P.Janakiraman, CHENNAI V. DCIT, Vellore

ITA 423/CHNY/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3848 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2013
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVASJ
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Business income
• Section: 54B; 2(14); 14A; 63

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , . !' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.423/MDS./2013 / ASSESSMENT YEAR : 2009-10 MR.P.JANAKIRAMAN, NO.9,N N I STREET, ARMUGAPET, WALAJABAD. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE I,VELLORE. [PAN AAJPJ 1327 J ] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : MR.S.SRIDHAR,ADVOCATE /RESPONDENT BY : MR.SHIVA SRINIVAS, JCIT,DR / DATE OF HEARING : 15 - 0 9 - 201 6 !' / DATE OF PRONOUNCEMENT : 14 - 12 - 2016 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-IX, CHENN AI DATED 21.12.2012 PERTAINING ASSESSMENT YEAR 2009-10. ITA NO. 423/MDS./2013 :- 2 -: 2. IN THIS APPEAL, THE ASSESSEE HAS TAKEN ALTOGE THER 23 GROUNDS OF WHICH GROUND NOS.8 & 17 ARE ONLY TAKEN B EFORE US FOR ADJUDICATION. THE OTHER GROUNDS ARE NOT PRESSED BEF ORE US. ACCORDINGLY, THE OTHER GROUNDS ARE DISMISSED AS NOT PRESSED. 3. THE GROUND NOS.8 & 17 ARE AS FOLLOWS. GROUND NO.8: THE CIT(A) ERRED IN SUSTAINING THE TAXATION OF ` 1,32,34,570/- BEING THE PROFIT WORKED OUT ON SALE OF PROPERTIES/L ANDS REJECTING THE CLAIM OF TRANSFER/SALE OF AGRICULTURAL LANDS IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASO NS AND JUSTIFICATION. GROUND NO.17: THE CIT(A) ERRED IN SUSTAINING THE TAXATION OF ` 3,80,509/- BEING THE EXPENSES RELATABLE TO EARN THE TAX FREE I NCOME ON THE APPLICATION OF SECTION 14A OF THE ACT R/W RULE 8D O F THE INCOME TAX RULES, 1962 IN THE COMPUTATION OF TAXABLE TOTAL INC OME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE AO OBS ERVED THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF ` 1,32,34,570/- TO THE CAPITAL ACCOUNT TOWARDS PROFIT ON SALE OF AGRICULTURAL LAN D SITUATED AT UTHUKADU, KADAMBUR, KANCHIVAKKAM, KUNNAVAKKAM AND S IRUNAMALLI. ITA NO. 423/MDS./2013 :- 3 -: THE ASSESSEE STATED BEFORE THE LOWER AUTHORITIES TH AT IT IS AN AGRICULTURAL LAND SHOWN AS INVESTMENTS BY THE ASSES SEE AND PROFIT EARNED FROM SUCH LANDS AS EXEMPTED FROM THE TAX IN VIEW OF SECTION 2(14) OF THE ACT. HOWEVER, THE LOWER AUTHORITIES W AS OF THE OPINION THAT THE ASSESSEE WAS IN THE BUS OF REAL ESTATE ALO NG WITH THE BUSINESS OF CIVIL CONTRACT WORKS AND NO AGRICULTURAL ACTIVIT IES HAS BEEN CARRIED ON SUCH LAND. BEING SO, IT WAS CONSIDERED BY THE LOWE R AUTHORITIES THAT IT IS AN INCOME FROM CAPITAL GAIN RATHER THAN EXEMPT I NCOME. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US, LD.A.R SUBMITTED THAT THE LAND IS AN AGRICULTURAL LAND AND IT IS A NOT A CAPITAL ASSET. THE ASSESSEE HAS TWO PORTFOLIOS, ONE IS BUSINESS PORTFOLIO AND THE OTHER IS INVESTME NT PORTFOLIO. THIS LAND HAS BEEN TREATED AS INVESTMENT IN THE BOOKS OF ACCOUNTS OF ASSESSEE AND IT WAS REFLECTED IN THE BALANCE SHEET AS ON 31.03.2008 AS INVESTMENTS. TO SUPPORT HIS ARGUMENTS, HE DREW OUR ATTENTION TO THE BALANCE SHEET AS ON 31.03.2009 WHEREIN THE ASSESSEE HAS SHOWN THE AGRICULTURAL INCOME OF ` 6 LAKHS WHICH WAS ADDED TO THE CAPITAL ACCOUNT AND ALSO AGRICULTURAL LAND IN ASSETS SIDE AT ` 20,23,741/-. ACCORDING TO HIM, IT IS NOT CORRECT TO SAY THAT THE ASSESSEE HAS NOT BEEN CULTIVATING THE LAND. HE SAYS THAT THE ASSESSEE HAVING TWO POR TFOLIOS, ONE IS BUSINESS PORTFOLIO AND ANOTHER IS INVESTMENT PORTF OLIO AND WHEN THE ITA NO. 423/MDS./2013 :- 4 -: ASSESSEE HOLDING THE LAND AS INVESTMENT, IT HAS CUL TIVATED THE LAND AND EARNED AGRICULTURAL INCOME. ACCORDING TO HIM, THERE IS NO RESTRICTION FOR HAVING BOTH PORTFOLIOS. BECAUSE THE ASSESSEE HAVING MULTIPLE PORTFOLIOS, THE IMPUGNED SALE OF LAND IS FROM THE P OOL OF THE LAND WHICH WAS HELD AS INVESTMENT, WHICH IS NOT CAPITAL ASSET SO AS TO BRING THE CAPITAL GAIN ON SALE OF THAT LAND. 6. ON THE OTHER HAND, LD.D.R SUBMITTED THAT THE CL AIM OF ASSESSEE IS THAT THE ASSESSEE HAS ACQUIRED THE LAND FOR THE PURPOSE OF CULTIVATING IT IS NOT CORRECT. HE HAS PURCHASED SEV ERAL AGRICULTURAL LAND DURING THE CURRENT ASSESSMENT YEAR AS WELL AS DURIN G THE EARLIER ASSESSMENT YEARS AND SOLD CERTAIN PORTION OF THAT L AND. ACCORDING TO LD.D.R, THE ASSESSEE HAS NOT CULTIVATED ANY OF TH E LANDS, WHICH WERE PURCHASED BY HIM AND HE NEVER ADMITTED TO CULTIVATE HIS OWN ANCESTRAL AGRICULTURAL LAND. SOMEBODY ELSE CULTIVATED THESE LANDS. HE ALSO DREW OUR ATTENTION TO QUESTION NO.11 & 16 OF HIS SWORN S TATEMENT WHICH READS AS FOLLOWS:- Q.NO.11. YOU HAVE ADMITTED AGRICULTURAL INCOME O F RS.6 LAKHS FOR THE FINANCIAL YEAR 2008-09 RELEVANT TO THE ASSESSME NT YEAR 2009-10. PLEASE EXPLAIN THE NATURE OF CROPS CULTIVA TED BY YOU? PLEASE ALSO TELL THE EXTENT OF THE AGRICULTURAL LANDS OWNED BY YOU? WHER E ARE THE AGRICULTURAL LANDS SITUATED? ITA NO. 423/MDS./2013 :- 5 -: ANS. MY AGRICULTURAL LANDS ARE SITUATED IN KILAMBI VILLAGE, ARIYAPERUBAKKAM VILLAGE AND UTHAGARAM VILLAGE IN KANCHIPURAM TALUK. AGRICULTURAL LANDS ARE ALSO SIT UATED IN THILLANTHANGAL VILLAGE IN CHEYYAR TALUK OF TIRUVANN AMALAI DISTRICT. TOTALLY ABOUT 50 ACRE OF AGRICULTURAL LAN DS WILL BE THERE. THE LANDS ARE LEASED OUT TO CERTAIN LOCAL FA RMERS, WHO CULTIVATE THE LAND AND GIVE ME A SHARE OF THE AGRICULTURAL PRODUCE. MOSTLY THE CULTIVATOR HIMSELF SELLS THE AGRICULTURAL PRODUCE AND GIVES MY SHARE IN CASH. A PART OF MY LAND IS COCONUT GARDEN. THERE ARE ABOUT 1000 COC ONUT TREES. THE PADDY AND GROUNDNUT ARE CULTIVATED IN TH E OTHER LANDS. Q.16 HAD YOU CULTIVATED THE ABOVE LANDS BEFORE SALE OF THESE LANDS? ANS. WE HAD NOT CULTIVATED THE LANDS BEFORE THEIR SALES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS THE CONTENTION OF THE AR THAT THE LAND WAS HE LD BY THE ASSESSEE AS A CAPITAL ASSET FROM THE DATE OF PURCHA SE TILL THE DATE OF SALE AND THIS IS EVIDENCED BY THE ENTRIES REFLECTED IN THE B ALANCE SHEET OF THE ASSESSEE. THE ASSESSEE'S CONTENTION IS THAT IT IS I NTENDED TO RETAIN THE AGRICULTURAL LAND ACQUIRED AS A CAPITAL ASSET. THE ASSESSEE NEVER TREATED THE ITA NO. 423/MDS./2013 :- 6 -: LAND AS STOCK IN TRADE. THE ASSESSEE REFLECTED THE SAME IN THE BALANCE SHEET AS A FIXED ASSET. THE ASSESSEE INTENTS TO CARRY ON AGRICULTURAL OPERATIONS. THIS AGRICULTURAL LAND IS SITUATED BEYOND THE MUNIC IPAL LIMITS. THE ASSESSEE HAS NOT TAKEN ANY PERMISSION FROM THE GOVERNMENT FO R MAKING PLOTS, AS THE ASSESSEE COMPANY NEVER HAD ANY INTENTION TO MAKE TH E LAND INTO PLOTS AND CARRY ON REAL ESTATE BUSINESS IN RESPECT OF THE LAN D. THUS, THE ASSESSEE NEVER CREATED AN ASSET AS STOCK IN TRADE BUT TREATED IT A S CAPITAL ASSET (AGRICULTURAL LAND). THE ASSESSEE HAS SOLD LAND AS IT IS CONDITIO N. THE SAME IS REFLECTED UNDER THE HEAD FIXED ASSETS IN THE BALANCE SHEET. C OPIES OF SALE DEEDS OF THE ABOVE SAID LAND ARE BROUGHT ON RECORD BY THE AS SESSEE TO PROVE THE FACT THAT THE LAND HELD/SOLD BY THE ASSESSEE IS AGRICULT URAL LAND. 7.1. THE AR SUBMITTED THAT THE SALE TRANSACTION EFF ECTED BY THE ASSESSEE IN RESPECT OF THE ABOVE AGRICULTURE LAND CONSTITUTED O NLY SALE OF AGRICULTURE LAND, AND BY NO STRETCH OF IMAGINATION IT CAN BE TR EATED AS ADVENTURE IN TRADE AND SO AS TO TREAT THE SAME AS 'BUSINESS TRAN SACTION' FOR THE FOLLOWING REASONS: I) PURCHASE AND HOLDING OF LAND FOR A PERIOD AND SU BSEQUENT SALE THEREOF ITSELF CANNOT BE AN INDICATOR TO HOLD THAT THE INTENTION OF THE ASSESSEE WAS TO CARRY ON BUSINESS WITH THOSE AS SETS. THE INTENTION CANNOT BE PRESUMED UNLESS SUPPORTED BY EV IDENCE. IN THIS CASE THE TREATMENT GIVEN BY THE ASSESSEE FOR T HIS ASSET IN THE ACCOUNT BOOKS CLEARLY INDICATE THAT THE INTENTI ON OF THE ASSESSEE IS TO HOLD THE SAME AS CAPITAL ASSET TO HA VE GOOD RETURNS FROM THE SAME. ITA NO. 423/MDS./2013 :- 7 -: II) THE ASSESSEE HELD LAND FOR CONSIDERABLE TIME. T HE ASSET ACQUIRED WAS AGRICULTURE LAND AS PER THE EVIDENCE BROUGHT ON RECORD. IT WAS SOLD IN THE A.Y. 2009-10. THUS, THE ASSESSEE HE LD THE AGRICULTURE LAND FOR ABOUT LONG PERIOD. DURING THAT PERIOD THE ASSESSEE CARRIED ON REGULAR AGRICULTURAL OPERATIONS IN THE LAND. IN THE LIGHT OF FAVOURABLE MARKET CONDITIONS THE AS SESSEE THOUGHT IT GOOD TO SELL THE ASSET TO REALIZE A GOOD AMOUNT. REALIZATION OF BETTER PRICE IN A BOOMING MARKET CAN NOT BE CONSIDERED AS AN ADVENTURE IN TRADE III) THE EXPRESSION ADVENTURE IN THE NATURE OF TRAD E OCCURS IN THE DEFINITION OF BUSINESS UNDER SECTION 2(13) BUT THE EXPRESSION ADVENTURE IN THE NATURE OF TRADE HAS NOT BEEN DEFIN ED IN THE ACT. IT MAY BE PERTINENT TO MENTION HERE THAT A SPE CIFIC TRANSACTION PARTAKE THE CHARACTER OF BUSINESS OR AN ADVENTURE IN THE NATURE OF TRADE OR REALIZATION OF CAPITAL ASSET OR A MERE CONVERSION OF ASSET HAS TO BE DECIDED DEPENDING UPO N FACTS OF EACH CASE. IV) IN DECIDING AS TO WHETHER A PARTICULAR TRANSACT ION IS AN ADVENTURE IN THE NATURE OF TRADE, THE ASSESSING OFFICER MUST CONSIDER ALL THE RELEVANT AND PROVED FACTS AND CIRCUMSTANCES. RE ALIZATION OF INVESTMENTS CONSISTING OF PURCHASE OF AGRICULTURAL LAND AND RESALE, THOUGH PROFITABLE ARE CLEARLY OUTSIDE THE D OMAIN OF ADVENTURE IN THE NATURE OF TRADE. V) THE ASSESSEE TREATED THE ASSETS AS INVESTMENT IN AGRICULTURAL LAND. THEREFORE DISPOSAL OF THE SAME WOULD NOT CONV ERT, WHAT WAS A CAPITAL ACCRETION, TO AN ADVENTURE IN THE NAT URE OF TRADE. TO MAKE IT MORE CLEAR, SALE OF AGRICULTURAL LAND BY THE ASSESSEE AND REALISATION OF GOOD PRICE WOULD NOT ALTER THE B ASIC NATURE AND CHARACTERISTIC OF THE TRANSACTION. IN THE CASE OF THE ASSESSEE, LAND WAS ACQUIRED BY THE ASSESSEE AND REF LECTED IN ITA NO. 423/MDS./2013 :- 8 -: THE BALANCE-SHEETS OF THE CONCERN AS FIXED- ASSETS. THE ASSESSEE NEVER TREATED THE LAND AS STOCK-IN-TRADE A ND REFLECTED IN PROFIT AND LOSS ACCOUNT (CLOSING STOCK). THERE W AS NO ELEMENT OF TRADE ATTACHED TO THE ACTIVITY OF THE ASSESSEE I N PURCHASE AND SALE OF THE LAND. A CONTINUOUS BUSINESS REQUIRES MO RE ACTIVITY AND GREATER ORGANIZATION. THIS IS ABSENT IN THE TRA NSACTION OF SALE OF LAND BY THE ASSESSEE. THEREFORE, ALTHOUGH T HERE IS PROFIT IN THE TRANSACTION THE TRANSACTION CANNOT BE CHARAC TERIZED AS AN ADVENTURE IN THE NATURE OF TRADE. VI) WHETHER A TRANSACTION IN RESPECT OF AN ASSET IS CAPITAL OR BUSINESS INCOME BEING ADVENTURE IN THE NATURE OF TR ADE DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THERE ARE MANY FACTORS LIKE FREQUENCY OF TRANSACTIONS, PERIOD OF HOLDING, INTENTION FOR RESALE ETC, WHICH DETERMINE WHETHER T HE GAIN ARISING OF A TRANSACTION IS IN THE PROCESS OF REALI SATION OF INVESTMENT OR IN THE COURSE OF BUSINESS. THE MERE F ACT THAT THE PERSON HAS PURCHASED A LAND AND SUBSEQUENTLY SOLD I T, GIVING RISE TO A SUBSTANTIAL PROFIT CANNOT CHANGE THE CHAR ACTER OF THE TRANSACTION. IT IS THE GENERAL HUMAN TENDENCY TO EA RN PROFIT OUT OF CAPITAL ASSET. NO ONE INVESTS TO INCUR A LOSS. I F THE MARKET CONDITION SUDDENLY GOES UP OR DOWN, IT IS ALWAYS TH E TENDENCY OF A PERSON TO TAKE A QUICK DECISION SO THAT THE RE ALIZATION ON THE INVESTMENT IS MAXIMUM OR THE LOSS IS MINIMUM. VII) AS ALREADY MENTIONED THE ASSESSEE CARRIED ON R EGULAR AGRICULTURAL OPERATIONS IN THE SAID AGRICULTURE LAN D. IN THAT PROCESS THE ASSESSEE COMPANY ITSELF INVOLVED IN THE PRIMARY OPERATION SUCH AS PLOUGHING, TILLING, SOWING, WATER ING ETC. THE ASSESSEE HAS PRODUCED BEFORE THE LOWER AUTHORITIES THE DOCUMENTS OF PURCHASE, SALE BILLS FOR AGRICULTURAL PRODUCE AND EXPENDITURE BILLS. ITA NO. 423/MDS./2013 :- 9 -: VIII) BY SELLING THE ABOVE AGRICULTURE PRODUCE THE ASSESSEE EARNED AGRICULTURE RECEIPTS WHICH WERE BROUGHT INTO THE AC COUNT BOOKS OF THE ASSESSEE. IN THE PROCESS OF CARRYING ON AGRI CULTURE OPERATIONS THE ASSESSEE USED TO INCUR EXPENDITURE A ND THE SAME IS ALSO BROUGHT INTO THE ACCOUNT BOOKS. SEPARATE AC COUNT BOOKS WERE MAINTAINED FOR THE OPERATIONS OF THE AGRICULTU RE LAND AND TO ARRIVE AT THE AGRICULTURE INCOME DERIVED. SUCH D ETAILS OF RECEIPTS OF SALE OF AGRICULTURE PRODUCE AND EXPENDI TURE INCURRED FOR AGRICULTURE TRANSACTIONS ARE FURNISHED BY THE A SSESSEE BEFORE THE LOWER AUTHORITIES. 7.2. FROM THE ABOVE, IT IS CLEAR THAT: A) THE ASSESSEE PURCHASED AGRICULTURE LAND NOW UNDE R CONSIDERATION SITUATED BEYOND 8 KM FROM THE MUNICIPAL LIMITS. B) THE ASSESSEE TREATED THE SAME AS FIXED ASSET IN THEIR BOOKS ALONG WITH OTHER AGRICULTURE LAND WHICH WAS ALREADY ACQUI RED BY THEM IN THE EARLIER YEARS. C) THE LAND WAS IDENTIFIED AS AGRICULTURE LAND IN T HE REVENUE RECORDS. D) THE ASSESSEE CARRIED ON AGRICULTURAL OPERATIONS IN THE LAND. E) THE ASSESSEE DID NOT CARRY ON ANY COMMERCIAL ACT IVITY WITH REFERENCE TO THAT LAND SUCH AS GETTING OF APPROVAL FOR CONVER TING INTO SITES, PLOTTING OF THE SAME INTO SITES ETC. THUS, THE CHARACTER OF THE LAND I.E., AGRICULTURE NATURE WAS CONTINUING TILL THE SAME WAS SOLD BY THE ASSESSEE COMPANY. ITA NO. 423/MDS./2013 :- 10 - : F) BECAUSE OF FAVOURABLE MARKET CONDITIONS THE ASSE SSEE SOLD THE LAND AND THE SAME FETCHED THEM A GOOD PRICE. 7.3. THEREFORE, IN THE PRESENT CASE THERE IS NO DIS PUTE REGARDING THE FACT THAT THE ASSESSEES ACQUIRED AGRICULTURAL LAND. THERE IS ALSO NO DISPUTE THAT THERE WAS AGRICULTURAL OPERATION IN THIS LAND BEFORE SALE OF THIS LAND. 7.4. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE AMOUNT RECEIVED ON SALE OF THIS AGRICULTURAL PROPERTY IS NOTHING BUT O N ACCOUNT OF ADVENTURE IN THE NATURE OF TRADE AND THE SAME WAS BROUGHT INTO I NCOME FROM BUSINESS. IN THIS CASE, THE ASSESSEE HELD THE LAND ALWAYS AS INV ESTMENT AND NOT AT ALL CONVERTED INTO STOCK-IN-TRADE. THE CHARACTER OF THE LAND IN THE HANDS OF THE ASSESSEES HAS NOT CHANGED. THERE IS NO MATERIAL ON RECORD IN RESPECT OF THIS LAND TO SHOW THAT THE ASSESSEE CARRIED ON ACTIVITIE S OF BUYING AND SELLING OF LAND IN A SYSTEMATIC MANNER SO AS TO JUSTIFY THE AC TION OF THE AO IN TREATING THE ACTIVITIES OF THE ASSESSEE AS ADVENTURE IN THE NATURE OF TRADE. THE LAND WAS SOLD BY THE ASSESSEES IN ACREAGE AND NOT BY MAK ING PLOTS. 7.5. NOW THE QUESTION AS TO WHETHER A LAND IS AGRIC ULTURAL LAND OR NOT IS ESSENTIALLY A QUESTION OF FACT. THE QUESTION HAS TO BE ANSWERED IN EACH CASE HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THA T CASE. THERE MAY BE FACTORS BOTH FOR AND AGAINST A PARTICULAR POINT OF VIEW. WE HAVE TO ANSWER THE QUESTION ON A CONSIDERATION OF ALL OF THEM, A P ROCESS OF EVALUATION AND THE INFERENCE HAS TO BE DRAWN ON A CUMULATIVE CONSI DERATION OF ALL THE RELEVANT FACTS. IT MAY BE STATED HERE THAT NOT ALL THE FACTORS OR TESTS WOULD ITA NO. 423/MDS./2013 :- 11 - : BE PRESENT OR ABSENT IN ANY CASE AND THAT IN EACH C ASE ONE OR MORE OF THE FACTORS MAY MAKE APPEARANCE AND THAT ULTIMATE DECIS ION WILL HAVE TO BE REACHED ON A BALANCED CONSIDERATION OF THE TOTALITY OF THE CIRCUMSTANCES. 7.6. THE EXPRESSION 'AGRICULTURAL LAND' IS NOT DEFI NED IN THE ACT, AND NOW, WHETHER IT IS AGRICULTURAL LAND OR NOT HAS TO BE DE TERMINED BY USING THE TESTS OR METHODS LAID DOWN BY THE COURTS FROM TIME TO TIM E. 7.7. THE HON'BLE SUPREME COURT IN THE CASE OF SMT. SARIFABIBI MOHMED IBRAHIM (204 ITR 631) HAS APPROVED THE DECISION OF A DIVISION BENCH OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIDDHARTH J. DESAI (1982) 28 CTR (GUJ) 148 : (1983) 139 ITR 628 (GUJ) AND HAS LAID DOWN 13 TESTS OR FACTORS WHICH ARE REQUIRED TO BE CONSIDERED AND UPO N CONSIDERATION OF WHICH, THE QUESTION WHETHER THE LAND IS AN AGRICULT URAL LAND OR NOT HAS TO BE DECIDED OR ANSWERED. WE REPRODUCE THE SAID 13 TESTS AS FOLLOWS: 1. WHETHER THE LAND WAS CLASSIFIED IN THE REVENUE R ECORDS AS AGRICULTURAL AND WHETHER IT WAS SUBJECT TO THE PAYM ENT 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 PER IOD OR WHETHER IT WAS OF A TEMPORARY CHARACTER OR BY ANY OF A STOPGAP ARRANGEMENT? ITA NO. 423/MDS./2013 :- 12 - : 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 BOMBA Y LAND REVENUE CODE WAS OBTAINED FOR THE NON-AGRICULTURAL USE OF T HE LAND? IF SO, WHEN AND BY WHOM (THE VENDOR OR THE VENDEE)? WHETHE R 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 US ER OF THE SAID PORTION OF THE LAND ON THE MATERIAL DATE? 6.WHETHER THE LAND, ON THE RELEVANT DATE, HAD CEASE D TO BE PUT TO AGRICULTURAL USE? IF SO, WHETHER IT WAS PUT TO AN A LTERNATIVE USE? WHETHER SUCH LESSER AND/OR ALTERNATIVE USER WAS OF A PERMANENT OR TEMPORARY NATURE? 7. WHETHER THE LAND, THOUGH ENTERED IN REVENUE RECO RDS, HAD NEVER BEEN ACTUALLY USED FOR AGRICULTURE, THAT IS, IT HAD NEVER BEEN PLOUGHED OR TILLED? WHETHER THE OWNER MEANT OR INTENDED TO U SE IT FOR AGRICULTURAL PURPOSES? 8. WHETHER THE LAND WAS SITUATED IN A DEVELOPED ARE A? 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. 423/MDS./2013 :- 13 - : 9. WHETHER THE LAND ITSELF WAS DEVELOPED BY PLOTTIN G AND PROVIDING ROADS AND OTHER FACILITIES? 10. WHETHER THERE WERE ANY PREVIOUS SALES OF PORTIO NS OF THE LAND FOR NON-AGRICULTURAL USE? 11. WHETHER PERMISSION UNDER S. 63 OF THE BOMBAY TE NANCY AND AGRICULTURAL LAND ACT, 1948, WAS OBTAINED BECAUSE T HE SALE OR INTENDED SALE WAS IN FAVOUR OF A NON-AGRICULTURIST? IF SO, WHETHER THE SALE OR INTENDED SALE TO SUCH NON-AGRICULTURISTS WA S FOR NON- AGRICULTURAL OR AGRICULTURAL USER? 12. WHETHER THE LAND WAS SOLD ON YARDAGE OR ON ACRE AGE BASIS? 13. WHETHER AN AGRICULTURIST WOULD PURCHASE THE LAN D FOR AGRICULTURAL PURPOSES AT THE PRICE AT WHICH THE LAND WAS SOLD AN D WHETHER THE OWNER WOULD HAVE EVER SOLD THE LAND VALUING IT AS A PROPERTY YIELDING AGRICULTURAL PRODUCE ON THE BASIS OF ITS YIELD?' 8. IN THE PRESENT CASE, THE ASSESSEE'S LANDS WERE C LASSIFIED AS AGRICULTURAL LAND IN THE REVENUE RECORDS. AS HELD BY THE APEX CO URT, WHEN THE LAND IS ASSESSED TO THE LAND REVENUE AS AGRICULTURAL LAND U NDER STATE REVENUE LAW, IT IS CERTAINLY A RELEVANT FACTOR BUT NOT CONCLUSIV E. THE LAND WAS ALREADY CLASSIFIED AS AGRICULTURAL LAND IN THE REVENUE RECO RDS AND THE ASSESSEE CARRIED ON AGRICULTURAL ACTIVITIES IN THE SAID LAND , WHICH WAS CONFIRMED BY THE VRO, JANWADA. THE CERTIFICATE ISSUED BY THE VRO, JA NWADA VILLAGE ITA NO. 423/MDS./2013 :- 14 - : MENTIONED THAT THE LANDS IN QUESTION WERE USED FOR AGRICULTURAL ACTIVITIES AND ALSO MENTIONED THE DETAILS OF CROPS GROWN ON THE SA ID LANDS. THE ASSESSEE ALSO EARNED INCOME FROM AGRICULTURAL OPERATIONS. TH E REVENUE EARNED FROM AGRICULTURAL OPERATIONS WAS REFLECTED IN THE RETURN OF INCOME FILED BEFORE THE DEPARTMENT. IN THE ASSESSMENT ORDER IT WAS STATED T HAT AS PER THE REPORT OF THE INSPECT OF INCOME-TAX, PRESENTLY THERE WAS NO A GRICULTURAL ACTIVITIES ON THE LANDS HELD BY THE ASSESSEE. THEREFORE, IT IS NO T ESTABLISHED THAT THE LAND WAS NOT USED FOR AGRICULTURAL PURPOSES FOR A LONG P ERIOD. THE AR SUBMITTED THAT THE CONTENTS OF THE INSPECTOR'S REPORT WERE NO T CONFRONTED TO THE ASSESSEE AND THE LAND DEVELOPMENT EXPENDITURE INCUR RED WAS NOT RELATED TO THE LAND THAT WAS SOLD. THE AR SUBMITTED THAT IT IS NOT CORRECT TO HOLD THAT THE ASSESSEE HAS NOT USED THE LAND FOR AGRICULTURAL PURPOSES. THE INCOME FROM THE AGRICULTURAL OPERATIONS IS IN RATIONAL PRO PORTION TO THE INVESTMENT MADE AT THE TIME OF PURCHASE. ADMINISTRATIVE EXPEND ITURE IS NECESSARY TO BE INCURRED TO RUN A BUSINESS ON THE BASIS OF WHICH IT CANNOT BE CONCLUDED THAT THE MAIN ACTIVITY IS COMMERCIAL RATHER THAN AGRICUL TURAL WHEN THE COMPANY REALLY CARRIED OUT THE AGRICULTURAL OPERATIONS AND EARNED INCOME THEREON. SINCE THE INTENTION OF THE COMPANY IS NOT TO USE TH E AGRICULTURAL LAND FOR NON-AGRICULTURAL PURPOSES, THERE IS NO QUESTION OF TAKING OF ANY PERMISSION FOR CONVERSION OF THE LAND. 8.1. THE A.R SUBMITTED THAT ASSESSEE CARRIED ON AGR ICULTURAL OPERATIONS IN THE LAND. THE OWNER INTENDED TO USE IT FOR AGRICULT URAL PURPOSES ONLY AND THE INTENTION OF THE OWNER IS FULFILLED SINCE THE AGRIC ULTURAL ACTIVITIES GENERATED ITA NO. 423/MDS./2013 :- 15 - : INCOME. THE LAND WAS SITUATED IN A RURAL AREA WHERE IN LOT OF AGRICULTURAL ACTIVITIES ARE BEING CARRIED ON. NO DEVELOPMENT OF THE LAND WAS DONE BY MAKING PLOTS AND PROVIDING ROADS AND OTHER FACILITI ES. IT IS WRONG TO CONCLUDE THAT WORK HAS BEEN DONE AIMING TO PLOTTING, DEVELOP ING INFRASTRUCTURE BECAUSE THE LAND DEVELOPMENT WAS DONE IN OTHER LAND . THERE WERE NO PREVIOUS SALE OF THE PORTIONS OF THE LAND FOR NON-A GRICULTURAL USE. THE LAND WAS SOLD ONLY AS AGRICULTURAL LANDS AS THE TIME OF SALE AND AGRICULTURAL OPERATIONS WERE CONTINUED AS ON THE DATE OF SALE. T HE LAND WAS SOLD ON ACREAGE BASIS ONLY. THE LAND WAS SOLD AT PREVAILING MARKET PRICES ONLY. NON PRODUCTION OF EVIDENCE FOR AGRICULTURAL EXPENDITURE WHICH WAS ACTUALLY INCURRED DOES NOT MAKE AN AGRICULTURAL LAND A NON-A GRICULTURAL ONE. THE LAND DEVELOPMENT EXPENDITURE INCURRED IN A LAND OTHER TH AN THE LAND THAT WAS SOLD. THE EVIDENCE FOR RECEIPT OF AGRICULTURAL INCO ME IS ON RECORD. SIMPLY BECAUSE INCOME WAS LESS 'ONE CANNOT MAKE AN AGRICUL TURAL INCOME AS A BUSINESS INCOME'. WHAT HAS TO BE SEEN HERE IS WHETH ER THE INCOME WAS RECEIVED ON AGRICULTURAL ACTIVITY OR NOT INSTEAD OF SEEING THE RATIO. IT IS WRONG TO SAY THAT THE ACTIVITIES OF THE ASSESSEE, WHICH A RE AGRICULTURAL IN FACT, CONFIRM TO THE COMMERCIAL NATURE. IN VIEW OF THE AB OVE, WE ARE OF THE OPINION THAT THE JUDGEMENT OF SUPREME COURT IN THE CASE OF SMT. SARIFABIBI MOHAMED IBRAHIM & ORS. (CITED SUPRA) SUPPORTS THE C ASE OF THE ASSESSEE RATHER THAN AGAINST THE ASSESSEE. 8.2. A REFERENCE COULD BE MADE TO THE CASE OF CWT V S. OFFICER-IN- CHARGE (COURT OF WARDS) (105 ITR 138) (SC) WHEREIN THE CON STITUTION BENCH OF THE ITA NO. 423/MDS./2013 :- 16 - : HON'BLE SUPREME COURT STATED THAT THE TERM 'AGRICUL TURE' AND 'AGRICULTURAL PURPOSE' WAS NOT DEFINED IN THE INDIAN IT ACT AND THAT WE MUST NECESSARILY FALL BACK UPON THE GENERAL SENSE IN WHICH THEY HAVE BEEN UNDERSTOOD IN COMMON PARLANCE. THE HON'BLE SUPREME COURT HAS OBSE RVED THAT THE TERM 'AGRICULTURE' IS THUS UNDERSTOOD AS COMPRISING WITH IN ITS SCOPE THE BASIC AS WELL AS SUBSEQUENT OPERATIONS IN THE PROCESS OF AGR ICULTURE AND RAISING ON THE LAND ALL PRODUCTS WHICH HAVE SOME UTILITY EITHE R FOR SOMEONE OR FOR TRADE AND COMMERCE. IT WILL BE SEEN THAT THE TERM 'AGRICU LTURE' RECEIVES A WIDER INTERPRETATION BOTH IN REGARD TO ITS OPERATION AS W ELL AS THE RESULT OF THE SAME. NEVERTHELESS THERE IS PRESENT ALL THROUGHOUT THE BASIC IDEA THAT THERE MUST BE AT THE BOTTOM OF ITS CULTIVATION OF THE LAN D 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 AGRICULTURAL OPE RATION AND IF THE BASIC OPERATIONS ARE THERE, THE REST OF THE OPERATIONS FO UND THEMSELVES UPON THE SAME, BUT IF THE BASIC OPERATIONS ARE WANTING, THE SUBSEQUENT OPERATIONS DO NOT ACQUIRE THE CHARACTERISTICS OF AGRICULTURAL OPE RATIONS. THE CONSTITUTION BENCH OF THE HON'BLE SUPREME COURT IN THE AFORESAID CASE OBSERVED THAT THE ENTRIES IN REVENUE RECORDS WERE CONSIDERED GOOD PRI MA FACIE EVIDENCE. 8.3. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF DR. MOTIBHAI D. PATEL VS. CIT (1982) 27 CTR (GUJ) 238 : (1981) 127 ITR 671 (GUJ) REFERRING TO THE CONSTITUTION BENCH OF THE HON'BLE SUPREME COURT HAD STATED THAT IF AGRICULTURAL OPERATIONS ARE BEING CARRIED ON IN THE LAND IN QUESTION AT THE ITA NO. 423/MDS./2013 :- 17 - : TIME WHEN THE LAND IS SOLD AND FURTHER IF THE ENTRI ES IN THE REVENUE RECORDS SHOW THAT THE LAND IN QUESTION IS AGRICULTURAL LAND , THEN, A PRESUMPTION ARISES THAT THE LAND IS AGRICULTURAL IN CHARACTER A ND UNLESS THAT PRESUMPTION IS REBUTTED BY EVIDENCE LED BY THE REVENUE, IT MUST BE HELD THAT THE LAND WAS AGRICULTURAL IN CHARACTER AT THE TIME WHEN IT WAS S OLD. THE DIVISION BENCH OF THE HON'BLE GUJARAT HIGH COURT FURTHER HELD THAT TH ERE WAS NOTHING ON RECORD TO SHOW THAT THE PRESUMPTION ROSE FROM THE LONG USE R OF THE LAND FOR AGRICULTURAL PURPOSE AND ALSO THE PRESUMPTION ARISI NG FROM THE ENTRIES OF THE REVENUE RECORDS ARE REBUTTED. 8.4. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF C WT VS. H. V. MUNGALE (1983) 32 CTR (BOM) 301 : (1984) 145 ITR 208 (BOM) HELD THAT THE HON'BLE SUPREME COURT HAD POINTED OUT THAT THE ENTRIES RAIS ED ONLY A REBUTTABLE PRESUMPTION AND SOME EVIDENCE WOULD, THEREFORE, HAV E TO BE LED BEFORE TAXING 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 CLEARLY POINTED OUT THAT THE BURDEN TO REBUT THE PRESUMPTION WOULD BE ON THE REVENUE. THE HON'BL E BOMBAY HIGH COURT HELD THAT THE RATIO OF THE DECISION OF THE SUPREME COURT WAS THAT WHAT IS TO BE DETERMINED IS THE CHARACTER OF THE LAND ACCORDIN G TO 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 SU BJECT LAND SOLD BY THEM WAS AGRICULTURAL LAND NOT ONLY AS CLASSIFIED IN THE REVENUE RECORDS, BUT ALSO IT ITA NO. 423/MDS./2013 :- 18 - : WAS SUBJECTED TO THE PAYMENT OF LAND REVENUE AND TH AT IT WAS ACTUALLY AND ORDINARILY USED FOR AGRICULTURAL PURPOSE AT THE REL EVANT TIME. 8.5. WE MAY ALSO REFER TO THE CASE OF CIT VS. MANILAL SOMNATH (1977) 106 ITR 917 (GUJ), WHEREIN THE DIVISION BENCH OF THE HO N'BLE GUJARAT HIGH COURT OBSERVED THAT THE POTENTIAL NON- AGRICULTURAL VALUE OF THE LAND FOR WHICH A PURCHASER MAY BE PREPARED TO PAY A LARGE PRICE WOUL D NOT DETRACT FROM ITS CHARACTER AS AGRICULTURAL LAND ON THE RELEVANT DATE OF SALE. 8.6. WE MAY ALSO REFER TO THE CASE OF GOPAL C. SHARMA VS. CIT (1994) 116 CTR (BOM) 377 : (1994) 209 ITR 946 (BOM), IN WHICH, THE CASE OF SMT. SARIFABIBI MOHAMED IBRAHIM & ORS. VS. CIT (SUPRA) WAS REFERRED TO AND RELIED, AMONGST OTHER CASES. IN THIS CASE, THE DIVI SION BENCH OF THE BOMBAY HIGH COURT HAS STATED THAT THE PROFIT MOTIVE OF THE ASSESSEE SELLING THE LAND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISI VE FOR DETERMINATION OF THE ISSUE AS TO WHETHER THE TRANSACTION AMOUNTED TO AN ADVENTURE IN THE NATURE OF TRADE. IN OTHER WORDS, THE PRICE PAID IS NOT DECISIVE TO SAY WHETHER THE LAND IS AGRICULTURAL OR NOT. 8.7. WE MAY REFER TO A JUDGMENT OF THE HON'BLE MADR AS HIGH COURT IN THE CASE OF CWT VS. E. UDAYAKUMAR (2006) 284 ITR 511 (M AD) WHERE THE HON'BLE MADRAS HIGH COURT HAS REFERRED TO THE DECIS ION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SMT. SAVITA RANI (2004) 186 CTR (P&H) 240 : (2004) 270 ITR 40 (P&H) AND HAS OBS ERVED AND HELD AS UNDER : ITA NO. 423/MDS./2013 :- 19 - : '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 LOCATED IN A COMMERC IAL AREA OR THE LAND HAVING BEEN PARTIALLY UTILISED FOR NON-AGRICUL TURAL PURPOSES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NON-A GRICULTURAL 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 K ARNALS, 17 MARLAS LAND DURING THE FINANCIAL YEAR 1990-91, RELE VANT TO THE ASST. YR. 1991-92, THE SALE WAS EFFECTED BY THREE R EGISTERED SALE DEEDS. WHILE FILING HER RETURN OF INCOME, SHE CLAIM ED EXEMPTION FROM LEVY OF CAPITAL GAINS UNDER S. 54B OF THE ACT ON THE GROUND THAT THE LAND SOLD BY HER WAS AGRICULTURAL LAND AND THE SALE PROCEEDS WERE INVESTED IN THE PURCHASE OF AGRICULTU RAL LAND WITHIN TWO YEARS. THE AO REJECTED THE CLAIM OF THE ASSESSEE HOLDING THAT THE LAND SOLD BY THE ASSESSEE WAS NOT AGRICULTURAL LAND AND THIS WAS UPHELD BY THE CIT(A). ON FURTHER APPEAL, THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE HOLDING THAT THE TRANSACTION IN QUESTION DULY FULFILLED THE CONDITIO NS SPECIFIED FOR RELIEF. ON FURTHER APPEAL TO THE HIGH COURT, THE PU NJAB & HARYANA HIGH COURT FOUND THAT THE FINDING THAT THE LAND HAD BEEN USED FOR AGRICULTURAL PURPOSES WAS BASED ON CO GENT AND RELEVANT MATERIAL. THE REVENUE RECORD SUPPORTED THE CLAIM. EVEN THE RECORDS OF THE IT DEPARTMENT SHOWED THAT THE AS SESSEE HAD DECLARED AGRICULTURAL INCOME FROM THIS LAND IN HER RETURNS FOR THE PRECEDING TWO YEARS. THE LAND BEING LOCATED IN COMM ERCIAL AREA OR THE LAND HAVING BEEN PARTIALLY UTILISED FOR NON- AGRICULTURAL PURPOSES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NONAGRICULTURAL PURPOSES, WERE TOTALLY IRRELEVANT C ONSIDERATION FOR THE PURPOSES OF APPLICATION OF S. 54B . ITA NO. 423/MDS./2013 :- 20 - : 10. IT IS SEEN FROM THE AFORESAID DECISION THAT THE AGRICULTURAL LAND SOLD BY THE ASSESSEE WITH AN INTENT TO PURCHAS E ANOTHER LAND WITHIN TWO YEARS HAD ALSO BEEN PERMITTED TO CL AIM 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 ASS ESSEE IS ENTITLED TO CLAIM EXEMPTION FROM THE WT ACT FOR THE ASSESSMENT OF WEALTH-TAX. THAT THE LAND IN QUESTION IS ADJACEN T TO THE HOSPITAL IS TOTALLY IRRELEVANT.' 9. ADVERTING TO THE FACTS OF THE PRESENT CASE, THE LAND IN QUESTION IS CLASSIFIED IN THE REVENUE RECORDS AS AGRICULTURAL LAND AND THE RE IS NO DISPUTE REGARDING THIS ISSUE AND ACTUAL CULTIVATION HAS BEEN CARRIED ON THIS LAND AND INCOME WAS DECLARED FROM THIS LAND IN THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE EARLIER YEARS AS AGRICULTURAL INCOME. IT IS ALS O AN ADMITTED FACT THAT THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW T HAT THE AGRICULTURAL LAND WAS USED FOR NON-AGRICULTURAL PURPOSES AND THE ASSESSEE HAS NOT PUT THE LAND TO ANY PURPOSES OTHER THAN AGRICULTURAL PU RPOSES. 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. 10. IT IS ALSO AN ADMITTED POSITION THAT MERE INC LUSION OR PROXIMITY OF LAND TO ANY DEVELOPMENT AREA WITHOUT ANY INFRASTRUCTURE DEVELOPMENT THEREUPON OR WITHOUT ESTABLISHING AND PROVING THAT THE LAND W AS PUT INTO USE FOR NON- AGRICULTURAL PURPOSES BY THE ASSESSEE DOES NOT AND CANNOT CONVERT THE ITA NO. 423/MDS./2013 :- 21 - : AGRICULTURAL LAND INTO NON-AGRICULTURAL LAND. IN TH E INSTANT CASE, AT THE RELEVANT POINT OF SALE OF THE LAND IN QUESTION, THE SURROUNDING AREA WAS TOTALLY UNDEVELOPED AND EXCEPT MERE FUTURE POSSIBIL ITY TO PUT THE LAND INTO USE FOR NON-AGRICULTURAL PURPOSES WOULD NOT CHANGE THE CHARACTER OF THE AGRICULTURAL LAND INTO NON-AGRICULTURAL LAND AT THE RELEVANT POINT OF TIME WHEN THE LAND WAS SOLD BY THE ASSESSEE. IT IS ALSO AN AD MITTED 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 RECORDS, THE LA ND IS CLASSIFIED AS AGRICULTURAL LAND AND HAS NOT BEEN CHANGED FROM AGR ICULTURAL LAND TO NON- AGRICULTURAL LAND AT THE RELEVANT POINT OF TIME WHE N THE LAND WAS SOLD BY THE ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT THERE WAS NO ACTIVITY UNDERTAKEN BY THE ASSESSEE OF DEVELOPING THE LAND BY PLOTTING AND PROVIDING ROADS AND OTHER FACILITIES AND THERE WAS NO INTENTION ALSO ON THE PART OF THE ASSESSEES HEREIN TO PUT THE SAME FOR NON-AGRICULTURAL PURPOSE S AT TIME OF THEIR OWNERSHIP THAT LAND. NO SUCH FINDING HAS BEEN GIVEN BY THE DEPARTMENT. NO MATERIAL OR EVIDENCE IN SUPPORT OF THE FACT THAT TH E ASSESSEES HAVE PUT THE LAND IN USE FOR NON-AGRICULTURAL PURPOSES HAS BEEN BROUGHT ON RECORD. AT THE RELEVANT POINT OF TIME THE LAND WAS USED FOR AGRICU LTURAL PURPOSES ONLY AND NOTHING IS BROUGHT ON RECORD TO SHOW THAT THE LAND WAS PUT IN USE FOR NON- AGRICULTURAL PURPOSES BY THE ASSESSEE. IN VIEW OF T HE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF GOPAL C. SHARMA VS. CIT (209 ITR 946) (BOM), IT IS ALSO CLEAR THAT THE PROFIT MOTIVE OF THE ASSESSEE I N SELLING THE LAND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISIVE TO SA Y THAT THE ASSESSEE USED ITA NO. 423/MDS./2013 :- 22 - : THE LAND FOR NON-AGRICULTURAL PURPOSES. WE MAY ALSO REFER TO A DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF N. SRINIVASA RAO VS. SPECIAL 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 FACT THAT THE LAND IN QUESTION IN THE INS TANT CASE IS BOUGHT BY DEVELOPER CANNOT BE A DETERMINING FACTOR BY ITSELF TO SAY THAT THE LAND WAS CONVERTED INTO USE FOR NON-AGRICULTURAL PURPOSES. 11. IT IS ALSO EVIDENT FROM THE MEMORANDUM EXPLAINING T HE PROVISIONS OF FINANCE ACT , 1970, WHEREBY S. 2(14) WAS AMENDED SO AS TO INCLUDE THE AGRICULTURAL LAND LOCATED WITHIN THE JURISDICTION O F A MUNICIPALITY IN THE DEFINITION OF THE EXPRESSION 'CAPITAL ASSET'. THE R ELEVANT 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 CAPITAL GAINS ARISING FROM THE TR ANSFER OF AGRICULTURAL LAND SITUATED IN CERTAIN AREAS. FOR TH IS PURPOSE, THE DEFINITION OF THE TERM 'CAPITAL ASSET' IN SECTION 2(14) HAS BEEN AMENDED SO AS TO EXCLUDE FROM ITS SCOPE ONLY AGRICU LTURAL LAND IN INDIA WHICH IS NOT SITUATE IN ANY AREA COMPRISED WI THIN THE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND PERSONS AC CORDING TO THE LAST PRECEDING CENSUS FOR WHICH THE RELEVANT FIGURE S HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR . THE CENTRAL GOVERNMENT HAS BEEN AUTHORISED TO NOTIFY IN THE OFF ICIAL GAZETTE ANY AREA OUTSIDE THE LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOU SAND UP TO A ITA NO. 423/MDS./2013 :- 23 - : MAXIMUM DISTANCE OF 8 KILOMETRES FROM SUCH LIMITS, FOR THE PURPOSES OF THIS PROVISION. SUCH NOTIFICATION WILL BE ISSUED BY THE CENTRAL GOVERNMENT, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANISATION OF SUCH AREA, AND, WHEN ANY SUCH AREA IS NOTIFIED BY THE CENTRAL GOVERNMENT, AGRICULTURAL LAND SITUAT ED WITHIN SUCH AREA WILL STAND INCLUDED WITHIN THE TERM 'CAPITAL A SSET'. AGRICULTURAL LAND SITUATED IN RURAL AREAS, I.E., AREAS OUTSIDE A NY MUNICIPALITY OR CANTONMENT BOARD HAVING A POPULATION OF NOT LESS TH AN TEN THOUSAND AND ALSO BEYOND THE DISTANCE NOTIFIED BY T HE CENTRAL GOVERNMENT FROM THE LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD, WILL CONTINUE TO BE EXCLUDED FROM THE TERM 'CAPITAL ASSET'. 11.1 IN VIEW OF THE ABOVE, WE DIRECT THE AO TO CON SIDER THE LAND WHICH IS SITUATED WITHIN THE NOTIFIED MUNICIPAL LIM IT AS NON-AGRICULTURAL LAND AND GAIN ON SALE OF SUCH LAND IS TO BE TREATED AS CAPITAL GAIN, IF IT WAS TREATED AS INVESTMENT IN THE BOOKS OF ACCOUNT S OF ASSESSEE. ON THE OTHER HAND, IF THE SAID LAND WAS STOCK-IN-TRADE , GAIN ON SALE OF SUCH LAND TO BE TREATED AS INCOME FROM BUSINESS. HOWEVER, THE LAND WHICH WAS AGRICULTURAL LAND, IS TREATED AS INVESTME NT IN THE BOOKS OF ACCOUNT OF ASSESSEE AND GAIN ON SALE OF SUCH LAND T O BE EXEMPTED FROM CAPITAL GAIN. ACCORDINGLY, WE REMIT THIS ISSUE IN DISPUTE TO THE FILE OF LD. ASSESSING OFFICER TO PASS FRESH ORDER IN ACC ORDANCE WITH ABOVE OBSERVATIONS. ITA NO. 423/MDS./2013 :- 24 - : 12. THE NEXT GROUND IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE OF ` 3,80,509/- U/S.14A READ WITH RULES 8D OF THE INCOME TAX RULES, 1962 FOR WHICH THE ASSESSEE CANNOT HAVE ANY GRIEVANCE. ACCORDINGLY, THIS GROUND IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED ON 14 TH DECEMBER, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 14 TH DECEMBER , 2016 K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF