Case Law Details
Brief of the Case:
In the case of Smt. C. Vijay Kumari vs.ITO the Hyderabad ITAT has held that addition made by AO to the total income of the assessee on account of profit arising from sale of agricultural land treating the same as business income instead of capital gains claimed by the assessee as exempt from tax for being the land as agriculture land. Tribunal vide its order dated 28.8.2014 decided similar issue in favour of the assessee, holding that the land sold by the said assessees were agricultural lands, and therefore, the profits arising from the transfer of such lands, was not chargeable to tax in the hands of the assessees.
Facts of the Case:
The assessee was an Individual. A notice u/s 153C was issued to the assessee resulting from the search operations carried out in Venigalla Anand Prasad Group on 07.10.2009, wherein certain documents relating to the assessee were found and seized. In response to which return of income was filed by the assessee, declaring total income of Rs.231276/- as originally returned. In the said return, profit arising from sale of land amounting to Rs.97,20,000 was declared by the assessee as short term capital gains, and the same was claimed to be exempt on the ground that the land sold, being an agricultural land, was not a capital asset under S.2(14) of the Act. The land was purchased vide deed no. 3895 dated 02.04.2005 for Rs.280000/- and was sold on 12.03.2007 for Rs.1 crore. During the course of assessment proceedings the A.O. examined the claim of the assessee in detail and based on his finding and observations, he denied the exemptions holding that the land sold by the assessee was not an agricultural land and the activity of purchase and sale of the said land, being an adventure in the nature of trade, profit arising from such activity was liable to be taxed in her hands as business income. Accordingly, the profit arising from the sale of land was brought to tax by the Assessing Officer in her hands in the assessment competed under S.143(3) read with S.153C of the Act, vide order dated 30.9.2013. On an appeal before the CIT(A), the order of the A.O. was upheld. Aggrieved by the order of the learned CIT(A), assessee preferred the appeal before the Tribunal.
Contention of the Revenue:
The A.O. pointed that the land was sold to M/s. Varun Constructions, an associate of Amsri Developers, which was in the business of real estate. The price of land sold was Rs. 1.00 crore. It was common knowledge that no agriculturist would buy a land for Rs. 1.00 crore per acre with the intention of undertaking farming activity in the land and deriving sustenance from the farm income obtained out of agricultural activities. Even if it is assumed that the land was a fertile land and considering a rough yield of Rs.25,000/- per acre from such fertile land, the yield would not justify the purchase of land at such exorbitant rate if the land is meant to be used for the purpose of agricultural activity. Therefore, the sale of land at Rs. 1.00 crore per acre does not justify its characteristics as an agricultural land. Further, there was no sign of agricultural activity in the said land and in its vicinity either on the date of enquiry or in the near past. The purpose of land was for adventure in nature of trade, but not for tilling and sowing activities that characterize farming. The land being adjacent to the industrial area of Dundigal was not conducive for agriculture and there was no agriculture activity in the land. The income offered in the returns for the assessment years 2006-07 and 2007-08, during which the assessee held the said land, was NIL. The land in question does not qualify being characterized as an agricultural land’. Mere mentioning it in the pahani as agricultural land would not come to rescue of the assessee. Since in the present case the land was not an agricultural land, it will not bring it outside the purview of the capital assets.
Contention of the assessee:
On the other hand, the ld. Counsel of the assessee submitted that the land was not a capital asset within the definition of Section 2(14) (iii) of the Act. The land was situated beyond 8 kms from municipal limits as per the certificate given by the Deputy Collector & Tahsildar, Qutubullapur Mandal, RR District. The character of the land being agriculture in nature was supported by land pahani copies and pattadar pass books. Though maize crop has been grown on the said land, she had not earned any agricultural income.
Held by Tribunal:
The Tribunal took the view expressed by the coordinate bench vide its order dated 28.8.2014 in case of other land owners involving similar material facts decided the issue in favour of the assessee wherein it was held that the land sold by the said assessees were agricultural lands, and therefore, the profits arising from the transfer of such lands, was not chargeable to tax in the hands of the assessees. In similar cases the tribunal observed that the nature of land at the time of purchase by the assessee from M/s Deccan Properties Ltd. and also at the time of sale to M/s Varun Constructions, remained the same i.e. agricultural not only in the revenue records but also in the pahanis. In these circumstances, when the nature of land sold by the assessee still remains to be agricultural in the revenue records and the assessee has not applied for conversion of the land to non-agricultural it cannot be treated as non-agricultural land only because the AO was of the view that agricultural operation on the said land is not possible to the extent shown by the assessee. Certificate issued by the Dy. Collector and Mandal Revenue Officer, Qutubullapur Mandal clearly indicate that the land under the same survey nos. situated at Bowrampet Village were under cultivation by raising crops of padd cattle feed, maize, jowar etc. Further the pahanis also indicate the crops grown over the said land. When certificate has been issued by govt. authorities certifying cultivation of agricultural produce the AO was not correct in rejecting them without proper evidence. Moreover, certificate dt. 04/02/2009 issued by Dy. Collector and Tahsildar Qutubullapur Mandal and certificate dt. 04/10/2008 of Town Planning Officer, GHMC clearly indicate that Bowrampet village where assessee’s land is situated is beyond the limit of GHMC. 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 in selling the land without anything more by itself can never be decisive to say that the assessee used the land for non-agricultural purposes. The decision of the Hon’ble Supreme Court in the case of N. Srinivasa Rao vs. Special Court (2006) 4 SCC 214 was also referred where it was observed that ‘the fact that the land in question in the instant case is bought by Developer cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes.’ It was the intention at the inception which is crucial. One of the essential elements in an adventure of the trade is the intention to trade and that 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 sufficient to show an intention to trade at the inception. The intention the assessee from the inception was to carry on agricultural operations. Merely because of the fact that the land was sold in a short period of holding, 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 or capital gain. The period of holding should not suggest that the activity was an adventure in the nature of trade. It was held in the case of CIT vs. Manilal Somnath (106 ITR 917) that what had to be considered is not what the 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 took place.
Since the issue involved in the assessee’s appeal was squarely covered in favour of the assessee by the decision of the coordinate bench of Tribunal dated 28.8.2014, the Tribunal respectfully following the same decided the issue in favour of the assessee.
