C. Vijaya Kumari,, Hyderabad vs Assessee

ITA No.1797/Hyd/14 : Assessment year 2007-08

Smt. C. Vijay Kumari, V/s. Income Tax Officer Ward 8(2), Hyderabad Hyderabad

(PAN - AEZPC 1721 K )

(Appellant) (Respondent)

Appellant by : Shri A Srinivas

Respondent by : Shri M.H.Naik DR

Date of Hearing 2.6.2015 Date of Pronouncement 5.6.2015

ORDER

Per P.M.Jagtap, Accountant Member :

This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals) III, Hyderabad dated 20.10.2014, whereby he confirmed the addition of Rs.97,20,000 made by the Assessing Officer 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.

2. The assessee in the present case is an individual. A search and seizure action was conducted in the cases belonging to Venigalla Anand Prasad group on 7.10.2009. During the of the said search, certain documents relating to the assessee were found and seized. Consequently, a notice under S.153C was issued by the Assessing Officer on 19.7.2012 in response to which return of income for the year under consideration was filed by the assessee, declaring total income of Rs.2,31,276 as originally 2 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

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. During the course f assessment proceedings, the claim of the assessee for this exemption was examined by the Assessing Officer in detail, and on such examination, he recorded his findings/observations as under-

"(a ) th ere is n o a gricu ltura l a ctivity in the la n d.

(b) th e lan d is n o t co n du cive fo r a gricu ltu re .

(c) th e lan d is a dja ce nt to the in du stria l a re a o f D u n diga l, in fa ct the re are ru nn in g in du strie s ju st o ppo site the su rve y N o .s' 6 6 8 a n d 6 69 in w h ich th e lan d is pre se nt.

(d) th e pu rpo se o f la n d is fo r a dve nture in na tu re of tra de , bu t n ot for tillin g an d so w in g a ctivitie s th at ch ara cterize fa rm in g.

(e ) T h e la n d w a s so ld to M /s. V arun C o n stru ction s, a n a sso ciate o f A m sri D e ve lo pers, w h ich is in the bu sin e ss o f rea l e sta te .

(f) o u t o f tw o a cre s o f lan d tha t w a s he ld by the a sse sse e, w h ile on e a cre was so ld to

M /s.V a ru n C o n stru ction s, th e se con d a cre w a s reta in e d by th e a sse sse e on ly."

3. When the above findings /observations were confronted by the Assessing Officer to the assessee requiring her to show cause as to why the gains arising from the sale of land should not be treated as gain arising from adventure in the nature of trade, the following submission was made by the assessee.

3 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

"A) The said land in Survey No. 667 is situated beyond 8 km s from m unicipal limits as per the certificate given by the Deputy Collector & Tahsildar, Qutubullapur Mandal, R R District.

B) The assessee has submitted that she is a house w ife and she does not have any business activities.

C) Considering the fertility of the soil, she acquired the said land and held for agricultural activities and not for any other purpose.

D) The character of the land being agriculture in nature w as supported by land pahani copies and pattadar pass books.

E) The future use of the land by the vendee has no bearing on the character of the land sold by the assessee.

F) The land is not a capital asset within the definition of Section 2(14) (iii) of the Act.

G) That she had not earned any agricultural income though maize crop has been grow n on the said land."

4. The above submission of the assessee was examined and analysed by the Assessing Officer in the light of the facts of the case, the relevant provisions of law as well as judicial pronouncements and he recorded his findings/observations on the basis of such examination as under-

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(a) In section 2(14) (iii) of the LT. Act, 1961 it was not stated that any land beyond 8 km s is not a capital asset. It was stated that agricultural land beyond 8 km s is not a capital asset. So the assessee's contention that the land being 8 km s beyond from the m unicipal lim its, as certified by the Municipal Authorities, w ill bring it outside the purview of being a capital asset, is m isplaced. It is im portant to verify w hether the land is agricultural land in the first place. If it is found that the land is agricultural in nature only then will the discussion on distance from the m unicipal lim it will becom e relevant.

(b) The term 'agricultural land' has not been defined in the Act. Therefore, this has been the subject matter o various judicial proceedings and Courts have laid dow n various param eters, on the basis of w hich a view can be taken w hether a3 land can be characterized has been agricultural in nature or not.

(c) In the landmark decision rendered by the Supreme Court of India in the case of Sarifabibi Mohammad Vs. CIT, the Apex Court referred to various tests evolved by the Gujarat High Court in the case of CIT Vs. Sidharth J. Desai (1983) 139 ITR

62. According to those test, som e of the im portant factors w hich stand against the assessee in this case are as under:

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(i) Whether the land is actually or ordinarily used for agricultural purposes at or about the relevant tim e.

In this case, as on the date of enquiry, there was not sign of agricultural activity in the said land and in its vicinity either on the date of enquiry or in the near past.

(ii) Whether such use of the land was for a long period or w hether it was for a tem porary character by w ay of a stop gap arrangem ent.

The land w as purchased vide deed no. 3895 dated 02.04.2005 and the land was sold on 12.03.2007. This show s that the holding period is below two years and cannot be classified as a long period.

(iii) Whether the incom e derived from agricultural operations carried on in the land bore any rational proportion to the investm ent m ade in purchasing the land.

The cost of acquisition of the land was Rs.2,80,000/-.The incom e offered in the returns for the assessm ent years 2006-07 and 2007-08, during w hich the assessee held the said land, is NIL.

(iv) Whether the land w as situated in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining are, w ere such as would indicate that the land was agricultural land.

6 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

-Yes. A road passes imm ediately opposite to the land in question and the other side of the road falls under Jinna Ram Mandal. On this road, imm ediately opposite to the land in question, there is an industrial undertaking nam ed 'Desai Fabritech', vide address Survey No. 180, 1-IDA,Khazipally, Jinna Ram Mandal, Hyderabad, Andhra Pradesh. There are other industrial undertakings in the vicinity including SMS Pharm aceuticals, Hetero Drugs etc. In the adjoining area also, there is no sign of agricultural activity.

(v) Whether an agriculturist would purchase the land for agricultural purposes at the price at w hich the land was sold and w hether the ow ner w ould have ever sold the land valuing at as a property yielding agricultural produce on the basis of its yield.

The price of land sold is Rs. 1.00 crore. It is common knowledge that no agriculturist would buy a land for Rs. 1.00 crore per acre w ith the intention of undertaking farming activity in the land and deriving sustenance from the farm incom e obtained: out of agricultural activities such as tilling, sowing and raising crops. Even if w e assum e that the land is a fertile land and if w e consider 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 m eant to be used for the purpose of agricultural 7 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

activity. Therefore, the sale of land at Rs. 1.00 crore per acre does not justify its characteristics as an agricultural land.

It is also per pertinent to - point o ut here, even at the co st of repetitio n that the assessee during the period in w hich she held the land, ha s no t offered an agricultural incom e from the said land, thereby clearly show ing that the agriculture yield from the land is NIL.

It can be seen from the above that the land in question does not qualify being characterized as an agricultural land'. Mere m entioning it in the pahani as agricultural land w ould not com e to rescue of the assessee. It is also pointed out that, had the assessee undertaken any agricultural activity in the said land there would have been an elem ent of agricultural incom e from the land w hich would have been reflected in her returns of incom e. How ever, it is seen from her returns that the assessee has not adm itted any amount of incom e from the said land in question. This clearly adds to the discussion made in the foregoing paragraphs and leads to the conclusion that the assessee failed to dem onstrate the existence of any agricultural activity from the said land."

5. On the basis of the above findings/observations, the Assessing Officer held that the land sold by the assessee was not 8 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

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 of Rs.97,20,000 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.

6. Against the order passed by the Assessing Officer under S.143(3) read with S.153C, an appeal was preferred by e Assessing Officer before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) upheld the order of the Assessing Officer treating profit arising from the sale of land as business income of the assessee for the following reasons given in paragraph 6.2 of his impugned order.

"6.2 In the instant case, the appellant is a resident o Rajendranagar, Hyderabad and had acquired the said land in Dundigal village, Qutubullapur Mandal near Medchal, w hich is a far off location from the appellant's place of residence. Further, the point to noted is that the extent of the land is only 2 acres. By no stretch of imagination, one can presum e that som ebody w ill purchase 2 acres of land so far away from place of residence to carry on agricultural activities on a land purchased from a real estate business m an. These gam ut of facts and circum stantial evidences show s that the only intention of the appellant right from inception is to trade the said property but not to carry on any agricultural operations. Taking a cue from the ratio of the decision of the Hon'ble ITAT, I am of the opinion that from inception, the appellant was to trade the property w hich is in the nature of adventure of business 9 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

and hence the addition m ade by the assessing officer is upheld. Further, the additional evidences under rule 46A are not admitted after due deliberation as the appellant could not substantiate vis-a-vis the assessm ent order the additional grounds to be considered for adm ission under rule 46A. The AO had given adequate opportunities to the appellant during the assessm ent proceedings and hence the necessity of additional evidence at the appeal stage does not hold w ater."

Aggrieved by the order of the learned CIT(A), assessee has preferred this appeal before the Tribunal .

7. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that by an 'Agreement of sale with possession-cum-Irrevocable power of attorney', the land in question was transferred by the assessee to M/s. Varun Constructions. There was a similar agreement entered into by other land owners, who were owners of the adjacent lands transferring their lands to M/s. Varun Constructions. The said land owners had also claimed the profit arising from the transfer their land to M/s. Varun Constructions as exempt on the ground that their lands, being agricultural lands, were not capital assets within the meaning of S.2(14). In their cases also, the claim was not allowed by the Assessing Officer and when the matter reached the Tribunal in the case of six of the said assessees, namely, M/s.Bhavya Constructions Pvt. Ltd., Shri M.S.Raghava Reddy, Shri R.Srinivasa Rao, Shri R.Uma Maheswar, Shri P.Shivakumar and Shri G.C.Subbanaidu, the coordinate bench of this 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. The elaborate observations/findings recorded by the Tribunal, while 10 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

coming to this conclusion, as contained in paragraphs and 14 are as under-

"13. We have heard the parties and perused the materials on record as well as the orders of the revenue authorities. We have also applied our mind to the decisions placed before us. On going through the order of the learned CIT(A) we do not find any infirmity either with regard to his conclusion in respect of the nature of land sold by the assessee or with regard to the issue to whether the transaction is to be treated as an adventure in the nature of trade. As can be seen from the facts and materials placed on record, 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. It is also a fact on record the assessee has shown income from agricultural operations carried on over the said land in the return of income filed for the impugned assessment year as well as the preceding assessment year which has been accepted by AO. In fact the AO has not totally ruled out agricultural operation, though according to him it is not substantial. 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. In this context it is to be noted that the certificate issued by the Dy. Collector and Mandal Revenue Officer, Qutubullapur Mandal (at page 99 of assessee's paper book) clearly indicate that the land under the same survey nos. situated at Bowrampet Village are 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 ( at page 100 of assessee's paper book) and certificate dt. 04/10/2008 of Town Planning Officer, GHMC (at page 101 of paper book) clearly indicate that Bowrampet 11 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

village where assessee's land is situated is beyond the limit of GHMC. It is a fact on record, in the original assessment order passed u/s 143(3) of the Act, the AO has examined the nature of transaction by conducting necessary enquiry and after proper application of mind had accepted the claim of the assessee that the asset being sold being agricultural land will not attract capital gain tax. The department has not brought any cogent evidence or material on record to disprove assessee's claim either in respect of agricultural income earned through agricultural operation conducted on the said land or the fact that the land is situated beyond the prescribed limit of the nearest municipality notified by the Central Government. In the aforesaid circumstances, the finding of the CIT(A) remains uncontroverted. Therefore, it has to be held that as the land sold by the assessee is in the nature of agricultural land and is situated beyond the prescribed limit of any municipality notified by the central govt. it cannot come within the definition of capital asset as envisaged u/s 2(14) of the Act.

So far as the finding of the AO that the transaction entered into by the assessee is an adventure in the nature of trade, the same is also without merit for the strong and valid reasons recorded by the CIT(A). On a perusal of the assessment order, it appears, that the AO has treated the transaction as an adventure in the nature of trade only to overcome assessee's claim of exemption from capital gain on the ground that the asset sold is not a capital asset within the meaning of section 2(14) of the Act. As rightly observed by the learned CIT(A), the facts clearly indicate that the assessee has held the asset for more than two years and only because of compelling circumstances sold it to M/s Varun Constructions in the year under consideration. Therefore, none of the attributes of an adventure in the nature of trade is present in the transaction. It will be pertinent to mention here that earlier a bench of this Tribunal had an occasion to examine similar nature of dispute arising out of similar nature of transaction relating to sale of agricultural land located in the same area in case of some other assessees, namely, Smt. M. Vijaya and others Vs. DCIT (ITA Nos.306, 307, 309 & 311/Hyd/13 order dated 06/06/2014) who also sold their land to M/s Varun constructions.

The Tribunal after examining the contentions of the parties and referring to a number of judgments held as under:

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"23. Adverting to the facts of the present case, the land inquestion 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 AY as agricultural income. It is also an admitted fact that the assessee has not applied for conversion of this agricultural land for non-agricultural purposes before sale of this property 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 subject to any developmental activities at the relevant point of time of sale of the land as per the evidence brought on record.

24. The provisions of Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes) Act, 2006 also prescribed the procedure for conversion of agricultural land into non-

agricultural land. Being so, whenever the agricultural land to be treated as non-agricultural land, the same has to 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- agricultural purposes by the Revenue authorities concerned. To our understanding nature of land cannot be changed by any State Government notification and the land owners are required to apply to the concerned Revenue authorities for the purpose of conversion of the agricultural land into non-agricultural land and there is no automatic conversion per se by State Government notification.

25. 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 put the land into use for non- agricultural purposes would not change the character of the agricultural land into non-

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agricultural land at the relevant point of time when the land was sold by the assessee. It is also an admitted position that the assessee had not applied for conversion of the land in question into non-agricultural purposes and no such permissions were obtained from the concerned authority. In the Revenue records, the land is classified as agricultural land and has not been changed from agricultural land to non-agricultural land at the relevant point of time when the land was sold by the assessee. It is also not in dispute that there was no activity undertaken by the assessee of developing the land by plotting and providing roads and other facilities and there was no intention also on the part of the assessees herein to put the same for non-agricultural purposes at time of their ownership that land. No such finding has been given by the Department. No material or evidence in support of the fact that the assessees have put the land in use for non- agricultural purposes has been brought on record. The nature of the crop and the person who cultivated the land are duly mentioned in the revenue records shows that at the relevant point of time the land was used for agricultural purposes only and nothing is brought on record to show that the land was put in use for non- agricultural purposes by the assessees. 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. We may also refer to a decision of the Hon'ble Supreme Court in the case of N. Srinivasa Rao vs. Special Court (2006) 4 SCC 214 where it was observed that the fact that agricultural land in question is included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of time. Thus, 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.

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26. Recently the Karnataka High Court in the case of CIT 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 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."

27. Further the Kolkata Bench of the Tribunal in the case of DCIT vs. Arijit Mitra (48 SOT 544) (Kol) held as follows:

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"7. From the above, it is clear that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of such Municipalities or 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 urbanization and other relevant considerations, is notified by the Central Government in this behalf. Central Government 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 outside 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 municipality or cantonment board etc., still continues to be excluded 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 areas 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 Rajarhat Municipality and that also 2.5 KM away from the outer limits of the said 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 within the meaning of this section.

Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. Accordingly, we quash the assessment order qua charging of capital gains on very jurisdiction of the issue is quashed. The cross objection of the assessee is allowed."

28. It was held in the case of CIT vs. Manilal Somnath (106 ITR 917) as follows:

"Under the Income-tax Act of 1961, agricultural lend situated in India was excluded from the definition of "capital asset" and any gain from the sale thereof was not to be included in the total income of an assessee tinder the head "capital 16 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

gains". In order to determine whether a particular land is agricultural land or not one has to first find out if it is being put to any use. If it is used for agricultural purposes there is a presumption that it is agricultural land. If it is used for non- agricultural purposes the presumption is that it is non-agricultural land. This presumption arising from actual use can be rebutted by the presence of other factors. There may be cases where land which is admittedly non-agricultural is used temporarily for agricultural purposes. The determination of the question would, therefore, depend on the facts of each case. 'The assessee, Hindu, undivided family, had obtained some land on a partition in 1939. From that time, up to the time of its sale, agricultural operations were carried on in the land. There was no regular road to the land and it was with the aid of a tractor that agricultural operations were being carried on. The land was included within a draft town planning scheme. The assessee got permission of the Collector to sell the land for residential purposes and sold it. On the question whether the land was agricultural land:

Held, 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. The fact that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The 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 purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was, therefore, agricultural land.

29. 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 situate-

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(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;

30. 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.

31. We also perused the meaning of the term local authority as referred in section 10(20) of the Act.

(20) the income of a local authority which is chargeable under the head "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service [(not being water or Electricity) within its own jurisdictional area or the supply of water or electricity within or outside its own jurisdictional area].

[Explanation. - For the purposes of this clause, the expression "local authority" means -

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(i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or

(ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or

(iii) Municipal Committee and District Board, legally 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);

32. It is also evident from the Memorandum explaining the provisions of Finance Act, 1970, whereby s. 2(14) was amended so as to include the agricultural lands located within the jurisdiction of a municipality in the definition of the expression 'Capital Asset'. The relevant portion of the said memorandum is reproduced hereunder:

"30. ... The Finance Act, 1970 has, accordingly, amended the relevant provisions of the Income- tax Act so as to bring within the scope of taxation capital gains arising from the transfer of agricultural land situated in certain areas. For this purpose, the definition of the term "capital asset"

in section 2(14) has been amended so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board 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 population of not less than ten thousand up to a maximum 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 19 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

within such area will stand included within the term "capital asset".

Agricultural land situated in rural areas, i.e., areas outside any municipality or cantonment board having a population of not less than ten thousand and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, will continue to be excluded from the term "capital asset".

33. 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 not less than 10,000 according to the last preceding Census of which the relevant figures have been published before the first day of the previous year. In other words, the land does not fall 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 see 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 notification in the Official Gazette.

34. We have carefully gone through the notification 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) dated 6th January, 1994 as amended by notification No. 11186 dated 28th December, 1999. In the schedule annexed to the notification dated 6.1.1994, Entry No. 17 is relating to Hyderabad wherein mentioned that the areas up to a distance of 8 km from the municipal limits in all directions. In the notification 11186 dated 28.12.1999 there is no entry relating to Hyderabad. It is clear from these notifications that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of Hyderabad Municipality (GHMC) is covered by the amended definitions of 'capital asset'. Central Government in exercise of such powers has issued the above notification, as amended latest by Notification 20 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

No. 11186 dated 28.12.1999 clearly clarifies that agricultural land situation in rural areas, areas outside 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 municipality r cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, i 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 areas 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 o Hyderabad Municipality and that also 8 km way 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 within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entere 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. Milani (supra) and M.S. Srinivas Naicker vs. ITO (292 ITR 481) (Mad). By borrowing 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 Karnataka High Court in the case of Madhukumar N. (HUF) (cited supra).

35. 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 different, 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 21 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

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 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.

36. In view of our above discussion, in our opinion, the land is not situated within the Qutubullapur municipality, but, the same situated in the Dundigal village and the evidence brought on record suggest tha the land is an agricultural land, hence, it is not liable for taxation. Accordingly, the addition made on this count is deleted in all the appeals under consideration. No evidence suggests that Dundigal village falls within Qutubullapur Municipality and also this Qutubullapur Municipality has not notified in the year under section 2(14)(iii) of the I.T. Act and Qutubullapur Municipality abolished and merged with Municipal Corporation of Hyderabad with effect from 16/04/2007. We have also gone through the record placed in the paper book at pages 76 & 77. At page 76, a copy of the intimation is placed issued by the Town Planning Officer, Quthbullapur , Circle - 15, GHMC vide Ref. No. G/1240/2008, dated 04/10/2008 informing that the land is not falling in the GHMC limits. At page 77, a copy of the agricultural land certificate is placed, issued by the Deputy Collector & Mandal Revenue Officer, Qutubullapur Mandal vide Ref. No. A/13607/2005, dated 20/08/2005 stating that the lands are under 22 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

cultivation by raising crops i.e. paddy, cattle feed, maize, jowar, vegeteables etc.

37. 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 is and where it is basis, in such circumstances, in ou 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.

14. On going through the aforesaid order of the coordinate bench, we find the facts dealt upon by the tribunal is identical to the facts in the present case. Therefore, ratio laid down therein also equally applies to the facts of the present case as the land sold is not only agricultural in nature but is also situated beyond 12 kms from the limit of a municipality notified by the central govt. Hence, land sold by assessee not being a capital asset, the gain derived there from is not taxable at the hands of the assessee. Accordingly, we uphold the order of the CIT(A) by dismissing the ground raised."

8. At the time of hearing before us, learned counsel for the assessee has submitted that the issue involved in the of the assessee as well as all the material facts relevant thereto are similar to the cases of these six assessees, which have already been decided by the Tribunal in favour of the assessees, vide its common order dated 28.8.2014, and this position is not disputed by the Learned Departmental Representative. The issue involved in the assessee's appeal thus is squarely covered in favour of the assessee by the decision of the coordinate bench of this Tribunal dated 28.8.2014 (supra) and respectfully following the same, we decide this issue in favour of the assessee.

23 ITA No.1797/Hyd/2014 Smt. C. Vijay Kumari, Hyderabad

9. In the result, appeal of the assessee is allowed.

Order pronounced in the court on 5th June, 2015

Sd/- Sd/-

(V.Durga Rao) (P.M.Jagtap) Judicial Member Accountant Member

Dt/- 5th June, 2015

Copy forwarded to:

1. Smt. C.Vijayakumari, Flat No.44027, Janapriya Utopia, Hyderguda, Rajendra Nagar, Hyderabad

2. Income Tax Officer Ward 8(2), Hyderabad

3. Commissioner of Income-tax(Appeals) I Hyderabad

4. Commissioner of Income-tax II, Hyderabad

5. Departmental Representative, ITAT, Hyderabad.

B.V.S