ITO, Coimbatore V. K.P.R.Developers Ltd., Coimbatore

ITA 1564/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4603 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 04-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 07-07-2015
• Court: TRIBUNAL
• Department Lawyers: M M BHUSARI
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Business income; Capital receipt
• Section: 54B; 2(14); 63

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . ' # , $ #% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . / ITA NO. 1564/MDS/2015 / ASSESSMENT YEAR : 2011-12 THE INCOME-TAX OFFICER, CORPORATE WARD 2, COIMBATORE. ( /APPELLANT) V. M/S. K.P.R. DEVELOPERS LTD. 5, AKS NAGAR, THADAGAM ROAD, RS PURAM, COIMBATORE 641001. PAN AADCK 4094L RESPONDENT) / APPELLANT BY : SHRI M.M.BHUSARI, CIT / RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE ! / DATE OF HEARING : 06.04.2017 '# ! / DATE OF PRONOUNCEMENT : 05.05.2017 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 10 .4.2015. - - ITA 1564/MDS//16 2 2. THE ONLY GROUND IN THIS APPEAL IS WITH REGARD T O TREATMENT OF INCOME FROM SALE OF AGRICULTURAL LAND AS EXEMPTE D INCOME AND ALSO TREATING THE PART OF INCOME DECLARED BY THE AS SESSEE FROM THE SAID LAND AS AGRICULTURAL INCOME. 3. THE BRIEF FACTS OF THE CASE ARE THAT M/S. K.P.R . DEVELOPERS LTD. WAS ORIGINALLY CONSTITUTED A PARTNE RSHIP CONCERN ON 27.2.2008 AND RECONSTITUTED AS A JOINT STOCK COM PANY WITHIN THE MEANING OF SEC.566 OF THE COMPANIES ACT, 1956 W ITH EFFECT FROM 21.5.2008. THREE DIRECTORS OF THE COMPANY HAV E ACQUIRED LANDS IN THE YEAR 2000 AND 2006 MEASURING TO 32.5 A CRES AND FORMED A PARTNERSHIP CONCERN ON 27.2.2008 BY CONTRI BUTING THE ASSETS OF THE FIRM AT THE TIME OF FORMATION. 3.1 THE THREE BROTHERS FORMED THE PARTNERSHIP FIRM THROUGH A DEED OF PARTNERSHIP DATED 27.2.2008 BY CONTRIBUTING THE LANDS IN THEIR NAMES TOWARDS THEIR RESPECTIVE CAPITAL. ONLY AFTER ENTERING INTO THE PARTNERSHIP DEED, THE CONTRIBUTIONS CAME I NTO EXISTENCE AND AT THE INSTANCE OF FORMATION OF PARTNERSHIP, TH E LANDS WERE EMBEDDED IN THE PARTNERSHIP FIRM. BECAUSE OF THE P ARTIES CONTRIBUTION OF IMMOVABLE PROPERTY TOWARDS THE CAPI TAL OF THE - - ITA 1564/MDS//16 3 FIRM, THE DEED WAS GOT REGISTERED OPTIONALLY U/S.17 (2)(V) OF THE REGISTRATION ACT, 1908 BY PAYING 1% FEES ON THE AUT HORIZED CAPITAL OF THE FIRM. IT IS NOT A CASE WHERE A PART NER BROUGHT IN HIS PERSONAL ASSET INTO AN EXISTING PARTNERSHIP FIRM AS HIS CONTRIBUTION TO ITS CAPITAL RESULTED WHERE AN ASSET WHICH ORIGINALLY WAS SUBJECT TO THE ENTIRE OWNERSHIP OF THE PARTNER AND ON CONTRIBUTION TO THE CAPITAL OF THE FIRM SUBJECTED T O THE RIGHTS OF OTHER PARTNERS. THE SUBSEQUENT CONVERSION OF THE P ARTNERSHIP FIRM INTO LIMITED COMPANY BY OPERATION OF LAW IS A SUCCESSION OF FIRM BY ASSESSEE COMPANY. 3.2 AS PER THE BOOKS OF ACCOUNT MAINTAINED BY THE C OMPANY, OUT OF THE AGRICULTURAL LANDS AND OTHER IMMOVABLE P ROPERTIES ACQUIRED BY SUCCESSION FROM THE ERSTWHILE PARTNERSH IP FIRM, THE COMPANY HAS RETAINED THE RURAL AGRICULTURAL LANDS A S FIXED ASSETS AND CLASSIFIED THE NON-AGRICULTURAL LANDS AS STOCK- IN-TRADE. THE CLASSIFICATION OF FIXED ASSETS AND STOCK-IN-TRADE A RE REFLECTED IN THE AUDITED BALANCE SHEET OF THE COMPANY AS ON 31.3 .2009, 31/3/2010 AND 31.3.2011. DURING THE YEAR 2010-11, THE ASSESSEE COMPANY HAS SOLD 32.37 ACRES OF RURAL AGRI CULTURAL LAND AT KITTAMPALAYAM VILLAGE, SULUR TALUK, OUT OF THE L ANDS CLASSIFIED - - ITA 1564/MDS//16 4 AS FIXED ASSETS IN THE BOOKS OF ACCOUNT AND CLAIMED EXEMPTION US/.2(14)(III) OF THE ACT, 1961. THE RURAL AGRICUL TURAL LAND WAS NOT A CAPITAL ASSET FOR THE PURPOSE OF CAPITAL GAINS TA X. THE ABOVE SAID AGRICULTURAL LAND WAS TRANSFERRED AGAINST THE CONSIDERATION OF 15,50,00,000/- TO M/S. K.P.R. MILLS LTD. AND LISTE D AS PUBLIC LTD. COMPANY FOR ISSUE OF CUMULATIVE NON CONVERTIBL E PREFERENCE SHARES. THE AO MADE INVESTIGATION TO PROVE THAT TH ERE WAS NO AGRICULTURAL OPERATIONS IN THE SAID AGRICULTURAL LA NDS OF 32.37 ACRES AT KITTAMPALAYAM VILLAGE, SULUR TALUK AND CON CLUDED THAT SINCE NO AGRICULTURAL ACTIVITIES CARRIED ON BY THE ASSESSEE, THE SAID AGRICULTURAL LAND IS NOT ELIGIBLE FOR EXEMPTIO N U/S.2(14)(III) OF THE ACT. FURTHER, THE AO HAS BROUGHT TO TAX THE EN TIRE SALE CONSIDERATION AS BUSINESS INCOME. AGGRIEVED, THE A SSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 4. BEFORE THE CIT(APPEALS), THE LD. AR RELIED ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF MANUBHAI A. SETH VS. ITO (128 ITR 87) AND THE SAME PRINCIPLE WAS REITERATED BY THE BOMBAY HIGH COURT I N THE CASE REPORTED IN 208 ITR 98. THE LD. AR ALSO RELIE D ON THE - - ITA 1564/MDS//16 5 DECISION OF THE TRIBUNAL, JODHPUR BENCH IN THE CASE OF SMT. SUPRIYA KANWAR VS. ITO IN ITA NO.362/JU/2010 FOR TH E ASST. YEAR 2007-08 DATED 13.5.2014. THE LD. AR FURTHER RELIED ON THE FOLLOWING JUDGMENTS : I) SMT. SARIFABIBI MOHAMED IBRAHIM VS. CIT [2014 TR 631) (SC) II) CWT VS. IOC (COURT OF WARDS) 105 ITR 133 [SC] III) K. PARAMESHWARAN VS. ITO ( 7 TTJ 194)[MAD-TRIB ] IV) ITO VS. UPPALA BHAKTAVATSALA RAO (12 TAXMAN 40) [HYD-TRIB] V) VI) ITO VS. SHRI SHAUKAT KARIM PRASLA (ITA NO.284/PNJ/2013)[PANAJI-TRIB] VII) KALPANA OIL MILLS VS. CIT (160 ITR 604) [KERAL A] VIII) JAGWANSH KUMAR VS. UOI (176 ITR 283) [ALLAHAB AD] IX) BHOGICAL H. PATEL VS. CIT (74 ITR 692)(BOM) X) CIT VS. YATISH TRADING CO. PVT. LTD. (7 TAX CORP (DT) 54084(BOMBAY) XI) CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. (100 ITR 705)(SC) XII) CIT VS. MOHAMMED MOHIDEEN (74 CTR 129)(MAD) XIII) CIT VS. MLM MAHALINGAM CHETTIAR (107 ITR 236)(MAD) XIV) CIT VS. KASTURI ESTATES (P) LTD. (62 ITR 578)( MAD) - - ITA 1564/MDS//16 6 FURTHER, THE LD. AR SUBMITTED BEFORE THE CIT(APPEAL S) THAT THE PROMOTERS HAVE INVESTED MONEY IN THE AGRICULTUR AL LANDS WITH THE INTENTION TO HOLD AN ENJOY ITS INCOME, THE N CONVERTED IN TO A COMPANY IN ORDER TO ADMINISTER TH E PROPERTIES IN A PROFESSIONAL MANNER, AND THEN SOLD IT ON PROFIT. HENCE, IT WOULD BE A CASE OF CAPITAL ACCRE TION ON THE RURAL AGRICULTURAL LAND, ACCORDINGLY, THE RURAL AGR ICULTURAL LAND SITUATED OUTSIDE THE MUNICIPAL LIMITS UP ON SA LE GIVE RISE TO AGRICULTURAL INCOME ONLY. 5. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT THE AO AFTER VERIFYING THE CHITTA AND ADANGAL SUBMITTED BY THE ASSESSEE MADE INVESTIGATIONS WITH THE VAO, KITTAMPALAYAM VILLAGE, SULUR TALUK, REGARDING THE AGRICULTURAL AC TIVITY CARRIED OUT DURING THE YEAR. THE VAO ADMITTED THAT AS PER HIS OFFICE RECORDS, NO AGRICULTURAL ACTIVITY WAS CARRIED OUT D URING THE YEAR AND ALSO NO CROP LIKE MAIZE WAS GROUND BY THE ASSES SEE SINCE 2005-06. HE FURTHER OBSERVED THAT NO LAND DEVELOPM ENT ACTIVITY WAS TAKEN BY THE ASSESSEE COMPANY DURING THE YEAR A ND THE ASSESSEE COMPANY WAS GIVEN AN OPPORTUNITY TO CROSS- EXAMINE - - ITA 1564/MDS//16 7 THE VAO. ON 11.2.2014, THE LD. AR OF THE COMPANY P OINTED OUT IN THE REGISTER MAINTAINED BY THE VAO, CERTAIN IMPO RTANT POINTS / DETAILS ARE NOT UPDATED LIKE MUTATION ENTRY AND THE REFORE THE LD. AR CLAIMED THAT THE REGISTER MAINTAINED BY THE VAO CANNOT BE ACCEPTED AS CONCLUSIVE EVIDENCE SINCE IT WAS NOT UP DATED REGULARLY. 5.1 THE CIT(A) HAS EXAMINED A STATEMENT ON OATH RECORDED BY THE AO. THE CIT(A) OBSERVED THAT THE AO HAS QUESTIONED THE VAO REGARDING THE AGRICULTURAL OPERA TIONS CARRIED ON IN SURVEY NOS. 266/2K, 273/3, 273/1, 275 AND 276, KITTAMPALAYAM VILLAGE. THE VAO STATED IN HIS ANSWE R THAT NO AGRICULTURAL OPERATIONS WERE CARRIED OUT FOR THE ABOVE MENTIONED SURVEY NOS. FOR THE YEARS FROM 2006-06 TO 2011-12. THERE IS NO DISPUTE REGARDING THE FACT THAT THE LAN D MENTIONED IN THE ASSESSMENT ORDER WAS SITUATED BEYOND 10 KMS FRO M SULUR AND 30 KMS FROM COIMBATORE MUNICIPAL CORPORATION. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. AR PRODUCE D ENGLISH VERSION OF THE CROSS EXAMINATION MADE OF SHRI A. BH UPATHY, VAO. IN REPLY TO Q NO.10, WHETHER THE ASSESSEE PRO DUCED THE CERTIFICATES ISSUED BY THE VAO WITH REFERENCE TO TH E SURVEY NOS. - - ITA 1564/MDS//16 8 AS STATED ABOVE, THE VAO AGREED THAT THE CERTIFICAT E WAS ISSUED BY HIM AND WAS ISSUED WITHOUT VERIFYING THE RELEVAN T RECORDS. THE LD. AR, ALSO QUESTIONED THE DISCREPANCY REGARDI NG THE OWNERSHIP OF THE LAND IN THE CHITTA AND ADANGAL AND ALSO IN THE PATTER PASSBOOK ISSUED BY THE TAHSILDAR. THE VAO S TATED THAT ONLY IN THE CHITTA THE NAMES ARE CHANGED BUT THE AD ANGAL THE NAMES WERE NOT CHANGED. Q.NO.19,POSED BY THE LD. A R MENTIONS ABOUT THE NATURE OF LAND MEASURING ABOUT 3 2.37 ACRES WHETHER THE LANDS ARE AGRICULTURAL LANDS REFERRED T O IN THE RECORDS. THE VAO REPLIED THAT THE ABOVE SAID LANDS ARE AGRICULTURAL LANDS AS PER THE REVENUE RECORDS. IT WAS CLARIFIED BY THE VAO THAT DRY LANDS ARE AGRICULTURAL LANDS AND I F THE LANDS LEFT WITHOUT CROP CULTIVATION, IT IS RECORDED AS DRY LAN D. THE LD. AR IN HIS SUBMISSIONS STATED THAT EVEN AFTER 13 YEARS THE ORIGINAL OWNERS NAME IS NOT CHANGED IN THE ADANGAL MAINTAIN ED BY THE VAO. WHEREAS IN THE ADANGAL AND PATTA PASSBOOK MAI NTAINED AT THE CONCERNED TAHSILDARS OFFICE, THE CORRECT OWNER SHIP OF THE LAND WAS REFLECTED. THE LD. AR, ALSO POINTED OUT T HAT THE VAO, WHO HAS ISSUED THE CERTIFICATE TO THE ASSESSEE IS W ORKING AT KITTAMPALAYAM VILLAGE FOR THE PAST 7 MONTHS FROM TH E DATE OF - - ITA 1564/MDS//16 9 STATEMENT RECORDED ON 11.2.2014. INVARIABLY THE VA O HAS TO GO TO THE FIELD EVERY YEAR IN THE MONTH OF JUNE /JULY. IN JULY 2013, HE MIGHT HAVE INSPECTED THE FIELD AND SENT THE RECO RDS TO TAHSILDARS OFFICE. ALSO HE SHOULD HAVE RECORDED I N HIS OFFICE RECORDS. BUT THE BUILDING CONSTRUCTED BY M/S. K.P. R. MILLS LTD. FOR THEIR NEW PROJECT AT S.F.NO.273/1, 275 AND 276 DURING 2011- 12 IS NOT INSPECTED AND RECORDED TILL 2013-14 BUT M ENTIONED IN THE REVENUE RECORDS CONTINUOUSLY AS DRY LAND. HENC E, THE LD. AR SUBMITTED THAT THE FIELD INSPECTIONS BY THE VAO WAS ONLY A PROCEDURE WHICH WAS NOT FOLLOWED BY THE VAO. HENCE , THE LD. AR SUBMITTED THAT THE ADANGAL REPORTED BY THE VAO I S NOT RELIABLE REGARDING CROP GROWN IN THE SAID LAND. 5.2 THE AO AT PARA 6 OF THE ORDER HAS STATED IT IS IMPORTANT TO NOTE THAT APART FROM VAOS CERTIFICATE AND CHITTA / ADANGAL, ASSESSEE COMPANY HAS NOT PRODUCED ANY OTHER DETAILS TO SUBSTANTIATE HIS CLAIM THAT THE LA NDS UNDER QUESTION WAS REALLY AGRICULTURAL LAND. ASSESSEE CO MPANY HAS NOT PRODUCED ANY KIND OF EVIDENCE TO SHOW THAT, IT HAD PAID GOVERNMENT OF TAMILNADU ANY KIND OF LAND REVEN UE ON THE CROPS GROWN DURING ASSESSMENT YEAR OR PRIOR TO THAT - - ITA 1564/MDS//16 10 PERIOD. WHEN THE LD. AR WAS ASKED REGARDING THE OBSERVATION OF THE AO, IT WAS SUBMITTED THAT NO DET AILS REGARDING LAND REVENUE RECEIPTS WERE ASKED FOR BY T HE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE SUBMITTED THE COPIES OF THE LAND REVENUE P AID FOR THE EARLIER ASST. YEARS AND ALSO LAND REVENUE / KIS T PAID FOR THE AGRICULTURAL LAND DURING THE RELEVANT ASST. YEA R AND SUBSEQUENT ASST. YEARS. EVEN AFTER THE SALE OF LAN D, THERE WAS NO LAND CONVERSION BY M/S. K.P.R. MILLS LTD. H ENCE, LAND REVENUE WAS PAID IN THE STATUS OF AGRICULTURAL LAND. THE AO AT PARA 6(III) OF HIS ORDER OBSERVED THAT, IN THE PRESENT CASE, THERE IS NOT A SINGLE EVIDENCE TO SHO W THAT THERE WAS PROBABILITY OF AGRICULTURAL ACTIVITIES CA RRIED OUT BY THE ASSESSEE. SINCE, THOSE LANDS CANNOT BE CONSIDE RED AS AGRICULTURAL LAND, EXEMPTION U/S.2(14)(III) OF THE ACT CANNOT BE CLAIMED BY THE ASSESSEE COMPANY. THE AO HAS COME TO THE CONCLUSION THAT LAND CANNOT BE CONSIDERED AS AGRICULTURAL LAND AS NO AGRICULTURAL ACTIVITY WAS C ARRIED OUT BY THE ASSESSEE. THE AO HAS NOT EXAMINED OTHER FAC TORS REGARDING THE NATURE OF THE LAND RECORDED IN THE CH ITTA, - - ITA 1564/MDS//16 11 ADANGAL AND THE PATTA PASSBOOK. AS PER THE EVIDENC E FURNISHED BY THE LD. AR, THE LANDS WERE PURCHASED I N THE STATUS OF AGRICULTURAL LAND AND WHEN THE ASSESSEE C OMPANY HAS SOLD THE LANDS TO M/S. K.P.R. MILLS LTD., IN TH E SALE DOCUMENT, THE LAND WAS MENTIONED AS AGRICULTURAL LA ND. THE ASSESSEE ALSO FURNISHED THE KIST / LAND REVENUE RECEIPTS PAID FOR THIS LAND. HENCE, IT CANNOT BE A CASE WHERE THE LAND CANNOT BE CONSIDERED AS AGRICULTURAL LAND. THE AO IN HIS ORDER HAS STATED THAT THE ASSESSEE C OMPANY IS NOT AGRICULTURIST BUT A LEGAL ENTITY FLOATED MAI NLY FOR THE PURPOSE TO EARN PROFIT BY LAND DEVELOPMENT. EVEN TH E DIRECTORS OF THE ASSESSEE COMPANY ARE NOT PRIMARILY AGRICULTURISTS, BUT THEY ARE BUSINESSMEN RUNNING VA RIOUS COMMERCIAL ORGANIZATIONS / PROPRIETORSHIP CONCERNS. THE ASSESSEE COMPANY NEITHER CULTIVATED LAND FOR MANY Y EARS AS DISCUSSED ABOVE NOR MADE ANY ATTEMPT TO CARRY OU T AGRICULTURAL ACTIVITIES. 5.3 ACCORDING TO THE CIT(APPEALS), FROM THE EVIDENC E FURNISHED BY THE LD. AR, IT IS CLEAR THAT THE COMPA NY RETURNED AGRICULTURAL INCOME FOR THE ASST. YEARS 20 09-10 - - ITA 1564/MDS//16 12 AND 2010-11. EVEN THE 3 DIRECTORS, WHO WERE CO-OWN ERS OF THE LAND WERE FILING RETURN SHOWING AGRICULTURAL IN COME. APART FROM THE 32.37 ACRES OF LAND, WHICH IS THE PO INT OF DISPUTE, THERE WAS OTHER AGRICULTURAL LAND HELD BY THE 3 DIRECTORS OF THE COMPANY AND ALSO BY THE ASSESSEE COMPANY. THE AO HAS STATED THAT THE MANAGEMENT OF THE ASSESSEE COMPANY KNOWS THE COMMERCIAL POTENTIAL OF THE LAND AND SOLD IT OFF FOR A HIGHER AMOUNT AND HENCE, HELD THE TRANSACTION AS ADVENTURE IN THE NATURE OF TRADE OR BUSINESS. IN FURTHER DISCUSSION, THE AO STATED THAT THE ASSES SEE COMPANY IS MAINLY A REAL ESTATE DEVELOPING COMPANY AND HAVING LANDS WITH IT AS STOCK-IN-TRADE. IN SUCH CA SES, ACCORDING TO THE CIT(A), IT IS IMMATERIAL TO SEE TH AT WHAT TREATMENT HAS GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. HOWEVER, THE CIT(A) OBSERVED THAT FROM TH E BALANCE SHEET REFLECTED BY THE ASSESSEE COMPANY IT IS SEEN THAT THE LANDS WERE HELD AS STOCK-IN-TRADE AND ALSO UNDER THE HEAD FIXED ASSETS. THE LANDS SOLD DURING THE YEAR (32.37 ACRES WERE SHOWN UNDER THE HEAD FIXED ASSET S BY THE ASSESSEE COMPANY. THE AO HAS NOT BROUGHT IN AN Y - - ITA 1564/MDS//16 13 INSTANCE ON RECORD TO SHOW THAT THE ASSESSEE HAS DEVELOPED THE LANDS, MADE ANY COMMERCIAL ACTIVITY / CHANGE THE USE OF LAND OR WAS INVOLVED IN REAL ESTA TE ACTIVITY PRIOR TO THE SALE OF THIS LAND. 5.4 ACCORDING TO THE CIT(APPEALS), U/S.2(13) OF THE ACT, BUSINESS INCLUDES ADVENTURE OR CONCERN IN THE NA TURE OF TRADE. THE EXPRESSION ADVENTURE IN THE NATURE OF TRADE HAS NOT BEEN DEFINED IN THE ACT BUT THERE IS A LARG E NUMBER OF CASES DECIDED BY VARIOUS HIGH COURTS AND THE SUP REME COURT WHEREIN THE COURTS HAVE OPINED THAT, NO SING LE UNIVERSALLY APPLICABLE TEST CAN BE LAID DOWN TO DET ERMINE THAT A GIVEN TRANSACTION AS AN ADVENTURE IN THE NA TURE OF TRADE AND THAT EACH CASE HAS TO BE DECIDED ON ITS OWN MERITS BY TAKING INTO ACCOUNT SEVERAL RELEVANT FACT ORS. TO DETERMINE THE NATURE OF TRANSACTION, THE DOMINANT I NTENTION OF THE ASSESSEE HAS TO BE SEEN. IF THE INTENTION I S TO EMBARK ON A VENTURE IN THE NATURE OF TRADE AS DISTI NGUISHED FROM A CAPITAL INVESTMENT, IT WOULD MAKE NO DIFFERE NCE EVEN IF THE TRANSACTION IS A SINGLE OR ISOLATED ONE. T HERE IS NO NECESSITY OF ADVENTURE IN THE NATURE OF TRADE IF THE - - ITA 1564/MDS//16 14 PURCHASE WAS MADE WITH THE INTENTION OF RESALE. TH E ORIGINAL INTENTION CAN BE GATHERED ONLY ON CONSIDER ATION OF ALL THE CIRCUMSTANCES AS A WHOLE AND NOT BY TAKING SUCH CIRCUMSTANCES BY ITSELF AND FINDING OUT WHETHER THE CIRCUMSTANCE WOULD BE CAPABLE OF A DIFFERENT INTERP RETATION ALTOGETHER, THE CIT(APPEALS) PLACED RELIED ON THE J UDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF V. RAMANATH AN VS. CIT REPORTED IN 51 ITR 640 AND THE JUDGMENT OF APEX COURT IN THE CASE OF G. VENKATASWAMY NAIDU & CO. VS. CIT, REPORTED IN 35 ITR 594. 5.5 THE CIT(APPEALS) OBSERVED THAT IN THE PRESENT C ASE, THE AGRICULTURAL LANDS WERE PURCHASED BY THE DIRECT ORS OF THE COMPANY IN 2000 AND 2006. THE 3 DIRECTORS HAVE BROUGHT THEIR INDIVIDUAL LAND HOLDINGS AS THEIR CAP ITAL CONTRIBUTION AS THEIR SHARE IN THE PARTNERSHIP FIRM . THE LD. AR IN THE WRITTEN SUBMISSION MADE ON 1.7.2014 BEFOR E THE CIT(APPEALS) SUBMITTED THAT THE OBJECT OF THE PARTN ERSHIP FIRM WAS CLEARLY STATED AS TO CARRY ON REAL ESTATE BUSINESS OF ALL KINDS. THE PARTNERSHIP FIRM WAS CONVERTED INTO A COMPANY AS M/S. K.P.R. DEVELOPERS WITH EFFECT FROM - - ITA 1564/MDS//16 15 21.5.2008. FROM THE MEMORANDUM OF ASSOCIATION, THE MAIN OBJECT OF THE ASSESSEE IS TO CARRY ON REAL EST ATE BUSINESS. HOWEVER, IN THE OTHER OBJECTS OF THE ASS ESSEE COMPANY, DOING AGRICULTURE IN THE LANDS WAS ALSO MENTIONED AS ONE OF THE ACTIVITIES. IT IS SEEN FRO M THE BALANCE SHEET THAT THE LAND HAVING THE VALUE OF 5,80,71,463/- WAS KEPT AS FIXED ASSET AND THE REST OF THE LAND WAS VALUED AT 4,42,25,808/- AND IS TREATED AS STOCK- IN-TRADE BY THE ASSESSEE. THE AO IN THE WRITTEN SU BMISSION STATED THAT ONCE THE LANDS WERE BROUGHT INTO THE PARTNERSHIP FIRM AS BUSINESS ASSETS, IT IS NOT RELE VANT AS TO WHETHER THE SAID LANDS ARE AGRICULTURAL LANDS OR NO N- AGRICULTURAL LANDS AND THE SALE OF SUCH LANDS ARE T O BE TREATED AS ADVENTURE IN THE NATURE OF TRADE OR BUSI NESS, EVEN THOUGH, THE SAID ASSETS WERE CLASSIFIED AS FIX ED ASSETS IN THE BOOKS OF ACCOUNT. FURTHER, IT IS SEEN FROM THE FACTS THAT THE PARTNERSHIP FIRM WAS SUCCEEDED BY THE ASSE SSEE COMPANY WITH EFFECT FROM 21.5.2008. THE PARTNERSHI P FIRM WAS EXISTING FOR LESS THAN 3 MONTHS AND IN THE BALA NCE SHEET OF THE ASSESSEE COMPANY THE LAND SOLD TO M/S. K.P.R. - - ITA 1564/MDS//16 16 MILLS LTD. WAS SHOWN AS FIXED ASSET. THERE WAS NO DEVELOPMENT OF THE LAND AFTER THE FORMATION OF THE COMPANY NOR WAS THERE ANY REGULAR BUSINESS OF TRADING ACTIV ITY TO COME TO THE CONCLUSION THAT THE LAND SOLD HAVE TO B E CONSIDERED AS ADVENTURE IN THE NATURE OF TRADE. TH ERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HAS DONE ANY ACT TO CONVERT THE LAND FOR NON-AGRICULTURAL US E. EVERY ASSESSEE WOULD LIKE TO MAKE PROFIT ON A TRANSACTION . MERE SALE OF LAND ON HUGE PROFIT CANNOT BE A FACTOR TO C ONCLUDE THAT THE INTENTION OF THE ASSESSEE WAS TO CARRY ON ADVENTURE IN THE NATURE OF TRADE, IN OTHER WORDS, THE SUBSEQU ENT MAKING OF PROFIT CANNOT BE A DECISIVE FACTOR. THE ASSESSEE ALSO FILED A SALE DEED BETWEEN M/S. K.P.R. MILLS LT D. AND M/S. VELAVAN DISTRIBUTORS (P) LTD. THE RATE PER AC RE PAID TO THE ASSESSEE COMPANY WAS 50 LAKHS PER ACRE AND THE SAME AMOUNT WAS ALSO PAID TO THE UNRELATED PARTY I. E. M/S. VELAVAN DISTRIBUTORS (P) LTD. TO ACQUIRE THE LAND I N THE ADJOINING AREA, DURING THE SAME PERIOD. THE ASSESS EE ALSO FILED ANOTHER SALE DEED EXECUTED ON 17.12.2012 BETW EEN THIRD PARTIES, WHERE THE MARKET RATE PER ACRE OF LA ND (FOR 90 - - ITA 1564/MDS//16 17 CENTS) WAS SOLD FOR A VALUE OF 157.50 LAKHS. THIS LAND IS ADJOINING THE LAND SOLD BY THE ASSESSEE COMPANY IN 2010. THE SUDDEN INCREASE IN VALUE OF LANDS IN 2010 WAS O N ACCOUNT OF SEZ BEING FORMED BY M/S. SUZLON ENERGY P VT. LTD. 5.6 THE AO IN HIS ORDER STATED, THE ASSESSEE COMPA NY IS CONSIDERING LAND AS STOCK-IN-TRADE BY VIRTUE OF ITS MEMORANDUM OF ASSOCIATION, THEN AUTOMATICALLY LAND LOSES ITS CHARACTER OF CAPITAL ASSET. IN SUCH CASE THE A UTHORIZED REPRESENTATIVES RELIANCE ON THE PROVISIONS OF SECT ION 2(14)(III)(A) IS IRRELEVANT AND NEED NOT BE CONSIDE RED BY ESTABLISHING INCOME FROM SALE OF SUCH ASSET. AS S EEN FROM THE FACTS OF THE CASE, THE ASSESSEE COMPANY CONSIDE RED LAND AS STOCK-IN-TRADE AND FIXED ASSET IN THE BALAN CE SHEET FILED BY THEM. THE EXTENT OF 32.37 ACRES OF LAND S OLD BY THE ASSESSEE COMPANY WAS REFLECTED IN THE FIXED ASSETS OF THE COMPANY IN THE BALANCE SHEET. THE AOS CONCLUSION THAT IF THE ASSESSEE COMPANY IS CONSIDERING LAND AS STOCK-I N- TRADE, BY VIRTUE OF ITS MEMORANDUM OF ASSOCIATION, THE LAND LOSES ITS CHARACTER OF FIXED ASSET IS NOT JUSTIFIED . THE - - ITA 1564/MDS//16 18 ASSESSEE COMPANY HAS CONSIDERED THE LAND SOLD BY TH EM AS FIXED ASSET IN THE BALANCE SHEET. ACCORDINGLY, BY VIRTUE OF ITS MEMORANDUM OF ASSOCIATION, THE LAND WILL NOT LOSE ITS CHARACTER OF CAPITAL ASSET. HENCE, THE AUTHORIZED REPRESENTATIVES RELIANCE ON THE PROVISIONS OF SEC.2(14)(III)(A) IS IRRELEVANT. 5.7 AS PER THE ORIGINAL PURCHASE DEED DATED 20.9.20 00, 30.11.2000 AND 20.1.2006, THE SAID LAND IN QUESTION WAS ACQUIRED BY THE PROMOTERS OF M/S. K.P.R. DEVELOPERS LTD. AS AGRICULTURAL LAND. THE CIT(APPEALS) RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT OF MADRAS IN THE CASE OF COMBINED INDUSTRIES (P) LTD. VS. CIT (115 I TR 358). IN THE CASE OF THE ASSESSEE COMPANY THE ORIGINAL LA NDS WERE PURCHASED BY PROMOTERS IN THE YEARS 2000 AND 2 006. 5.8 REGARDING THE EXTENT OF 15 ACRES OF LAND PURCHA SED IN 2000, THE ASSESSEE FILED CHITTA AND ADANGAL REGI STERS SHOWING THAT THE LAND IN SURVEY NOS.273/1, 273/3, 2 66/2K WERE CULTIVATED BY THE PURCHASERS DURING THE FINANC IAL YEAR 2001-2002 AND 2002-2003. SUBSEQUENTLY BECAUSE OF L ACK - - ITA 1564/MDS//16 19 OF IRRIGATION FACILITIES AND ADVERSE WEATHER CONDIT IONS, NO CULTIVATION WAS DONE BY THE ASSESSEE. HOWEVER, THE LAND REMAINED AS AGRICULTURAL LAND TILL THEY WERE SOLD B Y THE ASSESSEE COMPANY IN THE RELEVANT FINANCIAL YEAR. L AND REVENUE WAS ALSO PAID TO THE GOVT. ON THESE LANDS RECORDED AS AGRICULTURAL LAND IN THE REVENUE RECORD S. 5.9 HE PLACED RELIANCE ON THE JUDGEMENT OF DELHI H IGH COURT IN THE CASE OF DELHI APARTMENTS (P) LTD. IN I TA ANO.569/2012 DATED 7.3.2013 HELD THAT REAL ESTATE COMPANIES CAN ALSO HOLD SEPARATE PORTFOLIO OF LAND AS STOCK-IN-TRADE AND AS INVESTMENT PORTFOLIO AND THE SALE OF INVESTMENT PORTFOLIO IS ALWAYS TAXED AS CAPITAL GAI NS. THE LD. AR SUBMITTED THAT NO EFFORTS HAVE BEEN DONE BY THE ASSESSEE TO CHANGE THE NATURE OF LAND AND TO IMPROV E THE QUALITY OF THE LAND THEREBY MAKING IT MORE READILY SALEABLE. THERE IS NOTHING ON RECORD TO PROVE THAT THE ASSESS EE COMPANY HAS DONE ANY ACT TO CONVERT THE LAND FOR NO N- AGRICULTURAL USE. THE LD. AR FURTHER ARGUED THAT P URCHASE OF LAND AND SALE THEREAFTER AT A PROFIT CANNOT WITHOUT ANYTHING MORE BE ASSUMED TO BE AN ADVENTURE IN THE NATURE OF TRADE. - - ITA 1564/MDS//16 20 THE MADRAS HIGH COURT JUDGMENT IN THE CASE OF CIT V S. KATURI ESTATES (P) LTD., 62 ITR 578, IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 5.10 IN THE EXPLANATION INSERTED BY THE FINANCE ACT , 1989 RETROSPECTIVELY W.E.F. 1.4.1970, IT WAS MENTIONED T HAT FOR REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE R EVENUE DERIVED FROM LAND SHALL NOT INCLUDE AND SHALL BE DE EMED NEVER TO HAVE INCLUDED ANY INCOME ARISING FROM THE TRANSFER OF LAND REFERRED TO IN ITEM (A) OR ITEM (B) OF SUB CLAUSE (III) OF CLAUSE (14) OF THIS SECTION. SUB CLAUSE (III) OF S ECTION 2(14) WAS ALSO INSERTED W.E.F. 1.4.1970, AND ONLY THE URB AN AGRICULTURAL LAND WAS INCLUDED WITHIN THE DEFINITIO N OF CAPITAL ASSET. CONSIDERING THE REVERSE POSITION THE SALE O F RURAL AGRICULTURAL LAND SHOULD BE CONSIDERED U/S.2(14) AN D EXEMPTION TO BE GRANTED IF OTHER CONDITIONS U/S.2(1 4) ARE SATISFIED. 5.11 HE RELIED ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF SINGHAL RAKESH KUMAR VS. UNION OF INDIA (2 47 ITR - - ITA 1564/MDS//16 21 150) AND THE TRIBUNAL BENCH, INDORE IN THE CASE OF ITO VS. ASHOK SHUKLA (28 TAXMANN.COM 112) 5.12 ACCORDING TO THE CIT(APPEALS), A CLOSE READING OF SEC.2(14)(III)(A) SUGGESTS THAT IT IS THE POPULATIO N OF THE MUNICIPALITY THAT HAS TO BE TAKEN INTO ACCOUNT AND NOT THE POPULATION OF ANY AREA WITHIN THE MUNICIPALITY. TH EREFORE, THE LAND SITUATED BEYOND PRESCRIBED MUNICIPAL LIMIT AND RECORDED AS AGRICULTURAL LAND IN THE REVENUE RECORD IS TO BE CONSIDERED AS AGRICULTURAL LAND UNTIL PROVED OTHERW ISE. ADMITTEDLY THE TERM CAPITAL ASSET HAS AN ALL EMBR ACING CONNOTATION AND INCLUDES EVERY KIND OF PROPERTY AS GENERALLY UNDERSTOOD EXCEPT THOSE ARE EXPRESSLY EXC LUDED FROM THE DEFINITION. IT IS EXACTLY THE CASE HERE B ECAUSE SEC.2(14)(III) EXPRESSLY DEFINES AGRICULTURAL LAND WITH REGARD TO ITS LOCATION AND DISTANCE FROM THE MUNICIPAL LIM IT. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE TRIBUNA L, PANAJI BENCH IN THE CASE OF SHRI DURGADAS K PRABHU AND OTH ERS IN ITA NO.178/PNJ/2013 DATED 6.6.2014. - - ITA 1564/MDS//16 22 5.13 THE CIT(APPEALS) PLACED RELIANCE ON THE JUDGME NT OF THE DELHI HIGH COURT IN THE CASE OF M/S. HINDUSTAN INDUSTRIAL RESOURCES LTD. VS. ACIT (335 ITR 77(DELH I). THE CIT(APPEALS) OBSERVED THAT THE ASSESSEE DID NOT CAR RY OUT ANY AGRICULTURAL OPERATIONS, DID NOT ALTER THE CHAR ACTER OF THE LAND. THE NATURE OF LAND AT THE TIME OF PURCHASE A S WELL AS AT THE TIME OF SALE BEING AGRICULTURAL AND THAT SUC H AGRICULTURAL LAND NOT BEING A CAPITAL ASSET AND THE REFORE SUCH SURPLUS ARISING FROM SUCH SALE OF LAND CANNOT BE TAXED. 5.14 AFTER GOING THROUGH THE FACTS OF THE CASE, CON SIDERING THE PROVISIONS OF SEC.2(14)(III), THE CIT(APPEALS) OBSERVED THAT THE LAND CANNOT BE CONSIDERED AS CAPITAL ASSET AS PER THE AMENDED PROVISIONS OF THE INCOME-TAX ACT, 1961, SINCE, IT IS BEYOND 8 KMS OF THE MUNICIPAL LIMITS OF COIMB ATORE AND ALSO ANY MUNICIPALITY. IT IS RECORDED AS AGRICULTU RAL LAND IN THE REVENUE RECORDS AT THE TIME OF PURCHASE AND TIL L THE DATE OF SALE BY THE ASSESSEE COMPANY. LAND REVENUES WER E PAID DURING ALL THE RELEVANT ASST. YEARS BY THE ASS ESSEE - - ITA 1564/MDS//16 23 COMPANY. THERE WERE NO INSTANCES OF SALE OF LAND I N BITS TO PROVE THAT THE REAL ESTATE ACTIVITIES WERE CARRIED ON BY THE COMPANY. THE LAND SOLD BY THE COMPANY WAS RECORDED IN THE BOOKS OF ACCOUNT AS FIXED ASSET. HENCE, THE AO IS NOT JUSTIFIED IN BRINGING THE SURPLUS ON THE SALE OF TH E LAND AS BUSINESS INCOME. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AO WAS FURNISHED THE SUBMISSIONS O F THE ASSESSEE AND WAS ASKED TO SUBMIT A REMAND REPORT VI DE CIT(A)S LETTER DATED 14.11.2014. THE AO IN HIS RE MAND REPORT DATED 4.12.2014 REFERRED TO THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS. R.VENKATASWAMY NAIDU (9 ITR 529) (SC) AND ALSO THE DECISION IN THE CASE OF SARIFABIBI MOHAMED IBRAHIM VS. CIT (204 ITR 631) AS WELL AS THE DECISION OF THE GUJARAT HIGH COURT IN THE CA SE OF CIT VS. SIDDHARTH J. DESAI (139 ITR 628). 5.15 THE CIT(APPEALS) OBSERVED THAT THE LD. AR IN H IS SUBMISSIONS MADE ON 19.12.2014 SUBMITTED THAT THE A O IN HIS ASSESSMENT ORDER HAS STATED THAT M/S. K.P.R. MI LLS LTD., IS A CLOSELY HELD COMPANY, BUT IT IS A WIDELY HELD PUBLIC - - ITA 1564/MDS//16 24 LIMITED COMPANY AND THE SHARES OF THE COMPANY ARE L ISTED IN THE NSE AND BOMBAY STOCK EXCHANGE. THE MANAGEMENT OF THE COMPANY IS CONTROLLED BY THE BOAR D OF DIRECTORS WITH 12 DIRECTORS, OUT OF WHICH 6 ARE IND EPENDENT DIRECTORS AND ONE OF THE DIRECTORS IS THE REPRESENT ATIVE OF FOREIGN DIRECT INVESTMENT COMPANY. THE MAIN SOURCE OF INCOME OF THE ASSESSEE COMPANY SINCE ITS INCEPTION IS AGRICULTURAL INCOME AND THE COMPANY NEVER ENTERED I NTO REAL ESTATE TRANSACTION OF ANY KIND. THE LD. AR AR GUED THAT THE TRANSACTION OF SALE OF LAND FROM ITS FIXED BLOC K OF ASSETS CANNOT BE ASSUMED TO BE ADVENTURE IN THE NATURE OF TRADE. 5.16 ACCORDING TO THE CIT(APPEALS), THE QUESTION HA S TO BE ANSWERED IN EACH CASE HAVING REGARD TO THE FACT AND CIRCUMSTANCES OF THAT CASE. THERE MAY BE FACTORS A LTHOUGH FOR AND AGAINST A PARTICULAR POINT OF VIEW. THE CO URT HAS TO ANSWER THAT QUESTION ON A CONSIDERATION OF ALL OF T HEM, A PROCESS OF EVALUATION. THE INFERENCE HAS TO BE DRA WN ON A CUMULATIVE CONSIDERATION OF ALL THE RELEVANT FACTS. - - ITA 1564/MDS//16 25 5.17 NOW, IT IS PERTINENT TO NOTE THE VARIOUS CIRCU MSTANCES APPEARING FOR AND AGAINST THE ASSESSEES CASE. THE FACTS IN FAVOUR OF THE ASSESSEE ARE : I) THE LAND BEING REGISTERED AS AGRICULTURAL LAND I N THE REVENUE RECORDS AND PAYMENT OF LAND REVENUE IN RESPECT THEREOF TILL THE YEAR 2012-13. II) THE LAND TILL THE DATE OF SALE WAS RECORDED AS AGRICULTURAL LAND IN THE REVENUE RECORDS. III) ABSENCE OF ANY EVIDENCE THAT IT WAS PUT TO ANY NON- AGRICULTURAL USE BY THE ASSESSEE COMPANY. IV) THERE WAS AGRICULTURAL LAND ABETTING THE SAID L AND OF THE ASSESSEE. V) THE LAND WAS SOLD ON A ACREAGE BASIS. VI) THERE WERE NO PREVIOUS SALES OF PORTIONS OF THE LAND FOR NON-AGRICULTURAL USE. AS AGAINST THE ABOVE FACTS, THE FACTS APPEARING AGA INST THE ASSESSEE ARE : A) THE AO HAS PROVED WITH EVIDENCE THAT NO AGRICULT URAL OPERATIONS WERE DONE FROM THE FINANCIAL YEAR 2005-0 6 TILL THE DATE OF SALE I.E. F.Y. 2010-2011. - - ITA 1564/MDS//16 26 B) THE LAND WAS NEVER PLOUGHED OR TILLED ALTHOUGH E NTERED AS AGRICULTURAL LAND IN REVENUE RECORDS. 5.18 AFTER TAKING INTO ACCOUNT ALL THE ABOVE JUDIC IAL DECISIONS AND RELYING ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF SMT. SAKUNTHALA VEDACHALAM IN TC(A) NO.566 AND 567 OF 2013 DATED 6.8.2014, THE CIT(APPE ALS) DIRECTED THE AO TO TREAT THE LAND SOLD BY THE ASSES SEE AS AGRICULTURAL LAND AND THEREFORE, THEY ARE EXEMPTED FROM CAPITAL GAINS TAX. THE LAND DO NOT COME UNDER THE PURVIEW OF PROVISION OF SEC.2(14)(III)(A) OR (B) OF THE ACT AND HAVE TO BE TREATED AS AGRICULTURAL LANDS. THE ASSESSEES G AINS WERE PROFITS FROM SALE OF SPECIFIED AGRICULTURAL LA ND, WHICH DOES NOT COME WITHIN THE DEFINITION OF ASSET AS PRE SCRIBED U/S.2(14) OF THE ACT. 5.19 FURTHER, THE ASSESSEE HAS DECLARED AGRICULTU RAL INCOME FROM 150 ACRES OF LAND AT ` 13.75 LAKHS. THE AO REJECTED THE CLAIM OF AGRICULTURAL INCOME AND TREAT ED IT AS INCOME FROM OTHER SOURCES AS THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE REGARDING SALES VOUCHERS TO CLAIM AGRICULTURAL INCOME. HOWEVER, THE LD. CIT(A) OBSE RVED THAT - - ITA 1564/MDS//16 27 THE AO HAS PROVED THAT THE CLAIM OF AGRICULTURAL IN COME IN 30 ACRES OF LAND WAS TO BE FALSE AND HOWEVER, THERE WAS AGRICULTURAL INCOME IN THE REMAINING LAND MEASURING OF 120 ACRES AND RESTRICTED THE SAME TO THE TUNE OF ` 5 LAKHS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS THE CONTENTION OF THE AR THAT THE LAND WAS HELD BY THE ASSESSEE AS AN AGRICULTURAL LA ND AND IT IS NOT FALLING WITHIN 8 KMS FROM THE LOCAL LIMI TS OF ANY MUNICIPAL OR CANTONMENT BOARD AS REFERRED IN SECTIO N 2(14)(III)(A) OF THE INCOME TAX ACT AND ALSO NOT FALLING WITHIN THE NOTIFIED AREA AS PER PROVISIONS OF SEC TION 2(14)(III)(B) OF THE ACT. THE LAND IS SITUATED AT KITTAMPALAYAM VILLAGE, SULUR TALUK WHICH IS 10 KM AWAY FROM THIS MUNICIPAL, OR 30 KM AWAY FROM COIMBATORE MUNICIPAL CORPORATION AND IT IS OUTSIDE OF ANY OF MUNICIPAL. THE LAND WAS ACTUALLY CLASSIFIED AS AGRICULTURAL LA ND AS PER GOVERNMENT REVENUE RECORDS AND THIS LAND IS SUBJECT TO REVENUE LAND TAX AS DISCUSSED IN PARA 5.1 OF THIS O RDER. THE - - ITA 1564/MDS//16 28 LAND WAS ACTUALLY AND ORDINARILY USED FOR AGRICULTU RAL PURPOSE, SINCE IT WAS PURCHASED TILL THE DATE OF SA LE . EVEN TODAY THE LAND IS CLASSIFIED UNDER AGRICULTURAL LAN D AS PER REVENUE RECORDS. THE LAND WAS NEVER USED FOR NON AGRICULTURAL PURPOSE TILL THE DATE OF SALE AND IT W AS NEVER CEASED TO PUT TO AGRICULTURAL PURPOSE. THE LANDS WE RE PURCHASED BY DIRECTORS OF THE COMPANY IN 2000 AND 2006. THE THREE DIRECTORS HAVE BROUGHT THEIR INDIVIDUAL L AND HOLDINGS AS THEIR CAPITAL CONTRIBUTION AS THEIR SHA RE IN THE PARTNERSHIP FIRM. AND THE OBJECT OF PARTNERSHIP FIR M WAS CLEARLY STATED AS TO CARRY ON REAL ESTATE BUSINESS OF ALL KINDS. THE PARTNERSHIP FIRM WAS CONVERTED INTO A C OMPANY AS M/S K.P.R. DEVELOPERS WITH EFFECT FROM 21-05-2 008. FROM THE MEMORANDUM OF ASSOCIATION, THE MAIN OBJEC TS OF THE ASSESSEE IS TO CARRY ON REAL ESTATE BUSINESS. T HERE WAS ALSO MENTIONED IN THE OTHER OBJECTS OF THE ASSESSE E COMPANY DOING AGRICULTURE IN THE LANDS .IN THE BALA NCE SHEET, THE LAND HAVING THE VALUE OF ` 5,80,71,463/- WAS KEPT AS FIXED ASSET AND THE REST OF THE LAND WAS VALUED AT ` 4,42,25,808/- WAS TREATED AS STOCK-IN-TRADE BY THE - - ITA 1564/MDS//16 29 ASSESSEE. THE LAND SOLD WAS SHOWN AS FIXED ASSETS I N THE ASSESSEE BALANCE SHEET. 6.1 THE LAND WAS ACTUALLY USED FOR AGRICULTURAL PU RPOSES AND THE LAND IS CAPABLE OF USE FOR THE PURPOSE OF A GRICULTURE TILL THE DATE OF SALE. THE FUTURE SCOPE OF THE ARE A TO USE THE LAND FOR NON-AGRICULTURAL PURPOSES DO NOT REFLECT T HAT THE LAND IS NOT AN AGRICULTURAL LAND .THE ASSESSEE NEVE R MADE ANY PLOT OUT OF THE IMPUGNED LAND AND THE LAND WAS SOLD IN CENTS AND NOT AS SQUARE FEET. THE ASSESSEE HAS NOT MADE ANY ROADS OR ANY FACILITIES AND IT WAS UNDEVELOPED LAND FIT TO USE FOR AGRICULTURAL PURPOSE AT THE TIME OF SALE. T HE ENTIRE LAND WAS SOLD AS IT WAS BROUGHT INTO ASSESSEE BOOKS . THE ASSESSEE SOLD THE LAND ONLY BECAUSE OF FAVOURABLE MARKETING CONDITIONS AS THE LAND WAS FETCHED A HIGH ER PRICE AND THE GETTING UP HIGHER PRICE DUE TO INDUSTRIALIZ ATION OR URBANIZATION CANNOT BE LED TO CONCLUSION THAT AGRIC ULTURAL LAND WAS SOLD AS NON-AGRICULTURAL LAND WHEN THE CLASSIFICATION OF LAND SHOWN IN REVENUE RECORD AS AGRICULTURAL LAND. EVEN TEMPORARY STOPPAGE OF THE - - ITA 1564/MDS//16 30 AGRICULTURAL ACTIVITIES DUE TO UN-FAVOURABLE CONDIT IONS, THE LAND CANNOT BE TREATED AS NON-AGRICULTURAL LAND. TH E ASSESSEE HAS SHOWN THE AGRICULTURAL INCOME, WHEN TH E AGRICULTURAL OPERATIONS WERE CARRIED ON THE SAID LA ND. THE PURPOSE FOR WHICH THE PURCHASER USED THE LAND CANNO T BE A REASON TO TREAT THE AGRICULTURAL LAND AS NON AGRICU LTURAL LAND. THE ASSESSEE INTENTS TO CARRY ON AGRICULTURAL OPERA TIONS. THIS AGRICULTURAL LAND IS SITUATED BEYOND THE MUNIC IPAL LIMITS. THE ASSESSEE HAS NOT TAKEN ANY PERMISSION F ROM THE GOVERNMENT FOR MAKING PLOTS, AS THE ASSESSEE NEVER HAD ANY INTENTION TO MAKE THE LAND INTO PLOTS AND CARRY ON REAL ESTATE BUSINESS IN RESPECT OF THE LAND. THE ASSESSE E HAS SOLD LAND AS IT IS CONDITION. COPIES OF SALE DEEDS OF THE ABOVE SAID LAND WERE BROUGHT ON RECORD BY THE ASSES SEE BEFORE THE LOWER AUTHORITIES TO PROVE THE FACT THAT THE LAND HELD/SOLD BY THE ASSESSEE IS AGRICULTURAL LAND. 6.2. THE AR SUBMITTED THAT THE SALE TRANSACTION EF FECTED BY THE ASSESSEE IN RESPECT OF THE ABOVE AGRICULTURE LAND CONSTITUTED ONLY SALE OF AGRICULTURE LAND, AND BY N O STRETCH - - ITA 1564/MDS//16 31 OF IMAGINATION, IT CANNOT BE TREATED AS GAIN ON SAL E OF SUCH CAPITAL ASSET LIABLE FOR TAXABLE CAPITAL GAINS, OR ADVENTURE IN TRADE AND SO AS TO TREAT THE SAME AS 'BUSINESS TRAN SACTION' FOR THE FOLLOWING REASONS: I) PURCHASE AND HOLDING OF LAND FOR A PERIOD AND SU BSEQUENT 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 G IVEN BY THE ASSESSEE FOR THIS ASSET IN ITS HANDS CANNOT I NDICATE THAT THE INTENTION OF THE ASSESSEE IS TO HOLD THE S AME AS BUSINESS ASSET. II) THE ASSESSEE HELD THE AGRICULTURE LAND FOR ABO UT FROM 21- 05-2008. DURING THAT PERIOD THE ASSESSEE TREATED IT FIXED ASSET. IN THE LIGHT OF FAVOURABLE MARKET CONDITIONS THE ASSESSEE THOUGHT IT GOOD TO SELL THE ASSET TO REALI ZE A GOOD AMOUNT. REALIZATION OF FIXED ASSET FOR BETTER PRICE IN A BOOMING MARKET CANNOT BE CONSIDERED AS AN ADVENTURE IN TRADE. III) THE EXPRESSION ADVENTURE IN THE NATURE OF TRAD E OCCURS 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 - - ITA 1564/MDS//16 32 AN ADVENTURE IN THE NATURE OF TRADE OR REALIZATION OF CAPITAL ASSET OR A MERE CONVERSION OF ASSET HAS TO BE DECIDED DEPENDING UPO N FACTS OF EACH CASE. IV) IN DECIDING AS TO WHETHER A PARTICULAR TRANSACT ION 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 LAND AS FIXED ASSET. TH EREFORE DISPOSAL OF THE SAME WOULD NOT CONVERT, WHAT WAS A CAPITAL ACCRETION, TO AN ADVENTURE IN THE NATURE OF TRADE. TO MAKE IT MORE CLEAR, SALE OF AGRICULTURAL LAND BY THE ASS ESSEE AND REALIZATION OF GOOD PRICE WOULD NOT ALTER THE BASIC NATURE AND CHARACTERISTIC OF THE TRANSACTION. THERE WAS NO ELEMENT OF TRADE ATTACHED TO THE ACTIVITY OF THE AS SESSEE IN PURCHASE AND SALE OF THE LAND. A CONTINUOUS BUSINES S REQUIRES MORE ACTIVITY AND GREATER ORGANIZATION. TH IS IS ABSENT IN THE TRANSACTION OF SALE OF LAND BY THE AS SESSEE. THEREFORE, ALTHOUGH THERE IS PROFIT IN THE TRANSACT ION THE TRANSACTION CANNOT BE CHARACTERIZED AS AN ADVENTURE IN THE NATURE OF TRADE. - - ITA 1564/MDS//16 33 VI) WHETHER A TRANSACTION IN RESPECT OF AN ASSET IS CAPITAL 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 TRANSACTIO NS, PERIOD 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 BU SINESS. 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 CARRIED ON A GRICULTURAL OPERATIONS IN THE SAID AGRICULTURE LAND AND DECLARE D AGRICULTURAL INCOME. 6.3. FROM THE ABOVE, IT IS CLEAR THAT: A) THE ASSESSEE PURCHASED AGRICULTURE LAND NOW UNDE R CONSIDERATION SITUATED BEYOND 8 KM FROM THE MUNICIP AL LIMITS. B) THE ASSESSEE TREATED THE SAME AS FIXED ASSET IN HER HAND AS LAND. - - ITA 1564/MDS//16 34 C) THE LAND WAS IDENTIFIED AS AGRICULTURE LAND IN T HE REVENUE RECORDS. D) THE ASSESSEE CARRIED ON AGRICULTURAL OPERATIONS IN THE LAND. E) THE ASSESSEE DID NOT CARRY ON ANY COMMERCIAL ACT IVITY 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 ASSE SSEE SOLD THE LAND AND THE SAME FETCHED THEM A GOOD PRICE. 6.4 THEREFORE, IN THE PRESENT CASE THERE IS NO D ISPUTE REGARDING THE FACT THAT THE ASSESSEES ACQUIRED AGRICULTURAL LAND. THERE IS ALSO NO DISPUTE THAT THERE WAS AGRICULTURAL OPERATION IN TH IS LAND BEFORE SALE OF THIS LAND. 6.5 THE ASSESSING OFFICER WAS OF THE OPINION THAT THE AMOUNT RECEIVED ON SALE OF THIS AGRICULTURAL PROPERTY IS N OTHING BUT LONG TERM CAPITAL GAINS ON TRANSFER OF SUCH AN AGRICULTURAL L AND AND THE SAME WAS BROUGHT INTO INCOME FROM BUSINESS. IN THIS CASE , THE ASSESSEE HELD THE LAND ALWAYS AS FIXED ASSET AND NOT AT ALL CONVERTED INTO STOCK-IN-TRADE. THE CHARACTER OF THE LAND IN THE HA NDS OF THE - - ITA 1564/MDS//16 35 ASSESSEES HAS NOT CHANGED. THERE IS NO MATERIAL ON RECORD IN RESPECT OF THIS LAND TO SHOW THAT THE ASSESSEE CARR IED ON ACTIVITIES OF BUYING AND SELLING OF LAND IN A SYSTEMATIC MANNER S O AS TO JUSTIFY THE ACTION OF THE AO IN TREATING THE ACTIVITIES OF THE ASSESSEE AS ADVENTURE IN THE NATURE OF TRADE. 6.6. NOW THE QUESTION AS TO WHETHER A LAND IS AGRIC ULTURAL LAND OR NOT IS ESSENTIALLY A QUESTION OF FACT. THE QUESTION HAS TO BE ANSWERED IN EACH CASE HAVING REGARD TO THE FACTS AND CIRCUMSTAN CES OF THAT CASE. THERE MAY BE FACTORS BOTH FOR AND AGAINST A PARTICU LAR POINT OF VIEW. WE HAVE TO ANSWER THE QUESTION ON A CONSIDERATION O F ALL OF THEM, A PROCESS OF EVALUATION AND THE INFERENCE HAS TO BE D RAWN ON A CUMULATIVE CONSIDERATION OF ALL THE RELEVANT FACTS. IT MAY BE STATED HERE THAT NOT ALL THE FACTORS OR TESTS WOULD BE PRE SENT OR ABSENT IN ANY CASE AND THAT IN EACH CASE ONE OR MORE OF THE FACTO RS MAY MAKE APPEARANCE AND THAT ULTIMATE DECISION WILL HAVE TO BE REACHED ON A BALANCED CONSIDERATION OF THE TOTALITY OF THE CIRCU MSTANCES. 6.7. THE EXPRESSION 'AGRICULTURAL LAND' IS NOT DEFI NED IN 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. - - ITA 1564/MDS//16 36 6.8. THE HON'BLE SUPREME COURT IN THE CASE OF SMT. SARIFABIBI MOHMED IBRAHIM (204 ITR 631) HAS APPROVED THE DECIS ION OF A DIVISION BENCH OF THE HON'BLE 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 A RE REQUIRED TO BE CONSIDERED AND UPON CONSIDERATION OF WHICH, THE QUE STION WHETHER THE LAND IS AN AGRICULTURAL LAND OR NOT HAS TO BE D ECIDED OR ANSWERED. WE REPRODUCE THE SAID 13 TESTS AS FOLLOWS: (I) WHETHER THE LAND WAS CLASSIFIED IN THE REVENUE RECORDS AS AGRICULTURAL AND WHETHER IT WAS SUBJECT TO THE PAYMENT OF LAND R EVENUE? (II) WHETHER THE LAND WAS ACTUALLY OR ORDINARILY US ED FOR AGRICULTURAL PURPOSES AT OR ABOUT THE RELEVANT TIME? (III) 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 ARR ANGEMENT? (IV) WHETHER THE INCOME DERIVED FROM THE AGRICULTUR AL OPERATIONS CARRIED ON IN THE LAND BORE ANY RATIONAL PROPORTION TO THE INV ESTMENT MADE IN PURCHASING THE LAND? (V) WHETHER, THE PERMISSION UNDER S. 65 OF THE BOMB AY LAND REVENUE CODE WAS OBTAINED FOR THE NON-AGRICULTURAL USE OF T HE LAND? IF SO, WHEN AND BY WHOM (THE VENDOR OR THE VENDEE)? WHETHER SUC H PERMISSION WAS IN RESPECT OF THE WHOLE OR A PORTION OF THE LAND? I F THE PERMISSION WAS IN - - ITA 1564/MDS//16 37 RESPECT OF A PORTION OF THE LAND AND IF IT WAS OBTA INED IN THE PAST, WHAT WAS THE NATURE OF THE USER OF THE SAID PORTION OF THE L AND ON THE MATERIAL DATE? (VI) WHETHER THE LAND, ON THE RELEVANT DATE, HAD CE ASED TO BE PUT TO AGRICULTURAL USE? IF SO, WHETHER IT WAS PUT TO AN A LTERNATIVE USE? WHETHER SUCH LESSER AND/OR ALTERNATIVE USER WAS OF A PERMAN ENT OR TEMPORARY NATURE? (VII) 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? (VIII) WHETHER THE LAND WAS SITUATED IN A DEVELOPE D 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? (IX) WHETHER THE LAND ITSELF WAS DEVELOPED BY PLOT TING AND PROVIDING ROADS AND OTHER FACILITIES? (X) WHETHER THERE WERE ANY PREVIOUS SALES OF PORTIO NS OF THE LAND FOR NON- AGRICULTURAL USE? (XI) WHETHER PERMISSION UNDER S. 63 OF THE BOMBAY T ENANCY AND AGRICULTURAL LAND ACT, 1948, WAS OBTAINED BECAUSE T HE SALE OR INTENDED SALE WAS IN FAVOUR OF A NON-AGRICULTURIST? IF SO, W HETHER THE SALE OR INTENDED SALE TO SUCH NON-AGRICULTURISTS WAS FOR NO N-AGRICULTURAL OR AGRICULTURAL USER? - - ITA 1564/MDS//16 38 (XII) WHETHER THE LAND WAS SOLD ON YARDAGE OR ON A CREAGE BASIS? (XIII) WHETHER AN AGRICULTURIST WOULD PURCHASE THE LAND FOR AGRICULTURAL PURPOSES AT THE PRICE AT WHICH THE LAND WAS SOLD AN D WHETHER THE OWNER WOULD HAVE EVER SOLD THE LAND VALUING IT AS A PROPE RTY YIELDING AGRICULTURAL PRODUCE ON THE BASIS OF ITS YIELD?' 7. IN THE PRESENT CASE, ON CROSS EXAMINATION OF SH RI S A BHUPATHI, VAO ON 11.2.2014 BY AUTHORISED REPRESENTATIVE OF AS SESSEE SHRI C.A.VETRIVEL, IT IS APPARENT THAT CHITTA AND ADANGA L MAINTAINED BY THE REVENUE DEPARTMENT ARE INCONSISTENT WITH EACH OTHER . EVEN AFTER 13 YEARS, THE ORIGINAL OWNERS NAME IS NOT CHANGED IN ADANGAL MAINTAINED BY THE ASSESSING OFFICER. FURTHER, EVEN AFTER CONSTRUCTION OF BUILDING DURING THE FY 2011-12, THE LANDS ARE SH OWN AS DRY LAND (THARISU) AS ON DATE. WHEREAS IN ADANGAL AND PATTA PASS BOOK MAINTAINED AT THE CONCERNED THASILDAR OFFICE IN COM PUTER ARE REFLECTING THE CORRECT OWNERSHIP AND POSSESSION, AG AINST THE VAO ADANGAL. FURHTER, IT WAS NOTED THAT THE VAO, WHO HA S ISSUED THE CERTIFICATE TO THE ASSESSEE IS WORKING AT KITTAMPAL AYAM VILLAGE FOR THE 7 MONTHS FROM THE DATE OF STATEMENT RECORDED ON 11. 2.2014. BUT THE BUILDING CONSTRUCTED BY THE ASSESSEE FOR THE NEW PR OJECT AT S.F NO.273/1, 275 & 276 DURING 2011-12 IS NOT REFLECTED AND RECORDED TILL - - ITA 1564/MDS//16 39 2013 -14 BUT MENTIONED IN THE REVENUE RECORDS CONTI NUOUSLY AS DRY LAND. IT IS ALSO STATED IN ANSWER TO QUESTION NO.2 7 THAT CERTIFICATE WAS ISSUED TO THE ASSESSEE WITHOUT PROPER FIELD AUD IT. FURTHER, ANSWER TO QUESTION NO.12 IT WAS ADMITTED BY VAO THA T REGULAR PROCEDURE WAS NOT FOLLOWED BY THE PREVIOUS VAO AND OWNERSHIP NAME WAS NOT CHANGED IN THE REVENUE RECORDS AND CER TAIN COLUMNS NOT FILLED FIN THE ADANGAL. ON THIS COUNT, IT IS T O BE OBSERVED THAT VAO HAS NOT DISCHARGED THE DUTY PROPERLY. 7.1 FURTHER, THE ASSESSEE MAINTAINED THE BOOKS OF ACCOUNTS, WHICH WERE DULY AUDITED AND THE SAME WAS PRODUCED BEFORE THE ASSESSING OFFICER ALONG WITH THE SUPPORTING BILLS AND VOUCHER S. THE BOOKS OF ACCOUNTS WERE ACCEPTED BY THE ASSESSING OFFICER, AN D NO ADVERSE INFERENCE WAS POINTED OUT IN MAINTAINING THE SAME. NO CHANGE IN OPENING STOCK AND CLOSING STOCK WAS NOTICED. THE A SSESSEE HAS DISCHARGED PRIMARY ONUS CAUSED UPON IT. THE LAND IN QUESTION IS SITUATED AT S.F NO.273/3, 273/1, 275, 266/2K, 276 C ONSTITUTES 32.37 ACRE OF LAND WHICH WAS CLASSIFIED AS AGRICULTURAL L AND IN REVENUE RECORDS SOLD BY DOC. NO. 3693/10 DATED 31.05.2010 & 6150/2010 DT.30.10.2010 ON WHICH KIST AMOUNT IS MENTIONED A ND KIST AMOUNT IS ONLY APPLICABLE TO AGRICULTURAL LAND AS PER REVE NUE RECORDS. IN - - ITA 1564/MDS//16 40 CERTAIN YEARS, IT WAS DUE TO MONSOON FAILURE, THERE WAS NO CULTIVATION IN THE SAID LAND ONLY GROWN GRASS AND DECLARED MEAG ER AGRICULTURAL INCOME. HOWEVER, THE COMPANY DECLARING AGRICULTURAL INCOME CONTINUOUSLY FROM THE DATE OF INCORPORATION, I.E.12 .05.2008 FROM THE SAID LAND. HOWEVER, THE REVENUE AUTHORITIES WERE NO T RECORDED THE GROWING OF GRASS IN THE RECORD AS IT IS NOT NECESSA RY AND RECORDED AS DRY LAND. BUT THIS CLASSIFICATION DOES NOT MAKE T HE AGRICULTURAL LAND AS NON AGRICULTURAL LAND. 7.3 IT IS BROUGHT TO OUR NOTICE THAT THE DISTANCE OF MUNICIPALITY TO THE IMPUGNED LAND IS MORE THAN 8 KMS. SPECIFICALLY THE ASSESSEE FILED A GOOGLE MAP THIRUPURA MUNICIPAL CORPORATION TO KITTA PALLAYM 23 KM BY ROAD; SULUR TO KITTAPALLYAM 23 KM FROM ROAD AND NO MUNICIPALITY WITHIN 8 KM FROM KITTAPALLYAM VILLAGE. 7.4 FURTHER, REGARDING THE DISTANCE OF MUNICIPALIT Y FROM THE SITUATION OF LAND AT KITTAPALAYAM VILLAGE, ONE NEED NOT TO BE MEASURED ONLY IN A STRAIGHT LINE OR HORIZONTAL PLANE AND THE DISTANC E HAS TO BE MEASURED ONLY THROUGH THE ACCESS TO ROAD AND NOT IN A STRAIGHT OR HORIZONTAL PLANE AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DR.R.RENGARAJAN IN TC NO.491 OF 2016 DATED 3.8.2016. - - ITA 1564/MDS//16 41 7.5 IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE'S LANDS WERE CLASSIFIED AS AGRICULTURAL LAND IN THE R EVENUE RECORDS. AS HELD BY THE APEX COURT, WHEN THE LAND IS ASSESSED T O THE LAND REVENUE AS AGRICULTURAL LAND UNDER STATE REVENUE LA W, IT IS CERTAINLY A RELEVANT FACTOR BUT NOT CONCLUSIVE. THE LAND WAS ALREADY CLASSIFIED AS AGRICULTURAL LAND IN THE REVENUE RECORDS AND THE ASSESSEE CARRIED ON AGRICULTURAL ACTIVITIES IN THE SAID LAND, FOR WH ICH WAS NO DISPUTE AS THE ASSESSEE DECLARED INCOME FROM AGRICULTURAL OPER ATIONS. SINCE THE INTENTION OF THE ASSESSEE WAS NOT TO USE THE AG RICULTURAL LAND FOR NON-AGRICULTURAL PURPOSES, THERE IS NO QUESTION OF TAKING OF ANY PERMISSION FOR CONVERSION OF THE LAND. 8. THE A.R SUBMITTED THAT ASSESSEE CARRIED ON AGRIC ULTURAL OPERATIONS IN THE LAND UPTO THIS ASSESSMENT YEAR. THE OWNER I NTENDED TO USE IT FOR AGRICULTURAL PURPOSES ONLY AND THE INTENTION OF THE OWNER IS FULFILLED SINCE THE AGRICULTURAL ACTIVITIES GENERATED INCOME. THE LAND WAS SITUATED IN A AREA WHEREIN LOT OF AGRICULTURAL ACTI VITIES ARE BEING CARRIED ON. NO DEVELOPMENT OF THE LAND WAS DONE BY MAKING PLOTS AND PROVIDING ROADS AND OTHER FACILITIES. IT IS WRO NG TO CONCLUDE THAT WORK HAS BEEN DONE AIMING TO PLOTTING, DEVELOPING I NFRASTRUCTURE BECAUSE THE LAND DEVELOPMENT WAS DONE IN OTHER LAND . THERE WAS NO - - ITA 1564/MDS//16 42 PREVIOUS SALE OF THE PORTIONS OF THE LAND FOR NON-A GRICULTURAL USE. THE LAND WAS SOLD ONLY AS AGRICULTURAL LANDS AT THE TIM E OF SALE AND AGRICULTURAL OPERATIONS WERE CONTINUED AS ON THE DA TE OF SALE. THE LAND WAS SOLD ON ACREAGE BASIS ONLY. THE LAND WAS S OLD AT PREVAILING MARKET PRICES ONLY. NON PRODUCTION OF EVIDENCE FOR AGRICULTURAL EXPENDITURE WHICH WAS ACTUALLY INCURRED DOES NOT MA KE AN AGRICULTURAL LAND A NON-AGRICULTURAL ONE. WHAT HAS TO BE SEEN HERE IS WHETHER THE INCOME WAS RECEIVED ON AGRICULTURAL ACT IVITY OR NOT, INSTEAD OF SEEING THE RATIO OF JUDGMENTS RELIED BY THE PARTIES. IT IS WRONG TO SAY THAT THE ACTIVITIES OF THE ASSESSEE, W HICH ARE AGRICULTURAL IN FACT, CONFIRM TO THE COMMERCIAL NATURE. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT THE JUDGMENT OF SUPREME COURT I N THE CASE OF SMT. SARIFABIBI MOHAMED IBRAHIM & ORS. (CITED SUPRA) SUPPORTS THE CASE OF THE ASSESSEE RATHER THAN AGAINST THE ASSESSEE. 8.1. A REFERENCE COULD BE MADE TO THE CASE OF CWT VS. OFFICER-IN- CHARGE (COURT OF WARDS) (105 ITR 138) (SC) WHEREIN THE CONSTITUTION BENCH OF THE HON'BLE SUPREME COURT STATED THAT THE TERM 'AGRICULTURE' AND 'AGRICULTURAL PURPOSE' WAS NOT DEFINED IN THE INDIAN IT ACT AND THAT WE MUST NECESSARILY FALL BACK UPON THE GENERAL SENSE IN WHICH THEY HAVE BEEN UNDERSTOOD IN COMMON PARLANCE. THE H ON'BLE - - ITA 1564/MDS//16 43 SUPREME COURT HAS OBSERVED THAT THE TERM 'AGRICULTU RE' IS THUS UNDERSTOOD AS COMPRISING WITHIN ITS SCOPE THE BASIC AS WELL AS SUBSEQUENT OPERATIONS IN THE PROCESS OF AGRICULTURE AND RAISING ON THE LAND ALL PRODUCTS WHICH HAVE SOME UTILITY EITHE R FOR SOMEONE OR FOR TRADE AND COMMERCE. IT WILL BE SEEN THAT THE TERM ' AGRICULTURE' RECEIVES A WIDER INTERPRETATION BOTH IN REGARD TO I TS OPERATION AS WELL AS THE RESULT OF THE SAME. NEVERTHELESS THERE IS PR ESENT ALL THROUGHOUT THE BASIC IDEA THAT THERE MUST BE AT THE BOTTOM OF ITS CULTIVATION OF THE LAND IN THE SENSE OF TILLING OF THE LAND, SOWING OF THE SEEDS, PLANTING AND SIMILAR WORK DONE ON THE LAND ITSELF AND THIS B ASIC 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 SUBSEQUENT OPERATIONS DO NOT ACQUIRE THE CHARACTERISTICS OF AGRICULTURAL OPERATI ONS. THE CONSTITUTION BENCH OF THE HON'BLE SUPREME COURT IN THE AFORESAID CASE OBSERVED THAT THE ENTRIES IN REVENUE RECORDS WERE CONSIDERED GOOD PRIMA FACIE EVIDENCE. 8.2. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF DR. MOTIBHAI D. PATEL VS. CIT (1982) 27 CTR (GUJ) 238 : (1981) 127 ITR 671 (GUJ) - - ITA 1564/MDS//16 44 REFERRING TO THE CONSTITUTION BENCH OF THE HON'BLE SUPREME COURT HAD STATED THAT IF AGRICULTURAL OPERATIONS ARE BEING CA RRIED ON IN THE LAND IN QUESTION AT THE TIME WHEN THE LAND IS SOLD AND FURT HER IF THE ENTRIES IN THE REVENUE RECORDS SHOW THAT THE LAND IN QUESTION IS AGRICULTURAL LAND, THEN, A PRESUMPTION ARISES THAT THE LAND IS A GRICULTURAL IN CHARACTER AND UNLESS THAT PRESUMPTION IS REBUTTED B Y EVIDENCE LED BY THE REVENUE, IT MUST BE HELD THAT THE LAND WAS AGRI CULTURAL IN CHARACTER AT THE TIME WHEN IT WAS SOLD. THE DIVISIO N BENCH OF THE HON'BLE GUJARAT HIGH COURT FURTHER HELD THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE PRESUMPTION ROSE FROM THE L ONG USER OF THE LAND FOR AGRICULTURAL PURPOSE AND ALSO THE PRESUMPT ION ARISING FROM THE ENTRIES OF THE REVENUE RECORDS ARE REBUTTED. 8.3. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF C WT VS. H. V. MUNGALE (1983) 32 CTR (BOM) 301 : (1984) 145 ITR 20 8 (BOM) HELD THAT THE HON'BLE SUPREME COURT HAD POINTED OUT THAT THE ENTRIES RAISED ONLY A REBUTTABLE PRESUMPTION AND SOME EVIDE NCE WOULD, THEREFORE, HAVE TO BE LED BEFORE TAXING AUTHORITIES ON THE QUESTION OF INTENDED USER OF THE LAND UNDER CONSIDERATION BEFOR E THE PRESUMPTION COULD BE REBUTTED. THE COURT FURTHER HELD THAT THE SUPREME COURT HAD CLEARLY POINTED OUT THAT THE BURDEN TO REBUT THE PR ESUMPTION WOULD BE - - ITA 1564/MDS//16 45 ON THE REVENUE. THE HON'BLE BOMBAY HIGH COURT HELD THAT THE RATIO OF THE DECISION OF THE SUPREME COURT WAS THAT WHAT IS TO BE DETERMINED IS THE CHARACTER OF THE LAND ACCORDING T O THE PURPOSE FOR WHICH IT WAS MEANT OR SET APART AND CAN BE USED. IT IS, THEREFORE, OBVIOUS THAT THE ASSESSEE HAD ABUNDANTLY PROVED THA T THE SUBJECT LAND SOLD BY THEM WAS AGRICULTURAL LAND NOT ONLY AS CLASSIFIED IN THE REVENUE RECORDS, BUT ALSO IT WAS SUBJECTED TO THE P AYMENT OF LAND REVENUE AND THAT IT WAS ACTUALLY AND ORDINARILY USE D FOR AGRICULTURAL PURPOSE AT THE RELEVANT TIME. 9. WE MAY ALSO REFER TO THE CASE OF CIT VS. MANILAL SOMNATH (1977) 106 ITR 917 (GUJ), WHEREIN THE DIVISION BENC H OF THE HON'BLE GUJARAT HIGH COURT OBSERVED THAT THE POTENTIAL NON- AGRICULTURAL VALUE OF THE LAND FOR WHICH A PURCHASER MAY BE PREPARED T O PAY A LARGE PRICE WOULD NOT DETRACT FROM ITS CHARACTER AS AGRIC ULTURAL LAND ON THE RELEVANT DATE OF SALE. 9.1. 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 CASES. IN THI S CASE, THE DIVISION - - ITA 1564/MDS//16 46 BENCH OF THE BOMBAY HIGH COURT HAS STATED THAT THE PROFIT MOTIVE OF THE ASSESSEE SELLING THE LAND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISIVE FOR DETERMINATION OF THE ISSUE AS TO WHETHER THE TRANSACTION AMOUNTED TO AN ADVENTURE IN THE NATURE OF TRADE. IN OTHER WORDS, THE PRICE PAID IS NOT DECISIVE TO SAY WHETHE R THE LAND IS AGRICULTURAL OR NOT. 9.2. WE MAY REFER TO A JUDGMENT OF THE HON'BLE MAD RAS HIGH COURT IN THE CASE OF CWT VS. E. UDAYAKUMAR (2006) 284 ITR 511 (MAD) WHERE THE HON'BLE MADRAS HIGH COURT HAS REFERRED TO THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SMT. SAVITA RANI (2004) 186 CTR (P&H) 240 : (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), WHEREI N IT IS HELD THAT THE LAND BEING LOCATED IN A COMMERCIAL AREA OR THE LAND HAVING BEEN PARTIALLY UTILISED FOR NON-AGRICULTURAL PURPOS ES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NON-AGRICULTURAL PURPOSES, WERE TOTALLY IRRELEVANT CONSIDERATION FOR THE PURPOSES O F 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, 1 7 MARLAS LAND DURING THE FINANCIAL YEAR 1990-91, RELEVANT TO THE ASST. YR. 1991-92, - - ITA 1564/MDS//16 47 THE SALE WAS EFFECTED BY THREE REGISTERED SALE DEED S. WHILE FILING 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 INVEST ED IN THE PURCHASE OF AGRICULTURAL 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 THE CI T(A). ON FURTHER APPEAL, THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSE SSEE HOLDING THAT THE TRANSACTION IN QUESTION DULY FULFILLED THE COND ITIONS SPECIFIED FOR RELIEF. ON FURTHER APPEAL TO THE HIGH COURT, THE PU NJAB & HARYANA HIGH COURT FOUND THAT THE FINDING THAT THE LAND HAD BEEN USED FOR AGRICULTURAL PURPOSES WAS BASED ON COGENT AND RELEV ANT MATERIAL. THE REVENUE RECORD SUPPORTED THE CLAIM. EVEN THE RE CORDS OF THE IT DEPARTMENT SHOWED THAT THE ASSESSEE HAD DECLARED AG RICULTURAL INCOME FROM THIS LAND IN HER RETURNS FOR THE PRECED ING TWO YEARS. THE LAND BEING LOCATED IN COMMERCIAL AREA OR THE LAND H AVING BEEN PARTIALLY UTILISED FOR NON-AGRICULTURAL PURPOSES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NONAGRICULTURAL PURPOSES, WER E 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 INTENT TO PURCHASE ANO THER LAND WITHIN TWO YEARS HAD ALSO BEEN PERMITTED TO CLAIM EXEMPTIO N UNDER S. 54B OF THE IT ACT, 1961. IN THE INSTANT CASE, EVEN THOU GH THERE WAS NO SALE AS SUCH, THE ASSESSEE OWNED AGRICULTURAL LAND WITHIN THE LIMITS OF TIRUNELVELI CORPORATION AND HE HAD NOT PUT UP AN Y CONSTRUCTION THEREON, THE ASSESSEE IS ENTITLED TO CLAIM EXEMPTIO N FROM THE WT ACT FOR THE ASSESSMENT OF WEALTH-TAX. THAT THE LAND IN QUESTION IS ADJACENT TO THE HOSPITAL IS TOTALLY IRRELEVANT.' - - ITA 1564/MDS//16 48 10. ADVERTING TO THE FACTS OF THE PRESENT CASE, TH E LAND IN QUESTION IS CLASSIFIED IN THE REVENUE RECORDS AS AGRICULTURA L LAND AND THERE IS DISPUTE REGARDING THIS ISSUE AND CULTIVATION HAS B EEN CARRIED ON THIS LAND UPTO THIS ASSESSMENT YEAR AND INCOME WAS DEC LARED FROM THIS LAND IN THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR AS AGRICULTURAL INCOME. IT IS ALSO AN ADMITTED FACT THAT THE AO HAS BROUGHT ON RECORD BY WAY OF LETTER DATED 27-01-201 4 FROM TEHSILDAR, COIMBATORE THAT THE LAND WAS WITHIN 4 KMS FROM MUN ICIPAL CORPORATION AND HE FURTHER SUBMITTED THAT AS PER RE CORDS OF HIS OFFICE THERE WAS NO AGRICULTURAL ACTIVITIES CARRIED OUT BY THE ASSESSEE COMPANY FOR ANY YEAR PRIOR TO FINANCIAL YEAR 2010-1 1 AS PER ADANGAL DETAILS ANNEXED WITH THE REPLY OF THE TEHSILDAR, TH ERE IS AGRICULTURAL ACTIVITY SINCE 2005-2006. THERE IS ALSO STATEMENT R ECORDED BY THE ASSESSING OFFICER U/S.131 OF THE ACT FROM VAO WHERE IN HE SAID THAT THERE IS NO AGRICULTURAL ACTIVITIES CARRIED ON THIS LAND. THIS STATEMENT DOES NOT HAVE THE DATE ON WHICH IT WAS RECORDED. T HE CERTIFICATE ISSUED BY THE TEHSILDAR ON 27.01.2014 WHEREIN HE ST ATED THAT DISTANCE OF THE LAND FROM THE NEAREST MUNICIPAL ARE A IS 4 KM, WHICH IS AS FOLLOWS:- - - ITA 1564/MDS//16 49 FROM TO THIRU J. ABIHURKAHMAN, B.A., ASSISTANT COMMIS SIONER OF TAHSILDAR INCOME TAX, SULUR COMPANY CIRCLE RANGE IV RACE COURSE ROAD COI MBATORE. REF NO, 447/14/A2 DATED:27 .01.2014 SIR, SUB: INCOME TAX ASSESSMENT IN THE CASE OF M/S.KPR DEVELOPERS LTD., COIMBATORE FOR ASSESSMENT YEAR 2011-12 CALLING FOR I NFORMATION U/S.133(3) OF THE INCOME TAX ACT, 1961 SEND -REGARDING REF: YOUR LETTER NO.AA DCK.4094L, DATED 21.01.14 WITH REFERENCE TO THE ABOVE, I AM FURNISHING THE FO LLOWING DETAILS. 1 CHITTA, ADANGAL COPIES FOR THE SURVEY NOS NOTED. 2. DISTANCE FROM KARUMATHAMPATTI PANCHAYAT IS 4 KM. 3. MARKET VALUE OF THE SURVEY NOS NOTED AS ON 30.0 8.2010 IS RS.20,00,000/-(RUPESS TWENTY LAKHS) 4, PAN NO. ARI PA 2850P. 5. ASSESSING OFFICER: COLLECTOR, COIMBATORE, END: AS ABOVE. YOURS FAITHFULLY SD/- TAHSILDAR,SULUR COPY SUBMITTED TO THE REVENUE DIVISIONAL OFFICER, COIMBATORE. 10.1 CONTRARY TO THIS, THERE IS A CERTIFICATE DA TED 29.01.2014 WHICH READS AS UNDER:- FROM TO THIRU J. ABIHURKAHMAN, B.A., ASSISTANT COMMIS SIONER OF TAHSILDAR INCOME TAX, SULUR COMPANY CIRCLE RANGE IV RACE COURSE ROAD COI MBATORE. REF NO, 447/14/A2 DATED:29 .01.2014 SIR, SUB: INCOME TAX ASSESSMENT IN THE CASE OF M/S.KPR DEVELOPERS LTD., COIMBATORE FOR ASSESSMENT YEAR 2011-12 CALLING FOR I NFORMATION U/S.133(3) OF THE INCOME TAX ACT, 1961 SEND -REGARDING WITH REFERENCE TO THE ABOVE, I AM FURNISHING THE FO LLOWING DETAILS. 1 CHITTA, ADANGAL COPIES FOR THE SURVEY NOS NOTED. 2. DISTANCE FROM KARUMATHAMPATTI PANCHAYAT IS 4 KMS A ND NO MUNICIPALITY WITHIN 8 KMS FROM KITTAMPAIAYAM VILLAGE . - - ITA 1564/MDS//16 50 3. MARKET VALUE OF THE SURVEY NOS NOTED AS ON 30.0 8.2010 IS RS.20,00,000/-(RUPESS TWENTY LAKHS) 4, PAN NO. ARI PA 2850P. 5. ASSESSING OFFICER: COLLECTOR, COIMBATORE, END: AS ABOVE. YOURS FAITHFULLY SD/- TAHSILDAR,SULUR COPY SUBMITTED TO THE REVENUE DIVISIONAL OFFICER, COIMBATORE. BEING SO, WE CANNOT GIVE ANY CREDENCE TO THE STATEM ENT RECORDED BY THE ASSESSING OFFICER FROM VAO OR TO THE CERTIFICAT E ISSUED ON 27.01.2014. 11. IT IS ALSO AN ADMITTED POSITION THAT MERE IN CLUSION OR PROXIMITY OF LAND TO ANY DEVELOPMENT AREA WITHOUT ANY INFRAST RUCTURE DEVELOPMENT THEREUPON OR WITHOUT ESTABLISHING AND P ROVING THAT THE LAND WAS PUT INTO USE FOR NON-AGRICULTURAL PURPOSES BY THE ASSESSEE DOES NOT AND CANNOT CONVERT THE AGRICULTURAL LAND I NTO NON-AGRICULTURAL LAND. IN THE INSTANT CASE, AT THE RELEVANT POINT OF SALE OF THE LAND IN QUESTION, BECAUSE THE SURROUNDING AREA WAS TOTALLY DEVELOPED AND MERE POSSIBILITY TO PUT THE LAND INTO USE FOR NON-A GRICULTURAL PURPOSES WOULD NOT CHANGE THE CHARACTER OF THE AGRICULTURAL LAND INTO NON- AGRICULTURAL LAND, WHEN THE LAND WAS SOLD BY THE AS SESSEE. IT IS ALSO AN ADMITTED POSITION THAT THE ASSESSEE HAD NOT APPL IED FOR CONVERSION OF THE LAND IN QUESTION INTO NON-AGRICULTURAL PURPO SES AND NO SUCH - - ITA 1564/MDS//16 51 PERMISSIONS WERE OBTAINED FROM THE CONCERNED AUTHOR ITY. IN THE REVENUE RECORDS, THE LAND IS CLASSIFIED AS AGRICULT URAL LAND AND HAS NOT BEEN CHANGED FROM AGRICULTURAL LAND TO NON-AGRI CULTURAL LAND AT THE RELEVANT POINT OF TIME WHEN THE LAND WAS SOLD BY TH E ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT THERE WAS NO ACTIVITY UNDE RTAKEN BY THE ASSESSEE OF DEVELOPING THE LAND BY PLOTTING AND PRO VIDING ROADS AND OTHER FACILITIES AND THERE WAS NO INTENTION ALSO ON THE PART OF THE ASSESSEES HEREIN TO PUT THE SAME FOR NON-AGRICULTUR AL 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-AGRI CULTURAL PURPOSES HAS BEEN BROUGHT ON RECORD. AT THE RELEVANT POINT O F 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 ASSESSEE. IN VIEW OF THE DECISION O F 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 ASSESSE E IN SELLING THE LAND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISI VE TO SAY THAT THE ASSESSEE USED THE LAND FOR NON-AGRICULTURAL PURPOSE S. WE MAY ALSO REFER TO A DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF N. - - ITA 1564/MDS//16 52 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 ENOUGH TO CONCLUD E 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 BO UGHT BY DEVELOPER CANNOT BE A DETERMINING FACTOR BY ITSELF TO SAY THA T THE LAND WAS CONVERTED INTO USE FOR NON-AGRICULTURAL PURPOSES. 12. IT IS ALSO EVIDENT FROM THE MEMORANDUM EXPLAINING T HE PROVISIONS OF FINANCE ACT , 1970, WHEREBY S. 2(14) WAS AMENDED SO AS TO INCLUDE THE AGRICULTURAL LAND LOCATED WITHIN THE JURISDICTION OF A MUNICIPALITY IN THE DEFINITION OF THE EXPRESSION 'C APITAL ASSET'. THE RELEVANT PORTION OF THE SAID MEMORANDUM IS REPRODUC ED 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 DE FINITION OF THE TERM 'CAPITAL ASSET' IN SECTION 2(14) HAS BEEN AMENDED SO AS TO EXCLUDE FROM ITS SCOPE ONLY AGRICULTURAL LAND IN INDIA WHIC H IS NOT SITUATE IN ANY AREA COMPRISED WITHIN THE JURISDICTION OF A MUNICIP ALITY OR CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN T EN 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 NOTIF Y IN THE OFFICIAL GAZETTE ANY AREA OUTSIDE THE LIMITS OF ANY MUNICIPA LITY OR CANTONMENT - - ITA 1564/MDS//16 53 BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOU SAND 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 SCO PE FOR, URBANISATION OF SUCH AREA, AND, WHEN ANY SUCH AREA IS NOTIFIED BY THE CENTRAL GOVERNMENT, AGRICULTURAL LAND SITUATED WITH IN SUCH AREA WILL STAND INCLUDED WITHIN THE TERM 'CAPITAL ASSET'. AGR ICULTURAL LAND SITUATED IN RURAL AREAS, I.E., AREAS OUTSIDE ANY MUNICIPALIT Y OR CANTONMENT BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOUSAND A ND ALSO BEYOND THE DISTANCE NOTIFIED BY THE CENTRAL GOVERNMENT FROM TH E LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD, WILL CONTINUE TO BE EXCLUDED FROM THE TERM 'CAPITAL ASSET'. 12.1 IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF TH E OPINION THAT THE LAND IN QUESTION CANNOT BE CONSIDERED AS STOCK IN T RADE IN THE HANDS OF ASSESSEE OR CAPITAL ASSET LIABLE FOR TAXABLE CAP ITAL GAINS ON ITS TRANSFER. IT IS NOTHING BUT TRANSFER OF AGRICULTUR AL LAND IN TERMS OF SEC.2(14)(III) R.W.S. 10(37) OF THE ACT AND TRANSFE R OF THAT LAND CANNOT LEAD TO TAXABLE CAPITAL GAINS OR INCOME FROM BUSINE SS. CONSEQUENTLY, IT IS NOT LIABLE FOR TAXATION. ONCE WE HAVE CONSIDE RED IT AS AGRICULTURAL LAND, AND AGRICULTURAL INCOME ACCEPTED BY THE CIT(A PPEALS) AS AGRICULTURAL INCOME, IT IS TO ACCEPTED AS SO. 12.2 FURTHER, IT IS ALSO BE NOTED THAT OUR ABOVE V IEW IS ALSO SUPPORTED BY THE RECENT JUDGMENT OF JURISDICTIONAL HIGH COURT IN - - ITA 1564/MDS//16 54 T.C.A.NO. 483/2016 DATED 1-9-2016 IN THE CASE OF M/ S MANSI FINANCE CHENNAI LTD. IN VIEW OF THE ABOVE, WE DIRECT THE AO TO CONSIDER GAIN ON SALE OF IMPUGNED LAND AS EXEMPTED FROM CAPITAL GAIN AND TO TREAT AS CAPITAL RECEIPT UNDER PROVISIONS OF SECTION 10( 37) OF THE ACT ONLY. ACCORDINGLY, WE DISMISS THE GROUND TAKEN BY THE REV ENUE IN ITS APPEAL. 13 . IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. ORDER PRONOUNCED ON 05 TH MAY , 2017 AT CHEN NAI . SD/- SD/- ( $% & ) ( ' ( ) $ ) *%+,-,./01,2345,.62,+778,293 : ;< /JUDICIAL MEMBER ! ;<=>>70.?,.?@A1BA2 ': /CHENNAI, C; /DATED, THE 05 TH MAY, 2017. K S SUNDARAM ;D EFGF / COPY TO: 1 . / APPELLANT 3. H3 / CIT(A) 5. FIJ K / DR 2. / RESPONDENT 4. H / CIT 6. JLM / GF