Goutham Constructions Company, Hyderabad V. ITO, W-4(2), Hyderabad

ITA 307/HYD/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69818 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R LAXMAN
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Business income; Cost of acquisition; Initiation of penalty proceedings; Corroborative evidences
• Section: 54B; 2(14); 234B; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 307/HYD/2011 ASSESSMENT YEAR 2007-08 M/S. GOUTHAM CONSTRUCTIONS COMPANY, HYDERABAD PAN: AADFG2330C V S. THE INCOME TAX OFFICER WARD-4(2) HYDERABAD APPELLANT RESPONDENT A PPELLANT BY: SRI S. RAMA RAO RE SPONDENT BY: SRI R. LAXMAN DATE OF HEARING: 26 .08.2013 DATE OF PRONOUNCEMENT: 27.09.2013 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-V, HYDERABAD DATED 10.12.2010 FOR ASS ESSMENT YEAR 2007-08. 2. THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WIT H REGARD TO MAKING ADDITION OF RS. 1,23,48,500 BY TREATING T HE PURCHASE AND SALE OF AGRICULTURAL LAND AS A BUSINESS TRANSAC TION AND TAXING THE SAME AS INCOME FROM BUSINESS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS CA RRYING ON THE BUSINESS OF PURCHASE AND SALE OF LAND. IN ADDI TION TO THIS, IT WAS ALSO DEVELOPING REAL ESTATE AND SELLING THE SAM E. DURING THE FINANCIAL YEAR 2003-04, THE ASSESSEE HAD PURCHA SED LAND TO THE EXTENT OF 12.23 ACRES AT ASHAPUR VILLAGE, GHATK ESAR MANDAL FOR A CONSIDERATION OF RS. 8,84,000. DURING THE PR EVIOUS YEAR RELEVANT TO THE CURRENT ASSESSMENT YEAR, THE ASSESS EE SOLD THIS ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 2 LAND FOR A CONSIDERATION OF RS. 1,32,32,500. THE A SSESSEE CLAIMED THIS TRANSACTION IS TO BE THE PURCHASE AND SALE OF AGRICULTURAL LAND AND ALSO STATED THAT FROM THE BEG INNING IT HAD TREATED THE LAND AS A CAPITAL ASSET IN ITS BALANCE SHEET. ITS INTENT WAS TO EXPLOIT THIS ASSET AS A CAPITAL ASSET . ACCORDINGLY, SOME AGRICULTURAL OPERATIONS WERE BEING CARRIED OUT . THE ASSESSING OFFICER, ON THE OTHER HAND, DISAGREED WIT H THIS CONTENTION AND HELD THAT THE ASSESSEE HAD NOT DISCL OSED ANY AGRICULTURAL ACTIVITY AND AGRICULTURAL INCOME IN IT S RETURN OF INCOME. THE ASSESSING OFFICER WAS ALSO OF THE OPIN ION THAT MOTIVE OF THE ASSESSEE BEHIND THIS TRANSACTION WAS DOING BUSINESS IN THE REAL ESTATE, AND HELD THAT THE TRAN SACTION OF PURCHASE AND SALE OF LAND WAS A BUSINESS TRANSACTIO N. ACCORDINGLY, BY REDUCING THE COST OF ACQUISITION FR OM SALE CONSIDERATION, THE AO MADE AN ADDITION OF RS. 1,23, 48,500 TREATING THE SAME AS AGRICULTURAL INCOME. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE AO BY PLACING RELIANCE ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF G. VENKATASWAMI NAIDU & CO. VS. CIT (35 ITR 594) AND DEEPAK JYOTI & ARATI TRUST VS. CIT (284 ITR 453) (B OM). HE OBSERVED THAT FROM THE ABOVE RATIOS OF THOSE JUDGEM ENTS, IT EMERGES THAT VARIOUS FACTS INCLUDING THE NATURE OF THE BUSINESS OF THE ASSESSEE, THE NATURE OF ACTIVITY CARRIED OUT PERTAINING TO THE ASSET, THE LINE OF BUSINESS OF ASSESSEE PROVIDE AN INDICATION TO THE INTENT OF AN ASSESSEE PERTAINING TO THE CAPI TAL ASSET. IT IS THIS INTENT COUPLED WITH THE NATURE OF ACTIVITY CAR RIED BY AN ASSESSEE WHICH WILL DETERMINE WHETHER THE TRANSACTI ON CAN BE CLASSIFIED AS BUSINESS OR WILL REST WITHIN THE FOUR WALLS OF TRANSFER OF CAPITAL ASSET. HE OBSERVED AS FOLLOWS: (A) THERE IS NO DOUBT THAT THE ASSESSEE HAS GIVEN PAPER S FROM THE REVENUE AUTHORITIES WHICH INDICATE THAT SOME ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 3 AGRICULTURAL ACTIVITY WAS CARRIED OUT. HOWEVER, AN EXAMINATION OF THE PAPERS REVEALS THAT THE AMOUNT O F CROP PRODUCED IN THE LAND PERTAINING TO THE ASSESSEE IS NOWHERE MENTIONED. THE NATURE OF CROP AND THE EXTEN T OF AGRICULTURAL OPERATIONS ARE CONSPICUOUSLY ABSENT FR OM THESE PAPERS. ON THE OTHER HAND, WHEN QUESTIONED DU RING THE COURSE OF APPEAL PROCEEDINGS, THE ASSESSEE COUL D ONLY STATE THAT SOME AGRICULTURAL OPERATIONS WERE BEING CARRIED ON ONE PORTION OF THE LAND ONLY. IT IS CLEAR THEREF ORE, THAT ONLY A PORTION OF THE LAND HAD SOME AGRICULTURAL OPERATIONS IN IT AND WHILE REST OF THE LAND WAS NOT USED BY THE ASSESSEE FOR ANY AGRICULTURAL OPERATIONS. (B) THE ASSESSEE COULD NOT PROVIDE ANY REPLY OR ANY INFORMATION AS TO HOW MUCH LABOUR WAS WORKING ON TH ESE LANDS, WHAT WAS THE NATURE OF THE OPERATIONS BEING CARRIED OUT, HOW MANY TUBE WELLS WERE THERE AND WHAT WAS TH E DETAILED NATURE OF THE AGRICULTURAL ACTIVITY BEING CARRIED OUT BY IT. ON THE CONTRARY, IT WAS STATED IN THE WR ITTEN SUBMISSIONS THAT 'NO SYSTEMATIC AGRICULTURAL OPERAT IONS WERE CARRIED OUT'. IT WAS STATED THAT IT WAS PUT TO USE SOWING JOWAR SEEDS, ETC. AND GROWING/GREEN GRASS FO R FEED CATTLE. IN THIS REGARD, IT IS PERTINENT TO NOTE THA T THERE IS NO DESCRIPTION OF ANY CATTLE IN THE BOOKS OF THE AS SESSEE. NO INCOME OR LOSS FROM ANY CROPS IT SHOWN. THESE AR E ALL EXPLANATIONS GIVEN WITHOUT ANY EVIDENCE OR PROOF WHATSOEVER. (C) THERE IS NO EVIDENCE TO SHOW ANY ORGANIZED AGRICULT URAL ACTIVITY BY THE ASSESSEE. THE ASSESSEE IS IN THE BU SINESS OF REAL ESTATE AND HAS GOOD INFRASTRUCTURE FOR KEEPING A RECORD OF ALL TRANSACTIONS AND MAINTAINING DETAILED BOOKS OF ACCOUNT. HOWEVER, IN THE CASE OF THE LAND IN QUE STION NO SUCH INFRASTRUCTURE WAS ALLOCATED TO THIS LAND. THE ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 4 ONLY EXPLANATION IS THAT SOME AGRICULTURAL OPERATIO NS WERE CARRIED OUT, SOME PRODUCE WAS THERE AND THE SALE PR ICE OF THE PRODUCE EQUALLED THE COST OF PRICE OF THE INPUT S. THEREFORE, NO AGRICULTURAL INCOME WAS SHOWN. IT IS CLEAR FROM THIS EXPLANATION THAT FAR FROM STANDING ON ANY LEGS OF EVIDENCE, IT DOES NOT EVEN PROVIDE ANY DETAILS WHATSOEVER. WHAT WAS THE PRODUCE, WHERE IT WAS SOLD , FOR HOW MUCH, WHAT WAS THE NATURE OF THE INPUTS, AT WHA T COST, ETC., ALL THESE ARE UNANSWERED QUESTIONS. MOR EOVER, THE IMPORTANT THING TO NOTE IS THAT THE INPUTS OF L ABOUR, SEED, LAND LEVELLING, WATER, MANURE, ETC. ENTER INT O THE OPERATIONS BEFORE THE PRODUCE IS THERE AND SOLD. IT IS NOT CLEAR AS WHAT WAS THE SOURCE FOR PAYMENT REGARDING ALL THESE INPUTS. THERE ARE NO DEBITS IN THE BANK ACCOU NTS OR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE PERTAINING TO THESE EXPENSES. FROM ALL THESE FACTS, IT IS CLEAR THAT TH E ASSESSEE DID NOT MAKE ANY EFFORT AND DID NOT INDULGE IN ORGA NIZED ACTIVITY OR FOR THAT MATTER ANY ACTIVITY WHATSOEVER TO BUILD THE LAND PURCHASED INTO A PROPER AGRICULTURAL ASSET WHICH WOULD PROVIDE THE ASSESSEE WITH AN INCOME STREAM OV ER THE YEARS. THERE IS NOT A HINT OF ANY ACTIVITY BEIN G CARRIED BY THE ASSESSEE. THE PAPERS SUBMITTED DO NOT PROVID E ANY DETAILS OF AGRICULTURAL OPERATIONS OR OF THE EXTENT OF THE CROPS. THE LAND WAS NOT ALSO GIVEN ON ANY CONTRACT. IT IS ENTIRELY POSSIBLE AND PROBABLE GIVEN THE SURROUNDI NG CIRCUMSTANCES THAT THE VILLAGERS LIVING IN THE AREA HAD GROWN SMALL AMOUNT OF CROP ON THE LAND FOR THEIR C APTIVE CONSUMPTION, THEY MAY STILL BE DOING SO. IT IS ALSO IMPORTANT TO NOTE THAT THERE IS NO RECORD OF ANY AGRICULTURAL IMPLEMENT OR TOOL OWNED BY THE ASSESSE E. THE ASSESSEE DOES NOT POSSESS ANY ELECTRICITY CONNECTIO N PERTAINING TO THIS AGRICULTURAL LAND. ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 5 (D) IT IS ALSO AN IMPORTANT FACT THAT THE ASSESSEE IS I N THE BUSINESS OF REAL ESTATE AND THAT THIS PARTICULAR TRANSACTION IS ALLIED TO THE SAME BUSINESS. 5. THE CIT(A) FURTHER OBSERVED THAT FROM THE ABOVE FAC TS AND CIRCUMSTANCES, IT IS CLEAR THAT FROM THE VERY DAY T HE LAND WAS PURCHASED BY THE ASSESSEE, ITS INTENT WAS ALWAYS TH AT OF TRADING WITH THE SAME. THE FACTS DISCUSSED ABOVE UNEQUIVOCA LLY LEAD TO THIS VERY INFERENCE. NOT ONLY WAS THE INTENTION OF THE ASSESSEE IS TO TRADE IN THE ASSET, BUT ALSO THERE WAS A CLEAR I NTENTION OF NOT PAYING TAXES ON IT. THEREFORE, THE LAND WAS SHOWN A S CAPITAL ASSET OF THE ASSESSEE. THE ASSESSEE WAS AND IS IN T HE BUSINESS OF REAL ESTATE. THEREFORE, IT IS CLEAR THAT IT HAD FULL KNOWLEDGE OF THIS MARKET. THE ASSESSEE FULLY KNOWS THAT THE LAND IN QUESTION WOULD INCREASE IN PRICE SUBSTANTIALLY IN YEARS TO C OME. THEREFORE, IT WAS PURCHASED FOR TRADING LATER ON. A S ALREADY DISCUSSED, NOT A RUPEE WAS SPENT ON THE LAND TO BUI LD IT AS A CAPITAL ASSET. NO ACTIVITY OR OPERATION, WHATSOEVER , WAS CARRIED OUT BY THE ASSESSEE TO ENSURE THAT THE LAND BECOMES FIT TO SUSTAIN AGRICULTURAL OPERATIONS WHICH COULD GIVE IT INCOME STREAM IN YEARS TO COME. THE ONLY ACTIVITY WHICH WO ULD HAVE BEEN REQUIRED IN TRADING THIS LAND WAS TO ENSURE TH AT IT REMAINS FREE FROM ILLEGAL OCCUPATION AND ENCUMBRANCES. THIS WAS DONE BY THE ASSESSEE AS IS EVIDENT FROM THE SALE DEED. W HEN THERE WAS BOOM IN THE REAL ESTATE SECTOR, THE ASSESSEE SO LD THIS LAND TO REALIZE A HEFTY PROFIT. IF AT ALL, THE ASSESSEE HAD CARRYING OUT PROPER AGRICULTURAL OPERATIONS, THE IMPLEMENTS OF A GRICULTURAL WOULD EITHER HAVE BEEN REPORTED IN THE BOOKS OF ASS ESSEE OR IN THE TRANSFER DEED OF THE LAND, IN CASE THEY WERE SO LD WITH THE LAND. THIS WAS NOT SO. 6. THE CIT(A) FURTHER HELD THAT THE TRANSACTION WAS DE FINITELY IN THE NATURE OF BUSINESS OR TRADE AND HAS BEEN RIG HTLY ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 6 CLASSIFIED BY THE AO. THE CIT(A) RELIED ON THE RATI O LAID DOWN BY THE APEX COURT IN THE CASE OF SAROJ KUMAR MAZUMDAR VS. CIT (37 ITR 242) (SC), WHEREIN IT HAS BEEN HELD THAT IF THE TRANSACTION IS IN THE ASSESSEE'S LINE OF BUSINESS, EVEN A SINGLE TRANSACTION OF DEALING IN LAND ESTATES IS, AN ADVEN TURE IN THE NATURE OF TRADE. ACCORDINGLY, HE SUSTAINED THE ADDI TION MADE BY THE ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED AR SUBMITTED THAT THE ORDER OF THE CIT( A) IS ERRONEOUS IN LAW AS WELL AS ON FACTS OF THE CASE. T HE CIT(A) OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE ASSESS EE THAT THE LAND PURCHASED WAS AGRICULTURE LAND AS THE SAME WAS PURCHASED IN ACRES AND NOT IN SQUARE YARDS. THE CIT (A) OUGHT TO HAVE TAKEN INTO CONSIDERATION THE FACT THAT THE ASS ESSEE SOLD THE LAND IN TWO TRANSACTIONS AS TWO BITS. THE LAND WAS HELD BY ASSESSEE AS AN ASSET FROM THE DATE OF PURCHASE TILL THE DATE OF SALE AND NOT AS STOCK IN TRADE. THE CONCLUSION OF T HE CIT(A) THAT THE INTENTION OF THE ASSESSEE IN ACQUIRING THE PROP ERTY WAS FOR TRADING IS ERRONEOUS IN THE ABSENCE OF ANY SUPPORTI NG EVIDENCE. THE LAND WAS SOLD IN TWO BITS AND IF THE ASSESSEE H AD ANY INTENTION TO CARRYON REAL ESTATE BUSINESS IN RESPEC T OF THAT LAND HE WOULD HAVE OBTAINED PERMISSION FROM THE CONCERNE D AUTHORITIES FOR MAKING THE SAME INTO PLOTS. THE CL AIM OF THE ASSESSEE THAT THE LAND WAS AGRICULTURE IN NATURE WA S SUPPORTED BY PATTA PASS BOOKS ISSUED BY STATE REVENUE AUTHORITIES. TH E AGRICULTURAL LAND WAS PURCHASED AS A CAPITAL ASSET AND THE SAME WAS SUPPORTED BY THE ENTRY IN BALANCE SHEET SUBMITT ED BY THE ASSESSEE FOR EARLIER YEARS. THERE WAS UNEXPECTED IN CREASE IN THE PRICES OF LANDS IN AND AROUND TWIN CITIES AND THERE FORE THE ASSESSEE SOLD AWAY THE AGRICULTURAL LAND FOR A GOOD PRICE AND THAT ITSELF SHOULD NOT BE A GROUND FOR THE ASSESSIN G OFFICER TO ARRIVE AT THE CONCLUSION THAT THE ASSESSEE MADE AN ADVENTURE IN ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 7 TRADE. ALL THE RELEVANT FACTS LEAD TO A CONCLUSION THAT THE ASSESSEE DID NOT INVOLVE IN ADVENTURE IN TRADE AS T HERE WAS NO SUPPORTING EVIDENCE. 8. THE AR SUBMITTED THAT THE CONCLUSION OF THE CIT(A) THAT THE LAND INVOLVED IN THE TRANSACTION WAS NOT AGRICU LTURE LAND WAS ERRONEOUS AND, THEREFORE, THE SAME MAY BE QUASH ED. THE AR SUBMITTED THAT THE SALE OF AGRICULTURE LAND CANN OT BE CONSIDERED AS ADVENTURE IN TRADE. HE SUBMITTED THAT THE RESULTANT PROFIT CANNOT BE CONSIDERED AS BUSINESS P ROFIT ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSI NESS. THE AR SUBMITTED THAT THE CIT(A) OUGHT TO HAVE CONSIDERED THE SALE TRANSACTION AS SALE OF CAPITAL ASSET LIABLE FO R TAX U/S. 45 INSTEAD OF TREATING THE SAME AS BUSINESS TRANSACTIO N LIABLE FOR TAXATION U/S. 28. THE CIT(A) OUGHT NOT TO HAVE SUST AINED LEVY OF INTEREST U/S. 234B OF THE IT ACT AS THE CASE DOES N OT WARRANT LEVY OF INTEREST. THE CIT(A) OUGHT NOT TO HAVE SUS TAINED INITIATION OF PENALTY U/S. 271(1)(B) OF THE IT ACT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THE CIT(A) OUGHT NOT TO HAVE CONFIRMED INITIATION OF PENALTY U/S. 271(1)(C) OF THE IT ACT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. THE AR FURTHER SUBMITTED THAT THE ASSESSEE HAS DECL ARED AGRICULTURAL INCOME. THE PROPERTY HAS BEEN TREATED AS FIXED ASSET IN ITS BALANCE SHEET FOR A.YS. 2004-05, 2005- 06 AND 2006- 07 AND THE LAND WAS PUT TO AGRICULTURAL OPERATIONS. IT WAS PURCHASED ON 22.8.2003 AND SOLD ON 22.12.2006. TIL L THEN IT WAS TREATED AS A FIXED ASSET AND THE AR DREW OUR AT TENTION TO THE COPIES OF FINANCIAL STATEMENT FOR A.YS. 2004-05 , 2005-06 AND 2006-07. FURTHER, HE RELIED ON THE ORDER OF TH E TRIBUNAL IN THE CASE OF M/S. SSPDL LTD. VS. DCIT, IN ITA NO. 97 6/HYD/2012 DATED 5.4.2013 SPECIFICALLY ON PARA 32 WHICH IS AS UNDER: ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 8 '32. WE HAVE TO SEE THE INTENTION OF THE ASSESSEE A T THE TIME OF ACQUIRING THE ASSET. THE INTENTION OF HE ASSESSEE HEREIN IS TO CONSTRUCT A BUILDING FOR SETT ING UP OF ITS CORPORATE OFFICE AND IT WAS ALWAYS A FIXE D ASSET AND NOT A STOCK-IN-TRADE. EVEN IF THE ASSESS EE IS IN THE BUSINESS OF REAL ESTATE, THE PROPERTY ACQUIRED BY THE ASSESSEE FOR THE PURPOSE OF SETTING UP OF A CORPORATE OFFICE CANNOT BE CONSTRUED AS A TRADING ASSET. THE PROFIT REALISED BY SALE OF CURR ENT ASSETS IN THE LINE OF TRADING IS INCOME FROM BUSINE SS. ON THE OTHER HAND, IF THE ASSESSEE SELLS A CAPITAL ASSET AS AN INVESTOR IT IS INCOME FROM CAPITAL GAIN . THE DOMINANT OR EVEN THE SOLE INTENTION TO RESELL I S A RELEVANT FACTOR AND RAISES A STRONG PRESUMPTION BUT BY ITSELF IS NOT CONCLUSIVE PROOF OF TRADING. THE INTENTION TO RESELL WOULD, IN CONJUNCTION WITH THE CONDUCT OF THE ASSESSEE AND OTHER CIRCUMSTANCES, POINT TO THE BUSINESS CHARACTER OF THE TRANSACTION. PROFIT MADE BY SALE OF CAPITAL ASSET ALWAYS INCOME FROM CAPITAL GAIN. ONE HAS TO SEE WHETHER THE ASSE T HELD BY THE ASSESSEE AS AN INVESTMENT OR AS A TRADING ASSET. REALISATION OF CAPITAL ASSET IS ALW AYS INCOME FROM CAPITAL GAIN.' 10. FURTHER HE RELIED ON THE ORDER OF THE TRIBUNAL IN T HE CASE OF T. VEERENDER VS. ADDL. CIT & ANR IN ITA NOS. 550 & 551/HYD/2012 DATED 4.7.2013. 11. ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORD ERS OF THE LOWER AUTHORITIES. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IT IS AN ADMITTED FACT THAT THE LAND WA S HELD BY THE ASSESSEE AS A CAPITAL ASSET FROM THE DATE OF PURCHA SE TILL THE DATE OF SALE. THIS IS EVIDENCED BY THE ENTRIES REFL ECTED IN THE BALANCE SHEET OF THE ASSESSEE COMPANY. THE ASSESSEE 'S CONTENTION IS THAT IT IS INTENDED TO RETAIN THE AGR ICULTURAL LAND ACQUIRED AS A CAPITAL ASSET. THE ASSESSEE NEVER TR EATED THE LAND AS STOCK IN TRADE. THE ASSESSEE REFLECTED THE SAME IN THE BALANCE SHEET AS A FIXED ASSET. THE ASSESSEE CARRIE D ON AGRICULTURAL OPERATIONS. THIS AGRICULTURAL LAND IS SITUATED ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 9 BEYOND 28 KM FROM THE MUNICIPAL LIMITS. THE ASSESS EE HAS NOT TAKEN ANY PERMISSION FROM THE GOVERNMENT FOR MAKING PLOTS, AS THE ASSESSEE COMPANY NEVER HAD ANY INTENTION TO MAK E THE LAND INTO PLOTS AND CARRY ON REAL ESTATE BUSINESS IN RES PECT OF THE LAND. THUS, THE ASSESSEE NEVER CREATED AN ASSET AS STOCK IN TRADE BUT TREATED IT AS CAPITAL ASSET (AGRICULTURAL LAND). THE SAME IS REFLECTED UNDER THE HEAD FIXED ASSETS IN THE BAL ANCE SHEET UP TO 31.3.2006. COPIES OF PAHANIS OF THE ABOVE SAID LAND IS BROUGHT ON RECORD BY THE ASSESSEE TO PROVE THE FACT THAT THE LAND HELD/SOLD BY THE ASSESSEE IS AGRICULTURAL LAND . 13. THE AR SUBMITTED THAT THE SALE TRANSACTION EFFECTED BY THE ASSESSEE IN RESPECT OF THE ABOVE AGRICULTURE LAND C ONSTITUTED ONLY SALE OF AGRICULTURE LAND, AND BY NO STRETCH OF IMAGINATION IT CAN BE TREATED AS ADVENTURE IN TRADE AND SO AS TO T REAT THE SAME AS BUSINESS TRANSACTION FOR THE FOLLOWING REASONS : I) PURCHASE AND HOLDING OF LAND FOR A PERIOD AND SUBSE QUENT SALE THEREOF ITSELF CANNOT BE AN INDICATOR TO HOLD THAT THE INTENTION OF THE ASSESSEE WAS TO CARRY ON BUSINESS WITH THOSE ASSETS. THE INTENTION CANNOT BE PRESUMED UNLE SS SUPPORTED BY EVIDENCE. IN THIS CASE THE TREATMENT GIVEN BY THE ASSESSEE FOR THIS ASSET IN THE ACCOUNT BOOKS CLEARLY INDICATE THAT THE INTENTION OF THE ASSESSEE IS TO H OLD THE SAME AS CAPITAL ASSET TO HAVE GOOD RETURNS FROM THE SAME. II) THE ASSESSEE HELD LAND FOR CONSIDERABLE TIME. THE A SSET ACQUIRED WAS AGRICULTURE LAND AS PER THE EVIDENCE B ROUGHT ON RECORD. IT WAS SOLD ON 22.12.2006 WHICH WAS ACQU IRED ON 22.8.2003. THUS, THE ASSESSEE HELD THE AGRICULT URE LAND FOR ABOUT 4 YEARS. ACCORDING TO THE AR, DURING THAT PERIOD THE ASSESSEE CARRIED ON REGULAR AGRICULTURAL OPERATIONS IN THE LAND. IN THE LIGHT OF FAVOURABLE MARKET CONDITIONS THE ASSESSEE THOUGHT IT GOOD TO SELL THE ASSET TO ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 10 REALIZE A GOOD AMOUNT. REALIZATION OF BETTER PRICE IN A BOOMING MARKET CANNOT BE CONSIDERED AS AN ADVENTURE IN TRADE III) THE EXPRESSION ADVENTURE IN THE NATURE OF TRADE OCC URS IN THE DEFINITION OF BUSINESS UNDER SECTION 2(13) BUT THE EXPRESSION ADVENTURE IN THE NATURE OF TRADE HAS NOT BEEN DEFINED IN THE ACT. IT MAY BE PERTINENT TO MENTION HERE THAT A SPECIFIC TRANSACTION PARTAKE THE CHARACTER O F BUSINESS OR AN ADVENTURE IN THE NATURE OF TRADE OR REALIZATION OF CAPITAL ASSET OR A MERE CONVERSION O F ASSET HAS TO BE DECIDED DEPENDING UPON FACTS OF EACH CASE . IV) IN DECIDING AS TO WHETHER A PARTICULAR TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE, THE ASSESSING OFF ICER MUST CONSIDER ALL THE RELEVANT AND PROVED FACTS AND CIRCUMSTANCES. REALIZATION OF INVESTMENTS CONSISTIN G OF PURCHASE OF AGRICULTURAL LAND AND RESALE, THOUGH PROFITABLE ARE CLEARLY OUTSIDE THE DOMAIN OF ADVENT URE IN THE NATURE OF TRADE. V) THE ASSESSEE TREATED THE ASSETS AS INVESTMENT IN AGRICULTURAL LAND. THEREFORE DISPOSAL OF THE SAME WOULD NOT CONVERT, WHAT WAS A CAPITAL ACCRETION, TO AN AD VENTURE IN THE NATURE OF TRADE. TO MAKE IT MORE CLEAR, SALE OF AGRICULTURAL LAND BY THE ASSESSEE AND REALISATION O F GOOD PRICE WOULD NOT ALTER THE BASIC NATURE AND CHARACTE RISTIC OF THE TRANSACTION. IN THE CASE OF THE ASSESSEE, L AND WAS ACQUIRED BY THE ASSESSEE AND REFLECTED IN THE BALAN CE- SHEETS OF THE CONCERN AS FIXED-ASSETS. THE ASSESSEE NEVER TREATED THE LAND AS STOCK-IN-TRADE AND REFLECTED IN PROFIT AND LOSS ACCOUNT (CLOSING STOCK). THERE WAS NO ELEM ENT OF TRADE ATTACHED TO THE ACTIVITY OF THE ASSESSEE IN P URCHASE ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 11 AND SALE OF THE LAND. A CONTINUOUS BUSINESS REQUIR ES MORE ACTIVITY AND GREATER ORGANIZATION. THIS IS ABS ENT IN THE TRANSACTION OF SALE OF LAND BY THE ASSESSEE. TH EREFORE, ALTHOUGH THERE IS PROFIT IN THE TRANSACTION THE TRA NSACTION CANNOT BE CHARACTERIZED AS AN ADVENTURE IN THE NATU RE OF TRADE. VI) WHETHER A TRANSACTION IN RESPECT OF AN ASSET IS CAP ITAL OR BUSINESS INCOME BEING ADVENTURE IN THE NATURE OF TR ADE DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THERE ARE MANY FACTORS LIKE FREQUENCY OF TRANSACTIO NS, PERIOD OF HOLDING, INTENTION FOR RESALE ETC, WHICH DETERMINE WHETHER THE GAIN ARISING OF A TRANSACTION IS IN THE PROCESS OF REALISATION OF INVESTMENT OR IN THE COURSE OF BUSINESS. THE MERE FACT THAT THE PERSON HAS PURCHA SED A LAND AND SUBSEQUENTLY SOLD IT, GIVING RISE TO A SUB STANTIAL PROFIT CANNOT CHANGE THE CHARACTER OF THE TRANSACTI ON. IT IS THE GENERAL HUMAN TENDENCY TO EARN PROFIT OUT OF CA PITAL ASSET. NO ONE INVESTS TO INCUR A LOSS. IF THE MARKE T CONDITION SUDDENLY GOES UP OR DOWN, IT IS ALWAYS TH E TENDENCY OF A PERSON TO TAKE A QUICK DECISION SO TH AT THE REALIZATION ON THE INVESTMENT IS MAXIMUM OR THE LOS S IS MINIMUM. VII) THE ASSESSEE FILED ADANGAL/PAHANI AND OTHER DOCUMENTS FROM REVENUE AUTHORITIES SUGGESTING THE AGRICULTURA L NATURE OF THE PROPERTY AND AGRICULTURAL ACTIVITIES HAVE BEEN CARRIED ON IN A PORTION OF THE LAND. 14. FROM THE ABOVE, IT IS CLEAR THAT: A) THE ASSESSEE PURCHASED AGRICULTURE LAND NOW UNDER CONSIDERATION SITUATED BEYOND 8 KM FROM THE MUNICIP AL LIMITS. ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 12 B) THE ASSESSEE TREATED THE SAME AS FIXED ASSET IN THE IR BOOKS ALONG WITH OTHER AGRICULTURE LAND WHICH WAS ALREADY ACQUIRED BY THEM IN THE EARLIER YEARS. C) THE LAND WAS IDENTIFIED AS AGRICULTURE LAND IN THE REVENUE RECORDS. D) THE ASSESSEE CARRIED ON ROUTINE AGRICULTURE OPERATI ONS IN THE SAID LAND. E) THE ASSESSEE DID NOT CARRY ON ANY COMMERCIAL ACTIVI TY WITH REFERENCE TO THAT LAND SUCH AS GETTING OF APPR OVAL FOR CONVERTING INTO SITES, PLOTTING OF THE SAME INTO SI TES ETC. THUS, THE CHARACTER OF THE LAND I.E., AGRICULTURE N ATURE WAS CONTINUING TILL THE SAME WAS SOLD BY THE ASSESS EE COMPANY. F) BECAUSE OF FAVOURABLE MARKET CONDITIONS THE ASSESSE E SOLD THE LAND AND THE SAME FETCHED THEM A GOOD PRIC E. 15. THEREFORE, IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE ASSESSEES ACQUIRED AGRICULTURAL LAND. THERE IS ALS O NO DISPUTE THAT THERE WAS AGRICULTURAL OPERATION IN THIS LAND BEFORE SALE OF THIS LAND BY GROWING PADDY AND GRASS WHICH DOES NOT REQUIRE INVESTMENT. THE AMOUNT FETCHED TO THE ASSESSEE USE D TO BE ENOUGH FOR MEETING THE EXPENDITURE FOR AGRICULTURE. 16. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE A MOUNT RECEIVED ON SALE OF THIS AGRICULTURAL PROPERTY IS N OTHING BUT ON ACCOUNT OF ADVENTURE IN THE NATURE OF TRADE AND THE SAME WAS BROUGHT INTO INCOME FROM BUSINESS. IN THIS CASE, T HE ASSESSEE HELD THE LAND ALWAYS AS INVESTMENT AND NOT AT ALL C ONVERTED INTO STOCK-IN-TRADE. THE CHARACTER OF THE LAND IN THE H ANDS OF THE ASSESSEES HAS NOT CHANGED. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE CARRIED ON ACTIVITIES OF BUY ING AND SELLING OF LAND IN A SYSTEMATIC MANNER SO AS TO JUS TIFY THE ACTION ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 13 OF THE AO IN TREATING THE ACTIVITIES OF THE ASSESSE E AS ADVENTURE IN THE NATURE OF TRADE. THE LAND WAS SOLD BY THE A SSESSEES IN ACREAGE AND NOT BY MAKING PLOTS. 17. NOW THE QUESTION AS TO WHETHER A LAND IS AGRICULTUR AL LAND OR NOT IS ESSENTIALLY A QUESTION OF FACT. THE QUEST ION HAS TO BE ANSWERED IN EACH CASE HAVING REGARD TO THE FACTS AN D CIRCUMSTANCES OF THAT CASE. THERE MAY BE FACTORS BO TH FOR AND AGAINST A PARTICULAR POINT OF VIEW. WE HAVE TO ANSW ER THE QUESTION ON A CONSIDERATION OF ALL OF THEM, A PROCE SS OF EVALUATION AND THE INFERENCE HAS TO BE DRAWN ON A C UMULATIVE CONSIDERATION OF ALL THE RELEVANT FACTS. IT MAY BE STATED HERE THAT NOT ALL THE FACTORS OR TESTS WOULD BE PRESENT OR AB SENT IN ANY CASE AND THAT IN EACH CASE ONE OR MORE OF THE FACTO RS MAY MAKE APPEARANCE AND THAT ULTIMATE DECISION WILL HAVE TO BE REACHED ON A BALANCED CONSIDERATION OF THE TOTALITY OF THE CIRCUMSTANCES. 18. THE EXPRESSION AGRICULTURAL LAND IS NOT DEFINED I N THE ACT, AND NOW, WHETHER IT IS AGRICULTURAL LAND OR NO T HAS TO BE DETERMINED BY USING THE TESTS OR METHODS LAID DOWN BY THE COURTS FROM TIME TO TIME. 19. THE HONBLE SUPREME COURT IN THE CASE OF SMT. SARIF ABIBI MOHMED IBRAHIM (204 ITR 631) HAS APPROVED THE DECIS ION OF A DIVISION BENCH OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIDDHARTH J. DESAI (1982) 28 CTR (GUJ) 148 : (1983) 139 ITR 628 (GUJ) AND HAS LAID DOWN 13 TESTS OR FACTORS WHICH ARE REQUIRED TO BE CONSIDERED AND UPON CONSIDERATION OF WHICH, THE QUESTION WHETHER THE LAND IS AN AGRICULTURAL LAND O R NOT HAS TO BE DECIDED OR ANSWERED. WE REPRODUCE THE SAID 13 T ESTS AS FOLLOWS: ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 14 1. WHETHER THE LAND WAS CLASSIFIED IN THE REVENUE RECORDS AS AGRICULTURAL AND WHETHER IT WAS SUBJECT TO THE PAYMENT OF LAND REVENUE? 2. WHETHER THE LAND WAS ACTUALLY OR ORDINARILY USED FOR AGRICULTURAL PURPOSES AT OR ABOUT THE RELEVANT TIME? 3. WHETHER SUCH USER OF THE LAND WAS FOR A LONG PERIOD OR WHETHER IT WAS OF A TEMPORARY CHARACTER OR BY ANY OF A STOPGAP ARRANGEMENT? 4. WHETHER THE INCOME DERIVED FROM THE AGRICULTURAL OPERATIONS CARRIED ON IN THE LAND BORE ANY RATIONAL PROPORTION TO THE INVESTMENT MADE IN PURCHASING THE LAND? 5. WHETHER, THE PERMISSION UNDER S. 65 OF THE BOMBAY LAND REVENUE CODE WAS OBTAINED FOR THE NON-AGRICULTURAL USE OF THE LAND? IF SO, WHEN AND BY WHOM (THE VENDOR OR THE VENDEE)? WHETHER SUCH PERMISSION WAS IN RESPECT OF THE WHOLE OR A PORTION OF THE LAND? IF THE PERMISSION WAS IN RESPECT OF A PORTION OF THE LAND AND IF IT WAS OBTAINED IN THE PAST, WHAT WAS THE NATURE OF THE USER OF THE SAID PORTION OF THE LAND ON THE MATERIAL DATE? 6. WHETHER THE LAND, ON THE RELEVANT DATE, HAD CEASED TO BE PUT TO AGRICULTURAL USE? IF SO, WHETHER IT WAS PUT TO AN ALTERNATIVE USE? WHETHER SUCH LESSER AND/OR ALTERNATIVE USER WAS OF A PERMANENT OR TEMPORARY NATURE? 7. WHETHER THE LAND, THOUGH ENTERED IN REVENUE RECORDS, HAD NEVER BEEN ACTUALLY USED FOR AGRICULTURE, THAT IS, IT HAD NEVER BEEN PLOUGHED OR TILLED? WHETHER THE OWNER MEANT OR INTENDED TO USE IT FOR AGRICULTURAL PURPOSES? 8. WHETHER THE LAND WAS SITUATED IN A DEVELOPED AREA? WHETHER ITS PHYSICAL CHARACTERISTICS, SURROUNDING SITUATION AND USE OF THE LAND IN THE ADJOINING AREA WERE SUCH AS WOULD INDICATE THAT THE LAND WAS AGRICULTURAL? ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 15 9. WHETHER THE LAND ITSELF WAS DEVELOPED BY PLOTTING AND PROVIDING ROADS AND OTHER FACILITIES? 10. WHETHER THERE WERE ANY PREVIOUS SALES OF PORTIONS OF THE LAND FOR NON-AGRICULTURAL USE? 11. WHETHER PERMISSION UNDER S. 63 OF THE BOMBAY TENANCY AND AGRICULTURAL LAND ACT, 1948, WAS OBTAINED BECAUSE THE SALE OR INTENDED SALE WAS IN FAVOUR OF A NON-AGRICULTURIST? IF SO, WHETHER THE SALE OR INTENDED SALE TO SUCH NON- AGRICULTURISTS WAS FOR NON-AGRICULTURAL OR AGRICULTURAL USER? 12. WHETHER THE LAND WAS SOLD ON YARDAGE OR ON ACREAGE BASIS? 13. WHETHER AN AGRICULTURIST WOULD PURCHASE THE LAND FOR AGRICULTURAL PURPOSES AT THE PRICE AT WHICH THE LAND WAS SOLD AND WHETHER THE OWNER WOULD HAVE EVER SOLD THE LAND VALUING IT AS A PROPERTY YIELDING AGRICULTURAL PRODUCE ON THE BASIS OF ITS YIELD?' 20. A REFERENCE COULD BE MADE TO THE CASE OF CWT VS. O FFICER- IN-CHARGE (COURT OF WARDS) (105 ITR 138) (SC) WHERE IN THE CONSTITUTION BENCH OF THE HONBLE SUPREME COURT STA TED THAT THE TERM AGRICULTURE AND AGRICULTURAL PURPOSE W AS NOT DEFINED IN THE INDIAN IT ACT AND THAT WE MUST NECESSARILY F ALL BACK UPON THE GENERAL SENSE IN WHICH THEY HAVE BEEN UNDERSTOO D IN COMMON PARLANCE. THE HONBLE SUPREME COURT HAS OBSE RVED THAT THE TERM AGRICULTURE IS THUS UNDERSTOOD AS C OMPRISING WITHIN ITS SCOPE THE BASIC AS WELL AS SUBSEQUENT OP ERATIONS IN THE PROCESS OF AGRICULTURE AND RAISING ON THE LAND ALL PRODUCTS WHICH HAVE SOME UTILITY EITHER FOR SOMEONE OR FOR T RADE AND COMMERCE. IT WILL BE SEEN THAT THE TERM AGRICULTUR E RECEIVES A WIDER INTERPRETATION BOTH IN REGARD TO ITS OPERATIO N AS WELL AS THE RESULT OF THE SAME. NEVERTHELESS THERE IS PRESE NT ALL THROUGHOUT THE BASIC IDEA THAT THERE MUST BE AT THE BOTTOM OF ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 16 ITS CULTIVATION OF THE LAND IN THE SENSE OF TILLING OF THE LAND, SOWING OF THE SEEDS, PLANTING AND SIMILAR WORK DONE ON THE LAND ITSELF AND THIS BASIC CONCEPTION IS ESSENTIAL SINE QUA NON OF ANY OPERATION PERFORMED ON THE LAND CONSTITUTING AGRICU LTURAL OPERATION AND IF THE BASIC OPERATIONS ARE THERE, TH E REST OF THE OPERATIONS FOUND THEMSELVES UPON THE SAME, BUT IF T HE BASIC OPERATIONS ARE WANTING, THE SUBSEQUENT OPERATIONS D O NOT ACQUIRE THE CHARACTERISTICS OF AGRICULTURAL OPERATI ONS. THE CONSTITUTION BENCH OF THE HONBLE SUPREME COURT IN THE AFORESAID CASE OBSERVED THAT THE ENTRIES IN REVENUE RECORDS WERE CONSIDERED GOOD PRIMA FACIE EVIDENCE. 21. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DR. MOTIBHAI D. PATEL VS. CIT (1982) 27 CTR (GUJ) 238 : (1981) 127 ITR 671 (GUJ) REFERRING TO THE CONSTITUTION BENCH O F THE HONBLE SUPREME COURT HAD STATED THAT IF AGRICULTURAL OPERA TIONS ARE BEING CARRIED ON IN THE LAND IN QUESTION AT THE TIM E WHEN THE LAND IS SOLD AND FURTHER IF THE ENTRIES IN THE REVE NUE RECORDS SHOW THAT THE LAND IN QUESTION IS AGRICULTURAL LAND , THEN, A PRESUMPTION ARISES THAT THE LAND IS AGRICULTURAL IN CHARACTER AND UNLESS THAT PRESUMPTION IS REBUTTED BY EVIDENCE LED BY THE REVENUE, IT MUST BE HELD THAT THE LAND WAS AGRICULT URAL IN CHARACTER AT THE TIME WHEN IT WAS SOLD. THE DIVISIO N BENCH OF THE HONBLE GUJARAT HIGH COURT FURTHER HELD THAT TH ERE WAS NOTHING ON RECORD TO SHOW THAT THE PRESUMPTION ROSE FROM THE LONG USER OF THE LAND FOR AGRICULTURAL PURPOSE AND ALSO THE PRESUMPTION ARISING FROM THE ENTRIES OF THE REVENUE RECORDS ARE REBUTTED. 22. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CWT V S. H. V. MUNGALE (1983) 32 CTR (BOM) 301 : (1984) 145 ITR 208 (BOM) HELD THAT THE HONBLE SUPREME COURT HAD POINT ED OUT THAT THE ENTRIES RAISED ONLY A REBUTTABLE PRESUMPTI ON AND SOME ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 17 EVIDENCE WOULD, THEREFORE, HAVE TO BE LED BEFORE T AXING AUTHORITIES ON THE QUESTION OF INTENDED USER OF THE LAND UNDER CONSIDERATION BEFORE THE PRESUMPTION COULD BE REBUT TED. THE COURT FURTHER HELD THAT THE SUPREME COURT HAD CLEAR LY POINTED OUT THAT THE BURDEN TO REBUT THE PRESUMPTION WOULD BE ON THE REVENUE. THE HONBLE BOMBAY HIGH COURT HELD THAT TH E RATIO OF THE DECISION OF THE SUPREME COURT WAS THAT WHAT IS TO BE DETERMINED IS THE CHARACTER OF THE LAND ACCORDING T O THE PURPOSE FOR WHICH IT WAS MEANT OR SET APART AND CAN BE USED . IT IS, THEREFORE, OBVIOUS THAT THE ASSESSEE HAD ABUNDANTLY PROVED THAT THE SUBJECT LAND SOLD BY THEM WAS AGRICULTURAL LAND NOT ONLY AS CLASSIFIED IN THE REVENUE RECORDS, BUT ALSO IT WAS SUBJECTED TO THE PAYMENT OF LAND REVENUE AND THAT IT WAS ACTUALL Y AND ORDINARILY USED FOR AGRICULTURAL PURPOSE AT THE REL EVANT TIME. 23. WE MAY ALSO REFER TO THE CASE OF CIT VS. MANILAL S OMNATH (1977) 106 ITR 917 (GUJ), WHEREIN THE DIVISION BENC H OF THE HONBLE GUJARAT HIGH COURT OBSERVED THAT THE POTENT IAL NON- AGRICULTURAL VALUE OF THE LAND FOR WHICH A PURCHASE R MAY BE PREPARED TO PAY A LARGE PRICE WOULD NOT DETRACT FRO M ITS CHARACTER AS AGRICULTURAL LAND ON THE RELEVANT DATE OF SALE. 24. WE MAY ALSO REFER TO THE CASE OF GOPAL C. SHARMA VS . CIT (1994) 116 CTR (BOM) 377 : (1994) 209 ITR 946 (BOM) , IN WHICH, THE CASE OF SMT. SARIFABIBI MOHAMED IBRAHIM & ORS. VS. CIT (SUPRA) WAS REFERRED TO AND RELIED, AMONGST OTH ER CASES. IN THIS CASE, THE DIVISION BENCH OF THE BOMBAY HIGH CO URT HAS STATED THAT THE PROFIT MOTIVE OF THE ASSESSEE SELLI NG THE LAND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISI VE FOR DETERMINATION OF THE ISSUE AS TO WHETHER THE TRANSA CTION AMOUNTED TO AN ADVENTURE IN THE NATURE OF TRADE. IN OTHER WORDS, THE PRICE PAID IS NOT DECISIVE TO SAY WHETHE R THE LAND IS AGRICULTURAL OR NOT. ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 18 25. WE MAY REFER TO A JUDGMENT OF THE HONBLE MADRAS HI GH COURT IN THE CASE OF CWT VS. E. UDAYAKUMAR (2006) 2 84 ITR 511 (MAD) WHERE THE HONBLE MADRAS HIGH COURT HAS R EFERRED TO THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF CIT VS. SMT. SAVITA RANI (2004) 186 CTR (P& H) 240 : (2004) 270 ITR 40 (P&H) AND HAS OBSERVED AND HELD A S UNDER : '8. IT IS WELL SETTLED IN THE CASE OF CIT VS. SMT. SAVITA RANI (2004) 186 CTR (P&H) 240 : (2004) 270 ITR 40 (P&H), WHEREIN IT IS HELD THAT THE LAND BEING LOCAT ED IN A COMMERCIAL AREA OR THE LAND HAVING BEEN PARTIALLY UTILISED FOR NON-AGRICULTURAL PURPOSES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NON- AGRICULTURAL PURPOSES, WERE TOTALLY IRRELEVANT CONSIDERATION FOR THE PURPOSES OF APPLICATION OF S. 54B. 9. IN THE ABOVESAID CASE, THE ASSESSEE AN INDIVIDUA L SOLD 15 KARNALS, 18 MARLAS OF LAND OUT OF HER SHARE IN 23 KARNALS, 17 MARLAS LAND DURING THE FINANCIAL YEAR 1990-91, RELEVANT TO THE ASST. YR. 1991-92, TH E SALE WAS EFFECTED BY THREE REGISTERED SALE DEEDS. WHILE FILING HER RETURN OF INCOME, SHE CLAIMED EXEMPTION FROM LEVY OF CAPITAL GAINS UNDER S. 54B O F THE ACT ON THE GROUND THAT THE LAND SOLD BY HER WAS AGRICULTURAL LAND AND THE SALE PROCEEDS WERE INVESTED IN THE PURCHASE OF AGRICULTURAL LAND WITHI N TWO YEARS. THE AO REJECTED THE CLAIM OF THE ASSESSE E HOLDING THAT THE LAND SOLD BY THE ASSESSEE WAS NOT AGRICULTURAL LAND AND THIS WAS UPHELD BY THE CIT(A) . ON FURTHER APPEAL, THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE HOLDING THAT THE TRANSACTION IN QUESTI ON DULY FULFILLED THE CONDITIONS SPECIFIED FOR RELIEF. ON FURTHER APPEAL TO THE HIGH COURT, THE PUNJAB & HARYANA HIGH COURT FOUND THAT THE FINDING THAT THE LAND HAD BEEN USED FOR AGRICULTURAL PURPOSES WAS BASED ON COGENT AND RELEVANT MATERIAL. THE REVENUE RECORD SUPPORTED THE CLAIM. EVEN THE RECORDS OF THE IT DEPARTMENT SHOWED THAT THE ASSESSEE HAD DECLARED AGRICULTURAL INCOME FROM THIS LAND IN HER RETURNS F OR THE PRECEDING TWO YEARS. THE LAND BEING LOCATED IN COMMERCIAL AREA OR THE LAND HAVING BEEN PARTIALLY UTILISED FOR NON-AGRICULTURAL PURPOSES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NONAGRICULTURAL ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 19 PURPOSES, WERE TOTALLY IRRELEVANT CONSIDERATION FOR THE PURPOSES OF APPLICATION OF S. 54B. 10. IT IS SEEN FROM THE AFORESAID DECISION THAT THE AGRICULTURAL LAND SOLD BY THE ASSESSEE WITH AN INT ENT TO PURCHASE ANOTHER LAND WITHIN TWO YEARS HAD ALSO BEEN PERMITTED TO CLAIM EXEMPTION UNDER S. 54B OF THE IT ACT, 1961. IN THE INSTANT CASE, EVEN THOUGH THERE WAS NO SALE AS SUCH, THE ASSESSEE OWNED AGRICULTURAL LAND WITHIN THE LIMITS OF TIRUNELVELI CORPORATION AND HE HAD NOT PUT UP ANY CONSTRUCTION THEREON, THE ASSESSEE IS ENTITLED TO CLAIM EXEMPTI ON FROM THE WT ACT FOR THE ASSESSMENT OF WEALTH-TAX. THAT THE LAND IN QUESTION IS ADJACENT TO THE HOSPIT AL IS TOTALLY IRRELEVANT.' 26. ADVERTING TO THE FACTS OF THE PRESENT CASE, THE LAN D IN QUESTION IS CLASSIFIED IN THE REVENUE RECORDS AS AG RICULTURAL LAND AND THERE IS NO DISPUTE REGARDING THIS ISSUE A ND ACTUAL CULTIVATION HAS BEEN CARRIED ON THIS LAND AS PER RE VENUE RECORDS WHICH IS KEPT ON RECORD AT PAPER BOOK PAGE NOS. 44 TO 47. IT IS ALSO AN ADMITTED FACT THAT THE AO HAS NOT BROUGHT O N RECORD ANY EVIDENCE TO SHOW THAT THE AGRICULTURAL LAND WAS USE D FOR NON- AGRICULTURAL PURPOSES AND THE ASSESSEE HAS NOT PUT THE LAND TO ANY PURPOSES OTHER THAN AGRICULTURAL PURPOSES. IT IS ALSO AN ADMITTED FACT THAT NEITHER THE IMPUGNED PROPERTY NO R THE SURROUNDING AREAS WERE SUBJECT TO ANY DEVELOPMENTAL ACTIVITIES AT THE RELEVANT POINT OF TIME OF SALE OF THE LAND. 27. THE PROVISIONS OF ANDHRA PRADESH AGRICULTURAL LAND (CONVERSION FOR NON-AGRICULTURAL PURPOSES) ACT, 200 6 ALSO PRESCRIBED THE PROCEDURE FOR CONVERSION OF AGRICULT URAL LAND INTO NON-AGRICULTURAL LAND. BEING SO, WHENEVER THE AGRI CULTURAL LAND TO BE TREATED AS NON-AGRICULTURAL LAND, THE SAME 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 NATURE AND CHARACTER OF LAND CHANGES FROM AGRICULTURE INTO NON -AGRICULTURE THEN THERE IS NO QUESTION OF CONVERSION OF THIS LAN D FOR NON- ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 20 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-AGRICU LTURAL LAND AND THERE IS NO AUTOMATIC CONVERSION PER SE BY STATE GOVERNMENT NOTIFICATION. 28. IT IS ALSO AN ADMITTED POSITION THAT MERE INCLUSIO N OR PROXIMITY OF LAND TO ANY SPECIAL ZONE WITHOUT ANY I NFRASTRUCTURE DEVELOPMENT THEREUPON OR WITHOUT ESTABLISHING AND P ROVING THAT THE LAND WAS PUT INTO USE FOR NON-AGRICULTURAL PURP OSES BY THE ASSESSEE DOES NOT AND CANNOT CONVERT THE AGRICULTUR AL LAND INTO NON-AGRICULTURAL LAND. IN THE INSTANT CASE, AT THE RELEVANT POINT OF SALE OF THE LAND IN QUESTION, THE SURROUNDING AR EA WAS TOTALLY UNDEVELOPED AND EXCEPT MERE FUTURE POSSIBILITY TO P UT THE LAND INTO USE FOR NON-AGRICULTURAL PURPOSES WOULD NOT CH ANGE THE CHARACTER OF THE AGRICULTURAL LAND INTO NON-AGRICUL TURAL LAND AT THE RELEVANT POINT OF TIME WHEN THE LAND WAS SOLD B Y THE ASSESSEE. IT IS ALSO AN ADMITTED POSITION THAT THE ASSESSEE HAD NOT APPLIED FOR CONVERSION OF THE LAND IN QUESTION INTO NON- AGRICULTURAL PURPOSES AND NO SUCH PERMISSIONS WERE OBTAINED FROM THE CONCERNED AUTHORITY. IN THE REVENUE RECORD S, THE LAND IS CLASSIFIED AS AGRICULTURAL LAND AND HAS NOT BEEN CHANGED 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 ROADS 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- ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 21 AGRICULTURAL PURPOSES HAS BEEN BROUGHT ON RECORD. A T THE RELEVANT POINT OF TIME THE LAND WAS USED FOR AGRICU LTURAL PURPOSES ONLY AND NOTHING IS BROUGHT ON RECORD TO S HOW THAT THE LAND WAS PUT IN USE FOR NON-AGRICULTURAL PURPOS ES BY THE ASSESSEE. IN VIEW OF THE DECISION OF THE HONBLE HI GH COURT IN THE CASE OF GOPAL C. SHARMA VS. CIT (209 ITR 946) ( BOM), IT IS ALSO CLEAR THAT THE PROFIT MOTIVE OF THE ASSESSEE I N SELLING THE LAND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE D ECISIVE TO SAY THAT THE ASSESSEE USED THE LAND FOR NON-AGRICUL TURAL PURPOSES. WE MAY ALSO REFER TO A DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF N. SRINIVASA RAO VS. S PECIAL COURT (2006) 4 SCC 214 WHERE IT WAS OBSERVED THAT THE FAC T THAT AGRICULTURAL LAND IN QUESTION IS INCLUDED IN URBAN AREA WITHOUT MORE, HELD NOT ENOUGH TO CONCLUDE THAT THE USER OF THE SAME HAD BEEN ALTERED WITH PASSAGE OF TIME. THUS, THE FA CT THAT THE LAND IN QUESTION IN THE INSTANT CASE IS BOUGHT BY D EVELOPER CANNOT BE A DETERMINING FACTOR BY ITSELF TO SAY THA T THE LAND WAS CONVERTED INTO USE FOR NON-AGRICULTURAL PURPOSES. 29. RECENTLY THE KARNATAKA HIGH COURT IN THE CASE OF CI T VS. MADHUKUMAR N. (HUF) (2012) 78 DTR (KAR) 391 HELD AS FOLLOWS: '9. AN AGRICULTURAL LAND IN INDIA IS NOT A CAPITAL ASSET BUT BECOMES A CAPITAL ASSET IF IT IS THE LAND LOCAT ED UNDER SECTION 2(14)(III)(A) & (B) OF THE ACT, SECTI ON 2(14) (III) (A) OF THE ACT COVERS A SITUATION WHERE THE SUBJECT AGRICULTURAL LAND IS LOCATED WITHIN THE LIM ITS OF MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE, OR CANTONMENT COMMITTEE AND WHICH HAS A POPULATION OF NOT LESS THAN 10,000. 10. SECTION 2(14)(M)(B) OF THE ACT COVERS THE SITUA TION WHERE THE SUBJECT LAND IS NOT ONLY LOCATED WITHIN T HE DISTANCE OF 8 KMS FROM THE LOCAL LIMITS, WHICH IS COVERED BY CLAUSE (A) TO SECTION 2(14)(III) OF THE ACT, BUT ALSO REQUIRES THE FULFILMENT OF THE CONDITION T HAT THE CENTRAL GOVERNMENT HAS ISSUED A NOTIFICATION ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 22 UNDER THIS CLAUSE FOR THE PURPOSE OF INCLUDING THE AREA UP TO 8 KMS, FROM THE MUNICIPAL LIMITS, TO REN DER THE LAND AS A CAPITAL ASSET. 11. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE SUBJECT LAND IS NOT LOCATED WITHIN THE LIMITS OF DASARAHALLI CITY MUNICIPAL COUNCIL THEREFORE, CLAUS E (A) TO SECTION 2(14][III] OF THE ACT IS NOT ATTRAC TED. 12. HOWEVER, THOUGH IT IS CONTENDED THAT IT IS LOCA TED WITHIN 8 KNITS,, WITHIN THE MUNICIPAL LIMITS OF DASARAHALLI CITY MUNICIPAL COUNCIL IN THE ABSENCE O F ANY NOTIFICATION ISSUED UNDER CLAUSE (B) TO SECTION 2(14)(III) OF THE ACT, IT CANNOT BE LOOKED IN AS A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14)(III)(B) O F THE ACT ALSO AND THEREFORE THOUGH THE TRIBUNAL MAY NOT HAVE SPELT OUT THE REASON AS TO WHY THE SUBJECT LAN D CANNOT BE CONSIDERED AS A CAPITAL ASSET BE GIVING THIS VERY REASON, WE FIND THE CONCLUSION ARRIVED AT BY THE TRIBUNAL IS NEVERTHELESS THE CORRECT CONCLUSION .' 30. FURTHER THE KOLKATA BENCH OF THE TRIBUNAL IN THE CA SE 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 EXCEEDING 8 KM FROM THE LOCAL LIMITS OF SUCH MUNICIPALITIES OR CANTONMENT BOARDS ARE COVERED BY THE AMENDED DEFINITIONS OF 'CAPITAL ASSET', IF SUCH AREAS ARE, HAVING REGARD TO THE EXTENT OF AND SCOPE FOR THEIR URBANIZATION AND OTHER RELEVANT CONSIDERATIONS, IS NOTIFIED BY THE CENTRAL GOVERNME NT IN THIS BEHALF. CENTRAL GOVERNMENT IN EXERCISE OF S UCH POWERS HAS ISSUED THE ABOVE NOTIFICATION, AS AMENDED LATEST BY NOTIFICATION NO. 11186 DATED 28.12.1999 CLEARLY CLARIFIES THAT AGRICULTURAL LAND SITUATION IN RURAL AREAS, AREAS OUTSIDE THE MUNICIPALITY OR CANTONMENT BOARD ETC., HAVING A POPULATION OF NOT LESS THAN 10,000 AND ALSO BEYOND THE DISTANCE NOTIFIED BY CENTRAL GOVERNMENT FROM LOCAL LIMITS I.E. THE OUTER LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD ETC., STILL CONTIN UES TO BE EXCLUDED FROM THE DEFINITION OF 'CAPITAL ASSE T'. ACCORDINGLY, IN VIEW OF SUB-CLAUSE (B) OF SECTION 2(14)(III) OF THE ACT EVEN UNDER THE AMENDED DEFINITION OF EXPRESSION 'CAPITAL ASSET', THE AGRICULTURAL LAND SITUATED IN RURAL AREAS CONTINUES TO BE EXCLUDED FROM THAT DEFINITION. AND AS IN THE ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 23 PRESENT CASE, ADMITTEDLY, THE AGRICULTURAL LAND OF THE ASSESSEE IS OUTSIDE THE MUNICIPAL LIMITS OF RAJARHA T MUNICIPALITY AND THAT ALSO 2.5 KM AWAY FROM THE OUTER LIMITS OF THE SAID MUNICIPALITY, ASSESSEE'S L AND DOES NOT COME WITHIN THE PURVIEW OF SECTION 2(14)(I II) EITHER UNDER SUB CLAUSE (A) OR (B) OF THE ACT, HENC E THE SAME CANNOT BE CONSIDERED AS CAPITAL ASSET WITHIN THE MEANING OF THIS SECTION. HENCE, NO CAPITAL GAIN TAX CAN BE CHARGED ON THE SALE TRANSACTION OF THIS LAND ENTERED BY THE ASSESSEE. ACCORDINGLY, WE QUASH THE ASSESSMENT ORDER QUA CHARGING OF CAPITAL GAINS ON VERY JURISDICTION OF THE ISSUE IS QUASHED. THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED.' 31. IT WAS HELD IN THE CASE OF CIT VS. MANILAL SOMNATH (106 ITR 917) AS FOLLOWS: UNDER THE INCOME-TAX ACT OF 1961, AGRICULTURAL LEN D SITUATED IN INDIA WAS EXCLUDED FROM THE DEFINITION OF ' CAPITAL ASSET' AND ANY GAIN FROM THE SALE THEREOF WAS NOT TO BE INCLUDED IN THE TOTAL INCOME OF AN ASSESSEE TINDER THE HEAD 'CAPITAL GAINS'. IN ORDER TO DETERMINE WHETHER A PARTICULAR LAND IS AGRICULTURAL LAND OR NOT ONE HAS TO FIRST FIND OUT IF IT IS BEIN G PUT TO ANY USE. IF IT IS USED FOR AGRICULTURAL PURPOSES TH ERE IS A PRESUMPTION THAT IT IS AGRICULTURAL LAND. IF IT IS USED FOR NON-AGRICULTURAL PURPOSES THE PRESUMPTION IS THAT IT IS NON-AGRICULTURAL LAND. THIS PRESUMPTI ON ARISING FROM ACTUAL USE CAN BE REBUTTED BY THE PRESENCE OF OTHER FACTORS. THERE MAY BE CASES WHER E LAND WHICH IS ADMITTEDLY NON-AGRICULTURAL IS USED TEMPORARILY FOR AGRICULTURAL PURPOSES. THE DETERMINATION OF THE QUESTION WOULD, THEREFORE, DEPEND ON THE FACTS OF EACH CASE. 'THE ASSESSEE, HINDU, UNDIVIDED FAMILY, HAD OBTAINED SOME LAND ON A PARTITION IN 1939. FROM THA T TIME, UP TO THE TIME OF ITS SALE, AGRICULTURAL OPER ATIONS WERE CARRIED ON IN THE LAND. THERE WAS NO REGULAR ROAD TO THE LAND AND IT WAS WITH THE AID OF A TRACT OR THAT AGRICULTURAL OPERATIONS WERE BEING CARRIED ON. THE LAND WAS INCLUDED WITHIN A DRAFT TOWN PLANNING SCHEME. THE ASSESSEE GOT PERMISSION OF THE COLLECTO R TO SELL THE LAND FOR RESIDENTIAL PURPOSES AND SOLD IT. ON THE QUESTION WHETHER THE LAND WAS AGRICULTURAL LAND: ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 24 HELD, THAT WHAT HAD TO BE CONSIDERED IS NOT WHAT TH E PURCHASER DID WITH THE LAND OR THE PURCHASER WAS SUPPOSED TO DO WITH THE LAND, BUT WHAT WAS THE CHARACTER OF THE LAND AT THE TIME WHEN THE SALE TOO K PLACE. THE FACT THAT THE LAND WAS WITHIN MUNICIPAL LIMITS OR THAT IT WAS INCLUDED WITHIN A PROPOSED TO WN PLANNING SCHEME WAS NOT BY ITSELF SUFFICIENT TO REB UT THE PRESUMPTION ARISING FROM ACTUAL USE OF THE LAND . THE LAND HAD BEEN USED FOR AGRICULTURAL PURPOSES FO R A LONG TIME AND NOTHING HAD HAPPENED TILL THE DATE OF THE SALE TO CHANGE THAT CHARACTER OF THE LAND. THE POTENTIAL NON-AGRICULTURAL VALUE OF THE LAND FOR WH ICH A PURCHASER MAY BE PREPARED TO PAY A LARGE PRICE WOULD NOT DETRACT FROM ITS CHARACTER AS AGRICULTURA L LAND AT THE DATE OF THE SALE. THE LAND IN QUESTION WAS, THEREFORE, AGRICULTURAL LAND. 32. FURTHER THE WORD 'CAPITAL ASSET' IS DEFINED IN SECT ION 2(14) TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSES SEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, B UT DOES NOT INCLUDE- (III) AGRICULTURAL LAND IN INDIA, NOT BEING LAND SI TUATE- (A) IN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE, OR BY ANY OTHER NAME) OR A CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR; OR (B) IN ANY AREA WITHIN SUCH DISTANCE, NOT BEING MORE THAN EIGHT KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITEM (A), AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANIZATION OF THAT AREA AND OTHER RELEVANT CONSIDERATIONS, SPECIFY IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE; ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 25 33. IT IS VERY CLEAR FROM THE ABOVE THAT THE GAIN ON SA LE OF AN AGRICULTURAL LAND WOULD BE EXIGIBLE TO TAX ONLY WHE N THE LAND TRANSFERRED IS LOCATED WITHIN THE JURISDICTION OF A MUNICIPALITY. THE FACT THAT ALL THE EXPRESSIONS ENLISTED AFTER 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. 34. WE ALSO PERUSED THE MEANING OF THE TERM LOCAL AUTHO RITY AS REFERRED IN SECTION 10(20) OF THE ACT. (20) THE INCOME OF A LOCAL AUTHORITY WHICH IS CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' OR 'INCOME FROM OTHER SOURCES' OR FROM A TRADE OR BUSINESS CARRIED ON BY IT WHICH ACCRUES OR ARISES FROM THE SUPPLY OF A COMMODITY OR SERVICE [(NOT BEING WATER OR ELECTRICI TY) WITHIN ITS OWN JURISDICTIONAL AREA OR FROM THE SUPP LY OF WATER OR ELECTRICITY WITHIN OR OUTSIDE ITS OWN JURISDICTIONAL AREA]. [EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE, TH E EXPRESSION 'LOCAL AUTHORITY' MEANS - (I) PANCHAYAT AS REFERRED TO IN CLAUSE (D) OF A RTICLE 243 OF THE CONSTITUTION; OR (II) MUNICIPALITY AS REFERRED TO IN CLAUSE (E) O F ARTICLE 243P OF THE CONSTITUTION; OR (III) MUNICIPAL COMMITTEE AND DISTRICT BOARD, LEGALLY ENTITLED TO, OR ENTRUSTED BY THE GOVERNMENT WITH, THE CONTROL OR MANAGEMENT OF A MUNICIPAL OR LOCAL FUND; OR (IV) CANTONMENT BOARD AS DEFINED IN SECTION 3 OF THE CANTONMENTS ACT, 1924 (2 OF 1924); 35. IT IS ALSO EVIDENT FROM THE MEMORANDUM EXPLAINING T HE PROVISIONS OF FINANCE ACT, 1970, WHEREBY S. 2(14) W AS AMENDED ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 26 SO AS TO INCLUDE THE AGRICULTURAL LAND LOCATED WITH IN THE JURISDICTION OF A MUNICIPALITY IN THE DEFINITION OF THE EXPRESSION 'CAPITAL ASSET'. THE RELEVANT PORTION OF THE SAID MEMORANDUM IS REPRODUCED HEREUNDER: '30. ... THE FINANCE ACT, 1970 HAS, ACCORDINGLY, AMENDED THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT SO AS TO BRING WITHIN THE SCOPE OF TAXATION CAP ITAL GAINS ARISING FROM THE TRANSFER OF AGRICULTURAL LAN D SITUATED IN CERTAIN AREAS. FOR THIS PURPOSE, THE DEFINITION OF THE TERM 'CAPITAL ASSET' IN SECTION 2 (14) HAS BEEN AMENDED SO AS TO EXCLUDE FROM ITS SCOPE ONLY AGRICULTURAL LAND IN INDIA WHICH IS NOT SITUAT E IN ANY AREA COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND PERSONS ACCORDING TO THE LAST PRECEDING CENSUS FOR WHICH TH E RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIR ST DAY OF THE PREVIOUS YEAR. THE CENTRAL GOVERNMENT HAS BEEN AUTHORISED TO NOTIFY IN THE OFFICIAL GAZET TE ANY AREA OUTSIDE THE LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOUSAND UP TO A MAXIMUM DISTANCE OF 8 KILOMETRES FROM SUCH LIMITS, FOR THE PURPOSES OF TH IS PROVISION. SUCH NOTIFICATION WILL BE ISSUED BY THE CENTRAL GOVERNMENT, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANISATION OF SUCH AREA, AND, WHEN ANY SUCH AREA IS NOTIFIED BY THE CENTRAL GOVERNMENT , AGRICULTURAL LAND SITUATED WITHIN SUCH AREA WILL ST AND INCLUDED WITHIN THE TERM 'CAPITAL ASSET'. AGRICULT URAL LAND SITUATED IN RURAL AREAS, I.E., AREAS OUTSIDE A NY MUNICIPALITY OR CANTONMENT BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOUSAND AND ALSO BEYOND THE DISTANCE NOTIFIED BY THE CENTRAL GOVERNMENT FROM THE LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD, WILL CONTINUE TO BE EXCLUDED FROM THE TERM 'CAPITAL ASSET'. 36. FURTHER IT IS NOBODY'S CASE THAT THE PROPERTY FALLS WITHIN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BOARD OR WHICH HAS A 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 ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 27 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. 37. WE HAVE CAREFULLY GONE THROUGH THE NOTIFICATION ISS UED 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 HYDE RABAD. IT IS CLEAR FROM THESE NOTIFICATIONS THAT AGRICULTURAL LA ND SITUATED IN AREAS LYING WITHIN A DISTANCE NOT EXCEEDING 8 KM FR OM THE LOCAL LIMITS OF HYDERABAD MUNICIPALITY (GHMC) IS COVERED BY THE AMENDED DEFINITIONS OF 'CAPITAL ASSET'. CENTRAL GO VERNMENT IN EXERCISE OF SUCH POWERS HAS ISSUED THE ABOVE NOTIFI CATION, AS AMENDED LATEST BY NOTIFICATION NO. 11186 DATED 28.1 2.1999 CLEARLY CLARIFIES THAT AGRICULTURAL LAND SITUATED I N RURAL AREAS, AREAS OUTSIDE THE MUNICIPALITY OR CANTONMENT BOARD ETC., HAVING A POPULATION OF NOT LESS THAN 10,000 AND ALSO BEYON D THE DISTANCE NOTIFIED BY CENTRAL GOVERNMENT FROM LOCAL LIMITS I.E. THE OUTER LIMITS OF ANY SUCH MUNICIPALITY OR CANTON MENT BOARD ETC., STILL CONTINUES TO BE EXCLUDED FROM THE DEFIN ITION OF 'CAPITAL ASSET'. ACCORDINGLY, IN VIEW OF SUB-CLAUSE (B) OF S ECTION 2(14)(III) ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 28 OF THE ACT EVEN UNDER THE AMENDED DEFINITION OF EXP RESSION 'CAPITAL ASSET', THE AGRICULTURAL LAND SITUATED IN RURAL AREAS CONTINUES TO BE EXCLUDED FROM THAT DEFINITION. AND AS IN THE PRESENT CASE, ADMITTEDLY, THE AGRICULTURAL LAND OF THE ASSESSEE IS OUTSIDE THE MUNICIPAL LIMITS OF HYDERABAD MUNICIPAL ITY AND THAT ALSO 8 KM AWAY FROM THE OUTER LIMITS OF THIS M UNICIPALITY, ASSESSEE'S LAND DOES NOT COME WITHIN THE PURVIEW OF SECTION 2(14)(III) EITHER UNDER SUB CLAUSE (A) OR (B) OF TH E ACT, HENCE THE SAME CANNOT BE CONSIDERED AS CAPITAL ASSET WITHIN T HE MEANING OF THIS SECTION. HENCE, NO CAPITAL GAIN TAX CAN BE CHARGED ON THE SALE TRANSACTION OF THIS LAND ENTERED BY THE ASSESS EE. 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). 38. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, AS NA RRATED BEFORE US, IT IS IMPORTANT TO NOTE THAT WHAT WAS TH E INTENTION OF THE ASSESSEES AT THE TIME OF ACQUIRING THE LAND OR INTERVAL ACTION BY THE ASSESSEE BETWEEN THE PERIOD FROM PURCHASE AN D SALE OF THE LAND AND THE RELEVANT IMPROVEMENT/DEVELOPMENT T AKEN PLACE DURING THIS TIME IS RELEVANT FOR DECIDING THE ISSUE WHETHER TRANSACTION WAS IN THE NATURE OF TRADE. THOUGH IN TENTION SUBSEQUENTLY FORMED MAY BE TAKEN INTO ACCOUNT, IT I S THE INTENTION AT THE INCEPTION IS CRUCIAL. ONE OF THE ESSENTIAL ELEMENTS IN AN ADVENTURE OF THE TRADE IS THE INTENT ION TO TRADE; THAT INTENTION MUST BE PRESENT AT THE TIME OF PURCH ASE. THE MERE CIRCUMSTANCES THAT A PROPERTY IS PURCHASED IN THE HOPE THAT WHEN SOLD LATER ON IT WOULD LEAVE A MARGIN OF PROFIT, WOULD ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 29 NOT BE SUFFICIENT TO SHOW, AN INTENTION TO TRADE AT THE INCEPTION. IN A CASE WHERE THE PURCHASE HAS BEEN MADE SOLELY A ND EXCLUSIVELY WITH THE INTENTION TO RESELL AT A PROFI T AND THE PURCHASER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OTHERWISE ENJOYING OR USING IT, THE PRESENCE OF SUCH AN INTENTION IS A RELEVANT FACTOR AND UNLESS IT IS OFF SET BY THE PRESENCE OF OTHER FACTORS IT WOULD RAISE AS STRONG PRESUMPTION THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE AND IT I S CONCEIVABLE THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCE S IN THE CASE, THE COURT MAY, DESPITE THE SAID INITIAL INTENTION, BE INCLINED TO HOLD THAT THE TRANSACTION WAS NOT AN ADVENTURE IN T HE NATURE OF TRADE. THE PRESUMPTION MAY BE REBUTTED. IN THE PR ESENT CASE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IT CANNOT BE CONSIDERED AS AN ADVENTURE IN THE NATURE OF TRADE. THE INTENTION OF THE ASSESSEE FROM THE INCEPTION WAS TO CARRY ON AGRICULTURAL OPERATIONS AND EVEN THERE WAS NO INTEN TION TO SELL THE LAND IN FUTURE AT THAT POINT OF TIME. IT WAS D UE TO THE BOOM IN REAL ESTATE MARKET CAME INTO PICTURE AT A LATER STAGE, THE ASSESSEE HAS SOLD THE LAND. MERELY BECAUSE OF THE FACT THAT THE LAND WAS SOLD FOR PROFIT, IT CANNOT BE HELD THAT IN COME ARISING FROM THE SALE OF LAND WAS TAXABLE AS PROFIT ARISING FROM THE ADVENTURE IN THE NATURE OF TRADE. THE PERIOD OF HO LDING SHOULD NOT SUGGEST THAT THE ACTIVITY WAS AN ADVENTURE IN T HE NATURE OF TRADE. 39. FURTHER, WE MAKE IT CLEAR THAT WHEN THE LAND WHIC H DOES NOT FALL UNDER THE PROVISIONS OF SECTION 2(14)(III) OF THE IT ACT AND AN ASSESSEE WHO IS ENGAGED IN AGRICULTURAL OPERATIO NS IN SUCH AGRICULTURAL LAND AND ALSO BEING SPECIFIED AS AGRIC ULTURAL LAND IN REVENUE RECORDS, THE LAND IS NOT SUBJECTED TO ANY C ONVERSION AS NON-AGRICULTURAL LAND BY THE ASSESSEE OR ANY OTHER CONCERNED PERSON, TRANSFERS SUCH AGRICULTURAL LAND AS IT IS A ND WHERE IT IS ITA NO. 307/HYD/2011 M/S. GOUTHAM CONSTRUCTIONS COMPANY ============================ 30 BASIS, IN SUCH CIRCUMSTANCES, IN OUR OPINION, SUCH TRANSFER LIKE THE CASE BEFORE US CANNOT BE CONSIDERED AS A TRANSF ER OF CAPITAL ASSET OR THE TRANSACTION RELATING TO SALE OF LAND W AS NOT AN ADVENTURE IN THE NATURE OF TRADE SO AS TO TAX THE I NCOME ARISING OUT OF THIS TRANSACTION AS BUSINESS INCOME. ACCORDI NGLY, WE ARE INCLINED TO HOLD THAT THE SALE OF AGRICULTURAL LAND CANNOT BE CONSIDERED AS ADVANTAGE IN THE NATURE OF TRADE SO A S TO TAX THE GAIN ON SALE OF THE SAME. ACCORDINGLY, THE RESULTA NT PROFIT CANNOT BE CONSIDERED AS BUSINESS PROFIT ASSESSABLE UNDER THE HEAD 'INCOME FROM BUSINESS'. THIS GROUND OF THE AS SESSEE IS ALLOWED. 40. CONSEQUENTLY, THERE IS NO QUESTION OF INITIATION OF PENALTY PROCEEDINGS U/S. 271(1)(B) AND U/S. 271(1)(C) OF TH E ACT. 41. FURTHER, THERE IS ALSO NO QUESTION OF LEVY OF ANY I NTEREST U/S. 234B OF THE ACT. 42. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2013. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 27 TH SEPTEMBER, 2013 COPY FORWARDED TO: 1. M/S. GOUTHAM CONSTRUCTIONS COMPANY, C/O. M/S. B. NARSING RAO & CO., CHARTERED ACCOUNTANTS, PLOT NO. 554, ROAD NO. 92, JUBILEE HILLS, HYDERABAD-96. 2. THE INCOME TAX OFFICER, WARD 4(2), HYDERABAD. 3. THE CIT(A) - V, HYDERABAD. 4. THE CIT - I V , HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO