Sh. Sunil Kumar Sood, Panchkula V. DCIT, Panchkula

ITA 735/CHANDI/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68505 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 21-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Earning of tax free income; Source of fund; Advance ruling; Question of law; Capital receipt
• Section: 2(14); 56; 63; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD ACCOUNTANT MEMBER ITA NO.734/CHD/2013 ASSESSMENT YEAR : 2009-10 SHRI SUNIL KUMAR SOOD, VS THE ADDL. CIT, HOUSE NO. 143, PANCHKULA RANGE, SECTOR 7, PANCHKULA. PANCHKULA. PAN : ACJPS-6744E & ITA NO.735/CHD/2013 ASSESSMENT YEAR : 2010-11 SHRI SUNIL KUMAR SOOD, VS THE DCIT, HOUSE NO. 143, PANCHKULA CIRCLE, SECTOR 7, PANCHKULA. PANCHKULA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY JAIN RESPONDENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 11.09.2013 DATE OF PRONOUNCEMENT : 13.09.2013 O R D E R PER T.R.SOOD, AM THESE TWO APPEALS FILED BY THE ASSESSEE ARE AGAINST THE ORDER DATED 10.05.2013, PASSED BY THE LD. CIT(APPEA LS) PANCHKULA U/S 250(6) OF THE INCOME-TAX ACT,1961 ( IN SHORT THE ACT ). BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR TH E SAKE OF BREVITY. 2. IN BOTH THESE APPEALS, AN APPLICATION FOR ADJOUR NMENT WAS MOVED. THE LD. DR POINTED OUT THAT MAJOR ISSUE IN THE 2 APPEAL IS COVERED, THEREFORE THE ADJOURNMENT WAS RE JECTED AND CASE HAS BEEN HEARD. ITA-734/CHD/2013 3. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL : 1. THAT THE ORDER OF LEARNED C.I.T (A) IS BAD AN D AGAINST THE FACTS & LAW. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN NOT TREATING THE RURAL AGRICULTURAL LAND BEYOND MUNICIP AL LIMITS, SOLD DURING THE YEAR, AS AGRICULTURAL LAND WITHIN THE MEANING OF SE CTION 2(L4)(III) OF INCOME TAX ACT, 1961 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN ALLEGEDLY TREATING THE PROFITS FROM SALE OF RURAL A GRICULTURAL LAND BEYOND MUNICIPAL LIMITS AS INCOME FROM 'ADVENTURE IN THE N ATURE OF TRADE'. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN UPHOLDING THE ASSESSMENT WITHOUT CONSIDERING AND IN TERPRETING ALL THE INFORMATION/SUBMISSION, PLACED ON RECORDS AND W ITHOUT GIVING PROPER OPPORTUNITY TO THE ASSESSEE ON THE MATTERS, ON WHIC H ADDITIONS HAVE BEEN MADE. 5. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN UPHOLDING THE ADDITION OF INTEREST ON FDRS RECEIVED DURING THE YEAR WHEREAS THE SAME HAD BEEN DEDUCTED BY THE ASSESSEE FROM THE INTEREST EXPENSE SHOWN IN THE BOOKS. 6. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN UPHOLDING THE ADDITION OF ELECTRICITY /RENT CHARGES RECEIVED AS REIMBURSEMENT WHEREAS THE ASSESSEE HAD ALREADY DEDUCTED THE SAME FROM THE CORRESPONDING REVENUE EXPENSE CLAIMED DURING THE YEAR. 4. GROUND NOS. 2, 3 & 4 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURIN G THE YEAR, ASSESSEE HAD SOLD CERTAIN LANDS AND CLAIMED THAT CAPITAL GAIN WAS EXEMPT BECAUSE LANDS SOLD WERE AGRICULTURA L LANDS. THE ASSESSING OFFICER, AFTER DETAILED ANALYSIS, WAS OF THE OPINION THAT ASSESSEE WAS REGULARLY BUYING AND SELL ING LANDS. THE LANDS ARE NOT AGRICULTURAL LANDS BECAUSE NO AGR ICULTURAL ACTIVITY WAS DONE. ACCORDINGLY, HE SUBJECTED THE G AIN ON SALE 3 OF SUCH LANDS OF THE ASSESSEE UNDER THE HEAD INCOM E FROM BUSINESS. 5. ON APPEAL, ADDITION HAS BEEN CONFIRMED BY LD. CIT(APPEALS). 6. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THIS ISSUE IS COVERED BY THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 IN ITA NO. 998/CHD/2010. O N THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE ASSES SING OFFICER. 7. AFTER HEARING RIVAL SUBMISSIONS, WE FIND THAT ID ENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO. 998/CHD/2010. THE ISSUE WAS DECIDED VIDE PARA 4, W HICH IS AS UNDER : 4. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE, RELEVANT RECORDS. ON PERUSING THE DECISION REFERRED TO ABOVE AND STAT ED BY THE LD. 'AR', WE ARE OF THE OPINION THAT THE ISSUES RAISED IN THE SE TWO APPEALS ARE SQUARELY COVERED BY THE ORDER IN ASSESSEE'S OWN CAS E. FOR READY REFERENCE, THE CONTENTS OF THE SAME ARE REPRODUCED HEREUNDER : THE CAPTIONED TWO APPEALS HAVE BEEN FILED BY THE S AME ASSESSEE, AGAINST THE CONSOLIDATED ORDER DATED 29.01.2010 PAS SED BY THE LD. CIT(A), PANCHKULA U/S 250(6) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') FOR THE ASSESSMENT YEARS 2005-06 & 20 06-07. AS THE FACTS AND THE ISSUES, INCLUDING THE GROUNDS OF APPE AL, IN BOTH THE APPEALS ARE IDENTICAL, THE SAME ARE TAKEN UP TOGETH ER, FOR DISPOSAL, FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS OF APPEAL, AS RAISED IN ITA NO. 227/CHD/2010, ARE REPRODUCED HEREUNDER : 1. THAT THE ORDER OF LD. CIT(A) IS BAD AND AGAINST THE FACTS AND LAW. 2. THAT THE LD. CIT(A) HAS ERRED IN NOT TREATING TH E RURAL AGRICULTURAL LAND BEYOND MUNICIPAL LIMITS, SOLD DUR ING THE YEAR, AS AGRICULTURAL LAND WITHIN THE MEANING OF SE CTION 2(14)(III) OF THEIA,1961. 3. THAT THE LD. CIT(A) HAS ERRED IN ALLEGEDLY TREAT ING THE PROFITS FROM SALE OF RURAL AGRICULTURAL LAND BEYOND MUNICIP AL LIMITS AS INCOME FROM ADVENTURE IN THE NATURE OF TRADE. 4 4. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE A SSESSMENT WITHOUT CONSIDERING AND INTERPRETING ALL THE INFORMATION/SUBMISSION PLACED ON RECORDS AND WITHOU T GIVING PROPER OPPORTUNITY TO THE ASSESSEE ON THE MATTERS, ON WHICH ADDITIONS HAVE BEEN MADE. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, A LTER OR WITHDRAWN ANY GROUND OF APPEAL BEFORE FINAL HEARING . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E SOLD CERTAIN LANDS PURCHASED BY HIM IN THE STATE OF HIMACHAL PRA DESH. THE ASSESSEE EARNED SHORT TERM CAPITAL GAINS OF RS.82,0 1,796/- ON THE SALES OF THESE LANDS. THE ASSESSEE CLAIMED THAT TH E LANDS IN QUESTION IS NOT A CAPITAL ASSET U/S 2(14)(III) OF THE INCOME -TAX ACT,1961 AND, HENCE, SURPLUS REALIZATION FROM THE SALE OF SUCH LA NDS, IS NOT TAXABLE INCOME. THE AO, MADE A REFERENCE TO THE DEFINITION OF THE TERM CAPITAL ASSET, AS PROVIDED U/S 2(14)(III) OF THE ACT AND AFTER PERUSAL OF VARIOUS DECISIONS OF HON'BLE HIGH COURTS AND SUPREME COURT AND TREATED THE INCOME FROM THE SALE OF SUCH LANDS, AS BUSINESS INCOME. LD. CIT(A) UPHELD THE FINDINGS OF THE AO A ND, HENCE, THE ASSESSEE FILED THESE TWO APPEALS BEFORE THE TRIBUNA L. 4. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, THE LD. 'AR' CONTENDED THAT GROUND NO. 1 AND 5 ARE GENERAL IN NA TURE, HENCE, NO SEPARATE ADJUDICATION IS REQUIRED. ACCORDINGLY, TH ESE GROUNDS OF APPEAL ARE DISMISSED. 5. IN THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE U S, LD. 'AR' STATED THAT GROUND NOS. 2, 3 & 4 ARE INTER-LINKED A ND HENCE, HE MADE A COMBINED SUBMISSION, IN RESPECT OF SUCH GROUNDS O F APPEAL. LD. 'AR' REFERRED TO PAGE 16 & 17 OF THE PAPER BOOK FIL ED BY HIM AND ALSO REPORT DATED 07.01.2008. PAGE 16 & 17 OF THE PAPER BOOK IS A LETTER DATED 7.01.2008 ISSUED FROM THE OFFICE OF THE TEHSI LDAR, NALAGARH, TEHSIL NALAGARH, DISTRICT SOLAN, AND ADDRESSED TO A SSISTANT COMMISSIONER OF INCOME-TAX, PANCHKULA CIRCLE, PANCH KULA. THE RELEVANT PART OF THE SAID LETTER IS REPRODUCED HERE UNDER, FOR THE PURPOSE OF PROPER APPRECIATION OF ITS TEXTS AND NAT URE THEREOF : SR.NO. 107-109 ISSUED TO SHRI SUNIL KUMAR SOOD OFFICE OF TEHSILDAR UNDER RTI ACT NALAGARH,DISTT.SOLAN SD/- NALAGARH 7 TH JANUARY,2008 PUBLIC INFORMATION OFFICER CUM SDO(C) NALAGARH DISTT.SOLAN (HP) 19/02 TO, ASSTT. COMMISSIONER OF INCOME TAX PANCHKULA CIRCLE, PANCHKULA. ON THE ABOVE CITED SUBJECT REFER YOUR OFFICE LETTER NO. ACIT/PKL/CIR/PKL/07-08/1A/3073 DATED 31.10.2007 AND IN THIS REGARD, WE HAVE GOT INVESTIGATED THE INFORMATION FR OM OUR FIELD EMPLOYEES AND THE REPORT IS AS UNDER: 1. COPY OF JAMABANDI OF LAND BEARING KHASRA 1341/3, 1341/2- 1338-1339-1336-1337-1335-1319-1345/1, 1347/1, IN VI LLAGE BHATOLI KALAN IS PREPARED AND SUBMITTED. 5 3(A) THE ABOVE LAND DOES NOT FALL UNDER M.C.CORPORA TION, NAC. (B) NAGAR PANCHAYAT BADDI TO ABOVE KHASRA (LAND) TH E DISTANCE IS APPROX, 10 K.M. (C) DISTANCE OF LAND IS MORE THAN 8 KM. 4. THE LAND IS AWAY FROM NAGAR PANCHAYAT. THE DETA ILS OF CENSUS ARE NOT AVAILABLE. 5.(A) THE ABOVE SOLD LAND WAS USED FOR AGRICULTURA L PURPOSES BEFORE SELLING. (B) THE ABOVESAID LAND WAS USED FOR AGRICULTURAL PU RPOSES REGULARLY. (C) NOT APPLICABLE AND NOT RELATED TO OUR RECORDS. (D) HIMACHALI AGRICULTURIST DOES NOT REQUIRE ANY PE RMISSION FROM GOVERNMENT WHILE BUYING OR SELLING OF LAND BUT IF T HE PURCHASER IS NON-AGRICULTURIST THEN IT IS A NECESSITY THAT HE HA S TO OBTAIN PERMISSION FROM GOVT. U/S 118 OF H.P. TENANCY AND L AND REFORMS RULES 1972. THE ABOVESAID LAND WAS AGRICULTURAL LAN D AT THE TIME OF PURCHASE AND SALE. (F) ON RELEVANT DATE THE ABOVE LAND WAS AGRICULTURA L LAND AND THE PURCHASER HAS PURCHASED THIS LAND FOR SETTING UP AN INDUSTRIAL UNDERTAKING AND WHEN THE INDUSTRY IS SET UP ON KHAS RA NUMBER THEN LAND BECOMES NON-AGRICULTURE LAND. (G) THE ABOVESAID LAND WAS REGULARLY USED FOR AGRIC ULTURAL PURPOSES. (H) THE ABOVE LAND FALLS UNDER RURAL AREA AND AT TH AT TIME WAS NOT DEVELOPED AND ALL THE LANDS SURROUNDING THESE WERE USED FOR AGRICULTURAL PURPOSES. (I) ABOVE LAND HAS NOT DEVELOPED INTO ANY PLOTS AND ROADS. (J) NO (K) THE PERMISSION FOR PURCHASE OF LAND IS OBTAINED BY NON- AGRICULTURIST PURCHASER. (L) THE LAND WAS SOLD ACCORDING TO THE BIGHAS BISWA S AND NOT BY YARDS. (M) THE LAND IS PURCHASED AND SOLD ON THE BASIS OF AVERAGE VALUE. THEREFORE THE REPORT IS PREPARED AFTER INVESTIGATIN G THE REVENUE RECORDS AND IS SUBMITTED FOR FURTHER ACTION. 6 5(I). SIMILARLY, LD. 'AR' REFERRED TO PAGES 20 & 21 (ENGLISH VERSION OF PAGE 22). THIS LETTER WAS ISSUED TO, SHRI SUNIL KUMAR SOOD, THE PRESENT APPELLANT, UNDER RTI ACT ON 19.2.2008. THO UGH THE LETTER IS IN HINDI LANGUAGE, THE ENGLISH VERSION OF THIS LETT ER IS REPRODUCED HEREUNDER : WITH DUE RESPECT AND AS PER DIRECTIONS AND A FTER SEARCH OF REVENUE RECORDS AND A VISIT OF SITE THE ITEM WISE R EPORT IS SUBMITTED AS UNDER: 1. ACCORDINGLY TO DIRECTIONS VILLAGE BHATOLI KALAN PARGANA DHARMPUR, TEHSIL NALAGARH, DISTT. SOLAN THE CERTIFI ED COPIES OF JAMABANDI OF LAND BEARING KHASRA NUMBER 1341/3, 1341/2, 1338-1339 - 1336 - 1337 - 1335 - 1319 - 1345/1, 134 7/1 HAVE BEEN PREPARED AND ENCLOSED WITH THE REPORT. 2.(A) THE ABOVE LAND DOES NOT FALL UNDER M.G. COR PORATION, N.A.C. (B) THE DISTANCE FROM NAGAR PANCHAYAT BADDI TO L AND IN ABOVE KHASRA NUMBER IS BETWEEN 8 TO 10 KM. (C) THE DISTANCE OF LAND IS MORE THAN 8 KM. (D) THE CENSUS RECORD IS NOT AVAILABLE IN PATWARKH ANA. 3. THE ABOVE SAID LAND AS PER REVENUE RECORDS IS C ULTIVABLE CHANGER AWAL BARANI LAND AND THE LAND TAXES ARE PAI D BY THE OWNERS TO THE GOVERNMENT. 4. THE SOLD LAND HAD BEEN USED FOR AGRICULTURAL PUR POSE. 5. ON SAID LAND THE AGRICULTURAL ACTIVITY HAD BEEN CARRIED OUT SINCE LONG TIME. 6. NOT APPLICABLE AND NOT RELATED TO RECORDS. 7. HIMACHALI AGRICULTURIST DOES NOT REQUIRE ANY PERMIS SION FROM GOVERNMENT WHILE BUYING OR SELLING OF LAND BUT IF THE PURCHASER IS NON-AGRICULTURIST THEN IT IS A NECESSI TY THAT HE HAS TO OBTAIN PERMISSION FROM GOVERNMENT U/S 118 OF H.P. TENANCY AND LAND REFORMS RULES 1972. THE ABOVE SAID LAND WAS AGRICULTURAL LAND AT THE TIME OF PURCHASE AND S ALE. 8. ON RELEVANT DATE THE ABOVE LAND WAS AGRICULTURAL L AND AND THE LASER HAS PURCHASED THIS LAND FOR SETTING UP AN INDUSTRIAL UNIT AND 'WHEN THE INDUSTRY IS SET UP ON KHASRA NUM BER THEN THAT LAND BECOMES NON-AGRICULTURE LAND. 9. THE ABOVE SAID LAND WAS REGULARLY USED FOR AGRICULT URE PURPOSES. 7 10. THE ABOVE LAND FALL UNDER RURAL AREA AND AT THAT T IME WAS NOT DEVELOPED AND ALL THE LANDS SURROUNDING THESE L ANDS WERE USED FOR AGRICULTURAL PURPOSES. 11. NO 12 NO 13. THE PERMISSION FOR PURCHASE OF LAND IS OBTAINED BY NON- AGRICULTURIST PURCHASER. 14. THE LAND WAS SOLD ACCORDING TO THE BIGHAS BIS WAS AND NOT BY YARDS. 15. THE LAND IS PURCHASED AND SOLD BASED ON THE AVERAGE VALUE. THEREFORE THE REPORT AFTER SCRUTINY OF REVENUE RECO RDS AND CERTIFIED COPIES OF REVENUE RECORDS HAVE BEEN PREPARED AND IS FORWARDED FOR FURTHER NECESSARY ACTION. 5(II). LD. 'AR' ALSO REFERRED TO PAGE 1 OF THE PA PER BOOK WHICH CONTAINS DETAILS OF AGRICULTURAL LANDS, PURCHASED D URING THE FINANCIAL YEAR 2003-04, WHICH WAS PARTLY SOLD IN FINANCIAL YE AR 2004-05 AND IN FINANCIAL YEAR 2005-06. IT WAS STATED BY LD. 'AR' THAT NO NON- HIMACHALI CAN PURCHASE AGRICULTURE LAND IN THE STA TE OF HIMACHAL PRADESH. 6. LD. 'DR', ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER PASSED BY THE AO AS WELL AS BY THE CIT(A). 7. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS, FACTS OF THE CASE AND THE RELEVANT RECORD, INCLUDING PAPER BOOK FILED BY THE ASSESSEE. THE AO, AFTER A REFERENCE TO THE DECISIO NS IN THE CASE OF SARIFABIBI MOHMED IBRAHIM & OTHERS V CIT (2004) 204 ITR 631 (S.C); BEGUMPET PALACE 105 ITR 133 ; SIDHARATH J.DE SAI 139 ITR 628 (GUJ) ; & CIT V V.A.TRIVEDI 172 ITR 95 (BOM) HELD T HAT THE LAND SOLD BY THE APPELLANT IS NOT AGRICULTURAL LAND. THE FIND INGS OF THE AO AS INCORPORATED IN THE ASSESSMENT ORDER AT PAGE 12 ARE ; IN THE LIGHT OF THE ABOVE FACTS AND UNAMBIGUOUS POSITION OF LAW, IT IS CLEAR THAT THE LANDS UNDER CONSIDERATION ARE NOT AGRICULTURAL IN N ATURE EVEN THOUGH THEY FALL UNDER THE CRITERIA LAID DOWN UNDER SECTIO N 2(14)(III) OF THE ACT. THEREFORE, THE PROFIT ON SALE OF LAND CANNOT B E CLAIMED AS EXEMPT. THE AO FOLLOWED THE GUIDELINES AND GENERAL TESTS LAID DOWN, BY THE HON'BLE SUPREME COURT, IN THE CASE OF SARIFA BIBI MOHMED IBRAHIM & OTHERS V CIT (SUPRA) TO ARRIVE AT SUCH FI NDINGS. THE AO OBSERVED THAT THE ASSESSEE IS A PRACTICING CHARTERE D ACCOUNTANT AND EFFECTED PURCHASE AND SALE OF NUMBER OF PROPERTIES. AS NOTICED BY THE AO, THE LAND WAS ACTUALLY NOT UNDER CULTIVATION IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AO, FURTHER, OBSERVE D THAT THE LAND WAS NOT UNDER CULTIVATION, EVEN BEFORE THE PERIOD U NDER CONSIDERATION, AS IS CLEAR FROM THE JAMABANDI OF 19 98-99, WHEREIN IT IS SHOWN THAT NO LAGAN WAS PAID NOR ANY REVENUE WAS PAID ON THIS LAND. THE ASSESSEE HAS NOT GIVEN THESE LANDS ON LE ASE FOR AGRICULTURAL PURPOSE, AS IS EVIDENT FROM THE FACT T HAT ASSESSEE HAD NOT SHOWN ANY INCOME FROM AGRICULTURE. THE AO, FURTHER , OBSERVED THAT ON THE RELEVANT DATE OF SALE, LAND WAS NOT USED FOR AGRICULTURE PURPOSE, BUT WAS LYING VACANT, WITHOUT ANY AGRICULT URAL ACTIVITY CARRIED THEREON. THUS, AS PER AO, THERE WAS NO AGR ICULTURAL ACTIVITY, 8 ON THE SAID LAND. THE AO, FURTHER, POINTED OUT THA T THE LAND WAS SOLD TO INDUSTRIAL HOUSES, FOR NON-AGRICULTURE PURPOSE, HENCE IT DOES NOT SATISFY THE GENERAL TESTS LAID DOWN IN THE CASE OF SARIFABIBI MOHMED IBRAHIM & OTHERS V CIT (SUPRA). THE AO, FURTHER, H IGHLIGHTED THAT THESE LANDS WERE PURCHASED AT A VERY LOW COST AND S OLD FOR HUGE PROFITS, TO INDUSTRIAL HOUSES. THE AO WAS OF THE V IEW THAT NO AGRICULTURIST WOULD PURCHASE THE LAND FOR AGRICULTU RAL PURPOSES, AT THE PRICE AT WHICH THE LAND WAS SOLD BY THE ASSESSE E. IT WAS, FURTHER, OBSERVED BY THE AO THAT THOUGH THE LAND WAS ENTERED IN THE LAND REVENUE RECORD, BUT THE SAME WAS NOT USED FOR AGRIC ULTURAL PURPOSE. THE LAND HAD NOT BEEN PLOUGHED, NEITHER THE OWNER I NTENDED TO USE IT FOR AGRICULTURAL PURPOSE. THE AO, FURTHER, RECORDE D THAT THE LANDS ARE SITUATED IN AN AREA, THE SURROUNDINGS OF WHICH ARE INDUSTRIALIZED. THE SURROUNDING LANDS ENJOY EXEMPTION BY THE STATE AND CENTRAL GOVERNMENT FOR SETTING UP OF INDUSTRIAL UNITS. THE PHYSICAL CHARACTERISTICS AND SURROUNDING AREAS AND THE USE O F THE LANDS IN ADJOINING AREAS INDICATE THAT THE SALE OF LAND IS N OT FOR THE PURPOSE OF AGRICULTURE BUT FOR THE BIG INDUSTRIAL HOUSES TO SE T UP THEIR UNITS IN THE AREA. ON THESE OBSERVATIONS, AO CONCLUDED THAT THE LAND IN QUESTION IS NOT AGRICULTURAL LAND. 7(I). THE AO, FURTHER, HELD THAT HAVING REGARD TO THE NATURE AND QUALITY OF THE ASSET PURCHASED AND SOLD, ALONGWITH THE FREQUENCY OF SUCH TRANSACTIONS, IT IS EVIDENT THAT THESE TRANSAC TIONS ARE ADVENTURE IN NATURE OF TRADE. THE ASSESSEE HAD PURCHASED THE LAND IN BIGHAS AND SOLD THE SAME IN BIGHAS. AO REFERRED TO THE TE ST OF INTENTION IN THE CASE OF THE ASSESSEE APPELLANT AND HELD THAT TH ERE IS A STRONG PRESUMPTION THAT THE TRANSACTION IS ADVENTURE IN TH E NATURE OF TRADE. AO ALSO REFERRED TO THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF KARAM CHAND THAPAR & BROTHERS PVT.LTD. V CI T (1971) 83 ITR 899, WHEREIN IT WAS HELD THAT THE ASSESSEE HAD SHOWN CERTAIN ASSETS AS INVESTMENT IN ITS BOOKS OF ACCOUNT, IS NOT IN ITSELF A CONCLUSIVE CIRCUMSTANCE BUT RELEVANT CIRCUMSTANCE. THE PRESENT APPELLANT HAS SHOWN THE IMPUGNED LAND AS FIXED ASSE T IN THE BOOKS OF ACCOUNT AND THE BALANCE-SHEET. LD. CIT(A), UPHELD THE FINDINGS OF THE AO BY MAKING REFERENCE TO THE SAME CASE LAWS AN D THE DEFINITION OF THE CAPITAL ASSET, AS CONTAINED U/S 2(14)(III) O F THE ACT. 8. WE HAVE CAREFULLY PERUSED THE FINDINGS OF THE CI T(A), AS CONTAINED IN PARA 6 TO 7.2, FROM PAGES 28 TO 36 OF THE APPELLATE ORDER AND FOUND THAT THE LD. CIT(A) HAS PLACED RELIANCE O N THE FACTORS, WHICH INSPIRED THE AO, TO CONCLUDE THAT THE IMPUGNE D LAND IS NOT AGRICULTURAL ONE. LD. CIT(A), HAS REITERATED AND RE PEATED THE FINDINGS AND OBSERVATIONS OF THE AO. HOWEVER, RELEVANT FINDINGS OF THE CIT(A) ARE REPRODUCED HEREUNDER : 6. I HAVE CAREFULLY CONSIDERED ARGUMENTS OF TH E COUNSEL FOR THE APPELLANT AND THE OBSERVATIONS AND FINDINGS OF THE AO IN THE ASSESSMENT ORDER. THE APPELLANT HAS EARNED PROFIT O F RS.82,01,796/- ON SALE OF LAND IN H.P. THE APPELLAN T HAS CLAIMED THE PROFIT EXEMPT ON THE GROUND THAT THE LAND IS NO T A CAPITAL ASSET AS PER SECTION 2(14}(III) OF THE INCOME TAX ACT, 19 61 FOR THE REASON THAT IT WAS AGRICULTURAL LAND AND WAS SITUAT ED IN RURAL AREAS. THE AO DISCUSSED THE GENERAL PRINCIPLES AND TESTS LAID DOWN BY VARIOUS COURTS TO ASCERTAIN WHETHER THE LAN D SOLD IS AGRICULTURAL LAND AND FALLS IN THE SCOPE OF SECTION 2(14)(III). THE 9 AO DISCUSSED THE PRINCIPLES LAID DOWN IN THE FOLLOW ING JUDICIAL DECISIONS:- (I) SARIFABIBI MOHMED IBRAHIM AND OTHERS VERSU S CIT 204 ITR 631 (SC) (II) BEGUMPET PALACE CASE 105 ITR 133 (SC) (III) CIT V. SIDDHARTH J. DESAI 139 ITR 628 (SC) (IV) THE FULL BENCH OF ANDHRA PRADESH HIGH COURT 72 ITR 552 (V) CIT V. V. A. TRIVEDI 172 ITR 95 (BOM.) AFTER DISCUSSING THE GIST OF THE ABOVE DECISIONS AN D THE PRINCIPLES LAID DOWN FOR DETERMINING WHETHER THE LAND IS AGRIC ULTURAL LAND, THE AO OBSERVED THAT THE LAND WAS ACTUALLY NOT UNDE R CULTIVATION IN THE ASSESSMENT YEAR UNDER CONSIDERATION AS ADMIT TED BY THE ASSESSEE IN HIS REPLY DATED 12/09/2007. THE AO FURT HER HELD THAT THE LAND WAS NOT UNDER CULTIVATION EVEN BEFORE THE A.Y. UNDER CULTIVATION WHICH IS CLEAR FROM THE JAMABANDI OF 19 98-99 AS PER WHICH NEITHER ANY LAGAN WAS PAID NOR ANY REVENUE WA S PAID ON [HIS LAND. THE ASSESSEE HAD BECOME THE OWNER OF THE SE LANDS JUST A FEW MONTHS BEFORE THEY WERE SOLD. THE ASSESSEE BEIN G A PRACTICING CHARTERED ACCOUNTANT HAD NO PRACTICAL EXPERIENCE OF AGRICULTURE. THE AO OBSERVED THAT THE ASSESSEE HAD NOT GIVEN THE SE LANDS ON LEASE FOR AGRICULTURE WHICH HAS BEEN ADMITTED BY HI M. THE AO OBSERVED THAT THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM AGRICULTURE IN HIS RETURN OF INCOME. THE AC CONCLUD ED THAT THE LAND ON THE RELEVANT DATE OF SALE WAS NOT USED FOR AGRICULTURAL PURPOSES BUT WAS LYING VACANT WITHOUT ANY AGRICULTU RAL ACTIVITY ON IT. THE AC OBSERVED THAT THE LANDS WERE SOLD BY THE ASSESSEE TO INDUSTRIAL HOUSES WHO HAVE PURCHASED THE LAND TO SE T UP PRODUCTION UNITS ON IT AND THUS THE SALE WAS TO NON -AGRICULTURISTS FOR NON-AGRICULTURAL USE. THE AO HAS HELD THAT THE ASSESSEE PURCHASED THE LANDS AT A VERY LOW COST FROM MARGINA L FARMERS AND CONSOLIDATED THEM INTO LARGE CHUNKS TO SELL THEM TO BIG INDUSTRIAL HOUSES FOR HUGE PROFIT. THE AO HAS GIVEN THE DETAIL S OF PURCHASE AND SALE OF LAND TO DRIVE HOME THE POINT. THE AO CO NCLUDED THAT NO AGRICULTURIST WOULD PURCHASE THE LAND FOR AGRICULTU RAL PURPOSES AT THE PRICE AT WHICH THE LAND WAS SOLD BY THE ASSESSE E AND ONLY INDUSTRIAL HOUSES CAN PURCHASE IT AT SUCH A HIGH PR ICE. THE ASSESSEE HAS SOLD THE LAND BECAUSE OF ITS COMMERCIA L VALUE AND NOT SOLD IT VALUING IT AS PROPERTY YIELDING AGRICULTURA L PRODUCE. THE AO HELD THAT THE LAND THOUGH ENTERED IN THE REVENUE RECORD HAS NEVER BEEN ACTUALLY USED FOR AGRICULTURAL PURPOSES. THE OWNER NEVER INTENDED TO USE IT FOR AGRICULTURAL PURPOSES. THE AC FINALLY HELD THAT THE LANDS ARE SITUATED IN AN AREA, THE SU RROUNDINGS OF WHICH ARE HIGHLY INDUSTRIALIZED. THE PHYSICAL CHARA CTERISTICS AND THE SURROUNDING AREAS AND THE USE OF LANDS IN THE A DJOINING AREAS INDICATE THAT THE SALE OF LAND IS NOT FOR THE PURPO SE OF AGRICULTURE BUT FOR THE BIG INDUSTRIAL HOUSES TO SET UP THEIR U NITS IN THE AREA. THE AO CONCLUDED THAT THE LANDS UNDER CONSIDERATION ARE NOT AGRICULTURAL IN NATURE EVEN THOUGH THEY FALL UNDER THE CRITERIA LAID DOWN UNDER SECTION 2(14)(III) OF THE ACT. 6.1 THE COUNSEL FOR THE APPELLANT ON THE OTHER HAND HAS ARGUED THAT THE APPELLANT IS A BONAFIDE AGRICULTURIST AND PURCHASED THE LANDS FOR AGRICULTURAL PURPOSES. A PERSON WHO IS NOT FROM H.P. CANNOT PURCHASE LANDS FOR AGRICULTURAL PURPOSES IN H.P. THE LANDS WERE PURCHASED FROM THE OWNERS WHO WERE CULTIVATING THESE LANDS FOR AGRICULTURAL PURPOSES SINCE MANY YEARS. THE LAN DS WERE 10 SITUATED IN RURAL BACKWARD AREA OF VILLAGE BHAIOLI KALAN (H.P.) WHICH IS BEYOND THE MUNICIPAL LIMITS OF ANY NAGAR P ANCHAYAT OR CANTONMENT BOARD. THE SANDS WERE PURCHASED FOR USE OF AGRICULTURAL PURPOSES WITHOUT ANY INTENTION TO SELL FOR WHICH REASON POWER OF ATTORNEY WAS TAKEN IN THE NAME OF T HIRD PERSON SH. HARISH AGGARWAL SO THAT THE LANDS CAN BE REGIST ERED IN THE NAME OF ASSESSEE AS AND WHEN REQUIRED. THE LANDS WE RE PERMANENTLY USED FOR AGRICULTURAL PURPOSES AT ME TI ME OF PURCHASE AND ALSO DURING THE HOLDING BY THE ASSESSEE AND CLA SSIFIED AS AGRICULTURAL LAND BEING USED FOR AGRICULTURAL PURPO SES, IN THE REVENUE RECORDS. THE LANDS WERE SHOWN AS FIXED ASSE TS IN THE RESPECTIVE BALANCE SHEETS AND NOT AS STOCK IN TRADE , HENCE THE BOOK KEEPING RECORDS ALSO SUPPORT THE INTENTION OF THE ASSESSEE. SALE OF SOME OF THESE LANDS WAS MADE TO BUY OTHER A GRICULTURAL LANDS SO AS TO IMPROVE THE QUALITY OF THE HOLDING AND FOR CONSOLIDATION SO THAT AGRICULTURAL ACTIVITIES CAN B E DONE SMOOTHLY IN FUTURE. THE ASSESSEE AS ON DATE HAS CONSOLIDATED AGRICULTURAL LAND MEASURING 90.12 BIGHAS AND HAS NET AGRICULTURA L INCOME OF RS.42,000/- WHICH WAS DECLARED IN THE A.Y. 2007-08. AT THE TIME OF SALE THE CHARACTER OF THE LANDS WAS AGRICULTURAL AN D EVEN TODAY SOME LANDS ON WHICH FACTORIES HAVE NOT BEEN ESTABLI SHED ARE CLASSIFIED AS AGRICULTURAL LANDS IN REVENUE RECORDS . THE COUNSEL FURTHER ARGUED THAT THE AC CALLED INFOR MATION FROM THE REVENUE AUTHORITIES BUT NO REFERENCE OF THE SAME HA S BEEN MADE IN THE ASSESSMENT ORDER. FROM THE CONTENTS OF THE REPO RT ISSUED BY REVENUE AUTHORITIES THE FACT THAT THE RELEVANT LAND S WERE AGRICULTURE LANDS WITH IN THE MEANING OF SECTION 2( 14)(III) OF INCOME TAX ACT, 1961 ARE FULLY JUSTIFIED. THE COUNS EL FURTHER ARGUED THAT THE AO HAS RELIED ON THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF SARIFABIBI MOH MED IBRAHIM V. CIT (1993) 204 ITR 631 WHOSE FACTS ARC DIFFERENT FR OM THE APPELLANT'S CASE BECAUSE THE LAND IN THAT CASE WAS WITHIN MUNICIPAL LIMITS, NOT CULTIVATED FOR 4 YEARS PRIOR TO SALE AND ALSO THE OWNERS WERE NOT BONAFIDE AGRICULTURISTS . SIMILARLY THE FACTS IN BEGUMPET PALACE CASE (1976) 105 ITR 133 AR E ALSO DIFFERENT FROM THE ASSESSEE'S CASE BECAUSE IN THAT CASE THE LAND WAS WITHIN THE MUNICIPAL LIMITS OF HYDERABAD AND HA D BUILDINGS ENCLOSED WITH COMPOUND WALLS AND WAS NOT PLOUGHED O R TILLED. THE COUNSEL RELIED ON THE DECISION OF THE HON'BLE M ADRAS HIGH COURT IN THE CASE OF M.S. SRINIVASA NAICKER AND OTHERS V. INCOME TAX OFFICER (2007) 292 ITR 481 IN WHICH IT WAS HELD THAT CHARACTER OF THE LAND AT THE TIME OF SALE WAS RELEVANT. IF TILL THE DATE OF SALE, AGRICULTURAL OPERATIONS WERE CARRIED OUT ON THE LAND AND LANDS WERE REGISTERED AS AGRICULTURAL LAND IN REVENUE RECORDS IT WAS NOT REL EVANT THAT PURCHASER WAS GOING TO USE THE LAND FOR NON-AGRICUL TURAL PURPOSES. IN THE REJOINDER TO THE REMAND REPORT' THE COUNSEL ARGUED THAT AS PER THE REPORT OF THE REVENUE AUTHORITIES AGRICU LTURAL OPERATIONS HAD BEEN CARRIED OUT REGULARLY ON THESE LANDS SINCE LAST MANY YEARS AND THE PRODUCE FROM THE LAND WAS C ONSUMED BY THE ASSESSEE'S FAMILY AND WAS ALSO DISTRIBUTED AMON GST THE RELATIVES AND THE PERSONS ATTENDING TO THE AGRICULT URAL OPERATIONS, IT WAS EXPLAINED THAT MAIZE WAS PRODUCED FROM THE A GRICULTURAL LAND WHICH WAS CONSUMED BY THE FAMILY AND WAS ALSO DISTRIBUTED AMONGST THE RELATIVES AND THE PERSONS ATTENDING TO THE 11 AGRICULTURAL OPERATIONS. THE COUNSEL ARGUED THAT TH E LAND WAS CLASSIFIED AS CHANGAR ABAL BARANI WHICH DO NOT REQU IRE IRRIGATION AND ARE CULTIVABLE LAND AND DO NOT REQUIRE ANY ELEC TRICAL OR WATER CONNECTION FOR CULTIVATION. THE COUNSEL ARGUED THAT THE PATWARI IN HIS REPORT DATED 03.11.2007 HAS STATED T HAT THE LAGAN AND REVENUE TAXES HAD REGULARLY BEEN PAID. THE COUNSEL ARGUED THAT THE ASSESSEE HELD THESE AGRICULTURAL LANDS FOR AN AVERAGE PERIOD OF MORE THAN A YEAR. THEREFORE, THE A.O. HAS ERRED IN HER JUDGMENT AND HAS IGNORED A VITAL FACT THAT THE AGRI CULTURAL LANDS WERE ALWAYS CLASSIFIED AS FIXED ASSETS. THE LANDS W ERE NOT PUT TO NON AGRICULTURAL USE. THE ASSESSEE DID NOT PURCHASE THESE LANDS AT A LOW COST FROM MARGINAL FARMERS AND CONSOLIDATED I NTO LARGE CHUNKS TO SELL THEM BUT TO CONSOLIDATE INTO A BIGGE R PIECE OF LAND AS ANY AGRICULTURIST WOULD HAVE DONE. THE SURROUNDI NGS OF THE LAND WERE SUCH AS TO INDICATE THAT THE LAND WAS AGR ICULTURAL. 6.2 ON CAREFUL CONSIDERATION OF FACTS AND SUBMIS SIONS 1 FIND THAT THE AO HAS RIGHTLY HELD THAT THE LANDS SOLD BY THE APPELLANT ARE NOT AGRICULTURAL LANDS WITHIN THE MEANING OF SECTION 2( 14)(III) OF THE I.T. ACT. THE HON'BLE SUPREME COURT AND VARIOUS OTHER CO URTS HAVE LAID DOWN GENERAL PRINCIPLES FOR DECIDING WHETHER THE LA ND IS AGRICULTURAL OR NOT? THE HON'BLE SUPREME COURT IN T HE CASE OF SARIFABIBI MOHMED IBRAHIM AND OTHERS VERSUS CIT(204 ITR 631) HAS OBSERVED AS UNDER:- ' WHETHER A LAND IS AN AGRICULTURAL LAND OR NOT IS ESSENTIALLY A QUESTION OF FACT. SEVERAL TESTS HAVE BEEN EVOLVED I N THE DECISIONS OF THIS COURT AND THE HIGH COURTS, BUT AL L OF THEM ARE MORE IN THE NATURE OF GUIDELINES. THE QUESTION 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. THE COURT HAS T O ANSWER THE QUESTION ON CONSIDERATION OF ALL OF THEM BY A PROCE SS OF EVALUATION. THE INFERENCE HAS TO BE DRAWN ON A CUMU LATIVE CONSIDERATION OF ALL THE RELEVANT FACTS. IN VIEW OF THE HON'BLE SUPREME COURT OBSERVATIONS W HETHER THE LAND IS AGRICULTURAL DEPENDS ON THE FACTS OF EA CH CASE. IN THE PRESENT CASE THE APPELLANT IS A CHARTERED ACCOU NTANT AND NOT AN AGRICULTURIST. HE PURCHASED LANDS IN HIMACHA L PRADESH FROM NOVEMBER, 2003 ONWARDS AND SOLD THE SAME WITHI N A SHORT INTERVAL OF TIME TO INDUSTRIAL HOUSES. THE DE TAILS OF THE SALES MADE BY THE APPELLANT ARE MENTIONED ON PAGES 7 & 8 (SUPRA). IT IS COMMON KNOWLEDGE THAT THE PRICES OF THE REAL ESTATE STARTED SHOOTING UP IN AND AROUND CHANDIGARH FROM 2003 ONWARDS TILL 2007 AND THE PRICES OF REAL ESTAT E PROPERTIES INCREASED BY MORE THAN FIVE TIMES DURING A PERIOD O F 2 TO 3 YEARS. THE APPELLANT BEING A CHARTERED ACCOUNTANT P URCHASED LANDS IN HIMACHAL PRADESH NEAR NALAGARH WHICH IS AN INDUSTRIAL TOWN OF HIMACHAL PRADESH AND ENJOYING TA X CONCESSIONS. NEW INDUSTRIES ARE COMING U&, NEAR THE EXISTING INDUSTRIES TO AVAIL THE TAX CONCESSIONS. THE INTENT ION OF THE APPELLANT IN PURCHASING THE LANDS IS VERY CLEAR THA T HE HAD NO INTENTION OF CARRYING OUT AGRICULTURAL ACTIVITIES B UT HE WANTED TO EARN PROFIT ON SALE OF LANDS SINCE THE REAL ESTA TE PRICES WERE MOVING UP. THE AO HAS CLEARLY BROUGHT ON REC ORD THE FACT THAT THE LANDS WERE NOT UNDER CULTIVATION. THE CONTENTION 12 OF THE APPELLANT THAT MAZE WAS GROWN AND USED FOR S ELF CONSUMPTION IS A MADE UP STORY. NO AGRICULTURAL INC OME HAS BEEN SHOWN BY THE APPELLANT FROM THE AGRICULTURAL L AND WHICH HE WAS SUPPOSED TO DO EVEN IF THE PRODUCE WAS USED FOR SELF CONSUMPTION. THE AO HAS CLEARLY BROUGHT ON RECORD T HE FACT THE LAND WAS PURCHASED AT LOW PRICES FROM MARGINAL FARMERS AND SOLD WITHIN A SHORT INTERVAL OF TIME CO INDUSTR IAL HOUSES FOR EARNING HUGE PROFITS. THE LANDS WERE THEREFORE NOT HELD AS AGRICULTURAL LANDS BY THE APPELLANT. THERE IS NO DOUBT THAT THE REVENUE RECORDS SHOW THAT THE LANDS ARE AGRICUL TURAL IN NATURE AND HAVE BEEN CULTIVATED BUT THIS IS ONLY AN EVIDENCE CREATED BY THE APPELLANT SINCE HE IS A CHARTERED AC COUNTANT AND VERY WELL KNOWS THE PROVISIONS OF LAW . THE REVENUE RECORDS HAVE BEEN MAINTAINED BY THE APPELLANT TO CR EATE A DEFENSE THAT THE LANDS SOLD ARE AGRICULTURAL, IN TH E PRESENT CASE, THE FACTS AS THEY ACTUALLY EXIST ARE DIFFEREN T FROM THE ARRANGEMENT MADE BY THE APPELLANT IN THE FORM OF RE VENUE RECORDS AND HENCE IT IS THE SUBSTANCE WHICH HAS TO GOVERN THE FIELD AND NOT THE FORM. IN THE PRESENT CASE, THE SU BSTANCE IS THAT THE APPELLANT PURCHASED AND SOLD LANDS FOR EAR NING PROFIT AND NOT FOR AGRICULTURAL PURPOSES THOUGH IN FORM HE HAS CREATED EVIDENCE IN THE SHAPE OF REVENUE RECORDS TO SHOW THAT THE LANDS ARE AGRICULTURAL. THE CONTENTION OF THE A PPELLANT ARE REJECTED. THE AO HAS RIGHTLY HELD THAT THE LAND S SOLD BY THE APPELLANT ARE NOT AGRICULTURAL AND HENCE THE PR OFIT EARNED ON THE SALE OF LANDS IS NOT EXEMPT WITHIN THE MEANI NG OF SECTION 2(14)(III) OF THE I.T. ACT. THE FIRST GROUN D OF APPEAL IS REJECTED. 7. THE SECOND GROUND OF APPEAL IS THAT THE AO HAS E RRED IN TREATING THE PROFITS ON SALE OF LANDS AS BUSINESS I NCOME OF THE ASSESSEE AND NET EXEMPT INCOME. THE AO OBSERVED THA T THE COURTS HAVE LAID DOWN VARIOUS TESTS OR FACTORS TO B E TAKEN INTO ACCOUNT IN DETERMINING WHETHER THE ASSESSEE IS INDU LGING IN A BUSINESS ACTIVITY AND THE NATURE OF HIS INCOME IS B USINESS INCOME OR IT IS CAPITAL GAIN INCOME. THE AO EXAMINE D THE CASE OF THE APPELLANT IN THE LIGHT OF THE GENERAL PRINCI PLES LAIC- DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF G. VENKATASWAMY NAIDU & COMPANY VERSUS CIT (35 ITR 594 ) WHICH ARE NATURE AND QUANTITY OF THE ASSET PURCHASE D AND RESOLD AND THE REPETITION OF THE TRANSACTION. THE A O MENTIONED THAT THERE IS PRESENCE OF THESE FACTORS IN THE CASE OF THE ASSESSEE AS HE HAS BEEN PURCHASING AND SELLING LAND S IN VERY LARGE QUANTITY AND THROUGHOUT THE YEAR AND THE TRAN SACTIONS RUN INTO HUNDREDS OF BIGHAS OF LAND PURCHASED AND S OLD. THERE IS REPETITION OF THE TRANSACTIONS. THE AO MENTIONED THAT THE HON'BLE SUPREME COURT HAS FURTHER DISCUSSED THE TES T OF INTENTION AND IN CASES WHERE ME PURCHASE HAS BEEN M ADE SOLELY AND EXCLUSIVELY WITH THE INTENTION OF RESALE AT A PROFIT AND THE PURCHASER HAS NO INTENTION OF HOLDING THE P ROPERTY FOR HIMSELF OR OTHERWISE ENJOYING IT OR USING IT, THE P RESENCE OF SUCH INTENTION IS A RELEVANT FACTOR AND UNLESS IT I S OFF-SET BY THE PRESENCE OF OTHER FACTORS, IT WOULD RAISE A STR ONG PRESUMPTION THAT THE TRANSACTION IS ADVENTURE IN TH E NATURE OF TRADE. THE AO HELD THAT THE ASSESSEE HAS PURCHASED THE LANDS JUST FEW MONTHS BEFORE THE SALE AT A VERY LOW COST FROM MARGINAL FANNERS AND CONSOLIDATED INTO LARGE CHUNKS TO SELL IT 13 TO BIG INDUSTRIAL HOUSES AT HUGE PROFIT. THE ASSESS EE PURCHASED LAND BUT NEVER GOT IT REGISTERED IN HIS NAME. THE A SSESSEE GOT THE POWER OF ATTORNEY FROM THE SELLERS IN THE NAME OF ONE SH HARISH AGGARWAL, RESIDENT OF VILLAGE JHARMAJRI, TEH SIL NALAGARH, DISTRICT, SOLAN. A NEW BUYER WAS FOUND BY THE ASSESSEE IN THE SAME YEAR OF PURCHASE AND THE LAND WAS DIRECTLY REGISTERED IN THE NAME OF THE BUYER. THIS HAS BEEN ADMITTED BY ME ASSESSEE. THIS SHOWS THAT THE ASSESS EE HAD NO INTENTION TO HAVE THE OWNERSHIP OF THE ASSET BUT TO DISPOSE IT OFF AT THE EARLIEST. THE AO RELIED ON THE DECISION IN THE CASE OF KARAM CHAND THAPAR AND BROTHERS (P) LTD VS. CIT (19 71) 83 ITR 899 IN WHICH IT WAS HELD BY THE SUPREME COURT T HAT THE CIRCUMSTANCE THAT THE ASSESSEE HAD SHOWN CERTAIN AS SETS AS INVESTMENT IN ITS BOOKS AS WELL AS ITS BALANCE SHEE T WAS BY ITSELF NOT A CONCLUSIVE CIRCUMSTANCE, THOUGH IT WAS A RELEVANT CIRCUMSTANCE. THE AO ALSO RELIED ON DECISION OF THE AUTHORITY FOR ADVANCE RULINGS ( AAK ) (288 ITR 641. THE AO CONCLUDED THAT THE ASSESSES PURCHASED THE LANDS WITH THE INTE NTION OF MAKING PROFIT ON THEIR SALE AND THUS IS ENGAGED IN A BUSINESS ACTIVITY. 7.1 THE COUNSEL FOR THE APPELLANT ON THE OTHER HAND FIRSTLY ARGUED THAT THE DECISIONS RELIED UPON BY THE AO IN THE CASES G. VENKATASWANIY NAIDU & COMPANY V. CIT (35 ITR 594 ), KARAM CHAND THAPAR AND BROTHERS (P) LTD. V. CIT (19 71) 83 ITR 899 AND THE DECISION OF THE AUTHORITY FOR ADVAN CE RULINGS (AAR) (282 ITR641) ARE NOT APPLICABLE SINCE THE FACTS ARE DIFFERENT. SECONDLY THE COUNSEL ARGUED TH AT THE AGRICULTURAL LANDS PURCHASED DURING THE YEAR 2003-2 004 WERE CLASSIFIED AS THE FIXED ASSETS IN THE BOOKS OF ACCO UNT AS WELL AS IN THE BALANCE SHEET. THEREFORE, THE HOLDING OF THESE LANDS AS FIXED ASSETS AND NOT AS STOCK IN TRADE SUPPORTS THE CONTENTION OF THE ASSESSEE THAT THESE WERE THE CAPI TAL ASSETS AND WERE NOT MEANT FOR TRADING PURPOSES. THE AGRICU LTURAL LAND WAS PURCHASED IN BIGHAS AND WAS SOLD IN BIGHAS WITHOUT THERE BEING ANY ATTEMPT TO DEVELOP THE LAND AND CUT TING IT INTO PLOTS AND THEN TO SELL IT. NO ATTEMPT WAS MADE TO P ROVIDE ANY AMENITIES OR TO DEVELOP ANY COLONY. A NORMAL OPPORT UNITY AROSE IN THE MARKET FOR SALE OF THESE AGRICULTURAL LANDS TO INCREASE THE WEALTH. THIRDLY THE COUNSEL ARGUED THA T SALE OF SOME SMALL PIECES OF LAND WAS MADE TO IMPROVE THE L AND PORTFOLIO AND CONSOLIDATION OF THE SAME INTO BIGGER PIECES OF LAND SO THAT AGRICULTURAL ACTIVITIES, MAY BE DONE S MOOTHLY. THE COUNSEL HAS RELIED ON SOME CASE LAWS WHICH HAVE BEEN DISCUSSED ASPART OF HIS WRITTEN SUBMISSIONS SUPRA. 7.2 ON CAREFUL CONSIDERATION OF THE ABOVE FACTS AND SUBMISSION, I FIND THAT THE AO HAS RIGHTLY TREATED THE PROFIT ON SALE OF LAND AS BUSINESS INCOME OF THE APPELLANT . THE AO HAS CLEARLY BROUGHT ON RECORD THE FACTS THAT THE AP PELLANT HAS BEEN PURCHASING AND SELLING LANDS IN LARGE QUANTITY THROUGH OUT OF THE YEAR AND THERE IS REPETITION OF TRANSACT IONS. THE DETAILS OF THE SALE/PURCHASE OF LANDS MADE BY THE A PPELLANT ARE GIVEN ON PAGE 7 & 8 (SUPRA). THESE DETAILS CLEA RLY SHOW THAT THE INTENTION OF THE APPELLANT WAS TO EARN PRO FIT ON SALE OF THE LAND. IT IS FURTHER INTERESTING TO NOTE THAT THE APPELLANT 14 DID NOT GET THE SALE DEEDS OF LANDS EXECUTED IN HIS OWN NAME BUT PURCHASED THE LAND ON POWER OF ATTORNEY IN THE NAME OF ONE HARISH AGGARWAL AND SOLD THAT THE LAND BY GETTI NG THE SALE DEEDS EXECUTED DIRECTLY IN THE NAME OF PURCHASERS T HROUGH THE POWER OF ATTORNEY. THIS ACTION OF THE APPELLANT CLE ARLY SHOWS THAT HE NEVER HAD INTENTION CO HOLD THE LAND FOR AG RICULTURAL PURPOSES BUT TO SELL THEM FOR EARNING PROFIT. THE E NTRIES IN THE REVENUE RECORDS ARE NOTHING BUT EVIDENCE CREATED BY THE APPELLANT WHO HAPPENS TO BE A CHARTERED ACCOUNTANT. THE ARGUMENT OF THE COUNSEL THAT THE AGRICULTURAL LANDS PURCHASED DURING THE YEAR 2003-2004 WERE CLASSIFIED AS THE FI XED ASSETS IN THE BOOKS OF ACCOUNT AS WELL AS IN THE BALANCE S HEET AND THAT THESE WERE CLC CAPITAL ASSETS AND WERE NOT MEANT FOR TRADING PURPOSES IS DEVOID OF ANY MERIT AND IS REJE CTED. PASSING OF ENTRIES IN THE BOOKS OF ACCOUNT OR THE B ALANCE SHEET EAR-NOT DETERMINE THE INTENTION OF THE APPELLANT SI NCE IT IS THE SUBSTANCE WHICH HAS TO GOVERN THE FIELD AND NOT THE FORM. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE THE PR OFIT MOTIVE AND THE INTENTION OF THE APPELLANT TO EARN PROFIT I S CLEAR. THE AO HAS RIGHTLY TREATED THE PROFIT ON SALE OF LANDS AS BUSINESS INCOME. THE SECOND GROUND OF APPEAL IS ALSO REJECTE D. 9. THE ASSESSEE APPELLANT SUBMITTED BEFORE THE CIT( A) THAT THE ASSESSEE IS A PRACTICING C.A. AND BONAFIDE HIMACHAL I AGRICULTURIST, SINCE 20.12.2002. DURING THE FINANCIAL YEAR 2003-04 , THE ASSESSEE PURCHASED 82.18 BIGHAS RURAL AGRICULTURE LAND IN HI MACHAL PRADESH BEYOND MUNICIPAL LIMITS OR CANTONMENT BOARD. THE L AND WAS PURCHASED WITH THE INTENTION TO DO AGRICULTURE OPER ATIONS AND THE SAME WAS SHOWN AS FIXED ASSET, IN THE AUDITED BALAN CE SHEET, AS ON 31.3.2004. DURING THE RELEVANT A.Y. 2005-06 (F.Y. 2004-05), THE ASSESSEE SOLD 52.06 BIGHAS OF LAND AND PURCHASED 28 .17 BIGHAS OF LAND AND THE LAND WAS SHOWN AS FIXED ASSET, IN THE AUDITED BALANCE- SHEET AS ON 31.3.2005. THE ASSESSEE STATED THAT TH E PURPOSE OF PURCHASING THE LAND WAS TO CARRY OUT AGRICULTURAL A CTIVITIES, ON A LARGER CHUNK. IT WAS, FURTHER, CONTENDED BY THE ASS ESSEE THAT THE AGRICULTURAL LANDS WERE SITUATED BEYOND MUNICIPAL L IMITS, AT VILLAGE BHATOLI KALAN (HP) AND WERE BEING USED FOR AGRICULT URAL ACTIVITIES, AT THE TIME OF PURCHASE AND SALE, CLASSIFIED IN THE RE VENUE RECORDS AS AGRICULTURE LANDS. HENCE, THE SAID LAND IS NOT CAPI TAL ASSET WITHIN THE MEANING OF SECTION 2(14)(III) OF THE ACT. THE ASSESSEE AT PAGE 23 OF THE PAPER BOOK, FILED IN FORM NO. II, KHASRA GIRDAW ARI FROM 2002 TO 2007 IN RESPECT OF `LANDS UNDER THE HEAD MAUJA; BHA TOLI KALAN, HADBAST NO. 214, PARGNA DHARAMPUR, THE. BADDI, DIST T. SOLAN, INDICATING FULL DETAILS OF THE LAND, AREA, NAME OF THE OWNER, KHASRA NUMBER, CROPS GROWN DURING THE PERIOD. A BARE PERU SAL OF SUCH DOCUMENTARY EVIDENCE REVEALS THAT THE LAND WAS UNDE R AGRICULTURAL OPERATION FROM 2002 TO 2007. IN VIEW OF THIS, THE OBSERVATIONS OF THE AO, AS CONTAINED IN PARA 7 OF THIS ORDER, ARE FACTU ALLY INCORRECT. THE REVENUE HAS FAILED TO REBUT THE CONTENTS OF DOCUMEN TARY EVIDENCE, ADDUCED BY THE APPELLANT. 9 (I) THE ASSESSEE, IN THE RETURN OF INCOME FOR T HE ASSESSMENT YEAR 2005-06, CLAIMED THE PROFIT ON THE SALE OF RURAL AG RICULTURE LAND OF RS.82,01,796/- AS EXEMPT U/S 10(37) OF THE ACT. IT WAS, FURTHER, SUBMITTED BEFORE THE CIT(A), THAT REQUISITE DOCUMEN TS AND EXPLANATIONS WERE FILED BEFORE THE AO BUT THE AO RE JECTED THE SAME 15 WITHOUT ANY BASIS AND TREATED THE SURPLUS, EMANATIN G FROM THE SALE OF LANDS, AS BUSINESS PROFIT. 9(II) IT WAS AGAIN REITERATED BY THE APPELLANT TH AT THE LAND IS NOT CAPITAL ASSET, WITHIN THE MEANING OF SECTION 2(14)( III) OF THE ACT. IT WAS ALSO CONTENDED BEFORE THE CIT(A) THAT THE GENER AL TESTS OR GUIDELINES LAID DOWN BY THE HON'BLE SUPREME COURT, IN THE CASE OF SARIFABIBI MOHMED IBRAHIM & OTHERS V CIT (SUPRA) AR E NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, THE FA CTS BEING DIFFERENT AND DISTINGUISHABLE. IN THAT CASE, THE LAND IN QUE STION WAS SITUATED WITHIN THE MUNICIPAL LIMITS OF SURAT AND THE SAME W AS NOT CULTIVATED FOR FOUR YEARS PRIOR TO SALE AND ALSO THE OWNERS WE RE NOT BONAFIDE AGRICULTURISTS. THE HON'BLE APEX COURT, AFTER CONS IDERING VARIOUS DECISIONS, LAID DOWN GENERAL GUIDELINES AND TESTS, FOR THE PURPOSE OF DETERMINATION OF THE LAND AS AGRICULTURAL LAND OR O THERWISE, DEPENDING ON THE FACTS OF EACH CASE. THE AO ALSO R EFERRED TO THE DECISION, IN THE CASE OF BEGUMPET PALACE (SUPRA) WH EREIN THE LAND IN QUESTION WAS SITUATED WITHIN THE MUNICIPAL LIMITS O F HYDERABAD AND HAD BUILDINGS ENCLOSED WITHIN THE COMBINED WALLS AN D WAS NOT PLOUGHED OR TILLED. HOWEVER, THE FACTS OF THE PRES ENT CASE ARE ENTIRELY DIFFERENT AND, HENCE, DISTINGUISHABLE FROM THE FACTS OF THE LAND, ON WHICH THE CASE OF BEGUMPET PALACE (SUPRA) WAS DECIDED BY THE HON'BLE SUPREME COURT. THE AO ALSO REFERRED TO THE DECISION OF THE GUJRAT HIGH COURT, IN THE CASE OF CIT V SIDHARA TH J.DESAI (SUPRA)AND BOMBAY HIGH COURT, IN THE CASE OF CIT V. V.A.TRIVEDI (SUPRA). IT IS ADDED THAT THESE CASES WERE MENTION ED AND EXPLAINED BY THE HON'BLE SUPREME COURT, IN THE CASE OF SARIFA BIBI MOHMED IBRAHIM & OTHERS V CIT (SUPRA). THE HON'BLE SUPREM E COURT OBSERVED THAT; WHETHER A LAND IS AGRICULTURAL LAND OR NOT, IS ESSENTIALLY A QUESTION OF FACT. SEVERAL DECISIONS H AVE BEEN EVOLVED IN THE DECISIONS OF THIS COURT AND HIGH COURTS, BUT A LL OF THEM ARE MORE IN THE NATURE OF GUIDELINES. THE QUESTION HAS TO BE ANSWERED IN EACH CASE HAVING REGARD TO THE FACTS AND CIRCUMS TANCES OF THAT CASE. THERE MAY BE FACTORS, BOTH FOR AND AGAINST T HE PARTICULAR POINT OF VIEW. THE COURT HAS TO ANSWER THE QUESTIO N ON CONSIDERING OF ALL OF THEM BY A PROCESS OF VALUATION. THE INFE RENCE HAS TO BE DRAWN ON A CUMULATIVE CONSIDERATION OF ALL THE RELE VANT FACTS. 10. IT WAS CONTENDED BY THE ASSESSEE THAT THE APPEL LANT IS A BONAFIDE HIMACHALI AGRICULTURIST AND PURCHASED LAND FOR AGRICULTURAL PURPOSES. A PERSON WHO IS NOT A HIMACHALI, CANNOT PURCHASE AGRICULTURAL LAND, IN THE STATE OF HIMACHAL. THE L ANDS WERE PURCHASED FROM THE OWNERS, WHO THEMSELVES WERE CULT IVATING THESE LANDS, SINCE MANY YEARS. THE LANDS IN QUESTION WER E SITUATED IN RURAL BACKWARD AREA OF VILLAGE BHATOLI KALAN, WHICH FALLS BEYOND THE MUNICIPAL LIMITS OF ANY NAGAR PANCHAYAT OR CANTONME NT BOARD. THE LANDS WERE PURCHASED FOR USE OF AGRICULTURAL PURPOS E WITHOUT ANY INTENTION TO SELL IT. IT WAS, FURTHER, CONTENDED T HAT THE LANDS WERE PERMANENTLY USED FOR AGRICULTURAL PURPOSES AT THE T IME OF PURCHASE AND ALSO DURING THE HOLDING OF THE SAME AND SALE TH EREOF BY THE ASSESSEE. THE SAID LAND WAS CLASSIFIED AS AGRICULTU RAL LAND, BEING USED FOR AGRICULTURAL PURPOSES, IN THE REVENUE RECO RDS. THE LAND WAS SHOWN AS FIXED ASSET IN BOOKS OF ACCOUNT OF THE ASS ESSEE. AT THE TIME OF SALE, CHARACTER OF THE LAND WAS AGRICULTURAL ONE AND EVEN TODAY, SOME LANDS ON WHICH FACTORIES HAVE NOT BEEN ESTABLI SHED, ARE CLASSIFIED AS AGRICULTURAL LAND UNDER REVENUE RECOR DS. THE ASSESSEE APPELLANT, FURTHER, CONTENDED THAT THE AO CALLED FO R INFORMATION, 16 FROM THE REVENUE AUTHORITIES, NALAGRH, BUT NO REFER ENCE OF THE SAME HAS BEEN MADE IN THE ASSESSMENT ORDER PASSED BY HER . THE REPORT SUBMITTED TO THE AO HAD BEEN SECURED BY THE ASSESSE E UNDER RTI ACT. WE HAVE ALREADY REPRODUCED THE SAID REPORT IN THE FOREGOING PARAGRAPHS. THE SAID REPORT DEMOLISHES THE FINDINGS OF THE AO . THE ASSESSEE REFERRED TO THE DECISION OF THE MADRAS HIG H COURT IN THE CASE OF M.S.SRINIVASA NAICKER V ITO (2007) 292 ITR 481, IN WHICH THE HON'BLE HIGH COURT HELD THAT CHARACTER OF LAND, AT THE TIME OF SALE IS RELEVANT. TILL THE DATE OF SALE, AGRICULTURAL OPERATIONS WER E CARRIED OUT, ON THE LANDS AND LANDS WERE REGISTERED AS AGRICULTURAL LAND IN THE REVENUE RECORDS, IT WAS NOT RELEVANT TH AT PURCHASER WAS GOING TO USE THE LAND FOR NON-AGRICULTURAL PURPOSES . IT WAS STRESSED THAT THE AO, IN THE PRESENT CASE OVER-EMPHASIZED ON THE POTENTIAL USE OF THE LAND IN QUESTION BY THE PURCHASER, AFTER ITS SALE. IT IS THE NATURE AND CHARACTER OF THE LAND, ON THE DATE OF PU RCHASE AND SALE, WHICH IS RELEVANT AND NOT THE POTENTIAL USE BY THE PURCHASER OF THE SAID LAND, FOR THE PURPOSE OF DETERMINING WHETHER T HE LAND IS AGRICULTURAL ONE OR OTHERWISE. THE ASSESSEE HAD DI STINGUISHED ALL THE CASE LAWS RELIED UPON BY THE AO AND STRESSED THAT T HE DECISION, IN THE CASE OF CIT V SIDHARATH J.DESAI, RELIED UPON BY THE AO (SUPRA) WHEREIN CERTAIN CASES HAVE BEEN MENTIONED BY THE HO N'BLE GUJRAT HIGH COURT, HELP THE CASE OF THE ASSESSEE AND NOT T HAT OF THE REVENUE. IT WAS, FURTHER, ARGUED BY THE ASSESSEE BEFORE THE CIT(A) THAT AGRICULTURAL LAND WAS PURCHASED IN BIGHAS AND SOLD IN BIGHAS, WITHOUT THERE BEING ANY ATTEMPT TO DEVELOP THE LAND AND CUTTING IT INTO PLOTS AND TO SELL THE SAME. NO AMENITIES WERE PROVIDED FOR THE PURPOSE OF DEVELOPING ANY COLONY ON SUCH LANDS. TH EREFORE, GENERAL TESTS OR GUIDELINES LAID DOWN, IN THE DECISION OF T HE HON'BLE SUPREME COURT, IN THE CASE OF SARIFABIBI MOHMED IBRAHIM & O THERS V CIT (SUPRA) CLEARLY DEMONSTRATE THAT THE LAND OF THE PR ESENT APPELLANT IS AGRICULTURAL LAND. THE AO, AS WELL AS THE CIT(A), PLACED RELIANCE ON THE DECISION OF THE HON'BLE SUPREME, COURT IN THE C ASE OF SARIFABIBI MOHMED IBRAHIM & OTHERS V CIT (SUPRA) TO SUPPORT TH EIR FINDINGS IN THE MATTER. HOWEVER, THE FACTS OF THE PRESENT CASE DO NOT HAVE THE SEMBLANCE, OF RESEMBLANCE TO THE FACTS OF THE CASE, RELIED UPON BY THE REVENUE AUTHORITIES. THE HON'BLE SUPREME COURT , IN THE CASE OF SARIFABIBI MOHMED IBRAHIM & OTHERS V CIT (SUPRA), W AS DEALING WITH A CASE WHERE THE APPELLANTS WERE CO-OWNERS OF A PLOT OF LAND, INHERITED FROM AN ANCESTRAL, THROUGH THEIR FATHER. ON MARCH 15, 1967, THEY AGREED TO SELL THE LAND, TO A HOUSING CO OPERATION SOCIETY AND, TO ENABLE THEM TO COMPLETE THE TRANSACTIONS, T HEY APPLIED IN JUNE, 1968 AND MARCH, 1969 FOR PERMISSION TO TRANSF ER THE LAND FOR NON-AGRICULTURAL PURPOSES AND THE PERMISSION WAS GR ANTED IN APRIL,1969. THE APPELLANT EXECUTED A NUMBER OF SAL E DEEDS IN MAY,1969 AND THE PURCHASING SOCIETY APPLIED FOR CON VERSION OF THE LAND TO NON-AGRICULTURE PURPOSE VIZ CONSTRUCTION OF BUILDING. THE QUESTION BEFORE THE HON'BLE SUPREME COURT WAS, WHET HER THE PROFIT FROM THE SALE OF THE LAND WAS ASSESSABLE TO CAPITAL GAINS TAX. THE APPELLANTS WERE CO-OWNERS OF THE PLOT OF LAND, SITU ATED WITHIN THE REVENUE LIMITS OF NAWAN GAON VILLAGE. IT IS SITUATE D WITHIN THE MUNICIPAL LIMITS OF SURAT MUNICIPALITY AND IS SITUA TED AT A DISTANCE OF 1 K.M. FROM SURAT RAILWAY STATION. ON MARCH 28 , 1958, A PORTION OF THE SAID PLOT WAS CONVERTED INTO NON-AGR ICULTURAL PURPOSES, AFTER OBTAINING REQUISITE PERMISSION U/S 63 OF THE BOMBAY LAND REVENUE CODE. A CHAWL WAS BUILT THEREON. THE SAID PLOT WAS SOLD TO A NON-AGRICULTURIST FOR NON AGRICULTURAL PU RPOSES. IT IS SOLD TO A COOPERATIVE HOUSING SOCIETY FOR CONSTRUCTION O F HOUSES AND 17 BUILDINGS. THE SAID LAND WAS SOLD ON PER SQUARE YA RD BASIS AT RS.23/- PER SQ.YD., ON MAY 30,1969. NO AGRICULTURE OPERATIONS HAD BEEN CARRIED ON FOR THE LAST FOUR YEARS. AN APPLIC ATION FOR PERMISSION TO SELL THE LAND TO A HOUSING SOCIETY U/ S 63 OF LAND REVENUE CODE WAS MADE IN AUGUST, 1968, SOME 9 MONTH S BEFORE THE ACTUAL SALE EFFECTED IN MAY, 1969 AND IT WAS GRANTE D ON FEB. 24, 1969, ABOUT A MONTH PRIOR TO THE ACTUAL SALE. APPL ICATION TO CONVERT THE LAND UNDER TRANSACTION TO NON-AGRICULTURAL USER , WAS NOT MADE BEFORE THE SALE DEED WAS EXECUTED ON MAY 30, 1969. IT WAS SUBSEQUENTLY MADE BY THE PURCHASER HOUSING SOCIETY MUCH LATER ( BUT THEN, PERMISSION COULD HAVE BEEN APPLIED FOR, I F SO DESIRED AND COULD HAVE BEEN REFUSED ARBITRARILY; IT IS COMMON E XPERIENCE THAT IT IS GRANTED ALMOST AS A MATTER OF COURSE ). IN FACT , IT IS ON RECORD THAT THE PURCHASER SOCIETY COMMENCED ACTUAL CONSTRU CTION ON JUNE 2, 1969, I.E. WITHIN 3 DAYS OF THE EXECUTION OF THE SALE DEED IN ITS FAVOUR BY THE ASSESSEE, IN ANTICIPATION OF THE PERM ISSION. NO AGRICULTURAL OPERATIONS WERE CARRIED ON SINCE 1964- 65 TILL THE SALE IN 1969. IT IS IN SUCH FACTUAL MATRIX, THE HON'BLE AP EX COURT HELD THAT SUCH A PIECE OF LAND CANNOT BE TREATED AS NON-AGRIC ULTURAL LAND. 11. IT IS SIGNIFICANT TO RECORD HERE THAT IN THE PR ESENT CASE, THE TEHSILDAR, NALAGARH, DISTT. SOLAN (HP) VIDE LETTER DATED 7.1.2008, ADDRESSED TO ACIT, PANCHKULA CIRCLE, PANCHKULA, FUR NISHED CERTAIN VITAL AND MATERIAL DETAILS, IN RESPECT OF LANDS IN QUESTION. THE AO CALLED FOR SUCH INFORMATION U/S 133(1) OF THE ACT, IN THE CASE OF THE ASSESSEE APPELLANT, FOR THE PURPOSE OF SUPPORTING H ER FINDINGS WHILE FRAMING THE IMPUGNED ASSESSMENTS. HOWEVER, ON RECE IPT OF SUCH INFORMATION, THE AO DID NOT DISCUSS SUCH INFORMATIO N AND NO RELIANCE WAS PLACED ON SUCH INFORMATION EMANATING FROM THE O FFICE OF TEHSILDAR, WHILE PASSING THE ASSESSMENT ORDER, FOR THE REASONS BEST KNOWN TO HER. THE ASSESSEE CALLED FOR SUCH INFORMA TION UNDER RTI ACT. THE CONTENTS OF THE SAID LETTER HAVE BEEN REP RODUCED ABOVE. A BARE PERUSAL OF THE LETTER IN QUESTION REVEALS THAT THE TEHSILDAR SUBMITTED A COPY OF JAMABANDI OF LAND BEARING KHASR A NO. 1341/3, 1341/2 1338 1339 1336 1337 1335 1319 1345/1, 1347/1 IN VILLAGE BHATOLI KALAN, TO THE ACIT, PANCHKULA, I T IS CATEGORICALLY MENTIONED IN THE SAID LETTER THAT THE ABOVE LAND DO ES NOT FALL UNDER THE MUNICIPAL CORPORATION, NAC, NAGAR PANCHAYAT, B ADDI, TO ABOVE KHASRA LAND IS APPROXIMATELY 10 KM. THE DISTANCE O F THE LAND IS MORE THAN 8 KM. THE LAND IS AWAY FROM NAGAR PANCHA YAT. THE SAID LAND WAS USED FOR AGRICULTURAL PURPOSES BEFORE SELL ING. IT IS FURTHER INDICATED IN THE LETTER THAT THE HIMACHALI AGRICULT URIST DOES NOT REQUIRE ANY PERMISSION FROM GOVERNMENT WHILE BUYING OR SELLING THE LAND, BUT IF THE PURCHASER IS NON-AGRICULTURIST, TH EN IT IS NECESSARY THAT HE HAS TO OBTAIN PERMISSION FROM GOVERNMENT U/ S 118 OF HIMACHAL PRADESH TENANCY AND LAND REFORMS RULES, 19 72. THE ABOVE SAID LAND WAS AGRICULTURAL LAND AT THE TIME O F PURCHASE AND SALE. ON RELEVANT DATE, THE ABOVE LAND WAS AGRICUL TURAL LAND AND THE PURCHASER HAS PURCHASED THIS LAND FOR SETTING UP IN DUSTRIAL UNIT AND WHEN THE INDUSTRY IS SET UP ON KHASRA NUMBER, THEN THE LAND BECOMES NON-AGRICULTURAL LAND. THE ABOVESAID LAND WAS REGU LARLY USED FOR AGRICULTURAL PURPOSES. THE ABOVE LAND FALLS UNDER RURAL AREAS AND AT THAT TIME, WAS NOT DEVELOPED AND ALL LANDS SURROUND ING THIS LAND, WERE USED FOR AGRICULTURAL PURPOSES. THE ABOVE LAND HAS NOT DEVELOPED INTO ANY PLOTS OR ROADS. THE PERMISSION FOR PURCHASE OF LAND IS OBTAINED BY NON-AGRICULTURIST PURCHASER. L AND WAS SOLD ACCORDING TO THE BIGHAS OR BISWAS AND NOT BY YARDS. 18 12. HAVING REGARD TO THE ABOVE FACTS, IT IS EVIDENT THAT THE DECISION OF HON'BLE APEX COURT, IN THE CASE OF SARIFABIBI MO HMED IBRAHIM & OTHERS V CIT (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, INCLUDING THE TESTS AND GUIDELINES LAID DOWN BY THE HON'BLE SUPREME COURT, THEREIN. IN THE PRESENT CASE, THE LAND DOES NOT FALL UNDER THE DEFINITION OF CAPITAL ASSET, AS CONTAINED U/S 2(14) (III) (A) (B) OF THE ACT. THE REVENUE FAILED TO BRING ON RECORD ANY MAT ERIAL, TO REBUT THE CLEAR CONTENTS AND CONTENTIONS OF THE LETTER, EMANA TING FROM THE OFFICE OF TEHSILDAR, IN THE MATTER. THE SAID CASE LAW RELI ED UPON BY THE REVENUE WAS DECIDED BY THE APEX COURT WHEREBY THE L AND WAS SITUATED WITHIN THE MUNICIPAL LIMITS OF SURAT. IN THE PRESEN T CASE, LAND IS SITUATED OUTSIDE THE MUNICIPAL LIMIT. IN THE CASE L AW RELIED UPON BY THE REVENUE, PLOT WAS SOLD ON PER SQ.YD. BASIS WHER EAS, IN THE PRESENT CASE, LAND WAS PURCHASED AND SOLD ON BIGHA BASIS. IN THE PRESENT CASE, AGRICULTURAL OPERATIONS WERE UNDERTAKEN ON TH E SAID LAND, ON THE DATE OF PURCHASE AS WELL AS ON THE DATE OF SALE , AS IS EVIDENT FROM CLEAR CONTENTS OF THE LETTER OF TEHSILDAR, REPRODUC ED ABOVE. HOWEVER, IN THE CASE, RELIED UPON BY THE REVENUE, NO AGRICUL TURAL OPERATIONS WERE CARRIED ON, FOR THE LAST FOUR YEARS. THE ASSE SSEE APPELLANT, IN THE CASE RELIED UPON BY THE REVENUE, HAD APPLIED FO R PERMISSION TO SELL THE LAND FOR NON-AGRICULTURAL PURPOSES U/S 63 OF THE LAND REVENUE CODE. IN THE PRESENT CASE, NO SUCH PERMISSI ON WAS EVER APPLIED FOR BY THE APPELLANT. IT IS, FURTHER, ADDED THAT 15 YEARS BACK, A PARCEL OF 2607 SQ.YD. OUT OF THIS VERY LAND, IN T HE CASE RELIED UPON BY THE REVENUE, WAS CONVERTED BY THE ASSESSEE, TO N ON-AGRICULTURAL USE, BY CONSTRUCTING A CHAWL ON IT, BY THE OWNER TH EMSELVES. THERE IS NO SUCH CONVERSION OF LAND IN THE PRESENT CASE. IN VIEW OF THIS, THE FACTS OF THE PRESENT CASE ARE MATERIALLY DIFFERENT AND DISTINGUISHABLE AND HENCE, THE DECISION OF THE HON'BLE SUPREME COUR T, IN THE CASE OF SARIFABIBI MOHMED IBRAHIM & OTHERS V CIT (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE ASSESSEE HAD ADDUCED EVIDENCE IN THE FORM OF LETTER FROM TEHSILDAR, REFERRED TO A BOVE, AND KHASRA GIRDAWARI (PB-23) WHEREBY UNREBUTTABLE DETAILS AND INFORMATION HAD BEEN ADDUCED BY THE ASSESSEE. REVENUE HAS FAILED TO REBUT SUCH RELEVANT AND MATERIAL EVIDENCES CONTAINED IN THE SA ID LETTER/DOCUMENT. THIS LETTER IS A DOCUMENTARY EVID ENCE, EMANATING FROM THE OFFICE OF TEHSILDAR AND THE SAME CANNOT BE REBUTTED BY ORAL EVIDENCES, AS HAS BEEN DONE BY THE REVENUE. IN THE CASE OF PARAMJIT SINGH V ITO (2010) 323 ITR 588 (P&H), THE HON'BLE J URISDICTIONAL HIGH COURT HELD THAT IT IS A WELL KNOWN PRINCIPLE T HAT NO ORAL EVIDENCE IS ADMISSIBLE, ONCE THE DOCUMENT CONTAINS ALL THE TERMS AND CONDITIONS, IN THE LIGHT OF THE PROVISIONS OF SECTI ON 91 & 92 OF THE EVIDENCE ACT, WHICH INCORPORATE THE SAID PRINCIPLE. 13. THE LAND IN QUESTION IS RECORDED AS AGRICULTURE LAND, IN THE REVENUE RECORD, ON THE DATE OF PURCHASE AND SALE OF THE SAME. THE LAND IS ASSESSED TO LAND REVENUE. THE ASSESSEE HAS NOT TAKEN ANY STEP TILL THE DATE OF SALE, TO CONVERT THE AGRICULTURAL LAND TO NON- AGRICULTURAL PURPOSES AND TO UNDERTAKE ANY IMPROVEM ENT PROJECT ON SUCH LAND. THE ASSESSEE HAS SHOWN THE LAND AS FIXE D ASSET, IN HIS AUDITED BOOKS OF ACCOUNT. CUMULATIVE EFFECT OF ALL THESE MATERIAL EVIDENCES CLEARLY SUGGESTS THAT THE LAND IN QUESTIO N IS AGRICULTURAL LAND AND THE LAND DOES NOT FALL UNDER THE DEFINITIO N OF CAPITAL ASSET, WITHIN THE MEANING OF SECTION 2(14)(III) OF THE ACT . IT IS, FURTHER, MENTIONED THAT THE FACT THAT THE LAND WAS SOLD TO I NDUSTRIALIST FOR SETTING UP INDUSTRIAL UNITS, IS OF NO LEGAL CONSEQU ENCE, IN DETERMINING THE NATURE AND CHARACTER OF THE LAND IN QUESTION. THE LAND REMAINED 19 AGRICULTURAL LAND TILL IT WAS SOLD TO VARIOUS PARTI ES. THE FUTURE USE BY THE PURCHASER IS ALSO IRRELEVANT AND IMMATERIAL FOR THE PURPOSE OF DETERMINATION OF TRUE CHARACTER AND NATURE OF THE L AND IN QUESTION. THE HON'BLE HIGH COURT OF BOMBAY, IN THE CASE OF CI T V SMT. DEBBIE ALEMAO (2011) 239 CTR (BOM) 2326 HELD THAT LAND, WH ICH WAS SHOWN AS AGRICULTURAL LAND IN THE REVENUE RECORDS AND NEV ER SOUGHT TO BE USED FOR NON AGRICULTURAL PURPOSES BY THE ASSESSEE, TILL IT WAS SOLD, HAS TO BE TREATED AS AGRICULTURAL LAND, EVEN THOUGH NO AGRICULTURE INCOME WAS SHOWN BY THE ASSESSEE FROM THIS LAND AND THEREFORE, NO CAPITAL GAIN WAS TAXABLE ON THE SALE OF THE SAID LA ND. SIMILARLY, HON'BLE GUJRAT HIGH COURT IN THE CASE OF SERCON PVT . LTD. V CIT 136 ITR 881 HELD THAT IT IS WELL SETTLED LAW THAT THE C HARACTER OF THE LAND, NAMELY WHETHER IT IS AGRICULTURAL LAND OR WHETHER I T HAS CEASED TO BE AGRICULTURAL LAND, HAS TO BE JUDGED AS ON THE DATE OF SALE. THE HON'BLE GUJRAT HIGH COURT, ON THE FACTS OF THE CASE , FURTHER, HELD THAT SINCE THE LAND, AT THE TIME OF SALE WAS ENTERED IN GOVERNMENT REVENUE RECORDS AS AGRICULTURAL LAND, A PRESUMPTION AROSE T HAT IT WAS AGRICULTURAL LAND IN CHARACTER AND THE SURPLUS REAL IZED ON ITS SALE WAS NOT CAPITAL GAINS LIABLE TO TAX. 14. THE REVENUE HAS FAILED TO BRING MATERIAL ON REC ORD TO DEMONSTRATE THAT THE ASSESSEE IS A DEALER IN LANDS. THE ASSESSEE HAS SHOWN THE LANDS IN HIS AUDITED BALANCE SHEET AS FIX ED ASSETS AND THIS FACTUM REMAINED UNREBUTTED BY THE REVENUE, AND IS A RELEVANT FACTOR IN UNFOLDING THE INTENTION OF THE ASSESSEE. MERE F REQUENCY OF PURCHASE AND SALE OF LAND IS NOT A CONCLUSIVE EVIDE NCE OF CARRYING ON BUSINESS ACTIVITIES AS TRADER OR DEALER IN LAND. THE HON'BLE BOMBAY HIGH COURT, IN THE CASE OF INDIAN HUME PIPE CO. LTD . V CIT, 195 ITR 386 (BOM) HELD THAT WHERE NO DEVELOPMENT HAS BEEN C ARRIED OUT, TO MAKE THE LAND READILY MARKETABLE AND SALE OF THE PL OT OF LANDS DURING DIFFERENT YEARS, WOULD NOT CONSTITUTE TRANSACTIONS AS A TRADER. SIMILARLY, MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V SMT. BILKISHBAI 225 ITR 570 (MP) HELD THAT REPEATED SALE S AND PURCHASES OF AGRICULTURAL LAND IS NOT ADVENTURE IN NATURE OF TRADE, AS NO SYSTEMATIC BUSINESS ACTIVITIES INVOLVE. THEREFORE, THE SURPLUS ON SALE OF LAND CANNOT BE ASSESSED AS BUSINESS INCOME. SIM ILAR VIEW HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT, IN THE CASE OF CIT V SUSHILA DEVI JAIN 259 ITR 671. 15. HAVING REGARD TO THE FACT-SITUATION OF THE PRES ENT CASE, IT IS EVIDENT THAT THE PRESENT LANDS IN QUESTION DO NOT C ONSTITUTE CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14)(III) OF T HE ACT. THEREFORE, SURPLUS REALIZED ON SALE OF SUCH LANDS CANNOT BE TA XED AS CAPITAL GAINS U/S 45 R.W. SECTION 10(37) OF THE ACT. THE PR OVISIONS OF SECTION 10(37) WERE INSERTED BY THE FINANCE ACT 2004 (NO.2) W.E.F. 1.4.2005. THE REVENUE MERELY MADE AN ASSERTION AND TREATED TH E SURPLUS REALIZED FROM THE SALE OF RURAL AGRICULTURAL LANDS AS BUSINESS PROFIT, WHICH DONT FALL U/S 2(14) OF THE ACT. THEREFORE, HAVING REGARD TO THE FACT-SITUATION OF THE PRESENT CASE, RELEVANT RECORD AND JUDICIAL VERDICTS, THE SURPLUS REALIZED ON SALE OF SUCH LAND , IS NOT TAXABLE RECEIPTS. IN VIEW OF THE ABOVE LEGAL AND ACTUAL DIS CUSSIONS, WE ARE OF THE CONSIDERED OPINION THAT FINDINGS OF THE CIT(A), BASED ON BARE ASSERTIONS, IN THE FACE OF DOCUMENTARY EVIDENCE, FI LED BY THE ASSESSEE, TO SUPPORT HIS CLAIM, AS DISCUSSED ABOVE, CANNOT BE UPHELD. ACCORDINGLY, APPEAL OF THE ASSESSEE IS ALLOWED. 20 16. AS THE FACTS AND GROUNDS OF APPEAL RAISED IN IT A NO. 228/CHD/2010 ARE SIMILAR TO THAT OF RAISED IN ITA N O. 227/CHD/2010, FINDINGS GIVEN IN ITA NO. 227/CHD/2010 WOULD APPLY MUTATIS MUTANDIS TO ITA NO. 228/CHD/2010. 17. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE ALLOWED . 8. SINCE THE FACTS IN THE PRESENT YEAR ARE ALSO IDE NTICAL TO THE FACTS IN THE EARLIER YEAR, THEREFORE, FOLLOWING THE ABOVE ORDER, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESS EE. GROUND NOS. 5 & 6 9. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING THE YEAR, ASSESSEE WAS CONSTRUCTING A COMMERCIAL COMPLE X IN THE NAME OF HOME LAND CITY MALL, WHICH WAS UNDER CONSTR UCTION DURING THE YEAR. IN THE BALANCE SHEET, THE SAME WA S SHOWN AS BUILDING UNDER CONSTRUCTION. VARIOUS ADMINISTRATI VE EXPENSES DURING THE CONSTRUCTION STAGE WERE SHOWN AS PRE-OPE RATIVE EXPENSES. IT WAS NOTICED THAT A SUM OF RS. 490,320/ - ON ACCOUNT OF INTEREST AND A SUM OF RS. 38,400/- ON AC COUNT OF RENT WAS REDUCED FROM THE PRE-OPERATIVE EXPENSES. ON QUERY, THE ASSESSEE SUBMITTED THE FOLLOWING REPLY : 'INTEREST RECEIPT OFRS. 4,90,320/-:- THESE INTEREST RECEIPTS ARE ON FDRS GIVEN FOR ISSUE OF BANK GUARANTEE WHICH WAS GIVEN TO HIMUDA (H.P. GOVT.) FOR REGISTRATION/I SSUE OF LICENSE FOR CONSTRUCTION OF COMMERCIAL COMPLEX, FDR FOR ISSUE O F FOREIGN LETTER OF CREDIT (FLC)FOR IMPORT OF MATERIALS FOR COMMERCIAL COMPLEX AND FDR GIVEN AS SECURITY FOR SECURING CREDIT FACILITIES FROM BANK AND ALSO I NTEREST ON THE SAME HAS ALREADY BEEN INCLUDED IN BANK INTEREST DEBITED IN PREOPERAT IVE EXPENSES. THIS INTEREST IS DIRECTLY LINKED TO THE BUSINESS OF THE ASSESSEE I.E . CONSTRUCTION OF COMMERCIAL COMPLEX AND IS MUCH LOWER THAN THE INTEREST GIVEN T O THE BANK/OTHERS RS. 17,47,480/- DEBITED IN PREOPERATIVE EXPENSES, ON TH E CREDIT FACILITIES TAKEN FOR CONSTRUCTION OF THE SAME COMMERCIAL COMPLEX. BOTH T HE RECEIPT OF INTEREST AND PAYMENT OF INTEREST ARE OF REVENUE NATURE AND FOR T HE SAME BUSINESS ACTIVITY AND HENCE, DIRECTLY RELATED TO EACH OTHER AND BY APPLYI NG THE 'MATCHING PRINCIPLE' ONLY NET INTEREST EXPENSES SHOULD FROM PART OF THE PREOPERATIVE EXPENSES, WHICH ULTIMATELY FROM THE COST OF THE PROJECT AFTER COMPL ETION. IN VIEW OF THE ABOVE, THE INTEREST RECEIPTS IS NOT THE INCOME OF THE ASSESSEE BUT A RECEIPT TO BE REDUCED/NETTED WITH THE EXPENSE OF THE SAME NATURE. ALSO ULTIMATE REVENUE EFFECT IS NIL BECAUSE IF IT IS NOT REDUCED FROM PREOPERATI VE EXPENSES BUT CONSIDERED AS INCOME, THEN PREOPERATIVE EXPENSES I. E. COST OF FI NISHED GOODS WILL INCREASE AND AT THE TIME OF SALE, NET PROFIT WILL REDUCE. 21 RENT/ELECTRICITY CHARGES RECEIPTS OF RS. 38,400/- : - THESE EXPENSES REPRESENT REIMBURSEMENT RECEIVED FRO M THE SUPPLIER, K. K. CONTINENTAL TRADE LTD. WHO SUPPLIED CONCRETE MIXED MATERIAL TO THE ASSESSEE AND AMOUNT WAS GOT REIMBURSED FOR USING THE ASSESSEE'S PLACE AND ELECTRICITY FOR KEEPING MACHINE/MIXER ETC. FOR THE SAME AND BY APPL YING 'MATCHING PRINCIPLE' THIS SHOULD BE REDUCED FROM THE ELECTRICITY EXPENSE S/OTHER MAINTENANCE EXPENSES OF THE ASSESSEE, WHICH ARE SHOWN UNDER PREOPERATIVE EXPENSES. 10. THE ASSESSING OFFICER DID NOT AGREE WITH THE AB OVE SUBMISSIONS AND WAS OF THE OPINION THAT INTEREST AN D RENT INCOME HAS TO BE CHARGED AS INCOME FROM OTHER SOURC ES IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN TH E CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS CI T 227 ITR 172. 11. ON APPEAL, THE ORDER OF ASSESSING OFFICER WAS C ONFIRMED BY LD. CIT(APPEALS). 12. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT MATTER MAYBE REMITTED TO THE FILE OF ASSESSING OFFI CER TO VERIFY IF THERE WAS ANY NEXUS BETWEEN INTEREST RECEIVED AN D INTEREST EXPENDED. 13. ON THE OTHER HAND,, LD. DR, WHILE STRONGLY SUPP ORTING THE ORDER OF CIT(APPEALS) ALSO SUBMITTED THAT ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMI CALS & FERTILIZERS LTD. VS CIT (SUPRA). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND DO NOT FIND ANY FORCE IN THE SUBMISSION OF LD. COUNSEL FOR THE ASSE SSEE AS THERE IS NO MATERIAL TO SHOW THAT THERE WAS ANY NEXUS. I N FACT, IT IS A CASE WHERE INTEREST HAS BEEN RECEIVED ON FDRS WHI CH HAS BEEN REDUCED FROM THE PRE-OPERATIVE EXPENSES, WHICH IS NOT PERMISSIBLE IN VIEW OF THE DECISION OF HON'BLE SUPR EME COURT 22 IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILI ZERS LTD. VS CIT (SUPRA). IN THAT CASE, THE HON'BLE SUPREME COU RT MADE THE FOLLOWING OBSERVATIONS : INCOME-TAX IS ATTRACTED AT THE POINT WHEN THE INCOM E IS EARNED. TAXABILITY OF INCOME IS NOT DEPENDENT UPON ITS DEST INATION OR THE MANNER OF ITS UTILISATION. IT HAS TO BE SEEN WHETHER AT THE POINT OF ACCRUAL, R AMOUNT IS OF A REVENUE NATURE. IF SO, THE AMOUNT WILL HAVE TO BE T AXED. THE QUESTION WHETHER A PARTICULAR RECEIPT IS OF THE NATURE OF INCOME AM FA LLS WITHIN THE CHARGE OF SECTION 4 OF THE INCOME-TAX ACT, 1961, IS A QUESTION OF LAW W HICH HAS TO BE DECIDED BY THE COURT ON THE BASIS OF THE PROVISION OF THE ACT AND THE INTERPRETATION OF THE TERM 'INCOME' GIVEN IN A LARGE UMBER OF DECISIONS OF THE HIGH COURTS, THE PRIVY COUNCIL AND THE SUPREME COURT. INTEREST INCOME IS ALWAYS OF A REVENUE NATURE, UNLE SS IT IS RECEIVED BY WAY OF DAMAGES OR COMPENSATION. IF A PERSON BORROWS MONEY FOR BUSINESS PURPOSES BUT UTILISES THAT MONEY TO EARN INTEREST, HOWEVER TEMPORARILY, THE INTEREST SO GENERATED WILL BE HIS INCOME. THIS INCO ME CAN BE UTILIZED BY THE ASSESSEE WHICHEVER WAY HE LIKES. HE MAY OR MAY NOT DIS-CHARGE HIS LIABILITY TO PAY INTEREST WITH THIS INCOME. MERELY BECAUSE IT WA S UTILISED TO REPAY THE INTEREST ON THE LOAN TAKEN BY THE ASSESSEE, IT DID NOT CEASE TO BE HIS INCOME. WHEN THE QUESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE O R NOT OR WHETHER CERTAIN DEDUCTIONS FROM THAT RECEIPT, ARE PERMISSIBLE IN LA W OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRINCIPLES OF LAW, AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. ACCOUNTING PRACTICE CANNOT OVERRIDE SECTI ON 56 OR ANY OTHER PROVISION OF THE INCOME-TAX ACT. UNDER THE INCOME-TAX ACT, 1961, THE TOTAL INCOME OF A COMPANY IS CHARGEABLE TO TAX UNDER SECTION 4. THE TOTAL INCOME HAS TO BE COMPUTE D IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. SECTION 14 LAYS DOWN THAT FO R THE PURPOSE OF COMPUTATION, INCOME OF AN ASSESSEE HAS TO BE CLASSIFIED UNDER SI X HEADS. IT IS POSSIBLE FOR A COMPANY TO HAVE SIX DIFFERENT SOURCES OF INCOME, EA CH ONE OF WHICH WILL BE CHARGEABLE TO INCOME-TAX. PROFITS AND GAINS OF BUSI NESS OF PROFESSION IS ONLY ONE OF THE HEADS UNDER WHICH A COMPANY'S INCOME IS LIABLE TO BE ASSESSED TO TAX. IF A COMPANY HAS NOT COMMENCED BUSINESS, THERE CANNOT BE ANY QUESTION OF ASSESSMENT OF ITS PROFITS AND GAINS OF BUSINESS. THAT DOES NOT MEAN THAT UNTIL AND UNLESS THE COMPANY COMMENCES ITS BUSINESS, ITS INCOME FROM ANY OTHER SOURCE WILL NOT BE TAXED. THE COMPANY MAY KEEP THE SURPLUS FUNDS IN SH ORT-TERM DEPOSITS IN ORDER TO EARN INTEREST. SUCH INTERESTS WILL BE CHARGEABLE UN DER SECTION 56. IN OTHER WORDS, IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILISED, IN STEAD OF BEING KEPT IDLE, THE INCOME THUS GENERATED WILL BE OF A REVENUE NATURE AND NOT AN ACCRETION TO CAPITAL. WHETHER THE COMPANY RAISED THE CAPITAL BY ISSUE OF SHARES O R DEBENTURES OR BY BORROWING, WILL NOT MAKE ANY DIFFERENCE TO THIS PRINCIPLE. IF BORROWED CAPITAL IS USED FOR THE PURPOSE OF EARNING INCOME, THAT INCOME WILL HAVE TO BE TAXED IN ACCORDANCE WITH LAW. INCOME IS SOMETHING WHICH FLOWS FROM THE PROPE RTY. SOMETHING RECEIVED IN PLACE OF THE PROPERTY WILL BE A CAPITAL RECEIPT. THE AMOU NT OF INTEREST RECEIVED BY THE COMPANY FLOWS FROM ITS INVESTMENTS AND IS ITS INCOM E AND IS CLEARLY TAXABLE EVEN THOUGH THE INTEREST AMOUNT IS EARNED BY UTILIZING B ORROWED CAPITAL. IT IS TRUE THAT THE COMPANY WILL HAVE TO PAY INTEREST ON THE MONEY BORROWED BY IT. BUT THAT CANNOT BE A GROUND FOR EXEMPTION OF INTEREST EARNED BY THE COMPANY BY UTILIZING THE BORROWED FUNDS AS ITS INCOME. ANY SET-OFF OR DE DUCTION OF ANY EXPENDITURE CAN ONLY BE MADE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 15. IN VIEW OF THE ABOVE OBSERVATIONS, WE DECIDE TH IS ISSUE AGAINST THE ASSESSEE. 23 ITA 735/CHD/2013 16. IN THIS APPEAL ALSO, VARIOUS GROUNDS HAVE BEEN RAISED BUT ONLY TWO DISPUTES ARE INVOLVED NAMELY (I) TAXATION ON SALE OF AGRICULTURAL LANDS UNDER HEAD BUSINESS INCOME AND (II) TREATMENT OF INTEREST UNDER THE HEAD INCOME FROM O THER SOURCES. 17. ISSUE (I) HAS BEEN DECIDED BY US WHILE ADJUDICA TING APPEAL FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 734/C HD/2013 VIDE PARA NO. 7&8. FOLLOWING THE SAME, WE DECIDE T HE ISSUE IN FAVOUR OF THE ASSESSEE. 18. ISSUE (II) HAS BEEN DECIDED BY US WHILE ADJUDIC ATING APPEAL FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 734/C HD/2013 VIDE PARA NO. 14&15. FOLLOWING THE SAME, WE DECIDE THE ISSUE AGAINST THE ASSESSEE. 19. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE IN ITA NO. 734 AND 735/CHD/2013, A.Y. 2009-10 & 2010-11 ARE PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH SEPTEMBER,2013. SD/- SD/- (BHAVNESH SAINI) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13 TH SEPTEMBER, 2013. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR ITAT ,CHD.