Case Law Details
Medravathi Agro Farms Pvt. Ltd. Vs ACIT (ITAT Hyderabad)
It is observed that the assessee company as well as other thirteen land owning companies were incorporated with their main object to carry on the agricultural activities and there is no dispute about the same. In order to pursue this main objects, these companies purchased agricultural lands in the year 2002 and the lands so purchased were treated by them in the books of account as capital asset upto 30 December, 2005 when the said lands were transferred to a developer company, M/s. Maytas Properties Ltd. by way of development agreement. Although there was no agricultural activities actually carried on by the assessee as well as other thirteen land owning companies till the date of development agreement, expenditure was incurred by them for leveling of the land and laying roads, etc. There is, however, nothing brought on record to show that there was any intention on the part of the assessee company to carry on the business of real estate development by using the lands acquired by them as stock in trade. On the other hand, the primary evidence in the form of objects of the assessee company, entries in the books of account etc. was clearly in favour of the assessee to show that the lands were acquired and held by them up to the date of development agreement as capital assets and there is nothing to dislodge this position emerging from the primary evidence.
The Assessing Officer as well as the learned CIT(A) have relied on various events to arrive at a conclusion that the intention of the assessee companies right from the beginning was to acquire and hold the lands as stock in trade for the purpose of carrying on the business of real estate development. However, most of the events relied upon by the authorities below are subsequent events occurring after the date of development agreement and the same in our opinion, cannot be relied upon to come to the conclusion that the intention of the assessee company right from the beginning was to purchase the land as stock in trade for carrying on real estate development business.
In order to ascertain whether it is a case of capital asset or stock in trade, the intention at the time of acquisition thereof is material and the subsequent events cannot change the nature of the asset, which is to be determined on the basis of the intention of the assessee at the time of acquisition. In the present case, the intention of the assessee company as gathered from the main object for which it was established and the accounting treatment given in the books of account was to acquire the lands as capital assets, in order to carry on agricultural operations and the subsequent events mostly occurring after the date of development agreement, in our opinion, cannot change the nature and character of the land into stock in trade which was otherwise acquired and held by the assessee company at least upto the date of development agreement as capital asset. Moreover, the land after its acquisition and before entering into development agreement was declared by the assessee company in its Wealth Tax returns as capital asset and the same was accepted by the Department. It is also worthwhile to note here that the developer company was incorporated only in the year 2005, while all the land-owning companies were not only incorporated in the year 2002 even the lands in question were acquired in the year 2002. It therefore, cannot be said that the intention of the group as a whole right from the beginning was to acquire the lands for property development and such allegation made by the Assessing Officer is was any basis. As such, considering all the facts of the case as borne out from the record, we are of the view that the lands in question were acquired and held by the assessee upto to the date of development agreement as capital asset and the profits arising from the transfer thereof as a result of development agreement entered into with the developer company is chargeable to tax as capital gain and not business income.
FULL TEXT OF THE ITAT JUDGEMENT
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