Asst.CIT, Cent. Cir-5, Hyderabad V. M/s Bhavya Constructions Private Limited, Hyderabad

ITA 1751/HYD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82298 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 06-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Capital asset; Business income; Revised return
• Section: 143(3); 2(14); 153A; 132

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER S.NO. ITA NO. AY APPELLANT RESPONDENT 1. 1751/H/12 2007-08 ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 5, HYDERABAD BHAVYA CONSTRUCTIONS PVT. LTD., PADMAVATHI MANSION, HYDERABAD PAN AAACB8482C 2. 1752/H/12 2007-08 -DO- M.S. RAGHAVA REDDY, HYDERABAD. PAN-AFYPM0613C 3. 1754/H/12 2007-08 -DO- R. SRINIVASA RAO, HYDERABAD PAN-AAYPR6365H 4 1783/H/12 2007-08 -DO- R. UMA MAHESWAR, HYDERABAD PAN-AHLPR3954N 5 1784/H/12 2007-08 -DO- P. SHIVAKUMAR, HYDERABAD PAN-AGVPP5736F 6 1785/H/12 2007-08 -DO- G.C. SUBBANAIDU, HYDERABAD PAN-ADJPG5842N 7 1790/H/12 2007-08 -DO- T. GOPICHAND, HYDERABAD PAN-AAXPG5449G ASSESSEE BY SHRI A. SRINIVAS REVENUE BY SHRI D. SUDHAKAR RAO DATE OF HEARING 22-07-2014 DATE OF PRONOUNCEMENT 28-08-2014 O R D E R PER SAKTIJIT DEY, J.M.: THESE BUNCH OF SEVEN APPEALS, ALL BY THE DEPARTMENT , ARE DIRECTED AGAINST SEPARATE ORDERS OF THE CIT(A) ALL PERTAINING TO AY 2007-08. THOUGH ASSESSEES ARE DIFFERENT, SINCE FACT S ARE IDENTICAL 2 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS AND ISSUES ARE COMMON ALL THESE APPEALS HAVE BEEN C LUBBED TOGETHER AND FOR THE SAKE OF CONVENIENCE DISPOSED OFF IN THI S COMBINED ORDER. 2. THE EFFECTIVE GROUNDS RAISED BY THE DEPARTMENT, WHICH ARE COMMON IN ALL THE APPEALS, READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE GAIN FROM THE SALE OF LAN D AT BOWRAMPET IS EXEMPT IGNORING THE VARIOUS FINDINGS O F FACT MENTIONED IN THE ASSESSMENT ORDER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE TRANSACTION ON SALE OF LA ND AT BOWRAMPET IS NOT AN ADVENTURE IN THE NATURE OF THE TRADE. 3. AS FACTS ARE COMMON IN ALL THE APPEALS, WE WILL DEAL WITH THE FACTS AS INVOLVED IN ITA NO. 1751/HYD/12. 4. BRIEFLY THE FACTS ARE, ASSESSEE IS A COMPANY CAR RYING ON BUSINESS AS BUILDERS AND DEVELOPERS. ASSESSEE, ORIG INALLY HAD FILED ITS RETURN OF INCOME FOR AY 2007-08 ON 31/10/2007 D ECLARING INCOME OF RS. 2,56,61,122. ON 07/10/2009 A SEARCH AND SEIZ URE OPERATION U/S 132 OF THE ACT WAS CONDUCTED IN CASE OF VENIGELLA ANAND PRASAD AND OTHERS WITHIN THE GROUP INCLUDING THE PRESENT ASSE SSEE. AS A CONSEQUENCE OF SEARCH NOTICE U/S 153A WAS ISSUED TO THE ASSESSEE ON 30/08/2010 CALLING FOR A RETURN OF INCOME. IN RE SPONSE TO THE SAID NOTICE, ASSESSEE FILED A REVISED RETURN OF INCOME D ECLARING TOTAL INCOME OF RS. 2,89,62,423. DURING THE ASSESSMENT PR OCEEDING, AO NOTICED THAT ASSESSEE HAS PURCHASED LAND ADMEASURIN G 57.2625 ACRES AT BOWRAMPET UNDER A NUMBER OF SALE DEEDS DUR ING THE FY 2004-05. OUT OF THE TOTAL LAND HELD, ASSESSEE HAS S OLD LAND ADMEASURING 30.2 ACRES TO M/S VARUN CONSTRUCTIONS T HROUGH AN AGREEMENT OF SALE CUM GPA DT. 12/03/2007 FOR TOTAL CONSIDERATION OF RS. 30,20,00,000. FURTHER, AO NOTICED THAT IN THE R ETURN OF INCOME FILED FOR AY 2007-08, ASSESSEE HAS CLAIMED THE ENTI RE SALE PROCEED AS EXEMPT FROM CAPITAL GAIN, THOUGH SALE PROCEEDS WAS REFLECTED IN THE CAPITAL ACCOUNT/BALANCE SHEET. EXEMPTION FROM CAPIT AL GAIN WAS 3 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS CLAIMED ON THE GROUND THAT LAND SOLD BEING AGRICULT URAL IN NATURE IS NOT A CAPITAL ASSET AS DEFINED U/S 2(14) OF THE A CT. ASSESSEES CONTENTIONS DURING THE ASSESSMENT PROCEEDING IN THI S REGARD ARE AS UNDER: A) IT IS SUBMITTED THAT THE LAND PURCHASED IS AN AG RICULTURAL LAND AND IT DOES NOT FALL WITHIN DEFINITION OF THE CAPIT AL ASSET U/S 2(14)(III) OF THE IT ACT, 1961. THE SAID LAND IS AG RICULTURAL LAND AND SITUATED AT BOWRAMPET VILLAGE NOT SITUATED WITH IN 8 KM OF THE LOCAL LIMITS OF ANY MUNICIPALITY ETC. B) THE COMPANY CARRIED AGRICULTURE OPERATIONS ON TH E SAID LAND AND IS IN CULTIVATION AND ARRIVED INCOME/LOSS ON TH E SAME. C) THE LAND PURCHASED IS AN AGRICULTURE LAND AND SO LD AS AGRICULTURE LAND ONLY AND FOR THE SUBMISSION MADE A BOVE, IT CANNOT BE TAXED. AS PER REVENUE RECORDS THE LAND IS AGRICULTURE LAND ONLY. TO VERIFY THE GENUINENESS OF ASSESSEES CLAIM OF EX EMPTION IN THE CONTEXT OF CERTAIN INCRIMINATING MATERIALS FOUND DU RING SEARCH, THE AO CONDUCTED ENQUIRY AND FOUND THAT THOUGH SOME UNSIGN ED AND UNWRITTEN BILLS OF M/S PRAKASH FERTILIZERS WERE REC OVERED FROM THE ASSESSEE DURING THE SEARCH BUT ASSESSEE HAD NO CONN ECTION WITH THAT CONCERN. IN THIS CONTEXT AO REFERRED TO THE STATEME NT RECORDED FROM THE MANAGING PARTNER OF M/S PRAKASH FERTILIZERS WHE REIN HE STATED THAT HE IS NOT AWARE OF THE BLANK BILLS AND THEY MI GHT HAVE BEEN STOLEN FROM HIS OFFICE. 5. THE AO ALSO REFERRED TO BLANK QUOTATION AND EST IMATES IN THE NAME OF M/S SURYA FERTILIZERS, BOWRAMPET, M/S SATYA SAI SEEDS, HYDERGUDA, WHICH WERE SEIZED FROM THE OFFICE PREMIS ES OF THE ASSESSEE. ON ENQUIRY, THE AO, AS NOTED BY HIM, FOUN D THAT THERE IS NO SHOP/BUSINESS BY THE NAME AND STYLE OF M/S SURY A FERTILIZERS, BOWRAMPET, WHICH IS DEALING IN AGRICULTURAL SEEDS AND FERTILIZERS. FROM THE AFORESAID FACTS THE AO DOUBTED THE CLAIM O F AGRICULTURAL INCOME BY THE ASSESSEE. FOR FURTHER VERIFICATION O F ASSESSEES CLAIM OF AGRICULTURAL INCOME, THE AO ISSUED SUMMONS TO TH E VRO, BOWRAMPET, QUTUBULLAPUR MANDAL AND STATEMENT WAS RE CORDED FROM HIM. THE VRO PRODUCED CERTAIN LAND RECORD PAHANIS, ON VERIFICATION 4 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS OF WHICH, AS ALLEGED BY THE AO, IT WAS NOTICED THA T NO CROPS WERE SPECIFIED AGAINST THE SURVEY NOS. WHEREIN THE ASSES SEE AND HIS ASSOCIATES HAVE PURCHASED AND SOLD LANDS CLAIMING I T TO BE AGRICULTURAL IN NATURE. WHEN THE AO SPECIFICALLY QU ESTIONED THE VRO, THE VRO EXPLAINED THAT THE RECORDS WERE NOT UPDATED FROM 2004 ONWARDS. FURTHER, HE STATED THAT HE HAS NO IDEA OF ANY CROPS BEING CULTIVATED IN THESE LANDS AND ALSO STATED THAT NORM ALLY THE LANDS ARE FALLOW LANDS WHICH CANNOT BE CULTIVATED EASILY. ON THE BASIS OF THE STATEMENT RECORDED FROM VRO, BOWRAMPET AND THE PAHA NIS THE AO CONCLUDED THAT NO SYSTEMATIC AGRICULTURAL ACTIVITY WAS CARRIED OUT IN THESE LANDS AND MOREOVER THE LANDS WERE ALSO NOT CO NDUCIVE FOR AGRICULTURAL OPERATIONS. THE AO WAS OF THE VIEW TH AT THE LAND IN POSSESSION OF THE ASSESSEE, A PART OF WHICH WAS SOL D TO M/S VARUN CONSTRUCTIONS, ARE FALLOW LANDS NOT AMENABLE FOR CU LTIVATION OR GRAZING THAT TOO IN THE MIDST OF URBAN AGGLOMERATION. THE A O OBSERVED THAT MAJOR PART OF THE LAND WAS PURCHASED BY THE ASSESSE E AND OTHERS FROM M/S DECCAN TOWNSHIPS PVT. LTD., A REAL ESTATE COMPANY ENGAGED IN THE PURCHASE AND SALE OF LANDS NEAR URBAN AGGLO MERATIONS. IN THIS CONTEXT, THE AO ALSO EXAMINED THE MD OF M/S DECCAN TOWNSHIPS PVT. LTD., IN COURSE OF WHICH, HE STATED THAT THE LAND W AS TREATED AS STOCK- IN-TRADE IN THE BOOKS OF ACCOUNT OF THE COMPANY AND THE PROFIT ON SALE OF LAND WAS SHOWN AS INCOME UNDER THE HEAD BUSINES S AND PROFESSION. AS MENTIONED BY THE AO, THE MD OF M/S DECCAN TOWNSHIPS PVT. LTD. ALSO STATED THAT NO AGRICULTURA L OPERATIONS WERE CARRIED OUT IN THE LAND SOLD BY THE COMPANY. FURTH ER, THE AO OBSERVED THAT THE TOTAL EXTENT OF LAND ACQUIRED BY M/S VARUN CONSTRUCTIONS, WAS AROUND 255 ACRES OUT OF WHICH AN EXTENT OF 90 ACRES WAS TAKEN OUTRIGHT POSSESSION WHEREAS THE REM AINING EXTENT OF 163 ACRES WAS TAKEN FOR DEVELOPMENT. ON EXAMINING THE MANAGING PARTNER OF M/S VARUN CONSTRUCTIONS AND MANAGING DIR ECTOR OF M/S AMSRI DEVELOPERS P. LTD., IT WAS FOUND THAT NO AGRI CULTURAL OPERATIONS WERE CONDUCTED BY THEM IN THESE LANDS. FROM THIS, T HE AO CONCLUDED THAT THE SELLER AND PURCHASER OF THOSE LANDS WHO AR E INCIDENTALLY IN 5 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS THE BUSINESS OF REAL ESTATE AND CONSTRUCTION HAVING TREATED THE LAND AS STOCK-IN-TRADE , THE ASSESSEE AND ITS ASSOCIATES , WHO ARE ALSO IN THE SAME LINE OF BUSINESS SHOULD HAVE TREATED THE LAND IN SIMILAR FASHION. THE AO, THUS, FORMED AN OPINION THAT AS TH E LAND IN QUESTION WAS TREATED AS STOCK IN TRADE BY M/S DECCAN TOWNSHI PS P. LTD. FROM WHOM THE ASSESSEE HAD PURCHASED AND ALSO SIMILARLY TREATED BY M/S VARUN CONSTRUCTIONS, TO WHOM THE ASSESSEE HAD SOLD A PART OF LAND, THE NATURE OF LAND SHOULD ALSO BE THE SAME AT THE H ANDS OF THE ASSESSEE. THE AO WAS THEREFORE OF THE VIEW THAT PRO FITS ON THE SALE OF LAND SHOULD BE TREATED AS INCOME FROM BUSINESS AND AS SUCH THE ASSESSEE WOULD NOT BE ENTITLED FOR EXEMPTION BY CLA IMING IT NOT TO BE A CAPITAL ASSET U/S 2(14) OF THE ACT. THE AO REFE RRING TO THE RESULT OF POST SEARCH INVESTIGATION AND PHYSICAL VERIFICATION CONDUCTED TO ASCERTAIN THE NATURE OF LAND CONCLUDED THAT NO AGRI CULTURAL ACTIVITY IS CARRIED ON, ON THOSE LANDS. THE AO NOTED THAT AS T HE ASSESSEE AND ITS ASSOCIATES ARE BUYING AND SELLING THE LAND WITH IN A PERIOD OF THREE YEARS, IT REVEALS THE INTENTION OF THE ASSESSEE AND ITS ASSOCIATES TO TAKE ADVANTAGE OF PREVAILING MARKET CONDITIONS AND WHICH ALSO GOES TO SHOW THAT THEY HAD INVESTED IN LAND TO EXPLOIT FOR THE PURPOSE OF TRADE, HENCE, THE PROFIT DERIVED FROM THE SALE OF L AND HAS TO BE TREATED AS ADVENTURE IN THE NATURE OF TRADE. FOR COMING TO SUCH CONCLUSION, THE AO RELIED UPON THE DECISION OF THE HONBLE SUPR EME COURT IN CASE OF SARIFABIBI MOHAMED IBRAHIM AND OTHERS VS. CIT, 2 04 ITR 631 AND THE DECISION OF THE ITAT, HYDERABAD IN CASE OF GK P ROPERTIES PVT. LTD., ITA NO. 773/HYD/07, DATED 27/06/2008. SO FAR AS ASSESSEES CONTENTION THAT THE LAND IN QUESTION IS SITUATED BE YOND 8 KMS FROM THE LIMITS OF NEAREST MUNICIPALITY, THE AO ALSO REJECT ED THE SAME BY STATING THAT AS PER NOTIFICATION DATED 16/04/2007 G REATER HYDERABAD MUNICIPAL CORPN. WAS CONSTITUTED BY MERGING 12 MUNI CIPALITIES AND EIGHT GRAM PANCHAYATS WITH THE MUNICIPAL CORPORATIO N OF HYDERABAD AND QUTUBULLAPUR WAS ONE OF THE MUNICIPALITIES. ACC ORDINGLY, THE AO HELD THAT LAND SOLD BY ASSESSEE NOT BEING IN THE NA TURE OF AGRICULTURAL LAND IS A CAPITAL ASSET WITHIN THE MEANING OF SECTI ON 2(14) OF THE ACT. 6 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS FURTHER, THE AO HELD THAT THE SALE OF LAND BY THE A SSESSEE BEING AN ADVENTURE IN THE NATURE OF TRADE THE GAINS DERIVED THERE FROM IS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. ACCORDI NGLY, THE AO HELD THAT THE PROFIT ON SALE OF LAND AMOUNTING TO RS. 29 ,78,00,000/- IS TO BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE FOR T HE IMPUGNED ASSESSMENT YEAR. BEING AGGRIEVED OF SUCH ADDITION, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 6. BEFORE THE CIT(A) THE SUBMISSIONS OF THE ASSESSE E BROADLY WERE AS UNDER: AO HAS EXAMINED THE VRO, DEALERS IN FERTILIZERS AN D UTILIZED THEIR STATEMENTS WHILE CONCLUDING THAT THE NATURE OF LAND IS NOT AGRICULTURAL IN NATURE AND THE ASSES SEE WAS NOT INVOLVED IN ANY AGRICULTURAL ACTIVITY. HOWEVER, NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO CROSS-EXA MINE THESE PERSONS. THE AO COMPLETELY IGNORED THE FACT THAT THE ASSESS EE HAD BEEN SHOWING INCOME FROM AGRICULTURAL ACTIVITIE S AND SUCH INCOME SHOWN WAS ALSO ACCEPTED BY THE AO. BY MERELY RELYING UPON THE BLANK BILLS OF PRAKASH FERTILISERS AND BLANK QUOTATION FROM SURYA FERTILIZ ERS AND SATYA SAI SEEDS STORE AN INFERENCE CANNOT BE DRAWN THAT THE ASSESSEE WAS NOT HAVING ANY AGRICULTURAL ACTIVI TY. THE CERTIFICATE FROM REVENUE AUTHORITIES I.E. DY C OLLECTOR AND MRO QUTUBULLAPUR MANDAL CLEARLY SHOW THAT THE L AND SOLD BY THE ASSESSEE WERE UNDER CULTIVATION BY RAIS ING CROPS FROM MAIZE, JAWAR, ETC. THIS CERTIFICATE HAS BEEN TOTALLY IGNORED BY THE AO. THE NATURE OF LAND AT THE TIME OF PURCHASE BY THE ASSESSEE FROM M/S DECCAN TOWNSHIPS P. LTD. IS AGRICULTURAL LAND WHICH IS EVIDENT FROM THE SALE DE ED. ONLY BECAUSE THE SELLER WAS TREATING AGRICULTURAL LAND A S STOCK- IN-TRADE IN HIS BOOKS CANNOT CHANGE THE NATURE AND 7 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS CHARACTER OF LAND AT THE HANDS OF THE ASSESSEE TO N ON- AGRICULTURAL WHEN NOT ONLY IN THE SALE DEED BUT ALS O IN THE GOVERNMENT RECORDS THE NATURE AND CHARACTER OF LAND REMAINS TO BE AGRICULTURAL. THE SO CALLED PHYSICAL VERIFICATION OF LAND AND PHOTOGRAPHS APPENDED TO THE ASSESSMENT ORDER ARE N OT CONCLUSIVE TO PROVE THAT THE LAND SOLD BY THE ASSES SEE ARE NOT AGRICULTURAL LAND. IN THIS CONTEXT, IT WAS SUBM ITTED THAT UNLESS THE SURVEY IS UNDERTAKEN THROUGH A QUALIFIED SURVEYOR ONE CANNOT BE CERTAIN TO KNOW THE EXACT SU RVEY NOS. WHERE THE LAND IS SITUATED. EVEN ASSUMING THE PHOTOGRAPHS TO BE CORRECT, THEY WERE CERTAINLY NOT TAKEN PRIOR TO 2009 WHEN SEARCH PROCEEDINGS WERE TAKEN UP IN ASSESSEES GROUP CASES WHEREAS THE AGRICULTURAL OPERATION TO BE CONSIDERED IS FOR THE FY 2006-07. THE AO WHEN ADMITS THE FACT THAT THE ASSESSEE HAS CARRIED OUT CERTAIN AGRICULTURAL OPERATIONS, HOWEVE R, SMALL THEY MIGHT BE, HE CANNOT SAY THAT THE LAND IN QUEST ION IS NOT TO BE TREATED AS AGRICULTURAL LAND. THE LAND SOLD BY THE ASSESSEE BEING IN THE NATURE OF AGRICULTURAL LAND AND LOCATED BEYOND 8 KMS OF ANY N OTIFIED MUNICIPAL LIMITS IS NOT A CAPITAL ASSET. THE NOTIFI CATION DATED 16/04/2007 FORMING THE GHMC HAS NOT SO FAR BE EN INCLUDED IN THE CENTRAL GOVT. NOTIFICATION FOR RECK ONING SPECIFIED DISTANCE FOR PURPOSES OF URBAN AGGLOMERAT ION. RATIO LAID DOWN IN CASE OF SARIFABIBI MOHMED IBRAH IM AND OTHERS VS. CIT (SUPRA) HAS NO APPLICATION TO THE FA CTS OF THE ASSESSEES CASE. IN THE REGULAR ASSESSMENT MADE U/S 143(3) OF THE A CT PRIOR TO THE SEARCH, THE AO HAD SPECIFICALLY ENQUI RED ABOUT THE NATURE OF GAIN FROM SALE OF THE LAND AND ON THE BASIS OF INFORMATION FURNISHED BY THE ASSESSEE THE AO ACCEPTED ASSESSEES CLAIM THAT LANDS SOLD WERE 8 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS AGRICULTURE IN NATURE AND NO CAPITAL GAINS AROSE. IN THE SEARCH ASSESSMENT U/S 153A, THE AO WITHOUT HAVING A NY FURTHER MATERIAL OR INFORMATION CANNOT TAKE A DIFFE RENT VIEW AS IT AMOUNTS TO REVIEW OF THE ORIGINAL ASSESSMENT ORDER. AS THE ASSESSEE HAD PURCHASED AGRICULTURAL LAND ON LY AND ALSO SOLD IT AS AGRICULTURAL LAND WITHOUT CHANGING ITS NATURE AND CHARACTER THE TRANSACTION CANNOT BE TREA TED AS ADVENTURE IN THE NATURE OF TRADE. THOUGH IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE AO HAS TREATED THE PART OF LAND SOLD AS A BUSINESS ASSET AND AS SUCH THE ACTIVITY RELATING TO SALE OF SUCH A SSET AS ADVENTURE IN THE NATURE OF TRADE BUT IN THE SUBSEQU ENT AY I.E. 2008-09, THE AO HIMSELF HAS HELD A PART OF THE SAME LAND FOR WHICH ASSESSEE HAS ENTERED INTO A DEVELOPM ENT AGREEMENT AS A CAPITAL ASSET AND SUBJECTED IT TO CAPITALISATION. THEREFORE, THE STAND TAKEN BY THE AO IS SELF CONTRADICTORY. THE ASSESSEE RELIED UPON A NUMB ER OF DECISIONS IN SUPPORT OF HIS CONTENTIONS. 8. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE VIS--VIS THE FACTS AND MATERIALS ON RECORD AND IN THE LIGHT OF RATIO LAID DOWN IN A NUMBER OF JUDICIAL PRECEDENTS, FOUND THAT THE ASSESSEE PRIOR TO THE SEARCH AS WELL AS AFTER THE SEARCH HAS CLAIMED THE GAIN ARISING FROM SALE OF LAND AS EXEMPT BEING IN THE NA TURE OF AGRICULTURAL LAND. THE ADDITIONAL CIT WHILE COMPLETING ORIGINAL ASSESSMENT U/S 143(3) HAS ALSO ACCEPTED THE CLAIM OF THE ASSESSEE AFTER EXAMINING THE FACTS AND MATERIAL AND NATURE OF TRANSACTION AF TER DUE APPLICATION OF MIND. EVEN DURING THE ASSESSMENT PROCEEDING U/S 153A ALSO, THE AO HAS HIMSELF ADMITTED THAT THERE WAS AGRICULTURA L OPERATION IN THE SAID LAND WHICH ACCORDING TO HIM IS NOT SUBSTANTIAL . THE CIT(A) WAS OF THE VIEW THAT THERE IS NO PRINCIPLE TO HOLD THAT UNLESS SUBSTANTIAL AGRICULTURAL OPERATIONS ARE CARRIED ON, THE LAND WO ULD SEIZE TO BE AGRICULTURAL LAND. THE CIT(A) NOTED THAT DURING THE ASSESSMENT PROCEEDING THE ASSESSEE HAS FURNISHED CERTIFICATE F ROM REVENUE 9 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS AUTHORITIES, PAHANIS, ETC. TO SUBSTANTIATE ITS CLA IM THAT LAND SOLD BY IT WAS AGRICULTURAL LAND AND ALSO THE FACT THAT AGRICU LTURAL OPERATIONS WERE CARRIED OUT ON THE SAID LAND. 9. ON ANALYSING THESE FACTS, THE CIT(A) HELD THAT A S THE EVIDENCES AVAILABLE IN GOVT. RECORDS MAINTAINED IN DISCHARGE OF DUTIES OF GOVT. ARE TO BE TAKEN AS CORRECT IN TERMS OF SECTION 35 O F EVIDENCE ACT, THE AO WAS NOT CORRECT IN REJECTING SUCH CORROBORATIVE EVIDENCE ON PRESUMPTION AND DOUBT. THE CIT(A) ALSO OBSERVED THA T EVEN THE DEPARTMENTAL OFFICERS HAVE VISITED THE LAND AND FOU ND THAT PART OF LAND IS CULTIVATED. SO FAR AS AOS REFERENCE TO NOTIFIC ATION OF GHMC 16/07/2007, THE CIT(A) HELD THAT AS THE LAND WAS TR ANSFERRED PRIOR TO THE DATE OF NOTIFICATION, THE SUBSEQUENT NOTIFICATI ON WOULD NOT CHANGE THE CHARACTER OF LAND FROM AGRICULTURAL TO NON-AGRI CULTURAL. SO FAR AS AOS RELIANCE ON THE DECISION OF SARIFABIBI MOHAMED IBRAHIM AND OTHERS(SUPRA), THE CIT(A) AFTER EXAMINING THE RATIO LAID DOWN THEREIN FOUND THAT IT WILL NOT APPLY TO THE ASSESSEES CASE FOR THE FOLLOWING REASONS: I) IN CASE SARIFABIBI MOHMED IBRAHIM AND OTHERS (SU PRA) THE LAND SOLD WAS LOCATED WITHIN SURAT MUNICIPAL LIMITS WHICH INFLUENCED THE COURT REGARDING THE NATURE OF LAND A T THE TIME OF SEARCH WHEREAS IN ASSESSEES CASE THE LAND SOLD WAS SITUATED BEYOND 8 KMS OF A NOTIFIED MUNICIPALITY. II) IN CASE OF SARIFABIBI MOHMED IBRAHIM AND OTHERS (SUPRA) A PART OF THE LAND WAS CONVERTED INTO NON-AGRICULTURA L LAND WHEREAS IN ASSESSEES CASE THE NATURE OF LAND REMAI NED THE SAME VIZ., AGRICULTURAL TILL THE TIME OF SALE. III) IN CASE OF SARIFABIBI MOHMED IBRAHIM AND OTHE RS (SUPRA) THE BUYER STARTED CONSTRUCTION WITHIN 3 DAYS OF EXECUTI ON OF SALE DEED WHICH INDICATES THAT ALL THE FORMALITIES WERE COMPLETED AT THE TIME OF SALE OF LAND WHEREAS IN ASSESSEES CASE THE NATURE 10 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS OF LAND STILL REMAINS TO BE AGRICULTURAL AND THE AS SESSEE HAS NOT APPLIED FOR CONVERSION OF THE NATURE OF LAND. 10. THE CIT(A) ON CONSIDERING THE AFORESAID FACTS C ONCLUDED THAT THE NATURE OF LAND BEING AGRICULTURAL AND THE LAND BEING SITUATED MORE THAN 8 KMS AWAY FROM A NOTIFIED MUNICIPALITY, IS NOT A CAPITAL ASSET AS PER SECTION 2(14) OF THE ACT. SO FAR AS, AOS CONCLUSION IN TREATING THE TRANSACTION AS AN ADVENTURE IN NATURE OF TRADE, THE CIT(A) FOUND THAT LAND SOLD BY THE ASSESSEE TO M/S VARUN C ONSTRUCTIONS WAS ORIGINALLY PURCHASED FROM M/S DECCAN TOWNSHIPS P. L TD. VIDE REGISTERED DOCUMENT NO. 3050 DATED 09/12/2004 AND W AS HELD FOR ALMOST TWO YEARS BEFORE BEING SOLD TO M/S VARUN CON STRUCTIONS THROUGH REGISTERED AGREEMENT OF SALE CUM GPA DATE D 12/03/2007. HE FURTHER NOTED THAT OUT OF 57 ACRES OF AGRICULTUR AL LAND HELD, ASSESSEE SOLD 30.02 ACRES AND THE BALANCE LAND WAS STILL HELD BY THE ASSESSEE FOR AGRICULTURAL OPERATION. THE AO HIMSELF HAS OBSERVED THAT THE ASSESSEE HAS SOLD THE LAND TO MAKE QUICK PROFIT S AND INVESTED THE SAME IN M/S BHAVYA CEMENT PLANT BEING SET UP BY THE ASSESSEE. THE CIT(A) WAS OF THE VIEW THAT THE OBSERVATION MADE BY AO ITSELF SHOWS THAT THE ASSESSEE ENTERED INTO THE SALE TRANSACTION OUT OF COMPELLING CIRCUMSTANCES AND NOT AS A MATTER OF ROUTINE BUSINE SS OF PURCHASE AND SALE OF LAND. THE ASSESSEE HAD DONE WHAT A PRUD ENT PERSON WOULD HAVE DONE IN SUCH COMPELLING CIRCUMSTANCES. T HE CIT(A) FURTHER REFERRED TO AN ORDER PASSED BY HIS PREDECES SOR IN CASE OF POTLA SANTHI WHEREIN LAND OF 1.25 ACRES IN THE SAME BOWRAMPET MANDAL SOLD TO M/S VARUN CONSTRUCTIONS WAS HELD TO BE EXEMPT FROM CAPITAL GAIN AS IT IS NOT A CAPITAL ASSET U/S 2(14) OF THE ACT. THE CIT(A) FINALLY CONCLUDED THAT AS THE NATURE AND CHA RACTER OF THE LAND SOLD STILL REMAINS AS AGRICULTURAL LAND IN GOVERNME NT RECORD, THE ASSESSEE HAS SHOWN AGRICULTURAL INCOME FROM AGRICUL TURAL OPERATION CARRIED OUT ON THOSE LAND AND AS THE LAND IN QUESTI ON WAS SITUATED BEYOND 8 KMS FROM THE LIMITS OF A NOTIFIED MUNICIPA LITY IT CANNOT BE TREATED AS A CAPITAL ASSET U/S 2(14)(III) OF THE AC T. HE FURTHER HELD THAT, THE AO ALSO CANNOT SHIFT THE HEAD OF INCOME FROM CA PITAL GAIN TO 11 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS BUSINESS BY TREATING IT AS ADVENTURE IN THE NATURE OF TRADE ONLY BECAUSE OF THE FACT THAT THE AO COULD NOT HAVE TAXE D IT UNDER CAPITAL GAIN AS THE NATURE OF LAND IS AGRICULTURAL. ACCORD INGLY, THE CIT(A) DIRECTED THE AO TO DELETE THE ADDITION OF RS. 29.78 CRORES. 11. THE LEARNED DR SUBMITTED BEFORE US THAT THE AO WAS JUSTIFIED IN TREATING THE TRANSACTION AS AN ADVENTURE IN THE NAT URE OF TRADE AS THE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS. FU RTHER, IT WAS SUBMITTED THAT ASSESSEES CLAIM REGARDING AGRICULTU RAL OPERATION AND ALSO THE FACT THAT THE LAND IN QUESTION IS SITUATED BEYOND 8 KMS OF A NOTIFIED MUNICIPALITY NEEDS TO BE VERIFIED. 12. THE LEARNED AR ON THE OTHER HAND STRONGLY SUPPO RTING THE ORDER OF THE CIT(A) SUBMITTED THAT THERE CANNOT BE ANY TA X LIABILITY ON THE ASSESSEE NOT ONLY BECAUSE THE ASSET SOLD BY THE ASS ESSEE IS NOT A CAPITAL ASSET U/S 2(14) OF THE ACT NOR THE TRANSACT ION IS AN ADVENTURE IN THE NATURE OF TRADE. THE LEARNED AR SUBMITTED, NOT ONLY THE ASSESSEE HAD BEEN SHOWING INCOME FROM AGRICULTURAL OPERATION CONDUCTED OVER THE SAID LAND BUT SAME HAS ALSO BEEN ACCEPTED BY THE AO. IT WAS SUBMITTED THAT THE NATURE AND CHARACTER OF LAND AT THE TIME OF PURCHASE AND SALE BY THE ASSESSEE REMAINED SAME VIZ. AGRICULTURAL IN THE GOVERNMENT RECORDS. ASSESSEE HAS ALSO NOT AP PLIED FOR CONVERSION OF LAND TO NON-AGRICULTURE. IT WAS SUBMI TTED THAT LAND IN QUESTION IS ALSO SITUATED BEYOND 8 KMS FROM A NOTIF IED MUNICIPALITY. IT WAS SUBMITTED THAT QUTUBULLAPUR MUNICIPALITY WAS BR OUGHT INTO THE GHMC LIMITS BY NOTIFICATION DATED 16/04/2007 I.E. A FTER THE SALE OF LAND BY THE ASSESSEE. EVEN OTHERWISE ALSO, THE LAND SITUATED AT DUNDIGAL AND BOWRAMPET VILLAGE ARE BEYOND 8 KMS FRO M THE LIMIT OF THE NEAREST NOTIFIED MUNICIPALITY. IN THIS CONTEXT, THE LEARNED AR REFERRED TO THE CERTIFICATE ISSUED BY THE DY. COLLE CTOR, AND TAHSILDAR, QUTUBULLAPUR MANDAL DATED 04/02/2009 CERTIFYING THA T BOWRAMPET VILLAGE IS SITUATED BEYOND 12 KMS FROM THE LIMITS OF QUTUBULLAPUR MUNICIPALITY. HE ALSO REFERRED TO THE CERTIFICATE I SSUED BY TOWN 12 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS PLANNING OFFICER GHMC, QUTUBULLAPUR CIRCLE 04/10/20 08 MENTIONING THAT BOWRAMPET GRAM PANCHAYAT AND DUNDIGAL GRAM PAN CHAYAT ARE NOT FALLING IN THE GHMC LIMITS. THE LEARNED AR SUB MITTED THAT IN CASE OF SIMILAR TRANSACTION ENTERED INTO BY OTHER ASSOCI ATES WITH M/S VARUN CONSTRUCTIONS IN RESPECT OF AGRICULTURAL LAND SITUA TED IN THE SAME LOCALITY THE TRIBUNAL HAS HELD THAT LAND SOLD BEING AGRICULTURAL IN NATURE CANNOT BE SUBJECTED TO CAPITAL GAIN TAX. IN THIS CONTEXT, HE REFERRED TO ORDER DATED 06/06/2014 PASSED IN ITA NO . 306, 307, 309 AND 311/HYD/2013 AND SPECIFICALLY REFERRED TO PARA 23 ONWARDS. THE LEARNED AR SUBMITTED THAT, ASSESSEE HAS ENTERED INT O A DEVELOPMENT AGREEMENT WITH M/S VARUN CONSTRUCTIONS HANDING OVER POSSESSION OF SOME MORE LAND AND THE AO WHILE CONSIDERING THE SAI D TRANSACTION IN THE SUBSEQUENT ASSESSMENT YEAR I.E. AY 2008-09 HAS TREATED THE LAND CAPITAL ASSET AND ASSESSED IT TO CAPITAL GAIN. IT WAS THEREFORE SUBMITTED THAT THE AO CANNOT TAKE CONTRADICTORY STA ND IN RESPECT OF THE SAME AGRICULTURAL LAND. THE LEARNED AR FINALLY SUBMITTED THAT AS THE CIT(A) HAS TAKEN A CORRECT VIEW AFTER CONSIDERI NG ALL FACTS AND MATERIALS ON RECORD AND APPLYING THE RATIO LAID DOW N IN A NUMBER OF JUDICIAL PRECEDENTS, THE VIEW TAKEN BY HIM IS TO BE UPHELD. 13. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIALS ON RECORD AS WELL AS THE ORDERS OF THE REVENUE AUTHORITIES. W E HAVE ALSO APPLIED OUR MIND TO THE DECISIONS PLACED BEFORE US. ON GOI NG THROUGH THE ORDER OF THE LEARNED CIT(A) WE DO NOT FIND ANY INFI RMITY EITHER WITH REGARD TO HIS CONCLUSION IN RESPECT OF THE NATURE O F LAND SOLD BY THE ASSESSEE OR WITH REGARD TO THE ISSUE AS TO WHETHER THE TRANSACTION IS TO BE TREATED AS AN ADVENTURE IN THE NATURE OF TRAD E. AS CAN BE SEEN FROM THE FACTS AND MATERIALS PLACED ON RECORD, THE NATURE OF LAND AT THE TIME OF PURCHASE BY THE ASSESSEE FROM M/S DECCA N PROPERTIES LTD. AND ALSO AT THE TIME OF SALE TO M/S VARUN CONS TRUCTIONS, REMAINED THE SAME I.E. AGRICULTURAL NOT ONLY IN THE REVENUE RECORDS BUT ALSO IN THE PAHANIS. IT IS ALSO A FACT ON RECORD THE ASSESS EE HAS SHOWN INCOME FROM AGRICULTURAL OPERATIONS CARRIED ON OVER THE SAID LAND IN 13 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSM ENT YEAR AS WELL AS THE PRECEDING ASSESSMENT YEAR WHICH HAS BEEN ACC EPTED BY AO. IN FACT THE AO HAS NOT TOTALLY RULED OUT AGRICULTUR AL OPERATION, THOUGH ACCORDING TO HIM IT IS NOT SUBSTANTIAL. IN THESE C IRCUMSTANCES, WHEN THE NATURE OF LAND SOLD BY THE ASSESSEE STILL REMAI NS TO BE AGRICULTURAL IN THE REVENUE RECORDS AND THE ASSESSEE HAS NOT APP LIED FOR CONVERSION OF THE LAND TO NON-AGRICULTURAL IT CANNO T BE TREATED AS NON- AGRICULTURAL LAND ONLY BECAUSE THE AO WAS OF THE VI EW THAT AGRICULTURAL OPERATION ON THE SAID LAND IS NOT POSSIBLE TO THE E XTENT SHOWN BY THE ASSESSEE. IN THIS CONTEXT IT IS TO BE NOTED THAT T HE CERTIFICATE ISSUED BY THE DY. COLLECTOR AND MANDAL REVENUE OFFICER, QU TUBULLAPUR MANDAL ( AT PAGE 99 OF ASSESSEES PAPER BOOK) CLEAR LY INDICATE THAT THE LAND UNDER THE SAME SURVEY NOS. SITUATED AT BOW RAMPET VILLAGE ARE UNDER CULTIVATION BY RAISING CROPS OF PADDY, CA TTLE FEED, MAIZE, JOWAR ETC. FURTHER THE PAHANIS ALSO INDICATE THE CR OPS GROWN OVER THE SAID LAND. WHEN CERTIFICATE HAS BEEN ISSUED BY GOVT . AUTHORITIES CERTIFYING CULTIVATION OF AGRICULTURAL PRODUCE THE AO WAS NOT CORRECT IN REJECTING THEM WITHOUT PROPER EVIDENCE. MOREOVER, C ERTIFICATE DT. 04/02/2009 ISSUED BY DY. COLLECTOR AND TAHSILDAR QU TUBULLAPUR MANDAL ( AT PAGE 100 OF ASSESSEES PAPER BOOK) AND CERTIFICATE DT. 04/10/2008 OF TOWN PLANNING OFFICER, GHMC (AT PAGE 101 OF PAPER BOOK) CLEARLY INDICATE THAT BOWRAMPET VILLAGE WHERE ASSESSEES LAND IS SITUATED IS BEYOND THE LIMIT OF GHMC. IT IS A FA CT ON RECORD, IN THE ORIGINAL ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT, THE AO HAS EXAMINED THE NATURE OF TRANSACTION BY CONDUCTING NE CESSARY ENQUIRY AND AFTER PROPER APPLICATION OF MIND HAD ACCEPTED T HE CLAIM OF THE ASSESSEE THAT THE ASSET BEING SOLD BEING AGRICULTUR AL LAND WILL NOT ATTRACT CAPITAL GAIN TAX. THE DEPARTMENT HAS NOT B ROUGHT ANY COGENT EVIDENCE OR MATERIAL ON RECORD TO DISPROVE ASSESSEE S CLAIM EITHER IN RESPECT OF AGRICULTURAL INCOME EARNED THROUGH AGRI CULTURAL OPERATION CONDUCTED ON THE SAID LAND OR THE FACT THAT THE LAN D IS SITUATED BEYOND THE PRESCRIBED LIMIT OF THE NEAREST MUNICIPALITY NO TIFIED BY THE CENTRAL GOVERNMENT. IN THE AFORESAID CIRCUMSTANCES, THE FI NDING OF THE 14 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS CIT(A) REMAINS UNCONTROVERTED. THEREFORE, IT HAS TO BE HELD THAT AS THE LAND SOLD BY THE ASSESSEE IS IN THE NATURE OF A GRICULTURAL LAND AND IS SITUATED BEYOND THE PRESCRIBED LIMIT OF ANY MUNI CIPALITY NOTIFIED BY THE CENTRAL GOVT. IT CANNOT COME WITHIN THE DEFINIT ION OF CAPITAL ASSET AS ENVISAGED U/S 2(14) OF THE ACT. SO FAR AS THE F INDING OF THE AO THAT THE TRANSACTION ENTERED INTO BY THE ASSESSEE IS AN ADVENTURE IN THE NATURE OF TRADE, THE SAME IS ALSO WITHOUT MERIT FOR THE STRONG AND VALID REASONS RECORDED BY THE CIT(A). ON A PERUSAL OF THE ASSESSMENT ORDER, IT APPEARS, THAT THE AO HAS TREATED THE TRAN SACTION AS AN ADVENTURE IN THE NATURE OF TRADE ONLY TO OVERCOME A SSESSEES CLAIM OF EXEMPTION FROM CAPITAL GAIN ON THE GROUND THAT THE ASSET SOLD IS NOT A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) O F THE ACT. AS RIGHTLY OBSERVED BY THE LEARNED CIT(A), THE FACTS CLEARLY I NDICATE THAT THE ASSESSEE HAS HELD THE ASSET FOR MORE THAN TWO YEARS AND ONLY BECAUSE OF COMPELLING CIRCUMSTANCES SOLD IT TO M/S VARUN CONSTRUCTIONS IN THE YEAR UNDER CONSIDERATION. THER EFORE, NONE OF THE ATTRIBUTES OF AN ADVENTURE IN THE NATURE OF TRADE IS PRESENT IN THE TRANSACTION. IT WILL BE PERTINENT TO MENTION HERE THAT EARLIER A BENCH OF THIS TRIBUNAL HAD AN OCCASION TO EXAMINE SIMILAR NA TURE OF DISPUTE ARISING OUT OF SIMILAR NATURE OF TRANSACTION RELATI NG TO SALE OF AGRICULTURAL LAND LOCATED IN THE SAME AREA IN CASE OF SOME OTHER ASSESSEES, NAMELY, SMT. M. VIJAYA AND OTHERS VS. DC IT (ITA NOS. 306, 307, 309 & 311/HYD/13 ORDER DATED 06/06/2014) WHO ALSO SOLD THEIR LAND TO M/S VARUN CONSTRUCTIONS. THE TRIBUNAL AFTER EXAMINING THE CONTENTIONS OF THE PARTIES AND REFERRING TO A N UMBER OF JUDGMENTS HELD AS UNDER: 23. ADVERTING TO THE FACTS OF THE PRESENT CASE, THE LAND IN QUESTION IS CLASSIFIED IN THE REVENUE RECORDS AS AG RICULTURAL LAND AND THERE IS NO DISPUTE REGARDING THIS ISSUE A ND ACTUAL CULTIVATION HAS BEEN CARRIED ON THIS LAND AND INCOM E WAS DECLARED FROM THIS LAND IN THE RETURN OF INCOME FIL ED BY THE ASSESSEE FOR THE AY AS AGRICULTURAL INCOME. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS NOT APPLIED FOR CONVERSION OF THIS AGRICULTURAL LAND FOR NON-AGRICULTURAL PURP OSES BEFORE SALE OF THIS PROPERTY AND THE ASSESSEE HAS NOT PUT THE LAND TO 15 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS ANY PURPOSES OTHER THAN AGRICULTURAL PURPOSES. IT IS ALSO AN ADMITTED FACT THAT NEITHER THE IMPUGNED PROPERTY NO R THE SURROUNDING AREAS WERE SUBJECT TO ANY DEVELOPMENTAL ACTIVITIES AT THE RELEVANT POINT OF TIME OF SALE OF THE LAND A S PER THE EVIDENCE BROUGHT ON RECORD. 24. THE PROVISIONS OF ANDHRA PRADESH AGRICULTURAL L AND (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 HA S TO BE CONVERTED IN ACCORDANCE WITH THE PROVISIONS OF ANDH RA PRADESH AGRICULTURAL LAND (CONVERSION FOR NON-AGRICULTURAL PURPOSES) ACT, 2006. IF BY A GOVERNMENT NOTIFICATION, THE N ATURE AND CHARACTER OF LAND CHANGES FROM AGRICULTURE INTO NON -AGRICULTURE THEN THERE IS NO QUESTION OF CONVERSION OF THIS LAN D FOR NON- AGRICULTURAL PURPOSES BY THE REVENUE AUTHORITIES CO NCERNED. TO OUR UNDERSTANDING NATURE OF LAND CANNOT BE CHANG ED BY ANY STATE GOVERNMENT NOTIFICATION AND THE LAND OWNERS A RE REQUIRED TO APPLY TO THE CONCERNED REVENUE AUTHORITIES FOR T HE PURPOSE OF CONVERSION OF THE AGRICULTURAL LAND INTO NON-AGR ICULTURAL LAND AND THERE IS NO AUTOMATIC CONVERSION PER SE BY STAT E GOVERNMENT NOTIFICATION. 25. IN THE INSTANT CASE, AT THE RELEVANT POINT OF S ALE OF THE LAND IN QUESTION, THE SURROUNDING AREA WAS TOTALLY UNDEVELOPED AND EXCEPT MERE FUTURE POSSIBILITY TO PUT THE LAND INTO USE FOR NON-AGRICULTURAL PURPOSES WOULD NOT CHANGE THE CHAR ACTER OF THE AGRICULTURAL LAND INTO NON-AGRICULTURAL LAND AT THE RELEVANT POINT OF TIME WHEN THE LAND WAS SOLD BY THE ASSESSEE. IT IS ALSO AN ADMITTED POSITION THAT THE ASSESSEE HAD NOT APPLIED FOR CONVERSION OF THE LAND IN QUESTION INTO NON-AGRICUL TURAL PURPOSES AND NO SUCH PERMISSIONS WERE OBTAINED FROM THE CONCERNED AUTHORITY. IN THE REVENUE RECORDS, THE LA ND IS CLASSIFIED AS AGRICULTURAL LAND AND HAS NOT BEEN CH ANGED FROM AGRICULTURAL LAND TO NON-AGRICULTURAL LAND AT THE R ELEVANT POINT OF TIME WHEN THE LAND WAS SOLD BY THE ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT THERE WAS NO ACTIVITY UNDERTAKEN BY TH E ASSESSEE OF DEVELOPING THE LAND BY PLOTTING AND PROVIDING RO ADS AND OTHER FACILITIES AND THERE WAS NO INTENTION ALSO ON THE P ART OF THE ASSESSEES HEREIN TO PUT THE SAME FOR NON-AGRICULTUR AL PURPOSES AT TIME OF THEIR OWNERSHIP THAT LAND. NO SUCH FINDI NG HAS BEEN GIVEN BY THE DEPARTMENT. NO MATERIAL OR EVIDENCE IN SUPPORT OF THE FACT THAT THE ASSESSEES HAVE PUT THE LAND IN US E FOR NON- AGRICULTURAL PURPOSES HAS BEEN BROUGHT ON RECORD. T HE NATURE OF THE CROP AND THE PERSON WHO CULTIVATED THE LAND ARE DULY MENTIONED IN THE REVENUE RECORDS SHOWS THAT AT THE RELEVANT POINT OF TIME THE LAND WAS USED FOR AGRICULTURAL PU RPOSES ONLY 16 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS AND NOTHING IS BROUGHT ON RECORD TO SHOW THAT THE L AND WAS PUT IN USE FOR NON-AGRICULTURAL PURPOSES BY THE ASSESSE ES. IN VIEW OF THE DECISION OF THE HONBLE HIGH COURT IN THE CA SE OF GOPAL C. SHARMA VS. CIT (209 ITR 946) (BOM), IT IS ALSO C LEAR THAT THE PROFIT MOTIVE OF THE ASSESSEE IN SELLING THE LAND W ITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISIVE TO SA Y THAT THE ASSESSEE USED THE LAND FOR NON-AGRICULTURAL PURPOSE S. 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 AGRICULTUR AL LAND IN QUESTION IS INCLUDED IN URBAN AREA WITHOUT MORE, HE LD NOT ENOUGH TO CONCLUDE THAT THE USER OF THE SAME HAD BE EN ALTERED WITH PASSAGE OF TIME. THUS, THE FACT THAT THE LAND IN QUESTION IN THE INSTANT CASE IS BOUGHT BY DEVELOPER CANNOT BE A DETERMINING FACTOR BY ITSELF TO SAY THAT THE LAND W AS CONVERTED INTO USE FOR NON-AGRICULTURAL PURPOSES. 26. RECENTLY THE KARNATAKA HIGH COURT IN THE CASE O F CIT VS. MADHUKUMAR N. (HUF) (2012) 78 DTR (KAR) 391 HELD AS FOLLOWS: '9. AN AGRICULTURAL LAND IN INDIA IS NOT A CAPITAL ASSET BUT BECOMES A CAPITAL ASSET IF IT IS THE LAND LOCATED U NDER SECTION 2(14)(III)(A) & (B) OF THE ACT, SECTION 2(1 4) (III) (A) OF THE ACT COVERS A SITUATION WHERE THE SUBJECT AGR ICULTURAL LAND IS LOCATED WITHIN THE LIMITS OF MUNICIPAL COR PORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE, OR CANTONMENT COMMITTEE AND WHICH HAS A POPULATION OF NOT LESS THAN 10,000. 10. SECTION 2(14)(M)(B) OF THE ACT COVERS THE 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 DA SARAHALLI CITY MUNICIPAL COUNCIL THEREFORE, CLAUSE (A) TO SEC TION 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 DAS ARAHALLI CITY MUNICIPAL COUNCIL IN THE ABSENCE OF ANY NOTIFI CATION ISSUED UNDER CLAUSE (B) TO SECTION 2(14)(III) OF TH E ACT, IT 17 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS CANNOT BE LOOKED IN AS A CAPITAL ASSET WITHIN THE M EANING OF SECTION 2(14)(III)(B) OF THE ACT ALSO AND THEREF ORE THOUGH THE TRIBUNAL MAY NOT HAVE SPELT OUT THE REAS ON AS TO WHY THE SUBJECT LAND CANNOT BE CONSIDERED AS A CAPITAL ASSET BE GIVING THIS VERY REASON, WE FIND THE CONC LUSION ARRIVED AT BY THE TRIBUNAL IS NEVERTHELESS THE CORR ECT CONCLUSION.' 27. FURTHER THE KOLKATA BENCH OF THE TRIBUNAL IN TH E CASE OF DCIT VS. ARIJIT MITRA (48 SOT 544) (KOL) HELD AS FO LLOWS: '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 OR CANTONMENT BOARDS ARE COVERED BY THE AMENDED DEFINITIONS OF 'CAPITAL ASSET', IF SUCH AREAS ARE, HAVING REGARD TO THE EXTENT OF AND SCOPE FOR THEIR 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 AGRICULTURA L LAND SITUATION IN RURAL AREAS, AREAS OUTSIDE THE MUNICIP ALITY OR CANTONMENT BOARD ETC., HAVING A POPULATION OF NOT L ESS THAN 10,000 AND ALSO BEYOND THE DISTANCE NOTIFIED B Y CENTRAL GOVERNMENT FROM LOCAL LIMITS I.E. THE OUTER LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD ETC., STILL CONTINUES TO BE EXCLUDED FROM THE DEFINITION OF 'CA PITAL ASSET'. ACCORDINGLY, IN VIEW OF SUB-CLAUSE (B) OF S ECTION 2(14)(III) OF THE ACT EVEN UNDER THE AMENDED DEFINI TION OF EXPRESSION 'CAPITAL ASSET', THE AGRICULTURAL LAND S ITUATED IN RURAL AREAS CONTINUES TO BE EXCLUDED FROM THAT DEFI NITION. AND AS IN THE PRESENT CASE, ADMITTEDLY, THE AGRICUL TURAL LAND OF THE ASSESSEE IS OUTSIDE THE MUNICIPAL LIMIT S OF RAJARHAT MUNICIPALITY AND THAT ALSO 2.5 KM AWAY FRO M THE OUTER LIMITS OF THE SAID MUNICIPALITY, ASSESSEE'S L AND DOES NOT COME WITHIN THE PURVIEW OF SECTION 2(14)(III) E ITHER UNDER SUB CLAUSE (A) OR (B) OF THE ACT, HENCE THE S AME CANNOT BE CONSIDERED AS CAPITAL ASSET WITHIN THE ME ANING OF THIS SECTION. HENCE, NO CAPITAL GAIN TAX CAN BE CHARGED ON THE SALE TRANSACTION OF THIS LAND ENTERED BY THE ASSESSEE. ACCORDINGLY, WE QUASH THE ASSESSMENT ORDE R QUA CHARGING OF CAPITAL GAINS ON VERY JURISDICTION OF THE ISSUE IS QUASHED. THE CROSS OBJECTION OF THE ASSESS EE IS ALLOWED.' 28. IT WAS HELD IN THE CASE OF CIT VS. MANILAL SOMN ATH (106 ITR 917) AS FOLLOWS: 18 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS 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 ASSESSEE T INDER THE HEAD 'CAPITAL GAINS'. IN ORDER TO DETERMINE WH ETHER A PARTICULAR LAND IS AGRICULTURAL LAND OR NOT ONE HAS TO FIRST FIND OUT IF IT IS BEING PUT TO ANY USE. IF IT IS US ED FOR AGRICULTURAL PURPOSES THERE IS A PRESUMPTION THAT I T IS AGRICULTURAL LAND. IF IT IS USED FOR NON-AGRICULTU RAL PURPOSES THE PRESUMPTION IS THAT IT IS NON-AGRICULT URAL LAND. THIS PRESUMPTION ARISING FROM ACTUAL USE CAN BE REBUTTED BY THE PRESENCE OF OTHER FACTORS. THERE M AY BE CASES WHERE LAND WHICH IS ADMITTEDLY NON-AGRICULTUR AL IS USED TEMPORARILY FOR AGRICULTURAL PURPOSES. THE DETERMINATION OF THE QUESTION WOULD, THEREFORE, DEP END 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 AGRICULTURAL OPERATIONS WERE BEING CARRIED ON. THE LAND WAS INCLUDED WITHIN A DRAFT TOWN PLANNING SCHEME. THE ASSESSEE GOT PERMIS SION OF THE COLLECTOR TO SELL THE LAND FOR RESIDENTIAL P URPOSES AND SOLD IT. ON THE QUESTION 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 CHAR ACTER OF THE LAND AT THE TIME WHEN THE SALE TOOK PLACE. THE FACT THAT THE LAND WAS WITHIN MUNICIPAL LIMITS OR THAT I T WAS INCLUDED WITHIN A PROPOSED TOWN PLANNING SCHEME WAS NOT BY ITSELF SUFFICIENT TO REBUT THE PRESUMPTION ARISI NG FROM ACTUAL USE OF THE LAND. THE LAND HAD BEEN USED FOR AGRICULTURAL PURPOSES FOR A LONG TIME AND NOTHING H AD HAPPENED TILL THE DATE OF THE SALE TO CHANGE THAT C HARACTER OF THE LAND. THE POTENTIAL NON-AGRICULTURAL VALUE O F THE LAND FOR WHICH A PURCHASER MAY BE PREPARED TO PAY A LARGE PRICE WOULD NOT DETRACT FROM ITS CHARACTER AS AGRICULTURAL LAND AT THE DATE OF THE SALE. THE LAN D IN QUESTION WAS, THEREFORE, AGRICULTURAL LAND. 29. FURTHER THE WORD 'CAPITAL ASSET' IS DEFINED IN SECTION 2(14) TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSES SEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFE SSION, BUT DOES NOT INCLUDE- 19 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS (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 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 MOR E THAN EIGHT KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITE M (A), AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANIZATION OF TH AT AREA AND OTHER RELEVANT CONSIDERATIONS, SPECIFY IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE ; 30. IT IS VERY CLEAR FROM THE ABOVE THAT THE GAIN O N SALE 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 TH E WORD MUNICIPALITY ARE PLACED WITHIN THE BRACKETS STARTIN G WITH THE WORDS 'WHETHER KNOWN AS' CLEARLY INDICATES THAT SUC H EXPRESSIONS ARE USED TO DENOTE A MUNICIPALITY ONLY, IRRESPECTIVE OF THE NAME BY WHICH SUCH MUNICIPALITY IS CALLED. T HIS FACT IS FURTHER SUBSTANTIATED BY THE PROVISIONS CONTAINED U NDER CLAUSE (B) WHEREIN IT HAS BEEN CLEARLY PROVIDED THAT THE A UTHORITY REFERRED TO IN CLAUSE (A) WAS ONLY MUNICIPALITY. 31. WE ALSO PERUSED THE MEANING OF THE TERM LOCAL A UTHORITY 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 WATER OR ELECTRICITY) WITHIN ITS OWN JURISDICTIONAL AREA OR FROM THE SUPPLY OF WATER OR ELECTRICITY WITHIN OR OUTSIDE IT S OWN JURISDICTIONAL AREA]. [EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE, TH E EXPRESSION 'LOCAL AUTHORITY' MEANS - 20 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS (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, LEGALLY ENTITLED TO, OR ENTRUSTED BY THE GOVERNME NT WITH, THE CONTROL OR MANAGEMENT OF A MUNICIPAL OR LOCAL FUND; OR (IV) CANTONMENT BOARD AS DEFINED IN SECTION 3 OF THE CANTONMENTS ACT, 1924 (2 OF 1924); 32. IT IS ALSO EVIDENT FROM THE MEMORANDUM EXPLAINI NG THE PROVISIONS OF FINANCE ACT, 1970, WHEREBY S. 2(14) W AS AMENDED SO AS TO INCLUDE THE AGRICULTURAL LANDS LOCATED WIT HIN THE JURISDICTION OF A MUNICIPALITY IN THE DEFINITION OF THE EXPRESSION 'CAPITAL ASSET'. THE RELEVANT PORTION OF THE SAID MEMORANDUM IS REPRODUCED HEREUNDER: '30. ... THE FINANCE ACT, 1970 HAS, ACCORDINGLY, AM ENDED THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT SO AS TO BRING WITHIN THE SCOPE OF TAXATION CAPITAL GAINS AR ISING FROM THE TRANSFER OF AGRICULTURAL LAND SITUATED IN CERTAIN AREAS. FOR THIS PURPOSE, THE DEFINITION OF THE TERM 'CAPITAL ASSET' IN SECTION 2(14) HAS BEEN AMENDED SO AS TO EXCLUDE FROM ITS SCOPE ONLY AGRICULTURAL LAND IN IN DIA WHICH IS NOT SITUATE IN ANY AREA COMPRISED WITHIN T HE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAN D 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 HA S BEEN AUTHORISED TO NOTIFY IN THE OFFICIAL GAZETTE A NY AREA OUTSIDE THE LIMITS OF ANY MUNICIPALITY OR CANTONMEN T BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOUSAND U P TO A MAXIMUM DISTANCE OF 8 KILOMETRES FROM SUCH LIMITS, FOR THE PURPOSES OF THIS PROVISION. SUCH NOTIFICATION W ILL BE ISSUED BY THE CENTRAL GOVERNMENT, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANISATION OF SUCH AREA , AND, WHEN ANY SUCH AREA IS NOTIFIED BY THE CENTRAL GOVERNMENT, AGRICULTURAL LAND SITUATED WITHIN SUCH AREA WILL STAND INCLUDED WITHIN THE TERM 'CAPITAL ASSET' . AGRICULTURAL LAND SITUATED IN RURAL AREAS, I.E., AR EAS OUTSIDE ANY MUNICIPALITY OR CANTONMENT BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOUSAND AND ALSO B EYOND THE DISTANCE NOTIFIED BY THE CENTRAL GOVERNMENT FRO M THE LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD , WILL CONTINUE TO BE EXCLUDED FROM THE TERM 'CAPITAL ASSE T'. 21 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS 33. FURTHER IT IS NOBODY'S CASE THAT THE PROPERTY F ALLS WITHIN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BOARD OR WHICH HAS A POP ULATION OF NOT LESS THAN 10,000 ACCORDING TO THE LAST PRECEDIN G CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFO RE THE FIRST DAY OF THE PREVIOUS YEAR. IN OTHER WORDS, THE LAND DOES NOT FALL IN SUB-CLAUSE (A) OF SECTION 2(14)(III) OF THE ACT AS THE LAND IS OUTSIDE OF ANY MUNICIPALITY INCLUDING GHMC. FURTHE R WE HAVE TO SEE WHETHER THE LAND FALLS IN CLAUSE (B) OF SECT ION 2(14)(III). THIS SECTION PRESCRIBES THAT ANY AREA WITHIN SUCH D ISTANCE, NOT BEING MORE THAN 8 KM FROM THE LOCAL LIMIT OF ANY MU NICIPALITY OR CANTONMENT BOARD AS REFERRED TO IN SUB-CLAUSE (A) O F SECTION 2(14)(III) OF THE ACT, AS THE CENTRAL GOVERNMENT MA Y, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANISATIO N OF THAT AREA AND OTHER RELEVANT CONSIDERATIONS, SPECIFY IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE. 34. WE HAVE CAREFULLY GONE THROUGH THE NOTIFICATION ISSUED BY THE CENTRAL GOVERNMENT U/S. 2(1A)(C) PROVISO (II)(B ) AND 2(14)(3B) VIDE NO. 9447 (F. NO. 164/(3)/87/ITA-I) 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 HYDERAB AD WHEREIN 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 LYING WITHIN A DISTANCE NOT EXCEEDING 8 KM FROM THE LOCAL LIMITS OF HYDERABAD MUNICIPALITY (GHMC) IS COVERED BY THE AMENDED DEFINITIONS OF 'CAPITAL ASSET'. CENTRAL GOVERNMENT IN EXERCISE OF SUCH POWERS HAS ISSUED THE ABOVE NOTIFICATION, AS A MENDED LATEST BY NOTIFICATION NO. 11186 DATED 28.12.1999 C LEARLY CLARIFIES THAT AGRICULTURAL LAND SITUATION IN RURAL AREAS, AREAS OUTSIDE THE MUNICIPALITY OR CANTONMENT BOARD ETC., HAVING A POPULATION OF NOT LESS THAN 10,000 AND ALSO BEYOND THE DISTANCE NOTIFIED BY CENTRAL GOVERNMENT FROM LOCAL LIMITS I. E. THE OUTER LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD ETC., STILL CONTINUES TO BE EXCLUDED FROM THE DEFINITION OF 'CA PITAL 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 PRE SENT CASE, ADMITTEDLY, THE AGRICULTURAL LAND OF THE ASSESSEE I S OUTSIDE THE MUNICIPAL LIMITS OF HYDERABAD MUNICIPALITY AND THAT ALSO 8 KM AWAY FROM THE OUTER LIMITS OF THIS MUNICIPALITY, AS SESSEE'S LAND DOES NOT COME WITHIN THE PURVIEW OF SECTION 2(14)(I II) EITHER UNDER SUB CLAUSE (A) OR (B) OF THE ACT, HENCE THE S AME CANNOT 22 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS BE CONSIDERED AS CAPITAL ASSET WITHIN THE MEANING O F 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 TRI BUNAL 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 BORROWING THE MEANING FROM THE ABOVE SECTION, WE AR E NOT ABLE TO APPRECIATE THAT THE LAND FALLS WITHIN THE TERRIT ORIAL LIMIT OF ANY MUNICIPALITY WITHOUT NOTIFICATION OF CENTRAL GOVERN MENT AS HELD BY THE KARNATAKA HIGH COURT IN THE CASE OF MADHUKUM AR N. (HUF) (CITED SUPRA). 35. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, A S NARRATED BEFORE US, IT IS IMPORTANT TO NOTE THAT WH AT WAS THE INTENTION OF THE ASSESSEES AT THE TIME OF ACQUIRING THE LAND OR INTERVAL ACTION BY THE ASSESSEE BETWEEN THE PERIOD FROM PURCHASE AND SALE OF THE LAND AND THE RELEVANT IMPROVEMENT/DEVELOPMENT TAKEN PLACE DURING THIS TIM E IS RELEVANT FOR DECIDING THE ISSUE WHETHER TRANSACTION WAS IN THE NATURE OF TRADE. THOUGH INTENTION SUBSEQUENTLY FO RMED MAY BE DIFFERENT, IT IS THE INTENTION AT THE INCEPTION IS CRUCIAL. ONE OF THE ESSENTIAL ELEMENTS IN AN ADVENTURE OF THE TRADE IS THE INTENTION TO TRADE; THAT INTENTION MUST BE PRESENT AT THE TIME OF PURCHASE. THE MERE CIRCUMSTANCES THAT A PROPERTY I S PURCHASED IN THE HOPE THAT WHEN SOLD LATER ON IT WO ULD LEAVE A MARGIN OF PROFIT, WOULD NOT BE SUFFICIENT TO SHOW, AN INTENTION TO TRADE AT THE INCEPTION. IN A CASE WHERE THE PURCHA SE HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTENTION TO R ESELL AT A PROFIT AND THE PURCHASER HAS NO INTENTION OF HOLDIN G THE PROPERTY FOR HIMSELF OR OTHERWISE ENJOYING OR USING IT, THE PRESENCE OF SUCH AN INTENTION IS A RELEVANT FACTOR AND UNLESS I T IS OFFSET BY THE PRESENCE OF OTHER FACTORS IT WOULD RAISE AS STR ONG PRESUMPTION THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSI VE AND IT IS CONCEIVABLE THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE, THE COURT MAY, DESPITE THE SAID INITIA L INTENTION, BE INCLINED TO HOLD THAT THE TRANSACTION WAS NOT AN AD VENTURE IN THE NATURE OF TRADE. THE PRESUMPTION MAY BE REBUTTED. IN THE PRESENT CASE, CONSIDERING THE FACTS AND CIRCUMSTANC ES OF THE CASE IT CANNOT BE CONSIDERED AS AN ADVENTURE IN THE NATURE OF TRADE. THE INTENTION OF THE ASSESSEE FROM THE INCE PTION WAS TO CARRY ON AGRICULTURAL OPERATIONS. MERELY BECAUSE O F THE FACT THAT THE LAND WAS SOLD IN A SHORT PERIOD OF HOLDING , IT CANNOT BE HELD THAT INCOME ARISING FROM THE SALE OF LAND WAS TAXABLE AS PROFIT ARISING FROM THE ADVENTURE IN THE NATURE OF TRADE OR CAPITAL GAIN. THE PERIOD OF HOLDING SHOULD NOT SUGGEST THA T THE ACTIVITY WAS AN ADVENTURE IN THE NATURE OF TRADE. 23 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS 36. IN VIEW OF OUR ABOVE DISCUSSION, IN OUR OPINIO N, THE LAND IS NOT SITUATED WITHIN THE QUTUBULLAPUR MUNICIPALIT Y, BUT, THE SAME SITUATED IN THE DUNDIGAL VILLAGE AND THE EVIDE NCE BROUGHT ON RECORD SUGGEST THAT THE LAND IS AN AGRICULTURAL LAND, HENCE, IT IS NOT LIABLE FOR TAXATION. ACCORDINGLY, THE ADDITI ON MADE ON THIS COUNT IS DELETED IN ALL THE APPEALS UNDER CONSIDERA TION. NO EVIDENCE SUGGESTS THAT DUNDIGAL VILLAGE FALLS WITH IN QUTUBULLAPUR MUNICIPALITY AND ALSO THIS QUTUBULLAPU R MUNICIPALITY HAS NOT NOTIFIED IN THE YEAR UNDER SEC TION 2(14)(III) OF THE I.T. ACT AND QUTUBULLAPUR MUNICIPALITY ABOLI SHED AND MERGED WITH MUNICIPAL CORPORATION OF HYDERABAD WITH EFFECT FROM 16/04/2007. WE HAVE ALSO GONE THROUGH THE RECO RD PLACED IN THE PAPER BOOK AT PAGES 76 & 77. AT PAGE 76, A C OPY OF THE INTIMATION IS PLACED ISSUED BY THE TOWN PLANNING OF FICER, QUTHBULLAPUR , CIRCLE 15, GHMC VIDE REF. NO. G/12 40/2008, DATED 04/10/2008 INFORMING THAT THE LAND IS NOT FAL LING IN THE GHMC LIMITS. AT PAGE 77, A COPY OF THE AGRICULTURAL LAND CERTIFICATE IS PLACED, ISSUED BY THE DEPUTY COLLECT OR & MANDAL REVENUE OFFICER, QUTUBULLAPUR MANDAL VIDE REF. NO. A/13607/2005, DATED 20/08/2005 STATING THAT THE LAN DS ARE UNDER CULTIVATION BY RAISING CROPS I.E. PADDY, CATT LE FEED, MAIZE, JOWAR, VEGETEABLES ETC. 37. FURTHER, WE MAKE IT CLEAR THAT WHEN THE LAND W HICH DOES NOT FALL UNDER THE PROVISIONS OF SECTION 2(14)(III) OF THE IT ACT AND AN ASSESSEE WHO IS ENGAGED IN AGRICULTURAL OPER ATIONS IN SUCH AGRICULTURAL LAND AND ALSO BEING SPECIFIED AS AGRICULTURAL LAND IN REVENUE RECORDS, THE LAND IS NOT SUBJECTED TO ANY CONVERSION AS NON-AGRICULTURAL LAND BY THE ASSESSEE OR ANY OTHER CONCERNED PERSON, TRANSFERS SUCH AGRICULTURAL LAND AS IT IS AND WHERE IT IS BASIS, IN SUCH CIRCUMSTANCES, IN OU R OPINION, SUCH TRANSFER LIKE THE CASE BEFORE US CANNOT BE CON SIDERED AS A TRANSFER OF CAPITAL ASSET OR THE TRANSACTION RELATI NG TO SALE OF LAND WAS NOT AN ADVENTURE IN THE NATURE OF TRADE SO AS TO TAX THE INCOME ARISING OUT OF THIS TRANSACTION AS BUSIN ESS INCOME. 14. ON GOING THROUGH THE AFORESAID ORDER OF THE COO RDINATE BENCH, WE FIND THE FACTS DEALT UPON BY THE TRIBUNAL IS IDE NTICAL TO THE FACTS IN THE PRESENT CASE. THEREFORE, RATIO LAID DOWN THER EIN ALSO EQUALLY APPLIES TO THE FACTS OF THE PRESENT CASE AS THE LAN D SOLD IS NOT ONLY AGRICULTURAL IN NATURE BUT IS ALSO SITUATED BEYOND 12 KMS FROM THE LIMIT OF A MUNICIPALITY NOTIFIED BY THE CENTRAL GOVT. HEN CE, LAND SOLD BY ASSESSEE NOT BEING A CAPITAL ASSET, THE GAIN DERIVE D THERE FROM IS NOT 24 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS TAXABLE AT THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) BY DISMISSING THE GROUND RAISED . 15. THE FACTS AND GROUNDS BEING SIMILAR, THE DECISI ON ABOVE WILL EQUALLY APPLY TO OTHER APPEALS AS WELL. 16. IN THE RESULT, ALL THE APPEALS OF THE DEPARTMEN T ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 28/08/2014. (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 28 TH AUGUST, 2014 KV COPY TO:- 1. M/S BHAVYA CONSTRUCTIONS PVT. LTD., PADMAVATHI M ANSION, PLOT NO. 23, AMEERPET, HYDERABAD. 2. SHRI M.S. RAGHAVA REDDY, 7-1-216, F.NO. 206, ANJANI TOWERS, BALKAMPET, AMEERPET, HYDERABAD. 3. SHRI R. SRINIVASA RAO, 8-3-224/9/19A, HYDERABAD 4. SHRI R. UMA MAHESWAR, PLOT NO. 32, H.NO. 5-5-238 /3, MAITRI NAGAR, HYDERABAD 5. SHRI P. SHIVAKUMAR, FLAT NO. 202, TEMPLE VIEW RE SIDENCY, H. NO. 6-2-10, LAKDIKAPOOL, HYDERABAD 6. SHRI G.C. SUBBANAIDU, 5-79, PEOPLES HOSPITALS, M.G. ROAD, HYDERABAD 7. SHRI T. GOPICHAND, H.NO. 8-3-1103, FLAT NO. 403, PLOT NO. 106, JYOTHI ESTATES, HYDERABAD 8. ACIT, CENTRAL CIRCLE 5, HYDERABAD 9. CIT(A)-VII, HYDERABAD 10. CIT (CENTRAL), HYDERABAD 11. THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERA BAD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S DRAFT PROPOSED & PLACED BEFORE THE SECOND AM 25 ITA NO. 1751/H/12 AND OTHERS BHAVYA CONSTRUCTIONS PVT. LTD. AND OTHERS 3 MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER