Transfer Archives - Tax Heal

Holding period of Property to be computed from allotment letter issue date

CA Satbir Singh — Tue, 07 Mar 2017 06:41:06 +0000

Issue

Learned CIT (Appeal) has erred in not considering the fact that the rights, title and interest in the property was itself acquired and held from the date of Allotment letter dated 11-04-2005 by the Appellant and as such the Period of Holding and indexation cost were not properly considered.”

Held

Holding period should be computed from the date of issue of allotment If we do so, the holding period becomes more than 36 months and consequently, the property sold by the assessee would be long term capital asset in the hands of the assessee and the gain on sale of the same would be taxable in the hands of the assessee as Long Term Capital Gain

Anita D Kanjani

ACIT (ITAT Mumbai)

I.T.A..No.2291/Mum/2015

13/02/2017

Assessment Year : 2011-12

This appeal has been filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-32 [hereinafter called CIT(A)]02-0-2015 passed against the assessment order of the AO u/s 143(3) dated 23-12-2013 for A.Y. 201-12 on the following grounds:-

“That the Learned CIT (A) has erred in confirming and upholding the Addition of Income made by the Assessing Officer on account of wrong consideration of Long Term Capital Gain as Short Term Capital Gain for Rs.4, 76,6331/- is unjustified, unwarranted and bad in law.

That the Learned CIT(A) has erred in confirming and upholding the Period of Holding of the Capital Asset as and from the date of Registration of Agreement [24-04 -2008] instead of and in place of the date of the Agreement [28-12-2007], and as such in fact and in law the Long Term Capital Asset held by the Appellant was wrongly considered as Short Term Capital Asset and the same is unjustified, unwarranted and bad in law.

That the Learned CIT (A) has erred in not considering the fact that the rights, title and interest in the property was itself acquired and held from the date of Allotment letter dated 11-04-2005 by the Appellant and as such the Period of Holding and indexation cost were not properly considered.”

2. The solitary issue required to be addressed by us in this appeal is that whether the office unit (flat) sold by the assessee during the year on which long term capital gain was shown in the return was a ‘long term capital asset’ or ‘short term capital asset’ as per section 2(42A) of the Income-tax Act, 1961. The assessee claimed that it was a ‘long term capital asset’ and therefore gain arising there-from was long term capital gain whereas AO was of the view that the said property was ‘short term capital asset’ and thus it gave rise to short term capital gain.

3. The brief background as culled out from the orders of the lower authorities is that during the year assessee sold office unit located at Unit No.107, First Floor, Everest Grande, Village Malgaon, Mahakali Caves Road, Andheri (E), According to the assessee, the asset was held for more than 36 months, therefore, it was ‘long term capital asset’ and, therefore, resultant gain was shown in the return as long term capital gain. During the course of assessment proceedings it was noted by the AO that though allotment of the said office unit was done prior to 36 months from the date of sale but the agreement to sale was registered during the period of 36 months only, therefore, he computed the holding period from the date of registration of the agreement and accordingly it was held that the said asset was ‘short term capital asset’. The AO relied upon the judgement of Hon’ble Supreme Court in the case of M/s Suraj Lamps & Industries Pvt Ltd vs State of Haryana 304 ITR 1 (SC) wherein it was held that transfer of an immovable property is effective only from the date on which it is registered with the Sub Registrar, which is competent authority to register the documents for transfer of immovable properties. Accordingly, the AO computed the period of holding of the asset from the date of registration of the agreement with the office of Sub Registrar and found that the said property was ‘short term capital asset’. Consequently, the resultant gain was assessed as short term capital gain.

4. Being aggrieved, assessee filed appeal before Ld. CIT(A) and made detailed submissions to argue the point that the impugned property was held for more than 36 months as per law, therefore, it should be held as ‘long term capital asset’. Ld. CIT(A) did not agree with the submissions of the assessee and confirmed the action of the AO. Still being aggrieved, assessee filed appeal before the Tribunal.

5. During the course of hearing, the Ld. Counsel of the assessee made detailed Twofold arguments were made by him before us. It was firstly argued that period of holding should be computed from the date of allotment of the property as per section 2(42A). In support of his claim, reliance was placed on the following judgments:-

1. Madhu Kaul v. CIT (2014) 363 ITR 54 (P&H HC)

2. CIT v. K Ramakrishnan (2014) 363 ITR 59 (Del HC)

3. CIT v. S R Jeyashankar (2015) 373 ITR120 9Mad HC)

4. CIT v. A Suresh Rao (2014) 223 Taxmann 228 (Kar HC)

5. Vinod Kumar Jain v. CIT (2012) 344 ITR 501 (P&H_HC)

6. CIT v. Jitendra Mohan (2007) 165 Taxman 524 (Del HC)

7. CIT v. Panchand Gandhi (2005) 279 ITR52 (Guj HC)

8. CIT v. Anilaben Upendra Shah (2003) 262 ITR 657 (Guj)

9. Lahar Singh Siroya v. ACIT (2016) 138 DTR 331 (Kar-HC)

10. Vijay Harnilapurkar v. DCIT ITA No.6048/M/2013

11. ACIT v. Vandana Rana Roy ITA No.6173/M12011

12. Meena Hernnani vs ITO ITA No.5998/M/2010

13. Sneha Bimal Parekh v. CIT ITA No.5489/M/2015

14. Surnatichand Tolamal Gouti v. DCIT ITA No.2009/M/2013

15. Circular: No. 471, dated 15-10-1986 162 ITR(St)41

16. Circular : 672, dated 16-12-1993 205 ITR(St) 47

6. It was alternatively argued by the Ld. Counsel that in case holding period is to be computed from the transfer of the property, in that case, ‘date of execution’ of the sale agreement should be taken as date of transfer of the property because the document registered on a subsequent date operates from the ‘date of execution’ and not from the ‘date of registration’ in view of clear provisions of section 47 of Registration Act, 1908. Reliance was placed in this regard on the two judgments of Hon’ble Supreme Court in the case of Principal Secretary, Government of Karnataka vs Ragini Narayan (Civil Appeal No.8895 of 2012) dated 20^thSeptember, 2016 and Gurubax Singh vs Kartar Singh 254 ITR 112 (SC). It was also submitted that if the holding period is to be computed from the date of execution of the agreement, then, the holding period shall exceed the period of 36 months and the impugned property shall be ‘long term capital asset’ in the hands of the assessee.

7. Per contra, the Ld. DR relied upon the orders of the lower authorities. It was submitted by him that it has been held by the AO relying upon the judgment of Hon’ble Supreme Court in the case of Suraj Lamps & Industries Pvt Ltd (supra) that holding period should be computed from the date of transfer of the property. He requested for upholding the order of the CIT(A).

8. We have gone through the facts and circumstances of the case, orders passed by the lower authorities, submissions made and judgements relied upon before us by both the sides. The chronology of relevant events in this regard is as under:-

-. Date of allotment of office unit to the assessee
+– 11-04-2005
-. Date of signing of the agreement to sell
+– 28-12-2007
-. Date of registration of the aforesaid property with the Registrar
+– 24-04-2008
-. Date of sale of aforesaid property
+– 11-03-2011

The AO has computed the holding period from the date of registration, i.e. 24-04-2008 and accordingly it was held that when the property was sold on 11-03-2011 it was held for less than 36 months and, therefore, it was ‘short term capital asset’. On the other hand, assessee has claimed that the property was held by the assessee since when allotment letter was issued to the assessee of the said property, i.e. on 11-04-2005; when the property was duly identified and part payment was made. It was alternatively argued that in any case, if the date of transfer of property is to be taken as the beginning point of holding period, then the date of signing of the agreement i.e. 28-12-2007 should be taken into account and not the date of registration of the agreement in terms of section 47 of Registration Act, 1908 as has also been clarified by the Hon’ble Supreme Court in the above mentioned two judgements.

9. With a view to resolve this dispute, we have firstly analysed the provisions of section 2(42A) which defines ‘short term capital asset’ as under:-

“Section 2(42A) in the Income- Tax Act, 1961

(42A) ^“short- term capital asset” means a capital asset held by an assessee for not more than thirty- six months immediately preceding the date of its transfer”:

Perusal of aforesaid definition shows that the legislature has used the expression ‘held’. It is further noted by us that in various other allied or similar sections, the legislature has preferred to use the expression ‘acquired’ or ‘purchased’ e.g. in section 54 / 54F. Thus, it shows that the legislature was conscious while making use of this expression. The expressions like ‘owned’ has not been used for the purpose of determining the nature of asset as short term capital asset or long term capital asset. Thus, the intention of the legislature is clear that for the purpose of determining the nature of capital gain, the legislature was concerned with the period during which the asset was held by the assessee for all practical purposes on de facto basis. The legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, we have to ascertain the point of time from which it can be said that assessee started holding the asset on de facto basis.

10. It is noted that the letter of allotment was issued to the assessee on 11-04-2005, the letter of allotment makes a mention of the identity of the flat as office unit No.107, located at First Floor of Everest Grande. It also makes a mention that total consideration of the said property is a sum of Rs.29,64,000/- out of which a sum of Rs.5 lakhs was paid by the assessee on 04-04-2005 by cheque No.539104 as part payment against the said office unit. It is further noted by us that Hon’ble Karnataka High Court in the case of CIT vs A Suresh Rao 223 Taxmann 228 (Kar) dealt with similar issue wherein the significance of the expression ‘held’ used by the legislature has been analysed and explained at length. Hon’ble High Court analysed various provisions of the Act pertaining to computation of capital gain under various situations and also circulars issued by the CBDT on this issue. Relevant portion of the observation wherein the issue before us has been properly analysed is reproduced hereunder:-

12. “The definition as contained in Section 2 (42A) of the Act, though uses the words, “a capital asset held an assessee for not more than thirty-six months immediately preceding the date of its transfer”, for the purpose of holding an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in Section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assessee is put in possession of an immovable property or he retained the same in part performance of the contract under Section 53-A of the Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. Similarly, any transaction whether by way of becoming a member of or acquiring shares in a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of any immovable property, also constitutes transfer and the assessee is said to hold the said property for the purpose of the definition of ‘short-term capital gain’. In fact, the Circular No.495 makes it clear that transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are common mode of acquiring flats particularly in multistoried constructions in big cities. The aforesaid new sub-clauses (v) and (vi) have been inserted in Section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. A person holding the Power of Attorney is authorized the powers of owner, including that of making construction though the legal ownership in such cases continues to be with the transferor. The intention of legislature is to treat even such transactions as transfers and the capital gain arising out of such transactions are brought to tax. Further, the Circular No.471 goes to the extent of clarifying that for the purpose of Income-tax Act, the allottee gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow up action and taking the delivery of possession is only a formality. In case of construction agreements, the tentative cost of construction is already determined and the agreement provides for payment of cost of construction in installments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in installments does not affect the legal position. Therefore, in construing such taxation provisions, what should be the approach of the courts and the interpretation to be placed is clearly set out by the Apex Court in the case of Smt. Saroj Aggarwal vs CIT 156 ITR 497 wherein it is held as under:

“Facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any dishonest or improper motive on the part of the assessee, it would be just and equitable to draw such inference in such a manner that would lead to equity and justice. Too hyper-technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered Courts should, whenever possible unless prevented by the express language by any section or compelling circumstances of any particular case, make a benevolent and justice oriented inference. Facts must be viewed in the social milieu of a country.”

Therefore, keeping the aforesaid principles in mind, when we look at Section 48, the language employed is unambiguous. The intention is very clear. When a capital asset is transferred, in order to determine the capital gain from such transfer, what is to be seen is, out of full value of the consideration received or accruing, the cost of acquisition of the asset, the cost of improvement and any expenditure wholly or exclusively incurred in connection with such transfer is to be deducted. What remains thereafter is the capital gain. It is not necessary that after payment of cost of acquisition, a title deed is to be executed in favour of the assessee. Even in the absence of a title deed, the assessee holds that property and therefore, it is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a short-term capital gain or a long-term capital gain.”

Thus, from the aforesaid judgment, it is clear that for the purpose of holding an asset, it is not necessary that the assessee should be the owner of the asset based upon a registration of conveyance conferring title on him.

11. Similarly, in the case of Madhu Kaul (supra), the Hon’ble Punjab & Haryana High Court analysed various circulars and provisions of the Act that on allotment of flat and making first installment the assessee was conferred with a right to hold a flat which was later identified and possession delivered on later date. The mere fact that possession was delivered later, would not detract from the fact that assessee (allottee) was conferred a right to hold the property on issuance of an allotment letter. The payment of balance amount and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter upon the assessee.

13. In the case of Vinod Kumar Jain vs CIT 344 ITR 501 it was held by Hon’ble Punjab & Haryana High Court that conjoined reading of section 2(14), 2(29A) and 2(42A) clarifies that holding period of the assessee starts from the date of issuance of allotment letter. Since allottee gets title of the property on the issuance of allotment letter and payment of first installment is only a consequential action upon which delivery of possession flows. Even if the sale deed or agreement to sell is executed or registered subsequently but the assessee always had a right in the property since the date of issuance of allotment letter. Therefore, it can be said that assessee held the property immediately from the date of allotment letter.

14. In the case of CIT vs K Ramakrishnan (supra), Hon’ble Delhi High Court analysed the provisions of the Act and held that date of allotment is relevant for the purpose of computing holding period and not the date of registration of conveyance deed. Similarly in the case of CIT vs S.R. Jeyashankar(supra), Hon’ble Madras High Court took a similar view following the aforesaid judgment and held that holding period shall be computed from the date of allotment. It is noted by us that similar view has been taken by other High Courts in the judgments which have been relied upon by the Ld. Counsel before us and mentioned in earlier part of our order.

15. In the assessment order, the Ld. AO has placed reliance upon the judgment of Hon’ble Supreme Court in the case of Suraj Lamps & Industries Pvt Ltd (supra) for the proposition that transfer of a property shall be effective only on registration of conveyance deed in view of section 54 of Transfer of Property In our view, it is a settled proposition of law and there is no dispute on that. The absolute legal ownership of an immovable property shall take place in terms of various provisions of Transfer of Property Act which needs to be read with provisions of section 2(47) of Income-tax Act, 1961 for the purpose of computing tax liability arising on account of sale / purchase of immovable properties under Income-tax Act. But the issue here before us is different. As discussed earlier, the holding period is to be determined in terms of section 2(42A) of the Act which has been reproduced and discussed above. The issue of transfer of ownership is not the issue to be decided here for computing the holding period. Therefore, we find that application of the ratio of aforesaid judgment would not be appropriate here.

16. Thus, respectfully following the judgements of various High Courts wherein this very issue has been analysed in detail as discussed above at length, we find that holding period should be computed from the date of issue of allotment If we do so, the holding period becomes more than 36 months and consequently, the property sold by the assessee would be long term capital asset in the hands of the assessee and the gain on sale of the same would be taxable in the hands of the assessee as Long Term Capital Gain. We direct accordingly.

17. As a result, grounds raised by the assessee are allowed in terms of our directions as given above. However, the alternative issue raised by the assessee is not being adjudicated at this stage.

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

Order pronounced in the open court at the conclusion of the hearing.

Transfer takes place when possession of land handed over to builder and not when sale deed is registered in case of joint development agreement

CA Satbir Singh — Fri, 16 Sep 2016 13:00:50 +0000

Held

There is a fair disclosure by the assessee regarding the sale of the impugned property. In that assessment year i.e.2006-07, it is said to be accepted by the Department that as there was no transfer of capital asset as an agricultural land. It is not the case of the Department that it was subject to any rectification or revision subsequently. Unless the Department disturbed the assessment for assessment year 2006- 07, the Department has precluded from treating the transfer of same land as a transfer in terms of Sec.2(47)(v) of the Act in the assessment year 2009- 10 for whatever reason stated by the AO. In our opinion, merely because an agreement of sale has not been registered, which otherwise in nature of agreement referred in Sec.53A of the Transfer of Property Act cannot be taken out of ambit of Sec.2(47)(v) of the Act when parting of the possession of immovable property has already taken place as enumerated in earlier para of this order. It is very clear that there is giving up of the possession to the builder/developer and he has given the substantial amount to the assessee in the form of refundable deposit and he has shown willingness to perform his part of duty to the assessee and there is no question of going back from his consent to act as builder. This view of ours is fortified by the order of Tribunal in the case of Bakthavatsalam Gowtham (supra). Thus, we do not find any error in the findings of the Ld.CIT(A) wherein he has observed that there is no transfer in the assessment year 2009-10 and the same is upheld. (para 6.2)

Note Section 2(47)(v) :-

(v)

any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or

IN THE ITAT CHENNAI BENCH ‘D’

Income-tax Officer, Ward XV (1), Chennai

Smt. Ayisha Fathima

CHANDRA POOJARI, ACCOUNTANT MEMBER
AND G. PAVAN KUMAR, JUDICIAL MEMBER

IT APPEAL NO. 1371 (MDS.) OF 2013
[ASSESSMENT YEAR 2009-10]

AUGUST 17, 2016

Durai Pandian, ACIT, DR for the Appellant. S. Sridhar, Adv. for the Respondent.

ORDER

Chandra Poojari, Accountant Member – This appeal of the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-XII dated 28.03.2013 pertaining to assessment year 2009-10.

2. The grievance of the Revenue in this appeal is with regard to findings of the Ld.CIT(A) is that there was no transfer in terms of Section 2(47)(v) of the Act in respect of impugned property, though the registration was done on 01.04.2008 which was in continuation of the Joint Development Agreement (JDA) entered by the assessee on 09.07.2005 with the developer.

3. The facts of the case are that the assessee is the owner of 50% of the land at Egattur Vilalge, measuring 6 acres and 21 cents. The other 50% was owned by her brother. The assessee sold the property vide document registered on 01.04.2008 to M/s.OMR Mall Developers Pvt Ltd., and received consideration as follows:—

1,45,295 Sq.ft.	Rs.13,68,00,280/-
	(i) Rs. 1,44,00,000/- received as advance.
	(ii) Rs. 4,45,13,280/- received in the form of 5,56,416 shares of Rs. 10 each at premium of Rs. 70 each.
	(iii) Rs. 7,78,87,000/- received as debentures of 77,887 Rs. 1,000/- each
56,503.44 Sq. ft.	Rs. 5,31,99,720/-,
	(i) Rs. 56,00,000/- received as advance
	(ii) Rs. 1,73,10,720/- received as 2,16,384/- shares of Rs. 10 each with premium of Rs. 70/- .
	(iii) Rs. 3,02,89,000/- received as 30,289 Debentures of Rs. 1,000/- each.

The assessee claimed that the said property was sold, which is an agricultural land and there is no liability of capital gains tax. More so, the assessee originally entered into JDA with M/s.Allied Majestic Promoters on 09.07.2005 and according to the assessee, the transfer took place in the assessment year 2006-07 and not in the assessment year 2009-10. The AO disagreeing with the contention of the AO observed that the transfer took place vide registered sale deed dated 01.04.2008 to M/s.OMR Mall Developers Pvt Ltd.. Against the order of ld. Assessing Officer, the assessee carried the appeal to the Ld.CIT(A).

3.1 On appeal, the Ld.CIT(A) observed that transfer took placed only on assessment year 2006-07 vide JDA dated 09.07.2005 when the assessee entered into JDA with M/s.Allied Majestic Promoters which amount to part performance u/s.53A of Transfer of Property Act.

3.2 Regarding the nature of land, the Ld.CIT(A) observed that the impugned lands under consideration are agricultural lands, as per the revenue records, and also under cultivation-of agricultural crops till the assessee handed over the possession of lands to Megistic Promotors on 09.07.2005, under Joint Development agreement. Even in the joint development agreement the lands were shown as agricultural lands with standing crops. Assessee’s declaration of agricultural income in her returns of income filed up to A.Y.2006-07 clearly proves that the lands are agricultural lands and are under agricultural use only. Further, since the assessee transferred and handed over the lands to M/s. Allied Megistic Promotors, on 09.07.2005, as “agricultural lands” only. Therefore, the lands under consideration —

		The lands are Agricultural lands (as per revenue records);
		The lands are under continuously used for agricultural activities (growing crops) till the date of transfer and handing over the possession;
		The lands are transferred and handed over to MIs. Allied Megistic Promotors as agricultural lands (with standing crops) only;

and hence will not constitute “capital asset” for the purpose of sec.2( 14) of the Act. According to Ld.CIT(A), consequent to the Joint Development Agreement with M/s. Allied Megistic Promotors on 09.07.2005, the assessee and her brother, received part of the consideration of Rs.2,00,00,000/- as advance, handed over the possession of the property to M/s. Allied Megistic Promotors and also executed General Power of Attorney in favour of Shri A. Abdul Wadood (the managing partner of M/s. Allied Megistic Promotors). The property was never received back by the assessee from M/s.Allied Megistic Promotors. M/s. OMR Mall Developers P Ltd, in whose name the property was finally registered on 0 1.04.2008, was only a nominee of M/s. Allied Megistic Promotors. Hence the sale deed registered in the name of M/s.OMR Mall Developers P Ltd is not a separate transaction of ‘transfer of property’. It is only the continuation and culmination of the transaction already entered with M/s. Allied Megistic Promotors. This can further be visualized from the following facts:—

		The GPAs executed as per the Joint Development Agreement on 09.07.2005 are still in force and in fact they were being used even after the final registration of the lands in the name of M/s.OMR Mall Developers P Ltd.
		The advance of Rs.2 00 00000 June 2005 (by M/s.Allied Megistic Promotors) was shown as the advance paid by M/s.OMR Mall Developers P Ltd.
		M/s.OMR Mall Developers P Ltd. is only nominee of Megistic Promotors and has been nominated by M/s.Ailied Megistic Promotors. Further, the ultimate beneficiaries of M/s.Allied Megistic Promotors and M/s.OMR Mall Developers P Ltd are one and the same.
		When the developer M/s.Allied Megistic Promotors nominated M/s.OMR Mail Developers P Ltd for the purpose of registration, the assessee has no option but register the lands in the name of the said nominee.

Ld.CIT(A) observed that M/s. Allied Megistic Promoters, has never failed to deliver his part of contract. Therefore, handing over the possession of the property, based on the Joint Development Agreement on 09.07.2005, to M/s. Allied Megistic Promoters, will amount to “part performance” under sec.53A of the Transfer of Property Act. The same amounts to “transfer” within the definition of Clause (vi) of sec.2(47) of the Act. Therefore there was a clear transfer of property on 09.07.2005 (i.e. in the F.Y.2005-06). In fact, the assessee also cleared the transfer of the lands in her return of income filed for A.Y.2006-07. Hence the taxability of the gains arising on transfer of the said lands, is any, has to be dealt in the F.Y 2005- 06(A.Y 2006-07) and not in the F.Y 2008-09(A.Y 2009-10). From the above facts, the Ld.CIT(A) came to a conclusion that the lands under consideration are not only agricultural lands falling outside the definition of “capital asset” u/s.2(14) of the Act, but also transferred in the financial year 2005-06 relevant the assessment year 2006-07. In either case, chargeability of the consideration to tax under the head “capital gains” (or other heads) does not arise in the financial year 2008-09, relevant to the assessment year 2009-10. Therefore, the Assessing Officer’s action of bringing the sale proceeds of the said agricultural lands to capital gains tax, especially in A.Y.2009- 10, is not justified and deleted. Aggrieved by the order of Ld.CIT(A), the Revenue is in appeal before us on this issue.

4. The Ld.D.R submitted that mere signing of the JDA between the owner and the developer does not result in transfer of property and the Developer had not done any act in furtherance of the contract within the time stipulated in the agreement. Further, ld.D.R contended that as per para 40 of the JDA wherein it was once again mentioned that the owners ought to refund the deposit of Rs. 120 lakhs to the Developer within 2 weeks of the owner being intimated about completion and that the respective space allotted for the owners is fit for taking possession of the project. It is stated here that the consideration could not even be quantified at the time of JDA as the cost of construction relating to the owner could be quantified only at the time of completion of the project. Ld.D.R submitted that the JDA was a conditional agreement for specific performance by the Developer, which they failed to comply with and hence there was no transfer as on the date of JDA. Ld.D.R further submitted that the subject land was agricultural land as the nature of land has changed subsequent to the JDA and at the time of transfer on 01.04.2008, it was non-agricultural land. Further, ld.D.R contended that the sale deed executed on 01.04.2008 mentioned the property as vacant site and not agricultural land. Ld.D.R pointed out that the Developer had not fulfilled his part of the agreement viz. handing over the 27% of the constructed area and hence no consideration could be said to have passed on to the owner as on the date of JDA to invoke the provisions of the section 2(27)(v) of the Act. Ld.D.R submitted that there was no transfer in terms of Section 2(47)(v) of the Act in respect of impugned property, though the registration was done on 01.04.2008 which was in continuation of the Joint Development Agreement (JDA) entered by the assessee on 09.07.2005 with the developer. Ld.D.R relied on the decision of the Tribunal, Hyderabad Bench in the case of Ms. K. Radhika v. CIT [2011] 47 SOT 180 and Hon’ble Apex Court in the case of Sardar Govindrao Mahadikv. Devi Sahal AIR 1982 SC-989 and argued in support of the order of ld. Assessing Officer.

5. On the other hand, ld.A.R submitted that the transfer was ‘actually’ took place when the assessee entered into JDA on 09.07.2005 with M/s.Allied Majestic Promoters. As per JDA, assessee has to receive 27% of built-up area which is not less than 1,41,135 sq.ft and remaining building plinth area i.e. 73% hall be retained by the developer. According to ld.A.R, transfer took place on 09.07.2005. Subsequent sale deed is only to continuation of this JDA. Further referring to the copy of JDA dated 09.07.2005,ld.A.R submitted that as per clause No.(iv) assessee handed over the possession of entire agricultural land to developer. Further, he submitted that the assessee has received considerable amount of deposits vide clause (ii) of the said deed i.e. JDA. As per clause (vi) of JDA, the time is the essence of the contract agreement and within 30 days, the developer has to obtain the requisite sanction from the authorities concerned and complete the construction within 36 months from the date of commencement of the construction of the said property. The delay for handing over the building to the assessee would result in payment of damages at Rs.2/- lakhs per month till the delivery of the building. The assessee also authorized the developer to get all the sanctions to be obtained from the Authorities at their own costs. Further, as per clause (9), the assessee authorized to enter into the necessary agreements and deal with their portion and allotted of the building with the undivided share in the land in the manner deemed fit by the developer. The assessee, as per clause (34), had also undertaken to execute the register sale deed in favour of the developer and their Nominee conveying to them the Schedule B mentioned therein. According to him, readings of the JDA in whole give the impression that the transfer took place in term of section 2(47)(v) of the Act on 09.07.2005 and according to him, there was no transfer as alleged by the Departmental Representative in the assessment year 2009-10 vide sale deed dated First April, 2008.

5.1 The ld.A.R pleaded before us that Sec.2(47)(i) of the Act treats the sale of the property ‘exchange’ or relinquishment’ of the asset as ‘transfer’ within the meaning os sec.2(47) of the Act. Sec.2(47) shows that any transaction by way of an agreement or arrangement in any manner which has the effect of transferring or enabling the enjoyment of immovable property also treats as transfer. In this case, the assessees in exchange of 27% of the constructed area, transferred 73% of the land to the builder and handed over the physical possession. Therefore, it is an exchange of property between the parties. In other words, the assessees exchanged 73% of the landed area for 27% of the constructed area. According to A.R, there is a transfer within the meaning of Section 2(47) (i) of the Act on the date on which the agreement dated 09.07.2005 was executed. Even otherwise, the joint venture agreement has the effect of transferring 73% of the landed area to the builder. The assessee cannot take back 73% landed area on which the builder has commenced construction. At the best, the assessees would get only 27% of the constructed area and 27% landed area proportionate to the constructed area. He contended that the transaction between the assessees and the builder is by way of arrangement or agreement which has the effect of transferring the landed property for enjoyment of the builder. In other words, the assessees transferred 73% of the land area to the builder for its enjoyment. He stated that there was a transfer on 09.07.2005 within the meaning of Section 2(47)(i) and 2(47)(vi) of the Act. Therefore, the relevant transaction took plâce in the financial year 2005-06 which falls in the assessment year.

5.2 According to ld.A.R, the assessee entered into an agreement and handing over the physical possession of the property to builder allowing it to enjoy 73% of the land in lieu of 27% of the constructed area and no capital gain arises in the year in which the construction was completed and the constructed area was handed over to the assessees. Ld.A.R relied on the following judgments:—

i.		D. Kasturi v. CIT [2001] 251 ITR 532 (Mad.)
ii.		Chaturbhuj Dwarakadas Kapadia v. CIT [2003] 260 ITR 491 (Bom.)
iii.		ITO v. Bakthavatsalam Gowtham [IT Appeal No. 1614 (Mds.) of 2010, for assessment year 2007-08 dated 04.05.2012.]
iv.		ITO v. Mrs. P.A. Sarala [2015] 154 ITD 168 (Chennai – Trib.)

6. We have heard both the parties and perused the material on record. The issue for our consideration is with regard to the year in which the capital gains arise for assessment on transfer of land by the assessee along with other person. We have carefully gone through JDA dated 09.07.2005. The following clauses are reproduced for reference:—

Clause

1. The Owner have authorized the Devloper to construct at its own cost of Developer a multistoried complex over the land carefully described in the Schedule A hereunder. The Owners and the Developer have agreed to put up the construction not more than 2 FSI for time being and in such a case the owner is entitled to have 27% builtup p-lint area which should be not less than 1,41,135 sq.ft. and the remaining built-up punt area that is 73% shall be retained by the Developer and in consideration thereof the land owners slaH transfer 73% undivided share over the land described in the-Schedule A hereunder to the Developer or to their Nominiees. If the Developer are able to put up construction more than 2 FSI, the land Owner shall be entitled to get proportionate extra constructed area at 27% for themselves, while the remaining 73% shall be retained by the Developer.

2. The Developer shall allot the Owner’s builtup punt area in construction with the Owners and the same will be marked in the plan relating to the project as per the specification prdvided in the Annexure 1 of this agreement and in addition the Developer shall pay refundable deposit of Rs.1,20,00,000/- (One Crore and Twenty Lakhs only) to the Owners in the following manner:

(a)		Rs.60,00,000/- (Rupees Sixty Lakhs only) on signing this agreement. –
(b)		Rs.60,00,000/- (Rupees Sixty Lakhs only) on the plans being approved.

3. The Developer further agrees that out of the 73% builtup area retained by the Developer, the Developer have agreed to share equally with the Owners the sale proceeds over and above at Rs.2,350/- per sq.ft. That is, if for example, the Developer sells out of their 73% builtup plint area to any prospective buyer at the rate of Rs.2500/- per sq.ft. then the Developer shall share (2500-2350= 150/2) Rs.75/- per sq.ft.

4. The owners agree to execute and register necessary Power of Attorney Jointly in favour of the Nominee of the Developer and the Nominee of the Owner for selling 73% of the Undivided share of the land. morefully described in the Schedule A hereunder to the Nominees of the Developer and a separate Power of Attorney in favour of the Nominee of the Developer for applying and obtaining Building sanction plan, Service connection etc., The Owners have this day handed over possession of the entire agricultural lands, subject matter of this agreement.

5. The Developer shall for the purpose of Development immediately be at liberty at its own cost of survey the said property, take measurements and to apply for sanctioning of a building plan from the municipal and other authorities, STPI, Chennai metropolitan The development authority and corporation of Chennai on such terms and conditions has may be agreed to the developer. The developer may in consultation with the owners, decide on the nature of the building to be constructed.

6. The developer shall commence construction of the new building within 30 days of obtaining sanctions from authorities concerned or from the date on which vacant possession of the said property is handed over whichever date is later and complete the construction within 36 months from the date of commencement of construction on the said property in one or more phases or stages may be required, taking into consideration the market condition and subject only to force major conditions. If any delay in handling over the building within 36 months, the developer agrees to pay Rs,2,00,000/(Rupees Two Lacs Only) per month for the delayed period as compensation to the owner till delivery of the building. In the event of any unavoidable delay in the completion of the building due to any cause or causes beyond the developer’s control the parties hereto shall by mutual consent in writing extend the period of performance.

7. It is agreed that the developer will meet and pay all expenses including the expenses incurred for obtaining the sanctioned building plans, approvals, fee to be paid to various authorities and to apply and obtain service connections for use in the building and for engaging architects, construction engineers, contractors, sub contractors, artisans and to meet the cost of purchase of all materials used for construction as per the sanctioned plan with permissible deviations and shall be wholly responsible to comply with all provisions of the law with regard to interest of the aforesaid persons. The change in plans will be intimated to the owners.

8. The developer shall be responsible to make payments to all workers, workmen, staffs, employees and contractors and subcontractors, for the purpose of executing the work and development of the schedule A mentioned property.

9. The developer has the right to enter into the necessary agreements and deal with and sell its portion allotted under this agreement as an undivided or divided share of land or as land and building or in any other manner deemed fit by the developer, Subject only to the condition that the developer shall construct and deliver to the owner the 27% share in the built up area. The allotment of exact spaces for the developer and the owners would be mutually agreed upon after the approved drawings are obtained from the concerned authority.

15. The Developer shall be entitled to apply to the authorities concerned for the necessary approvals, sanctions and permits in respect of plans for construction of any building whether storey3ed or otherwise, on the said property.

20. The Developer shall be entitled to correspond with and receive any correspondence or other intimation from the authorities concerned regarding the plans, sanctions, approvals or permits for construction of any building on the said property or for the provision of any amenities or facilities thereto.

21. The Developer shall be entitled to pay such fees, charges or levies and to furnish securities/ in money or otherwise as and when required by the authorities concerned for any demolition or construction activity to be carried out on the said property or for the provision of amenities or facilities thereto.

25. In the alternative, the Owners agree to execute a Power of Attorney in favour of the Nominee of the Developer, empowering the agent to apply, sign and get demolition plan approval, reconstruction plan sanctions, building permit and planning permit, service connections such as water, sewerage, electricity etc., and also to demolish the old building and to develop the property apart from empowering the agent to deal with the property in such manner as may be required for the development of the same.

27. The Developer is entitled to get the construction work done either by themselves or through /’ other well known constructors or sub-contractors or agents and shall be entitled to give such constructors whole of the construction or any part or parts of the work or constructions, provided that the same shall not relieve the Developer for their liability under this Agreement or from active supervision work during its progress. The developer may if it chooses, assigns this agreement to any other party only after getting necessary prior approval from the owners.

28. The Developer shall finish the construction of the building in accordance with the specifications that are set out in the Annexure to this agreement and as per the guidance and instructions of the architects and construction engineers engaged for this purpose.

34. The owners hereby undertake to execute and register the deeds of sale in favour of the Developer and their Nominee conveying to them the Schedule B mentioned property or register a Power of Attorney in favour of the Developer for the same subject to clause 4 above.

37. The Owner and the Developer agrees not to change the common name for the project as may be given by the Developer. The Developer agrees to consider the suggestion of the Owners in this regard.

40. The Owners agree to refund the security deposit of 120 lakh to the Developer within two weeks of the Owner being intimated about completion and that the respective space allotted for the owners is fit for taking possession of the project.

44. The original title deed in respect of the Schedule A property shall be deposited with the common person in faith, known to both the parties till the completion of the construction of the project and after the completion of construction, the said original title deeds in respect of ‘A’ schedule property shall be delivered to The Owner’s Association to be formed after the completion of construction.

As per above, the possession is given by the assessee vide this JDA dated 09.07.2005 and also authorized the developer to get necessary approvals for the purpose of construction. The assessee also received substantial amount of Rs. 120 lakhs as refundable deposit. The time is essence of the contract within 30 days from the date of giving vacant position of the property. The Developer has to get the permission for construction of the property. After getting permission for construction in the said property, the developer has to complete the construction within 36 months handed over the assessee’s share of the constructed portion of building to the assessee, otherwise it attracts damages, it shall be two lakhs per month till the delivery of the building. The assessee has also undertaken to register the property at the cost of developer or anly person or nominated of the developer. Therefore, it is obivious that the physical possession of the property as well as management of the property was not in the hands of the assessee.

6.1 We have gone through the provisions of the section 2(47) of the Act which defines ‘transfer’. Under the common law, Transfer of immovable property valuing more than 100 rupees would be made only by executing registered sale deed. However, under Income Tax Act, Sec.2(47) defines ‘Transfer” in relation to capital asset. For the purpose of convenience we are extracting Sec.2(47) of the Act.

‘S. 2(47) “transfer”, in relation to a capital asset, includes,—

(i)		the sale, exchange or relinquishment of the asset ; or
(ii)		the extinguishment of any rights therein ; or
(iii)		the compulsory acquisition thereof under any law ; or
(iv)		in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or
(iva)		the maturity or redemption of a zero coupon bond ; or
(v)		any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or
(vi)		any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property :

Explanation 1.— For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA.

Explanation 2.— For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India’

6.1.1. It is an admitted fact that in this case for assessment year 2006-07, assessee disclosed the transactions as a Note in her return of income stating as follows:—

“Note: The assessee has entered into a joint development agreement with Allied Magistic Promoters during the assessment year in respect of Development of agricultural lands at Ekattur Village and handed over the possession of the property. She has also executed a Power of Attorney in favour of the Developers though the deemed sale is complete during the assessment year. As per the para it is exempted as it is an agricultural lands and it is not a capital asset as per the sec.2(24) of the IT Act.”

6.2 As seen from the above, there is a fair disclosure by the assessee regarding the sale of the impugned property. In that assessment year i.e.2006-07, it is said to be accepted by the Department that as there was no transfer of capital asset as an agricultural land. It is not the case of the Department that it was subject to any rectification or revision subsequently. Unless the Department disturbed the assessment for assessment year 2006- 07, the Department has precluded from treating the transfer of same land as a transfer in terms of Sec.2(47)(v) of the Act in the assessment year 2009- 10 for whatever reason stated by the AO. In our opinion, merely because an agreement of sale has not been registered, which otherwise in nature of agreement referred in Sec.53A of the Transfer of Property Act cannot be taken out of ambit of Sec.2(47)(v) of the Act when parting of the possession of immovable property has already taken place as enumerated in earlier para of this order. It is very clear that there is giving up of the possession to the builder/developer and he has given the substantial amount to the assessee in the form of refundable deposit and he has shown willingness to perform his part of duty to the assessee and there is no question of going back from his consent to act as builder. This view of ours is fortified by the order of Tribunal in the case of Bakthavatsalam Gowtham (supra). Thus, we do not find any error in the findings of the Ld.CIT(A) wherein he has observed that there is no transfer in the assessment year 2009-10 and the same is upheld.

6.3 Without prejudice to the above, the Revenue has raised one more ground regarding findings of the Ld.CIT(A) that the land was agricultural land, though at the time of transfer on 01.04.2008, it was non agricultural land.

6.3.1 Ld.D.R submitted that the said deed executed on 01.04.2008 mentioned the property as vacant site and not agricultural land. Further ld.D.R submitted that the nature of land changed subsequent to the JDA from agricultural land to vacant site since no agricultural activity was carried out during the period from the date of agreement to the execution of sale of the property by the assessee. He relied on the order of ld. Assessing Officer. On the other hand, ld.A.R relied on the order of Ld.CIT(A).

6.4 We have heard both the parties and perused the material on record. Regarding nature of land whether it is agricultural land or not. It is always depend upon the facts of the case. In the present case, originally the asset was acquired by the trust consisting of assessee and her brother as a beneficiary. Later on revocation of the Trust impugned property was devolved on the assessee and subsequently the assessee entered into JDA on 09.07.2005. Now the question is whether the said property 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. The expression ‘agricultural land’ is not defined in the Act, and now, whether it is agricultural land or not has got to be determined by using the tests or methods laid down by the Courts from time to time.

6.5 The Hon’ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631 has approved the decision of a Division Bench of the Hon’ble Gujarat High Court in the case of CIT v. Siddharth J. Desai[1983] 139 ITR 628 and has laid down 13 tests or factors which are required to be considered and upon consideration of which, the question whether the land is an agricultural land or not has got to be decided or answered. We reproduce the said 13 tests as follows:—

“1.		Whether the land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue?
2.		Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time?
3.		Whether such user of the land was for a long period or whether it was of a temporary character or by any of a stopgap arrangement?
4.		Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land?
5.		Whether, the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date?
6.		Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/ or alternative user was of a permanent or temporary nature?
7.		Whether the land, though entered in Revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes?
8.		Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural?
9.		Whether the land itself was developed by plotting and providing roads and other facilities?
10.		Whether there were any previous sales of portions of the land for non-agricultural use?
11.		Whether permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such non-agriculturists was for non-agricultural or agricultural user?
12.		Whether the land was sold on yardage or on acreage basis?
13.		Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield?”

6.6 A reference could be made to the case of CWT v. Officer-in-Charge (Court of Wards] [1976] 105 ITR 133 (SC) wherein the Constitution Bench of the Hon’ble 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 Hon’ble 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 Hon’ble Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence.

6.7 The Hon’ble Gujarat High Court in the case of Dr. Motibhai D. Patel (No. 2) v. CIT [1981] 127 ITR 671 referring to the Constitution Bench of the Hon’ble 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 Hon’ble 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.

6.8 The Hon’ble Bombay High Court in the case of CWT v. H.V. Mungale [1984] 145 ITR 208 held that the Hon’ble 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. TheCourt further held that the Supreme Court had clearly pointed out that the burden to rebut the presumption would be on the Revenue. The Hon’ble Bombay High Court held that the ratio of the decision of the Supreme Court was that what is to be determined is the character of the land according to the purpose for which it was meant or set apart and can be used. It is, therefore, obvious that the assessee had abundantly proved that the subject land sold by them was agricultural land not only as classified in the Revenue records, but also it was subjected to the payment of land revenue and that it was actually and ordinarily used for agricultural purpose at the relevant time.

6.9 We may also refer to the case of CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj.), wherein the Division Bench of the Hon’ble 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.

7. We may also refer to the case of Gopal C. Sharma v. CIT [1994] 209 ITR 946 (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.

7.1 We may refer to a judgment of the Hon’ble Madras High Court in the case of CIT v. E. Udaya Kumar [2006] 284 ITR 511 where the Hon’ble Madras High Court has referred to the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT v. Smt. Savita Rani [2004] 270 ITR 40 and 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 non- agricultural 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.

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

10. It is seen from the aforesaid decision that the agricultural land sold by the assessee with an intent to purchase another land within two years had also been permitted to claim exemption under s. 54B of the IT Act, 1961. In the instant case, even though there was no sale as such, the assessee owned agricultural land within the limits of Tirunelveli Corporation and he had not put up any construction thereon, the assessee is entitled to claim exemption from the WT Act for the assessment of wealth-tax.That the land in question is adjacent to the hospital is totally irrelevant.”

7.2 Adverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It is also an admitted fact that the assessee has not applied for conversion of this agricultural land for non-agricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property nor the surrounding areas were subject to any developmental activities at the relevant point of time of sale of the land.

7.3 The State Government 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 State Government. 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. 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 in this case.

7.4 It is also an admitted position that mere inclusion or proximity of land to any Special zone without any infrastructure development thereupon or without establishing and proving that the land was put into use for non- agricultural purposes by the assessee does not and cannot convert the agricultural land into non-agricultural land. 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-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 assessment order 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 (supra), 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 v. 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.

7.5 Recently the Karnataka High Court in the case of CIT v. Madhukumar N. (HUF) [2012] 208 Taxman 394 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.”

7.6 Further the Kolkata Bench of the Tribunal in the case of Dy. CIT v. Arjit Mitra [2013] 48 SOT 544 held as follows:—

“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.”

7.7 It was held in the case of CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj.) 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 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.’

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

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

(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;

8. 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.

8.1 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 from 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 –

(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)’

8.2 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 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”‘.

8.3 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.

8.4 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 is relating to Chennai wherein mentioned that the areas up to a distance of 8 km from the municipal limits in all directions. It is clear from these notification that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of Chennai Corporation 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 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 Chennai and that also 8 km away 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 entered by the assessee. This is supported by the order of Kolkata Bench of this Tribunal in the case of Arijit Mitra (supra), Harish V. Milani (supra) and Ms. Srinivas Naicker v. ITO [2007] 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) (supra).

8.5 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 certain compelling circumstances came into picture at a later stages, the assessees were forced to sell the land. 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. The period of holding should not suggest that the activity was an adventure in the nature of trade.

8.6 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 raised by the Revenue is dismissed.

8.7 In the result, the appeal of the Revenue is dismissed.