Case Law Details

Case Name : G.N. Venugopal Vs ACIT (ITAT Bangalore)
Appeal Number : ITA No. 215/Bang/20
Date of Judgement/Order : 11/04/2022
Related Assessment Year : 2013-14

G.N. Venugopal Vs ACIT (ITAT Bangalore)

Conclusion: Merely because of the fact that the land was sold for profit, it could not be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. Where land was not subjected to any conversion as non-agricultural land by assessee transferred such agricultural land as it was and where it was basis, in such circumstances, such transfer could not be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income.

Held: AO treated the net consideration received on the sale of agricultural land as business income though assessee had declared agricultural income, which was exempt income u/s.2(14). During the course of search proceedings, it had found some documents, and based on that AO had initiated the proceedings u/s. 153A. Appellant submitted that the land was always an investment and not at all converted into stock in-trade. There was no material on record to show that he carried on activities of buying and selling of land in a systematic manner so as to justify the action of the AO in treating the activities of the appellant as adventure in the nature of trade. The land was sold by him in acreage and not by making plots.  It was held that the intention of assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee had sold the land. Merely because of the fact that the land was sold for profit, it could not 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. Further, it was cleared that when the land which did not fall under the provisions of section 2(14)(iii) and an assessee who was engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land was not subjected to any conversion as non-agricultural land by assessee or any other concerned person, transferred such agricultural land as it was and where it was basis, in such circumstances, such transfer could not be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

These five appeals by the assessee directed against the order of the CIT(A)-11, Bengaluru for the AYs.2010-11 to 2014-15. Since, certain issues in these appeals are common, these appeals are clubbed together and disposed-of, by way of this common order for the sake of convenience.

2. The facts from the case are that there is a search action u/s.132 of the Income Tax Act (Act) in the case of assessee-premises situated at #344, Ganigara Beedi, 6th Ward, Devanahalli, Bengaluru Rural on 9th October, 2014. Consequent to the search action, notice u/s.153A of the Act, dated 10-07-2015 was issued to the assessee. For the AY.2010-11, the assessee filed a copy of the return u/s.139(1) of the Act declaring an income of Rs.3,50,630/-, which was filed before the AO on 24-09-2011 and no separate return was filed for the AY. 2010-11 consequent to the notice u/s.153A of the Act.

3. For the AY. 2011-12, the assessee filed a copy of return u/s.139(1) of the Act on 24-08-2016, which was filed before the AO on 29-12-2012. For AY. 2013-14, the assessee filed a copy of return filed u/s.139(1) of the Act on 29-08-2014. For AY.2014-15, the assessee filed a return of income in response to notice issued u/s.153A of the Act, dt.23-07-2016, declaring income of Rs.2,66,010/-. Thus, the assessee filed new return u/s.153A only for AY. 2014-15. Consequently, in these cases, after receiving notice u/s.143(2) of the Act, fresh assessment order u/s.153A r.w.s.143(3) of the Act was framed for all these assessment years.

4. First common ground in all these appeals is with regard to notice u/s.153A of the Act, dt.10-07-2015 which were issued to the assessee all these assessment years to frame the assessment u/s.153A r.w.s.143(3) of the Act is bad in law.

4.1. As seen from the assessment order, there was a search in this case at the premises of the assessee, situated at #344, Ganigara Beedi, 6th Ward, Devanahalli, Bengaluru Rural on 9th October, 2014, u/s.132 of the Act. Consequent to search action, case was notified by the PCIT, Central Circle, Bengaluru vide F.No.23(42)/CIT(C)/2014-15, dt.06-01-2015. Subsequently, the case was centralised to the office from ITO, Ward-6(3)(4), Bengaluru by CIT, Bengaluru, vide notification u/s.127 in F.No.PCIT/BLR/6/Centralization/2014-15, dt.19-01-2015. Notice u/s.153A was issued on 10-07-2015 to the assessee requiring him to the file the return of income within thirty days from the receipt of the notice by him. Consequent to this, the assessee filed a copy of return of income earlier filed u/s.139(1) of the Act for all the assessment years from 2010-11 to 2013-14. However, the assessee filed new return of income u/s.153A on 23-07-2016 for the AY.2014-15, declaring income of Rs.2,66,010/-. Latter the AO issued notice u/s.143(2), dt.26-08-2016 independently and separately for each assessment year so as to frame assessment u/s.143(3) r.w.s.153A of the Act.

5. The AR submitted that the assessee could not find the notice issued u/s.153A dt 10.07.2015 while filing Appeal before Hon’ble ITAT. However later the Appellant has found the same. Hence, the assessee did not press this ground and accordingly, this ground is dismissed as not pressed.

6. Ground No.2:The proceedings u/s.153A are bad in law as there were no incriminating materials found during the course of search and the Assessment was completed purely on the basis of change of opinion and not on the search materials (AY.2011-12).

The Appellant’s case was subjected to an action u/s 153A of the Act in connection with search proceedings in the group case of Sri K Muniraju and others. Accordingly the search was conducted on Appellant u/s.132 on 09.10.2014. During the course of search proceeding. it has found some loose sheets, sale deeds, sale Agreements documents relating to land transaction and were seized from Appellant’s premises. The such impounded documents contain 112 sheets/pages which are mainly agreements of sale, sale deeds, deed of declarations and other sheets being cheque leaves, deposit slips etc.(The said seized materials containing 112 pages are enclosed in the submission of AY 2010-11). Based on above documents, the A.O. has initiated the proceedings u/s. 153A. In this regard the Appellant is objecting for proceedings conducted u/s.153A as there were no incriminating materials found during the course of search and the assessment was completed purely on the basis of change of opinion and not out of the search materials.

6.1. Further it is submitted that the Appellant has declared all the Agricultural income in the Return of Income filed u/s.139(4) and the same was shown under exempt income. The A.O. has not made any addition out of the search materials found during the search conducted u/s.132 of the Act. Further, for the captioned year scrutiny assessment u/s.143(3) has completed vide order dt 06.02.2015. In the said order, the A.O. has disallowed agricultural income of Rs.19,50,000/- out of Rs,20,03,000/-. The said disallowance of Agricultural income was relating to leasing of Agricultural land. Accordingly the A.O. has assessed total income of Rs.28,06,663/-. In proceeding u/s.153A, the A.O. has retained the assessed income as per original order passed u/s.143(3). However, in the said order, the A.O. has wrongly arrived total assessed income of Rs.46,56,630/- instead of Rs,.28,06,633/-. The clerical error is on account of double disallowance of Rs.19,50,000/-agricultural income, which is added in original assessment and also proceedings u/s.153A. Hence, the Appellant prays before Hon’ble ITAT to direct A.O. delete the double disallowance made in the order passed u/s.153A rws 143(3).

6.2. Further the A.O. has not brought any fresh material out of search proceedings as contemplated u/s.153A of the Act and no addition is made out of the search material as the addition/disallowance made in 153A proceedings are purely a change of opinion on the Income declared in the Return of Income filed u/s.139(4) of the IT Act. Further it is pertinent to note that the search material found during the course of search conducted ws.132 on 09.10.2014, are relating to income declared in the original return filed u/s.139(4) being sale of Agricultural land. Apart from this there are no other tangible material found during the course of search.

6.3. Hence, the order passed u/s.153A rws 143(3) is bad in law and not as per provisions of section of the Act and prays before Hon’ble Tribunal squash the order of A.O.

6.4. In this regard the Ld.AR relied on the following decisions:

1. CIT Vs Kabul Chawla, [2016] 380 ITR 573 (Del) (Del – HC) „ where it is held that On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.

2. Rajat Minerals Pvt. Ltd. Vs DCIT (ITAT Ranchi), 1.T(SS).A.Nos.41 to 47/Ran/2019 order dt 20/01/2020, where it is held that AO were clearly beyond the scope of authority vested under s.153A owing to absence of any incriminating material or evidence deduced as a result of search in so far as completed assessments were concerned and the same was not permissible in law.

3. ACIT Vs Moon Beverages Ltd. ITA Nos.115 to 118/Del/2018, AY 2009-10 to 2012-13 dt 27.11.2020 (Del – Trib)

4. CIT Vs M/s. SKS Ispat & Power Limited (Bombay High Court)

5. Commissioner of Income Tax v. Gurinder Singh Bawa reported in [2016] 386 ITR 483 (Born)

6. CONTINENTAL WAREHOUSING CORPORATION (NHAVA SHEVA) LTD [2015] 374 ITR 645 (Born – HC)

7. Sanjana Mittal Vs DCIT (ITAT Amritsar), ITA No. 487/Asr/2018 order dated 11/03/2019

8. Shri Amit Arora Vs ACTT (ITAT Delhi), ITA No. 3481/Del/2015 order dated 26/11/2019

6.5. On the other hand, Ld.DR submitted that there are valid seized material during the course of search action on the basis of which assessments were framed. He also drew our attention to various observations made by the AO with regard to the seized material specifically following seized materials.

1. The seized document A/GNV/01 pg nos.76-89 being agreement of sale dated 15/11/2010 by smt. Ramukka and Others in favour of G.N.Venugopal for the sale of land measuring 4 acres 31 guntas at Guttahalli village, KasabaHobli, Devanahalli Tq., Bengaluru for a consideration of Rs.4,77,5000.

2. The seized document A/GNV/01 pg nos.30-36 being Deed of declaration dated 8/6/2011 between Sri Munivenkatappa and others and Sri G N Venugopal for the land measuring 51/2 guntas as Guttahalli village, Kasabahobli, Devanahalli Taluk, Bangalore Rural Dist.

3. The seized document A/GNV/01 pg nos.5-9 being Absolute sale deed dated 2/3/2013 between Smt Rekha Venugopal and Sri B G Channappa for the sale of agricultural land measuring 5 acres at Manepalli Village, Hindupur, A.P for a consideration of Rs.2,50,000/-. The seized document A/GNV/01 pg. nos.10-15 being Absolute sale deed dated 2/3/2013 between Smt G N Venugopal and Sri B G Channappa for the sale of agricultural land measuring 5 acres at Manepalli Village, Hindupur, A.P for a consideration of Rs.2,50,000/-.

4. The seized document A/GNV/01 pg nos.52-56 being MOU dated 13-3-2007 between Sri G N Venugopal and M/s.Expat Properties Ltd., for procuring 500 acres at Thottagunahalli Thadur Kolar Dist. @ 15.5 lakhs per acre.

6.6. Further, it is also noticed that the following documents are seized during the course of search:

List of Sized Materials

6.7. As seen from the above, there were valid seized material so as to frame assessment for the AY.2010-11 to 2014-15. Hence, it cannot be said that there is no seized material so as to frame assessment u/s.143(3) r.w.s.153A of the Act. Accordingly, placing reliance on the above judgment of the Hon’ble jurisdictional High Court in the case of PCIT Vs. Delhi International Airport in ITA No.322/2018, dt.29th Sept. 2021. We uphold the framing of assessment in these assessment years. This ground of appeal in all these assessment years is dismissed.

7. Ground No.3 is with regard to CIT(A) not adjudicating the additional ground during the course of hearing, in respect of legal ground. This ground is with regard to framing of assessment u/s.143(3) r.w.s.153A of the Act. Since we have already adjudicated this ground, which relates to framing of assessment u/s.153A of the Act, this ground has become infructuous in all these appeals. Accordingly, this ground of appeal is dismissed as infructuous.

8. Ground No.4 in all these appeals is with regard to treating the net consideration received on sale of agricultural land as business income though the assessee has declared agricultural income, which is exempt income u/s.2(14) of the Act. This ground is common in AYs.2010-11, 2011-12, 2012-13, 2013-14 & 2014-15. The assessee declared the agricultural income on sale of the landed property as follows:

A.Y. Net sale consideration Rs.
2010-11 4,69,580
2011-12 27,33,930
2012-13 19,50,000
2013-14 2,42,88,040
2014-15 97,70,750

8.1. The AO in these assessment years, treated the income declared by the assessee as agricultural income on sale of landed property as business income of the assessee.

8.2. For the sake of brevity, we consider the facts in AY.2011-12 herein.

8.3. During the year, the Appellant has sold Agricultural lands situated at Bychapura Village and arrived and arrived net income from sale of Agricultural land is Rs.27,33,930/-. This net income was shown under exempt income in the Return of Income filed u/s.139(4) and also Return filed u/s.153A. This Agricultural lands were purchased during 2006 and 2007 to do some Agricultural activities. These lands were very small and that it did not yield any income due to shortage of water. Hence the Appellant has decided to keep as investment and sell the same. Accordingly, the Appellant has identified the prospective buyer and sold the same during the year. Accordingly, the Appellant has arrived net gain of Rs. 27,33,930/- on sale of Agricultural land and the same is shown as exempt income u/s.2(14) in the Return of Income Filed u/s.139(4) of the Act.

8.4. The A.O. has treated the said net gain as Business Income holding that the sale transaction is a business transaction and income so earned by the Appellant was business income and CIT (A) also re-iterated the same without appreciating the facts that the Appellant sold the Agricultural land and all the conditions are fulfilled as contemplated u/s.2(14) of the IT Act. Further the A.O. has fully relied upon the statement recorded from the Appellant u/s.132 dated 09/10/2014. The A.O. has completely erred in drawing an inference from the above statement to treat the net gain as business income instead of Agricultural income.

8.5. Further the A.O. has stated n the Assessment order that the Appellant was continuously purchasing and selling the land and therefore the said income should constitute as business income under the income Tax Act. It is submitted that this cannot be reason to treat the business income on sale of Agricultural land, without verifying, that the Appellant has really doing business activities and taken appropriate statutory registration for doing business.

8.6. Further the A.O. has not appreciated the facts that the Appellant has not registered any Trade License, Commercial tax Registration and Service Tax Registration etc. The A.O has failed to verify the statutory requirement to do business activities. Hence, the averments of A.O. is not correct and as per provisions of law.

8.7. Further the A.O. has stated in the assessment order that the Appellant has shown Advances and sundry creditors in the Balance sheet. The Balance sheet is prepared in the form Statement of Affairs of the Appellant and not for the purpose of business activities. Therefore the amount given and taken for the transactions shown as sundry creditors and advance. Hence this cannot be a ground to treat Business Income on sale of Agricultural land, which is exempt from tax u/s.2(14) of the Act.

8.8. Further the Appellant has purchased the Agricultural land and sold the same as Agricultural land and there is no intention to convert into non-agricultural land or put to use non agricultural purpose and further the Revenue records shows that the said land as Agricultural land only. Hence it cannot be considered as a capital asset uls.2(14) of the Act . Further the A.O. has not disputed that the Appellant has sold Agricultural land and also not doubted about the nature of the lands sold. and he has not established that the said land is not a agricultural land and it is used for business purposes.

8.9. Further the A.O. has failed to appreciate the fact that during the assessment proceedings u/s.143(3) in the AYs 2011-12 and 2012-13, the A.O. has concluded and accepted the sale of Agricultural land and treated as exemption income declared by Assessee in the Return of Income filed. However there was no discussion in the said order through it the details of sale of Agricultural land was available with A.O. as it was shown in ITR 2 filed u/s.139(4). The very same department has accepted the financial statement and investment in lands as Fixed Assets. Now, the department has stated that the lands for the aforesaid years have to treated as stock in trade is totally arbitrary to the stand taken for subsequent years.

8.10. In view of the above, the Appellant was not doing any business activities and entire land held as investment and it is to be considered as Agricultural income on sale of Agricultural land, which is exempt from Tax.

8.11. In this regard, the assessee relies on the following decisions:

1. J.K. Bros Constrafin Ltd Vs ITO Ward 2(1) ITA No.1997/Hyd/2017, AY 2013-14 (Hyd Trib), Where it is held that Since the assessee before us has purchased the agricultural land and had sold it as agricultural land and there is no evidence brought on record that ITA No 19$7 of 2017 JK Bros Constrafin Ltd Hyderabad. Page 6 of 6 the assessee has carried on any developmental activities on the said land and since the land was described by the Revenue authorities as agricultural land only, we accept the contention of the assessee and hold that the land, in question, is agricultural land and the profit there from is not taxable in the hands of the assessee either as business income or as capital gains.

2 Mr. Desham Satyanarayana vs. ITO in ITA No 1825/Hyd/2014. (Hyd Trib) dated 20.01.2016 wherein it was held that where a property purchased and sold was agricultural land and there was no intention or evidence that the land was converted to non­agricultural land or put to use for non-agricultural purposes, then it cannot be considered as a capital asset u/s 2(14) of the Act

3. Harniks Park P. Ltd VS ITO lTA No. 954/Hyd/2011, AY 2006-07 dt 26.08.2013 (Hyd Trib) where it is held that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income

4. Principal CIT Vs Heenaben Bhadresh Mehta R/Tax Appeal No. 672 of 2018 AY 2019-10 order dt 26/06/2018(Gujarat High Court), where it was held that land was sold as an agricultural land and in fact, what was sold was agriculture land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by the assessee on sale of agriculture land as business income. Similarly, merely because for whatever reason, the assessee has earned sufficient huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agriculture land as business income.

Amount received from transfer of agricultural land eligible for tax exemption

8.12. Further the A.O. has failed to appreciate the fact that during the assessment proceedings u/s.143(3) in the AYs 2011-12 and 2012-13, the A.O. has concluded that the sale of Agricultural land was exempt income as declared by Assessee in the Return of Income filed. However, there was no discussion in the said order through it the details of sale of Agricultural land was available with A.O. as it was shown in ITR 2 filed u/s.139(4).

8.13. The Ld.DR submitted that there was no evidence to suggest that the impugned land was used for the purpose of agriculture in these assessment years. The land was kept idle and the assessee sold these lands at a very high and exorbitant price. The consideration received by the assessee itself show that land was not agricultural land. The assessee since in business of buying and selling of land in other words, assessee is in real estate business, the income generated from buying and selling of land to be treated as business income of the assessee. Accordingly, income generated from sale of land by continuously purchasing and selling of land to be treated as business income and he relied on the order of the lower authorities.

9. We have heard the rival submissions and perusal the materials available on record. In these cases, the assessee purchased the landed property and in some assessment years, the assessee used the land for agricultural operation and declared such income from these lands as agricultural income.

A.Y. Agricultural income
declared in the return
of income Rs.
2010-11 3,33,200
2011-12 3,94,340
2012-13 53,000
2013-14 95,850
2014-15 185000

9.1. The assessee in the assessment years under consideration i.e., AYs.2010-11 to 2014-15 sold various lands as below (Annexure-I):

Agricultural income

9.2. It is also an admitted fact that this impugned land is situated beyond 8 Kms of the any municipal limits. The only reason by AO to treating the income generated from sale of land is that the assessee has been continuously buying and selling the agricultural land and on this count, he treated the income generated on sale of these lands as business income of the assessee. The assessee has not taken any permission from the Government authorities for conversion of agricultural land into non-agricultural land. In other words, land were lying as an agricultural lands and is not meant for any residential plots as the assessee had no intention to make the land into plots and carrying on any real estate business. The land has remained as agricultural land and agricultural operation has been carried on by the assessee and declared agricultural income from these lands which were assessed on the agricultural income in these assessment years even in the assessment order framed u/s.143(3) r.w.s.153A of the Act. The assessee also brought on record and submitted before us that the land was also shown as agricultural land in Revenue records. The Ld.AR submitted that the sale transaction effected by the assessee in respect of the above agriculture land constituted only sale of agriculture land, and by no stretch of imagination it can be treated as adventure in trade and so as to treat the same as ‘business transaction’ for the following reasons:

(i) Purchase and holding of land for a period and subsequent 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 unless supported by evidence. In this case the treatment given by the assessee for this asset clearly indicate that the intention of the assessee is to hold the same as capital asset to have good returns from the same.

(ii) The assessee held land for considerable time. The asset acquired was agriculture land as per the evidence brought on record. Thus, the assessee held the agriculture land for more than 3 years. During that period the assessee carried on regular agricultural operations in the land by leasing for agricultural purpose. In the light of favourable market conditions the assessee thought it good to sell the asset to realize a good amount. Realization of better price in a booming market cannot be considered as an adventure in trade.

(iii) The expression adventure in the nature of trade occurs 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 business or an adventure in the nature of trade or realization of capital asset or a mere conversion of asset has to be decided depending upon facts of each case.

(iv) In deciding as to whether a particular transaction is an adventure in the nature of trade, the Assessing Officer must consider all the relevant and proved facts and Realization of investments consisting of purchase of agricultural land and resale, though profitable are clearly outside the domain of adventure in the nature of trade.

The assessee treated the assets as investment in agricultural land. Therefore disposal of the same would not convert, what was a capital accretion, to an adventure in the nature of trade. To make it more clear, sale of agricultural land by the assessee and realisation of good price would not alter the basic nature and characteristic of the transaction. 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 stock-in-trade and reflected in profit and loss account (closing stock). There was no element of trade attached to the activity of the assessee in purchase and sale of the land. A continuous business requires more activity and greater organization. This is absent in the transaction of sale of land by the assessee. Therefore, although there is profit in the transaction the transaction cannot be characterized as an adventure in the nature of trade.

(vi) Whether a transaction in respect of an asset is capital or business income being adventure in the nature of trade depends on the facts and circumstances of the case. There are many factors like frequency of transactions, period of holding, intention for resale etc, which determine whether the gain arising of a transaction is in the process of realisation of investment or in the course of business. 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 capital asset. No one invests to incur a loss. If the market condition suddenly goes up or down, it is always the tendency of a person to take a quick decision so that the realization on the investment is maximum or the loss is minimum.

(vii) As already mentioned the assessee company carried on regular agricultural operations in the said agriculture land.

9.3. Therefore, in the present case there is no dispute that the assessees acquired agricultural land. There is also no dispute that there was agricultural operation in this land before sale of this land.

9.4. The Assessing Officer was of the opinion that the amount received on sale of this agricultural property is nothing but on account of adventure in the nature of trade and the same was brought into income from business. In this case, the assessee held the land always as investment and not at all converted into stock-in-trade. The character of the land in the hands of the assessees has not changed. There is no material on record to show that the assessee carried on activities of buying 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 adventure in the nature of trade. The land was sold by the assessees in acreage and not by making plots.

9.5. Now the question as to whether a land is agricultural land or not is essentially a question of fact. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. We have to answer the question on a consideration of all of them, a process of evaluation and the inference has to be drawn on a cumulative consideration 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 consideration of the totality of the circumstances.

9.6. The expression ‘agricultural land’ is not defined in 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.

9.7. The Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631/70 Taxman 301 has approved the decision of a Division Bench of the Gujarat High Court in the case of Siddharth J. Desai (supra) 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 or not has to be decided or answered. We reproduce the said 13 tests as follows:

Whether the land was classified in the Revenue records as
“1. 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?
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 the 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?”

9.8. A reference could be made to the case of CWT v. Officer-incharge (Court of wards) [1976] 105 ITR 133(SC) wherein the Constitution Bench of the Supreme Court stated that the term ‘agriculture’ and ‘agricultural purpose’ was not defined in the Indian IT Act and that we must necessarily fall back upon the general sense in which they have been understood in common parlance. The Supreme Court has observed that the term ‘agriculture’ is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and raising on the land all products which have some utility either for someone or for trade and commerce. It will be seen that the term ‘agriculture’ receives a wider interpretation both in regard to its operation as well as the result of the same. Nevertheless there is present all throughout the basic idea that there must be at the bottom of its cultivation of the 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 on the land constituting agricultural operation and if the basic operations are there, the rest of the operations found themselves upon the same, but if the basic operations are wanting, the subsequent operations do not acquire the characteristics of agricultural operations. The Constitution Bench of the Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence.

9.9. The Gujarat High Court in the case of Dr. Motibhai D. Patel v. CIT [1981] 127 ITR 671/5 Taxman 147 referring to the Constitution Bench of the Supreme Court had stated that if agricultural operations are being carried on in the land in question at the time when the land 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 presumption is rebutted by evidence led by the Revenue, it must be held that the land was agricultural in character at the time when it was sold. The Division Bench of the Gujarat High Court further held that there was nothing on record to show that the presumption rose from the long user of the land for agricultural purpose and also the presumption arising from the entries of the Revenue records are rebutted.

9.10. The Bombay High Court in the case of CWT v. H.V. Mungale [1984] 145 ITR 208/12 Taxman 201 held that the Supreme Court had pointed out that the entries raised only a rebuttable presumption and some evidence would, therefore, have to be led before taxing authorities on the question of intended user of the land under consideration before the presumption could be rebutted. The Court further held that the Supreme Court had clearly pointed out that the burden to rebut the presumption would be on the Revenue. The Bombay High Court held that the ratio of the decision of the Supreme Court was that what is to be determined is the character of the land according to the purpose for which it was meant or set apart and can be used. It is, therefore, obvious that the assessee had abundantly proved that the subject land sold by them was agricultural land not only as classified in the Revenue records, but also it was subjected to the payment of land revenue and that it was actually and ordinarily used for agricultural purpose at the relevant time.

9.11. We may also refer to the case of CIT v. Manilal Somnath [1977] 106 ITR 917(Guj.), wherein the Division Bench of the Gujarat High Court observed that the potential non- agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land on the relevant date of sale.

9.12. We may also refer to the case of Gopal C. Sharma v. CIT [1994] 209 ITR 946/72 Taxman 353(Bom), in which, the case of Smt. Sarifabibi Mohamed Ibrahim (supra) was referred to and relied, amongst other cases. In this case, the Division Bench of the Bombay High Court has stated that the profit motive of the assessee selling the land without anything more by itself can never be decisive for determination of the issue as to whether the transaction amounted to an adventure in the nature of trade. In other words, the price paid is not decisive to say whether the land is agricultural or not.

9.13. We may refer to a judgment of the Madras High Court in the case of CIT v. E. Udayakumar [2006] 284 ITR 511 where the Madras High Court has referred to the decision of the Punjab & Haryana High Court in the case of CIT v. Smt. Savita Rani [2004] 270 ITR 40/[2003] 133 Taxman 712and has observed and held as under :

“8. It is well settled in the case of CIT v. Smt. Savita Rani (2004) 186 CTR (P&H) 240: (2004) 270 ITR 40(P&H), wherein it is held that the land being located in a commercial area or the land having been partially utilised for nonagricultural 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.

”8. In the abovesaid case, the assessee an individual sold 15 karnals, 18 marlas of land out of her share in 23 karnals, 17 marlas land during the financial year 1990-91, relevant to the asst. yr. 1991-92, the sale was effected by three registered sale deeds. While filing her return of income, she claimed exemption from levy of capital gains under s. 54B of the Act on the ground that the land sold by her was agricultural land and the sale proceeds were invested in the purchase of agricultural land within two years. The AO rejected the claim of the assessee holding that the land sold by the assessee was not agricultural land and this was upheld by the CIT(A). On further appeal, the Tribunal accepted the claim of the assessee holding that the transaction in question duly fulfilled the conditions specified for 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 for the preceding two years. The land being located in commercial area or the land having been partially utilised for nonagricultural purposes or that the vendees had also purchased it for nonagricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B.

9. It is seen from the aforesaid decision that the agricultural land sold by the assessee with an intent to purchase another land within two years had also been 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 land 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.”

9.14. Adverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It is also an admitted fact that the AO has not brought on record any evidence to show that the agricultural land was used for nonagricultural purposes 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 was subject to any developmental activities at the relevant point of time of sale of the land.

9.15. The Hon’ble Karnataka High Court in the case of CIT v. Madhukumar N. (HUF) [2012] 208 Taxman 394/23 taxmann.com 341held as follows:

“9. An agricultural land in India is not a capital asset but becomes a capital asset if it is the land located under Section 2(14)(iii)(a) & (b) of the Act, Section 2(14) (iii) (a) of the Act covers a situation where the subject agricultural land is located within the limits of municipal corporation, notified area committee, town area committee, town committee, or cantonment committee and which has a population of not less than 10,000.

10. Section 2(14)(m)(b) of the Act covers the situation where the subject land is not only located within the distance of 8 kms from the local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires the fulfilment of the condition that the Central Government has issued a notification under this Clause for the purpose of including the area up to 8 kms, from the municipal limits, to render the land as a “Capital 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, Clause (a) to section 2(14][iii] of the Act is not attracted.

12. However, though it is contended that it is located within 8 knits,, within the municipal limits of Dasarahalli City Municipal Council in the absence of 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) of the Act also and therefore though the Tribunal may not have spelt out the reason as to why the subject land cannot be considered as a ‘capital asset’ be giving this very reason, we find the conclusion arrived at by the Tribunal is nevertheless the correct conclusion.”

9.16. Further the word “Capital Asset” is defined in Section 2(14) to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include

“(iii) agricultural land in India, not being land situated

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
(a)
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
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
(b) 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;”

9.17. It is very clear from the above that the gain on sale of an agricultural land would be exigible to tax only when the land transferred is located within the jurisdiction of a municipality. The fact that all the expressions enlisted after the word municipality are placed within the brackets starting with the words ‘whether known as’ clearly indicates that such expressions are used to denote a municipality only, irrespective of the name by which such municipality is called. This fact is further substantiated by the provisions contained under clause (b) wherein it has been clearly provided that the authority referred to in clause (a) was only municipality.

9.18. From the facts and circumstances of the case, as narrated before us, it is important to note that what was the intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale 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 intention subsequently formed may be taken into account, it is the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade; 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. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding 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 trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land.

Merely because of the fact that the land was sold for profit, 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.

9.19. Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income. Accordingly, the ground of appeal raised by the assessee is allowed.

9.20. In view of this, we allow this ground of appeal in all these assessment years.

10. Ground Nos.6,7,8, and 9 in AY.2010-11 (ITA No.303/Bang/20), Ground Nos.5 & 7 in AY.2011-12 (ITA No.304/Bang/2020), Ground Nos.5,6,7,8,9 & 11 in AY.2013-14 (ITA No.215/Bang/2020), Ground Nos.5,6 and 8 in AY.2014-15 (ITA No.306/Bang/2020) are infructuous in view of our finding that income arising out of sale of the impugned land to be treated as agricultural income and not as business income. Accordingly, these grounds are dismissed as infructuous.

11. In the result, all the appeals of assessee for all these assessment years are partly allowed.

Order pronounced in the open court on 11th April, 2022

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