DCIT, TAMBARAM vs. R.VASANTHI RAM NARAYAN, CHENNAI

However, on appeal by the assessee, the CIT(Appeals) found that on identical set of facts in the case of Shri S. Vasanthakumar in dated 08.08.2012, this Tribunal by relying upon the judgment of Madras High Court in CIT v. S. Palanichamy in Tax Case (Appeal) No.232 of 2005 dated 08.08.2011, found that even though a transaction by itself could constitute business, yet the mere fact that the assessee sold a portion of the property to wriggle out of the financial hardship would not make the activity, an adventure in the nature of trade. The only objection of the Ld. D.R. is that the judgment of Apex Court, which was relied upon by the Assessing Officer in the assessment order, was not considered by the CIT(Appeals) while allowing the claim of the assessee.

Therefore, according to the Ld. D.R., the judgment of Apex Court has to be followed and profit on sale of land has to be treated as business income for assessment purpose.

According to the Ld. counsel, on the basis of the audit report which suggested that the Assessing Officer should have treated the profit on sale of land as business income, the Assessing Officer reopened the assessment by issuing a notice under Section 148 of the Income-tax Act, 1961 (in short 'the Act') on 26.03.2013. According to the Ld. counsel, under the scheme of the Income-tax Act, power to reopen the assessment was specifically conferred on the Assessing Officer. The Assessing Officer, if satisfied that the income otherwise chargeable to tax has escaped assessment, he has to record the satisfaction and thereafter issue the notice under Section 148 of the Act for reopening the assessment. In the case before us, according to the Ld. counsel, it is not the satisfaction of the Assessing Officer, it was the satisfaction of the audit wing of the Department which suggested that the Assessing Officer should reopen the assessment. Therefore, Assessing Officer in fact carried out the instruction of the audit wing of the Department. Referring to the judgment of Gujarat High Court in Adani Exports v. DCIT (240 ITR 224), the Ld.counsel submitted that the Assessing Officer cannot surrender his judicial function to any authority including the superior authorities. The superior authorities cannot arrogate themselves to take away the power conferred on the Assessing Officer to reopen the assessment. According to the Ld. counsel, the Assessing Officer has to satisfy himself independently that income otherwise chargeable to tax has escaped assessment. The superior authorities or the audit wing of the Department, as the case may be, have no authority either to instruct the Assessing Officer or suggest otherwise to reopen the assessment under Section 147 of the Act.

It is an admitted fact that the assessee has offered the profit on sale of the land as long term capital gain. However, the Assessing Officer treated the same as business income on the ground that the activity of the assessee in converting the agricultural land into housing plot would amount to adventure in the nature of trade. The land was purchased on 09.09.1999. It was sold in the year 2009, i.e. almost after ten years. According to the Ld. counsel, the assessee never intended to trade in landed properties. At the time of purchasing the property in the year 1999, the assessee intended to treat the same as capital asset. Since no purchasers were available to purchase the property in one lot, the assessee to obtain better price, engaged M/s Tellus Avenue to take appropriate steps for sale of land for better price. Accordingly, all the co-owners of the land entered into an agreement on 12.05.2006 with M/s Tellus Avenue. M/s Tellus Avenue has to sub-divide the land into various plots and thereafter, sell the same to various persons in order to get better price for the land. The intention of the assessee is to get better price on sale of the land after keeping the same for more than ten years as investment. It is not the case of the Revenue that the assessee intended to deal in land at the time of purchase of the property. On an identical set of facts, the Madras High Court in CIT v. A. Mohammed Mohideen (1989) 176 ITR 393, after considering the judgment in CIT v. Kasturi Estates (P.) Ltd. (1966) 62 ITR 578, found that if a land owner developed his land, expended money in laying roads, converted the same to the housing sites, with an intention of getting better price on sale of the land and sold the plots for a consideration to various persons which resulted in surplus, it could hardly be said that the transaction was anything more than a realization of a capital investment. The Ld.counsel further submitted that each case depends upon its own fact and similarly between one case and another is not enough. According to the Ld. counsel, at the time of purchase of the property in the year 1999, the assessee intended to hold the same as investment.

Subsequently, in order to sell the land for better price, engaged M/s Tellus Avenue.

In pursuance of this agreement, they have approached M/s Tellus Avenue to take appropriate steps to divide the same into various plots and to obtain approval from the concerned local body. M/s Tellus Avenue was empowered to identify the prospective purchasers of the property either at one stroke or on different occasions and also collect purchase price either in advance or otherwise. From this agreement, it is obvious that all the co-owners of the land joined together to sell the land for a better consideration.

As rightly submitted by the Ld.counsel for the assessee, to consider the transaction as business transaction, the intention of the assessee at the time of acquisition of the property has to be considered. It is a well settled principle of law that the assessee can have two portfolios – one is for investment and another is for trading. If the intention of the assessee at the time of acquisition of the property is to trade in land, then naturally the profit on sale of such land has to be treated as profit from business. If the assessee has no such intention at the time of acquisition of the land and it was intended to be kept as investment, then naturally at the time of sale of the land, the profit has to be treated as capital gain.

Therefore, the intention of the assessee needs to be ascertained at the time of acquisition of the property.

Mohammed Mohideen (supra), the judgment of Apex Court in Smt.

Indiramani Bai (supra) was not available. Therefore, the Madras High Court had no occasion to consider the case of Smt. Indramani Bai (supra). We have carefully gone through the judgment of Apex Court in Smt. Indramani Bai (supra). In the case before Apex Court, two ladies who are partners in a firm, purchased a piece of land in Banjara Hills, Hyderabad. Shortly after purchasing the land, they carved into four plots and sold them individually. In fact, the land was purchased in 1963 and it was divided into plots in November 13, 1964 and the same was sold. The Apex Court, after considering the background of the ladies and the fact that soon after the purchase, the assessee carved it into plots and sold them within few months from the date of purchase, found that the activities are business in nature.

(supra). The Madras High Court in identical set of facts, after considering the judgment of Apex Court in Raja J. Rameshwar Rao (supra) and G. Venkataswami Naidu & Co. (supra) found that the profit on sale of the land is only a realization of capital investment.

Therefore, the CIT(Appeals) has rightly found that the profit on sale of the land has to tbe treated as long term capital gain. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.

Nos.114 & 115/Mds/2015, the main objection is reopening of the assessment on the basis of the audit opinion. The assessee has produced the communication obtained from Assessing Officer under Right to Information Act which clearly shows that the audit wing of the Department suggested to the Assessing Officer that the profit on sale of the land has to be assessed as business income and not as capital gain. We have also carefully gone through the provisions of Section 147 of the Act. Section 147 of the Act clearly says that the Assessing Officer himself has to believe that the income chargeable to tax escaped assessment and not on the influence of any other authority under the Income-tax Act. Therefore, even though there may be justification in the contention of the assessee that reopening is invalid, this Tribunal is of the considered opinion that it may not be necessary to adjudicate the contention of the assessee with regard to validity of reopening since on merit this Tribunal finds that the profit on sale of land has to be assessed only as long term capital gain and not as business income. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority.

13. Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that the assessee exchanged her agricultural land to the extent of 10 cents in Survey No.142/1 with one Shri C. Devaraj for 8 cents of land in Survey No.143/1. According to the Ld. D.R., in fact, the assessee has received 2 cents of land in excess of what was exchanged. Therefore, the Assessing Officer has taken the guideline value of the land at `281/- per sq.ft. and computed the difference in value at `2,45,032/- for the purpose of computing short term capital gain. On appeal by the assessee, the CIT(Appeals) found that the assessee has not made any profit on exchange of the land. Therefore, the addition made by the Assessing Officer could not be sustained. According to the Ld. D.R., in view of the exchange, in fact, the assessee has gained 2 cents of land which cost about `2,45,032/-. Therefore, according to the Ld. D.R., the sum of `2,45,032/-, which was gained by the assessee, has to be assessed as short term capital gain.

According to the Ld. counsel, the 10 cents of land was in Survey No.142/1 and the 8 cents of land was in Survey No.143/1. Though there was difference to the extent of 2 cents, the market value of the land is one and same. There is no difference in valuation.

According to the Ld. counsel, the Assessing Officer has taken guideline value at `281/- per sq.ft. In fact, the guideline value on the date of exchange was `46/- per sq.ft. Irrespective of the guideline value, according to the Ld. counsel, the market value of the land has to be taken into consideration. The market value of the land is equal for both the lands which are subject matter of exchange. According to the Ld. counsel, there cannot be any capital gain.

per sq.ft. on the basis of the guideline value. It is a well settled principle of law that guideline value is the basis for ascertaining the market value. The guideline value in all cases would not represent the market value. When the parties to the transaction exchange land and exchange deed does not disclose any payment made in addition to exchange of land, this Tribunal is of the considered opinion that it would not be correct to compute the value of the land on the basis of the guideline value. The market value accepted by the parties, cannot be doubted in the absence of any other material.

In this case, no material is available on record other than the so- called guideline value of the Registration Department. This guideline value also varies between parties. According to the Ld. counsel, the guideline value per sq.ft. was `46/-. However, the Department claims the same to be `281/- per sq.ft. This Tribunal is of the considered opinion that irrespective of the guideline value of the Registration Department, when the parties exchanged the land on the basis of the agreed price, the Assessing Officer cannot doubt the same. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

However, on appeal by the assessee, the CIT(Appeals), on the basis of the adangal extract and certificate from Village Administrative Officer, allowed the claim of the assessee.

According to the Ld. D.R., in the absence of any other material for sale of agricultural produce and the cultivation said to be made by the assessee, the same cannot be treated as income from agriculture.

21. Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that the assessee has sold 72.5 cents of land at Ratnamangalam Village, Kancheepuram District, out of 1.30 acres, for a total consideration of `49,50,000/-. The assessee claimed exemption on the gain on sale of such land on the ground that the same was agricultural land. The Assessing Officer called for the details of the agricultural produce sold by the assessee and material to establish the receipt of agricultural income. The assessee claimed before the Assessing Officer that the agricultural land was leased out and the lessee was cultivating the land. The assessee has produced a certificate from Village Administrative Officer to show that the land was under cultivation. The Ld. D.R. further pointed out that the land is situated within 8 KMs radius of Tambaram Municipality. Since the land is within 8 KMs radius, according to the Ld. D.R., it cannot be treated as agricultural land.

In other words, the land has to be treated as capital asset.

Therefore, the capital gain arising on sale of such land to the extent of `49,50,000/- has to be assessed as capital gain.

According to the Ld. counsel, what is to be treated as capital gain is the land which is situated within 8 KMs radius of notified municipality. No notified municipality is within 8 KMs radius of the land. The Assessing Officer without accepting the certificate issued by the Village Administrative Officer, regarding distance, he simply placed reliance on an advertisement given by one of the private real estate agents. According to the Ld. counsel, the certificate issued by the Village Administrative Officer has to be preferred rather than the advertisement given by any private agent. Referring to the judgment of Madras High Court in Mrs. Sakunthala Vedachalam v.

ACIT 53 taxmann.com 62, the Ld.counsel submitted that when the adangal indicates that the land was subject to cultivation, which was further certified by Village Administrative Officer, the Assessing Officer cannot claim that the land was not subject to cultivation at all. The Ld.counsel further submitted that once a land was classified as agricultural land in revenue record and it was not falling within the territorial limits of any municipality or cantonment or within the distance of 8 KMs radius of any other notified municipality, then the same has to be treated as agricultural land. In this case, according to the Ld. counsel, the land is beyond 8 KMs radius of Tambaram Municipality. Therefore, the CIT(Appeals) has rightly found that the capital gain arising on sale of land at Ratnamangalam Village is exempted from taxation.

It is not in dispute that the land was classified as agricultural land in Revenue records. Since Selayiur is a panchayat and the land in question is not within 8 KMs of any of the notified municipality, this Tribunal is of the considered opinion that the land sold by the assessee at Ratnamangalam Village cannot be treated as capital asset. The adangal register and the certificate of Village Administrative Officer would establish that the land was subjected to cultivation. It is not necessary for the assessee to cultivate the land directly. Even the cultivation made by a tenant/ lessee of the land has to be construed as cultivation. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(Appeals) and accordingly, the same is confirmed.

25. Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that the assessee has sold 3.63 acres of land at Nathanallur Village on 10.05.2010. According to the Ld. D.R., the assessee acquired the land on 31.08.2007. The gain on sale of such land was claimed by the assessee as exempted. According to the Ld. D.R., the assessee claimed the land in Nathanallur Village as agricultural land. The Assessing Officer, however, rejected the claim of the assessee on the ground that the assessee has not produced any evidence in support that the land in question is an agricultural land. According to the Ld. D.R., since the land in question is not cultivated, it cannot be treated as agricultural land.

Therefore, the Assessing Officer has rightly treated the same as short term capital gain.

According to the Ld. counsel, the Village Administrative Officer has certified that the land in question was beyond 8 KMs radius of any notified municipality. Therefore, according to the Ld. counsel, the land in question cannot be treated as capital asset and hence it is to be exempted.

Ignoring the certificate issued by the Village Administrative Officer and the adangal extract, the Assessing Officer found that the land is not an agricultural land. This Tribunal is of the considered opinion that the adangal extract and the Village Administrative Officer’s certificate have to be preferred in deciding the characteristics of the land in question. The adangal extract maintained by the Village Administrative Officer under the supervision of senior officers of the Revenue Department is an official document of the State Government. Therefore, it cannot be brushed aside so lightly by the Assessing Officer. When the land in question is subjected to cultivation as established by the certificate of Village Administrative Officer and the adangal extract, this Tribunal has no reason to doubt the claim of the assessee. The Village Administrative Officer has also certified that the land in question is beyond 8 KMs radius of any notified municipality. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly placed reliance on the judgment of Madras High Court in Mrs. Sakunthala Vedachalam (supra). Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(Appeals) and accordingly, the same is confirmed.

Order pronounced on 18th December, 2015 at Chennai.