G N VENUGOPAL,DEVANAHALLI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 2(4), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES, “B” BENCH : BANGALORE Before Shri Chandra Poojari, AM & Smt. Beena Pillai, JM ITA No. A.Y. Appellant Respondent 215/Bang/20 2013-14 G.N.Venugopal, 344, Ganigara Beedi, ACIT, 303/Bang/20 2010-11 6th Ward, Central Circle-2(4), Devanahalli Town, Bengaluru 304/Bang/20 2011-12 Devanahalli-562 110 [PAN: AEUPV5340J] 305/Bang/20 2012-13 306/Bang/20 2014-15 : Appellant by Shri C.Ramesh, CA : Respondent by Dr.Manjunath Karkaihalli, CIT-DR Date of Hearing : 28-03-2022 Date of Pronouncement : 11-04-2022

O R D E R PER CHANDRA POOJARI, A.M: 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/-,

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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

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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.

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

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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

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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:

CIT Vs Kabul Chawla, [2016] 380 ITR 573 (Del) (Del - 1. 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. Smt. 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

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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.

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

G N VENUGOPAL FROM AY 2010-11 TO 2014-15 LIST OF SIZED MATERIALS Page no sr no Discreption 1 to 4 1 GPA enterd between Nutan Hamadan parikh and Ulka Ulhas Kulkarni 5 to 9 2 Absolute sale deed on 02/03/2013 by Rekha Venugopal to B.G.Channappa 3 Absolute sale deed on 17/12/2012 by G.N.Venugopal to B.G.Channappa 10 to 15 4 Absolute saie deed on 17/12/2012 by Reka.Venugopal to B.G.Channappa 16 to 21 22 to 29 S Ageement of sale on 30/05/2012 by G.N. Venugopal to Rupen Patel 30 to 36 6 Deed for Declaration on 08/06/2011 by Munivenkatappa, Gowramma,Srinivas and others 37 to 39 7 Deed of Dissolution of Partnership on 31/01/2011 by Rajanna to G.N.Venugopal and B. Thimmegowda 40 to 46 Absolute Sale Deed on 20/09/2007 by Y.C.Sathish Kumar to Meenesh Hemalatha Dhamini 47 to 51 9 Partnership Deed on 25/09/2007 by Rajanna to G.N.Venugopal and B.Thimmegowda 52 to 56 10 Memorandum of,Understanding on 13/03/2007 by G.N.Venugopal to EXPAT Properties (I)Itd Full and Final Settlement Agreement on 29/08/2008 by Rekha Venugopal to 57 to 76 11 Akkayamma, Manjula, Muniyappa, Lakshmmamma and others 77 to 86 12 Agreement of sale on 15/11/2010 by Ramakka, M. Prakash, Siddanna and others to G.N.Venugopal 87 to 89 13 PAYMENT RECEIPT CONFIRMATION DT 21/09/2011 by G.N.Venugopal to M.Siddanna FOR Rs.10 lakhs 14 Payment details 90 91 15 Payment details 92 16 Payment details 17 Y C Sathish Kumar - List of sites 93 94 18 Y C Sathish Kumar - List of sites 95 19 Y C Sathish Kumar - List of sites 96 20 Payment details '1 Payment details 97 72 Payment details 98 99 23 Payment details 100 24 Deposit Slip on 31/07/2013, Favouring to Sub Registar Devanahalli , Applicant name G.N.Venugopal 101 25 Deposit Slip on 31/07/2013, Favouring to Sub Registqr Devanahalli , Applicant name G.N.Venugopal 102 26 Deposit Slip on 31/07/2013, Favouring to Sub Registar Devanahalli , Applicant name G.N.Venugopal 103 27 Deposit Slip on 31/07/2013, Favouring to Sub Registar Devanahalli , Applicant name G.N.Venugopal 104 28 Deposit Slip Favouring to Bharathi , Applicant name G.N.Venugopal 105 29 Deposit Slip on 31/07/2013, Favouring to D C Munishamappa , Applicant name G.N.Venugopal 106 30 Deposit Slip on 31/07/2013, Favouring to Radhamma , Applicant name G.N.Venugopal 107 31 Deposit Slip on 31/07/2013, Favouring to Manjula , Applicant name G.N.Venugopal 108 32 Deposit Slip on 31/07/2013, Favouring to M.Chandrika , Applicant name G.N.Venugopal 109 33 Deposit Slip on 31/07/2013, Favouring to D M Gajendra , Applicant name G.N.Venugopal 34 Deposit Slip on 31/07/2013, Favouring to M Ravi Kumar , Applicant name G.N.Venugopal 110 111 35 Payment details 36 Payment details 112

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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.

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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

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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

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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.

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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 non- agricultural 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

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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

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,

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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.

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):

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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:

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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 (i) 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.

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 (ii) 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. 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 (iii) 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.

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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 (iv) circumstances. 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 (v) 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.

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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 (vi) 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.

As already mentioned the assessee company carried on (vii) 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

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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

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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?

Whether the land was actually or ordinarily used for 2. agricultural purposes at or about the relevant time?

Whether such user of the land was for a long period or whether 3. it was of a temporary character or by any of a stopgap arrangement?

Whether the income derived from the agricultural operations 4. carried on in the land bore any rational proportion to the investment made in purchasing the land?

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 5. 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?

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Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative 6. use? Whether such lesser and/or alternative user was of a permanent or temporary nature?

Whether the land, though entered in Revenue records, had never been actually used for agriculture, that is, it had never 7. been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes?

Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of 8. the land in the adjoining area were such as would indicate that the land was agricultural?

Whether the land itself was developed by plotting and providing 9. roads and other facilities?

Whether there were any previous sales of portions of the land 10. for non-agricultural use?

Whether permission under s. 63 of the Bombay Tenancy and Agricultural Land Act, 1948, was obtained because the sale or 11. intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such nonagriculturists was for non-agricultural or agricultural user?

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Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold 13. 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.

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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

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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.

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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

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"(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.

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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.

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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.

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

Sd/- Sd/- (BEENA PILLAI) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Bengaluru, Dated: 11th April, 2022 TNMM

Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A)-11, Bengaluru 4. The Pr.CIT(Central), Bengaluru 5. The DR, ITAT, Bengaluru 6. Guard File

By Order //True Copy// Assistant Registrar ITAT, Bengaluru