENUE I S IN APPEAL BEFORE US AND AGAINST SUSTAINING THE ADDITIONS THE ASSESEE IS IN APPEAL BEFORE. 4. NOW, WE WILL TAKE UP EACH ISSUE IN DISPUTE ONE BY O NE. 5. ADDITION OF RS. 12,97,908 UNDER THE HEAD 'DEFAULTED SUBSCRIPTIONS' , ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 3 5.1 BRIEF FACTS OF THIS ISSUE ARE THAT DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSER VED THAT THE BALANCE SHEET OF THE COMPANY SHOWED CURRENT LIABILI TY OF RS. 7,87,32,188 UNDER THE HEAD 'DEFAULTED SUBSCRIPTIONS '. THE ASSESSEE WAS ASKED TO EXPLAIN THE ACTUAL NATURE OF THE LIABILITY. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THOUGH THE CHIT IS CLOSED AND AMOUNTS BECOME PAYABLE TO TH E SUBSCRIBERS, SINCE THEY ARE STANDING AS 'GUARANTOR' TO OTHER SUB SCRIBERS, THE AMOUNT PAYABLE TO THEM IS WITHHELD FOR APPROPRIATIO N AGAINST ANY DEFAULT IN CASE OF THE PRINCIPLE SUBSCRIBER. THE A SSESSING OFFICER OBSERVED THAT THE AMOUNTS KEPT AS 'CHIT LIEN' ARE N OT ACTUALLY DISBURSED TO THE DEFAULTERS EVEN WITHIN THE TIME AL LOWED BY THE CHIT FUND ACT. DEFAULT IN CASE OF OTHER PERSON CAN NOT BE FORESEEN AND IN SUCH CASE SAYING THAT THE AMOUNT OF ANOTHER PERSON, WHO IS ONLY A GUARANTOR IS WITHHELD, IS TOTALLY INCOMPREHE NSIBLE. ACCORDINGLY, THE ASSESSING OFFICE REJECTED THE ASSE SSEE'S EXPLANATION AND TREATED THESE AMOUNTS AS NOT PAID. THE ASSESSING OFFICER ADDED AN AMOUNT OF RS. 12,97,908 SHOWN AS 'CHIT LIEN' TO THE INCOME OF THE ASSESSEE. THE ASSE SSING OFFICER TREATED THIS AMOUNT AS CESSATION OF LIABILITY U/S. 41(1) OF THE ACT AND BROUGHT THE SAME TO TAX. THE CONTENTION OF THE ASSESSEE IS THAT IT IS A LIABILITY AND THERE IS NO CESSATION OF LIABILITY TO BRING IT TO TAX. 5.2 THE CIT(A) CONFIRMED THE ADDITION OBSERVING THAT 'C HIT LIEN' ARE NOT ACTUALLY DISBURSED TO THE DEFAULTERS EVEN W ITH THE TIME ALLOWED BY THE CHIT FUND ACT. DEFAULT IN CASE OF O THER PERSON CANNOT BE FORESEEN AND IN SUCH CASE SAYING THAT THE AMOUNT OF ANOTHER PERSON, WHO IS ONLY A 'GUARANTOR' IS WITHHE LD, IS TOTALLY INCOMPREHENSIBLE. HE ALSO AGREED WITH THE OBSERVA TION OF THE ASSESSING OFFICER AND REJECTED THE ARGUMENTS MADE B Y THE ASSESSEE. ACCORDINGLY, HE SUSTAINED THE ADDITION M ADE BY THE ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 4 5.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. UNDER SECTION 41(1), IF ANY ALLOWANCE OR D EDUCTION GIVEN TO THE ASSESSEE IN EARLIER ASSESSMENT YEAR IN RESPECT OF ANY LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE AS SESSEE AND SUBSEQUENTLY ASSESSEE DERIVED ANY BENEFIT IN RESPEC T OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE BENEFIT OBTAINED BY THE ASSESSEE BY WAY OF THAT IS TO BE CONSIDERED AS DEEMED INCOME OF THE ASSESSEE. IN THE PRESENT C ASE, THE ASSESSEE WITHHELD THE AMOUNT PAYABLE TO CERTAIN SUB SCRIBERS WHO STOOD GUARANTEE TO OTHER SUBSCRIBERS TO SECURE PAYM ENT FROM THE OTHER SUBSCRIBERS. IN THE EVENT THE SUBSCRIBERS FA ILED TO PAY SUBSCRIPTION, THE ASSESSEE INTENDS TO EXERCISE LIEN ON THE PAYMENT DUE TO THE GUARANTOR IN RESPECT OF GUARANTOR'S CHIT . THIS IS A CONTINUOUS PRACTICE; THE ASSESSEE HAS BEEN FOLLOWIN G TO SAFEGUARD ITS BUSINESS INTERESTS. 5.4 FIRST OF ALL TO INVOKE THE PROVISIONS OF SECTION 41 (1), THE ASSESSEE SHALL HAVE GOT THE DEDUCTION IN EARLIER AS SESSMENT YEAR WHILE COMPUTING THE INCOME IN RESPECT OF THESE PAYM ENTS. UNLESS AND UNTIL THE ASSESSEE GOT DEDUCTION EVEN IF THERE IS A CESSATION OR REMISSION, IT CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE. FURTHER, IN THE PRESENT CASE, THE ASSESSEE HAS NOT CLAIMED AS A DEDUCTION IN RESPECT OF THESE LIABILITIES WHILE COM PUTING THE INCOME OF THE ASSESSEE IN ANY ASSESSMENT YEAR AND A LSO IT CANNOT BE SAID THAT THERE IS CESSATION OF LIABILITY. BEIN G SO, THERE IS NO QUESTION OF INVOKING THE PROVISIONS OF SECTION 41(1 ) OF THE ACT. THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT JUSTI FIED AND THE SAME IS DELETED. 6. ADDITION OF RS. 10 LAKHS TOWARDS BID LOSS: 6.1 FACTS OF THE ISSUE ARE THAT DURING THE ACCOUNTING Y EAR RELEVANT FOR THE A.Y. 2009-10 THE ASSESSEE DEBITED AN AMOUNT OF RS. 83,81,399 UNDER THE HEAD BID LOSS. DURING THE COURSE OF ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 5 SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSEE FURNIS HED A DETAILED EXPLANATION WITH REGARD TO THE BID LOSS. THE ASSES SING OFFICER REJECTED THE ASSESSEE'S CLAIM BY OBSERVING THAT THE ASSESSEE WAS SERIOUS ENOUGH IN RECOVERY OF THE DUES. THE LOSS C OULD DEFINITELY HAVE BEEN MINIMISED IF NOT TOTALLY AVOIDED. THUS, WRITING OFF THE LOSS IS NOTHING BUT A PREMATURE ACT ON THE PART OF THE ASSESSEE- COMPANY. ACCORDINGLY, THE ASSESSING OFFICER DISALL OWED AN AMOUNT OF RS. 10,00,000 AS INADMISSIBLE AND ADDED B ACK TO THE INCOME RETURNED BY THE ASSESSEE. 6.2 THE CIT(A) OBSERVED THAT THE OBSERVATION AND REASON S GIVEN BY THE ASSESSING OFFICER ARE REASONABLE AND CORRECT . ACCORDINGLY, THE CIT(A) SUSTAINED THE ADDITION OF RS. 10,00,000 MADE BY THE ASSESSING OFFICER TOWARDS BID LOSS. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 6.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE DEBITED A SUM OF RS. 83,81,39 9 TO THE PROFIT AND LOSS A/C. UNDER BID LOSS. THE ASSESSEE AFTER C ONDUCTING BIDDING OF A CHIT THE AMOUNT IS TO BE PAID TO THE S UCCESSFUL BIDDER FOR WHICH THE SUCCESSFUL BIDDER HAS TO FURNISH SURE TY AND OTHER DOCUMENTS IN SUPPORT OF THE SECURITY OF PAYMENT OF BALANCE BID SUBSCRIPTION OF THE CHIT. IN THE MEANTIME, THE FOR EGONE AMOUNT OF THE BID BY THE SUCCESSFUL BIDDER WILL BE DISTRIBUTE D AMONG THE OTHER SUBSCRIBERS OF THE RESPECTIVE CHITS. SOMETIM ES, SUCCESSFUL BIDDER FAILS TO FURNISH THE SURETY AND NECESSARY DO CUMENTS DURING THE STIPULATED TIME. IN THAT EVENT THE BID CLAIM O F THE BIDDER WOULD BE FORFEITED AND THE ASSESSEE HAS TO CONDUCT FRESH AUCTION OF THE RESPECTIVE CHIT. IN THE COURSE OF FRESH AUC TION, THE ASSESSEE INCURS CERTAIN LOSS I.E., THE ASSESSEE RECEIVES LES SER AMOUNT THAN THE ORIGINAL BID AMOUNT. THIS AMOUNT HAS BEEN CLAI MED BY THE ASSESSEE AS BID LOSS. THIS LOSS AROSE IN THE COURS E OF ASSESSEE'S NORMAL BUSINESS AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 6 PURPOSE OF ITS BUSINESS AND IT CANNOT BE CONSIDERED AS NON- BUSINESS EXPENDITURE AND IT IS TO BE ALLOWED U/S. 3 7 OF THE ACT, AS THE AMOUNT IS INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF ITS BUSINESS. THIS GROUND OF THE ASSESSEE IS ALLOW ED. 7. DISALLOWANCE OF RS. 10 LAKHS TOWARDS INADMISSIBLE EXPENDITURE 7.1 THE ASSESSEE CLAIMED AN AMOUNT OF RS. 6,47,68,153 U NDER THE HEAD MISCELLANEOUS EXPENDITURE. WHEN THE INFOR MATION IS GATHERED AND VERIFIED, THE ASSESSING OFFICER OBSERV ED THAT THE ABOVE AMOUNT INCLUDED RS. 57,73,909 UNDER THE SUB-H EAD 'MISCELLANEOUS EXPENDITURE'. THE CLAIM INCLUDES CE RTAIN INADMISSIBLE EXPENDITURE LIKE DONATIONS, MARRIAGE G IFTS, FESTIVAL EXPENSES, INAMS, ETC. IT ALSO INCLUDED PAYMENT OF RS. 3,04,977 AND RS. 2,36,805 TO KAKATIYA SCHOOL AND NAKKALAGUTT A LAND RESPECTIVELY WHICH ARE CLEARLY CAPITAL EXPENDITURE. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS. 10,00,000 AND A DDED BACK TO THE INCOME RETURNED. 7.2 THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER CLEA RLY MENTIONED HIS OBSERVATIONS IN HIS ORDER AT PARA 28 REGARDING THIS DISALLOWANCE. HE ALSO AGREED WITH THE OBSERVATION OF THE ASSESSING OFFICER THAT THERE IS NO FURTHER EVIDENCE PRODUCED BEFORE HIM BY THE ASSESSEE. THEREFORE, THE DISALLOWANCE OF RS. 10 ,00,000 MADE BY THE ASSESSING OFFICER TOWARDS 'INADMISSIBLE EXPE NDITURE' IS REASONABLE AND THEREFORE, THE ADDITION MADE BY THE ASSESSEE IS CORRECT AND ACCORDINGLY, SUSTAINED THE SAME. ON TH ESE THREE ISSUES THE ASSESSEE IS IN APPEAL BEFORE US. 7.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE CLAIMED AN EXPENDITURE OF RS. 6,47,68,153 UNDER THE HEAD MISCELLANEOUS EXPENDITURE. ACCORDIN G TO THE ASSESSING OFFICER THIS INCLUDES EXPENDITURE OF RS. 57,73,909 UNDER ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 7 THE SUB-HEAD MISCELLANEOUS EXPENDITURE WHICH INCLUD ES EXPENDITURES LIKE DONATIONS, MARRIAGE GIFTS, FESTIV AL EXPENSES, ENAMS, ETC. IT ALSO INCLUDED PAYMENT OF RS. 3,04,9 77 AND RS. 2,36,805 TO KAKATIYA SCHOOL AND NAKKALAGUTTA LAND, RESPECTIVELY, WHICH ARE TREATED AS CAPITAL EXPENDITURE AND THUS, THE ASSESSING OFFICER DISALLOWED RS. 10 LAKHS. IN OUR OPINION, T HE ASSESSEE IS A BUSINESS CONCERN. IN THE COURSE OF ITS BUSINESS, T HE ASSESSEE HAS TO INCUR CERTAIN INCIDENTAL BUSINESS EXPENDITURES. THAT EXPENDITURE IS TO BE ALLOWED EXCEPT EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE OR EXPENDITURE OF PERSONAL NATU RE AND THE EXPENDITURE INCURRED WHICH IS OPPOSE TO THE PUBLIC POLICY. CONSIDERING THESE FACTS WE DIRECT THE ASSESSING OFF ICER TO DISALLOW DONATIONS AND EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. THIS GROUND IS PARTLY ALLOWED. 8. IN THE RESULT, ASSESSEE'S APPEAL IS PARTLY ALLOWED. 9. DELETION OF RS. 16.29 CRORES ON ACCOUNT OF SALE OF LAND (REVENUE'S SOLITARY GROUND): 9.1 BRIEF FACTS OF THE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSER VED THAT IN THE PROFIT AND LOSS A/C THE ASSESSEE HAS ADMITTED NET G AINS OF RS. 16,29,00,000 UNDER THE HEAD 'PROFIT ON SALE OF AGRI CULTURE LAND' AND LATER REDUCED THE SAME FROM THE TOTAL INCOME CL AIMING SUCH INCOME TO BE EXEMPT. THIS GAIN IS ON ACCOUNT OF SAL E OF LAND MEASURING 32-32.75 ACRES SITUATED IN SURVEY NO. 117 TO 122 AT RAILAPUR VILLAGE, MEDCHAL MANDAL, RANGA REDDY DISTR ICT, AP FOR A CONSIDERATION 17,51,00,000. THE LAND WAS SOLD TO S HILPA SHELTERS LTD. THE ASSESSEE CLAIMED THAT THE LAND IS AGRICULT URAL LAND WHICH IS SITUATED BEYOND 8 KM FROM MUNICIPAL LIMITS. 9.2 BEFORE THE ASSESSING OFFICER, THE ASSESSEE ARGUED T HAT THE INTENTION OF THE ASSESSEE IS ONLY TO HOLD THE ASSET AS CAPITAL ASSET TO HAVE RETURNS FROM THE SAME AND THUS REALISATION OF BETTER PRICE ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 8 IN A BOOMING MARKET CANNOT BE CONSIDERED AS AN ADVE NTURE IN TRADE. THE ASSESSEE FURTHER CONTENDED THAT THE ASS ESSEE NEVER TREATED THE LAND AS STOCK-IN-TRADE AND REFLECTED IN PROFIT AND LOSS A/C. (CLOSING STOCK)_ AND THERE WAS NO ELEMENT OF T RADE ATTACHED TO THE ACTIVITY OF THE ASSESSEE IN PURCHASE AND SALE O F THE LAND. IT WAS ARGUED THAT THE TRANSACTION IN QUESTION COULD N OT BE TREATED AS SALE OF CAPITAL ASSET SO AS TO TAX THE SAME AS CAPITAL GAINS' NOR IT COULD BE TREATED AS AN 'ADVENTURE IN THE NATURE OF TRADE'. THE SUMMARY OF THE ASSESSEE'S ARGUMENTS BEFORE THE CIT( A) IS AS UNDER: (A) THE ASSESSEE PURCHASED AGRICULTURE LAND NOW UNDER CONSIDERATION SITUATED BEYOND 8 KM FROM THE MUNICIP AL LIMITS DURING THE YEAR 2005-06. (B) THE ASSESSEE TREATED THE SAME AS FIXED ASSET IN ITS BOOKS ALONG WITH OTHER AGRICULTURE LAND WHICH WAS ALREADY ACQUIRED BY THEM IN THE EARLIER YEARS. (C) THE LAND WAS IDENTIFIED AS AGRICULTURE LAND IN THE REVENUE RECORDS. (D) THE ASSESSEE CARRIED ON ROUTINE AGRICULTURAL OPERAT IONS SUCH AS GROWING JAWAR AND PADDY. ACCOUNT FURNISHED IN RESPECT OF AGRICULTURE OPERATIONS FOR THE FINANCIAL YEAR 2008-09 SUPPORT THE SAME. EARLIER TO THAT THERE WE RE CERTAIN TEAK PLANTATIONS IN THE LAND. THE TEAK PLANTATIONS WERE CONTINUED IN SOME PART OF THE LAND AND REMAINING PART WAS USED FOR AGRICULTURE OPERATIONS. (E) THE ASSESSEE DID NOT CARRYON ANY NON-COMMERCIAL ACTIVITY WITH REFERENCE TO THOSE LAND SUCH AS GETTI NG OF APPROVAL FOR CONVERTING INTO SITES, PLOTTING OF THE SAME INTO SITES, ETC. THUS, THE CHARACTER OF THE LAND I .E., AGRICULTURE NATURE WAS CONTINUING TILL THE SAME WAS SOLD BY THE ASSESSEE COMPANY. (F) BECAUSE OF FAVOURABLE MARKET CONDITIONS THE ASSESSE E SOLD THE LAND AND THE SAME FETCHED THEM A GOOD PRIC E. 9.3 HOWEVER, THE ASSESSING OFFICER OBSERVED THAT THE AS SESSEE SOLD CERTAIN PROPERTY AND EARNED A NET PROFIT OF RS . 16,29,00,000. THE ASSESSEE CLAIMED THAT THE PROFIT EARNED IS EXEM PT FROM TAX ON ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 9 CERTAIN GROUNDS. THERE ARE MANY CASES WHERE EVEN ' NOTIONAL INCOME' AND 'ILLEGAL INCOME' ALSO ARE TAXED. THE I NTENTION OF THE STATUTE IS TO SUBJECT INCOME FROM EVERY SOURCE TO T AX. IN THE CASE ON HAND, THE ASSESSEE EARNED PROFIT AND THE SAME IS TAXABLE IF NOT TAXABLE UNDER THE HEAD 'CAPITAL GAINS' / 'BUSINESS OR PROFESSION', IT IS STILL TAXABLE UNDER THE HEAD 'OTHER SOURCES'. F URTHER THE CLAIM OF THE ASSESSEE THAT THE INCOME IN QUESTION IS EXEMPTE D FROM TAX ALSO DOESN'T HOLD MUCH WATER. IT IS EVIDENT FROM THE PRO VISIONS OF THE ACT THAT INCOME OF ANY KIND WHICH IS NOT TO BE EXCL UDED FROM THE TOTAL INCOME UNDER THE ACT, SHALL BE CHARGEABLE TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES' IF IT IS NOT CHARG EABLE TO INCOME TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14A TO 14. 9.4 THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASS ESSEE IS NOT ELIGIBLE TO CLAIM ANY EXEMPTION OF THE PROFIT D ERIVED FROM SALE OF OPEN LAND AT RAILAPUR VILLAGE, MEDCHAL MANDAL, R ANGA REDDY DISTRICT. HE ALSO OBSERVED THAT IF AT ANY STAGE OF APPEAL PROCEEDINGS, IT IS HELD THAT THE PROFITS ARE NOT TA XABLE UNDER THE HEAD 'BUSINESS OR PROFESSION' (BEING ADVENTURE IN T HE NATURE OF TRADE), THIS ALTERNATIVELY, THE SAID PROFITS IS TO BE TAXED UNDER THE HEAD 'OTHER SOURCES' SHOULD BE CONSIDERED. ACCORD INGLY, THE ASSESSING OFFICER BROUGHT TO TAX THE ENTIRE PROFIT/ GAIN EARNED ON SALE OF LAND AS INCOME FROM BUSINESS. 9.5 ON APPEAL TO THE CIT(A), THE CIT(A) OBSERVED THAT T HE ASSESSING OFFICER MAINLY DECIDED THIS ISSUE BY DISC USSING IN HIS ORDER FROM PAGES 3 TO 8. AS PER PARA 10 OF THE ASSE SSMENT ORDER, THE ASSESSING OFFICER MENTIONED THAT 'IT MAY BE TRU E THAT THE LAND IN QUESTION IS SITUATED IN A SMALL VILLAGE WITH POP ULATION OF ONLY 1500 AND THE VILLAGE IS ALSO BEYOND 8 KM FROM THE M UNICIPAL LIMITS AND SOME AGRICULTURAL OPERATIONS WERE CARRIE D OUT IN THE LAND.' THAT MEANS, AS SUBMITTED BY THE ASSESSEE, T HE ASSESSING OFFICER BASICALLY ACCEPTED AND NOT CONSIDERED THE F ACT THAT THIS ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 10 LAND IS BEYOND 8 KM AND AGRICULTURE LAND AS SUBMITT ED BY THE ASSESSEE. THE ASSESSING OFFICER OBSERVED THAT THE T HEORY OF AGRICULTURAL OPERATIONS APPEARS TO BE ONLY AN AFTER THOUGHT TO CIRCUMVENT THE PROVISIONS OF THE ACT AND CLAIM EXEM PTION OF THE PROFIT ON SALE OF LAND. TO SUPPORT THIS, THE ASSESS ING OFFICER HAS NOT ENQUIRED OR GATHERED ANY SUBSTANTIAL EVIDENCE A ND SIMPLY CONCLUDED WITHOUT ANY BASIS. FROM THE AUDITED ANNU AL REPORT SUBMITTED BY THE ASSESSEE FOR THE FINANCIAL YEAR 20 08-09 AND THE DETAILS OF THE LAND SOLD DURING THIS YEAR IT IS CLE AR THAT THE ASSESSEE IS IN POSSESSION FROM THE YEAR 2004-05. THE EXTENT OF THE LAND WAS 32-32.75. THE ASSESSING OFFICER CONCLUDED THAT SMALL AMOUNT OF RS. 73,165 AND RS. 33,000 REPRESENTS SALE PROCEE DS OF PADDY AND CORN DISCLOSED BY THE ASSESSEE AND SO THE AGRIC ULTURAL OPERATION APPEARS TO BE BOGUS AND IS NOT ACCEPTABLE . THE ASSESSEE HELD THE LAND HOLDINGS FROM THE YEAR 2004 ONWARDS A ND THIS LAND WAS FIGURED IN THE DEPRECIATION SCHEDULE OF THE AUD ITED ACCOUNTS IN THE ANNUAL REPORTS AND SO THE ASSESSEES SUBMISS ION IS THAT THE LAND IS TO BE TREATED AS AGRICULTURAL LAND. THE ASS ESSING OFFICER ALSO NOT DISPUTED THAT THIS IS NOT AGRICULTURAL LAN D. 9.6 THE ASSESSING OFFICER IN HIS ORDER VIDE PARA 13, CO NCLUDED THAT THE TRANSACTION CAN BE REGARDED AS AN 'ADVENTU RE IN THE NATURE OF TRADE' BY SAYING THAT 'ONE HAS TO SEE THE MOTIVE, INTENTION OR PURPOSE WITH WHICH THE ASSET IN QUESTI ON IS PURCHASED AND SOLD.' AS PER THE DETAILED SUBMISSIO NS OF THE ASSESSEE AND AFTER VERIFICATION OF ANNUAL REPORT AN D DEPRECIATION SCHEDULE THIS CONCLUSION SEEMS TO BE WRONG BECAUSE THE ASSESSEE SHOWN THIS LAND FROM THE YEAR 2004 ONWARDS AND IS I N POSSESSION DURING THE YEAR 2008-09 AND SOLD THE LAND DURING TH IS FINANCIAL YEAR. THE ASSESSEE HAS NOT SOLD OR PURCHASED OVER A YEAR. THE ASSESSEE HAS NOT SHOWN THIS LAND IN THE STOCK-IN-TR ADE. THE ASSESSEE MAINLY RELIED ON SEVERAL DECISIONS LIKE (I ) GUJARAT HIGH COURT DECISION IN THE CASE OF CIV VS. SIDDHARTH J. DESAI (139 ITR ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 11 628); (II) ANDHRA PRADESH HIGH COURT DECISION IN TH E CASE OF ADDL. CIT VS. G.M. OMARKHAN (116 ITR 950) AND (III) SUPRE ME COURT DECISION IN THE CASE OF G. VENKATASWAMI NAIDU & CO. VS. CIT (1959) 35 ITR 594. THEREFORE, THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER'S CONCLUSION THAT THIS TRANSACTIO N IS 'ADVENTURE IN THE NATURE OF TRADE' IS WRONG. 9.7 THE CIT(A) FURTHER OBSERVED THAT THE ASSESSING OFFI CER'S CONCLUSION IN PARA 16 OF THE ASSESSMENT ORDER IS TH AT THE 'APPELLANT HAS GIVEN ADVANCE OF RS. 2,80,00,000 TO M/S. SHILPA SHELTERS LTD., FOR FACILITATING PURCHASE OF LAND.' THEREFORE, THE ASSESSEE IS IN THE INTENTION FOCUSED ON REAL-ESTATE TRANSACTION IS ALSO SEEMS TO BE NOT SUPPORTED WITH ANY EVIDENCE AN D NOT CONCLUDED LOGICALLY. SINCE THIS LAND IS NOT WITHIN THE LIMIT OF 8 KM AND AGRICULTURE OPERATIONS WERE DONE RESULTING INTO AGRICULTURE INCOME WAS NOT DISPUTED BY THE ASSESSING OFFICER AN D THE ASSESSING OFFICERS FINDINGS WERE NOT SUPPORTED BY ANY EVIDENCE TO PROVE THAT THIS LAND IS NOT AGRICULTURE LAND AND ON THE BASIS OF EVIDENCES, THE CIT(A) WAS OF THE OPINION THAT THIS LAND IS AGRICULTURAL LAND. THEREFORE, THE PROFIT EARNED DU E TO SALE OF AGRICULTURE LAND IS NOT A SUBJECT MATTER OF CAPITAL GAINS. THERE IS NO DISPUTE THAT THE LAND IS NOT AGRICULTURE LAND WH ICH IS NOT DISPUTED BY THE ASSESSING OFFICER SINCE, THIS LAND IS SITUATED BEYOND 8 KM FROM MUNICIPAL LIMITS AND AGRICULTURE O PERATIONS WERE CARRIED ON. THEREFORE, THE PROVISIONS OF SECT ION 2(24) ARE NOT ATTRACTED AND THE CASE LAW RELIED ON BY THE ASSESSI NG OFFICER IS NOT APPLICABLE. HENCE, THE CIT(A) ACCEPTED THE ARGUMENT S FROM ASSESSEES SIDE DURING THE APPEAL PROCEEDINGS AND DELETED THE ADDITION ON THIS COUNT. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 9.8 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IT IS AN ADMITTED FACT THAT THE LAND WAS H ELD BY THE ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 12 ASSESSEE AS A CAPITAL ASSET FROM THE DATE OF PURCHA SE TILL THE DATE OF SALE. THIS IS EVIDENCED BY THE ENTRIES REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE COMPANY. THE ASSESSEE'S CONTE NTION IS THAT IT IS INTENDED TO RETAIN THE AGRICULTURAL LAND ACQUIRE D AS A CAPITAL ASSET. THE ASSESSEE NEVER TREATED THE LAND AS STOC K IN TRADE. THE ASSESSEE REFLECTED THE SAME IN THE BALANCE SHEET AS A FIXED ASSET. THE ASSESSEE CARRIED ON AGRICULTURAL OPERATIONS. TH IS AGRICULTURAL LAND IS SITUATED BEYOND 25 KM FROM THE MUNICIPAL LI MITS. THE ASSESSEE HAS NOT TAKEN ANY PERMISSION FROM THE GOVE RNMENT FOR MAKING PLOTS, AS THE ASSESSEE COMPANY NEVER HAD ANY INTENTION TO MAKE THE LAND INTO PLOTS AND CARRY ON REAL ESTATE B USINESS IN RESPECT OF THE LAND. THUS, THE ASSESSEE NEVER CREAT ED AN ASSET AS STOCK IN TRADE BUT TREATED IT AS CAPITAL ASSET (AGR ICULTURAL LAND). THE ASSESSEE HAS SOLD LAND ADMEASURING AC. 32-32.75 AND RETAINED THE BALANCE LAND OF 11.07 ACRES. THE SAME IS REFLECTED UNDER THE HEAD FIXED ASSETS IN THE BALANCE SHEET AS ON 31.03.2009. COPIES OF PAHANIS OF THE ABOVE SAID LAND IS BROUGHT ON RECORD BY THE ASSESSEE TO PROVE THE FACT THAT THE L AND HELD/SOLD BY THE ASSESSEE IS AGRICULTURAL LAND. 9.9 THE AR SUBMITTED THAT THE SALE TRANSACTION EFFECTED BY THE ASSESSEE IN RESPECT OF THE ABOVE AGRICULTURE LAND C ONSTITUTED ONLY SALE OF AGRICULTURE LAND, AND BY NO STRETCH OF IMAG INATION IT CAN BE TREATED AS ADVENTURE IN TRADE AND SO AS TO TREAT TH E SAME AS BUSINESS TRANSACTION FOR THE FOLLOWING REASONS: I) PURCHASE AND HOLDING OF LAND FOR A PERIOD AND SUBSE QUENT SALE THEREOF ITSELF CANNOT BE AN INDICATOR TO HOLD THAT THE INTENTION OF THE ASSESSEE WAS TO CARRY ON BUSINESS WITH THOSE ASSETS. THE INTENTION CANNOT BE PRESUMED UNLE SS SUPPORTED BY EVIDENCE. IN THIS CASE THE TREATMENT GIVEN BY THE ASSESSEE FOR THIS ASSET IN THE ACCOUNT BOOKS CL EARLY INDICATE THAT THE INTENTION OF THE ASSESSEE IS TO H OLD THE SAME AS CAPITAL ASSET TO HAVE GOOD RETURNS FROM THE SAME. ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 13 II) THE ASSESSEE HELD LAND FOR CONSIDERABLE TIME. THE A SSET ACQUIRED WAS AGRICULTURE LAND AS PER THE EVIDENCE B ROUGHT ON RECORD. IT WAS SOLD IN THE YEAR 2009. THUS, THE ASSESSEE HELD THE AGRICULTURE LAND FOR ABOUT 5 YEARS. DURING THAT PERIOD THE ASSESSEE CARRIED ON REGULAR AGRICULTURAL OPERATIONS IN THE LAND. IN THE LIGHT OF FAVOURABLE MARKET CONDITIONS THE ASSESSEE THOUGHT IT GOOD TO SELL THE ASSET TO REALIZE A GOOD AMOUNT. REALIZATION OF BETTER PRICE IN A BOOMING MARKET CANNOT BE CONSIDERED AS AN ADVENTURE IN TRADE III) THE EXPRESSION ADVENTURE IN THE NATURE OF TRADE OCC URS IN THE DEFINITION OF BUSINESS UNDER SECTION 2(13) BUT THE EXPRESSION ADVENTURE IN THE NATURE OF TRADE HAS NOT BEEN DEFINED IN THE ACT. IT MAY BE PERTINENT TO MENTION HERE THAT A SPECIFIC TRANSACTION PARTAKE THE CHARACTER OF BUS INESS OR AN ADVENTURE IN THE NATURE OF TRADE OR REALIZATION OF CAPITAL ASSET OR A MERE CONVERSION OF ASSET HAS TO BE DECID ED DEPENDING UPON FACTS OF EACH CASE. IV) IN DECIDING AS TO WHETHER A PARTICULAR TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE, THE ASSESSING OFF ICER MUST CONSIDER ALL THE RELEVANT AND PROVED FACTS AND CIRCUMSTANCES. REALIZATION OF INVESTMENTS CONSISTIN G OF PURCHASE OF AGRICULTURAL LAND AND RESALE, THOUGH PR OFITABLE ARE CLEARLY OUTSIDE THE DOMAIN OF ADVENTURE IN THE NATURE OF TRADE. V) THE ASSESSEE TREATED THE ASSETS AS INVESTMENT IN AG RICULTURAL LAND. THEREFORE DISPOSAL OF THE SAME WOULD NOT CON VERT, WHAT WAS A CAPITAL ACCRETION, TO AN ADVENTURE IN TH E NATURE OF TRADE. TO MAKE IT MORE CLEAR, SALE OF AGRICULTUR AL LAND BY THE ASSESSEE AND REALISATION OF GOOD PRICE WOULD NO T ALTER ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 14 THE BASIC NATURE AND CHARACTERISTIC OF THE TRANSACT ION. IN THE CASE OF THE ASSESSEE, LAND WAS ACQUIRED BY THE ASSESSEE AND REFLECTED IN THE BALANCE-SHEETS OF THE CONCERN AS FIXED- ASSETS. THE ASSESSEE NEVER TREATED THE LAND AS STOC K-IN-TRADE AND REFLECTED IN PROFIT AND LOSS ACCOUNT (CLOSING S TOCK). THERE WAS NO ELEMENT OF TRADE ATTACHED TO THE ACTIVITY OF THE ASSESSEE IN PURCHASE AND SALE OF THE LAND. A CONTI NUOUS BUSINESS REQUIRES MORE ACTIVITY AND GREATER ORGANIZ ATION. THIS IS ABSENT IN THE TRANSACTION OF SALE OF LAND B Y THE ASSESSEE. THEREFORE, ALTHOUGH THERE IS PROFIT IN TH E TRANSACTION THE TRANSACTION CANNOT BE CHARACTERIZED AS AN ADVENTURE IN THE NATURE OF TRADE. VI) WHETHER A TRANSACTION IN RESPECT OF AN ASSET IS CAP ITAL OR BUSINESS INCOME BEING ADVENTURE IN THE NATURE OF TR ADE DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THERE ARE MANY FACTORS LIKE FREQUENCY OF TRANSACTIONS, PE RIOD OF HOLDING, INTENTION FOR RESALE ETC, WHICH DETERMINE WHETHER THE GAIN ARISING OF A TRANSACTION IS IN THE PROCESS OF REALISATION OF INVESTMENT OR IN THE COURSE OF BUSIN ESS. THE MERE FACT THAT THE PERSON HAS PURCHASED A LAND AND SUBSEQUENTLY SOLD IT, GIVING RISE TO A SUBSTANTIAL PROFIT CANNOT CHANGE THE CHARACTER OF THE TRANSACTION. IT IS THE GENERAL HUMAN TENDENCY TO EARN PROFIT OUT OF CAPITA L ASSET. NO ONE INVESTS TO INCUR A LOSS. IF THE MARKET CONDI TION SUDDENLY GOES UP OR DOWN, IT IS ALWAYS THE TENDENCY OF A PERSON TO TAKE A QUICK DECISION SO THAT THE REALIZA TION ON THE INVESTMENT IS MAXIMUM OR THE LOSS IS MINIMUM. VII) AS ALREADY MENTIONED THE ASSESSEE COMPANY CARRIED O N REGULAR AGRICULTURAL OPERATIONS IN THE SAID AGRICUL TURE LAND. IN THAT PROCESS THE ASSESSEE COMPANY ITSELF INVOLVE D IN THE PRIMARY OPERATION SUCH AS PLOUGHING, TILLING, SOWIN G, ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 15 WATERING ETC. THE ASSESSEE HAS GROWN CROPS SUCH AS PADDY, JOWAR ETC. THE ASSESSEE CARRIED ON THE SECONDARY OP ERATIONS LIKE CUTTING, HARVESTING AND SELLING IN MARKET ETC. IN THE SAME LAND A SHED WAS CONSTRUCTED AND DIARY FARMING WAS ALSO UNDERTAKEN BY THE ASSESSEE. VIII) BY SELLING THE ABOVE AGRICULTURE PRODUCE THE ASSESS EE EARNED AGRICULTURE RECEIPTS WHICH WERE BROUGHT INTO THE AC COUNT BOOKS OF THE ASSESSEE. IN THE PROCESS OF CARRYING O N THE AGRICULTURE OPERATIONS THE ASSESSEE USED TO INCUR EXPENDITURE AND THE SAME IS ALSO BROUGHT INTO THE A CCOUNT BOOKS. SEPARATE ACCOUNT BOOKS WERE MAINTAINED FOR T HE OPERATIONS OF THE AGRICULTURE LAND AND TO ARRIVE AT THE AGRICULTURE INCOME DERIVED. SUCH DETAILS OF RECEI PTS OF SALE OF AGRICULTURE PRODUCE AND EXPENDITURE INCURRED FOR AGRICULTURE TRANSACTIONS PERTAINING TO FINANCIAL YE AR 2008-09 ARE FURNISHED BY THE ASSESSEE IN ITS PAPER BOOK FI LED BEFORE US. 9.10 FROM THE ABOVE, IT IS CLEAR THAT: A) THE ASSESSEE PURCHASED AGRICULTURE LAND NOW UNDER CONSIDERATION SITUATED BEYOND 8 KM FROM THE MUNICIP AL LIMITS. B) THE ASSESSEE TREATED THE SAME AS FIXED ASSET IN THE IR BOOKS ALONG WITH OTHER AGRICULTURE LAND WHICH WAS ALREADY ACQUIRED BY THEM IN THE EARLIER YEARS. C) THE LAND WAS IDENTIFIED AS AGRICULTURE LAND IN THE REVENUE RECORDS. D) THE ASSESSEE CARRIED ON ROUTINE AGRICULTURE OPERATI ONS SUCH AS GROWING JOWAR AND PADDY. ACCOUNT FURNISHED IN R ESPECT OF AGRICULTURE OPERATIONS FOR THE FINANCIAL YEAR 20 08-09 ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 16 SUPPORT THE SAME. EARLIER TO THAT THERE WERE CERTAI N TEAK PLANTATIONS IN THE LAND. THE TEAK PLANTATIONS WERE CONTINUED IN SOME PART OF THE LAND AND REMAINING PART WAS USE D FOR AGRICULTURE OPERATIONS. E) THE ASSESSEE DID NOT CARRY ON ANY COMMERCIAL ACTIVI TY WITH REFERENCE TO THAT LAND SUCH AS GETTING OF APPROVAL FOR CONVERTING INTO SITES, PLOTTING OF THE SAME INTO SI TES ETC. THUS, THE CHARACTER OF THE LAND I.E., AGRICULTURE N ATURE WAS CONTINUING TILL THE SAME WAS SOLD BY THE ASSESSEE C OMPANY. F) BECAUSE OF FAVOURABLE MARKET CONDITIONS THE ASSESSE E SOLD THE LAND AND THE SAME FETCHED THEM A GOOD PRICE. 10. THEREFORE, IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE ASSESSEES ACQUIRED AGRICULTURAL LAND. THERE IS ALS O NO DISPUTE THAT THERE WAS AGRICULTURAL OPERATION IN THIS LAND BEFOR E SALE OF THIS LAND. 10.1 THE ASSESSING OFFICER WAS OF THE OPINION THAT THE A MOUNT RECEIVED ON SALE OF THIS AGRICULTURAL PROPERTY IS N OTHING BUT ON ACCOUNT OF ADVENTURE IN THE NATURE OF TRADE AND THE SAME WAS BROUGHT INTO INCOME FROM BUSINESS. IN THIS CASE, T HE ASSESSEE HELD THE LAND ALWAYS AS INVESTMENT AND NOT AT ALL C ONVERTED INTO STOCK-IN-TRADE. THE CHARACTER OF THE LAND IN THE H ANDS OF THE ASSESSEES HAS NOT CHANGED. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE CARRIED ON ACTIVITIES OF BUY ING AND SELLING OF LAND IN A SYSTEMATIC MANNER SO AS TO JUSTIFY THE ACTION OF THE AO IN TREATING THE ACTIVITIES OF THE ASSESSEE AS ADVEN TURE IN THE NATURE OF TRADE. THE LAND WAS SOLD BY THE ASSESSEES IN AC REAGE AND NOT BY MAKING PLOTS. 10.2 NOW THE QUESTION AS TO WHETHER A LAND IS AGRICULTUR AL LAND OR NOT IS ESSENTIALLY A QUESTION OF FACT. THE QUESTION HAS TO BE ANSWERED IN EACH CASE HAVING REGARD TO THE FACTS AN D ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 17 CIRCUMSTANCES OF THAT CASE. THERE MAY BE FACTORS BO TH FOR AND AGAINST A PARTICULAR POINT OF VIEW. WE HAVE TO ANSW ER THE QUESTION ON A CONSIDERATION OF ALL OF THEM, A PROCESS OF EVA LUATION AND THE INFERENCE HAS TO BE DRAWN ON A CUMULATIVE CONSIDERA TION OF ALL THE RELEVANT FACTS. IT MAY BE STATED HERE THAT NOT ALL THE FACTORS OR TESTS WOULD BE PRESENT OR ABSENT IN ANY CASE AND THAT IN EACH CASE ONE OR MORE OF THE FACTORS MAY MAKE APPEARANCE AND THAT ULTIMATE DECISION WILL HAVE TO BE REACHED ON A BALANCED CONS IDERATION OF THE TOTALITY OF THE CIRCUMSTANCES. 10.3 THE EXPRESSION AGRICULTURAL LAND IS NOT DEFINED I N THE ACT, AND NOW, WHETHER IT IS AGRICULTURAL LAND OR NOT HAS TO BE DETERMINED BY USING THE TESTS OR METHODS LAID DOWN BY THE COURTS FROM TIME TO TIME. 10.4 THE HONBLE SUPREME COURT IN THE CASE OF SMT. SARIF ABIBI MOHMED IBRAHIM (204 ITR 631) HAS APPROVED THE DECIS ION OF A DIVISION BENCH OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIDDHARTH J. DESAI (1982) 28 CTR (GUJ) 148 : (1983) 139 ITR 628 (GUJ) AND HAS LAID DOWN 13 TESTS OR FACTORS WHICH ARE REQUIRED TO BE CONSIDERED AND UPON CONSIDERATION OF WHICH, THE QUESTION WHETHER THE LAND IS AN AGRICULTURAL LAND O R NOT HAS TO BE DECIDED OR ANSWERED. WE REPRODUCE THE SAID 13 TEST S AS FOLLOWS: 1. WHETHER THE LAND WAS CLASSIFIED IN THE REVENUE RECORDS AS AGRICULTURAL AND WHETHER IT WAS SUBJECT TO THE PAYMENT OF LAND REVENUE? 2. WHETHER THE LAND WAS ACTUALLY OR ORDINARILY USED FOR AGRICULTURAL PURPOSES AT OR ABOUT THE RELEVANT TIME? 3. WHETHER SUCH USER OF THE LAND WAS FOR A LONG PERIOD OR WHETHER IT WAS OF A TEMPORARY CHARACTER OR BY ANY OF A STOPGAP ARRANGEMENT? 4. WHETHER THE INCOME DERIVED FROM THE AGRICULTURAL OPERATIONS CARRIED ON IN THE LAND BORE ANY ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 18 RATIONAL PROPORTION TO THE INVESTMENT MADE IN PURCHASING THE LAND? 5. WHETHER, THE PERMISSION UNDER S. 65 OF THE BOMBAY LAND REVENUE CODE WAS OBTAINED FOR THE NON-AGRICULTURAL USE OF THE LAND? IF SO, WHEN AND BY WHOM (THE VENDOR OR THE VENDEE)? WHETHER SUCH PERMISSION WAS IN RESPECT OF THE WHOLE OR A PORTION OF THE LAND? IF THE PERMISSION WAS IN RESPECT OF A PORTION OF THE LAND AND IF IT WAS OBTAINED IN THE PAST, WHAT WAS THE NATURE OF THE USER OF THE SAID PORTION OF THE LAND ON THE MATERIAL DATE? 6. WHETHER THE LAND, ON THE RELEVANT DATE, HAD CEASED TO BE PUT TO AGRICULTURAL USE? IF SO, WHETHER IT WAS PUT TO AN ALTERNATIVE USE? WHETHER SUCH LESSER AND/OR ALTERNATIVE USER WAS OF A PERMANENT OR TEMPORARY NATURE? 7. WHETHER THE LAND, THOUGH ENTERED IN REVENUE RECORDS, HAD NEVER BEEN ACTUALLY USED FOR AGRICULTURE, THAT IS, IT HAD NEVER BEEN PLOUGHED OR TILLED? WHETHER THE OWNER MEANT OR INTENDED TO USE IT FOR AGRICULTURAL PURPOSES? 8. WHETHER THE LAND WAS SITUATED IN A DEVELOPED AREA? WHETHER ITS PHYSICAL CHARACTERISTICS, SURROUNDING SITUATION AND USE OF THE LAND IN THE ADJOINING AREA WERE SUCH AS WOULD INDICATE THAT THE LAND WAS AGRICULTURAL? 9. WHETHER THE LAND ITSELF WAS DEVELOPED BY PLOTTING AND PROVIDING ROADS AND OTHER FACILITIES? 10. WHETHER THERE WERE ANY PREVIOUS SALES OF PORTIONS OF THE LAND FOR NON-AGRICULTURAL USE? 11. WHETHER PERMISSION UNDER S. 63 OF THE BOMBAY TENANCY AND AGRICULTURAL LAND ACT, 1948, WAS OBTAINED BECAUSE THE SALE OR INTENDED SALE WAS IN FAVOUR OF A NON-AGRICULTURIST? IF SO, WHETHER TH E SALE OR INTENDED SALE TO SUCH NON-AGRICULTURISTS WAS FOR NON-AGRICULTURAL OR AGRICULTURAL USER? 12. WHETHER THE LAND WAS SOLD ON YARDAGE OR ON ACREAGE BASIS? ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 19 13. WHETHER AN AGRICULTURIST WOULD PURCHASE THE LAND FOR AGRICULTURAL PURPOSES AT THE PRICE AT WHICH THE LAND WAS SOLD AND WHETHER THE OWNER WOULD HAVE EVER SOLD THE LAND VALUING IT AS A PROPERTY YIELDING AGRICULTURAL PRODUCE ON THE BASIS OF ITS YIELD?' 10.5 A REFERENCE COULD BE MADE TO THE CASE OF CWT VS. O FFICER-IN- CHARGE (COURT OF WARDS) (105 ITR 138) (SC) WHEREIN THE CONSTITUTION BENCH OF THE HONBLE SUPREME COURT STA TED THAT THE TERM AGRICULTURE AND AGRICULTURAL PURPOSE WAS N OT DEFINED IN THE INDIAN IT ACT AND THAT WE MUST NECESSARILY FALL BAC K UPON THE GENERAL SENSE IN WHICH THEY HAVE BEEN UNDERSTOOD IN COMMON PARLANCE. THE HONBLE SUPREME COURT HAS OBSERVED TH AT THE TERM AGRICULTURE IS THUS UNDERSTOOD AS COMPRISING WITH IN ITS SCOPE THE BASIC AS WELL AS SUBSEQUENT OPERATIONS IN THE PROCE SS OF AGRICULTURE AND RAISING ON THE LAND ALL PRODUCTS WH ICH HAVE SOME UTILITY EITHER FOR SOMEONE OR FOR TRADE AND COMMERC E. IT WILL BE SEEN THAT THE TERM AGRICULTURE RECEIVES A WIDER I NTERPRETATION BOTH IN REGARD TO ITS OPERATION AS WELL AS THE RESULT OF THE SAME. NEVERTHELESS THERE IS PRESENT ALL THROUGHOUT THE BA SIC IDEA THAT THERE MUST BE AT THE BOTTOM OF ITS CULTIVATION OF T HE LAND IN THE SENSE OF TILLING OF THE LAND, SOWING OF THE SEEDS, PLANTING AND SIMILAR WORK DONE ON THE LAND ITSELF AND THIS BASIC CONCEPTION IS ESSENTIAL SINE QUA NON OF ANY OPERATION PERFORMED O N THE LAND CONSTITUTING AGRICULTURAL OPERATION AND IF THE BASI C OPERATIONS ARE THERE, THE REST OF THE OPERATIONS FOUND THEMSELVES UPON THE SAME, BUT IF THE BASIC OPERATIONS ARE WANTING, THE SUBSEQ UENT OPERATIONS DO NOT ACQUIRE THE CHARACTERISTICS OF AGRICULTURAL OPERATIONS. THE CONSTITUTION BENCH OF THE HONBLE SUPREME COURT IN THE AFORESAID CASE OBSERVED THAT THE ENTRIES IN REVENUE RECORDS W ERE CONSIDERED GOOD PRIMA FACIE EVIDENCE. 10.6 THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DR. M OTIBHAI D. PATEL VS. CIT (1982) 27 CTR (GUJ) 238 : (1981) 1 27 ITR 671 ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 20 (GUJ) REFERRING TO THE CONSTITUTION BENCH OF THE HO NBLE SUPREME COURT HAD STATED THAT IF AGRICULTURAL OPERATIONS AR E BEING CARRIED ON IN THE LAND IN QUESTION AT THE TIME WHEN THE LAN D IS SOLD AND FURTHER IF THE ENTRIES IN THE REVENUE RECORDS SHOW THAT THE LAND IN QUESTION IS AGRICULTURAL LAND, THEN, A PRESUMPTION ARISES THAT THE LAND IS AGRICULTURAL IN CHARACTER AND UNLESS THAT P RESUMPTION IS REBUTTED BY EVIDENCE LED BY THE REVENUE, IT MUST BE HELD THAT THE LAND WAS AGRICULTURAL IN CHARACTER AT THE TIME WHEN IT WAS SOLD. THE DIVISION BENCH OF THE HONBLE GUJARAT HIGH COUR T FURTHER HELD THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE P RESUMPTION ROSE FROM THE LONG USER OF THE LAND FOR AGRICULTURA L PURPOSE AND ALSO THE PRESUMPTION ARISING FROM THE ENTRIES OF TH E REVENUE RECORDS ARE REBUTTED. 10.7 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CWT V S. H. V. MUNGALE (1983) 32 CTR (BOM) 301 : (1984) 145 ITR 208 (BOM) HELD THAT THE HONBLE SUPREME COURT HAD POINTED OUT THAT THE ENTRIES RAISED ONLY A REBUTTABLE PRESUMPTION AND SO ME EVIDENCE WOULD, THEREFORE, HAVE TO BE LED BEFORE TAXING AUT HORITIES ON THE QUESTION OF INTENDED USER OF THE LAND UNDER CONSIDE RATION BEFORE THE PRESUMPTION COULD BE REBUTTED. THE COURT FURTHE R HELD THAT THE SUPREME COURT HAD CLEARLY POINTED OUT THAT THE BURDEN TO REBUT THE PRESUMPTION WOULD BE ON THE REVENUE. THE HONBLE BOMBAY HIGH COURT HELD THAT THE RATIO OF THE DECISI ON OF THE SUPREME COURT WAS THAT WHAT IS TO BE DETERMINED IS THE CHARACTER OF THE LAND ACCORDING TO THE PURPOSE FOR WHICH IT W AS MEANT OR SET APART AND CAN BE USED. IT IS, THEREFORE, OBVIOUS TH AT THE ASSESSEE HAD ABUNDANTLY PROVED THAT THE SUBJECT LAND SOLD BY THEM WAS AGRICULTURAL LAND NOT ONLY AS CLASSIFIED IN THE REV ENUE RECORDS, BUT ALSO IT WAS SUBJECTED TO THE PAYMENT OF LAND REVENU E AND THAT IT WAS ACTUALLY AND ORDINARILY USED FOR AGRICULTURAL P URPOSE AT THE RELEVANT TIME. ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 21 10.8 WE MAY ALSO REFER TO THE CASE OF CIT VS. MANILAL S OMNATH (1977) 106 ITR 917 (GUJ), WHEREIN THE DIVISION BENC H OF THE HONBLE GUJARAT HIGH COURT OBSERVED THAT THE POTENT IAL NON- AGRICULTURAL VALUE OF THE LAND FOR WHICH A PURCHASE R MAY BE PREPARED TO PAY A LARGE PRICE WOULD NOT DETRACT FRO M ITS CHARACTER AS AGRICULTURAL LAND ON THE RELEVANT DATE OF SALE. 10.9 WE MAY ALSO REFER TO THE CASE OF GOPAL C. SHARMA VS . CIT (1994) 116 CTR (BOM) 377 : (1994) 209 ITR 946 (BOM) , IN WHICH, THE CASE OF SMT. SARIFABIBI MOHAMED IBRAHIM & ORS. VS. CIT (SUPRA) WAS REFERRED TO AND RELIED, AMONGST OTHER C ASES. IN THIS CASE, THE DIVISION BENCH OF THE BOMBAY HIGH COURT H AS STATED THAT THE PROFIT MOTIVE OF THE ASSESSEE SELLING THE LAND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISIVE FOR D ETERMINATION OF THE ISSUE AS TO WHETHER THE TRANSACTION AMOUNTED TO AN ADVENTURE IN THE NATURE OF TRADE. IN OTHER WORDS, THE PRICE P AID IS NOT DECISIVE TO SAY WHETHER THE LAND IS AGRICULTURAL OR NOT. 10.10 WE MAY REFER TO A JUDGMENT OF THE HONBLE MADRAS HI GH COURT IN THE CASE OF CWT VS. E. UDAYAKUMAR (2006) 2 84 ITR 511 (MAD) WHERE THE HONBLE MADRAS HIGH COURT HAS REFER RED TO THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SMT. SAVITA RANI (2004) 186 CTR (P&H) 24 0 : (2004) 270 ITR 40 (P&H) AND HAS OBSERVED AND HELD AS UNDER : '8. IT IS WELL SETTLED IN THE CASE OF CIT VS. SMT. SAVITA RANI (2004) 186 CTR (P&H) 240 : (2004) 270 ITR 40 (P&H), WHEREIN IT IS HELD THAT THE LAND BEING LOCAT ED IN A COMMERCIAL AREA OR THE LAND HAVING BEEN PARTIALLY UTILISED FOR NON-AGRICULTURAL PURPOSES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NON-AGRICULTURAL PURPOSES, WERE TOTALLY IRRELEVANT CONSIDERATION FOR THE PURPOSES OF APPLICATION OF S. 54B. 9. IN THE ABOVESAID CASE, THE ASSESSEE AN INDIVIDUA L SOLD 15 KARNALS, 18 MARLAS OF LAND OUT OF HER SHARE IN 23 KARNALS, 17 MARLAS LAND DURING THE FINANCIAL YEA R ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 22 1990-91, RELEVANT TO THE ASST. YR. 1991-92, THE SAL E WAS EFFECTED BY THREE REGISTERED SALE DEEDS. WHILE FILI NG HER RETURN OF INCOME, SHE CLAIMED EXEMPTION FROM LEVY O F CAPITAL GAINS UNDER S. 54B OF THE ACT ON THE GROUND THAT THE LAND SOLD BY HER WAS AGRICULTURAL LAND AND THE SALE PROCEEDS WERE INVESTED IN THE PURCHASE OF AGRICULTU RAL LAND WITHIN TWO YEARS. THE AO REJECTED THE CLAIM OF THE ASSESSEE HOLDING THAT THE LAND SOLD BY THE ASSESSEE WAS NOT AGRICULTURAL LAND AND THIS WAS UPHELD BY TH E CIT(A). ON FURTHER APPEAL, THE TRIBUNAL ACCEPTED TH E CLAIM OF THE ASSESSEE HOLDING THAT THE TRANSACTION IN QUESTION DULY FULFILLED THE CONDITIONS SPECIFIED FO R RELIEF. ON FURTHER APPEAL TO THE HIGH COURT, THE PUNJAB & HARYANA HIGH COURT FOUND THAT THE FINDING THAT THE LAND HAD BEEN USED FOR AGRICULTURAL PURPOSES WAS BASED ON COGENT AND RELEVANT MATERIAL. THE REVENUE RECORD SUPPORTED THE CLAIM. EVEN THE RECORDS OF THE IT DEPARTMENT SHOWED THAT THE ASSESSEE HAD DECLARED AGRICULTURAL INCOME FROM THIS LAND IN HER RETURNS F OR THE PRECEDING TWO YEARS. THE LAND BEING LOCATED IN COMMERCIAL AREA OR THE LAND HAVING BEEN PARTIALLY UTILISED FOR NON-AGRICULTURAL PURPOSES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NONAGRICULTURAL PURPOSES, WERE TOTALLY IRRELEVANT CONSIDERATION FOR THE PURPOSES OF APPLICATION OF S. 54B. 10. IT IS SEEN FROM THE AFORESAID DECISION THAT THE AGRICULTURAL LAND SOLD BY THE ASSESSEE WITH AN INT ENT TO PURCHASE ANOTHER LAND WITHIN TWO YEARS HAD ALSO BEE N 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 LAN D 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.' 10.11 ADVERTING TO THE FACTS OF THE PRESENT CASE, THE LAN D IN QUESTION IS CLASSIFIED IN THE REVENUE RECORDS AS AG RICULTURAL LAND AND THERE IS NO DISPUTE REGARDING THIS ISSUE AND AC TUAL CULTIVATION HAS BEEN CARRIED ON THIS LAND AND INCOME WAS DECLAR ED FROM THIS LAND IN THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE EARLIER YEARS AS AGRICULTURAL INCOME. IT IS ALSO AN ADMITT ED FACT THAT THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW T HAT THE ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 23 AGRICULTURAL LAND WAS USED FOR NON-AGRICULTURAL PUR POSES AND THE 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 SU BJECT TO ANY DEVELOPMENTAL ACTIVITIES AT THE RELEVANT POINT OF T IME OF SALE OF THE LAND. 10.12 THE PROVISIONS OF ANDHRA PRADESH AGRICULTURAL LAND (CONVERSION FOR NON-AGRICULTURAL PURPOSES) ACT, 200 6 ALSO PRESCRIBED THE PROCEDURE FOR CONVERSION OF AGRICULT URAL LAND INTO NON-AGRICULTURAL LAND. BEING SO, WHENEVER THE AGRI CULTURAL LAND TO BE TREATED AS NON-AGRICULTURAL LAND, THE SAME HAS T O 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-AGRICUL TURAL PURPOSES BY THE REVENUE AUTHORITIES CONCERNED. TO OUR UND ERSTANDING NATURE OF LAND CANNOT BE CHANGED BY ANY STATE GOVER NMENT NOTIFICATION AND THE LAND OWNERS ARE REQUIRED TO AP PLY TO THE CONCERNED REVENUE AUTHORITIES FOR THE PURPOSE OF CO NVERSION OF THE AGRICULTURAL LAND INTO NON-AGRICULTURAL LAND AND TH ERE IS NO AUTOMATIC CONVERSION PER SE BY STATE GOVERNMENT NOT IFICATION. 10.13 IT IS ALSO AN ADMITTED POSITION THAT MERE INCLUSIO N OR PROXIMITY OF LAND TO ANY SPECIAL ZONE WITHOUT ANY I NFRASTRUCTURE DEVELOPMENT THEREUPON OR WITHOUT ESTABLISHING AND P ROVING THAT THE LAND WAS PUT INTO USE FOR NON-AGRICULTURAL PURP OSES BY THE ASSESSEE DOES NOT AND CANNOT CONVERT THE AGRICULTUR AL LAND INTO NON-AGRICULTURAL LAND. 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 P UT THE LAND INTO USE FOR NON-AGRICULTURAL PURPOSES WOULD NOT CH ANGE THE ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 24 CHARACTER OF THE AGRICULTURAL LAND INTO NON-AGRICUL TURAL LAND AT THE RELEVANT POINT OF TIME WHEN THE LAND WAS SOLD BY TH E ASSESSEE. IT IS ALSO AN ADMITTED POSITION THAT THE ASSESSEE HAD NOT APPLIED FOR CONVERSION OF THE LAND IN QUESTION INTO NON-AGRICUL TURAL PURPOSES AND NO SUCH PERMISSIONS WERE OBTAINED FROM THE CONC ERNED AUTHORITY. IN THE REVENUE RECORDS, THE LAND IS CLAS SIFIED AS AGRICULTURAL LAND AND HAS NOT BEEN CHANGED FROM AGR ICULTURAL LAND TO NON-AGRICULTURAL LAND AT THE RELEVANT POINT OF T IME WHEN THE LAND WAS SOLD BY THE ASSESSEE. IT IS ALSO NOT IN DI SPUTE THAT THERE WAS NO ACTIVITY UNDERTAKEN BY THE ASSESSEE OF DEVEL OPING THE LAND BY PLOTTING AND PROVIDING ROADS AND OTHER FACILITIE S AND THERE WAS NO INTENTION ALSO ON THE PART OF THE ASSESSEES HERE IN TO PUT THE SAME FOR NON-AGRICULTURAL PURPOSES AT TIME OF THEIR OWNERSHIP THAT LAND. NO SUCH FINDING HAS BEEN GIVEN BY THE DEPARTM ENT. NO MATERIAL OR EVIDENCE IN SUPPORT OF THE FACT THAT TH E ASSESSEES HAVE PUT THE LAND IN USE FOR NON-AGRICULTURAL PURPOSES H AS BEEN BROUGHT ON RECORD. AT THE RELEVANT POINT OF TIME TH E LAND WAS USED FOR AGRICULTURAL PURPOSES ONLY AND NOTHING IS BROUG HT ON RECORD TO SHOW THAT THE LAND WAS PUT IN USE FOR NON-AGRICULTU RAL PURPOSES BY THE ASSESSEE. 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 I N SELLING THE LAND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISI VE TO SAY THAT THE ASSESSEE USED THE LAND FOR NON-AGRICULTURAL PUR POSES. WE MAY ALSO REFER TO A DECISION OF THE HONBLE SUPREME COU RT 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 QU ESTION IS INCLUDED IN URBAN AREA WITHOUT MORE, HELD NOT ENOUG H TO CONCLUDE THAT THE USER OF THE SAME HAD BEEN ALTERED WITH PAS SAGE OF TIME. THUS, THE FACT THAT THE LAND IN QUESTION IN THE INS TANT CASE IS BOUGHT BY DEVELOPER CANNOT BE A DETERMINING FACTOR BY ITSELF TO SAY ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 25 THAT THE LAND WAS CONVERTED INTO USE FOR NON-AGRICU LTURAL PURPOSES. 10.14 RECENTLY THE KARNATAKA HIGH COURT IN THE CASE OF CI T 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 LOCAT ED UNDER SECTION 2(14)(III)(A) & (B) OF THE ACT, SECTI ON 2(14) (III) (A) OF THE ACT COVERS A SITUATION WHERE THE S UBJECT AGRICULTURAL LAND IS LOCATED WITHIN THE LIMITS OF MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TO WN AREA COMMITTEE, TOWN COMMITTEE, OR CANTONMENT COMMITTEE AND WHICH HAS A POPULATION OF NOT LESS TH AN 10,000. 10. SECTION 2(14)(M)(B) OF THE ACT COVERS THE SITUA TION WHERE THE SUBJECT LAND IS NOT ONLY LOCATED WITHIN T HE DISTANCE OF 8 KMS FROM THE LOCAL LIMITS, WHICH IS C OVERED BY CLAUSE (A) TO SECTION 2(14)(III) OF THE ACT, BUT ALSO REQUIRES THE FULFILMENT OF THE CONDITION THAT THE C ENTRAL GOVERNMENT HAS ISSUED A NOTIFICATION UNDER THIS CLA USE FOR THE PURPOSE OF INCLUDING THE AREA UP TO 8 KMS, FROM THE MUNICIPAL LIMITS, TO RENDER THE LAND AS A CAPI TAL 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, CLAUS E (A) TO SECTION 2(14][III] OF THE ACT IS NOT ATTRACTED. 12. HOWEVER, THOUGH IT IS CONTENDED THAT IT IS LOCA TED WITHIN 8 KNITS,, WITHIN THE MUNICIPAL LIMITS OF DASARAHALLI CITY MUNICIPAL COUNCIL IN THE ABSENCE O F 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) O F THE ACT ALSO AND THEREFORE THOUGH THE TRIBUNAL MAY NOT HAVE SPELT OUT THE REASON AS TO WHY THE SUBJECT LAN D CANNOT BE CONSIDERED AS A CAPITAL ASSET BE GIVING THIS VERY REASON, WE FIND THE CONCLUSION ARRIVED AT BY T HE TRIBUNAL IS NEVERTHELESS THE CORRECT CONCLUSION.' 10.15 FURTHER THE KOLKATA BENCH OF THE TRIBUNAL IN THE CA SE OF DCIT VS. ARIJIT MITRA (48 SOT 544) (KOL) HELD AS FO LLOWS: ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 26 '7. FROM THE ABOVE, IT IS CLEAR THAT AGRICULTURAL L AND SITUATED IN AREAS LYING WITHIN A DISTANCE NOT EXCEE DING 8 KM FROM THE LOCAL LIMITS OF SUCH MUNICIPALITIES O R 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 URBANIZ ATION AND OTHER RELEVANT CONSIDERATIONS, IS NOTIFIED BY T HE CENTRAL GOVERNMENT IN THIS BEHALF. CENTRAL GOVERNME NT 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 O UTSIDE 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 MUNICIPALI TY OR CANTONMENT BOARD ETC., STILL CONTINUES TO BE EXCLUD ED 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 ARE AS 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 RAJ ARHAT MUNICIPALITY AND THAT ALSO 2.5 KM AWAY FROM THE OUT ER LIMITS OF THE SAID MUNICIPALITY, ASSESSEE'S LAND DO ES NOT COME WITHIN THE PURVIEW OF SECTION 2(14)(III) EITHE R UNDER SUB CLAUSE (A) OR (B) OF THE ACT, HENCE THE SAME CA NNOT BE CONSIDERED AS CAPITAL ASSET WITHIN THE MEANING O F THIS SECTION. HENCE, NO CAPITAL GAIN TAX CAN BE CHA RGED ON THE SALE TRANSACTION OF THIS LAND ENTERED BY THE ASSESSEE. ACCORDINGLY, WE QUASH THE ASSESSMENT ORDE R QUA CHARGING OF CAPITAL GAINS ON VERY JURISDICTION OF THE ISSUE IS QUASHED. THE CROSS OBJECTION OF THE ASSESS EE IS ALLOWED.' 10.16 IT WAS HELD IN THE CASE OF CIT VS. MANILAL SOMNATH (106 ITR 917) AS FOLLOWS: UNDER THE INCOME-TAX ACT OF 1961, AGRICULTURAL LEN D SITUATED IN INDIA WAS EXCLUDED FROM THE DEFINITION OF ' CAPITAL ASSET' AND ANY GAIN FROM THE SALE THEREOF W AS NOT TO BE INCLUDED IN THE TOTAL INCOME OF AN ASSESS EE TINDER THE HEAD 'CAPITAL GAINS'. IN ORDER TO DETER MINE WHETHER A PARTICULAR LAND IS AGRICULTURAL LAND OR N OT ONE HAS TO FIRST FIND OUT IF IT IS BEING PUT TO ANY USE . IF IT IS USED FOR AGRICULTURAL PURPOSES THERE IS A PRESUMPTI ON ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 27 THAT IT IS AGRICULTURAL LAND. IF IT IS USED FOR NO N- AGRICULTURAL PURPOSES THE PRESUMPTION IS THAT IT IS NON- AGRICULTURAL LAND. THIS PRESUMPTION ARISING FROM AC TUAL USE CAN BE REBUTTED BY THE PRESENCE OF OTHER FACTOR S. THERE MAY BE CASES WHERE LAND WHICH IS ADMITTEDLY NON-AGRICULTURAL IS USED TEMPORARILY FOR AGRICULTUR AL PURPOSES. THE DETERMINATION OF THE QUESTION WOULD, THEREFORE, DEPEND ON THE FACTS OF EACH CASE. 'THE ASSESSEE, HINDU, UNDIVIDED FAMILY, HAD OBTAINE D SOME LAND ON A PARTITION IN 1939. FROM THAT TIME, U P TO THE TIME OF ITS SALE, AGRICULTURAL OPERATIONS WERE CARRIED ON IN THE LAND. THERE WAS NO REGULAR ROAD TO THE LA ND AND IT WAS WITH THE AID OF A TRACTOR THAT AGRICULTU RAL OPERATIONS WERE BEING CARRIED ON. THE LAND WAS INCLUDED WITHIN A DRAFT TOWN PLANNING SCHEME. THE ASSESSEE GOT PERMISSION OF THE COLLECTOR TO SELL TH E LAND FOR RESIDENTIAL PURPOSES AND SOLD IT. ON THE QUESTI ON WHETHER THE LAND WAS AGRICULTURAL LAND: HELD, THAT WHAT HAD TO BE CONSIDERED IS NOT WHAT TH E PURCHASER DID WITH THE LAND OR THE PURCHASER WAS SUPPOSED TO DO WITH THE LAND, BUT WHAT WAS THE CHARACTER OF THE LAND AT THE TIME WHEN THE SALE TOO K PLACE. THE FACT THAT THE LAND WAS WITHIN MUNICIPAL LIMITS OR THAT IT WAS INCLUDED WITHIN A PROPOSED TO WN PLANNING SCHEME WAS NOT BY ITSELF SUFFICIENT TO REB UT THE PRESUMPTION ARISING FROM ACTUAL USE OF THE LAND. TH E 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 PURCHASE R MAY BE PREPARED TO PAY A LARGE PRICE WOULD NOT DETR ACT FROM ITS CHARACTER AS AGRICULTURAL LAND AT THE DATE OF THE SALE. THE LAND IN QUESTION WAS, THEREFORE, AGRICUL TURAL LAND. 10.17 FURTHER THE WORD 'CAPITAL ASSET' IS DEFINED IN SECT ION 2(14) TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSESSEE, W HETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE- (III) AGRICULTURAL LAND IN INDIA, NOT BEING LAND SI TUATE- (A) IN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORATION, NOTIFIED ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 28 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; 10.18 IT IS VERY CLEAR FROM THE ABOVE THAT THE GAIN ON SA LE OF AN AGRICULTURAL LAND WOULD BE EXIGIBLE TO TAX ONLY WHE N THE LAND TRANSFERRED IS LOCATED WITHIN THE JURISDICTION OF A MUNICIPALITY. THE FACT THAT ALL THE EXPRESSIONS ENLISTED AFTER THE WO RD MUNICIPALITY ARE PLACED WITHIN THE BRACKETS STARTING WITH THE WO RDS 'WHETHER KNOWN AS' CLEARLY INDICATES THAT SUCH EXPRESSIONS A RE USED TO DENOTE A MUNICIPALITY ONLY, IRRESPECTIVE OF THE NAM E BY WHICH SUCH MUNICIPALITY IS CALLED. THIS FACT IS FURTHER SUBSTA NTIATED BY THE PROVISIONS CONTAINED UNDER CLAUSE (B) WHEREIN IT HA S BEEN CLEARLY PROVIDED THAT THE AUTHORITY REFERRED TO IN CLAUSE ( A) WAS ONLY MUNICIPALITY. 10.19 WE ALSO PERUSED THE MEANING OF THE TERM LOCAL AUTHO RITY AS REFERRED IN SECTION 10(20) OF THE ACT. (20) THE INCOME OF A LOCAL AUTHORITY WHICH IS CHARG EABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY', 'CAPIT AL GAINS' OR 'INCOME FROM OTHER SOURCES' OR FROM A TRA DE OR BUSINESS CARRIED ON BY IT WHICH ACCRUES OR ARISES F ROM THE SUPPLY OF A COMMODITY OR SERVICE [(NOT BEING WA TER OR ELECTRICITY) WITHIN ITS OWN JURISDICTIONAL AREA OR FROM THE SUPPLY OF WATER OR ELECTRICITY WITHIN OR OUTSID E ITS OWN JURISDICTIONAL AREA]. ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 29 [EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE, TH E EXPRESSION 'LOCAL AUTHORITY' MEANS - (I) PANCHAYAT AS REFERRED TO IN CLAUSE (D) OF A RTICLE 243 OF THE CONSTITUTION; OR (II) MUNICIPALITY AS REFERRED TO IN CLAUSE (E) O F ARTICLE 243P OF THE CONSTITUTION; OR (III) MUNICIPAL COMMITTEE AND DISTRICT BOARD, LEG ALLY 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); 10.20 IT IS ALSO EVIDENT FROM THE MEMORANDUM EXPLAINING T HE PROVISIONS OF FINANCE ACT, 1970, WHEREBY S. 2(14) W AS AMENDED SO AS TO INCLUDE THE AGRICULTURAL LAND LOCATED WITHIN THE JURISDICTION OF A MUNICIPALITY IN THE DEFINITION OF THE EXPRESSI ON 'CAPITAL ASSET'. THE RELEVANT PORTION OF THE SAID MEMORANDUM IS REPR ODUCED HEREUNDER: '30. ... THE FINANCE ACT, 1970 HAS, ACCORDINGLY, AMENDED THE RELEVANT PROVISIONS OF THE INCOME-TAX A CT SO AS TO BRING WITHIN THE SCOPE OF TAXATION CAPITAL GAINS ARISING FROM THE TRANSFER OF AGRICULTURAL LAND SITU ATED IN CERTAIN AREAS. FOR THIS PURPOSE, THE DEFINITION OF THE TERM 'CAPITAL ASSET' IN SECTION 2(14) HAS BEEN AMEN DED SO AS TO EXCLUDE FROM ITS SCOPE ONLY AGRICULTURAL L AND IN INDIA WHICH IS NOT SITUATE IN ANY AREA COMPRISED WI THIN THE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BO ARD AND WHICH HAS 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 POPULATIO N 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 ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 30 AREA WILL STAND INCLUDED WITHIN THE TERM 'CAPITAL A SSET'. AGRICULTURAL LAND SITUATED IN RURAL AREAS, I.E., AR EAS OUTSIDE ANY MUNICIPALITY OR CANTONMENT BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOUSAND AND ALSO BEYOND THE DISTANCE NOTIFIED BY THE CENTRAL GOVERNM ENT FROM THE LIMITS OF ANY SUCH MUNICIPALITY OR CANTONM ENT BOARD, WILL CONTINUE TO BE EXCLUDED FROM THE TERM 'CAPITAL ASSET'. 10.21 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 NO T LESS THAN 10,000 ACCORDING TO THE LAST PRECEDING CENSUS OF WH ICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIR ST DAY OF THE PREVIOUS YEAR. IN OTHER WORDS, THE LAND DOES NOT F ALL 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 SE E 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 NOTIFICAT ION IN THE OFFICIAL GAZETTE. 10.22 WE HAVE CAREFULLY GONE THROUGH THE NOTIFICATI ON 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) D ATED 6 TH JANUARY, 1994 AS AMENDED BY NOTIFICATION NO. 11186 DATED 28 TH DECEMBER, 1999. IN THE SCHEDULE ANNEXED TO THE NOTI FICATION DATED 6.1.1994, ENTRY NO. 17 IS RELATING TO HYDERABAD WHE REIN MENTIONED THAT THE AREAS UP TO A DISTANCE OF 8 KM F ROM THE MUNICIPAL LIMITS IN ALL DIRECTIONS. IN THE NOTIFICA TION 11186 DATED 28.12.1999 THERE IS NO ENTRY RELATING TO HYDERABAD. IT IS CLEAR FROM THESE NOTIFICATIONS THAT AGRICULTURAL LAND SIT UATED IN AREAS ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 31 LYING WITHIN A DISTANCE NOT EXCEEDING 8 KM FROM THE LOCAL LIMITS OF HYDERABAD MUNICIPALITY (GHMC) IS COVERED BY THE AME NDED DEFINITIONS OF 'CAPITAL ASSET'. CENTRAL GOVERNMENT IN EXERCISE OF SUCH POWERS HAS ISSUED THE ABOVE NOTIFICATION, AS A MENDED LATEST BY NOTIFICATION NO. 11186 DATED 28.12.1999 CLEARLY CLARIFIES THAT AGRICULTURAL LAND SITUATED IN RURAL AREAS, AREAS OU TSIDE THE MUNICIPALITY OR CANTONMENT BOARD ETC., HAVING A POP ULATION OF NOT LESS THAN 10,000 AND ALSO BEYOND THE DISTANCE NOTIF IED BY CENTRAL GOVERNMENT FROM LOCAL LIMITS I.E. THE OUTER LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD ETC., STILL CONTIN UES TO BE EXCLUDED FROM THE DEFINITION OF 'CAPITAL ASSET'. AC CORDINGLY, IN VIEW OF SUB-CLAUSE (B) OF SECTION 2(14)(III) OF THE ACT EVEN UNDER THE AMENDED DEFINITION OF EXPRESSION 'CAPITAL ASSET', T HE AGRICULTURAL LAND SITUATED IN RURAL AREAS CONTINUES TO BE EXCLUD ED FROM THAT DEFINITION. AND AS IN THE PRESENT CASE, ADMITTEDLY, THE AGRICULTURAL LAND OF THE ASSESSEE IS OUTSIDE THE MUNICIPAL LIMIT S OF HYDERABAD MUNICIPALITY AND THAT ALSO 8 KM AWAY 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 WITH IN 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. MILAN I (SUPRA) AND M.S. SRINIVAS NAICKER VS. ITO (292 ITR 481) (MAD). BY B ORROWING 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). 10.23 FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, AS NA RRATED BEFORE US, IT IS IMPORTANT TO NOTE THAT WHAT WAS TH E INTENTION OF THE ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 32 ASSESSEES AT THE TIME OF ACQUIRING THE LAND OR INTE RVAL ACTION BY THE ASSESSEE BETWEEN THE PERIOD FROM PURCHASE AND S ALE 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 IN TENTION SUBSEQUENTLY FORMED MAY BE TAKEN INTO ACCOUNT, IT I S THE INTENTION AT THE INCEPTION IS CRUCIAL. ONE OF THE ESSENTIAL ELEMENTS IN AN ADVENTURE OF THE TRADE IS THE INTENTION TO TRADE; T HAT 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 SUFFIC IENT TO SHOW, AN INTENTION TO TRADE AT THE INCEPTION. IN A CASE WHE RE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTEN TION TO RESELL AT A PROFIT AND THE PURCHASER HAS NO INTENTION OF HOLD ING 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 TR ADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE AND IT IS CONCEIV ABLE THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE, THE COURT MAY, DESPITE THE SAID INITIAL INTENTION, BE INCLINE D TO HOLD THAT THE TRANSACTION WAS NOT AN ADVENTURE IN THE NATURE OF T RADE. THE PRESUMPTION MAY BE REBUTTED. IN THE PRESENT CASE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IT CANNOT B E CONSIDERED AS AN ADVENTURE IN THE NATURE OF TRADE. THE INTENTION OF THE ASSESSEE FROM THE INCEPTION WAS TO CARRY ON AGRICULTURAL OPE RATIONS AND EVEN THERE WAS NO INTENTION TO SELL THE LAND IN FUT URE AT THAT POINT OF TIME. IT WAS DUE TO THE BOOM IN REAL ESTATE MAR KET CAME INTO PICTURE AT A LATER STAGE, THE ASSESSEE HAS SOLD THE LAND. MERELY BECAUSE OF THE FACT THAT THE LAND WAS SOLD FOR PROF IT, 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 PERIOD OF ITA NOS. 1424 & 1480/HYD/2012 M/S. KAPIL CHIT FUNDS PVT. LTD. ======================== 33 HOLDING SHOULD NOT SUGGEST THAT THE ACTIVITY WAS AN ADVENTURE IN THE NATURE OF TRADE. 10.24 FURTHER, WE MAKE IT CLEAR THAT WHEN THE LAND WHIC H DOES NOT FALL UNDER THE PROVISIONS OF SECTION 2(14)(III) OF THE IT ACT AND AN ASSESSEE WHO IS ENGAGED IN AGRICULTURAL OPERATIO NS IN SUCH AGRICULTURAL LAND AND ALSO BEING SPECIFIED AS AGRIC ULTURAL LAND IN REVENUE RECORDS, THE LAND IS NOT SUBJECTED TO ANY C ONVERSION AS NON-AGRICULTURAL LAND BY THE ASSESSEE OR ANY OTHER CONCERNED PERSON, TRANSFERS SUCH AGRICULTURAL LAND AS IT IS A ND WHERE IT IS BASIS, IN SUCH CIRCUMSTANCES, IN OUR OPINION, SUCH TRANSFER LIKE THE CASE BEFORE US CANNOT BE CONSIDERED AS A TRANSF ER OF CAPITAL ASSET OR THE TRANSACTION RELATING TO SALE OF LAND W AS NOT AN ADVENTURE IN THE NATURE OF TRADE SO AS TO TAX THE I NCOME ARISING OUT OF THIS TRANSACTION AS BUSINESS INCOME. ACCORDI NGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 11. IN THE RESULT, REVENUE APPEAL IS DISMISSED AND ASSE SSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH SEPTEMBER, 2013. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 5 TH SEPTEMBER, 2013 COPY FORWARDED TO: 1. M/S. KAPIL CHIT FUNDS PVT. LTD., C/O. M/S. B. NARSI NG RAO & CO., CHARTERED ACCOUNTANTS, PLOT NO. 554, ROAD NO . 92, JUBILEE HILLS, HYDERABAD-96. 2. THE INCOME TAX OFFICER, WARD - 1, KARIMNAGAR. 3. THE CIT(A) - III, HYDERABAD. 4. THE CIT - II, HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD. TPRAO