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Facts
The assessee sold agricultural land for a surplus of Rs. 1,38,63,740. The Assessing Officer treated this as income from business or profession, rejecting the assessee's claim for exemption under Section 10(37) of the Income Tax Act, stating it was an adventure in the nature of trade. The CIT(A) confirmed the AO's order. The assessee appealed to the ITAT.
Held
The Tribunal held that the transactions of purchase and sale of agricultural land were an 'adventure in the nature of trade' and thus chargeable to income-tax under the head 'Profits and gains of business or profession'. The assessee's contention that the land was not a capital asset was rejected as the lands were purchased with the intention of earning huge profits, not for agricultural purposes. The assessee failed to prove that the land was agricultural in nature, especially in light of urbanisation notifications.
Key Issues
Whether the sale of agricultural land by the assessee constitutes an adventure in the nature of trade, taxable as business income, or qualifies for exemption as a capital asset.
Sections Cited
2(14)(iii), 10(37), 45 to 55A, 2(1A), 2(13), 28
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of National Faceless Appeal Centre (NFAC), Delhi dated 21.08.2023 passed u/s. 250 of the Income Tax
(A.Y.2014-15) Vipul Mahasukh Lal Gopani Act, 1961 (in short ‘the Act’) for A.Y. 2014-15. The assessee has raised the following grounds of appeal:-
I. NON-GRANTING OF PROPER AND REASONABLE OPPORTUNITY TO EXPLAIN THE CASE 1. the Learned CIT (A) - National Faceless Appeal Centre (NFAC) erred in not giving proper and reasonable opportunity and violated the principles of natural justice, before concluding the appeal.
The Learned CIT (A) -NFAC erred in not granting opportunity through video conferencing hearing before concluding the appeal.
3. The Learned CIT (A)-NFAC ought to have given proper and reasonable opportunity and not violated the principles of natural justice.
The appeal order passed without following the guidelines for Faceless Appeal Scheme requires to be quashed. II. NON-ACCEPTANCE OF CLAIM OF EXEMPTION U/S. 10 ON SALE OF AGRICULTURAL LAND AND TREATING THE SAME AS BUSINESS INCOME:
1. 1. The Learned CIT(A)-NFAC erred in not accepting the agricultural land as not capital asset as defined u/s. 2(14)(iii) and thereby not granting claim of exemption u/s. 10 on sale of agricultural land situated at Umbroli village.
2. The Learned CIT (A)-NFAC failed to appreciate the fact that - i. The appellant fulfilled all the criteria's for claim of agricultural land as not capital asset as per section provision of section 2(14) (iii) ii. The certificate issued by the Gram Panchayat of Umbroli clearly specified that the said agricultural land at Umbroli is beyond 8 kilometres from the local limits of Kalyan Dombivili Municipal Corporation and the population is 550 people. iii. In response to notice u/s 133(6) issued by the AO, the Town Planning Officer has specified that the said agricultural land bearing S. No 55/9 is 12 kms. away from Kalyan Dombivali Municipal Head Quarters. iv. As per notification by Urban Development Department, furnished the said village was covered under the municipality limits of Kalyan Dombivali Municipal Corporation from (A.Y.2014-15) Vipul Mahasukh Lal Gopani 14.5.2015 and not earlier, thereby the said land sold on 5.12.2013 was not within the Municipal limits. V. The CBDT circular No 17/2015 dated 06.10.2015 in relation to section 2(14) (iii) (b) that the distance is to be measured aerially.
3. The Learned CIT (A)-NFAC erred in confirming the sale of agricultural land under the head Business & Profession instead of Capital Gains. The appellant craves leave and reserves the right to add, alter, amend, modify or delete any of the ground/s before or during the course of the hearing. The appellant reserves the right to produce additional evidence before or during the course of the hearing. Each one of the above grounds of appeal is without prejudice to the other.
2. The brief facts of the case are that the assessee filed his return of income on 30.07.2014 declaring total income at Rs. 60,01,080/-. During the year under consideration the assessee earned income through Salary, Business/Profession, Short capital gains and income from other sources. The case of the assessee was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act were issued. Case of the assessee was assessed by adding Rs. 1,38,63,740/- under the head income from business or profession, which otherwise claimed exempted by the assessee u/s. 10(37) of the Act. The Assessee being aggrieved with this order of AO preferred an appeal before the Ld. CIT (A), who in turn confirmed the order of AO, rejecting the submission of assessee. The assessee being further aggrieved preferred this present appeal before us.
We have gone through the order of AO, order of Ld. CIT (A) and submissions of the assessee alongwith judicial pronouncements relied upon by (A.Y.2014-15) Vipul Mahasukh Lal Gopani both the sides. It is observed that the assessee made advance payments for purchase of land at umbroli in 2011, but the registration of the said land was done on 04.10.2012. The total purchase consideration was Rs. 68, 36,260/-. The said land was sold on 05.12.2013 for Rs. 2, 07, 00,000/- resulting into a surplus of Rs. 1,38,63,740/-. The assessee is relying on the provisions of section 2(14) of the Act, reproduced below as under:
2(14) ["capital asset" means— (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); [(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof,] but does not include— (i) any stock-in-trade [other than the securities referred to in sub-clause (b)]], consumable stores or raw materials held for the purposes of his business or profession ; [(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes— (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings;
(A.Y.2014-15) Vipul Mahasukh Lal Gopani (e) sculptures; or (f) Any work of art.
Explanation.—For the purposes of this sub-clause, "jewellery" includes— (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;] [(iii) agricultural land in India, not being land situate— (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 [***] ; or [(b) in any area within the distance, measured aerially,—
(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) Not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.
Explanation.—For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the (A.Y.2014-15) Vipul Mahasukh Lal Gopani previous year;]] [(iv) 6½ per cent Gold Bonds, 1977, [or 7 per cent Gold Bonds, 1980,] [or National Defence Gold Bonds, 1980,] issued by the Central Government;] [(v) Special Bearer Bonds, 1991, issued by the Central Government ;] [(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 [or deposit certificates issued under the Gold Monetisation Scheme, 2015] notified by the Central Government.] [Explanation 1.]—For the removal of doubts, it is hereby clarified that "property" includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.] [Explanation 2.—For the purposes of this clause— (a) the expression "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD; (b) the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);] 4. The assessee relied upon the section 2(14) (iii) of the Act. Section 2(14) defines capital asset, which certainly a detrimental factor for the purposes of section of section 45 to 55A (income chargeable under the head capital gains). Here the case made by the department is of income chargeable under the head income from business or profession and that is based on the conduct of the assessee. Advantage of section 2(14)(iii) of the Act can be taken by the assessee, only in case he is able to satisfy the condition that the intentions were not to indulge in any sort of business or venture out of this transaction of sale and purchase. If assessee is able to prove department otherwise certainly, discussion can be done on section 2(14) (iii) of the Act, otherwise, the transaction will certainly be part of business income.
(A.Y.2014-15) Vipul Mahasukh Lal Gopani
For better understanding of the issue under consideration we deem it fit to discuss section 2(1A) of the Act reproduced as under:
(1A)] "agricultural income" means— [(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes;] (b) any income derived from such land by— (i) agriculture; or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause; (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :
[Provided that— (i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated—
(A.Y.2014-15) Vipul Mahasukh Lal Gopani
(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 [***]; or [(B) in any area within the distance, measured aerially,—
(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or (III) Not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten lakh.
[Explanation 1.]—For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section.] [Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income.] [Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.]
(A.Y.2014-15) Vipul Mahasukh Lal Gopani [Explanation 4.—For the purposes of clause (ii) of the proviso to sub-clause (c), "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;] 6. In view of explanation 1 to section 2(1A) of the Act, it is clear that even section 2(14)(iii) of that Act has to be read alongwith explanation 1 to section 2(1A) of the Act, if assessee wants to take advantage of section 2(14)(iii) of that Act any purpose like exclusion of income from the head Capital Gains by virtue of the fact that asset is not falling in the category of capital asset, hence not chargeable to tax. In the instant appeal neither the assessee nor the revenue have made any submissions on applicability of provisions of sections 45 to 55A of the Act. Here we have a narrow compass of discussion, whether the transaction entered into by the assessee is chargeable to tax under the head Business or not (being venture in nature).
It is observed that AO received information in compliance to notice issued u/s. 133(6) of the Act from the Town Planning Officer that the Umbroli village has been included in the Kalyan Dombivali Municipal Corporation (KDMC) and as per the development plan prepared by the MMRDA, the plot bearing no. 55/9 is 12 km away from the KDMC HQ. As per the Google maps, the distance of Umbroli village from the Municipal limits of Dombivali is only 6 Kms. Moreover it is observed from the Draft Development Plan for notified area of 27 villages of Kalyan & Ambarnath Tehsil of Thane District that The Govt. of Maharashtra by its Notification dated 9th Aug, 2006 (Published in Govt. Gazette on 7th Dec, 2006) appointed MMRDA as 'Special Planning Authority' for 27 villages from Kalyan and Ambarnath Talukas of Thane District. This Notified Area is approximately of 50 sq. km. This also included Umbroli village with its area of 1.91 sq. kms. As per the (A.Y.2014-15) Vipul Mahasukh Lal Gopani provisions of sanctioned Regional Plan the area of these 27 villages consists of land use of Urbanizable Zones, U-1 and U-2, as also the Industrial and G- 1 (Green Zone) Zones.
In this regard, it is observed that the assessee aggregated the land in series of transactions of purchase of lands. It was further noticed that the said lands have been notified for urbanisation by the Government and the prices were seen at a higher level. Therefore it became manifest that assessee therein intended to make profits by receiving higher sales consideration for acquisition of land. Under these set of facts, the contentions of the assessee that it has sold agricultural lands is rejected and the transactions of purchase and sale of agricultural lands is held to be "adventure in the nature of trade", and as such, chargeable to income- tax under the head "Profits and gains of business or profession". We have gone through the pages from 11 to 108 of factual paper book no.1 and it is observed that the assessee purchased the land from various land owners and this activity of the assessee in such type of ventures, buyers called to be “an aggregator” and not a buyer. This cumulative holding of land assessee holds for a short period of 14 months and then sold the same to a reputed and amongst the largest builder of the state, i.e. M/s. Lodha Developers Pvt. Ltd. Character of the land, as mere classification of the land in the revenue record, as agricultural land, does not conclusively prove that the nature of the land is an agricultural land especially in the light of Notification (supra) for urbanisation of the notified area including the village where the land sold by assessee is situated. As noted above, the lands were transferred to non-agriculturists for non-agricultural purpose and this would also be one of the relevant factors to test the case of the assessee.
(A.Y.2014-15) Vipul Mahasukh Lal Gopani 9. It is apparent that the assessee was acting as an interface to purchase the lands from the land owners and then sold to the company that is in the business of real estate. The Assessing Officer and the Commissioner of Income Tax have held that no agricultural activity was undertaken by the assessee in the land in question and hence, the nature of land cannot be considered as agriculture. This view in our considered opinion looks to be right if we read section 2(14) (iii) along with section 2(1A) of the Act. Further, it is also an established position of law that the burden of proof that the land is an agricultural land is always on the assessee, who seeks exemption under Section 2(14)(iii) of the Income Tax Act, because, the Revenue cannot be expected to produce negative evidence. It is also observed that the idea behind exempting the agricultural land is to encourage cultivation of land and the agricultural operations so that a community called farmers can take advantage of this position in law while cultivating the same or selling the same for further expansion or personal use. The intent of this section 2(14) (iii) of the Act is certainly not for categories other than agriculturists.
As mentioned (supra) we have gone through the judicial pronouncements relied upon by the both sides and find that none of the judicial pronouncements relied upon by the assessee matches the facts of the matter. On this issue rather we find the judicial pronouncement relied upon by the AO relevant on the facts of the matter in the case of 328 ITR 556 (Bom.). DCIT v. Gopal Ramnarayan Kasat, wherein Hon’ble jurisdictional High Court held as under:
“The assessees, namely, 'G', 'S' and 'K' were real brothers. The said assessees and one 'N', who was an advocate by profession, had purchased certain agricultural lands during the period 1992-1998. The said lands were acquired immediately thereafter by the State Government. The assessees received compensation/enhanced compensation towards the acquisition of the said lands during the assessment years 2000-01 to 2002-03. The (A.Y.2014-15) Vipul Mahasukh Lal Gopani assessees had filed their returns for the said assessment years. Noticing that the assessees, apart from their regular business/professional activities, had jointly purchased agricultural lands involving 13 transactions and out of the said 13 transactions, nine lands were under consideration for acquisition at the time of purchase of land and subsequent to purchase, within a short span of time, the said lands were acquired and that they had received compensation, as well as, enhanced compensation under the Land Acquisition Act, 1894, the assessments were reopened under section 147 after issuing notices under section 148. In response to the notices issued under section 148, replies were filed by the assessees. The Assessing Officer also collected information from the LAO regarding original, as well as, enhanced compensation received by the assessees on account of acquisition of the lands in question. After considering the reply on behalf of the assessees and the material on record, the Assessing Officer came to the conclusion that the assessees were indulging in the land transactions which were demarcated to be acquired by the Government. The Assessing Officer came to the conclusion that the material placed on record clearly indicated that the assessees did not have any intention to hold the lands and to cultivate it. The Assessing Officer, therefore, came to the conclusion that the surplus received by the assessees, in respect of the lands purchased by the assessees and acquired by the State, was liable to be taxed as a business income, terming the said transaction as "adventure in the nature of trade", as defined under the provisions of section 2(13). The Assessing Officer also held that the interest received, during the years under consideration, on enhanced compensation, was liable to be treated as a business income and, therefore, liable to be taxed, as such, within the meaning of section 28 of the said Act. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer, insofar as the finding that the compensation received from the Special LAO, on account of acquisition of lands, was liable to tax. However, the Commissioner (Appeals), directed deletion of the enhanced compensation and the interest component, in view of pendency of the issue regarding enhanced compensation before the High Court. On cross appeals, the Tribunal held that the enhanced compensation was liable to be taxed. Insofar as the finding of the Commissioner (Appeals), regarding interest on enhanced compensation being not liable to be taxed, the Tribunal held that the interest was to be assessed on accrual basis from year to year. The Tribunal upheld the view of the Commissioner (Appeals), to the extent, that the interest was liable to be taxed only on reaching its finality. The Tribunal also upheld that the interest had to be assessed under the head "Income from other sources". “The first question came up for consideration was as to whether the assessees were liable to be assessed for the profits earned by them on account of the compensation received by (A.Y.2014-15) Vipul Mahasukh Lal Gopani them for acquisition of agricultural lands by terming the same to be "adventure in the nature of trade", as defined under section 2(13). [Para 15] In view of observation of the Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594, an interference by this Court, against the findings affirmed by the Tribunal, would be permissible, if the inference drawn by the Tribunal has been drawn on considering inadmissible evidence or after excluding admissible and relevant evidence. It can also be seen that, it is only if this Court is satisfied that the inference is the result of improper admission or exclusion of evidence, that this Court would be justified in examining the correctness of the conclusion. The another ground, that would be available to challenge the conclusion of fact drawn by the Tribunal, would be that the conclusion is not supported by any legal evidence or that the conclusion drawn from the relevant facts is not rationally possible and if such a plea is established, this Court would be permitted to examine as to whether the findings recorded are perverse or not. The Court would also be permitted to examine whether the Tribunal had applied the legal principles correctly or not. [Para 19] In the instant case, it was found the findings recorded by the Tribunal were recorded on the basis of the relevant material, attending circumstances and the correct legal position. From the material placed on record, on the basis of which the three authorities had concurrently held that the transactions were "adventure in the nature of trade", it could clearly be inferred that the assessees were involved in a series of transactions of purchasing lands which were notified or likely to be notified for acquisition by the Government. It was to be noted that the transactions were not only pertaining to the Jalgaon District but also Aurangabad District, at a far away distance from the place of residence of the assessees. There was no perversity in the finding of fact recorded by the Assessing Officer and confirmed by the Commissioner (Appeals) and the Tribunal, that the transactions were "adventure in the nature of trade". [Para 21] Another contention of the assessee was that in view of provisions of section 2 (14)(iii), (a ) and (b) of the said Act, the agricultural lands were excluded from the definition of 'capital asset' and, as such, no tax was payable on the compensation received on account of the acquisition of the said lands. From the material on record, it was manifest that the lands purchased by the assessees were not purchased with an intention to hold it as a 'capital asset' but were purchased with the knowledge that the said lands were being acquired with the sole intention of earning huge profit on account of their acquisition. If the lands were not purchased with the intention of holding them as 'capital asset' and only with an intention of earning huge profits on the said purchases, there was no infirmity with the finding of the Tribunal, that the reliance placed on the provisions of section 2(14)(iii ), (a)
(A.Y.2014-15) Vipul Mahasukh Lal Gopani and (b) was of no assistance to the assessees. If the lands, in question, were not purchased for the purpose of agriculture, with an intention to hold them as a 'capital asset', there was no merit in the contention of the assessees, that the said agricultural lands were excluded from the definition of 'capital asset' and, as such, the income from the sale thereof not liable to be taxed . [Para 22]”
In view of above discussion on facts and relying on the decision of DCIT v. Gopal Ramnarayan Kasat, we are of the firm view that transactions entered into by the assessee in question were "adventure in the nature of trade" and as such, chargeable to income-tax under the head "Profits and gains of business or profession" . In view of the above, we are not inclined to interfere with the order of AO and Ld. CIT (A) and confirm the same treating the income chargeable under the head "Profits and gains of business or profession". In the result, Ground No. 2 raised by the assessee is dismissed.
Ground No. 3 pertains to treatment of the transaction, i.e. to be treated under the head "Profits and gains of business or profession" or “Capital Gains”. On this issue as held (supra) that transactions entered into by the assessee in question were "adventure in the nature of trade" and as such, chargeable to income-tax under the head "Profits and gains of business or profession". Secondly, assessees never take any alternative plea before the AO or the Ld. CIT (A), where they have any opportunity to discuss the same. Notwithstanding this fact, this ground now became infructuous as while adjudicating Ground No. 2, we already held that the transactions entered into by the assessee in question were "adventure in the nature of trade" and as such, chargeable to income-tax under (A.Y.2014-15) Vipul Mahasukh Lal Gopani the head "Profits and gains of business or profession". In the result, Ground No. 3 raised by the assessee is dismissed.
In the result, appeal of the assessee is dismissed.