M/s. Harniks Park P. Ltd, Hyderabad V. ITO Ward - 2(2), Hyderabad

ITA 954/HYD/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69811 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMLAN TRIPATHY
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Business income; Corroborative evidences; Assessment record
• Section: 54B; 2(14); 63; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 954/HYD/2011 ASSESSMENT YEAR 2006-07 M/S. HARNIK S PARK (P) LTD. HYDERABAD PAN: AAACH8766M VS. THE INCOME TAX OFFICER WARD-2(2) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI S. RAMA RAO RESPONDENT BY: SRI AMLAN TRIPATHY DATE OF HEARING: 26 .0 8 .2013 DATE OF PRONOUNCEMENT: 27.09.2013 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-III, HYDERABAD DATED 11.3.2011. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE AMOUNT OF RS. 2,83,175/- AS THE INCOME FROM OTHER SOURCES WHEN THE SAID AMOUNT REPRESENTS INCOME FROM AGRICULTURE. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSMENT IN TREATING THE AMOUNT OF RS. 2,83,175/- AS THE INCOME FROM OTHER SOURCES WITHOUT CONSIDERING THE EXPLANATIONS AND THE EVIDENCES SUBMITTED BY THE APPELLANT HEREIN. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TAXING THE GAIN ON SALE OF AGRICULTURAL LAND OF RS. 2,41,02,690/- AS INCOME FROM BUSINESS. ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 2 5. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE APPELLANT HELD THE AGRICULTURAL LANDS AS INVESTMENTS AND THE INCOME DERIVED FROM THE SALE OF AGRICULTURAL LANDS CANNOT BE CONSIDERED AS BUSINESS INCOME. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE SAID AGRICULTURAL LAND IS NOT A CAPITAL ASSET WITHIN THE MEANING OF SEC. 2(14) OF THE I.T. ACT. 6. THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE PLEA OF THE APPELLANT THAT THE AMOUNT OF RS. 2,41,02,690 IS DERIVED ON SALE OF AGRICULTURAL LANDS IS EXEMPT FROM TAX. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE COMP ANY HAS FILED ITS RETURN OF INCOME FOR THE A.Y. 2006-07 ON 6.11.2006 SHOWING LOSS OF RS. 3,93,288, AFTER CLAIMING EXEMPT ION FOR AN AMOUNT OF RS. 2,42,92,865 SHOWN AS AGRICULTURAL INC OME. DURING THE ASSESSMENT PROCEEDINGS, FROM THE PROFIT & LOSS ACCOUNT FILED BY THE ASSESSEE FOR THIS ASSESSMENT YEAR, THE AO NO TICED THAT IT HAS SHOWN AGRICULTURAL INCOME AT RS. 2,46,85,865, O THER INCOME AT RS. 1,45,930 AND PROFIT FROM SALE OF LAND AT RS. 43,13,600. FROM THE AGGREGATE OF THESE THREE AMOUNTS AT RS. 2,88,45 ,395, AFTER CLAIMING DEDUCTION FOR EXPENSES AT RS. 46,08,000, T HE ASSESSEE HAS SHOWN PROFIT OF RS. 2,42,37,395. FURTHER, FROM THE BREAK-UP RS. 2,43,85,865 SHOWN IN SCHEDULE-I, THE AO NOTICED THAT A SUM OF RS. 2,83,175 IS SHOWN AS AGRICULTURAL INCOME AND TH E BALANCE AMOUNT OF RS. 2,41,02,690 IS SHOWN AS PERTAINING TO PROFIT ON SALE OF AGRICULTURAL LAND. THE AO, THUS, NOTICED THAT TH E ASSESSEE HAS CLAIMED EXEMPTION U/S. 10 IN RESPECT OF PROFIT ON S ALE OF AGRICULTURAL LANDS. ACCORDING TO THE AO, AS PER TH E DECISION OF THE HON'BLE SUPREME COURT IN UNION OF INDIA VS. S. MUTY AM REDDY (240 ITR 341), THE SAID PROFIT ON SALE OF LAND WAS NOT AGRICULTURAL INCOME, WHEN CONFRONTED BY HIM IN THIS REGARD, THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, HAS SUBMITTED TH AT THE SAID LAND BEING AGRICULTURAL LANDS ARE NOT CAPITAL ASSET S AND HENCE THE ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 3 INCOME DERIVED FROM SALE OF SUCH LANDS IS NOT SUBJE CT TO CAPITAL GAINS TAX. THE ASSESSEE HAS FURTHER SUBMITTED THAT THE COMPANY WAS DOING AGRICULTURAL ACTIVITIES, BUT DUE TO SOME UNAVOIDABLE REASONS THEY HAVE SOLD THE LANDS. 4. AFTER REFERRING TO MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY, THE AO NOTED THAT THE MAIN OBJECT IVE OF THE COMPANY WAS TO DEVELOP LAND INTO AGRICULTURAL FARM HOUSES WITH RECREATIONAL FACILITIES LIKE ALL TYPES OF GAMES AND CLUB FACILITIES. HE FURTHER NOTED THAT THE COMPANY INTENDS TO DEVELOP T HE LANDS FOR COMMERCIAL PURPOSE. HE NOTICED THAT THE ASSESSEE H AS CLAIMED MEAGRE AMOUNT OF RS. 93,000/- TOWARDS AGRICULTURAL EXPENDITURE, BUT HAS CLAIMED SUBSTANTIAL AMOUNT OF RS. 9,04,021/ - TOWARDS LAND DEVELOPMENT EXPENDITURE. FURTHER, REFERRING TO DIRECTOR'S REPORT FOR THIS YEAR, UNDER WHICH IT IS, MENTIONED THAT DURING THE YEAR UNDER REVIEW, THE COMPANY HAS TAKEN UP THE BUS INESS OF INFRASTRUCTURE DEVELOPMENT I.E., PURCHASE AND SALE OF REAL ESTATE AND MADE A SMALL BEGINNING, HE NOTED THAT, IT SHOWS THE BUSINESS MOTIVE OF THE ASSESSEE COMPANY. HE WAS THUS OF THE VIEW THAT SUCH SALE OF LANDS MADE BY THE ASSESSEE DURING THE PREVIOUS YEAR COMES UNDER THE PURVIEW OF BUSINESS ACTIVITY. 5. THE ASSESSEE HAS SUBMITTED THAT THE LAND IS SITUATE D AT A DISTANCE OF MORE THAN 8 KM FROM THE MUNICIPAL LIMIT S OF SHANKERPALLY MANDAL. AS NOTED BY THE AO, IT HAS SOL D LANDS OF 35.29 ACRES TO VARIOUS SOFTWARE COMPANIES. FOR DET ERMINING THE CHARACTER OF SUCH LANDS, AFTER APPLYING VARIOUS TES TS AS LAID DOWN IN THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SMT. SARIFABIBI, MOHD. IBRIHIM AND OTHERS VS. CIT (1993) 204 ITR 631, HE NOTED THAT THOUGH SAID LANDS OF THE ASSESSEE WER E CLASSIFIED AS AGRICULTURAL LAND IN THE REVENUE RECORDS, THE ASSES SEE HAS NOT FILED ANY EVIDENCE OF PAYMENT OF LAND REVENUE. IT HAS NOT FURNISHED ANY DETAILS REGARDING USE OF LAND FOR AGRICULTURAL PURP OSE. HE FURTHER ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 4 MENTIONED THAT IN THE 'PAHANI' COPY FURNISHED BY TH E ASSESSEE THERE ARE NO DETAILS OF CROPS GROWN ETC. THE AGRICU LTURAL INCOME SHOWN AT RS. 2,83,175 IS VERY MEAGRE WHEN COMPARED TO THE TOTAL LAND AREA. THE ASSESSEE HAS NOT FURNISHED ANY DETAI LS INCLUDING EVIDENCES FOR THE CLAIM OF AGRICULTURAL EXPENSES MA DE AT RS. 93,000. IT HAS NOT FURNISHED ANY PROOF FOR SALE OF AGRICULTURAL PRODUCE. IN ABSENCE OF SUCH DETAILS AND FURTHER EVI DENCES IN THAT REGARD, HE NOTED, THE CLAIM OF THE ASSESSEE REGARDI NG USE OF SUCH LAND FOR AGRICULTURAL PURPOSE CANNOT BE ACCEPTED. F URTHER, REFERRING TO THE HUGE AMOUNT OF RS. 9,04,021/- CLAI MED TOWARDS LAND DEVELOPMENT EXPENSES AND AN AMOUNT OF RS. 6,55 ,000 CLAIMED TOWARDS ADMINISTRATIVE EXPENSES, HE NOTED T HAT, IT INDICATES THE MAIN ACTIVITY OF THE ASSESSEE AS 'COM MERCIAL' RATHER THAN AGRICULTURAL. IN THIS CONTEXT, HE FURTHER MENT IONED THAT THE SAID LAND IN CASE OF THE ASSESSEE, IS LOCATED ABOUT 6 KM FROM OCEAN PARK, WHICH IS A COMMERCIALLY DEVELOPED AREA. 6. IN THE ABOVE CONTEXT, THE AO FURTHER REFERRED TO TH E ENQUIRY REPORT FURNISHED BY HIS INSPECTOR OF INCOME TAX, WH EREIN HE HAS MENTIONED THAT THE ENTIRE AREA IS UNDER REAL ESTATE BOOM. THE MAIN OBJECTIVE OF THE PARTIES IS FOR DOING REAL EST ATE BUSINESS AND THE ASSESSEE'S INTENTION IS ALSO FOR DOING REAL EST ATE BUSINESS. FURTHER, REFERRING TO THE SALE DEEDS IN RESPECT OF THOSE LANDS, THE AO NOTED THAT SUCH LANDS HAVE BEEN SOLD FOR NON-AGR ICULTURAL PURPOSES. FURNISHING THE LIST OF THOSE SOFTWARE CO MPANIES, WHICH HAVE PURCHASED LANDS FROM THE ASSESSEE, HE NOTED TH AT SUCH LANDS HAVE BEEN PURCHASED BY THOSE COMPANIES TO DEVELOP S OFTWARE TECHNOLOGY PARK AND FOR ENGAGING IN ACTIVITIES RELA TING TO SOFTWARE DEVELOPMENT. 7. WITH THESE OBSERVATIONS AND FURTHER REFERRING TO TH E SAID DIRECTOR'S REPORT, WHEREIN IT IS STATED THAT THE CO MPANY HAS TAKEN UP BUSINESS OF INFRASTRUCTURE DEVELOPMENT DURING TH E YEAR, THE AO ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 5 CONCLUDED THAT THE ASSESSEE WAS DOING BUSINESS AND WAS NOT INVOLVED IN AGRICULTURAL ACTIVITIES. HE FURTHER STA TED THAT SUCH LAND HELD BY THE ASSESSEE ARE COMMERCIAL IN NATURE THAN AGRICULTURAL LANDS. LASTLY, STATING THAT THE ASSESSEE WAS INVOL VED IN REAL ESTATE BUSINESS, HE HELD THAT THE INCOME DERIVED BY THE AS SESSEE FROM SALE OF SUCH LANDS, SHALL BE TREATED AS INCOME FROM BUSINESS. WITH THESE OBSERVATIONS, HE COMPLETED THE ASSESSMENT IN THE CASE OF THE ASSESSEE FOR THIS ASSESSMENT YEAR, ON A TOTAL INCOM E OF RS. 2,38,99,577/-, VIDE HIS ORDER DATED 30.12.2008 PASS ED U/S.143(3) OF THE ACT. THE ASSESSEE'S MAIN CONTENTION IS THAT THE AO WAS NOT JUSTIFIED IN TAXING THE PROFIT ON SALE OF SUCH LAND S TREATING THE SAME AS INCOME FROM BUSINESS. 8. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE AS SESSING OFFICER THOUGH THE ASSESSEE SUBMITTED THAT IT HAS P URCHASED AGRICULTURAL LANDS SINCE THE YEAR 1997. IT HAS PURC HASED FURTHER LANDS SUBSEQUENTLY AND WAS CARRYING ON AGRICULTURAL ACTIVITIES ON SUCH LANDS. IT IS FURTHER SUBMITTED THAT SUCH LANDS ARE LOCATED IN THE VILLAGE JANWADA, ARE BEYOND 8 KM FROM THE LIMIT OF NEAREST MUNICIPALITY. IT WAS FURTHER SUBMITTED THAT THE POP ULATION OF THE SAID VILLAGE WAS LESS THAN 10,000. UNDER THE CIRCUM STANCE, THE SAID LANDS DO NOT CONSTITUTE CAPITAL ASSET. STATING THAT THE ASSESSEE WAS DERIVING AGRICULTURAL INCOME FROM THE SAID LANDS, IT HAS BEEN SUBMITTED THAT THE INCOME ARISING FROM PRO FIT FROM SALE OF SUCH LANDS MADE DURING THE PREVIOUS YEAR, IS EXE MPT FROM TAX. IT IS STATED THAT THE SAME CANNOT BE TREATED AS BUS INESS INCOME IN THE HANDS OF THE ASSESSEE. 9. FROM PERUSAL OF ASSESSMENT RECORDS OF EARLIER YEARS , THE CIT(A) FOUND THAT THE ASSESSEE HAS FILED RETURNS OF INCOME FOR A.YS. 1998-99, 1999-2000 AND 2000-01 ON 27.11.2000. IN T HE RETURN FILED FOR ASST. YEAR 1998-99, THE ASSESSEE, UNDER F IXED ASSETS, HAS SHOWN LAND AT RS. 5,41,250 AND HAS SHOWN AGRICULTUR AL INCOME OF ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 6 RS. 68,500/-. IN THE SAID RETURN FILED FOR A.Y. 199 9-2000, UNDER FIXED ASSETS, VALUE OF LAND AND DEVELOPMENT WAS SHO WN AT RS. 18,87,050 AND AGRICULTURAL INCOME WAS SHOWN AT RS. 1,48,000. IN THE RETURN FILED FOR A.Y. 2000-01, AGRICULTURAL INC OME WAS SHOWN AT RS. 2,65,00/- AND PROFIT ON SALE OF AGRICULTURAL LAND WAS SHOWN AT RS. 1,16,150/-. UNDER FIXED ASSETS, VALUE OF LAN D AND DEVELOPMENT WAS SHOWN AT RS. 25,28,200/-. AS PER SC HEDULE C, RELATING TO FIXED ASSETS FILED WITH THE RETURN, ADD ITIONS ARE SHOWN AT RS. 9,00,000/- AND DEDUCTIONS ARE SHOWN AT RS. 2 ,58,850/-. THE CIT(A) OBSERVED THAT, FROM THIS, IT SHOWS, THE ASSESSEE HAS STARTED DISPOSING OF LAND FOR THE FIRST TIME DURING THE PREVIOUS YEAR 1999-2000. FURTHER, IN NONE OF THE ABOVE RETURNS F ILED, THE ASSESSEE HAS SHOWN ANY AMOUNT TOWARDS AGRICULTURAL EXPENSES. FURTHER, FROM SUCH DESCRIPTION SHOWING AS 'LAND AND DEVELOPMENT', IT SHOWS THAT THE ASSESSEE WAS MAKING DEVELOPMENTAL WORKS ON SUCH LANDS PURCHASED BY IT. FOR THE ASST. YEAR 200 1-02, IT FILED RETURN OF INCOME ON 12.10.2001. IT HAS SHOWN AGRICU LTURAL INCOME AT RS. 7,48,230 WITHOUT ANY DETAILS. IT HAS SHOWN A GRICULTURAL EXPENSES AT RS. 1,81,885, WITHOUT GIVING DETAILS IN THE RETURN. FOR THE A.Y. 2002-03, IT HAS FILED RETURN OF INCOME SHO WING AGRICULTURAL INCOME AT RS. 6,81,297 AND OTHER INCOM E OF RS. 94,500/-. MEAGRE AMOUNT OF RS. 97,060 WAS SHOWN AS AGRICULTURAL EXPENSES. HOWEVER, NO DETAILS OF THE SAME HAVE BEEN FURNISHED. IN THE RETURN FILED FOR A.Y. 2003-04, THE ASSESSEE HAS SHOWN AGRICULTURAL INCOME AT RS. 5,91,331 AND MEAGRE AMOU NT OF RS. 1,67,110 TOWARDS AGRICULTURAL EXPENSES. FURTHER DU RING THIS YEAR, THE ASSESSEE HAS SHOWN ADDITIONS OF RS. 84,840 UNDE R LAND AND DEVELOPMENT. IN THE RETURN FILED FOR A.Y. 2004-05, THE ASSESSEE HAS SHOWN AGRICULTURAL INCOME AT RS. 5,98,080 WITHOUT A NY DETAILS. IT HAS SHOWN AGRICULTURAL EXPENSES AT RS. 1,63,750. FO R THE A.Y. 2005-06, THE ASSESSEE HAS FILED RETURN OF INCOME ON 30.10.2005 SHOWING A SUM OF RS. 5,66,350/- TOWARDS AGRICULTURA L INCOME AND ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 7 SUM OF RS. 1,81,350 TOWARDS AGRICULTURAL EXPENSES. THE VALUE OF LAND AND DEVELOPMENT, UNDER FIXED ASSETS, WAS SHOWN AT RS. 26,13,040/-. AS SEEN FROM THE ABOVE RETURNS, THE AS SESSEE HAS NEVER FURNISHED ANY DETAILS REGARDING SUCH AGRICULT URAL INCOME. IT HAS NOT FURNISHED ANY DETAILS OR BREAK-UP WITH REGA RD TO SUCH EXPENSES CLAIMED TOWARDS AGRICULTURAL EXPENSES. 10. FROM THE ABOVE, AND AFTER CAREFULLY GOING THROUGH T HE MEMORANDUM OF ASSOCIATION OF THE ABOVE COMPANY, THE CIT(A) OBSERVED THAT THE PRIMARY INTENTION OF THE ASSESSEE COMPANY WAS COMMERCIAL EXPLOITATION OF LAND PURCHASED BY IT. TH OUGH IN THE MEMORANDUM OF ASSOCIATION, THERE IS REFERENCE TO PU RCHASING LAND FOR AGRICULTURAL ACTIVITY, THE SAME WAS NOT THE REA L OBJECTIVE. THE ACTUAL INTENTION OF THE ASSESSEE WAS TO PURCHASE LA ND, TO MAKE SOME DEVELOPMENT WORKS THEREON AND TO SALE THE SAME LATER AT A HIGHER PRICE. AS SEEN FROM THE RETURNS FILED FOR TH E EARLIER ASSESSMENT YEARS, THE ASSESSEE HAS CARRIED OUT DEVE LOPMENTAL WORKS ON SUCH LANDS, SHOWN UNDER LAND DEVELOPMENT. 11. FURTHER, FROM THE DOCUMENTS FILED BY THE ASSESSEE, THE CIT(A) OBSERVED THAT THOSE LANDS, THOUGH STATED TO BE AGRICULTURAL LANDS, ARE DRY LANDS. UNDER THE CIRCUMSTANCE, IT CA NNOT BE SAID THAT IT WAS THE OBJECTIVE OF THE ASSESSEE TO CARRY ON AGRICULTURAL ACTIVITIES ON SUCH LANDS. EVEN THOUGH IT IS STATED THAT SUCH LANDS HAVE BEEN SOLD AFTER 5-6 YEARS, IT IS APT TO MENTIO N HERE THAT THE ASSESSEE HAS WAITED FOR SOME TIME SO AS TO ENABLE H IM GET A MUCH HIGHER PRICE, WHEN THE PRICE OF THE LAND IS INCREAS ING YEAR AFTER YEAR. FURTHER AS NOTED ABOVE, THE ASSESSEE HAS ALSO SOLD LAND IN AN EARLIER YEAR. 12. AS REGARDS, REFERENCE BY THE ASSESSEE TO THE SAID G O. MS. NO. 111 IS CONCERNED, THE SAME, IN THE VIEW OF THE CIT(A), HAS NO RELEVANCE IN THIS CASE. THE ASSESSEE SUBMITTED THAT AS PER THE SAID ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 8 GO, THERE IS RESTRICTION ON LAND USE, IN RESPECT OF LANDS SITUATED IN THAT LOCALITY AND SURROUNDING VILLAGES. HOWEVER, IT MAY BE NOTED THAT AS POINTED OUT BY THE INSPECTOR OF INCOME TAX IN HIS ENQUIRY REPORT DATED 30.12.2008, HE NOTICED, BOOM IN REAL E STATE ACTIVITY IN THAT AREA. THE ASSESSEE HAS REMAINED SILENT WITH RE FERENCE TO THIS OBSERVATION OF THE INSPECTOR. FURTHER, THE INSPECTO R HAS POINTED OUT THAT THE LAND OF THE ASSESSEE IS ABOUT 6 KM FRO M OCEAN PARK WHICH COMMERCIALLY DEVELOPED AREA. NO SUBMISSION HA S BEEN MADE WITH REFERENCE TO THIS OBSERVATION OF THE INSP ECTOR. UNDER THIS CIRCUMSTANCE, REFERENCE MADE BY THE ASSESSEE T O THE SAID GO HAS NO RELEVANCE IN THIS CASE. 13. THE CIT(A) OBSERVED THAT THE ASSESSEE HAS CONTENDED THAT, IT WAS CARRYING ON AGRICULTURAL ACTIVITIES ON THOSE LA NDS DURING DIFFERENT YEARS AND HAS SHOWN INCOME FROM THE SAME IN THE RETURNS FILED BY IT. EVEN THOUGH THE ASSESSEE HAS S HOWN DIFFERENT AMOUNTS TOWARDS AGRICULTURAL INCOME IN DIFFERENT YE ARS, THE SAME, IN THE VIEW OF CIT(A), DOES NOT NECESSARILY PROVE T HAT THE ASSESSEE WAS ACTUALLY ENGAGED IN AGRICULTURAL ACTIVITIES ON SUCH LANDS. THE AO, WHO HAS PASSED THE ASSESSMENT ORDER, HAS CLEARL Y POINTED OUT THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE TO PROVE AGRICULTURAL OPERATION ON SUCH LANDS. THE PRESENT A O IN HIS IS REMAND REPORT, WHILE REFERRING TO THE SAME, HAS ALS O POINTED OUT THAT EARNING OF AGRICULTURAL INCOME IN THE HANDS OF THE ASSESSEE IS NOT PROVED. THOUGH THE ASSESSEE HAS SUBMITTED THAT EXPENSES INCURRED ON CULTIVATION AND AMOUNTS RECEIVED FROM S ALE OF AGRICULTURAL PRODUCE, ARE RECORDED IN THE BOOKS, TH E FACT REMAINS THAT NO EVIDENCE HAS BEEN PRODUCED TO CONCLUSIVELY PROVE THAT THE ASSESSEE WAS ACTUALLY ENGAGED IN AGRICULTURAL OPERA TION ON THOSE LANDS. FURTHER, THOUGH IN THIS CONTEXT, THE ASSESS EE HAS REFERRED TO PAHANIS, AS NOTED BY THE AO, THE SAME DO NOT IND ICATE THE DETAILS OF CROP GROWN ETC. UNDER THE CIRCUMSTANCE, THE CIT(A) OBSERVED THAT THERE IS NO CONCLUSIVE PROOF REGARDIN G CARRYING ON ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 9 AGRICULTURAL ACTIVITIES ON THOSE LANDS, NOTWITHSTAN DING DISCLOSURE OF VARIOUS AMOUNTS TOWARDS AGRICULTURAL INCOME AS S HOWN IN THOSE RETURNS FILED FOR DIFFERENT ASSESSMENT YEARS. FURTH ER, THOUGH IN SUPPORT OF AGRICULTURAL INCOME, THE ASSESSEE HAS RE FERRED TO THE SAID CERTIFICATE DATED 25.02.2009 ISSUED BY THE VRO , IT IS STATED THAT IN THAT LETTER THE SAID AUTHORITY HAS MERELY C ERTIFIED WHAT WAS STATED BY THE VILLAGERS. THE VRO HIMSELF HAS NOT CE RTIFIED THAT THE ASSESSEE HAS ACTUALLY CARRIED ON AGRICULTURAL OPERA TION ON THOSE LANDS SOLD BY HIM. FURTHER, THOUGH IN HIS REPORT DA TED 30.12.2008, THE CONCERNED INSPECTOR HAS MENTIONED R EGARDING INCOME FROM SWEET CORN AND SOME VEGETABLES DURING F .Y 2005-06, HE HAS NOT STATED THAT THE ASSESSEE ITSELF HAS CARR IED ON AGRICULTURAL OPERATION ON THAT LAND. LASTLY, AS MA Y BE SEEN, THE ASSESSEE HAS SUBMITTED THAT IT HAS GOT INCOME FROM SALE OF CUCUMBER, TOMATO AND RED PUMPKIN GROWN ON SUCH LAND S. IT IS DIFFICULT TO BELIEVE THAT THE ASSESSEE HAS ACTUALLY PURCHASED SUCH LANDS AT HIGH INVESTMENT FOR GROWING THE SAME. IN A NY CASE, NO EVIDENCE HAS BEEN FILED TO CONCLUSIVELY PROVE GROWI NG OF SUCH CROPS BY THE ASSESSEE ON THE SAID LAND. UNDER THE CIRCUM STANCE THE CIT(A) OBSERVED THAT THE CLAIM OF THE ASSESSEE FOR CULTIVATING THE SAID LAND ITSELF, CANNOT BE ACCEPTED. THE CIT(A) OB SERVED THAT, THOUGH THE SAID LAND SOLD BY THE ASSESSEE AT JANWAD A VILLAGE, IS STATED TO BE AGRICULTURAL LANDS, HAVING REGARD TO T HE CIRCUMSTANCES OF THE CASE, THE FACT OF ENGAGING IN REAL ESTATE BU SINESS DURING THE PREVIOUS YEAR AND KEEPING IN MIND THE SOLE INTENTIO N OF THE ASSESSEE OF EARNING PROFIT FROM SALE OF THOSE LANDS , PURCHASED A FEW YEARS BACK, THE CIT(A) WAS OF THE OPINION THAT THE TRANSACTIONS OF SUCH SALES CARRIED ON BY THE ASSESSEE ON THOSE L ANDS ADMEASURING 37.09 ACRES, HAVE TO BE CONSIDERED AS B USINESS TRANSACTIONS. FURTHER, IN ABSENCE OF ANY REPLY FURN ISHED BY THE ASSESSEE FOR THE REASON FOR SELLING THOSE LANDS DUR ING THE PREVIOUS YEAR, IT DEARLY SHOWS, IT WAS ONLY THE BUSINESS MOT IVE ON THE PART ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 10 OF THE ASSESSEE BEHIND SUCH SALE. HENCE, THOSE TRA NSACTIONS HAVE TO BE CONSIDERED AS BUSINESS TRANSACTIONS. IN FACT, KEEPING IN MIND THE REAL INTENTION OF THE ASSESSEE OF DERIVING INCO ME FROM COMMERCIAL EXPLOITATION OF SUCH LANDS PURCHASED A F EW YEARS BACK, SUBSEQUENT INCURRING OF EXPENSES ON LAND DEVELOPMEN T ON THE SAME, AND HAVING REGARD TO THE NINE NUMBER OF TRANS ACTIONS I.E., A SERIES OF SALE TRANSACTIONS MADE BY IT AND RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF G. VENKATAS WAMY NAIDU & CO. VS. CIT (1959) 35 ITR 594 AND THE DECISION OF HON'BLE BOMBAY HIGH COURT IN DCIT VS. GOPAL RAMNARAYAN KASA T (2010) 328 ITR 556, WHEREIN THE HON'BLE HIGH COURT UPHELD THE TAXING OF THE PROFIT AS BUSINESS INCOME, REJECTING THE CONTEN TION OF THE ASSESSEE REGARDING AGRICULTURAL LAND AND FURTHER HA VING REGARD TO COMMENCEMENT OF BUSINESS IN REAL ESTATE MADE BY THE ASSESSEE DURING THE PREVIOUS YEAR AS ADMITTED IN THE 10 TH ANNUAL REPORT FOR THIS YEAR, THE CIT(A) OBSERVED THAT THE SAID SALE T RANSACTIONS IN RESPECT OF 37.09 ACRES OF LAND MADE TO THOSE SOFTWA RE COMPANIES, HAVE TO BE TREATED AS BUSINESS TRANSACTIONS CARRIED ON BY THE ASSESSEE DURING THE PREVIOUS YEAR. THEREFORE, THE A O WAS JUSTIFIED IN TREATING THE SAID SALE TRANSACTIONS MADE BY THE ASSESSEE DURING THE PREVIOUS YEAR AS BUSINESS TRANSACTIONS IN REAL ESTATE. HENCE, HE WAS JUSTIFIED IN TAXING THE PROFIT EARNED FROM T HE SAID SALE OF LANDS ADMEASURING 37.09 ACRES, TREATING THE SAME AS BUSINESS PROFIT. THUS, HE CONFIRMED THE TAXING AN AMOUNT OF RS. 2,38,99,577/- AS PER THE PROFIT & LOSS ACCOUNT FILE D IN THIS CASE, AS BUSINESS INCOME. ACCORDINGLY, HE CONFIRMED THE ORDE R OF THE AO IN TREATING RS. 2,83,175 AS INCOME FROM OTHER SOURCES AND RS. 2,41,02,690 AS INCOME FROM BUSINESS. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 14. THE AR SUBMITTED THAT THE ASSESSEE HAS TREATED THE AGRICULTURAL LAND AS FIXED ASSET AND INCOME DECLARE D BY THE ASSESSEE HAS BEEN EXEMPTED BY THE DEPARTMENT IN EAR LIER ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 11 ASSESSMENT YEAR AND HE DREW OUR ATTENTION TO THE CO PIES OF THE RETURNS OF INCOME FROM A.YS. 1998-99 TO 2006-07. H E ALSO SUBMITTED THAT THE ORDER OF THE CIT(A) IS ERRONEOUS IN LAW AS WELL AS ON FACTS OF THE CASE. THE CIT(A) OUGHT TO HAVE A CCEPTED THE CONTENTION OF THE ASSESSEE THAT THE LAND PURCHASED WAS AGRICULTURE LAND AS THE SAME WAS PURCHASED IN ACRES AND NOT IN SQUARE YARDS. THE CIT(A) OUGHT TO HAVE TAKEN INTO C ONSIDERATION THE FACT THAT THE ASSESSEE SOLD THE LAND MEASURING 35.29 ACRES TO VARIOUS SOFTWARE COMPANIES. THE LANDS WERE HELD BY ASSESSEE AS AN ASSET FROM THE DATE OF PURCHASE TILL THE DATE OF SALE AND NOT AS STOCK IN TRADE. THE CONCLUSION OF THE CIT(A) THAT T HE INTENTION OF THE ASSESSEE IN ACQUIRING THE PROPERTY WAS FOR TRAD ING IS ERRONEOUS IN THE ABSENCE OF ANY SUPPORTING EVIDENCE. THE LAND WAS SOLD IN ACREAGE AND IF THE ASSESSEE HAD ANY INTENTION TO CA RRYON REAL ESTATE BUSINESS IN RESPECT OF THAT LAND IT WOULD HA VE OBTAINED PERMISSION FROM THE CONCERNED AUTHORITIES FOR MAKIN G THE SAME INTO PLOTS. THE CLAIM OF THE ASSESSEE THAT THE LAN D WAS AGRICULTURE IN NATURE WAS SUPPORTED BY REVENUE RECORDS ISSUED B Y STATE REVENUE AUTHORITIES. THE AGRICULTURAL LAND WAS PURC HASED AS AN ASSET AND THE SAME WAS SUPPORTED BY THE ENTRY IN BA LANCE SHEET SUBMITTED BY THE ASSESSEE FOR EARLIER YEARS. THERE WAS UNEXPECTED SPURT IN THE PRICES OF LANDS IN AND AROUND TWIN CIT IES AND THEREFORE THE ASSESSEE SOLD AWAY THE AGRICULTURAL LAND FOR A GOOD PRICE AND THAT ITSELF SHOULD NOT BE A GROUND FOR THE ASSESSIN G OFFICER TO ARRIVE AT THE CONCLUSION THAT THE ASSESSEE MADE AN ADVENTU RE IN TRADE. ALL THE RELEVANT FACTS LEAD TO A PROPER CONCLUSION THAT THE ASSESSEE DID NOT INVOLVE IN ADVENTURE IN TRADE AS THERE WAS NO SUPPORTING EVIDENCE. 15. THE AR SUBMITTED THAT THE CONCLUSION OF THE CIT(A) THAT THE LAND INVOLVED IN THE TRANSACTION WAS NOT AGRICULTUR E LAND WAS ERRONEOUS AND, THEREFORE, THE SAME MAY BE QUASHED. THE AR SUBMITTED THAT THE SALE OF AGRICULTURE LAND CANNOT BE ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 12 CONSIDERED AS ADVENTURE IN TRADE. FURTHER, HE SUBMI TTED THAT THE RESULTANT PROFIT CANNOT BE CONSIDERED AS BUSINESS P ROFIT ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. THE A R SUBMITTED THAT THE CIT(A) OUGHT TO HAVE CONSIDERED THE SALE T RANSACTION AS SALE OF CAPITAL ASSET LIABLE FOR TAX U/S. 45 INSTEA D OF TREATING THE SAME AS BUSINESS TRANSACTION LIABLE FOR TAXATION U/ S. 28. THE CIT(A) ALSO OUGHT NOT TO HAVE SUSTAINED THE ADDITIO N OF RS. 2,83,175 AS INCOME FROM OTHER SOURCES WHEN THE SAID AMOUNT REPRESENTS INCOME FROM AGRICULTURE. 16. THE AR FURTHER SUBMITTED THAT THE ASSESSEE HAS DECL ARED AGRICULTURAL INCOME. THE PROPERTY HAS BEEN TREATED AS FIXED ASSET IN ITS BALANCE SHEET FOR A.YS. 1997-98 TO A.Y. 2005 -06. THE LAND WAS PUT TO AGRICULTURAL OPERATIONS. THESE LANDS WE RE PURCHASED AND SOLD BY THE ASSESSEE AS FURNISHED BY THE AR IS AS FOLLOWS: STATEMENT SHOWING THE DETAILS OF LAND PURCHASES BY THE ASSESSEE S. NO. DATE OF REGISTRATION SY. NO. EXTENT (ACRES) PURCHASE AMOUNT (RS.) REGISTRATION CHARGES (RS.) TOTAL VALUE (RS.) 1. 7.10.1998 271 4.29 225000 40213 265213 6.10.1998 271 5.05 243223 38220 281443 2. 7.10.1998 273 1.03 50000 9787 59787 6.10.1998 273 8.23 425000 63000 488000 3. 11.3.1997 277 1.10 34483 6897 41380 4.5.1999 277 5.13 200000 50000 250000 4. 4.5.1999 279 5.00 200000 20000 220000 4.5.1999 279 0.33 33000 6500 39500 4.5.1999 279 2.22 102000 15000 117000 5. 6.10.1997 281 21.4 70500 14000 84500 6.10.1998 281 2.10 106777 16780 123557 6. 11.3.1997 280 0.37 25517 5103 30620 5.3.1997 280 0.29 21642 2640 24282 7. 6.5.1999 282 2.30 115000 1500 130000 5.5.1999 282 3.00 125000 15000 140000 8. 5.3.1997 277 0.38 28358 3460 31818 5.9.2002 277 1.08 76000 8840 84840 48.24 2081500 330440 2411940 LAND DEVELOPMENT CHARGES 201100 BALANCE AS PER BALANCE SHEET AS AT 31.3.2005 2613040 ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 13 STATEMENT SHOWING THE SALE OF AGRICULTURAL LAND DUR ING THE A.Y. 2006-07 S. NO. DATE NAME OF THE PARTY SY. NO. EXTENT (ACRES) SALE PRICE (RS.) 1. 7.6.2005 KAMALIKA INFO PVT. LTD. 271 1.34 12950 00 2. 7.6.2005 KAMALIKA INFO PVT. LTD. 281 23.24 25200 00 3. 7.6.2005 VINUGA TECHNOLOGIES PVT. LTD. 282 5.30 4025000 4. 7.6.2005 MANVITA INFO PVT. LTD. 281 1.00 700000 5. 7.6.2005 MANVITA INFO PVT. LTD. 280 1.26 1155000 6. 17.6.2005 SARMISTA INFO PVT. LTD. 273 6.00 42000 00 7. 17.6.2005 DYUTHI TECHNOLOGIES PVT. LTD. 277 1.00 700000 8. 7.6.2005 DIVIJA TECHNOLOGIES PVT. LTD. 279 8.15 5862500 9. 7.6.2005 ACHALA TECHNOLOGIES PVT. LTD. 271 8.00 5600000 TOTAL 35.29 26057500 17. ALL THE LAND WAS SITUATED AT JANWADA VILLAGE, SHAN KARPALLI MANDAL. THE LAND WAS SOLD ON 7.6.2005 VIDE 9 SALE D EEDS. TILL THEN IT WAS TREATED AS A FIXED ASSET AND THE AR DRE W OUR ATTENTION TO THE COPIES OF FINANCIAL STATEMENT FOR A.Y. 1997- 98 TO A.Y. 2005- 06. ACCORDING TO THE AR, EVEN IF THE ASSESSEE IS I N REAL ESTATE BUSINESS, SALE OF THE IMPUGNED AGRICULTURAL LAND HE LD BY THE ASSESSEE IS CAPITAL ASSET AND SALE OF THAT LAND CAN NOT BE CONSTRUED AS BUSINESS TRANSACTION CARRIED ON BY THE ASSESSEE SO AS TO TAX THE SAME UNDER THE HEAD 'BUSINESS INCOME'. HE SUBMITTE D THAT THE ASSESSEE IS NOT PRECLUDED FROM HOLDING AGRICULTURAL LAND AS CAPITAL ASSET AND SELL THE SAME AS CAPITAL ASSET. FOR THIS PURPOSE, HE RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. SSPDL LTD. VS. DCIT, IN ITA NO. 976/HYD/2012 DATED 5.4.2013 SP ECIFICALLY ON PARA 32 WHICH IS AS UNDER: '32. WE HAVE TO SEE THE INTENTION OF THE ASSESSEE A T THE TIME OF ACQUIRING THE ASSET. THE INTENTION OF HE ASSESSEE HEREIN IS TO CONSTRUCT A BUILDING FOR SETT ING UP OF ITS CORPORATE OFFICE AND IT WAS ALWAYS A FIXED A SSET AND NOT A STOCK-IN-TRADE. EVEN IF THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE, THE PROPERTY ACQUIRED BY T HE ASSESSEE FOR THE PURPOSE OF SETTING UP OF A CORPORA TE OFFICE CANNOT BE CONSTRUED AS A TRADING ASSET. THE PROFIT REALISED BY SALE OF CURRENT ASSETS IN THE LI NE OF TRADING IS INCOME FROM BUSINESS. ON THE OTHER HAND , IF THE ASSESSEE SELLS A CAPITAL ASSET AS AN INVESTOR I T IS INCOME FROM CAPITAL GAIN. THE DOMINANT OR EVEN THE SOLE INTENTION TO RESELL IS A RELEVANT FACTOR AND R AISES A ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 14 STRONG PRESUMPTION BUT BY ITSELF IS NOT CONCLUSIVE PROOF OF TRADING. THE INTENTION TO RESELL WOULD, IN CONJ UNCTION WITH THE CONDUCT OF THE ASSESSEE AND OTHER CIRCUMSTANCES, POINT TO THE BUSINESS CHARACTER OF T HE TRANSACTION. PROFIT MADE BY SALE OF CAPITAL ASSET ALWAYS INCOME FROM CAPITAL GAIN. ONE HAS TO SEE WHETHER THE ASSET HELD BY THE ASSESSEE AS AN INVESTMENT OR AS A TRADING ASSET. REALISATION OF C APITAL ASSET IS ALWAYS INCOME FROM CAPITAL GAIN.' 18. FURTHER HE RELIED ON THE ORDER OF THE TRIBUNAL IN T HE CASE OF T. VEERENDER VS. ADDL. CIT & ANR IN ITA NOS. 550 & 551/HYD/2012 DATED 4.7.2013 TO TREAT THE SALE OF AGRICULTURAL LA ND AS NOT LIABLE FOR TAX. 19. THE DR RELIED ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF SARIFABIBI MOHMED IBRAHIM VS. CIT (204/631) (SC), G. VENKATASWAMI NAIDU & CO. VS. CIT(A) (35 ITR 594) (S C), TUSHAR TANNA VS. CIT (284 ITR 453) (BOM) AND DCIT VS. GOP AL RAMNARAYAN KASAT (328 ITR 556) (BOM). 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IT IS AN ADMITTED FACT THAT THE LAND WAS H ELD BY THE ASSESSEE AS A CAPITAL ASSET FROM THE DATE OF PURCHA SE TILL THE DATE OF SALE. THIS IS EVIDENCED BY THE ENTRIES REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE COMPANY. THE ASSESSEE'S CONTE NTION IS THAT IT IS INTENDED TO RETAIN THE AGRICULTURAL LAND ACQUIRE D AS A CAPITAL ASSET. THE ASSESSEE NEVER TREATED THE LAND AS STOC K IN TRADE. THE ASSESSEE REFLECTED THE SAME IN THE BALANCE SHEET AS A FIXED ASSET. THE ASSESSEE CARRIED ON AGRICULTURAL OPERATIONS FOR WHICH THE ASSESSEE CLAIMED INCOME AS WELL AS EXPENDITURE. TH E AGRICULTURAL ACTIVITY CARRIED ON BY THE ASSESSEE WAS CONFIRMED B Y THE INSPECTOR IN THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS DURING REMAND PROCEEDINGS BY THE CIT(A). ACCORDING TO THE REVENU E AUTHORITIES, THIS WAS ONLY A STOP GAP ARRANGEMENT. THIS AGRICULT URAL LAND IS SITUATED BEYOND 25 KM FROM THE MUNICIPAL LIMITS. T HE ASSESSEE ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 15 HAS NOT TAKEN ANY PERMISSION FROM THE GOVERNMENT FO R MAKING PLOTS, AS THE ASSESSEE COMPANY NEVER HAD ANY INTENT ION TO MAKE THE LAND INTO PLOTS AND CARRY ON REAL ESTATE BUSINE SS IN RESPECT OF THE LAND. THUS, THE ASSESSEE NEVER CREATED AN ASSET AS STOCK IN TRADE BUT TREATED IT AS CAPITAL ASSET (AGRICULTURAL LAND). THE ASSESSEE HAS SOLD LAND ADMEASURING 35.29 ACRES. TH E SAME IS REFLECTED UNDER THE HEAD FIXED ASSETS IN THE BALANC E SHEET IN VARIOUS FINANCIAL YEARS. COPIES OF SALE DEEDS OF T HE ABOVE SAID LAND ARE BROUGHT ON RECORD BY THE ASSESSEE TO PROVE THE FACT THAT THE LAND HELD/SOLD BY THE ASSESSEE IS AGRICULTURAL LAND. 21. THE AR SUBMITTED THAT THE SALE TRANSACTION EFFECTED BY THE ASSESSEE IN RESPECT OF THE ABOVE AGRICULTURE LAND C ONSTITUTED ONLY SALE OF AGRICULTURE LAND, AND BY NO STRETCH OF IMAG INATION IT CAN BE TREATED AS ADVENTURE IN TRADE AND SO AS TO TREAT TH E SAME AS BUSINESS TRANSACTION FOR THE FOLLOWING REASONS: I) PURCHASE AND HOLDING OF LAND FOR A PERIOD AND SUBSE QUENT SALE THEREOF ITSELF CANNOT BE AN INDICATOR TO HOLD THAT THE INTENTION OF THE ASSESSEE WAS TO CARRY ON BUSINESS WITH THOSE ASSETS. THE INTENTION CANNOT BE PRESUMED UNLE SS SUPPORTED BY EVIDENCE. IN THIS CASE THE TREATMENT GIVEN BY THE ASSESSEE FOR THIS ASSET IN THE ACCOUNT BOOKS CL EARLY INDICATE THAT THE INTENTION OF THE ASSESSEE IS TO H OLD THE SAME AS CAPITAL ASSET TO HAVE GOOD RETURNS FROM THE SAME. II) THE ASSESSEE HELD LAND FOR CONSIDERABLE TIME. THE A SSET ACQUIRED WAS AGRICULTURE LAND AS PER THE EVIDENCE B ROUGHT ON RECORD. IT WAS SOLD IN THE A.Y. 2006-07. THUS, THE ASSESSEE HELD THE AGRICULTURE LAND FOR ABOUT 10 YEA RS. DURING THAT PERIOD THE ASSESSEE CARRIED ON REGULAR AGRICULTURAL OPERATIONS IN THE LAND. IN THE LIGHT O F FAVOURABLE MARKET CONDITIONS THE ASSESSEE THOUGHT IT GOOD TO S ELL THE ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 16 ASSET TO REALIZE A GOOD AMOUNT. REALIZATION OF BETT ER PRICE IN A BOOMING MARKET CANNOT BE CONSIDERED AS AN ADVENTU RE IN TRADE III) THE EXPRESSION ADVENTURE IN THE NATURE OF TRADE OCC URS IN THE DEFINITION OF BUSINESS UNDER SECTION 2(13) BUT THE EXPRESSION ADVENTURE IN THE NATURE OF TRADE HAS NOT BEEN DEFINED IN THE ACT. IT MAY BE PERTINENT TO MENTION HERE THAT A SPECIFIC TRANSACTION PARTAKE THE CHARACTER OF BUS INESS OR AN ADVENTURE IN THE NATURE OF TRADE OR REALIZATION OF CAPITAL ASSET OR A MERE CONVERSION OF ASSET HAS TO BE DECID ED DEPENDING UPON FACTS OF EACH CASE. IV) IN DECIDING AS TO WHETHER A PARTICULAR TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE, THE ASSESSING OFF ICER MUST CONSIDER ALL THE RELEVANT AND PROVED FACTS AND CIRCUMSTANCES. REALIZATION OF INVESTMENTS CONSISTIN G OF PURCHASE OF AGRICULTURAL LAND AND RESALE, THOUGH PR OFITABLE ARE CLEARLY OUTSIDE THE DOMAIN OF ADVENTURE IN THE NATURE OF TRADE. V) THE ASSESSEE TREATED THE ASSETS AS INVESTMENT IN AG RICULTURAL LAND. THEREFORE DISPOSAL OF THE SAME WOULD NOT CON VERT, WHAT WAS A CAPITAL ACCRETION, TO AN ADVENTURE IN TH E NATURE OF TRADE. TO MAKE IT MORE CLEAR, SALE OF AGRICULTUR AL LAND BY THE ASSESSEE AND REALISATION OF GOOD PRICE WOULD NO T ALTER THE BASIC NATURE AND CHARACTERISTIC OF THE TRANSACT ION. IN THE CASE OF THE ASSESSEE, LAND WAS ACQUIRED BY THE ASSESSEE AND REFLECTED IN THE BALANCE-SHEETS OF THE CONCERN AS FIXED- ASSETS. THE ASSESSEE NEVER TREATED THE LAND AS STOC K-IN-TRADE AND REFLECTED IN PROFIT AND LOSS ACCOUNT (CLOSING S TOCK). THERE WAS NO ELEMENT OF TRADE ATTACHED TO THE ACTIVITY OF THE ASSESSEE IN PURCHASE AND SALE OF THE LAND. A CONTI NUOUS ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 17 BUSINESS REQUIRES MORE ACTIVITY AND GREATER ORGANIZ ATION. THIS IS ABSENT IN THE TRANSACTION OF SALE OF LAND B Y THE ASSESSEE. THEREFORE, ALTHOUGH THERE IS PROFIT IN TH E TRANSACTION THE TRANSACTION CANNOT BE CHARACTERIZED AS AN ADVENTURE IN THE NATURE OF TRADE. VI) WHETHER A TRANSACTION IN RESPECT OF AN ASSET IS CAP ITAL OR BUSINESS INCOME BEING ADVENTURE IN THE NATURE OF TR ADE DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THERE ARE MANY FACTORS LIKE FREQUENCY OF TRANSACTIONS, PE RIOD OF HOLDING, INTENTION FOR RESALE ETC, WHICH DETERMINE WHETHER THE GAIN ARISING OF A TRANSACTION IS IN THE PROCESS OF REALISATION OF INVESTMENT OR IN THE COURSE OF BUSIN ESS. THE MERE FACT THAT THE PERSON HAS PURCHASED A LAND AND SUBSEQUENTLY SOLD IT, GIVING RISE TO A SUBSTANTIAL PROFIT CANNOT CHANGE THE CHARACTER OF THE TRANSACTION. IT IS THE GENERAL HUMAN TENDENCY TO EARN PROFIT OUT OF CAPITA L ASSET. NO ONE INVESTS TO INCUR A LOSS. IF THE MARKET CONDI TION SUDDENLY GOES UP OR DOWN, IT IS ALWAYS THE TENDENCY OF A PERSON TO TAKE A QUICK DECISION SO THAT THE REALIZA TION ON THE INVESTMENT IS MAXIMUM OR THE LOSS IS MINIMUM. VII) AS ALREADY MENTIONED THE ASSESSEE COMPANY CARRIED O N REGULAR AGRICULTURAL OPERATIONS IN THE SAID AGRICUL TURE LAND. IN THAT PROCESS THE ASSESSEE COMPANY ITSELF INVOLVE D IN THE PRIMARY OPERATION SUCH AS PLOUGHING, TILLING, SOWIN G, WATERING ETC. THE ASSESSEE HAS PRODUCED BEFORE THE LOWER AUTHORITIES THE DOCUMENTS OF PURCHASE, SALE BILLS F OR AGRICULTURAL PRODUCE AND EXPENDITURE BILLS. VIII) BY SELLING THE ABOVE AGRICULTURE PRODUCE THE ASSESS EE EARNED AGRICULTURE RECEIPTS WHICH WERE BROUGHT INTO THE AC COUNT BOOKS OF THE ASSESSEE. IN THE PROCESS OF CARRYING O N THE ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 18 AGRICULTURE OPERATIONS THE ASSESSEE USED TO INCUR EXPENDITURE AND THE SAME IS ALSO BROUGHT INTO THE A CCOUNT BOOKS. SEPARATE ACCOUNT BOOKS WERE MAINTAINED FOR T HE OPERATIONS OF THE AGRICULTURE LAND AND TO ARRIVE AT THE AGRICULTURE INCOME DERIVED. SUCH DETAILS OF RECEI PTS OF SALE OF AGRICULTURE PRODUCE AND EXPENDITURE INCURRED FOR AGRICULTURE TRANSACTIONS ARE FURNISHED BY THE ASSES SEE BEFORE THE LOWER AUTHORITIES. 22. FROM THE ABOVE, IT IS CLEAR THAT: A) THE ASSESSEE PURCHASED AGRICULTURE LAND NOW UNDER CONSIDERATION SITUATED BEYOND 8 KM FROM THE MUNICIP AL LIMITS. B) THE ASSESSEE TREATED THE SAME AS FIXED ASSET IN THE IR BOOKS ALONG WITH OTHER AGRICULTURE LAND WHICH WAS ALREADY ACQUIRED BY THEM IN THE EARLIER YEARS. C) THE LAND WAS IDENTIFIED AS AGRICULTURE LAND IN THE REVENUE RECORDS. D) THE ASSESSEE CARRIED ON AGRICULTURAL OPERATIONS IN THE LAND. E) THE ASSESSEE DID NOT CARRY ON ANY COMMERCIAL ACTIVI TY WITH REFERENCE TO THAT LAND SUCH AS GETTING OF APPROVAL FOR CONVERTING INTO SITES, PLOTTING OF THE SAME INTO SI TES ETC. THUS, THE CHARACTER OF THE LAND I.E., AGRICULTURE N ATURE WAS CONTINUING TILL THE SAME WAS SOLD BY THE ASSESSEE C OMPANY. F) BECAUSE OF FAVOURABLE MARKET CONDITIONS THE ASSESSE E SOLD THE LAND AND THE SAME FETCHED THEM A GOOD PRICE. 23. THEREFORE, IN THE PRESENT CASE THERE IS NO DISPUTE REGARDING THE FACT THAT THE ASSESSEES ACQUIRED AGRICULTURAL L AND. THERE IS ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 19 ALSO NO DISPUTE THAT THERE WAS AGRICULTURAL OPERATI ON IN THIS LAND BEFORE SALE OF THIS LAND. 24. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE A MOUNT RECEIVED ON SALE OF THIS AGRICULTURAL PROPERTY IS N OTHING BUT ON ACCOUNT OF ADVENTURE IN THE NATURE OF TRADE AND THE SAME WAS BROUGHT INTO INCOME FROM BUSINESS. IN THIS CASE, T HE ASSESSEE HELD THE LAND ALWAYS AS INVESTMENT AND NOT AT ALL C ONVERTED INTO STOCK-IN-TRADE. THE CHARACTER OF THE LAND IN THE H ANDS OF THE ASSESSEES HAS NOT CHANGED. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE CARRIED ON ACTIVITIES OF BUY ING AND SELLING OF LAND IN A SYSTEMATIC MANNER SO AS TO JUSTIFY THE ACTION OF THE AO IN TREATING THE ACTIVITIES OF THE ASSESSEE AS ADVEN TURE IN THE NATURE OF TRADE. THE LAND WAS SOLD BY THE ASSESSEES IN AC REAGE AND NOT BY MAKING PLOTS. 25. NOW THE QUESTION AS TO WHETHER A LAND IS AGRICULTUR AL LAND OR NOT IS ESSENTIALLY A QUESTION OF FACT. 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. WE HAVE TO ANSW ER THE QUESTION ON A CONSIDERATION OF ALL OF THEM, A PROCESS OF EVA LUATION AND THE INFERENCE HAS TO BE DRAWN ON A CUMULATIVE CONSIDERA TION OF ALL THE RELEVANT FACTS. IT MAY BE STATED HERE THAT NOT ALL THE FACTORS OR TESTS WOULD BE PRESENT OR ABSENT IN ANY CASE AND THAT IN EACH CASE ONE OR MORE OF THE FACTORS MAY MAKE APPEARANCE AND THAT ULTIMATE DECISION WILL HAVE TO BE REACHED ON A BALANCED CONS IDERATION OF THE TOTALITY OF THE CIRCUMSTANCES. 26. THE EXPRESSION AGRICULTURAL LAND IS NOT DEFINED I N THE ACT, AND NOW, WHETHER IT IS AGRICULTURAL LAND OR NOT HAS TO BE DETERMINED BY USING THE TESTS OR METHODS LAID DOWN BY THE COURTS FROM TIME TO TIME. ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 20 27. THE HONBLE SUPREME COURT IN THE CASE OF SMT. SARIF ABIBI MOHMED IBRAHIM (204 ITR 631) HAS APPROVED THE DECIS ION OF A DIVISION BENCH OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIDDHARTH J. DESAI (1982) 28 CTR (GUJ) 148 : (1983) 139 ITR 628 (GUJ) AND HAS LAID DOWN 13 TESTS OR FACTORS WHICH ARE REQUIRED TO BE CONSIDERED AND UPON CONSIDERATION OF WHICH, THE QUESTION WHETHER THE LAND IS AN AGRICULTURAL LAND O R NOT HAS TO BE DECIDED OR ANSWERED. WE REPRODUCE THE SAID 13 TEST S AS FOLLOWS: 1. WHETHER THE LAND WAS CLASSIFIED IN THE REVENUE RECORDS AS AGRICULTURAL AND WHETHER IT WAS SUBJECT TO THE PAYMENT OF LAND REVENUE? 2. WHETHER THE LAND WAS ACTUALLY OR ORDINARILY USED FOR AGRICULTURAL PURPOSES AT OR ABOUT THE RELEVANT TIME? 3. WHETHER SUCH USER OF THE LAND WAS FOR A LONG PERIOD OR WHETHER IT WAS OF A TEMPORARY CHARACTER OR BY ANY OF A STOPGAP ARRANGEMENT? 4. WHETHER THE INCOME DERIVED FROM THE AGRICULTURAL OPERATIONS CARRIED ON IN THE LAND BORE ANY RATIONAL PROPORTION TO THE INVESTMENT MADE IN PURCHASING THE LAND? 5. WHETHER, THE PERMISSION UNDER S. 65 OF THE BOMBAY LAND REVENUE CODE WAS OBTAINED FOR THE NON-AGRICULTURAL USE OF THE LAND? IF SO, WHEN AND BY WHOM (THE VENDOR OR THE VENDEE)? WHETHER SUCH PERMISSION WAS IN RESPECT OF THE WHOLE OR A PORTION OF THE LAND? IF THE PERMISSION WAS IN RESPECT OF A PORTION OF THE LAND AND IF IT WAS OBTAINED IN THE PAST, WHAT WAS THE NATURE OF THE USER OF THE SAID PORTION OF THE LAND ON THE MATERIAL DATE? 6. WHETHER THE LAND, ON THE RELEVANT DATE, HAD CEASED TO BE PUT TO AGRICULTURAL USE? IF SO, WHETHER IT WAS PUT TO AN ALTERNATIVE USE? WHETHER SUCH LESSER AND/OR ALTERNATIVE USER WAS OF A PERMANENT OR TEMPORARY NATURE? ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 21 7. WHETHER THE LAND, THOUGH ENTERED IN REVENUE RECORDS, HAD NEVER BEEN ACTUALLY USED FOR AGRICULTURE, THAT IS, IT HAD NEVER BEEN PLOUGHED OR TILLED? WHETHER THE OWNER MEANT OR INTENDED TO USE IT FOR AGRICULTURAL PURPOSES? 8. WHETHER THE LAND WAS SITUATED IN A DEVELOPED AREA? WHETHER ITS PHYSICAL CHARACTERISTICS, SURROUNDING SITUATION AND USE OF THE LAND IN THE ADJOINING AREA WERE SUCH AS WOULD INDICATE THAT THE LAND WAS AGRICULTURAL? 9. WHETHER THE LAND ITSELF WAS DEVELOPED BY PLOTTING AND PROVIDING ROADS AND OTHER FACILITIES? 10. WHETHER THERE WERE ANY PREVIOUS SALES OF PORTIONS OF THE LAND FOR NON-AGRICULTURAL USE? 11. WHETHER PERMISSION UNDER S. 63 OF THE BOMBAY TENANCY AND AGRICULTURAL LAND ACT, 1948, WAS OBTAINED BECAUSE THE SALE OR INTENDED SALE WAS IN FAVOUR OF A NON-AGRICULTURIST? IF SO, WHETHER TH E SALE OR INTENDED SALE TO SUCH NON-AGRICULTURISTS WAS FOR NON-AGRICULTURAL OR AGRICULTURAL USER? 12. WHETHER THE LAND WAS SOLD ON YARDAGE OR ON ACREAGE BASIS? 13. WHETHER AN AGRICULTURIST WOULD PURCHASE THE LAND FOR AGRICULTURAL PURPOSES AT THE PRICE AT WHICH THE LAND WAS SOLD AND WHETHER THE OWNER WOULD HAVE EVER SOLD THE LAND VALUING IT AS A PROPERTY YIELDING AGRICULTURAL PRODUCE ON THE BASIS OF ITS YIELD?' 28. IN THE PRESENT CASE, THE ASSESSEE'S LANDS WERE CLAS SIFIED AS AGRICULTURAL LAND IN THE REVENUE RECORDS, THE FACT OF WHICH WAS ALSO CONFIRMED IN THE ASSESSING OFFICER. AS HELD B Y THE APEX COURT, WHEN THE LAND IS ASSESSED TO THE LAND REVENU E AS AGRICULTURAL LAND UNDER STATE REVENUE LAW, IT IS CE RTAINLY A RELEVANT FACTOR BUT NOT CONCLUSIVE. THE LAND WAS A LREADY CLASSIFIED AS AGRICULTURAL LAND IN THE REVENUE RECORDS AND THE ASSESSEE CARRIED ON AGRICULTURAL ACTIVITIES IN THE SAID LAND , WHICH WAS ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 22 CONFIRMED BY THE VRO, JANWADA. THE CERTIFICATE ISS UED BY THE VRO, JANWADA VILLAGE MENTIONED THAT THE LANDS IN QU ESTION WERE USED FOR AGRICULTURAL ACTIVITIES AND ALSO MENTIONED THE DETAILS OF CROPS GROWN ON THE SAID LANDS. THE ASSESSEE ALSO E ARNED INCOME FROM AGRICULTURAL OPERATIONS SINCE A.Y. 1998-99. F ROM THIS IT IS CLEAR THAT THE LAND WAS ACTUALLY USED FOR AGRICULTU RAL PURPOSES AT THE RELEVANT TIME. THE REVENUE EARNED FROM AGRICULT URAL OPERATIONS WAS REFLECTED IN THE RETURN OF INCOME FILED BEFORE THE DEPARTMENT. IN THE ASSESSMENT ORDER IT WAS STATED THAT AS PER T HE REPORT OF THE INSPECT OF INCOME-TAX, PRESENTLY THERE WAS NO AGRIC ULTURAL ACTIVITIES ON THE LANDS HELD BY THE ASSESSEE. THER EFORE, IT IS NOT ESTABLISHED THAT THE LAND WAS USED FOR AGRICULTURAL PURPOSES FOR A LONG PERIOD. THE AR SUBMITTED THAT THE CONTENTS OF THE INSPECTOR'S REPORT WERE NOT CONFRONTED TO THE ASSESSEE AND THE LAND DEVELOPMENT EXPENDITURE INCURRED 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 PUR POSES. THE INCOME FROM THE AGRICULTURAL OPERATIONS IS IN RATIO NAL PROPORTION TO THE INVESTMENT MADE AT THE TIME OF PURCHASE. ADMINI STRATIVE EXPENDITURE IS NECESSARY TO BE INCURRED TO RUN A CO MPANY ON THE BASIS OF WHICH IT CANNOT BE CONCLUDED THAT THE MAIN ACTIVITY IS COMMERCIAL RATHER THAN AGRICULTURAL WHEN THE COMPAN Y 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 QUE STION OF TAKING OF ANY PERMISSION FOR CONVERSION OF THE LAND. 29. THE COMPANY CARRIED ON AGRICULTURAL OPERATIONS IN T HE LAND FOR THE LAST SEVERAL YEARS. THE OWNER INTENDED TO USE IT FOR AGRICULTURAL PURPOSES ONLY AND THE INTENTION OF THE OWNER IS FULFILLED SINCE THE AGRICULTURAL ACTIVITIES GENERAT ED INCOME. THE LAND WAS SITUATED IN A RURAL AREA WHEREIN LOT OF AG RICULTURAL ACTIVITIES ARE BEING CARRIED ON. ACCORDING TO GO M S NO. 111 ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 23 SEVERAL RESTRICTIONS WERE PLACED WITH A VIEW TO CON TINUE THE LANDS TO AGRICULTURAL OPERATIONS ONLY. THE PHOTOGRAPH OF THE AGRICULTURAL LANDS SHOWING THE PHYSICAL CHARACTERISTICS OF THE L AND WAS ALSO FILED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. NO DEVELOPMENT OF THE LAND WAS DONE BY MAKING PLOTS AND PROVIDING ROADS AND OTHER FACILITIES. IT IS WRONG TO CONCLUDE THAT WOR K HAS BEEN DONE AIMING TO PLOTTING, DEVELOPING INFRASTRUCTURE BECAU SE THE LAND DEVELOPMENT WAS DONE IN OTHER LAND. THERE WERE NO PREVIOUS SALE OF THE PORTIONS OF THE LAND FOR NON-AGRICULTURAL US E. THE LAND WAS SOLD ONLY AS AGRICULTURAL LANDS AS THE TIME OF SALE AND AGRICULTURAL OPERATIONS WERE CONTINUED AS ON THE DATE OF SALE. THE LAND WAS SOLD ON ACREAGE BASIS ONLY. THE LAND WAS SOLD AT P REVAILING MARKET PRICES ONLY. GO MS NO. 111 PROHIBITS/RESTRICTS RE AL ESTATE ACTIVITY IN THAT AREA. 30. PART OF THE ASSESSEE'S MAIN OBJECT IS REFERRED AS O NE REASON TO DISALLOW THE CLAIM OF THE ASSESSEE. BUT IN FACT THE PART OF THE OBJECT WHICH IS NOT TAKEN UP IS ONLY REFERRED. THE OTHER PART OF THE MAIN OBJECT 'TO PURCHASE AGRICULTURAL LAND AND CARR Y ON AGRICULTURAL ACTIVITIES AND SELL THE AGRICULTURAL P ROCEEDS' WHICH IS ACTUALLY TAKEN UP IS NOT REFERRED. THE ASSESSMENT ORDER REFERRED ABOUT THE BUYERS AND NOT CONSIDERED AT ALL THE REAL SITUATION AT ALL AND THE CONTENTS OF GO MS NO. 111. NON PRODUCTION OF EVIDENCE FOR AGRICULTURAL EXPENDITURE WHICH WAS ACTUALLY INC URRED DOES NOT MAKE AN AGRICULTURAL LAND A NON-AGRICULTURAL ONE. THE LAND DEVELOPMENT EXPENDITURE INCURRED IN A LAND OTHER TH AN THE LAND THAT WAS SOLD. THE EVIDENCE FOR RECEIPT OF AGRICUL TURAL INCOME IS ON RECORD. SIMPLY BECAUSE INCOME WAS LESS 'ONE CANNOT MAKE AN AGRICULTURAL INCOME AS A BUSINESS INCOME'. WHAT HA S TO BE SEEN HERE IS WHETHER THE INCOME WAS RECEIVED ON AGRICULT URAL ACTIVITY OR NOT INSTEAD OF SEEING THE RATIO. ADMINISTRATIVE EX PENDITURE IS INEVITABLE IN RUNNING A COMPANY. MEETING OF EXPEND ITURE WHICH IS ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 24 INEVITABLE WILL NOT PROVE THE COMMERCIAL ACTIVITIES OF ANY ASSESSEE. IT WAS SUBMITTED BY THE AR THAT THE CONTENTS OF THE PAPER ADVERTISEMENT AND REPORT OF THE INSPECTOR WERE NOT IN THE KNOWLEDGE OF THE ASSESSEE AT ANY POINT OF TIME. IT IS WRONG TO SAY THAT THE ACTIVITIES OF THE ASSESSEE, WHICH ARE AGRI CULTURAL IN FACT, CONFIRM TO THE COMMERCIAL NATURE. IN VIEW OF THE A BOVE, WE ARE OF THE OPINION THAT THE JUDGEMENT OF SUPREME COURT IN THE CASE OF SMT. SARIFABIBI MOHAMED IBRAHIM & ORS. (CITED SUPRA ) SUPPORTS THE CASE OF THE ASSESSEE RATHER THAN AGAINST THE AS SESSEE. 31. A REFERENCE COULD BE MADE TO THE CASE OF CWT VS. OF FICER-IN- CHARGE (COURT OF WARDS) (105 ITR 138) (SC) WHEREIN THE CONSTITUTION BENCH OF THE HONBLE SUPREME COURT STA TED THAT THE TERM AGRICULTURE AND AGRICULTURAL PURPOSE WAS N OT DEFINED IN THE INDIAN IT ACT AND THAT WE MUST NECESSARILY FALL BAC K UPON THE GENERAL SENSE IN WHICH THEY HAVE BEEN UNDERSTOOD IN COMMON PARLANCE. THE HONBLE SUPREME COURT HAS OBSERVED TH AT THE TERM AGRICULTURE IS THUS UNDERSTOOD AS COMPRISING WITH IN ITS SCOPE THE BASIC AS WELL AS SUBSEQUENT OPERATIONS IN THE PROCE SS OF AGRICULTURE AND RAISING ON THE LAND ALL PRODUCTS WH ICH HAVE SOME UTILITY EITHER FOR SOMEONE OR FOR TRADE AND COMMERC E. IT WILL BE SEEN THAT THE TERM AGRICULTURE RECEIVES A WIDER I NTERPRETATION BOTH IN REGARD TO ITS OPERATION AS WELL AS THE RESULT OF THE SAME. NEVERTHELESS THERE IS PRESENT ALL THROUGHOUT THE BA SIC IDEA THAT THERE MUST BE AT THE BOTTOM OF ITS CULTIVATION OF T HE LAND IN THE SENSE OF TILLING OF THE LAND, SOWING OF THE SEEDS, PLANTING AND SIMILAR WORK DONE ON THE LAND ITSELF AND THIS BASIC CONCEPTION IS ESSENTIAL SINE QUA NON OF ANY OPERATION PERFORMED O N THE LAND CONSTITUTING AGRICULTURAL OPERATION AND IF THE BASI C OPERATIONS ARE THERE, THE REST OF THE OPERATIONS FOUND THEMSELVES UPON THE SAME, BUT IF THE BASIC OPERATIONS ARE WANTING, THE SUBSEQ UENT OPERATIONS DO NOT ACQUIRE THE CHARACTERISTICS OF AGRICULTURAL OPERATIONS. THE ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 25 CONSTITUTION BENCH OF THE HONBLE SUPREME COURT IN THE AFORESAID CASE OBSERVED THAT THE ENTRIES IN REVENUE RECORDS W ERE CONSIDERED GOOD PRIMA FACIE EVIDENCE. 32. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DR. M OTIBHAI D. PATEL VS. CIT (1982) 27 CTR (GUJ) 238 : (1981) 1 27 ITR 671 (GUJ) REFERRING TO THE CONSTITUTION BENCH OF THE HO NBLE SUPREME COURT HAD STATED THAT IF AGRICULTURAL OPERATIONS AR E BEING CARRIED ON IN THE LAND IN QUESTION AT THE TIME WHEN THE LAN D IS SOLD AND FURTHER IF THE ENTRIES IN THE REVENUE RECORDS SHOW THAT THE LAND IN QUESTION IS AGRICULTURAL LAND, THEN, A PRESUMPTION ARISES THAT THE LAND IS AGRICULTURAL IN CHARACTER AND UNLESS THAT P RESUMPTION 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 SOLD. THE DIVISION BENCH OF THE HONBLE GUJARAT HIGH COUR T FURTHER HELD THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE P RESUMPTION ROSE FROM THE LONG USER OF THE LAND FOR AGRICULTURA L PURPOSE AND ALSO THE PRESUMPTION ARISING FROM THE ENTRIES OF TH E REVENUE RECORDS ARE REBUTTED. 33. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CWT V S. H. V. MUNGALE (1983) 32 CTR (BOM) 301 : (1984) 145 ITR 208 (BOM) HELD THAT THE HONBLE SUPREME COURT HAD POINTED OUT THAT THE ENTRIES RAISED ONLY A REBUTTABLE PRESUMPTION AND SO ME EVIDENCE WOULD, THEREFORE, HAVE TO BE LED BEFORE TAXING AUT HORITIES ON THE QUESTION OF INTENDED USER OF THE LAND UNDER CONSIDE RATION BEFORE THE PRESUMPTION COULD BE REBUTTED. THE COURT FURTHE R HELD THAT THE SUPREME COURT HAD CLEARLY POINTED OUT THAT THE BURDEN TO REBUT THE PRESUMPTION WOULD BE ON THE REVENUE. THE HONBLE BOMBAY HIGH COURT HELD THAT THE RATIO OF THE DECISI ON OF THE SUPREME COURT WAS THAT WHAT IS TO BE DETERMINED IS THE CHARACTER OF THE LAND ACCORDING TO THE PURPOSE FOR WHICH IT W AS MEANT OR SET APART AND CAN BE USED. IT IS, THEREFORE, OBVIOUS TH AT THE ASSESSEE ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 26 HAD ABUNDANTLY PROVED THAT THE SUBJECT LAND SOLD BY THEM WAS AGRICULTURAL LAND NOT ONLY AS CLASSIFIED IN THE REV ENUE RECORDS, BUT ALSO IT WAS SUBJECTED TO THE PAYMENT OF LAND REVENU E AND THAT IT WAS ACTUALLY AND ORDINARILY USED FOR AGRICULTURAL P URPOSE AT THE RELEVANT TIME. 34. WE MAY ALSO REFER TO THE CASE OF CIT VS. MANILAL S OMNATH (1977) 106 ITR 917 (GUJ), WHEREIN THE DIVISION BENC H OF THE HONBLE GUJARAT HIGH COURT OBSERVED THAT THE POTENT IAL NON- AGRICULTURAL VALUE OF THE LAND FOR WHICH A PURCHASE R MAY BE PREPARED TO PAY A LARGE PRICE WOULD NOT DETRACT FRO M ITS CHARACTER AS AGRICULTURAL LAND ON THE RELEVANT DATE OF SALE. 35. 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 C ASES. IN THIS CASE, THE DIVISION BENCH OF THE BOMBAY HIGH COURT H AS STATED THAT THE PROFIT MOTIVE OF THE ASSESSEE SELLING THE LAND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISIVE FOR D ETERMINATION OF THE ISSUE AS TO WHETHER THE TRANSACTION AMOUNTED TO AN ADVENTURE IN THE NATURE OF TRADE. IN OTHER WORDS, THE PRICE P AID IS NOT DECISIVE TO SAY WHETHER THE LAND IS AGRICULTURAL OR NOT. 36. WE MAY REFER TO A JUDGMENT OF THE HONBLE MADRAS HI GH COURT IN THE CASE OF CWT VS. E. UDAYAKUMAR (2006) 2 84 ITR 511 (MAD) WHERE THE HONBLE MADRAS HIGH COURT HAS REFER RED TO THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SMT. SAVITA RANI (2004) 186 CTR (P&H) 24 0 : (2004) 270 ITR 40 (P&H) AND HAS OBSERVED AND HELD AS UNDER : '8. IT IS WELL SETTLED IN THE CASE OF CIT VS. SMT. SAVITA RANI (2004) 186 CTR (P&H) 240 : (2004) 270 ITR 40 (P&H), WHEREIN IT IS HELD THAT THE LAND BEING LOCAT ED IN A COMMERCIAL AREA OR THE LAND HAVING BEEN PARTIALLY ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 27 UTILISED FOR NON-AGRICULTURAL PURPOSES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NON-AGRICULTURAL PURPOSES, WERE TOTALLY IRRELEVANT CONSIDERATION FOR THE PURPOSES OF APPLICATION OF S. 54B. 9. IN THE ABOVESAID CASE, THE ASSESSEE AN INDIVIDUA L SOLD 15 KARNALS, 18 MARLAS OF LAND OUT OF HER SHARE IN 23 KARNALS, 17 MARLAS LAND DURING THE FINANCIAL YEA R 1990-91, RELEVANT TO THE ASST. YR. 1991-92, THE SAL E WAS EFFECTED BY THREE REGISTERED SALE DEEDS. WHILE FILI NG HER RETURN OF INCOME, SHE CLAIMED EXEMPTION FROM LEVY O F 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 TH E CIT(A). ON FURTHER APPEAL, THE TRIBUNAL ACCEPTED TH E CLAIM OF THE ASSESSEE HOLDING THAT THE TRANSACTION IN QUESTION DULY FULFILLED THE CONDITIONS SPECIFIED FO R RELIEF. ON FURTHER APPEAL TO THE HIGH COURT, THE PUNJAB & HARYANA HIGH COURT FOUND THAT THE FINDING THAT THE LAND HAD BEEN USED FOR AGRICULTURAL PURPOSES WAS BASED ON COGENT AND RELEVANT MATERIAL. THE REVENUE RECORD SUPPORTED THE CLAIM. EVEN THE RECORDS OF THE IT DEPARTMENT SHOWED THAT THE ASSESSEE HAD DECLARED AGRICULTURAL INCOME FROM THIS LAND IN HER RETURNS F OR THE PRECEDING TWO YEARS. THE LAND BEING LOCATED IN COMMERCIAL AREA OR THE LAND HAVING BEEN PARTIALLY UTILISED FOR NON-AGRICULTURAL PURPOSES OR THAT THE VENDEES HAD ALSO PURCHASED IT FOR NONAGRICULTURAL PURPOSES, WERE TOTALLY IRRELEVANT CONSIDERATION FOR THE PURPOSES OF APPLICATION OF S. 54B. 10. IT IS SEEN FROM THE AFORESAID DECISION THAT THE AGRICULTURAL LAND SOLD BY THE ASSESSEE WITH AN INT ENT TO PURCHASE ANOTHER LAND WITHIN TWO YEARS HAD ALSO BEE N PERMITTED TO CLAIM EXEMPTION UNDER S. 54B OF THE IT ACT, 1961. IN THE INSTANT CASE, EVEN THOUGH THERE WAS NO SALE AS SUCH, THE ASSESSEE OWNED AGRICULTURAL LAN D WITHIN THE LIMITS OF TIRUNELVELI CORPORATION AND HE HAD NOT PUT UP ANY CONSTRUCTION THEREON, THE ASSESSEE IS ENTITLED TO CLAIM EXEMPTION FROM THE WT ACT FOR THE ASSESSMENT OF WEALTH-TAX. THAT THE LAND IN QUESTION IS ADJACENT TO THE HOSPITAL IS TOTALLY IRRELEVANT.' ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 28 37. ADVERTING TO THE FACTS OF THE PRESENT CASE, THE LAN D IN QUESTION IS CLASSIFIED IN THE REVENUE RECORDS AS AG RICULTURAL LAND AND THERE IS NO DISPUTE REGARDING THIS ISSUE AND AC TUAL CULTIVATION HAS BEEN CARRIED ON THIS LAND AND INCOME WAS DECLAR ED FROM THIS LAND IN THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE EARLIER YEARS AS AGRICULTURAL INCOME. IT IS ALSO AN ADMITT ED FACT THAT THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW T HAT THE AGRICULTURAL LAND WAS USED FOR NON-AGRICULTURAL PUR POSES AND THE ASSESSEE HAS NOT PUT THE LAND TO ANY PURPOSES OTHER THAN AGRICULTURAL PURPOSES. IT IS ALSO AN ADMITTED FACT THAT NEITHER THE IMPUGNED PROPERTY NOR THE SURROUNDING AREAS WERE SU BJECT TO ANY DEVELOPMENTAL ACTIVITIES AT THE RELEVANT POINT OF T IME OF SALE OF THE LAND. 38. THE PROVISIONS OF ANDHRA PRADESH AGRICULTURAL LAND (CONVERSION FOR NON-AGRICULTURAL PURPOSES) ACT, 200 6 ALSO PRESCRIBED THE PROCEDURE FOR CONVERSION OF AGRICULT URAL LAND INTO NON-AGRICULTURAL LAND. BEING SO, WHENEVER THE AGRI CULTURAL LAND TO BE TREATED AS NON-AGRICULTURAL LAND, THE SAME HAS T O BE CONVERTED IN ACCORDANCE WITH THE PROVISIONS OF ANDHRA PRADESH AGRICULTURAL LAND (CONVERSION FOR NON-AGRICULTURAL PURPOSES) ACT , 2006. IF BY A GOVERNMENT NOTIFICATION, THE NATURE AND CHARACTER OF LAND CHANGES FROM AGRICULTURE INTO NON-AGRICULTURE THEN THERE IS NO QUESTION OF CONVERSION OF THIS LAND FOR NON-AGRICUL TURAL PURPOSES BY THE REVENUE AUTHORITIES CONCERNED. TO OUR UND ERSTANDING NATURE OF LAND CANNOT BE CHANGED BY ANY STATE GOVER NMENT NOTIFICATION AND THE LAND OWNERS ARE REQUIRED TO AP PLY TO THE CONCERNED REVENUE AUTHORITIES FOR THE PURPOSE OF CO NVERSION OF THE AGRICULTURAL LAND INTO NON-AGRICULTURAL LAND AND TH ERE IS NO AUTOMATIC CONVERSION PER SE BY STATE GOVERNMENT NOT IFICATION. 39. IT IS ALSO AN ADMITTED POSITION THAT MERE INCLUSIO N OR PROXIMITY OF LAND TO ANY SPECIAL ZONE WITHOUT ANY I NFRASTRUCTURE ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 29 DEVELOPMENT THEREUPON OR WITHOUT ESTABLISHING AND P ROVING THAT THE LAND WAS PUT INTO USE FOR NON-AGRICULTURAL PURP OSES BY THE ASSESSEE DOES NOT AND CANNOT CONVERT THE AGRICULTUR AL LAND INTO NON-AGRICULTURAL LAND. IN THE INSTANT CASE, AT THE RELEVANT POINT OF SALE OF THE LAND IN QUESTION, THE SURROUNDING AREA WAS TOTALLY UNDEVELOPED AND EXCEPT MERE FUTURE POSSIBILITY TO P UT THE LAND INTO USE FOR NON-AGRICULTURAL PURPOSES WOULD NOT CH ANGE THE CHARACTER OF THE AGRICULTURAL LAND INTO NON-AGRICUL TURAL LAND AT THE RELEVANT POINT OF TIME WHEN THE LAND WAS SOLD BY TH E ASSESSEE. IT IS ALSO AN ADMITTED POSITION THAT THE ASSESSEE HAD NOT APPLIED FOR CONVERSION OF THE LAND IN QUESTION INTO NON-AGRICUL TURAL PURPOSES AND NO SUCH PERMISSIONS WERE OBTAINED FROM THE CONC ERNED AUTHORITY. IN THE REVENUE RECORDS, THE LAND IS CLAS SIFIED AS AGRICULTURAL LAND AND HAS NOT BEEN CHANGED FROM AGR ICULTURAL LAND TO NON-AGRICULTURAL LAND AT THE RELEVANT POINT OF T IME WHEN THE LAND WAS SOLD BY THE ASSESSEE. IT IS ALSO NOT IN DI SPUTE THAT THERE WAS NO ACTIVITY UNDERTAKEN BY THE ASSESSEE OF DEVEL OPING THE LAND BY PLOTTING AND PROVIDING ROADS AND OTHER FACILITIE S AND THERE WAS NO INTENTION ALSO ON THE PART OF THE ASSESSEES HERE IN TO PUT THE SAME FOR NON-AGRICULTURAL PURPOSES AT TIME OF THEIR OWNERSHIP THAT LAND. NO SUCH FINDING HAS BEEN GIVEN BY THE DEPARTM ENT. NO MATERIAL OR EVIDENCE IN SUPPORT OF THE FACT THAT TH E ASSESSEES HAVE PUT THE LAND IN USE FOR NON-AGRICULTURAL PURPOSES H AS BEEN BROUGHT ON RECORD. AT THE RELEVANT POINT OF TIME TH E LAND WAS USED FOR AGRICULTURAL PURPOSES ONLY AND NOTHING IS BROUG HT ON RECORD TO SHOW THAT THE LAND WAS PUT IN USE FOR NON-AGRICULTU RAL PURPOSES BY THE ASSESSEE. IN VIEW OF THE 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 DECISI VE TO SAY THAT THE ASSESSEE USED THE LAND FOR NON-AGRICULTURAL PUR POSES. WE MAY ALSO REFER TO A DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 30 N. SRINIVASA RAO VS. SPECIAL COURT (2006) 4 SCC 214 WHERE IT WAS OBSERVED THAT THE FACT THAT AGRICULTURAL LAND IN QU ESTION IS INCLUDED IN URBAN AREA WITHOUT MORE, HELD NOT ENOUG H TO CONCLUDE THAT THE USER OF THE SAME HAD BEEN ALTERED WITH PAS SAGE 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-AGRICU LTURAL PURPOSES. 40. RECENTLY THE KARNATAKA HIGH COURT IN THE CASE OF CI T VS. MADHUKUMAR N. (HUF) (2012) 78 DTR (KAR) 391 HELD AS FOLLOWS: '9. AN AGRICULTURAL LAND IN INDIA IS NOT A CAPITAL ASSET BUT BECOMES A CAPITAL ASSET IF IT IS THE LAND LOCAT ED UNDER SECTION 2(14)(III)(A) & (B) OF THE ACT, SECTI ON 2(14) (III) (A) OF THE ACT COVERS A SITUATION WHERE THE S UBJECT AGRICULTURAL LAND IS LOCATED WITHIN THE LIMITS OF MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TO WN AREA COMMITTEE, TOWN COMMITTEE, OR CANTONMENT COMMITTEE AND WHICH HAS A POPULATION OF NOT LESS TH AN 10,000. 10. SECTION 2(14)(M)(B) OF THE ACT COVERS THE SITUA TION WHERE THE SUBJECT LAND IS NOT ONLY LOCATED WITHIN T HE DISTANCE OF 8 KMS FROM THE LOCAL LIMITS, WHICH IS C OVERED BY CLAUSE (A) TO SECTION 2(14)(III) OF THE ACT, BUT ALSO REQUIRES THE FULFILMENT OF THE CONDITION THAT THE C ENTRAL GOVERNMENT HAS ISSUED A NOTIFICATION UNDER THIS CLA USE FOR THE PURPOSE OF INCLUDING THE AREA UP TO 8 KMS, FROM THE MUNICIPAL LIMITS, TO RENDER THE LAND AS A CAPI TAL ASSET. 11. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE SUBJECT LAND IS NOT LOCATED WITHIN THE LIMITS OF DASARAHALLI CITY MUNICIPAL COUNCIL THEREFORE, CLAUS E (A) TO SECTION 2(14][III] OF THE ACT IS NOT ATTRACTED. 12. HOWEVER, THOUGH IT IS CONTENDED THAT IT IS LOCA TED WITHIN 8 KNITS,, WITHIN THE MUNICIPAL LIMITS OF DASARAHALLI CITY MUNICIPAL COUNCIL IN THE ABSENCE O F ANY NOTIFICATION ISSUED UNDER CLAUSE (B) TO SECTION 2(14)(III) OF THE ACT, IT CANNOT BE LOOKED IN AS A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14)(III)(B) O F THE ACT ALSO AND THEREFORE THOUGH THE TRIBUNAL MAY NOT ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 31 HAVE SPELT OUT THE REASON AS TO WHY THE SUBJECT LAN D CANNOT BE CONSIDERED AS A CAPITAL ASSET BE GIVING THIS VERY REASON, WE FIND THE CONCLUSION ARRIVED AT BY T HE TRIBUNAL IS NEVERTHELESS THE CORRECT CONCLUSION.' 41. FURTHER THE KOLKATA BENCH OF THE TRIBUNAL IN THE CA SE OF DCIT VS. ARIJIT MITRA (48 SOT 544) (KOL) HELD AS FO LLOWS: '7. FROM THE ABOVE, IT IS CLEAR THAT AGRICULTURAL L AND SITUATED IN AREAS LYING WITHIN A DISTANCE NOT EXCEE DING 8 KM FROM THE LOCAL LIMITS OF SUCH MUNICIPALITIES O R CANTONMENT BOARDS ARE COVERED BY THE AMENDED DEFINITIONS OF 'CAPITAL ASSET', IF SUCH AREAS ARE, HAVING REGARD TO THE EXTENT OF AND SCOPE FOR THEIR URBANIZ ATION AND OTHER RELEVANT CONSIDERATIONS, IS NOTIFIED BY T HE CENTRAL GOVERNMENT IN THIS BEHALF. CENTRAL GOVERNME NT IN EXERCISE OF SUCH POWERS HAS ISSUED THE ABOVE NOTIFICATION, AS AMENDED LATEST BY NOTIFICATION NO. 11186 DATED 28.12.1999 CLEARLY CLARIFIES THAT AGRICULTURAL LAND SITUATION IN RURAL AREAS, AREAS O UTSIDE THE MUNICIPALITY OR CANTONMENT BOARD ETC., HAVING A POPULATION OF NOT LESS THAN 10,000 AND ALSO BEYOND THE DISTANCE NOTIFIED BY CENTRAL GOVERNMENT FROM LOCAL LIMITS I.E. THE OUTER LIMITS OF ANY SUCH MUNICIPALI TY OR CANTONMENT BOARD ETC., STILL CONTINUES TO BE EXCLUD ED FROM THE DEFINITION OF 'CAPITAL ASSET'. ACCORDINGLY , IN VIEW OF SUB-CLAUSE (B) OF SECTION 2(14)(III) OF THE ACT EVEN UNDER THE AMENDED DEFINITION OF EXPRESSION 'CAPITAL ASSET', THE AGRICULTURAL LAND SITUATED IN RURAL ARE AS CONTINUES TO BE EXCLUDED FROM THAT DEFINITION. AND AS IN THE PRESENT CASE, ADMITTEDLY, THE AGRICULTURAL LAND OF THE ASSESSEE IS OUTSIDE THE MUNICIPAL LIMITS OF RAJ ARHAT MUNICIPALITY AND THAT ALSO 2.5 KM AWAY FROM THE OUT ER LIMITS OF THE SAID MUNICIPALITY, ASSESSEE'S LAND DO ES NOT COME WITHIN THE PURVIEW OF SECTION 2(14)(III) EITHE R UNDER SUB CLAUSE (A) OR (B) OF THE ACT, HENCE THE SAME CA NNOT BE CONSIDERED AS CAPITAL ASSET WITHIN THE MEANING O F THIS SECTION. HENCE, NO CAPITAL GAIN TAX CAN BE CHA RGED ON THE SALE TRANSACTION OF THIS LAND ENTERED BY THE ASSESSEE. ACCORDINGLY, WE QUASH THE ASSESSMENT ORDE R QUA CHARGING OF CAPITAL GAINS ON VERY JURISDICTION OF THE ISSUE IS QUASHED. THE CROSS OBJECTION OF THE ASSESS EE IS ALLOWED.' 42. IT WAS HELD IN THE CASE OF CIT VS. MANILAL SOMNATH (106 ITR 917) AS FOLLOWS: ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 32 UNDER THE INCOME-TAX ACT OF 1961, AGRICULTURAL LEN D SITUATED IN INDIA WAS EXCLUDED FROM THE DEFINITION OF ' CAPITAL ASSET' AND ANY GAIN FROM THE SALE THEREOF W AS NOT TO BE INCLUDED IN THE TOTAL INCOME OF AN ASSESS EE TINDER THE HEAD 'CAPITAL GAINS'. IN ORDER TO DETER MINE WHETHER A PARTICULAR LAND IS AGRICULTURAL LAND OR N OT ONE HAS TO FIRST FIND OUT IF IT IS BEING PUT TO ANY USE . IF IT IS USED FOR AGRICULTURAL PURPOSES THERE IS A PRESUMPTI ON THAT IT IS AGRICULTURAL LAND. IF IT IS USED FOR NO N- AGRICULTURAL PURPOSES THE PRESUMPTION IS THAT IT IS NON- AGRICULTURAL LAND. THIS PRESUMPTION ARISING FROM AC TUAL USE CAN BE REBUTTED BY THE PRESENCE OF OTHER FACTOR S. THERE MAY BE CASES WHERE LAND WHICH IS ADMITTEDLY NON-AGRICULTURAL IS USED TEMPORARILY FOR AGRICULTUR AL PURPOSES. THE DETERMINATION OF THE QUESTION WOULD, THEREFORE, DEPEND ON THE FACTS OF EACH CASE. 'THE ASSESSEE, HINDU, UNDIVIDED FAMILY, HAD OBTAINE D SOME LAND ON A PARTITION IN 1939. FROM THAT TIME, U P TO THE TIME OF ITS SALE, AGRICULTURAL OPERATIONS WERE CARRIED ON IN THE LAND. THERE WAS NO REGULAR ROAD TO THE LA ND AND IT WAS WITH THE AID OF A TRACTOR THAT AGRICULTU RAL OPERATIONS WERE BEING CARRIED ON. THE LAND WAS INCLUDED WITHIN A DRAFT TOWN PLANNING SCHEME. THE ASSESSEE GOT PERMISSION OF THE COLLECTOR TO SELL TH E LAND FOR RESIDENTIAL PURPOSES AND SOLD IT. ON THE QUESTI ON WHETHER THE LAND WAS AGRICULTURAL LAND: HELD, THAT WHAT HAD TO BE CONSIDERED IS NOT WHAT TH E PURCHASER DID WITH THE LAND OR THE PURCHASER WAS SUPPOSED TO DO WITH THE LAND, BUT WHAT WAS THE CHARACTER OF THE LAND AT THE TIME WHEN THE SALE TOO K PLACE. THE FACT THAT THE LAND WAS WITHIN MUNICIPAL LIMITS OR THAT IT WAS INCLUDED WITHIN A PROPOSED TO WN PLANNING SCHEME WAS NOT BY ITSELF SUFFICIENT TO REB UT THE PRESUMPTION ARISING FROM ACTUAL USE OF THE LAND. TH E LAND HAD BEEN USED FOR AGRICULTURAL PURPOSES FOR A LONG TIME AND NOTHING HAD HAPPENED TILL THE DATE OF THE SALE TO CHANGE THAT CHARACTER OF THE LAND. THE POTENTIAL NON- AGRICULTURAL VALUE OF THE LAND FOR WHICH A PURCHASE R MAY BE PREPARED TO PAY A LARGE PRICE WOULD NOT DETR ACT FROM ITS CHARACTER AS AGRICULTURAL LAND AT THE DATE OF THE SALE. THE LAND IN QUESTION WAS, THEREFORE, AGRICUL TURAL LAND. 43. FURTHER THE WORD 'CAPITAL ASSET' IS DEFINED IN SECT ION 2(14) TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSESSEE, W HETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE- ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 33 (III) AGRICULTURAL LAND IN INDIA, NOT BEING LAND SI TUATE- (A) IN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE, OR BY ANY OTHER NAME) OR A CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR; OR (B) IN ANY AREA WITHIN SUCH DISTANCE, NOT BEING MORE THAN EIGHT KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITEM (A), AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANIZATION OF THAT AREA AND OTHER RELEVANT CONSIDERATIONS, SPECIFY IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE; 44. IT IS VERY CLEAR FROM THE ABOVE THAT THE GAIN ON SA LE OF AN AGRICULTURAL LAND WOULD BE EXIGIBLE TO TAX ONLY WHE N THE LAND TRANSFERRED IS LOCATED WITHIN THE JURISDICTION OF A MUNICIPALITY. THE FACT THAT ALL THE EXPRESSIONS ENLISTED AFTER THE WO RD MUNICIPALITY ARE PLACED WITHIN THE BRACKETS STARTING WITH THE WO RDS 'WHETHER KNOWN AS' CLEARLY INDICATES THAT SUCH EXPRESSIONS A RE USED TO DENOTE A MUNICIPALITY ONLY, IRRESPECTIVE OF THE NAM E BY WHICH SUCH MUNICIPALITY IS CALLED. THIS FACT IS FURTHER SUBSTA NTIATED BY THE PROVISIONS CONTAINED UNDER CLAUSE (B) WHEREIN IT HA S BEEN CLEARLY PROVIDED THAT THE AUTHORITY REFERRED TO IN CLAUSE ( A) WAS ONLY MUNICIPALITY. 45. WE ALSO PERUSED THE MEANING OF THE TERM LOCAL AUTHO RITY AS REFERRED IN SECTION 10(20) OF THE ACT. (20) THE INCOME OF A LOCAL AUTHORITY WHICH IS CHARG EABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY', 'CAPIT AL GAINS' OR 'INCOME FROM OTHER SOURCES' OR FROM A TRA DE OR ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 34 BUSINESS CARRIED ON BY IT WHICH ACCRUES OR ARISES F ROM THE SUPPLY OF A COMMODITY OR SERVICE [(NOT BEING WA TER OR ELECTRICITY) WITHIN ITS OWN JURISDICTIONAL AREA OR FROM THE SUPPLY OF WATER OR ELECTRICITY WITHIN OR OUTSID E ITS OWN JURISDICTIONAL AREA]. [EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE, TH E EXPRESSION 'LOCAL AUTHORITY' MEANS - (I) PANCHAYAT AS REFERRED TO IN CLAUSE (D) OF A RTICLE 243 OF THE CONSTITUTION; OR (II) MUNICIPALITY AS REFERRED TO IN CLAUSE (E) O F ARTICLE 243P OF THE CONSTITUTION; OR (III) MUNICIPAL COMMITTEE AND DISTRICT BOARD, LEG ALLY ENTITLED TO, OR ENTRUSTED BY THE GOVERNMENT WITH, THE CONTROL OR MANAGEMENT OF A MUNICIPAL OR LOCAL FUND; OR (IV) CANTONMENT BOARD AS DEFINED IN SECTION 3 OF THE CANTONMENTS ACT, 1924 (2 OF 1924); 46. IT IS ALSO EVIDENT FROM THE MEMORANDUM EXPLAINING T HE PROVISIONS OF FINANCE ACT, 1970, WHEREBY S. 2(14) W AS AMENDED SO AS TO INCLUDE THE AGRICULTURAL LAND LOCATED WITHIN THE JURISDICTION OF A MUNICIPALITY IN THE DEFINITION OF THE EXPRESSI ON 'CAPITAL ASSET'. THE RELEVANT PORTION OF THE SAID MEMORANDUM IS REPR ODUCED HEREUNDER: '30. ... THE FINANCE ACT, 1970 HAS, ACCORDINGLY, AMENDED THE RELEVANT PROVISIONS OF THE INCOME-TAX A CT SO AS TO BRING WITHIN THE SCOPE OF TAXATION CAPITAL GAINS ARISING FROM THE TRANSFER OF AGRICULTURAL LAND SITU ATED IN CERTAIN AREAS. FOR THIS PURPOSE, THE DEFINITION OF THE TERM 'CAPITAL ASSET' IN SECTION 2(14) HAS BEEN AMEN DED SO AS TO EXCLUDE FROM ITS SCOPE ONLY AGRICULTURAL L AND IN INDIA WHICH IS NOT SITUATE IN ANY AREA COMPRISED WI THIN THE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BO ARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND PERSONS ACCORDING TO THE LAST PRECEDING CENSUS FOR WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR . THE CENTRAL GOVERNMENT HAS BEEN AUTHORISED TO NOTIFY IN THE OFFICIAL GAZETTE ANY AREA OUTSIDE THE LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD HAVING A POPULATIO N OF NOT LESS THAN TEN THOUSAND UP TO A MAXIMUM ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 35 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 SITUATED WITHIN SUCH AREA WILL STAND INCLUDED WITHIN THE TERM 'CAPITAL A SSET'. AGRICULTURAL LAND SITUATED IN RURAL AREAS, I.E., AR EAS OUTSIDE ANY MUNICIPALITY OR CANTONMENT BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOUSAND AND ALSO BEYOND THE DISTANCE NOTIFIED BY THE CENTRAL GOVERNM ENT FROM THE LIMITS OF ANY SUCH MUNICIPALITY OR CANTONM ENT BOARD, WILL CONTINUE TO BE EXCLUDED FROM THE TERM 'CAPITAL ASSET'. 47. FURTHER IT IS NOBODY'S CASE THAT THE PROPERTY FALLS WITHIN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BOARD OR WHICH HAS A POPULATION OF NO T LESS THAN 10,000 ACCORDING TO THE LAST PRECEDING CENSUS OF WH ICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIR ST DAY OF THE PREVIOUS YEAR. IN OTHER WORDS, THE LAND DOES NOT F ALL IN SUB-CLAUSE (A) OF SECTION 2(14)(III) OF THE ACT AS THE LAND IS OUTSIDE OF ANY MUNICIPALITY INCLUDING GHMC. FURTHER WE HAVE TO SE E WHETHER THE LAND FALLS IN CLAUSE (B) OF SECTION 2(14)(III). THIS SECTION PRESCRIBES THAT ANY AREA WITHIN SUCH DISTANCE, NOT BEING MORE THAN 8 KM FROM THE LOCAL LIMIT OF ANY MUNICIPALITY OR CANTONMENT BOARD AS REFERRED TO IN SUB-CLAUSE (A) OF SECTION 2 (14)(III) OF THE ACT, AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANISATION OF THAT AREA AND OTHER RELEVANT CONSIDERATIONS, SPECIFY IN THIS BEHALF BY NOTIFICAT ION IN THE OFFICIAL GAZETTE. 48. WE HAVE CAREFULLY GONE THROUGH THE NOTIFICATI ON ISSUED BY THE CENTRAL GOVERNMENT U/S. 2(1A)(C) PROVISO (II )(B) AND 2(14)(3B) VIDE NO. 9447 (F. NO. 164/(3)/87/ITA-I) D ATED 6 TH JANUARY, 1994 AS AMENDED BY NOTIFICATION NO. 11186 DATED 28 TH DECEMBER, 1999. IN THE SCHEDULE ANNEXED TO THE NOTI FICATION DATED 6.1.1994, ENTRY NO. 17 IS RELATING TO HYDERABAD WHE REIN ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 36 MENTIONED THAT THE AREAS UP TO A DISTANCE OF 8 KM F ROM THE MUNICIPAL LIMITS IN ALL DIRECTIONS. IN THE NOTIFICA TION 11186 DATED 28.12.1999 THERE IS NO ENTRY RELATING TO HYDERABAD. IT IS CLEAR FROM THESE NOTIFICATIONS THAT AGRICULTURAL LAND SIT UATED IN AREAS LYING WITHIN A DISTANCE NOT EXCEEDING 8 KM FROM THE LOCAL LIMITS OF HYDERABAD MUNICIPALITY (GHMC) IS COVERED BY THE AME NDED DEFINITIONS OF 'CAPITAL ASSET'. CENTRAL GOVERNMENT IN EXERCISE OF SUCH POWERS HAS ISSUED THE ABOVE NOTIFICATION, AS A MENDED LATEST BY NOTIFICATION NO. 11186 DATED 28.12.1999 CLEARLY CLARIFIES THAT AGRICULTURAL LAND SITUATED IN RURAL AREAS, AREAS OU TSIDE THE MUNICIPALITY OR CANTONMENT BOARD ETC., HAVING A POP ULATION OF NOT LESS THAN 10,000 AND ALSO BEYOND THE DISTANCE NOTIF IED BY CENTRAL GOVERNMENT FROM LOCAL LIMITS I.E. THE OUTER LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD ETC., STILL CONTIN UES TO BE EXCLUDED FROM THE DEFINITION OF 'CAPITAL ASSET'. AC CORDINGLY, IN VIEW OF SUB-CLAUSE (B) OF SECTION 2(14)(III) OF THE ACT EVEN UNDER THE AMENDED DEFINITION OF EXPRESSION 'CAPITAL ASSET', T HE AGRICULTURAL LAND SITUATED IN RURAL AREAS CONTINUES TO BE EXCLUD ED FROM THAT DEFINITION. AND AS IN THE PRESENT CASE, ADMITTEDLY, THE AGRICULTURAL LAND OF THE ASSESSEE IS OUTSIDE THE MUNICIPAL LIMIT S OF HYDERABAD MUNICIPALITY AND THAT ALSO 8 KM AWAY FROM THE OUTER LIMITS OF THIS MUNICIPALITY, ASSESSEE'S LAND DOES NOT COME WITHIN THE PURVIEW OF SECTION 2(14)(III) EITHER UNDER SUB CLAUSE (A) OR ( B) OF THE ACT, HENCE THE SAME CANNOT BE CONSIDERED AS CAPITAL ASSET WITH IN THE MEANING OF THIS SECTION. HENCE, NO CAPITAL GAIN TAX CAN BE CHARGED ON THE SALE TRANSACTION OF THIS LAND ENTERED BY THE ASSESSEE. THIS IS SUPPORTED BY THE ORDER OF KOLKATA BENCH OF THIS TRIBUNAL IN THE CASE OF ARIJIT MITRA (CITED SUPRA), HARISH V. MILAN I (SUPRA) AND M.S. SRINIVAS NAICKER VS. ITO (292 ITR 481) (MAD). BY B ORROWING THE MEANING FROM THE ABOVE SECTION, WE ARE NOT ABLE TO APPRECIATE THAT THE LAND FALLS WITHIN THE TERRITORIAL LIMIT OF ANY MUNICIPALITY WITHOUT NOTIFICATION OF CENTRAL GOVERNMENT AS HELD BY THE ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 37 KARNATAKA HIGH COURT IN THE CASE OF MADHUKUMAR N. ( HUF) (CITED SUPRA). 49. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, AS NA RRATED BEFORE US, IT IS IMPORTANT TO NOTE THAT WHAT WAS TH E INTENTION OF THE ASSESSEES AT THE TIME OF ACQUIRING THE LAND OR INTE RVAL ACTION BY THE ASSESSEE BETWEEN THE PERIOD FROM PURCHASE AND S ALE OF THE LAND AND THE RELEVANT IMPROVEMENT/DEVELOPMENT TAKEN PLACE DURING THIS TIME IS RELEVANT FOR DECIDING THE ISSUE WHETHER TRANSACTION WAS IN THE NATURE OF TRADE. THOUGH IN TENTION SUBSEQUENTLY FORMED MAY BE TAKEN INTO ACCOUNT, IT I S THE INTENTION AT THE INCEPTION IS CRUCIAL. ONE OF THE ESSENTIAL ELEMENTS IN AN ADVENTURE OF THE TRADE IS THE INTENTION TO TRADE; T HAT INTENTION MUST BE PRESENT AT THE TIME OF PURCHASE. THE MERE CIRCUMSTANCES THAT A PROPERTY IS PURCHASED IN THE HOPE THAT WHEN SOLD LATER ON IT WOULD LEAVE A MARGIN OF PROFIT, WOULD NOT BE SUFFIC IENT TO SHOW, AN INTENTION TO TRADE AT THE INCEPTION. IN A CASE WHE RE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTEN TION TO RESELL AT A PROFIT AND THE PURCHASER HAS NO INTENTION OF HOLD ING THE PROPERTY FOR HIMSELF OR OTHERWISE ENJOYING OR USING IT, THE PRESENCE OF SUCH AN INTENTION IS A RELEVANT FACTOR AND UNLESS IT IS OFFSET BY THE PRESENCE OF OTHER FACTORS IT WOULD RAISE AS STRONG PRESUMPTION THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TR ADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE AND IT IS CONCEIV ABLE THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE, THE COURT MAY, DESPITE THE SAID INITIAL INTENTION, BE INCLINE D TO HOLD THAT THE TRANSACTION WAS NOT AN ADVENTURE IN THE NATURE OF T RADE. THE PRESUMPTION MAY BE REBUTTED. IN THE PRESENT CASE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IT CANNOT B E CONSIDERED AS AN ADVENTURE IN THE NATURE OF TRADE. THE INTENTION OF THE ASSESSEE FROM THE INCEPTION WAS TO CARRY ON AGRICULTURAL OPE RATIONS AND EVEN THERE WAS NO INTENTION TO SELL THE LAND IN FUT URE AT THAT POINT OF TIME. IT WAS DUE TO THE BOOM IN REAL ESTATE MAR KET CAME INTO ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 38 PICTURE AT A LATER STAGE, THE ASSESSEE HAS SOLD THE LAND. MERELY BECAUSE OF THE FACT THAT THE LAND WAS SOLD FOR PROF IT, IT CANNOT BE HELD THAT INCOME ARISING FROM THE SALE OF LAND WAS TAXABLE AS PROFIT ARISING FROM THE ADVENTURE IN THE NATURE OF TRADE. THE PERIOD OF HOLDING SHOULD NOT SUGGEST THAT THE ACTIVITY WAS AN ADVENTURE IN THE NATURE OF TRADE. 50. FURTHER, WE MAKE IT CLEAR THAT WHEN THE LAND WHIC H DOES NOT FALL UNDER THE PROVISIONS OF SECTION 2(14)(III) OF THE IT ACT AND AN ASSESSEE WHO IS ENGAGED IN AGRICULTURAL OPERATIO NS IN SUCH AGRICULTURAL LAND AND ALSO BEING SPECIFIED AS AGRIC ULTURAL LAND IN REVENUE RECORDS, THE LAND IS NOT SUBJECTED TO ANY C ONVERSION AS NON-AGRICULTURAL LAND BY THE ASSESSEE OR ANY OTHER CONCERNED PERSON, TRANSFERS SUCH AGRICULTURAL LAND AS IT IS A ND WHERE IT IS BASIS, IN SUCH CIRCUMSTANCES, IN OUR OPINION, SUCH TRANSFER LIKE THE CASE BEFORE US CANNOT BE CONSIDERED AS A TRANSF ER OF CAPITAL ASSET OR THE TRANSACTION RELATING TO SALE OF LAND W AS NOT AN ADVENTURE IN THE NATURE OF TRADE SO AS TO TAX THE I NCOME ARISING OUT OF THIS TRANSACTION AS BUSINESS INCOME. 51. ACCORDINGLY, WE ARE OF THE OPINION THAT THE AGRICUL TURAL INCOME DECLARED BY THE ASSESSEE FROM AGRICULTURAL O PERATIONS ON THE LAND AT RS. 2,83,175 AS WELL AS THE INCOME OF R S. 2,41,02,690 ARISING OUT OF SALE OF AGRICULTURAL LAND ARE TO BE TREATED AS AGRICULTURAL INCOME AND EXEMPTED FROM INCOME-TAX. ACCORDINGLY, THE GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED. 52. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2013. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 27 TH SEPTEMBER, 2013 ITA NO. 954/HYD/2011 M/S. HARNIKS PARK (P) LTD. =================== 39 COPY FORWARDED TO: 1. M/S. HARNIK S PARK (P) LTD., C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYA'S RESIDENCY, ROAD NO . 9, HIMAYATHNAGAR, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD - 2(2), HYDERABAD. 3. THE CIT(A) - I II , HYDERABAD. 4. THE CIT - II, HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO