G.K. Properties (P) Ltd, Hyderabad V. ITO, W-2(2), Hyderabad

ITA 287/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66192 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 25-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Capital asset; Business income; Retrospective amendment
• Section: 143(3); 2(14); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 287/HYD/2011 ASSESSMENT YEAR 2007-08 M/S. G.K. PROPERTIES (P) LTD. SECUNDERABAD PAN: AAACG7448K VS. INCOME TAX OFFICER WARD-2(2) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI V. RAGHAVENDRA RAO RESPONDENT BY: SMT. AMISHA S. GUPT DATE OF HEARING: 25.07.2012 DATE OF PRONOUNCEMENT: 31.08.2012 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-III, HYDERABAD DATED 28.12.2010 FOR A SSESSMENT YEAR 2007-08. 2. THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WIT H REGARD TO CONFIRMING OF ACTION OF THE ASSESSING OFFICER TH AT THE PROFIT ON SALE OF AGRICULTURAL LAND AS INCOME FROM BUSINES S INSTEAD OF TREATING IT AS EXEMPTED INCOME. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS A COMPANY WHICH DERIVES INCOME FROM BUSINESS OF CONSTRUCTION AND SALE AND PURCHASE OF LANDS. FOR THE ASST. YEAR 2007-08, IT HAS FILED ITS RETURN OF INCOME ON 29.10.2007 SHOWING INCOME O F RS. 6,21,400. AFTER PROCESSING OF THE SAID RETURN, THE SAME WAS SELECTED FOR SCRUTINY ASSESSMENT. IN THE RETURN TH E ASSESSEE HAS DECLARED PROFIT OF RS. 69,00,224 ON SALE OF AGRICUL TURAL LANDS AND CLAIMED THE SAME AS EXEMPT FROM TAX. DURING THE AS SESSMENT I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 2 PROCEEDINGS, FROM THE DETAILS FURNISHED BY THE ASSE SSEE, THE ASSESSING OFFICER NOTICED THAT SUCH PROFIT HAS ARIS EN FROM SALE OF LAND AT TURKAPALLY AND AT KOMPALLY. IN SUPPORT O F CLAIM OF AGRICULTURAL LAND, THE ASSESSEE HAS FILED A CERTIFI CATE DATED 24.12.2009 IN THAT REGARD FROM THE TAHASILDAR, SHAM EERPET MANDAL. THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF LANDS PURCHASED AT TURKAPALLY VILLAGE AND AT QUDBULLAPURA VILLAGE, MEDCHAL MANDAL. IN RESPONSE TO QUERY RAISED BY THE ASSESSING OFFICER TO FURNISH DETAILS OF AGRICULTURAL OPERATIO N CARRIED OUT ON THE SAID LAND, THE ASSESSEE HAS SUBMITTED THAT THE SAID LAND HAS BEEN LEASED OUT EARLIER AND AN INCOME OF RS. 15,000 WAS EARNED. IN RESPONSE TO FURTHER QUERY RAISED BY THE ASSESSIN G OFFICER, THE ASSESSEE HAS FURNISHED THE DETAILS OF PURCHASE AND SALE OF AGRICULTURAL LANDS MADE DURING EARLIER YEARS. IT HA S FURNISHED THE DETAILS OF PURCHASE OF AGRICULTURAL LAND DURING THE PREVIOUS YEARS 2002-03 TO 2003-04 AND THE SALES MADE OUT OF SUCH LAND DURING THE PREVIOUS YEARS 2004-05, 2005-06 AND 2006 -07. SUCH STATEMENT AS FURNISHED BY THE ASSESSEE IS EXTRACTED BY THE ASSESSING OFFICER AT PAGE 5 & 6 OF THE ASSESSMENT O RDER. AFTER CONSIDERING SUCH DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT THOUGH SUCH LANDS WERE SHOWN AS CAPITAL ASSETS, THE SAME WERE ACTUALLY CONSTITUTING STOCK-IN-TRADE OF THE BUSINESS IN THE CASE OF THE ASSESSEE AND HE WAS OF THE VIEW THAT SUCH SALE TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE PREVIOUS YEAR WERE ACTUALLY BUSINESS TRA NSACTIONS MADE DURING THE YEAR. HE NOTED THAT THE ASSESSEE HA S NOT EXPLAINED THE REASONS FOR PURCHASE OF SUCH AGRICULT URAL LANDS. SUCH LANDS PURCHASED BY THE ASSESSEE HAVE NEITHER Y IELDED ANY SUBSTANTIAL AGRICULTURAL INCOME NOR THEY ARE FERTIL E LANDS. THE SAID LANDS, IN FACT, WERE DRY LANDS. MENTIONING TH AT, THE CLAIM OF RECEIPT OF AGRICULTURAL INCOME FROM ALLEGED LEASE H AS NOT BEEN SUBSTANTIATED BY ANY EVIDENCE, HE NOTED THAT THE AS SESSEE HAS I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 3 PURCHASED SUCH LANDS WITH THE ONLY INTENTION TO SEL L THEM AT A LATER DATE TO EARN PROFIT. HE FURTHER NOTED THAT SU CH LEASE OF THOSE LANDS IN THE CASE OF THE ASSESSEE WAS MERELY A STOP GAP ARRANGEMENT, TO SELL THAT LAND AT A HIGHER PROFIT M ARGIN LATER. HE FURTHER MENTIONED THAT ON A PERSONAL VISIT MADE BY HIM OF THAT LAND, HE FOUND THAT THERE WERE SOME REAL ESTATE ACT IVITIES BEING CARRIED OUT IN THE VICINITY OF THAT LAND. FURTHER R EFERRING TO SALE DEEDS EXECUTED IN RESPECT OF LANDS SITUATED AT KOMP ALLY AND QUOTING THE RELEVANT PORTION FROM THE SAME AT PAGE- 9 OF THE ASSESSMENT ORDER, HE NOTED THAT SUCH LAND SOLD BY T HE ASSESSEE, THOUGH CLAIMED AS AGRICULTURAL LAND, IN FACT, WAS N OT AGRICULTURAL LAND, BUT CLEARLY FALLS WITHIN THE MEANING OF URBAN LAND. WITH THESE OBSERVATIONS HE HELD THAT THE CLAIM OF THE AS SESSEE THAT SUCH PROFIT EARNED FROM SALE OF SAID LANDS IS EXEMP T, CANNOT BE ACCEPTED. ACCORDING TO HIM, SUCH SALE TRANSACTIONS MADE BY THE ASSESSEE ARE TO BE CONSIDERED AS BUSINESS TRANSACTI ONS AND ACCORDINGLY, THAT PROFIT HAS TO BE TAXED TREATING T HE SAME AS BUSINESS INCOME. THEREFORE, DURING THE ASSESSMENT P ROCEEDINGS, HE HAS ASKED THE ASSESSEE TO EXPLAIN WHY SUCH PROFI T FROM SALE OF SAID LANDS SHOULD NOT BE TAXED TREATING AS BUSIN ESS INCOME? 4. IN RESPONSE TO SUCH QUERY, THE ASSESSEE HAS SUBMITT ED THAT THE COMPANY IN THEIR CASE WAS INCORPORATED ON 23.11.1992 AND ITS MAIN OBJECT WAS NOT BUYING AND SELLING OF A GRICULTURAL LANDS. IT HAS PURCHASED AGRICULTURAL LANDS DURING D IFFERENT YEARS WITH AN INTENTION OF INVESTMENT. IT HAS SHOWN AGRIC ULTURAL INCOME IN FORM OF LEASE RENTALS FROM THE SAME AND T HE SAID CLAIM HAS BEEN ACCEPTED IN THE PREVIOUS ASSESSMENTS MADE IN THE CASE OF THE ASSESSEE. IN THE WEALTH TAX RETURNS FILED FOR THE ASST. YEARS 2003-04 TO 2007-08, THEIR CLAIM ABOUT S AID LANDS BEING EXEMPTED ASSETS, HAS BEEN ACCEPTED. IT WAS FU RTHER STATED THAT THEY HAVE SOLD A PART OF THE SAID LANDS AND NO CAPITAL GAINS WAS PAID AND THEIR SUCH CLAIM WAS ACCEPTED BY THE D EPARTMENT. I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 4 IT WAS FURTHER SUBMITTED THAT THE BUYER WHO HAS PUR CHASED THE LAND HAS ALSO INDULGED IN AGRICULTURAL ACTIVITY. IT WAS STATED THAT THE SAID AGRICULTURAL LANDS IN THE CASE OF THE ASSE SSEE, IS NOT A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) O F THE ACT. WITH THESE SUBMISSIONS, THE ASSESSEE HAS CONTENDED THAT SUCH PROFIT EARNED FROM SALE OF THOSE LAND DURING THE PREVIOUS YEAR, CANNOT BE TAXED TREATING AS BUSINESS INCOME. 5. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT SUCH SUBMISSIONS OF THE ASSESSEE. HE NOTED THAT PURCHASE OF LANDS AT FREQUENT INTERVALS DURING THE EARLIER YEARS POINTS TO THE INTENTION OF THE ASSESSEE OF ENGAGING IN BUSINESS A CTIVITY. HE STATED THAT SUCH PURCHASES MADE BY THE ASSESSEE, WE RE WITH A MOTIVE TO EARN PROFIT FROM SALE OF SUCH LANDS AT A LATER DATE. THE SAID LANDS PURCHASED BY THE ASSESSEE WERE DRY LANDS AND FROM MERE DECLARATION OF LEASE RENTAL FROM THE SAME DURI NG THE EARLIER YEARS AT RS. 15,000, IT CANNOT BE SAID THAT THE ASS ESSEE WAS ACTUALLY HAVING AGRICULTURAL INCOME FROM SUCH LANDS . HE FURTHER NOTED THAT FROM MERE ACCEPTANCE OF THEIR WEALTH TAX RETURNS, IT CANNOT BE SAID THAT SUCH PROFIT EARNED FROM SALE OF THE SAID LANDS DURING THE PREVIOUS YEAR IS EXEMPT FROM TAX. STATING THAT IT WAS THE INTENTION OF THE ASSESSEE AT THE TIME OF PU RCHASE OF SAID LANDS TO EARN PROFIT BY SELLING THEM SUBSEQUENTLY A ND REFERRING TO THE FACT OF REAL ESTATE ACTIVITY BEING CARRIED O UT IN THE VICINITY OF THE SAID LANDS, THE ASSESSING OFFICER HELD THAT THE PROFIT FROM SALE OF THOSE LANDS IN THE CASE HE ASSESSEE, HAS TO BE TAXED TREATING AS BUSINESS INCOME. ACCORDINGLY, HE REJECT ED THE CLAIM OF THE ASSESSEE FOR EXEMPTION OF SUCH PROFIT FROM T AX. AFTER ADDING THE SAID AMOUNT OF RS. 69,00,224 TREATING TH E SAME AS INCOME FROM BUSINESS, TO THE RETURNED INCOME OF THE ASSESSEE, HE COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS . 75,21,624, VIDE HIS ORDER DATED 31.12.2009 PASSED U/S. 143(3) OF THE ACT. I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 5 ON FURTHER APPEAL, THE CIT(A) CONFIRMED ORDER OF TH E ASSESSING OFFICER. AGAINST THIS THE ASSESSEE IS IN APPEAL BE FORE US. 6. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS A PRI VATE LIMITED COMPANY INCORPORATED IN 1992. THE MEMORANDU M AND ARTICLES OF ASSOCIATION OF THE COMPANY ARE FURNISHE D IN THE PAPER BOOK FROM PAGE 132 TILL THE END. THE MAIN OBJ ECT OF THE COMPANY IS TO DO AND BE IN REAL ESTATE BUSINESS IN RESPECT OF LAND OR BUILDINGS. THE OBJECTS ARE SPECIFIED IN THE FIRST PAGE OF THE MEMORANDUM AT PARA (A) WITH CLAUSES I TO 4. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION 2007-08, THE AS SESSEE ADMITTED AN INCOME OF RS. 6,21,400/- FROM THE BUSIN ESS CARRIED ON BY THE COMPANY. THE ASSESSMENT WAS COMPLETED BY MAKING AN ADDITION OF RS. 69,00,224. THIS AMOUNT IS SHOWN IN THE PROFIT & LOSS A/C BUT REDUCED FROM THE NET PROFIT IN THE A DJUSTED STATEMENT WITH THE NARRATION 'PROFIT ON SALE ON AGR ICULTURAL LAND BEING EXEMPT'. THE DETAILS OF AGRICULTURAL LANDS S OLD ARE AS UNDER: SY. NO. TURKAPALLY VILLAGE AREA DATE OF SALE DATE OF PURCHASE SALE CONSIDERATION RS. 571 564 6.00 3 ACS 26 GTS 10.4.2006 23.5.2003 28.95,000 560 4 ACS 15 GTS 10.4.2006 4.2.2003 13,12,500 512 14 ACS 13 GTS 10.4.2006 5.3.2003 42,97,500 22/A, 22/B IN KOMPALLY 0 ACS 6 GTS 25.9.2006 10.1.2006 3,75,000 7. THE AR SUBMITTED THAT THE ASSESSING OFFICER (AO) H ELD THAT THE ASSESSEE INDULGED IN AN ADVENTURE IN THE N ATURE OF TRADE IN BUYING THE AGRICULTURAL LANDS AND IN SELLI NG THEM LATER. THEREFORE HE ASSESSED THE AMOUNT OF RS. 69,00,224/- AS INCOME FROM BUSINESS. IT IS THE ASSESSEE'S CONTENTION THAT THERE IS NO OBJECT IN THE MEMORANDUM OF ASSOCIATION TO DO BUSIN ESS IN AGRICULTURAL LANDS AND THAT THE MEMORANDUM AND ARTI CLES CONFINE THE ACTIVITIES TO THE BUSINESS REAL ESTATE, THAT THE I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 6 AGRICULTURAL LANDS WERE PURCHASED NEARLY AFTER 10 Y EARS AFTER THE EXISTENCE OF THE COMPANY AS A MATTER OF INVESTMENT AND ALSO SHOWN IN THE ACCOUNT BOOKS ACCORDINGLY THROUGH OUT THE PERIOD OF HOLDING. THE INCOME TAX OFFICER, I.E. AO PROPOSE D TO TREAT THE INCOME FROM AGRICULTURE AS INCOME FROM BUSINESS ON THE GROUND THAT THE ASSESSEE INDULGED IN AN ADVENTURE IN THE N ATURE OF TRADE IN BUYING AND SELLING AGRICULTURAL LANDS, THAT THE 'CAPITAL ASSETS' SHOWN IN THE BALANCE SHEET SHOULD BE TREATED AS 'ST OCK-IN-TRADE OF THE BUSINESS', THAT THE AGRICULTURAL ACTIVITY CA RRIED OUT WAS OF A MINIMAL NATURE AND THAT THE ANCILLARY ACTIVITIES IN CLAUSE 11 AT PAGE 3 OF THE MEMORANDUM AND ARTICLES OF ASSOCIATIO N COVER THE AGRICULTURAL LANDS. THE ASSESSEE SUBMITTED BEFO RE THE AO THAT THE COMPANY WAS INCORPORATED ON 23-11-1992 AND THAT ITS MAIN OBJECTS AS MENTIONED ARE NOT BUYING AND SELLIN G OF AGRICULTURAL LANDS. IT HAD PURCHASED AGRICULTURAL L ANDS IN VARIOUS YEARS AS PER STATEMENT MENTIONED SUPRA AND THAT THE SAID AGRICULTURAL LANDS ARE PURCHASED WITH AN INTENTION OF INVESTMENT IT HAS SHOWN AGRICULTURAL INCOME IN THE FORM OF LEA SE RENTALS AND THAT THE PREVIOUS ASSESSMENTS HAVE BEEN COMPLETED B Y ACCEPTING THE SAID CLAIM. IT HAD FILED WEALTH TAX RETURNS FOR ASSESSMENT YEAR 2003-04 TILL 2007 -08 AND THAT IT H AS SHOWN THE SAID LANDS ARE EXEMPTED ASSETS AND THAT THE CLAIM W AS ACCEPTED. IT HAD SOLD SOME PART OF THESE LANDS AND THAT NO CA PITAL GAINS WAS PAID AND THAT THE CLAIM WAS ACCEPTED BY THE DEP ARTMENT THE PERSONAL VISIT OF THE ASSESSING OFFICER REVEALE D THAT THE BUYER WHO PURCHASED THE LANDS HAS ALSO CARRIED OUT AGRICULTURAL ACTIVITY. THE ASSESSEE RELIED ON THE RATIO OF THE D ECISION IN THE CASE OF CIT VS TARACHAND JAIN (123 ITR 567) (PATNA) WHEREIN IT WAS HELD THAT THE IMPORTANT FACTORS THAT SHOULD BE TAKEN INTO CONSIDERATION TO DETERMINE WHETHER A PIECE OF LAND CAN BE SAID TO BE AGRICULTURAL OR NOT ARE WHETHER THE LAND HAS BEEN ASSESSED TO LAND REVENUE OR NOT WHETHER THE AGRICULTURAL OPE RATIONS ARE I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 7 CARRIED ON IN THE LAND WHETHER THE LAND IS CAPABLE OF AGRICULTURAL OPERATIONS THE INTENTION OF THE OWNER OR THE PURPOS E FOR WHICH HE IS RETAINING THE LAND, SUCH INTENTION NOT BEING FLUCTUATING OR AMBULATORY CHARACTER OF ADJOINING LAND AND DESCRIPT ION OF LAND IN THE OFFICIAL RECORDS. 8. RELIANCE IS ALSO PLACED ON THE DECISION IN THE CASE OF M.S. SRINIVASA NAICKER VS ITO (292 ITR 481) (MAD) WHEREI N IT WAS HELD THAT IT WAS ADMITTED CASES THAT TILL THE DATE OF SA LE, AGRICULTURAL OPERATIONS WERE CARRIED ON BY THE ASSESSEE. THE LAN D WAS PUT TO USE ONLY FOR AGRICULTURAL PURPOSES AND NOT FOR ANYT HING ELSE. THE LANDS IN QUESTION WERE ALSO REGISTERED AS AGRICULTU RAL LANDS AND ASSESSED TO LAND REVENUE. THE FACT THAT THE PURCHAS ER HAD PUT IT TO USE FOR A TOTALLY DIFFERENT PURPOSE FROM THAT OF THE ASSESSEE OUGHT NOT TO HAVE WEIGHED WITH THE TAX AUTHORITY. C APITAL GAINS TAX COULD NOT BE LEVIED. THE AO HOWEVER HAS REJECT ED ALL THE CONTENTIONS. HE HAS NOT ADVERTED TO THE ABOVE DECIS IONS OF THE HIGH COURTS RELIED ON BY THE ASSESSEE. IT MAY BE ST ATED HERE THAT THE AO MADE CONFLICTING STATEMENTS WHILE REJECTING THE CONTENTIONS OF THE ASSESSEE. THEY ARE AS FOLLOWS: AT PAGE 4(II): 'THE LANDS HAVE NOT YIELDED ANY INCO ME WHETHER EXEMPT OR NOT THEREBY INDICATING A POSSIBLE CHANGE IN THEIR TRUE 'CHARACTER' FROM AGRICULTURAL LANDS' . AT PAGE 7(IV) : 'THE LANDS IN FACT WERE DRY LANDS WHICH HAVE NOT YIELDED ANY AGRICULTURAL INCOME' AT PAGE 12 (E): 'THE DESCRIPTION OF THE LAND IN THE OFFICIAL RECORDS THOUGH INDICATE THE LANDS TO BE AGRICULTURA L LANDS EXCEPT CERTIFICATION THE NATURE AND EXTENT OF CROPS GROWN, YIELD PER ACRE ETC HAVE NOT BEEN FURNISHED BY THE TAHSILDAR AS THERE IS NO SUCH ACTIVITY IN CONNECTIO N WITH AGRICULTURAL DURING THE YEAR' I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 8 9. THE AR SUBMITTED THAT AT THE SAME TIME THE ASSESSI NG OFFICER MADE THE FOLLOWING OBSERVATIONS IN HIS ORDE R WHICH ARE AT VARIANCE WITH THE PRECEDING OBSERVATIONS: AT PAGE 4(III): 'THE ASSESSEE HAS INVESTED HUGE SUM S OF MONEY BY PURCHASING AGRICULTURAL LANDS AND HAS EARN ED MERE INCOME FROM LEASE' . AT PAGE 5(VII): 'MERE RECEIPT OF LEASE INCOME FROM ALLEGED AGRICULTURAL LANDS CANNOT DETERMINE THE NATURE OF T HE SAID LANDS AS 'AGRICULTURAL LANDS' WHEREAS THE FACT REMA INS THAT THE SAME ARE DRY LANDS' . AT PAGE 7(III) : 'THE LANDS THAT HAVE BEEN PURCHASED HAVE NEITHER YIELDED ANY SUBSTANTIAL AGRICULTURAL INCOME NOR THEY WERE FERTILE LANDS'. AT PAGE 8(VI): 'MERE RECEIPT OF LEASE IN EARLIER YE ARS OF RS. 15,0001- CANNOT ALTER THE TRUE NATURE AND CHARACTERSTIC OF THE LANDS WHICH HAVE BEEN PURCHASED WITH THE ONLY INTENTION TO SELL THEM AT A LATER DATE WITH PROFIT MARGINS. EVEN IF THE LANDS ARE GIVEN ON LEASE, THE ARRANGEME NT CAN BE NOTHING BUT A STOP GAP ARRANGEMENT WAITING TO SE LL THE SAME AT A PROFIT MARGIN'. 10. THE AR SUBMITTED THAT, THUS ON ONE HAND, THE AO STA TED THAT NO AGRICULTURAL ACTIVITY WHATEVER WAS CARRIED OUT AND NO INCOME WAS DERIVED WHEREAS HE ALSO STATED THAT LEAS E INCOME WAS RECEIVED BUT NOT SUBSTANTIAL. IN ANY CASE, COUR TS HAVE HELD THAT IF THE LAND IS ASSESSED TO LAND REVENUE AND CL ASSIFIED AS AGRICULTURAL IN REVENUE RECORDS, THE LAND DOES NOT CEASE TO BE AGRICULTURAL EVEN IF IT IS LEFT LYING AS FALLOW. I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 9 11. THE AR SUBMITTED THAT THE ASSESSING OFFICER RELIED ON CERTAIN ASSUMPTIONS FOR REACHING HIS CONCLUSIONS WI THOUT ANY VALID MATERIAL. AT PAGE 4(II): 'THE LANDS HAVE NOT YIELDED ANY INCO ME WHETHER EXEMPT OR NOT THEREBY INDICATING A POSSIBLE CHANGE IN THEIR TRUE 'CHARACTERSTIC' FROM AGRICULTU RAL LANDS'. AT PAGE 4 (V): 'THE TRANSACTIONS OF SALE AFTER SOME TIME OUT OF SOME PART OF THE LAND INDICATE THAT THE ASSESSEE 'VENTURED' TO SELL THE LANDS AT A HIGHER PRICE KEEP ING IN VIEW THE GROWING NATURE OF REAL ESTATE IN AND AROUN D THE VICINITY OF THE LANDS'. AT PAGE 8(VI) : 'MERE RECEIPT OF LEASE IN EARLIER YEARS OF RS. 15,000 CANNOT ALTER THE TRUE NATURE AND CHARACTERSTIC OF THE LANDS WHICH HAVE BEEN PURCHASED WITH THE ONLY INTENTION TO SELL THEM AT A LATER DATE WITH PROFIT MARGINS. EVEN IF THE LANDS ARE GIVEN ON LEASE, THE ARRANGEME NT CAN BE NOTHING BUT A STOP GAP ARRANGEMENT WAITING TO SE LL THE SAME AT A PROFIT MARGIN'. AT PAGE 11 (III): 'MERE DECLARATION OF LEASE INCOME IN EARLIER YEARS OF RS. 15,000 IS ONLY AN ALTERNATE CLAIM OF THE ASSESSEE TO COLOUR THE RECEIPT OF AGRICULTURAL INCO ME IN RESPECT OR 'DRY LANDS' WHICH HAVE BEEN KEPT IDLE EX PECTING THEM TO BE SOLD AT A FUTURE DATE FOR PROFIT'. 12. THE AR SUBMITTED THAT THE ABOVE OBSERVATIONS OF THE ASSESSING OFFICER SHOW THAT HE HAS RELIED ON HIS OW N SURMISE AND CONJECTURE TO ARRIVE AT THE CONCLUSION THAT THE ASSESSEE HAD THE INTENTION OF INDULGING IN ADVENTURE IN THE NATU RE OF TRADE. THE ASSESSING OFFICER HAS ALSO MADE AN INCORRECT S TATEMENT IN I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 10 HIS REASONS. AT PAGE 12(D) THE AA STATES THAT 'THE CHARACTER OF THE ADJOINING LAND HAS ALSO NOT PROVED SINCE IN THE VICINITY OF THE LANDS THE ACTIVITY OF SOME REAL ESTATE BY WAY O F HUGE BUILDING HAS BEEN CONSTRUCTED'. THIS IS NOT CORRECT AS THE ADANGAL RECORDS OF THE STATE REVENUE AUTHORITIES SHOW. 13. ADANGAL REGISTER COPIES ARE FILED BEFORE THE BENCH. THE MOST SIGNIFICANT EVIDENCE IN THE FORM OF A LETTER F ROM THE TAHSILDAR OF SHAMIRPET MANDAL IN REPLY TO THE AOS O WN LETTER CALLING FOR INFORMATION U] S 133(6) OF THE IT ACT (P 6 OF THE PB) HAS BEEN OMITTED TO BE CONSIDERED. THE LETTER SHOWS THAT AS LATE AS IN DECEMBER 2009 THE LANDS IN TURKAPALLY WHICH W ERE SOLD BY THE ASSESSEE WERE UNDER CULTIVATION EVEN BY THE PUR CHASERS FROM THE ASSESSEE. THE COURTS HAVE HELD THAT EVEN IN A C ASE WHERE THE SELLER-ASSESSEE SOLD THE AGRICULTURAL LANDS WHICH W ERE USED BY THE PURCHASERS FOR NON-AGRICULTURAL PURPOSES WOULD NOT RENDER THE SELLER - ASSESSEE AS DERIVING NON-AGRICULTURAL INCOME. THE CASE OF THE ASSESSEE IS ON A BETTER FOOTING. IN THE CASE OF THE ASSESSEE AS LATE AS IN DECEMBER 2009, THE LANDS TRA NSFERRED BY IT WERE WITH TEAK PLANTATION, PADDY CULTIVATION, MANGO PLANTATION ETC. THE AO HAS NOT CONSIDERED THE CASE LAW PRESENT ED TO HIM. BUT HE SOUGHT TO RELY ON THE DECISION IN THE CASE O F DEEP CHANDRA & CO VS CIT (107 ITR 746) (ALL) WHICH ACTUA LLY IS IN FAVOUR OF THE ASSESSEE'S STAND. HE RELIED ON ANOTHE R DECISION IN THE CASE OF CIT VS R RAMAIAH (146 ITR 39) (KAR). TH AT DECISION IS NOT AT ALL APPLICABLE TO THE FACTS OF THE ASSESS EE'S CASE BECAUSE THE LAND THERE WAS CONVERTED INTO A NON-AGRICULTURA L LAND. IN THE CASE OF THE ASSESSEE, THE TAHSILDAR CLEARLY STATED (PAGE 6 OF THE PB) THAT THE ASSESSEE DID NOT APPLY FOR THE CONVERS ION OF THE LAND FOR NON-AGRICULTURAL PURPOSES. THE AR SUBMITT ED THAT THE LANDS ARE ASSESSED TO LAND REVENUE, THEY ARE DRY LA NDS, CULTIVATION IS BEING CARRIED ON IN THE VICINITY THE LAND WAS SOLD ON AN ACREAGE BASIS NOT ON THE BASIS OF YARDAGE AND THE LAND WAS I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 11 NOT CONVERTED INTO PLOTS ADANGAL REGISTERS TAHSILDA R'S CERTIFICATE AND SALE DEEDS PROVE THE ABOVE FACTS. THEREFORE THE INCOME DERIVED IS CLEARLY AGRICULTURAL INCOME. 14. THE AR SUBMITTED THAT IN THE CASE OF RAGHOTTAMA RED DY VS ITO (169 ITR 174, 184) THE ANDHRA PRADESH HIGH C OURT HELD 'ACCORDINGLY, WE HOLD THAT THE PROFIT OR GAIN RESUL TING FROM SALE OF AGRICULTURAL LAND IS 'REVENUE DERIVED FROM LAND' , I.E., IT IS AGRICULTURAL INCOME WITHIN THE MEANING OF CLAUSE (1 ) IN SEC 2 OF THE ACT.' 15. THE AR SUBMITTED THAT THE EXPLANATION - 1 INSERTED BY THE FINANCE ACT 1989 WITH RETROSPECTIVE EFFECT FROM 1-0 4-1970 DOES NOT MAKE ANY DIFFERENCE BECAUSE THE EXPLANATION ROP ES IN THE REVENUE DERIVED FROM THE AGRICULTURAL LANDS LOCATED IN THE MUNICIPALITIES AND FROM THOSE WITHIN THE NOTIFIED L IMITS OF THE MUNICIPALITIES. THEREFORE THE PROFIT AND GAINS ON S ALE OF AGRICULTURAL LANDS WHICH DO NOT COME U/S. 2(14)(III ) CONTINUE TO BE AGRICULTURAL INCOME IN TERMS OF THE AP HIGH COUR T JUDGEMENT (SUPRA). FURTHER THE JUDGEMENT DOES NOT DIFFERENTIA TE BETWEEN THE AGRICULTURAL LANDS HELD AS CAPITAL ASSET OR EVE N OTHERWISE TO HOLD THAT PROFIT AND GAIN IS AGRICULTURAL INCOME. H OWEVER THE ASSESSING OFFICER SOUGHT TO HOLD THE INCOME AS ON S ALE OF STOCK- IN-TRADE. IT IS SUBMITTED THAT THE FACTS ON RECORD CLEARLY SHOW THAT THE AGRICULTURAL LANDS ARE NOT STOCK-IN-TRADE. ACTUALLY THE AOS STAND THAT THE AGRICULTURAL LANDS ARE THE STOCK -IN-TRADE OF BUSINESS OF THE ASSESSEE IS AT VARIANCE WITH HIS AN OTHER STATEMENT THAT THE ASSESSEE INDULGED IN AN ADVENTUR E IN THE NATURE OF TRADE. AN ADVENTURE IN THE NATURE OF TRAD E CANNOT BE THE TRADE ITSELF. THE STOCK-IN-TRADE IS RELEVANT ON LY FOR TRADE AND NOT IF IT IS AN ADVENTURE IN THE NATURE OF TRADE. T RADE CANNOT BE ADVENTURE AND AN ADVENTURE DOES NOT INVOLVE STOCK-I N-TRADE. I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 12 16. THE AR RELIED ON THE JUDGEMENT OF GUJARAT HIGH COUR T IN THE CASE OF CIT VS SIDDHARTHA J DESAI (139 ITR 628) WHERE AFTER CONSIDERING A LONG CATENA OF JUDGEMENTS, THE HIGH C OURT LAID DOWN SEVERAL TESTS WHICH ARE AS FOLLOWS: CLASSIFICATION IN THE REVENUE RECORDS ASSESSMENT TO LAND REVENUE USAGE OF THE LAND EITHER ACTUALLY OR ORDINARILY AT ABOUT THE RELEVANT TIME PERIOD OF USER WHETHER LONG OR SHORT OR BY WAY OF S TOP GAP ARRANGEMENT PROPORTION OF INCOME AND INVESTMENT WHETHER PERMISSION FOR NON-AGRICULTURAL USE OF THE LAND IS OBTAINED WHETHER THE LAND ALSO WAS PUT TO ALTERNATIVE USER NON-USER OF THE LAND FOR AGRICULTURE AT ANY TIME WHETHER THE OWNER MEANT OR INTENDED TO USE THE LAND FOR AGRICULTURAL PURPOSES WHETHER THE LAND WAS IN A DEVELOPED AREA AND THE NATURE OF USER OF THE LANDS IN THE ADJOINING AREA WHETHER THE LAND WAS PLOTTED AND ROADS AND OTHER FACILITIES PROVIDED WHETHER THE SALE WAS TO BE IN FAVOUR OF A NON- AGRICULTURISTS OR FOR NON-AGRICULTURAL PURPOSES. WHETHER THE LAND WAS SOLD ON YARDAGE OR ACREAGE BAS IS. WHETHER AN AGRICULTURIST WOULD PURCHASE THE LAND FO R AGRICULTURAL PURPOSES AT THE PRICE AT WHICH THE LAN D WAS SOLD. 17. THE AR SUBMITTED THAT IT IS VERY CLEAR FROM THE WID E RANGING AND COMPREHENSIVE TESTS LAID DOWN BY THE GU JARAT HIGH COURT AS ABOVE THAT THE ASSESSEE'S CASE FOR AGRICUL TURAL INCOME IS VERY WELL SUPPORTED. EVEN IN REGARD TO THE LAST FAC TOR, IT IS I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 13 WHETHER THE AGRICULTURISTS WHO PURCHASED THE LAND C ONTINUED TO CARRY ON AGRICULTURAL OPERATIONS, IT IS STATED BY T HE TAHSILDAR IN HIS LETTER THAT THE LANDS WERE BEING USED FOR AGRIC ULTURAL PURPOSES BY THE PURCHASERS TILL DEC 2009. THE GUJAR AT HIGH COURT WENT ON TO HOLD THAT 'AT THE RISK OF REPETITI ON, WE MAY MENTION THAT NOT ALL OF THESE FACTORS WOULD BE PRES ENT OR ABSENT IN ANY CASE AND THAT IN EACH CASE ONE OR MORE OF TH OSE FACTORS MAY MAKE APPEARANCE AND THAT THE ULTIMATE DECISION WILL HAVE TO BE REACHED ON A BALANCED CONSIDERATION OF THE TO TALITY OF CIRCUMSTANCES'. AS THE ASSESSEE PASSES THE TEST IN ALMOST ALL THE ABOVE PARAMETERS THE INCOME IS AGRICULTURAL INCOME ONLY AND THEREFORE EXEMPTS U/S 10(1) OF THE IT ACT . THE SCH EDULE OF FIXED ASSETS SHOWS THAT THE ASSESSEE SPENT FAR LESS AMOUN TS ON AGRICULTURAL LAND THAN ON THE URBAN LANDS, VEHICLES ETC WHICH WOULD NOT BE THE CASE IF LANDS WERE A STOCK-IN-TRAD E OR BUSINESS ASSET. 18. THE AR SUBMITTED THAT ON APPEAL, THE COMMISSIONER O F INCOME TAX (APPEALS) HAS CLEARLY ACCEPTED THE POSIT ION THAT THE LANDS ARE AGRICULTURAL AND THE INCOME WAS FROM AGRI CULTURE. HE HOWEVER SOUGHT TO APPLY THE DECISION OF THE ALLAHAB AD HIGH COURT IN THE SOLITARY CASE OF DCIT VS GOPAL RAM NAR AYAN KASAT (328 ITR 5556,570). IT IS SUBMITTED BY THE ASSESSEE BEFORE THE HON BLE BENCH THAT THIS DECISION IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE AS THE FACTS THERE IN ON THE BASIS OF WHICH THE HIGH COURT CAME TO CONCLUSION ARE ENTIRELY DIFFERENT. IN THAT CASE, THE ASSESSEE WAS INVOLVED IN A SERIES OF TRANSACTIONS O F PURCHASING LANDS WHICH WERE NOTIFIED OR LIKELY TO BE NOTIFIED FOR ACQUISITION BY THE GOVERNMENT AND THE TRANSACTIONS WERE NOT ONL Y PERTAINING TO THE JALGAON DISTRICT BUT ALSO AURANGA BAD DISTRICT FAR AWAY FROM THE COMPANY'S BUSINESS ACTIVITY. IN T HE CASE OF THE ASSESSEE NEITHER OF THESE FACTORS NAMELY (A) ACQUIS ITION OR PURCHASE OF LANDS WITH AN EYE ON THE IMPENDING ACQU ISITION AND I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 14 THE COMPENSATION AMOUNTS BY THE STATE GOVERNMENT OR (B) THE FAR-AWAY NATURE FROM THE PLACE OF BUSINESS IS PRESE NT IN THIS CASE. 19. THE AR SUBMITTED THAT THE CIT(A) HAS HOWEVER OBSERV ED MISTAKENLY THAT THE ASSESSEE WAS CONTINUOUSLY SELLI NG LANDS DURING EARLIER YEARS. THE ASSESSEE SOLD THE' LANDS ONLY IN ONE EARLIER YEAR WHERE THE DEPARTMENT HAS ACCEPTED THE CLAIM OF EXEMPTION OF THE AGRICULTURAL INCOME. THE CIT(A) HA S NOT DENIED THAT THE AGRICULTURE OPERATIONS WERE NOT CARRIED OU T. HIS OBJECTION IS THAT THE LANDS WERE NOT PERSONALLY CUL TIVATED BY THE ASSESSEE AS IN THE CASES RELIED ON BY HIM. THE INCO ME FROTH LAND IS AGRICULTURAL IF IT IS DERIVED FROM AGRICULTURAL OPERATIONS. THE NATURE OF INCOME FROM A PARTICULAR LAND WHETHER AGR ICULTURAL DOES NOT DEPEND ON THE PERSON, THAT IS OWNER OR LES SEE CULTIVATING IT. THE CHARACTER OF INCOME GOES WITH T HE LAND AND NOT WITH THE PERSON CULTIVATING IT. IT IS NOT CORRE CT TO STATE THAT THE AGRICULTURAL OPERATIONS WERE NOT CARRIED OUT ON THE LAND BECAUSE THE LEASE INCOME ON THE LANDS WAS ONLY ON A CCOUNT OF AGRICULTURAL OPERATIONS. THE RELIANCE ON THE DECISI ON OF THE SUPREME COURT IN THE CASE OF G VENKATA SWAMY NAIDU & CO VS CIT (35 ITR 594) IS MISPLACED BECAUSE THE ASSET THE RE WAS NOT AGRICULTURAL LAND. THE DECISION IS NOT AT ALL APPLI CABLE TO THE FACTS BECAUSE THERE THE ISSUE IS NOT WHETHER THE IN COME IS FROM AGRICULTURE OR FROM BUSINESS AND THE AGRICULTURE AC TIVITY WAS NOT IN ISSUE. IN FACT AGRICULTURAL LANDS CAN NEVER BE S TOCK-IN-TRADE. NEITHER THE AO NOR THE CIT (A) COULD LAY HANDS ON A SINGLE CASE WHERE THE PURCHASE AND SALE OF AGRICULTURAL LANDS W ERE HELD TO BE IN THE NATURE OF BUSINESS ACTIVITY. BEFORE DECID ING WHETHER AN ACTIVITY WOULD AMOUNT TO AN ADVENTURE IN THE NATURE OF TRADE, COURTS HAVE HELD THAT IT IS TO BE SEEN WHETHER THE COMMODITY IS NORMALLY UNDERSTOOD AS COMMERCIAL ITEM. IT IS SUBMI TTED THAT AGRICULTURAL LAND IS NOT SUCH A COMMERCIAL COMMODIT Y. I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 15 BUSINESSMEN NEVER CARRY ON TRADE IN AGRICULTURAL LA NDS. FURTHER IN ORDER TO CONSTITUTE ADVENTURE IN THE MATTER OF T RADE, IT WAS HELD THAT THE ASSESSEE MUST HAVE MADE SOME IMPROVEM ENTS OR ALTERATIONS OR CONVERSION INTO PLOTS TO MAKE IT TRA DEABLE. THIS HAS NOT BEEN DONE. THE DRY LANDS PURCHASED WERE SOL D IN THE SAME STATE WITHOUT ANY IMPROVEMENT OR CHANGE WHAT S O EVER. HAVING REGARD TO ALL THE ABOVE SUBMISSIONS, THE AR SUBMITTED THAT THE ORDERS OF THE LOWER AUTHORITIES BE SET ASI DE AND THE CLAIM OF EXEMPTION OF AGRICULTURAL INCOME MADE U/S. 10(1) BE ACCEPTED. 20. THE LEARNED DR SUBMITTED THAT THE ASSESSEE SUBMITTE D THAT SUCH PROFIT AMOUNTING TO RS. 69,00,224 EARNED FROM SALE OF AGRICULTURAL LANDS MADE DURING THE PREVIOUS YEAR, I S EXEMPT FROM CAPITAL GAIN TAX AND THE SAME CANNOT BE TAXED TREATING IT AS BUSINESS INCOME. THE ASSESSEE SUBMITTED THAT SUCH P ROFIT AROSE FROM SALE OF LANDS AT TURKAPALLY VILLAGE. HOWEVER, AS MENTIONED BY THE ASSESSING OFFICER AT PAGE-2 OF THE ASSESSMEN T ORDER, THE ASSESSEE HAS EARNED SUCH PROFIT FROM SALE OF LANDS SITUATED BOTH AT TURKAPALLY VILLAGE AND KOMPALLY VILLAGE. HUGE LA NDS FALLING IN THREE DIFFERENT SURVEY NUMBERS, WERE SOLD AT TURKAP ALLY AND A PART OF THE LAND WAS SOLD AT KOMPALLY. THE LAND WHI CH WAS SOLD AT KOMPALLY, HAS BEEN PURCHASED IN THE IMMEDIATELY PRECEDING YEAR, AS EVIDENT FROM THE SAID STATEMENT GIVEN BY T HE ASSESSING OFFICER AT PAGE-2 OF THE ASSESSMENT ORDER. FURTHER, FROM THE OTHER STATEMENT REGARDING PURCHASES AND SALES OF LA ND MADE DURING DIFFERENT YEARS, AS FURNISHED BY THE ASSESSE E DURING THE ASSESSMENT PROCEEDINGS, IT IS SEEN THAT THE ASSESSE E WAS CONTINUOUSLY PURCHASING LANDS AT DIFFERENT VILLAGES DURING EARLIER YEARS. IT WAS ALSO CONTINUOUSLY SELLING LAN DS DURING EARLIER YEARS. AS SEEN FROM THE STATEMENT GIVEN AT PAGE 6 OF THE ASSESSMENT ORDER, THE ASSESSEE HAS SOLD THE ALLEGED AGRICULTURAL LANDS DURING THE ASST. YEARS 2005-06, 2006-07 AND 2 007-08. I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 16 21. THE DR SUBMITTED THAT AS PER THE SUBMISSIONS OF THE AR, THE ASSESSEE WAS ENGAGED IN REAL ESTATE BUSINESS. I T HAS BEEN SUBMITTED THAT SUCH AGRICULTURAL LANDS PURCHASED BY THE ASSESSEE, IS SHOWN AS FIXED ASSETS IN THE BALANCE S HEET. IT IS FURTHER STATED THAT THE SAME WERE PURCHASED WITH AN INTENTION OF INVESTMENT. BUT, IT HAS NOT BEEN CLARIFIED AS TO WHAT WAS THE INTENTION OF THE ASSESSEE FOR PURCHASING SUCH HUGE AGRICULTURAL LANDS DURING DIFFERENT YEARS. IT HAS NOT BEEN EXPLA INED AS TO WHY THE ASSESSEE HAS MADE SALES OUT OF SUCH LANDS, CONT INUOUSLY DURING DIFFERENT YEARS. IN FACT, ON A CAREFUL APPRE CIATION OF THE ENTIRE FACTS OF THE CASE, IT CAN BE SAID THAT IT WA S NOT THE INTENTION OF THE ASSESSEE TO CULTIVATE THE SAID LAN DS, PURCHASED BY IT DURING DIFFERENT YEARS. THOUGH SUCH LANDS PUR CHASED BY IT, ARE STATED TO BE AGRICULTURAL LANDS, THE ASSESSEE H AS NOT CARRIED OUT ANY AGRICULTURAL OPERATION ON THE SAME. DURING THE ASSESSMENT PROCEEDINGS, IN RESPONSE TO QUERY FROM T HE ASSESSING OFFICER FOR SUBSTANTIATING THE CLAIM OF A NY AGRICULTURAL OPERATION, VIDE LETTER DATED 21.12.2009, THE ASSESS EE HAS MERELY SUBMITTED THAT IT HAS GIVEN SUCH LANDS ON LEASE AND HAS SHOWN LEASE RENTALS AT RS. 15,000 AS AGRICULTURAL INCOME. SUCH AMOUNT HAS BEEN SHOWN CONSISTENTLY FROM 2003-04 TO 2006-07 . FROM SUCH SUBMISSION OF THE ASSESSEE, IT IS THUS CLEAR T HAT, IT WAS NOT THE INTENTION OF THE ASSESSEE TO CULTIVATE SUCH LAN DS PURCHASED BY IT. SUCH LANDS WERE PURCHASED BY IT DURING THOSE YEARS, WITH THE SOLE MOTIVE OF EARNING SUBSTANTIAL PROFIT FROM SALE OF SUCH LANDS DURING SUCCEEDING YEARS. HAVING REGARD TO THI S OBJECTIVE ON PART OF THE ASSESSEE, THE FACTS OF CONTINUOUS PU RCHASE AND SALE OF SUCH LANDS CARRIED OUT DURING DIFFERENT YEA RS AND THE FACT OF A SERIES OF SALE TRANSACTIONS MADE BY THE ASSESS EE DURING THE PREVIOUS YEAR, THE SAID PROFIT OF RS. 69,00,224 EAR NED FROM SALE OF THOSE LANDS MADE DURING THE PREVIOUS YEAR, HAS. TO BE TAXED IN THE HANDS OF THE ASSESSEE, TREATING THE SAME AS BUS INESS PROFIT I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 17 AND HENCE, AS INCOME FROM BUSINESS. IN FACT, SUCH T RANSACTIONS OF SALE OF LANDS MADE BY THE ASSESSEE DURING THE PR EVIOUS YEAR, HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE, ARE SQUARELY IN THE NATURE OF BUSINESS TRANSACTIONS, AND THUS, THE RESULTANT PROFIT EARNED FROM SUCH TRANSACTIONS IN THIS CASE, HAS TO. BE TAXED TREATING AS BUSINESS PROFIT AND THUS AS BUSIN ESS INCOME. THE LEARNED DR PLACED RELIANCE ON THE DECISION OF H ON'BLE BOMBAY HIGH COURT IN THE CASE OF DCIT VS. GOPAL RAM NARYAN KASAT (2010) 328 ITR 556, WHEREIN, AFTER REFERRING TO THE DECISION OF SUPREME COURT IN G. VENKATASWAMI NAIDU & CO., VS. CIT (1959) 35 ITR 594, AND THE FACTS OF THAT CASE, THE HIGH COURT UPHELD TAXING THE PROFIT AS BUSINESS INCOME, WHILE REJECTING THE CONTENTION OF THE ASSESSEE THAT THE LAND WAS ACQUIR ED AS A CAPITAL ASSET AND THE SAME BEING AGRICULTURAL LANDS , THERE IS NO LIABILITY FOR CAPITAL GAIN TAX. THE DR SUBMITTED T HAT THE FOLLOWING OBSERVATIONS WERE MADE BY THE HIGH COURT WHILE REJECTING THE PLEA OF THE ASSESSEE REGARDING CAPITA L ASSET: ' ..... IF THE LANDS WERE NOT PURCHASED WITH THE I NTENTION OF HOLDING THEM AS 'CAPITA ASSET' AND ONLY WITH AN INTENTION O F EARNING HUGE PROFITS ON THE SAID PURCHASES, WE DO NOT FIND ANY I NFIRMITY WITH THE FINDING OF THE TRIBUNAL, THAT THE RELIANCE PLACED O N THE PROVISIONS OF SECTION 2(14)(III)(A) AND (B) IS OF NO ASSISTANCE T O THE ASSESSEE. IF THE LANDS, IN QUESTION, WERE NOT PURCHASED FOR THE PURP OSE OF AGRICULTURE, WITH AN INTENTION TO HOLD THEM AS A 'CAPITAL ASSET' , WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE ASSESSEE, THAT THE S AID AGRICULTURAL LANDS WERE EXCLUDED FROM THE DEFINITION OF 'CAPITAL ASSET' AND, AS SUCH, THE INCOME FROM THE SALE THEREOF NOT LIABLE T O BE TAXED. IN THE RESULT, WE REJECT THE CONTENTION OF THE ASSESSEE IN THE RESPECT.' (AT PAGE 570) 22. THE LEARNED DR SUBMITTED THAT THE ASSESSEE MADE A REFERENCE TO THE ASSESSMENT ORDER PASSED IN ITS CAS E FOR THE A.Y. 2005-06 IN SUPPORT OF ITS PLEA BUT THE PRINCIPLE OF RES-JUDICATA ARE NOT APPLICABLE TO INCOME TAX PROCEEDINGS. EACH ASSESSMENT YEAR IS DIFFERENT AND INDEPENDENT. CONCLUSIONS ON C ERTAIN ISSUE IN AN ASSESSMENT YEAR, HAS TO BE ARRIVED ON THE BAS IS OF PREVAILING FACTS DURING THAT YEAR. ACCORDINGLY, THE LEARNED DR I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 18 SUBMITTED THAT THE PROFIT ARISING FROM SALE OF SUCH LANDS MADE BY THE ASSESSEE DURING THE PREVIOUS YEAR, HAS TO BE TAXED TREATING AS BUSINESS INCOME IN THE ASST. YEAR 2007- 08. THE LEARNED DR SUBMITTED IN SUPPORT OF THE CONTENTION T HAT SUCH PROFIT EARNED FROM SALE OF LANDS DURING THE PREVIOU S YEAR IS EXEMPT FROM TAX, THE ASSESSEE HAS RELIED ON THREE D ECISIONS REFERRED IN PARA 4.2 OF THE CIT(A) ORDER. HOWEVER, AS WOULD BE SEEN THE FACTS IN THOSE CASES ARE TOTALLY DIFFERENT FROM THAT OF THE ASSESSEE. IN CIT VS. BORHAT TEA CO. LTD., 7 TAX MAN 388 (CAL.), THE ASSESSEE WAS ENGAGED IN BUSINESS OF CULTIVATION , MANUFACTURE AND SALE OF TEA. IN THAT CASE DURING T HE ACCOUNTING YEAR RELEVANT TO ASST. YEAR 1969-70, THE ASSESSEE C OMPANY SOLD A PART OF THEIR AGRICULTURAL LAND, UNDER CULTIVATION BY THEM, TO A COMPANY ENGAGED IN TEA CULTIVATION IN ADJOINING ARE AS. UNDER SUCH FACTS, THE HON'BLE CALCUTTA HIGH COURT HELD TH AT RESULTANT PROFIT FROM SALE OF SUCH LAND WAS NOT LIABLE TO CAP ITAL GAIN TAX. IN THE CASE OF CIT VS. MADHABHAI H. PATEL, 77 TAXMAN 4 08 (GUJ), THE ASSESSEE AN INDIVIDUAL, HAS SOLD CERTAIN AGRICULTUR AL LANDS UNDER CULTIVATION TILL THE YEAR 19967-68, PERSONALLY BY H IM. THE SAID LAND BELONGS TO HIS FAMILY AND HE GOT THE SAME BY W AY OF INHERITANCE. SINCE THE SAID LAND WAS AGRICULTURAL LAND AND THE SAME WAS UNDER CULTIVATION PERSONALLY BY THE ASSESS EE, THE HON'BLE GUJARAT HIGH COURT HELD THAT THE SURPLUS AR ISING FROM SALE OF SUCH AGRICULTURAL LAND WAS NOT LIABLE FOR C APITAL GAIN TAX. IN THE CASE OF HARISH V. MILANI VS. JCIT, REPORTED IN 114 ITO 428, IT WAS FOUND BY THE TRIBUNAL, THAT AGRICULTURAL OPE RATIONS WERE CARRIED OUT ON SUCH LAND BY THE OWNER HIMSELF. UND ER SUCH CIRCUMSTANCES, THE TRIBUNAL HELD THAT SINCE THE SAI D LAND SOLD BY THE ASSESSEE WAS AN AGRICULTURAL LAND, ANY GAIN ARI SING FROM SALE THEREOF WAS EXEMPTED FROM TAX. THE LEARNED DR SUBMI TTED THAT IN ALL THE ABOVE THREE CASES, THOSE LANDS WERE UNDE R CULTIVATION BY THE RESPECTIVE ASSESSEE. THE DR SUBMITTED THAT T HE ASSESSEE I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 19 WAS NOT CARRYING ON ANY AGRICULTURAL OPERATION ON S UCH LANDS SOLD BY IT. THE LANDS WERE PURCHASED BY THE ASSESS EE WITH THE SOLE INTENTION OF EARNING HIGH PROFIT FROM SELLING THE SAME IN SUBSEQUENT YEARS. THE FACTS IN THE SAID THREE DECIS IONS BEING TOTALLY DIFFERENT FROM THAT OF THE ASSESSEE, THE DE CISIONS RENDERED THEREIN, WOULD BE OF NO HELP TO THE CASE O F THE ASSESSEE. THUS, THE LEARNED DR SUBMITTED THAT IN VI EW OF THE FOREGOING DISCUSSIONS, AND HAVING REGARD TO THE RAT IO OF SAID DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F DCIT VS. GOPAL RAMNARYAN KASAT (2010) 328 ITR 556, THE ASSES SING OFFICER WAS JUSTIFIED IN TAXING THE ENTIRE PROFIT O F RS. 69,00,224, TREATING THE SAME AS BUSINESS PROFIT IN THE HANDS O F ME ASSESSEE IN THIS CASE. 23. FURTHER HE SUBMITTED THAT THE INTENTION OF THE HAS TO BE SEEN TO CATEGORISE THE NATURE OF INCOME AND DUE TO CHANGE OF ECONOMIC CONDITIONS AND BOOM IN REAL ESTATE MARKET THERE WAS BUYING AND SELLING OF PROPERTY AROUND THE CITY OF H YDERABAD FOR NON-AGRICULTURAL PURPOSES. ADMITTEDLY, IN THIS CAS E THE ASSESSEES MAIN OBJECT IN THE MOA IS NOTHING BUT DE ALING IN REAL ESTATE AND THE ASSESSEE HAS TO BE CONSIDERED AS CAR RYING OUT THE ACTIVITIES AS ADVENTURE IN THE NATURE OF TRADE. HE RELIED ON 328 ITR 55.. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE THE MAIN ISSUE IS WITH REGA RD TO TREATMENT OF INCOME ARISING OUT OF SALE OF LAND IS INCOME FRO M BUSINESS OR CAPITAL GAIN. THE ASSESSEE FIRM IS A PRIVATE LIMIT ED COMPANY HAVING MAIN OBJECT CLAUSE IN THE MEMORANDUM OF ASSO CIATION, AS FOLLOWS: 'TO DO AND BE IN REAL ESTATE BUSINESS AND FOR THE PURPOSE BUY, SELL, TAKE OR LEASE GIVE ON LEASE OR ON LICENCES, MAINTAI N, DEVELOP, DEMOLISH, ALTER CONSTRUCT, BUILD AND TURN TO ACCOUN T ANY LAND OR BUILDINGS OWNED OR ACQUIRED OR LEASED BY THE COMPAN Y OR IN WHICH I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 20 THE COMPANY MAY BE INTERESTED AS OWNERS, LESSORS, L ESSEES, LICENSORS, LICENCEES, ARCHITECTS, BUILDERS, INTERIOR DECORATOR S AND DESIGNERS, AS VENDORS. CONTRACTORS, PROPERTY DEVELOPERS, AND REAL ESTATE OWNERS AND AGENTS WHETHER SUCH LAND OR BUILDING OR THE DEV ELOPMENT THEREOF BE FOR OR IN RESPECT OF RESIDENTIAL OR COMMERCIAL P URPOSES. SUCH AS MULTI-STOREYED BUILDINGS, COMPLEXES, HOUSES, FLATS, OFFICES, SHOPS, GARAGES, CINEMAS, THEATRES, HOTELS, RESTAURANTS, MO TELS OR OTHER STRUCTURES OF WHATSOEVER DESCRIPTION INCLUDING PREF ABRICATED AND PRECAST HOUSES, BUILDINGS, AND ERECTIONS AND TO ENT ER INTO CONTRACTS, SUB-CONTRACTS, AND ARRANGEMENTS INCLUDING THE RAISI NG OF FINANCES- FROM WHATSOEVER SOURCES AND GIVING OF LOANS AND ADV ANCES TO GIVE EFFECT AND IMPLEMENT THE SAID OBJECTS.' 25. THUS, THE MAIN OBJECT CLAUSE SUGGESTS THAT THE ASSE SSEE'S MAIN BUSINESS IS TO DEAL IN REAL ESTATE. AFTER FOR MING THE COMPANY, THE ASSESSEE STARTED BUYING OF LAND. THE ASSESSEE HAS TAKEN A PLEA BEFORE US THAT IT HAS EARNED INCOME BY LEASING THESE AGRICULTURAL LANDS TO OTHER PARTIES TO CARRYON AGRI CULTURAL OPERATIONS AND THE LAND WAS SUBJECTED TO AGRICULTUR AL OPERATIONS BY OTHER PERSONS. BEING SO, THE INCOME EARNED BY S ALE OF SUCH LAND IS TO BE TREATED AS CAPITAL GAIN AND THAT HAS TO BE EXEMPTED FROM TAX IN VIEW OF PROVISIONS OF SECTION 2(14)(III ) OF THE ACT. IN OUR OPINION, THIS ARGUMENT OF THE ASSESSEE'S COUNSE L IS HAVING NO MERIT. THE ASSESSEE CARRIED ON THE ACTIVITY OF BUYING AND SELLING OF LANDS AND IN EACH CASE THE LAND WAS NOT SUBJECTED TO CULTIVATION BY THE ASSESSEE. WE CANNOT ACCEPT THE ARGUMENT OF THE ASSESSEE ON AN ASSUMPTION THE LAND IS FIT FOR A GRICULTURE AND WAS USED FOR AGRICULTURE PURPOSE BY SOMEBODY ON BEH ALF OF THE ASSESSEE. THE ASSESSEE'S INTENTION IS TO BE SEEN. IT IS ON RECORD THAT THERE IS A SERIES OF TRANSACTIONS BY WHICH THE ASSESSEE BOUGHT THE LAND AND SOLD FOR PROFIT. IT IS A WELL SETTLED PRINCIPLE THAT THE COURT IN EACH CASE HAS TO DETERMINE THE NA TURE OF TRANSACTION WITH REFERENCE TO ITS VOLUME, FREQUENCY , CONTINUITY AND REGULARITY. IF A ASSESSEE INVESTS MONEY IN LAN D INTENDING TO HOLD IT FOR LONGER PERIOD, ENJOYS ITS INCOME FOR SO ME TIME AND THEN SELLS AT A PROFIT, IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM ADVENTURE IN THE NATURE OF TRADE. I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 21 CASES OF REALISATION OF INVESTMENT CONSISTING OF PU RCHASE AND SALE, THOUGH PROFITABLE ARE CLEARLY OUTSIDE THE DOM AIN OF ADVENTURE IN THE NATURE OF TRADE. WHILE DECIDING T HE CHARACTER OF SUCH TRANSACTION ONE HAS TO SEE VARIOUS RELEVANT FACTS. WE HAVE TO SEE WHETHER BUYING AND SELLING ACTIVITIES I S IN THE COURSE OF MAIN BUSINESS ACTIVITY OF THE ASSESSEE OR INCIDE NTAL THERETO. AS WE DISCUSSED EARLIER, THE ASSESSEE FIRM IS A PRI VATE LIMITED COMPANY WITH THE MAIN OBJECT TO DEAL WITH IN REAL E STATE. THE LAND PURCHASED BY THE ASSESSEE IN THE PRESENT CASE IS SUBJECT MATTER OF TRADE AND IT HAS PURCHASED AT REGULAR INT ERVALS AND IT CANNOT BE CONSIDERED AS INVESTMENT ACTIVITY OF THE ASSESSEE. EVEN AFTER PURCHASING THE AGRICULTURAL LAND, THE AS SESSEE CANNOT BE SAID TO BE CARRYING ON ANY AGRICULTURAL OPERATIO N. THERE WERE NO ACTIVITIES CONNECTED WITH THE LAND. THOUGH THE ASSESSEE TAKEN A PLEA THAT THE LAND WAS LEASED FOR AGRICULTU RAL OPERATIONS, THE EVIDENCE BROUGHT ON RECORD DOES NOT SUGGEST THA T THE AGRICULTURAL OPERATION WAS ACTUALLY CARRIED ON THE SAID LAND. THOUGH THE ASSESSEE SHOWN THE LAND AS AN INVESTMENT IN THE BALANCE SHEET IT CANNOT CHANGE THE CHARACTER OF LAN D AS STOCK-IN- TRADE. THE ENTRY IN THE BOOKS OF ACCOUNT IS NOT CO NCLUSIVE TO HOLD THAT THE ASSESSEE HAS NOT DEALT WITH IN LAND. IN OUR OPINION, THE LAND DEALT BY THE ASSESSEE IS A STOCK-IN-TRADE. IT IS CARRYING ON BUSINESS AND MAKING PROFIT BY BUYING AND SELLING THE LAND. THE FACTS OF CASE SUGGEST THAT THE ASSESSEE WITH A SOLE MOTIVE OF DEALING IN LAND ACQUIRED THE LAND AND SOLD THE SAME WHICH CAN BE NOTHING BUT ADVENTURE IN THE NATURE OF TRADE. F URTHER THE FACTS OF THE CASE SHOW THAT THE LAND IS SITUATED IN SURROUNDING URBAN AREAS. HAD THE INTENTION OF THE ASSESSEE IS TO CARRY ON AGRICULTURAL OPERATIONS; IT WOULD NOT HAVE LEFT THE LAND WITHOUT CULTIVATION. THE ASSESSEE BEFORE US RELIED ON VARIO US JUDGEMENTS OF VARIOUS COURTS. IN OUR OPINION, THESE JUDGEMENT S WERE DELIVERED ON THEIR OWN SET OF FACTS. WHETHER A LAN D IS I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 22 AGRICULTURAL LAND OR NOT IS AN ESSENTIAL QUESTION O F FACT. THE QUESTION HAS TO BE ANSWERED IN EACH CASE HAVING REG ARD TO THE FACTS AND CIRCUMSTANCES OF THAT CASE. THERE MAY BE FACTORS BOTH FOR AND AGAINST A PARTICULAR POINT OF VIEW. THE CO URT HAS TO ANSWER THE QUESTION ON A CUMULATIVE CONSIDERATION O F ALL OF THEM. THE VARIOUS CIRCUMSTANCES APPEARING FOR AND AGAINST THE ASSESSEE ARE TO BE CONSIDERED. THOUGH, IN THE PRES ENT CASE THE LAND REGISTERED AS AGRICULTURAL LAND IN REVENUE REC ORDS, PAYMENT OF LAND REVENUE AND LEASING OF THE LAND FOR AGRICUL TURAL PURPOSES ARE IN FAVOUR OF THE ASSESSEE. HOWEVER, THE ASSESS EE IS A PRIVATE LIMITED COMPANY HAVING THE MAIN OBJECT OF DEALING I N REAL ESTATE HAS NOT ACTUALLY CARRIED ON THE AGRICULTURAL OPERAT IONS IN THE SAID LAND AND EVEN IF IT IS ACCEPTED THAT THE LAND WAS LEASED FOR AGRICULTURAL PURPOSES, IT IS ONLY A STOP GAP ARRANG EMENT AND THE EVIDENCE BROUGHT ON RECORD IS NOT ENOUGH TO SHOW TH ERE WAS ACTUAL AGRICULTURAL OPERATION. THE LAND WAS SOLD F OR NON- AGRICULTURAL PURPOSES AT HEAVY PRICE. THE INTENTIO N OF THE ASSESSEE WAS TO DEAL IN THE LAND AND EARN PROFIT. BEING SO, IN OUR OPINION, THE FACTS AND CIRCUMSTANCES BROUGHT ON REC ORD CLEARLY DEMONSTRATE THAT THE ASSESSEE IS A DEALER IN REAL E STATE AND CARRIED ON THE BUSINESS OF BUYING AND SELLING OF LA ND AND INCOME ARISING OUT OF THIS ACTIVITY IS NOTHING BUT BUSINES S INCOME AND IT HAS TO BE TAXED ACCORDINGLY. 26. THE LEARNED AR MADE ONE MORE ARGUMENT THAT IN EARLI ER YEAR THE ASSESSING OFFICER ACCEPTED THE INCOME ARIS ING OUT OF SALE OF SUCH LAND AS INCOME FROM AGRICULTURE AND CO NSISTENCY IS TO BE FOLLOWED FOR THIS ASSESSMENT YEAR ALSO. MORE SO, IN THE WEALTH-TAX RETURNS FOR A.YS. 2003-04 TILL 2007-08 T HIS LAND WAS TREATED AS EXEMPTED ASSET FOR THE PURPOSE OF WEALTH -TAX BY THE DEPARTMENT. WE ARE UNABLE TO APPRECIATE THIS CONTE NTION OF THE AR. TIME AND AGAIN IT HAS BEEN STATED THAT EACH AS SESSMENT YEAR IS A SEPARATE UNIT OF ASSESSMENT AND PRINCIPLE S OF RES I.T.A. NO. 287/HYD/2011 M/S. G.K. PROPERTIES (P) LTD. ======================= 23 JUDICATA DID NOT APPLY TO THE INCOME-TAX PROCEEDINGS. THE ISSUES IN THE PRESENT YEAR MAY BE THE SAME AS THEY MAY HAVE BEEN IN THE EARLIER BUT STILL IT IS EXPECTED OF THE ASSESSING OFFICER TO VERIFY THE FACTS ON THOSE ISSUES AND THEN HE MAY FOLLOW HIS ORDER IN THE EARLIER YEARS. THAT TOO HE IS NOT BOU ND TO FOLLOW IF A MISTAKE HAS BEEN COMMITTED PERSISTENTLY OVER THE PA ST NUMBER OF YEARS AS WAS HELD BY THE SUPREME COURT IN THE CA SE OF CIT V. BRITISH PAINTS INDIA LTD. (1991) 188 ITR 44. THERE FORE, WE ARE NOT AGREEING WITH THE CONTENTION OF THE ASSESSEE'S COUNSEL. 27. IN THE RESULT, ASSESSEE'S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2012. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 31 ST AUGUST, 2012 TPRAO COPY FORWARDED TO: 1. M/S. G.K. PROPERTIES (P) LTD., 101, GROUND FLOOR , PLOT NO. 28/A, WELLINGTON PLAZA, VIDYANAGAR COLONY, PICKET, SECUNDERABAD. 2. THE INCOME TAX OFFICER, WARD-2(2), HYDERABAD. 3. THE CIT(A)-III, HYDERABAD. 4. THE CIT-II, HYDERABAD 4. THE DR B BENCH, ITAT, HYDERABAD