ACIT, Central Circle-5,, Hyderabad v. Sri. B. Rajamallu (Indl), Hyderabad

ITA 212/HYD/2014 | 2008-2009
Pronouncement Date: 26-11-2014 | Result: Dismissed

Appeal Details

RSA Number 21222514 RSA 2014
Assessee PAN ADUPR1057R
Bench Hyderabad
Appeal Number ITA 212/HYD/2014
Duration Of Justice 9 month(s) 15 day(s)
Appellant ACIT, Central Circle-5,, Hyderabad
Respondent Sri. B. Rajamallu (Indl), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 26-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 26-11-2014
Assessment Year 2008-2009
Appeal Filed On 11-02-2014
Judgment Text
` IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER ITA NO. 212/HYD/2014 ASSESSMENT YEAR : 2008-09 ASST. COMMISSIONER OF INCOME- TAX CENTRAL CIRCLE 5 HYDERABAD. SRI B. RAJAMALLU (INDL.) HYDERABAD PAN ADUPR 1057 R (APPELLANT) (RESPONDENT) ITA NO. 368/HYD/2014 ASSESSMENT YEAR : 2008-09 SRI B. RAJAMALLU (INDL.) HYDERABAD PAN ADUPR 1057 R ASST. COMMISSIONER OF INCOME- TAX CENTRAL CIRCLE 5 HYDERABAD. (APPELLANT) (RESPONDENT) REVENUE BY SHRI D. SUDHAKAR RAO ASSESSEE BY SHRI A. SRINIVAS DATE OF HEARING 05-11-2014 DATE OF PRONOUNCEMENT 26-11-2014 O R D E R PER SAKTIJIT DEY J.M.: THESE TWO APPEALS ONE BY ASSESSEE AND OTHER BY THE DEPARTMENT ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LEARNED CIT(A)-VII HYDERABAD BOTH DATED 30/12/2013 PERTAIN ING TO ASSESSMENT YEARS 2007-08 AND 2008-09. ITA NO. 368/H/2014 BY ASSESSEE 2. THE ONLY ISSUE IN THE AFORESAID APPEAL OF ASSESS EE IS CONFINED TO ASSESSING TO TAX AN AMOUNT OF RS. 2 89 95 000 BE ING THE PROFIT ON 2 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) SALE OF LAND AS INCOME OF ASSESSEE UNDER THE HEAD BUSINESS AND PROFESSION. 3. BRIEFLY THE FACTS ARE ASSESSEE IS AN INDIVIDUA L. PURSUANT TO THE SEARCH AND SEIZURE OPERATION CONDUCTED IN CASE OF S RI VENIGELLA ANAND PRASAD AND OTHERS WITHIN THE GROUP INCLUDING ASSESSEE A NOTICE U/S 153A WAS ISSUED TO ASSESSEE. IN RESPONSE TO THE SAID NOTICE ASSESSEE FILED RETURN OF INCOME DECLARING T OTAL INCOME OF RS. 1 22 350 AS WAS RETURNED IN THE ORIGINAL RETURN OF INCOME FILED FOR THE IMPUGNED AY ON 17/10/2009. DURING THE ASSESSMENT PR OCEEDING AO NOTICED THAT ASSESSEE HAD PURCHASED FIVE ACRES OF L AND AT BOWRAMPET DUNDIGAL R.R. DISTRICT. VIDE DOCUMENT NO. 6522/05 DATED 25/05/05. OUT OF THE SAID FIVE ACRES OF LAND ASSESSEE HAD SOLD THREE ACRES OF LAND TO M/S VARUN CONSTRUCTIONS THRO UGH SALE-CUM-GPA EXECUTED ON 12/03/2007 VIDE DOCUMENT NO. 2794/08 FO R AN AMOUNT OF RS. 3 CRORES. AO NOTED THAT LAND PURCHASED AND TRAN SACTED BY ASSESSEE WAS CONTIGUOUS TO THE LAND PURCHASED AND S IMILARLY TRANSACTED BY M/S BHAVYA CONSTRUCTIONS PVT. LTD.(BC PL) SHRI V. ANAND PRASAD MD OF BCPL AND OTHER INDIVIDUALS WHO LIKE ASSESSEE WERE INVESTORS IN M/S BHAVYA CEMENTS PVT. LTD. COMP ANY SET UP BY SHRI V. ANAND PRASAD. HE FURTHER NOTED THAT ALL THE SE PERSONS HAD SHOWN THE SOURCES OF INVESTMENT IN SHARE CAPITAL OF M/S BHAVYA CEMENTS PVT. LTD. THE SALE PROCEEDS OF THESE LANDS. AS NOTED BY AO IN THE ASSESSMENT ORDER ON DETAILED INVESTIGATION AND FROM THE EVIDENCES FOUND AO NOTED THAT NO AGRICULTURAL ACTI VITY WAS UNDERTAKEN ON THE LAND. THE BILLS AND VOUCHERS TOWA RDS PURCHASE OF FERTILIZERS ETC. ARE ONLY MADE TO CREATE FAADE OF AGRICULTURAL ACTIVITY WHEN IN REALITY THERE IS NO SUCH ACTIVITY. IN THIS CONTEXT AO ALSO RELIED UPON THE STATEMENTS RECORDED FROM SRI R. SRINIVASA RAO AND B. RAGHUNANDA PRASAD. ON GOING THROUGH THE STATEMENTS AO NOTED THAT EXCEPT FOR OCCASIONAL GRAZING IN MONSOON FOR CATTLE /VEGETABLES THESE LANDS WERE NEITHER USED NOR ARABLE FOR CULTIVATION. IT WAS OBSERVED THAT EXCEPT SOME GRASS FOR THE CATTLE IN THIS LAND NO AGRICULTURAL 3 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) ACTIVITIES WERE PERFORMED. AO RELYING ON THE DECISI ON OF HONBLE SUPREME COURT IN CASE OF SARIFABIBI 204 ITR 631 AN D ITAT HYDERABAD BENCH DECISION IN CASE OF M/S G.K. PROPER TIES PVT. LTD. IN ITA NO. 773/H/07 DATED 27/06/08 CONCLUDED THAT LAN DS ARE NOT IN THE NATURE OF AGRICULTURE HENCE ASSESSEES CLAIM THAT LANDS SOLD BY HIM DO NOT COME WITHIN THE PURVIEW OF CAPITAL ASSET AS DEFINED U/S 2(14) CANNOT BE ACCEPTED. WHILE COMING TO SUCH CONCLUSIO N AO RELIED UPON THE DISCUSSION MADE IN THE ASSESSMENT ORDER PA SSED IN CASE OF M/S BCPL. AO OBSERVED THAT ACTIVITY UNDERTAKEN BY B CPL ITS MD AND OTHER INVESTORS/SHAREHOLDERS IN DEALING WITH THE LA ND IN SUCH MANNER REVEALED THAT M/S BCPL AND ITS ASSOCIATES HAVE PERF ORMED AN ADVENTURE IN THE COURSE OF NORMAL PROFESSIONAL ACTI VITY WHICH IS BUYING AND SELLING OF LAND. AO OBSERVED THAT LAND B OUGHT BY ALL ASSOCIATES OF BCPL IN THE SAME PERIOD AT BOWRAMPET WAS ADJACENT TO THE URBAN AGGLOMERATION SPRAWLING AROUND HYDERAB AD. AO OBSERVED THAT ALL THE PARTIES INVESTED IN THIS LAND KEEPING IN VIEW RISING REAL ESTATE MARKET. HE ALSO NOTED THAT RISE IN PRICE OF LAND WAS AROUND 100 TIMES IN LESS THAN THREE YEARS WHICH CO NFIRMED THE INTENTION OF ASSESSEE AND OTHERS IN MAKING INVESTME NT IN LAND. 4. IN COURSE OF ASSESSMENT PROCEEDING THOUGH ASS ESSEE CLAIMED THAT AGRICULTURAL ACTIVITY WAS CARRIED OUT IN THESE LANDS AND ALSO THE FACT THAT LANDS ARE NOT FALLING UNDER GHMC LIMIT F OR WHICH A CERTIFICATE OF TOWN PLANNING OFFICER OF GHMC QUTUBULLAPUR MAND AL DATED 04/10/08 WAS FILED. AO HOWEVER DID NOT ACCEPT THE CLAIM OF ASSESSEE BY STATING THAT BY MERELY CLAIMING THE LAN DS AS AGRICULTURAL AS PER OLD RECORD WITHOUT GIVING CREDENCE TO THE V ISIBLE PHYSICAL APPEARANCE AND ALL ROUND URBAN DEVELOPMENT CANNOT B E ACCEPTED. HE OBSERVED THAT TRACES OF AGRICULTURAL ACTIVITY HAS T O BE PHYSICALLY SEEN PHYSICALLY FELT AS PER GEOGRAPHICAL TERRAIN AND SOI L CONDITIONS AND MORE SO WITH VERIFIABLE EVIDENCES OF AGRICULTURAL P RODUCE AND SALE BILLS/VOUCHERS ETC. WHICH ASSESSEE WAS NOT ABLE T O PRODUCE. AO ALSO OBSERVED THAT GHMC WAS FORMED ON 16/04/07 BY MERGER OF 4 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) QUTUBULLAPUR MUNICIPALITY AMONGST 12 OTHER MUNICIPA LITIES AND 8 GRAM PANCHAYATS. HE THEREFORE NEGATED ASSESSEES CONTENTION THAT AGRICULTURAL LANDS ARE SITUATED BEYOND 8 KM FROM TH E LIMITS OF NOTIFIED MUNICIPALITY. AO FINALLY CONCLUDED THAT THE GAIN DE RIVED FROM THE SALE OF LAND HAS TO BE TREATED AS BUSINESS INCOME OF ASS ESSEE. BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED ASSES SEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY BY RAIS ING SIMILAR ARGUMENT AS ADVANCED BEFORE THE AO. 5. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF ASSESSEE ULTIMATELY CONCLUDED THAT THE LAND CANNOT BE CONSIDERED TO BE AGRICULTURAL LAND BY OBSERVING AS UNDER: 15. THUS ON SUMMATION OF FACTS AND CIRCUMSTANCES B OTH FAVOURABLE AND AGAINST THE ASSESSEE/APPELLANT AS P ER THE ABOVE TABLE IT IS CLEAR THAT OTHER THAN ITS ASSERT ION THE APPELLANT REALLY DOES NOT HAVE ANYTHING REAL AND SU BSTANTIVE TO CLAIM THAT THE LAND WAS REALLY AGRICULTURAL. THE HO NBLE SUPREME COURT HAD ALREADY STATED THAT THE REVENUE RECORD T HOUGH IMPORTANT IS NOT CONCLUSIVE EVIDENCE. THE PHOTOGRAP HIC EVIDENCE GATHERED BY THE INVESTIGATION WING MAY BE IN THE YEAR 2009. BUT THE PICTURES CLEARLY SHOW THAT THE LAND W AS LEFT IDLE AND THERE IS REALLY NO ATTEMPT TO BRING IT UNDER CU LTIVATION IN WHATSOEVER MANNER. MORE IMPORTANTLY THE PURCHASE A ND SALE DEEDS ALSO HAVE PHOTOGRAPHS PASTED AS PART OF SALE DEED. THESE ARE CONTEMPORANEOUS. THEY TOO DO NOT DIFFER F ROM THE PICTURE THAT THE INVESTIGATION WING TOOK. THE ENVIR ONMENT OF THE ENTIRE CHUNK OF LAND NOT ONLY APPELLANTS BUT THE O THER RELATED INVESTORS OF BHAVYA CEMENTS IS IDENTICAL. FURTHER THE PROXIMITY TO CITY THE MERGER WITHIN GHMC WITHIN A MONTH OF S ALE (WHEN THE PROPOSAL FOR SUCH MERGER AND THE DRAFTING OF SU CH BILL MUST HAVE BEEN IN NEWS MUCH BEFORE) CLEARLY SHOW THE DEV ELOPMENT ACTIVITY TAKING PLACE AROUND AND WHICH IS A KEY FAC TOR IN ASSESSING THE GENERAL ENVIRONMENT AROUND THE LAND A ND ITS USE. TO CONCLUDE IN THE FACTS AND CIRCUMSTANCES OF THE C ASE IT IS HELD THAT THE LANDS WERE NOT AGRICULTURAL. THEY WER E MERELY FALLOW VACANT LANDS LYING IDLE. THIS CONCLUSION IS ALSO FORTIFIED BY THE STATEMENTS RECORDED AT THE TIME OF SEARCH AN D AS EXTRACTED AT PARA 5.2 (E) AND 5.2 (F) OF THIS ORDER . 6. SO FAR AS THE APPROPRIATE HEAD UNDER WHICH THE G AIN DERIVED FROM SALE OF LAND IS TO BE TAXED LEARNED CIT(A) AL SO UPHELD THE VIEW 5 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) OF AO BY HOLDING THAT IT IS TO BE TAXED AS INCOME F ROM BUSINESS. BEING AGGRIEVED OF SUCH AFORESAID ORDER OF LEARNED CIT(A) ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED AR SUBMITTED BEFORE US THAT THERE CA NNOT BE ANY DOUBT WITH REGARD TO NATURE OF LAND SOLD BY ASSESSE E AS ASSESSMENT ORDER ITSELF MAKES IT CLEAR THAT IT IS CONTIGUOUS T O THE LAND TO THE EXTENT OF 30 ACRES SOLD TO M/S VARUN CONSTRUCTIONS BY BPCL AND OTHERS INCLUDING ASSESSEE WHICH ARE SITUATED AT TH E VERY SAME PLACE I.E. BOWRAMPET VILLAGE DUNDIGAL MANDAL. LEARNED AR SUBMITTED THAT CONSIDERING IDENTICAL FACTS AND ISSUES WHILE DECID ING THE APPEAL FILED BY THE DEPARTMENT IN CASE OF BCPL AND OTHERS IN ITA NO. 1751/HYD/12 AND OTHERS DATED 28/08/14 THE TRIBUNAL HAS UPHELD THE CLAIM OF ASSESSEE THAT LAND SITUATED AT BOWRAMPET V ILLAGE DUNDIGAL MANDAL RR DT. BEING IN THE NATURE OF AGRICULTURAL L AND AND OUTSIDE THE PRESCRIBED LIMIT OF A PLACE NOTIFIED MUNICIPALITY NEITHER IT CAN BE TREATED AS CAPITAL ASSET NOR THE TRANSACTION AS AN ADVENTURE IN THE NATURE OF TRADE. THUS AR SUBMITTED THAT SINCE THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL T HE ORDER PASSED BY LEARNED CIT(A) DESERVES TO BE SET ASIDE. 8. THE LEARNED DR ON THE OTHER HAND THOUGH AGREED THAT FACTS AND ISSUES INVOLVED IN THE PRESENT APPEAL ARE IDENT ICAL TO THE FACTS AND ISSUES CONSIDERED BY ITAT IN CASE OF ACIT VS. B CPL AND OTHERS VIDE ITA NO. 1751/HYD/12 AND OTHERS DATED 28/08/14 HE NEVERTHELESS SUBMITTED THAT BOTH THE AO AND CIT(A) WERE JUSTIFIE D IN REJECTING ASSESSEES CLAIM OF EXEMPTION OF GAIN DERIVED ON SA LE OF LAND. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OT HER MATERIALS ON RECORD. ON PERUSAL OF IMPUGNED ASSESSMENT ORDER AS WELL AS OTHER MATERIALS ON RECORD IT IS VERY MUCH CLEAR THAT THE LAND IN QUESTION GAIN FROM SALE OF WHICH WAS SUBJECT MATTER OF TAXAT ION IS SITUATED AT 6 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) BOWRAMPET VILLAGE DUNDIGAL MANDAL RR DT. IT IS AL SO EVIDENT FROM THE ASSESSMENT ORDER THAT IT IS CONTIGUOUS TO THE L AND SOLD BY M/S BCPL AND OTHERS TO M/S VARUN CONSTRUCTIONS. IT IS ALSO VERY MUCH CLEAR THAT WHILE COMING TO CONCLUSION THAT THE LAND CANNOT BE TREATED AS AGRICULTURAL LAND AO HAS HEAVILY RELIED UPON OB SERVATIONS MADE IN THE ASSESSMENT ORDER PASSED IN CASE OF M/S BCPL AND OTHERS IN THE GROUP. FROM THE AFORESAID FACTS THE PICTURE WHICH EMERGES IS NATURE OF LAND SOLD BY ASSESSEE IS SIMILAR TO THE LAND SOL D BY BCPL AND OTHERS WITHIN THE GROUP TO M/S VARUN CONSTRUCTIONS. WHILE DEALING IDENTICAL ISSUE IN THE APPEAL FILED BY THE DEPARTME NT IN CASE OF BCPL AND OTHERS IN ITA NO. 1751/HYD/12 AND OTHERS (SUPRA ) THE COORDINATE BENCH OF THIS TRIBUNAL AFTER CONSIDERING THE SUBMIS SIONS OF ASSESSEE AND KEEPING IN VIEW THE FACTUAL ASPECTS OF THE ISSU E AND RELYING UPON THE OTHER DECISIONS OF COORDINATE BENCH IN CASE OF SMT. VIJAY AND OTHERS VS. DCIT IN ITA NOS. 306 307 309 AND 311/H /13 DATED 06/06/14 HELD AS UNDER (FOR BETTER CLARITY FINDING OF ITAT IS EXTRACTED IN ITS ENTIRETY). 13. WE HAVE HEARD THE PARTIES AND PERUSED THE MAT ERIALS ON RECORD AS WELL AS THE ORDERS OF THE REVENUE AUTHORI TIES. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS PLACED BEFORE US. ON GOING THROUGH THE ORDER OF THE LEARNED CIT(A) WE DO NOT FIND ANY INFIRMITY EITHER WITH REGARD TO HIS CONCLUSION IN RESPECT OF THE NATURE OF LAND SOLD BY THE ASSESSEE OR WITH REG ARD TO THE ISSUE AS TO WHETHER THE TRANSACTION IS TO BE TREATE D AS AN ADVENTURE IN THE NATURE OF TRADE. AS CAN BE SEEN FR OM THE FACTS AND MATERIALS PLACED ON RECORD THE NATURE OF LAND AT THE TIME OF PURCHASE BY THE ASSESSEE FROM M/S DECCAN PROPERTIES LTD. AND ALSO AT THE TIME OF SALE TO M/S VARUN CONSTRUCTIONS REMAINED THE SAME I.E. AGRICULTURAL NOT ONLY IN THE REVENUE RECORDS BUT ALSO IN THE PAHANIS. IT IS ALSO A FACT ON RECORD TH E ASSESSEE HAS SHOWN INCOME FROM AGRICULTURAL OPERATIONS CARRIED O N OVER THE SAID LAND IN THE RETURN OF INCOME FILED FOR THE IMP UGNED ASSESSMENT YEAR AS WELL AS THE PRECEDING ASSESSMENT YEAR WHICH HAS BEEN ACCEPTED BY AO. IN FACT THE AO HAS NOT TOTALLY RULED OUT AGRICULTURAL OPERATION THOUGH ACCORDING TO HIM IT IS NOT SUBSTANTIAL. IN THESE CIRCUMSTANCES WHEN THE NATURE OF LAND SOLD BY THE ASSESSEE STILL REMAINS TO BE AGRIC ULTURAL IN THE REVENUE RECORDS AND THE ASSESSEE HAS NOT APPLIED FO R CONVERSION OF THE LAND TO NON-AGRICULTURAL IT CANNO T BE TREATED 7 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) AS NON-AGRICULTURAL LAND ONLY BECAUSE THE AO WAS OF THE VIEW THAT AGRICULTURAL OPERATION ON THE SAID LAND IS NOT POSSIBLE TO THE EXTENT SHOWN BY THE ASSESSEE. IN THIS CONTEXT IT I S TO BE NOTED THAT THE CERTIFICATE ISSUED BY THE DY. COLLECTOR AN D MANDAL REVENUE OFFICER QUTUBULLAPUR MANDAL ( AT PAGE 99 O F ASSESSEES PAPER BOOK) CLEARLY INDICATE THAT THE LA ND UNDER THE SAME SURVEY NOS. SITUATED AT BOWRAMPET VILLAGE ARE UNDER CULTIVATION BY RAISING CROPS OF PADDY CATTLE FEED MAIZE JOWAR ETC. FURTHER THE PAHANIS ALSO INDICATE THE CROPS GR OWN OVER THE SAID LAND. WHEN CERTIFICATE HAS BEEN ISSUED BY GOVT . AUTHORITIES CERTIFYING CULTIVATION OF AGRICULTURAL PRODUCE THE AO WAS NOT CORRECT IN REJECTING THEM WITHOUT PROPER EVIDENCE. MOREOVER CERTIFICATE DT. 04/02/2009 ISSUED BY DY. COLLECTOR AND TAHSILDAR QUTUBULLAPUR MANDAL ( AT PAGE 100 OF ASSESSEES PAP ER BOOK) AND CERTIFICATE DT. 04/10/2008 OF TOWN PLANNING OFF ICER GHMC (AT PAGE 101 OF PAPER BOOK) CLEARLY INDICATE THAT B OWRAMPET VILLAGE WHERE ASSESSEES LAND IS SITUATED IS BEYOND THE LIMIT OF GHMC. IT IS A FACT ON RECORD IN THE ORIGINAL ASSES SMENT ORDER PASSED U/S 143(3) OF THE ACT THE AO HAS EXAMINED T HE NATURE OF TRANSACTION BY CONDUCTING NECESSARY ENQUIRY AND AFTER PROPER APPLICATION OF MIND HAD ACCEPTED THE CLAIM OF THE A SSESSEE THAT THE ASSET BEING SOLD BEING AGRICULTURAL LAND WILL N OT ATTRACT CAPITAL GAIN TAX. THE DEPARTMENT HAS NOT BROUGHT A NY COGENT EVIDENCE OR MATERIAL ON RECORD TO DISPROVE ASSESSEE S CLAIM EITHER IN RESPECT OF AGRICULTURAL INCOME EARNED TH ROUGH AGRICULTURAL OPERATION CONDUCTED ON THE SAID LAND O R THE FACT THAT THE LAND IS SITUATED BEYOND THE PRESCRIBED LIM IT OF THE NEAREST MUNICIPALITY NOTIFIED BY THE CENTRAL GOVERN MENT. IN THE AFORESAID CIRCUMSTANCES THE FINDING OF THE CIT(A) REMAINS UNCONTROVERTED. THEREFORE IT HAS TO BE HELD THAT A S THE LAND SOLD BY THE ASSESSEE IS IN THE NATURE OF AGRICULTUR AL LAND AND IS SITUATED BEYOND THE PRESCRIBED LIMIT OF ANY MUNICIP ALITY NOTIFIED BY THE CENTRAL GOVT. IT CANNOT COME WITHIN THE DEFI NITION OF CAPITAL ASSET AS ENVISAGED U/S 2(14) OF THE ACT. S O FAR AS THE FINDING OF THE AO THAT THE TRANSACTION ENTERED INTO BY THE ASSESSEE IS AN ADVENTURE IN THE NATURE OF TRADE TH E SAME IS ALSO WITHOUT MERIT FOR THE STRONG AND VALID REASON S RECORDED BY THE CIT(A). ON A PERUSAL OF THE ASSESSMENT ORDER I T APPEARS THAT THE AO HAS TREATED THE TRANSACTION AS AN ADVEN TURE IN THE NATURE OF TRADE ONLY TO OVERCOME ASSESSEES CLAIM O F EXEMPTION FROM CAPITAL GAIN ON THE GROUND THAT THE ASSET SOLD IS NOT A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) O F THE ACT. AS RIGHTLY OBSERVED BY THE LEARNED CIT(A) THE FACTS C LEARLY INDICATE THAT THE ASSESSEE HAS HELD THE ASSET FOR MORE THAN TWO YEARS AND ONLY BECAUSE OF COMPELLING CIRCUMSTANCES SOLD I T TO M/S VARUN CONSTRUCTIONS IN THE YEAR UNDER CONSIDERATION . THEREFORE NONE OF THE ATTRIBUTES OF AN ADVENTURE IN THE NATU RE OF TRADE IS PRESENT IN THE TRANSACTION. IT WILL BE PERTINENT T O MENTION HERE THAT EARLIER A BENCH OF THIS TRIBUNAL HAD AN OCCASI ON TO EXAMINE 8 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) SIMILAR NATURE OF DISPUTE ARISING OUT OF SIMILAR NA TURE OF TRANSACTION RELATING TO SALE OF AGRICULTURAL LAND L OCATED IN THE SAME AREA IN CASE OF SOME OTHER ASSESSEES NAMELY SMT. M. VIJAYA AND OTHERS VS. DCIT (ITA NOS. 306 307 309 & 311/HYD/13 ORDER DATED 06/06/2014) WHO ALSO SOLD TH EIR LAND TO M/S VARUN CONSTRUCTIONS. THE TRIBUNAL AFTER EXAMINI NG THE CONTENTIONS OF THE PARTIES AND REFERRING TO A NUMBE R OF JUDGMENTS HELD AS UNDER: 23. 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 TH IS LAND AND INCOME WAS DECLARED FROM THIS LAND IN THE RETUR N OF INCOME FILED BY THE ASSESSEE FOR THE AY AS AGRICULT URAL INCOME. IT IS ALSO AN ADMITTED FACT THAT THE ASSES SEE HAS NOT APPLIED FOR CONVERSION OF THIS AGRICULTURAL LAN D FOR NON- AGRICULTURAL PURPOSES BEFORE SALE OF THIS PROPERTY AND THE ASSESSEE HAS NOT PUT THE LAND TO ANY PURPOSES OTHER THAN AGRICULTURAL PURPOSES. IT IS ALSO AN ADMITTED FACT THAT NEITHER THE IMPUGNED PROPERTY NOR THE SURROUNDING A REAS WERE SUBJECT TO ANY DEVELOPMENTAL ACTIVITIES AT THE RELEVANT POINT OF TIME OF SALE OF THE LAND AS PER T HE EVIDENCE BROUGHT ON RECORD. 24. THE PROVISIONS OF ANDHRA PRADESH AGRICULTURAL L AND (CONVERSION FOR NON-AGRICULTURAL PURPOSES) ACT 200 6 ALSO PRESCRIBED THE PROCEDURE FOR CONVERSION OF AGRICULT URAL LAND INTO NON-AGRICULTURAL LAND. BEING SO WHENEVE R THE AGRICULTURAL LAND TO BE TREATED AS NON-AGRICULTURAL LAND THE SAME HAS TO BE CONVERTED IN ACCORDANCE WITH THE PROVISIONS OF ANDHRA PRADESH AGRICULTURAL LAND (CONVERSION FOR NON-AGRICULTURAL PURPOSES) ACT 200 6. IF BY A GOVERNMENT NOTIFICATION THE NATURE AND CHARAC TER OF LAND CHANGES FROM AGRICULTURE INTO NON-AGRICULTURE THEN THERE IS NO QUESTION OF CONVERSION OF THIS LAND FOR NON- AGRICULTURAL PURPOSES BY THE REVENUE AUTHORITIES CONCERNED. TO OUR UNDERSTANDING NATURE OF LAND C ANNOT BE CHANGED BY ANY STATE GOVERNMENT NOTIFICATION AND THE LAND OWNERS ARE REQUIRED TO APPLY TO THE CONCERNED REVENUE AUTHORITIES FOR THE PURPOSE OF CONVERSION O F THE AGRICULTURAL LAND INTO NON-AGRICULTURAL LAND AND TH ERE IS NO AUTOMATIC CONVERSION PER SE BY STATE GOVERNMENT NOTIFICATION. 25. IN THE INSTANT CASE AT THE RELEVANT POINT OF S ALE OF THE LAND IN QUESTION THE SURROUNDING AREA WAS TOTA LLY UNDEVELOPED AND EXCEPT MERE FUTURE POSSIBILITY TO P UT THE 9 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) LAND INTO USE FOR NON-AGRICULTURAL PURPOSES WOULD N OT CHANGE THE CHARACTER OF THE AGRICULTURAL LAND INTO NON- AGRICULTURAL LAND AT THE RELEVANT POINT OF TIME WHE N THE LAND WAS SOLD BY THE ASSESSEE. IT IS ALSO AN ADMITT ED POSITION THAT THE ASSESSEE HAD NOT APPLIED FOR CONV ERSION OF THE LAND IN QUESTION INTO NON-AGRICULTURAL PURPO SES AND NO SUCH PERMISSIONS WERE OBTAINED FROM THE CONCERNE D AUTHORITY. IN THE REVENUE RECORDS THE LAND IS CLAS SIFIED AS AGRICULTURAL LAND AND HAS NOT BEEN CHANGED FROM AGRICULTURAL LAND TO NON-AGRICULTURAL LAND AT THE R ELEVANT POINT OF TIME WHEN THE LAND WAS SOLD BY THE ASSESSE E. IT IS ALSO NOT IN DISPUTE THAT THERE WAS NO ACTIVITY UNDERTAKEN BY THE ASSESSEE OF DEVELOPING THE LAND B Y PLOTTING AND PROVIDING ROADS AND OTHER FACILITIES A ND THERE WAS NO INTENTION ALSO ON THE PART OF THE ASSESSEES HEREIN TO PUT THE SAME FOR NON-AGRICULTURAL PURPOSES AT TI ME OF THEIR OWNERSHIP THAT LAND. NO SUCH FINDING HAS BEEN GIVEN BY THE DEPARTMENT. NO MATERIAL OR EVIDENCE IN SUPPO RT OF THE FACT THAT THE ASSESSEES HAVE PUT THE LAND IN US E FOR NON-AGRICULTURAL PURPOSES HAS BEEN BROUGHT ON RECOR D. THE NATURE OF THE CROP AND THE PERSON WHO CULTIVATE D THE LAND ARE DULY MENTIONED IN THE REVENUE RECORDS SHOW S THAT AT THE RELEVANT POINT OF TIME THE LAND WAS USE D FOR AGRICULTURAL PURPOSES ONLY AND NOTHING IS BROUGHT O N RECORD TO SHOW THAT THE LAND WAS PUT IN USE FOR NON - AGRICULTURAL PURPOSES BY THE ASSESSEES. IN VIEW OF THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF G OPAL C. SHARMA VS. CIT (209 ITR 946) (BOM) IT IS ALSO CLEA R THAT THE PROFIT MOTIVE OF THE ASSESSEE IN SELLING THE LA ND WITHOUT ANYTHING MORE BY ITSELF CAN NEVER BE DECISI VE TO SAY THAT THE ASSESSEE USED THE LAND FOR NON-AGRICUL TURAL PURPOSES. WE MAY ALSO REFER TO A DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF N. SRINIVASA RAO VS. SPECIAL COURT (2006) 4 SCC 214 WHERE IT WAS OBSERVE D THAT THE FACT THAT AGRICULTURAL LAND IN QUESTION IS INCLUDED IN URBAN AREA WITHOUT MORE HELD NOT ENOUGH TO CONC LUDE THAT THE USER OF THE SAME HAD BEEN ALTERED WITH PAS SAGE OF TIME. THUS THE FACT THAT THE LAND IN QUESTION I N THE INSTANT CASE IS BOUGHT BY DEVELOPER CANNOT BE A DETERMINING FACTOR BY ITSELF TO SAY THAT THE LAND W AS CONVERTED INTO USE FOR NON-AGRICULTURAL PURPOSES. 26. RECENTLY THE KARNATAKA HIGH COURT IN THE CASE O F CIT VS. MADHUKUMAR N. (HUF) (2012) 78 DTR (KAR) 391 HELD AS FOLLOWS: '9. AN AGRICULTURAL LAND IN INDIA IS NOT A CAPITAL ASSET BUT BECOMES A CAPITAL ASSET IF IT IS THE LAND 10 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) LOCATED UNDER SECTION 2(14)(III)(A) & (B) OF THE AC T SECTION 2(14) (III) (A) OF THE ACT COVERS A SITUATI ON WHERE THE SUBJECT AGRICULTURAL LAND IS LOCATED WITH IN 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 LOCATE D 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 CLAUS E (A) TO SECTION 2(14][III] OF THE ACT IS NOT ATTRAC TED. 12. HOWEVER THOUGH IT IS CONTENDED THAT IT IS LOCATED WITHIN 8 KNITS WITHIN THE MUNICIPAL LIMIT S OF DASARAHALLI CITY MUNICIPAL COUNCIL IN THE ABSENCE O F ANY NOTIFICATION ISSUED UNDER CLAUSE (B) TO SECTION 2(14)(III) OF THE ACT IT CANNOT BE LOOKED IN AS A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14)(III)(B) OF THE ACT ALSO AND THEREFORE THOUGH THE TRIBUNAL MAY NOT HAVE SPELT OUT THE REASON AS TO WHY THE SUBJECT LAND CANNOT BE CONSIDERED AS A CAPITAL ASSET BE GIVING THIS VERY REASON WE FIND THE CONCLUSION ARRIVED AT BY THE TRIBUNAL IS NEVERTHELESS THE CORRECT CONCLUSION.' 27. FURTHER THE KOLKATA BENCH OF THE TRIBUNAL IN TH E CASE OF DCIT VS. ARIJIT MITRA (48 SOT 544) (KOL) HELD AS FO LLOWS: '7. FROM THE ABOVE IT IS CLEAR THAT AGRICULTURAL L AND SITUATED IN AREAS LYING WITHIN A DISTANCE NOT EXCEE DING 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 URBANIZ ATION AND OTHER RELEVANT CONSIDERATIONS IS NOTIFIED BY T HE CENTRAL GOVERNMENT IN THIS BEHALF. CENTRAL GOVERNME NT IN EXERCISE OF SUCH POWERS HAS ISSUED THE ABOVE 11 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) NOTIFICATION AS AMENDED LATEST BY NOTIFICATION NO. 11186 DATED 28.12.1999 CLEARLY CLARIFIES THAT AGRICULTURA L LAND SITUATION IN RURAL AREAS AREAS OUTSIDE THE MUNICIP ALITY OR CANTONMENT BOARD ETC. HAVING A POPULATION OF NOT L ESS THAN 10 000 AND ALSO BEYOND THE DISTANCE NOTIFIED B Y 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 'CA PITAL ASSET'. ACCORDINGLY IN VIEW OF SUB-CLAUSE (B) OF S ECTION 2(14)(III) OF THE ACT EVEN UNDER THE AMENDED DEFINI TION OF EXPRESSION 'CAPITAL ASSET' THE AGRICULTURAL LAND S ITUATED IN RURAL AREAS CONTINUES TO BE EXCLUDED FROM THAT DEFI NITION. AND AS IN THE PRESENT CASE ADMITTEDLY THE AGRICUL TURAL LAND OF THE ASSESSEE IS OUTSIDE THE MUNICIPAL LIMIT S OF RAJARHAT MUNICIPALITY AND THAT ALSO 2.5 KM AWAY FRO M THE OUTER LIMITS OF THE SAID MUNICIPALITY ASSESSEE'S L AND DOES NOT COME WITHIN THE PURVIEW OF SECTION 2(14)(III) E ITHER UNDER SUB CLAUSE (A) OR (B) OF THE ACT HENCE THE S AME CANNOT BE CONSIDERED AS CAPITAL ASSET WITHIN THE ME ANING 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 ORDE R QUA CHARGING OF CAPITAL GAINS ON VERY JURISDICTION OF THE ISSUE IS QUASHED. THE CROSS OBJECTION OF THE ASSESS EE IS ALLOWED.' 28. IT WAS HELD IN THE CASE OF CIT VS. MANILAL SOMN ATH (106 ITR 917) AS FOLLOWS: UNDER THE INCOME-TAX ACT OF 1961 AGRICULTURAL LEN D SITUATED IN INDIA WAS EXCLUDED FROM THE DEFINITION OF ' CAPITAL ASSET' AND ANY GAIN FROM THE SALE THEREOF W AS NOT TO BE INCLUDED IN THE TOTAL INCOME OF AN ASSESSEE T INDER THE HEAD 'CAPITAL GAINS'. IN ORDER TO DETERMINE WH ETHER 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 US ED FOR AGRICULTURAL PURPOSES THERE IS A PRESUMPTION THAT I T IS AGRICULTURAL LAND. IF IT IS USED FOR NON-AGRICULTU RAL PURPOSES THE PRESUMPTION IS THAT IT IS NON-AGRICULT URAL LAND. THIS PRESUMPTION ARISING FROM ACTUAL USE CAN BE REBUTTED BY THE PRESENCE OF OTHER FACTORS. THERE M AY BE CASES WHERE LAND WHICH IS ADMITTEDLY NON-AGRICULTUR AL IS USED TEMPORARILY FOR AGRICULTURAL PURPOSES. THE DETERMINATION OF THE QUESTION WOULD THEREFORE DEP END ON THE FACTS OF EACH CASE. 'THE ASSESSEE HINDU UNDIVIDED FAMILY HAD OBTAINE D SOME LAND ON A PARTITION IN 1939. FROM THAT TIME U P TO 12 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) THE TIME OF ITS SALE AGRICULTURAL OPERATIONS WERE CARRIED ON IN THE LAND. THERE WAS NO REGULAR ROAD TO THE LA ND 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 PERMIS SION OF THE COLLECTOR TO SELL THE LAND FOR RESIDENTIAL P URPOSES AND SOLD IT. ON THE QUESTION WHETHER THE LAND WAS AGRICULTURAL LAND: HELD THAT WHAT HAD TO BE CONSIDERED IS NOT WHAT TH E PURCHASER DID WITH THE LAND OR THE PURCHASER WAS SUPPOSED TO DO WITH THE LAND BUT WHAT WAS THE CHAR ACTER OF THE LAND AT THE TIME WHEN THE SALE TOOK PLACE. THE FACT THAT THE LAND WAS WITHIN MUNICIPAL LIMITS OR THAT I T WAS INCLUDED WITHIN A PROPOSED TOWN PLANNING SCHEME WAS NOT BY ITSELF SUFFICIENT TO REBUT THE PRESUMPTION ARISI NG FROM ACTUAL USE OF THE LAND. THE LAND HAD BEEN USED FOR AGRICULTURAL PURPOSES FOR A LONG TIME AND NOTHING H AD HAPPENED TILL THE DATE OF THE SALE TO CHANGE THAT C HARACTER OF THE LAND. THE POTENTIAL NON-AGRICULTURAL VALUE O F 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 LAN D IN QUESTION WAS THEREFORE AGRICULTURAL LAND. 29. FURTHER THE WORD 'CAPITAL ASSET' IS DEFINED IN SECTION 2(14) TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSES SEE WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFE SSION BUT DOES NOT INCLUDE- (III) AGRICULTURAL LAND IN INDIA NOT BEING LAND SI TUATE- (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 MOR E THAN EIGHT KILOMETRES FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITE M (A) AS THE CENTRAL GOVERNMENT MAY HAVING REGARD TO THE EXTENT OF AND SCOPE FOR URBANIZATION OF TH AT 13 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) AREA AND OTHER RELEVANT CONSIDERATIONS SPECIFY IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE ; 30. IT IS VERY CLEAR FROM THE ABOVE THAT THE GAIN O N SALE OF AN AGRICULTURAL LAND WOULD BE EXIGIBLE TO TAX ONLY WHE N THE LAND TRANSFERRED IS LOCATED WITHIN THE JURISDICTION OF A MUNICIPALITY. THE FACT THAT ALL THE EXPRESSIONS ENLISTED AFTER TH E WORD MUNICIPALITY ARE PLACED WITHIN THE BRACKETS STARTIN G WITH THE WORDS 'WHETHER KNOWN AS' CLEARLY INDICATES THAT SUC H EXPRESSIONS ARE USED TO DENOTE A MUNICIPALITY ONLY IRRESPECTIVE OF THE NAME BY WHICH SUCH MUNICIPALITY IS CALLED. T HIS FACT IS FURTHER SUBSTANTIATED BY THE PROVISIONS CONTAINED U NDER CLAUSE (B) WHEREIN IT HAS BEEN CLEARLY PROVIDED THAT THE A UTHORITY REFERRED TO IN CLAUSE (A) WAS ONLY MUNICIPALITY. 31. WE ALSO PERUSED THE MEANING OF THE TERM LOCAL A UTHORITY AS REFERRED IN SECTION 10(20) OF THE ACT. (20) THE INCOME OF A LOCAL AUTHORITY WHICH IS CHARG EABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' 'CAPIT AL GAINS' OR 'INCOME FROM OTHER SOURCES' OR FROM A TRA DE OR BUSINESS CARRIED ON BY IT WHICH ACCRUES OR ARISES F ROM 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 IT S OWN JURISDICTIONAL AREA]. [EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE TH E EXPRESSION 'LOCAL AUTHORITY' MEANS - (I) PANCHAYAT AS REFERRED TO IN CLAUSE (D) OF A RTICLE 243 OF THE CONSTITUTION; OR (II) MUNICIPALITY AS REFERRED TO IN CLAUSE (E) O F ARTICLE 243P OF THE CONSTITUTION; OR (III) MUNICIPAL COMMITTEE AND DISTRICT BOARD LEGALLY ENTITLED TO OR ENTRUSTED BY THE GOVERNME NT WITH THE CONTROL OR MANAGEMENT OF A MUNICIPAL OR LOCAL FUND; OR (IV) CANTONMENT BOARD AS DEFINED IN SECTION 3 OF THE CANTONMENTS ACT 1924 (2 OF 1924); 32. IT IS ALSO EVIDENT FROM THE MEMORANDUM EXPLAINI NG THE PROVISIONS OF FINANCE ACT 1970 WHEREBY S. 2(14) W AS AMENDED SO AS TO INCLUDE THE AGRICULTURAL LANDS LOCATED WIT HIN THE JURISDICTION OF A MUNICIPALITY IN THE DEFINITION OF THE EXPRESSION 14 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) 'CAPITAL ASSET'. THE RELEVANT PORTION OF THE SAID MEMORANDUM IS REPRODUCED HEREUNDER: '30. ... THE FINANCE ACT 1970 HAS ACCORDINGLY AM ENDED THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT SO AS TO BRING WITHIN THE SCOPE OF TAXATION CAPITAL GAINS AR ISING 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 IN DIA WHICH IS NOT SITUATE IN ANY AREA COMPRISED WITHIN T HE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAN D 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 HA S BEEN AUTHORISED TO NOTIFY IN THE OFFICIAL GAZETTE A NY AREA OUTSIDE THE LIMITS OF ANY MUNICIPALITY OR CANTONMEN T BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOUSAND U P TO A MAXIMUM DISTANCE OF 8 KILOMETRES FROM SUCH LIMITS FOR THE PURPOSES OF THIS PROVISION. SUCH NOTIFICATION W ILL 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. AR EAS OUTSIDE ANY MUNICIPALITY OR CANTONMENT BOARD HAVING A POPULATION OF NOT LESS THAN TEN THOUSAND AND ALSO B EYOND THE DISTANCE NOTIFIED BY THE CENTRAL GOVERNMENT FRO M THE LIMITS OF ANY SUCH MUNICIPALITY OR CANTONMENT BOARD WILL CONTINUE TO BE EXCLUDED FROM THE TERM 'CAPITAL ASSE T'. 33. FURTHER IT IS NOBODY'S CASE THAT THE PROPERTY F ALLS WITHIN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BOARD OR WHICH HAS A POP ULATION OF NOT LESS THAN 10 000 ACCORDING TO THE LAST PRECEDIN G CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFO RE 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. FURTHE R WE HAVE TO SEE WHETHER THE LAND FALLS IN CLAUSE (B) OF SECT ION 2(14)(III). THIS SECTION PRESCRIBES THAT ANY AREA WITHIN SUCH D ISTANCE NOT BEING MORE THAN 8 KM FROM THE LOCAL LIMIT OF ANY MU NICIPALITY OR CANTONMENT BOARD AS REFERRED TO IN SUB-CLAUSE (A) O F SECTION 2(14)(III) OF THE ACT AS THE CENTRAL GOVERNMENT MA Y HAVING REGARD TO THE EXTENT OF AND SCOPE FOR URBANISATIO N OF THAT AREA 15 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) AND OTHER RELEVANT CONSIDERATIONS SPECIFY IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE. 34. WE HAVE CAREFULLY GONE THROUGH THE NOTIFICATION ISSUED BY THE CENTRAL GOVERNMENT U/S. 2(1A)(C) PROVISO (II)(B ) AND 2(14)(3B) VIDE NO. 9447 (F. NO. 164/(3)/87/ITA-I) D ATED 6 TH JANUARY 1994 AS AMENDED BY NOTIFICATION NO. 11186 DATED 28 TH DECEMBER 1999. IN THE SCHEDULE ANNEXED TO THE NOTI FICATION DATED 6.1.1994 ENTRY NO. 17 IS RELATING TO HYDERAB AD WHEREIN MENTIONED THAT THE AREAS UP TO A DISTANCE OF 8 KM F ROM THE MUNICIPAL LIMITS IN ALL DIRECTIONS. IN THE NOTIFICA TION 11186 DATED 28.12.1999 THERE IS NO ENTRY RELATING TO HYDERABAD. IT IS CLEAR FROM THESE NOTIFICATIONS THAT AGRICULTURAL LAND SIT UATED IN AREAS LYING WITHIN A DISTANCE NOT EXCEEDING 8 KM FROM THE LOCAL LIMITS OF HYDERABAD MUNICIPALITY (GHMC) IS COVERED BY THE AMENDED DEFINITIONS OF 'CAPITAL ASSET'. CENTRAL GOVERNMENT IN EXERCISE OF SUCH POWERS HAS ISSUED THE ABOVE NOTIFICATION AS A MENDED LATEST BY NOTIFICATION NO. 11186 DATED 28.12.1999 C LEARLY 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 'CA PITAL 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 ARE AS CONTINUES TO BE EXCLUDED FROM THAT DEFINITION. AND AS IN THE PRE SENT CASE ADMITTEDLY THE AGRICULTURAL LAND OF THE ASSESSEE I S OUTSIDE THE MUNICIPAL LIMITS OF HYDERABAD MUNICIPALITY AND THAT ALSO 8 KM AWAY FROM THE OUTER LIMITS OF THIS MUNICIPALITY AS SESSEE'S LAND DOES NOT COME WITHIN THE PURVIEW OF SECTION 2(14)(I II) EITHER UNDER SUB CLAUSE (A) OR (B) OF THE ACT HENCE THE S AME CANNOT BE CONSIDERED AS CAPITAL ASSET WITHIN THE MEANING O F 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 TRI BUNAL IN THE CASE OF ARIJIT MITRA (CITED SUPRA) HARISH V. MILAN I (SUPRA) AND M.S. SRINIVAS NAICKER VS. ITO (292 ITR 481) (MAD). BY BORROWING THE MEANING FROM THE ABOVE SECTION WE AR E NOT ABLE TO APPRECIATE THAT THE LAND FALLS WITHIN THE TERRIT ORIAL LIMIT OF ANY MUNICIPALITY WITHOUT NOTIFICATION OF CENTRAL GOVERN MENT AS HELD BY THE KARNATAKA HIGH COURT IN THE CASE OF MADHUKUM AR N. (HUF) (CITED SUPRA). 35. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE A S NARRATED BEFORE US IT IS IMPORTANT TO NOTE THAT WH AT WAS THE INTENTION OF THE ASSESSEES AT THE TIME OF ACQUIRING THE LAND OR 16 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) INTERVAL ACTION BY THE ASSESSEE BETWEEN THE PERIOD FROM PURCHASE AND SALE OF THE LAND AND THE RELEVANT IMPROVEMENT/DEVELOPMENT TAKEN PLACE DURING THIS TIM E IS RELEVANT FOR DECIDING THE ISSUE WHETHER TRANSACTION WAS IN THE NATURE OF TRADE. THOUGH INTENTION SUBSEQUENTLY FO RMED MAY BE DIFFERENT IT IS THE INTENTION AT THE INCEPTION IS CRUCIAL. ONE OF THE ESSENTIAL ELEMENTS IN AN ADVENTURE OF THE TRADE IS THE INTENTION TO TRADE; THAT INTENTION MUST BE PRESENT AT THE TIME OF PURCHASE. THE MERE CIRCUMSTANCES THAT A PROPERTY I S PURCHASED IN THE HOPE THAT WHEN SOLD LATER ON IT WO ULD LEAVE A MARGIN OF PROFIT WOULD NOT BE SUFFICIENT TO SHOW AN INTENTION TO TRADE AT THE INCEPTION. IN A CASE WHERE THE PURCHA SE HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTENTION TO R ESELL AT A PROFIT AND THE PURCHASER HAS NO INTENTION OF HOLDIN G THE PROPERTY FOR HIMSELF OR OTHERWISE ENJOYING OR USING IT THE PRESENCE OF SUCH AN INTENTION IS A RELEVANT FACTOR AND UNLESS I T IS OFFSET BY THE PRESENCE OF OTHER FACTORS IT WOULD RAISE AS STR ONG PRESUMPTION THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. EVEN SO THE PRESUMPTION IS NOT CONCLUSI VE AND IT IS CONCEIVABLE THAT ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE THE COURT MAY DESPITE THE SAID INITIA L INTENTION BE INCLINED TO HOLD THAT THE TRANSACTION WAS NOT AN AD VENTURE IN THE NATURE OF TRADE. THE PRESUMPTION MAY BE REBUTTED. IN THE PRESENT CASE CONSIDERING THE FACTS AND CIRCUMSTANC ES OF THE CASE IT CANNOT BE CONSIDERED AS AN ADVENTURE IN THE NATURE OF TRADE. THE INTENTION OF THE ASSESSEE FROM THE INCE PTION WAS TO CARRY ON AGRICULTURAL OPERATIONS. MERELY BECAUSE O F THE FACT THAT THE LAND WAS SOLD IN A SHORT PERIOD OF HOLDING IT CANNOT BE HELD THAT INCOME ARISING FROM THE SALE OF LAND WAS TAXABLE AS PROFIT ARISING FROM THE ADVENTURE IN THE NATURE OF TRADE OR CAPITAL GAIN. THE PERIOD OF HOLDING SHOULD NOT SUGGEST THA T THE ACTIVITY WAS AN ADVENTURE IN THE NATURE OF TRADE. 36. IN VIEW OF OUR ABOVE DISCUSSION IN OUR OPINIO N THE LAND IS NOT SITUATED WITHIN THE QUTUBULLAPUR MUNICIPALIT Y BUT THE SAME SITUATED IN THE DUNDIGAL VILLAGE AND THE EVIDE NCE BROUGHT ON RECORD SUGGEST THAT THE LAND IS AN AGRICULTURAL LAND HENCE IT IS NOT LIABLE FOR TAXATION. ACCORDINGLY THE ADDITI ON MADE ON THIS COUNT IS DELETED IN ALL THE APPEALS UNDER CONSIDERA TION. NO EVIDENCE SUGGESTS THAT DUNDIGAL VILLAGE FALLS WITH IN QUTUBULLAPUR MUNICIPALITY AND ALSO THIS QUTUBULLAPU R MUNICIPALITY HAS NOT NOTIFIED IN THE YEAR UNDER SEC TION 2(14)(III) OF THE I.T. ACT AND QUTUBULLAPUR MUNICIPALITY ABOLI SHED AND MERGED WITH MUNICIPAL CORPORATION OF HYDERABAD WITH EFFECT FROM 16/04/2007. WE HAVE ALSO GONE THROUGH THE RECO RD PLACED IN THE PAPER BOOK AT PAGES 76 & 77. AT PAGE 76 A C OPY OF THE INTIMATION IS PLACED ISSUED BY THE TOWN PLANNING OF FICER QUTHBULLAPUR CIRCLE 15 GHMC VIDE REF. NO. G/12 40/2008 17 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) DATED 04/10/2008 INFORMING THAT THE LAND IS NOT FAL LING IN THE GHMC LIMITS. AT PAGE 77 A COPY OF THE AGRICULTURAL LAND CERTIFICATE IS PLACED ISSUED BY THE DEPUTY COLLECT OR & MANDAL REVENUE OFFICER QUTUBULLAPUR MANDAL VIDE REF. NO. A/13607/2005 DATED 20/08/2005 STATING THAT THE LAN DS ARE UNDER CULTIVATION BY RAISING CROPS I.E. PADDY CATT LE FEED MAIZE JOWAR VEGETEABLES ETC. 37. FURTHER WE MAKE IT CLEAR THAT WHEN THE LAND W HICH DOES NOT FALL UNDER THE PROVISIONS OF SECTION 2(14)(III) OF THE IT ACT AND AN ASSESSEE WHO IS ENGAGED IN AGRICULTURAL OPER ATIONS 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 OU R OPINION SUCH TRANSFER LIKE THE CASE BEFORE US CANNOT BE CON SIDERED AS A TRANSFER OF CAPITAL ASSET OR THE TRANSACTION RELATI NG 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 BUSIN ESS INCOME. 14. ON GOING THROUGH THE AFORESAID ORDER OF THE COO RDINATE BENCH WE FIND THE FACTS DEALT UPON BY THE TRIBUNAL IS IDENTICAL TO THE FACTS IN THE PRESENT CASE. THEREFORE RATIO L AID DOWN THEREIN ALSO EQUALLY APPLIES TO THE FACTS OF THE PR ESENT CASE AS THE LAND SOLD IS NOT ONLY AGRICULTURAL IN NATURE B UT IS ALSO SITUATED BEYOND 12 KMS FROM THE LIMIT OF A MUNICIPA LITY NOTIFIED BY THE CENTRAL GOVT. HENCE LAND SOLD BY ASSESSEE N OT BEING A CAPITAL ASSET THE GAIN DERIVED THERE FROM IS NOT T AXABLE AT THE HANDS OF THE ASSESSEE. ACCORDINGLY WE UPHOLD THE ORDER OF THE CIT(A) BY DISMISSING THE GROUND RAISED. 10. ON GOING THROUGH THE FACTS CONSIDERED BY THE CO ORDINATE BENCH IN CASE OF ACIT VS. BCPL AND OTHERS (SUPRA) WE FIN D THAT THE FACTS INVOLVED IN THE PRESENT CASE ARE IDENTICAL TO THAT CASE. LEARNED DR HAS NOT BROUGHT ANY NEW FACTS OR MATERIALS BEFORE U S TO TAKE A VIEW CONTRARY TO THE AFORESAID DECISION OF THE COORDINAT E BENCH. HENCE RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT THE A SSET SOLD BY ASSESSEE BEING IN THE NATURE OF AGRICULTURAL LAND C ANNOT BE CONSIDERED AS CAPITAL ASSET WITHIN THE MEANING OF S ECTION 2(14) OF THE ACT. ACCORDINGLY WE DIRECT THE AO TO DELETE THE AD DITION MADE. 18 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) 11. SO FAR AS THE ISSUE WHETHER THE TRANSACTION CAN BE CONSIDERED TO BE AN ADVENTURE IN THE NATURE OF TRADE WE ARE A LSO NOT IN AGREEMENT WITH THE VIEW OF THE AO AND LEARNED CIT(A ) AS THERE IS NOTHING BROUGHT ON RECORD TO SUGGEST THAT ASSESSEE IS INVOLVED IN TRADING ACTIVITY. AS CAN BE SEEN FROM THE FACTS ON RECORD ASSESSEE HAD PURCHASED THE LAND IN THE ASSESSMENT YEAR 2005- 06 AND HAS SOLD PART OF LAND IN THE IMPUGNED ASSESSMENT YEAR FOR MA KING INVESTMENT IN BHAVYA CEMENTS LTD. THEREFORE IT CANNOT BE CON SIDERED AS A TRADING ACTIVITY BECAUSE SALE OF LAND IS FOR A PART ICULAR PURPOSE. IN THE AFORESAID VIEW OF THE MATTER WE ALLOW THE GROUNDS RAISED BY ASSESSEE. 12. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ITA NO. 212/HYD/14 BY DEPARTMENT 13. THE ONLY ISSUE ARISING IN THE AFORESAID APPEAL OF THE DEPARTMENT IS WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF CAPITAL GAIN. 14. BRIEFLY THE FACTS ARE ASSESSEE IS AN INDIVIDUA L DERIVING INCOME FROM SALARY. A SEARCH AND SEIZURE OPERATION WAS CON DUCTED IN CASE OF VENIGALLA ANAND PRASAD AND OTHERS ON 07/10/09. DURI NG SEARCH AND SEIZURE OPERATION AS ALLEGED BY THE DEPARTMENT CER TAIN DOCUMENTS BOOKS OF ACCOUNT AND OTHER RELATED INFORMATION BELO NGING TO ASSESSEE WERE FOUND AND SEIZED. ON THE BASIS OF THESE INCRIM INATING MATERIALS NOTICE U/S 153A WAS ISSUED TO ASSESSEE. DURING ASSE SSMENT PROCEEDING AO NOTICED THAT ASSESSEE HAD PURCHASED 7.9 ACRES OF LAND IN SURVEY NOS. 667 668 669 670 AND 671 AT DUNDIGAL AND 2 ACRES IN SY.NO. 166 AT BOWRAMPET RR DIST. IN 2005 VIDE SALE DEED NO. 8807/2005 AND 6522/2005 RESPECTIVELY. OUT OF TH E AFORESAID LAND HE HAS SOLD 1 ACRE LAND TO M/S VARUN CONSTRUCTIONS FOR A CONSIDERATION OF RS. 1 CRORE THROUGH AGREEMENT OF S ALE-CUM-GPA 19 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) DATED 12/03/07. AS FAR AS BALANCE LAND IS CONCERNED ASSESSEE ALONG WITH 33 OTHERS ENTERED INTO AN AGREEMENT WITH M/S A MSRI DEVELOPERS VIDE DOCUMENT NO. 7110 DATED 04/05/07 GIVING THE LA ND FOR DEVELOPMENT. AO NOTICED THAT THE LAND PURCHASED AN D SOLD BY ASSESSEE WAS CONTIGUOUS TO THE LAND PURCHASED AND SIMILARLY TRANSACTED BY BHAVYA CONSTRUCTIONS PVT. LTD. SHRI ANAND PRASAD AND OTHER INDIVIDUALS WHO ALL LIKE ASSESSEE WERE THE I NVESTORS IN M/S BHAVYA CONSTRUCTIONS A COMPANY SET UP BY SHRI V. AN AND PRASAD. HE NOTICED THAT ALL THESE PERSONS HAD JOINTLY ENTERED INTO A DEVELOPMENT AGREEMENT WITH M/S AMSRI DEVELOPERS FOR DEVELOPMENT OF THEIR LAND TOTALING TO 123 ACRES AND 05 GUNTAS. HE NOTED THAT M/S AMSRI DEVELOPERS HAS PAID REFUNDABLE SECURITY DEPOSIT IN FURTHERANCE OF THE DEVELOPMENT AGREEMENT. AS PER THE REGISTERED DOCUME NT THE ENTIRE VALUE OF THE PROJECT WAS RS. 720 CRORES WITH A SHAR ING RATIO OF 35% TO THE LAND OWNERS ON THE BUILT UP AREA AND UNDIVIDED LAND. AO ON THE BASIS OF STATEMENT RECORDED FROM V. ANAND PRASAD M .D. OF BHAVYA CONSTRUCTIONS PVT. LD. AND REFERRING TO DECISIONS N OTED IN THE ORDER HELD THAT THERE IS A TRANSFER OF CAPITAL ASSET U/S 2(47)(V) OF THE ACT AND PROCEEDED TO COMPUTE SHORT TERM CAPITAL GAIN AT RS. 21 84 10 621. BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED A SSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 15. BEFORE THE CIT(A) ASSESSEE TOOK A SPECIFIC PLE A THAT THERE CANNOT BE ANY TRANSFER U/S 2(47)(V) OF THE ACT AS T HE DEVELOPMENT OF THE PROJECT HAS NOT TAKEN PLACE DUE TO FAILURE ON T HE PART OF THE DEVELOPER TO PERFORM HIS PART OF THE CONTRACT. IT W AS SUBMITTED THAT ASSESSEE HAD ONLY RECEIVED REFUNDABLE SECURITY @ RS . 13 LAKH PER ACRE. ASSESSEE ALSO CONTENDED THAT AS NO STEPS WERE TAKEN BY THE DEVELOPER TO START DEVELOPMENT ACTIVITY THERE WAS A COMPLETE BREACH AND BREAKDOWN OF THE DEVELOPMENT AGREEMENT WHICH L ED TO ASSESSEE AND OTHERS FILING A CIVIL SUIT FOR CANCELLATION OF THE DEVELOPMENT AGREEMENT WHICH IS PENDING BEFORE ADDITIONAL DISTR ICT JUDGE RR DISTRICT AS OS NO. 903/12. THUS IT WAS SUBMITTED B Y ASSESSEE THAT AS 20 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) DEVELOPMENT AGREEMENT HAS NOT BEEN ACTED UPON THE CONDITIONS OF SECTION 53A OF THE TP ACT HAS NOT BEEN FULFILLED A ND AS SUCH THERE CANNOT BE ANY TRANSFER AS ENVISAGED U/S 2(47)(V) OF THE ACT. IN THIS CONTEXT ASSESSEE RELIED UPON A NUMBER OF DECISIONS OF DIFFERENT COURTS AND TRIBUNAL. CIT(A) AFTER CONSIDERING THE S UBMISSIONS OF ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON R ECORD AS WELL AS THE RATIO LAID DOWN IN JUDICIAL PRECEDENTS CAME TO THE CONCLUSION THAT THERE BEING NO STEPS TAKEN BY DEVELOPER TO PERFORM HIS PART OF CONTRACT UNDER THE DEVELOPMENT AGREEMENT IT CANNOT BE SAID THAT THE CONDITIONS OF SECTION 53A OF TP ACT READ WITH SECTI ON 2(47)(V) OF THE IT ACT HAS BEEN FULFILLED. THE OBSERVATIONS OF LEAR NED CIT(A) IN THIS REGARD ARE EXTRACTED BELOW FOR THE SAKE OF CONVENIE NCE: 12.0. IN THE INSTANT CASE IT IS EVIDENT THAT THE DEVELOP MENT AGREEMENT CUM GPA WAS SIGNED AND THE DEVELOPER WAS ALLOWED PO SSESSION TO DO HIS PART OF THE DEAL/CONTRACT. HOWEVER THE DEVELOPER D ID NOT TAKE ANY ACTION AND FINALLY THE APPELLANT ALONG WITH THE OTHER LAN D OWNERS FILED A PETITION IN COURT SEEKING CANCELLATION OF THE DEVELOPMENT AG REEMENT. (O.S.NO 903 OF 2012). 13.0. THE ISSUE FOR THE QUESTION NOW IS WHETHER THE DEVE LOPMENT AGREEMENT WHICH IS CLEARLY NOT OPERATIONAL SHOULD BE STILL INSISTED AND CONSIDERED AS BEING VALID ENOUGH TO FASTEN THE CAPI TAL GAINS LIABILITY ON THE APPELLANT? AS ON THE DATE OF ASSESSMENT ORDER THE APPELLANT HAD DRAWN ATTENTION TO THE NON PERFORMANCE OF CONTRACT BY THE DEVELOPER AND THE CONTEMPLATION OF FILING OF SUIT. THE SUIT WAS SUBSE QUENTLY FILED IN 2012. THIS ONLY REINFORCED AND PROVIDED EVIDENCE TO THE A RGUMENT OF THE APPELLANT THAT THERE IS NO PROGRESS ON THE DEVELOPM ENT AGREEMENT AND THE AGREEMENT IS ITSELF IN LIMBO AND IS BEING REPUDIATE D. 14.0. THE BASIC WORKS IN ANY DEVELOPMENT PROJECT ARE (A) CLEARING OF LAND AND SURVEY OF LAND (B) FORMATION OF ROADS AND DRAIN AGE (C) DEMARCATION OF VILLA PLOTS (D) APPLICATION FOR LAND USAGE CONVERSI ON (E) PREPARATION OF PLANS AND DRAWINGS (F) FILING OF SUCH DRAWINGS FOR APPROVAL OF MUNICIPAL AUTHORITIES (G) FILING OF APPLICATION FOR ENVIRONME NT CLEARANCE SINCE IT IS A PROJECT OF MORE THAN 100 ACRES (H) GRANT OF SUCH AP PROVALS AND (H) CONSTRUCTION WORK. 15.0 NOT A SINGLE WORK OF THE ABOVE WAS DONE EVEN TILL 2 011 OR EVEN TO DATE ACCORDING TO THE APPELLANT. THIS LACK OF PROGR ESS AND UNWILLINGNESS OF DEVELOPER LED TO THE APPELLANTS AND OTHER LAND OWNE RS SEEKING JUDICIAL REMEDY OF CANCELLATION OF DEVELOPMENT AGREEMENT SO THAT THEY WOULD BE FREE OF THE DEVELOPER AND CAN PROCEED TO DEAL WITH SOMEONE ELSE OR TO DEAL 21 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) WITH THE LAND IN WHATSOEVER MANNER THEY DEEM FIT. 16.0 THE CIVIL SUIT FILED IN THE COURT OF DISTRICT JUDGE RANGA REDDY IN OS NO.903/2012 IS SEEN. THE RELEVANT EXTRACT FROM T HE SUIT ARE GIVEN BELOW: CLAUSE (2) THE NAMES OF PLAINTIFFS (APPELLANT AND THE OTHER 33) WERE MUTATED IN THE REVENUE RECORDS AS PER PATTADAR S AND I POSSESSORS. THE POSSESSION AND ENJOYMENT OF THE PLAINTIFF IS EVIDENT FROM THE PAHA NIS AND OTHER REVENUE RECORDS. CLAUSE (3) THE DEVELOPER MADE THE PLAINTIFFS BELIEVE THAT THE ENTIRE PROJECT WOULD BE COMPLETED WITHIN A PERIOD OF 36 MONTHS FRO M THE DATE OF OBTAINING CONSTRUCTION PERMISSION FROM CONCERNED AU THORITIES. THE DEVELOPMENT AGREEMENT CUM GPA EMPOWERS THE DEVE LOPER TO TAKE APPROPRIATE DECISION WITH REGARD TO THE DEMARCATION OF AREA AND TAKE NECESSARY ACTION FOR APPLICATION/APPROVAL OF PLAN. CLAUSE (4) THE DEVELOPER FAILED TO MAKE AN APPLICATION FOR PE RMISSION AND APPROVAL - HE THEREBY COMMITTED DEFAULT IN DISCHARG E OF HIS OBLIGATION UNDER DEVELOPMENT AGREEMENT. L CLAUSE (5) IT IS SUBMITTED THAT MORE THAN 5 YEARS HAVE ELAPS ED SINCE THE DATE OF THE DEVELOPMENT AGREEMENT BUT ABSOLUTELY T HERE IS NO INITIATION OF ANY WORK BY THE DEFENDANT NO.1 (DEVELOPER) RELATING TO SUBMISSION OF PLANS LEAVE ABOUT PROGRESS. I I CLAUSE (5) A LEGAL NOTICE WAS SENT TO DEFENDANT ON 12.02.2012 AND THE NOTICE OR CANCELLATION OF DEVELOPMENT AGREEMENT CUM GPA WAS SENT ON 23.06.2012 CLAUSE (6) IN THE REPLY TO NOTICE DATED 12.02.2012 THE DEFEN DANT NO.1 (DEVELOPER) CAME UP WITH A LAME EXCUSE THAT SURVEY AND DEMARCATION IS TO BE DONE TO COVER UP ITS INEXCUSABLE LAPSES. THE DEFENDANT ALSO MADE ALLEGED CLAIMS OF PROTECTED TENANT BUT FAILED TO GIVE ANY D ETAILS WITH REGARD TO ALLEGED CLAIM BY THESE PROTECTED TENANTS AND THE EXTENT OF LAND INVOLVED IN SUCH PROCEEDINGS. THE PLAINTIFFS ARE NOT AWARE OF ANY SU CH PROCEEDINGS INITIATED BY ANY SUCH TENANTS. THE DEFENDANT (DEVELOPER) IN ITS ANXIETY TO SHOW SO ME KIND OF PERFORMANCE OBTAINED LAND USE CERTIFICATE OF HUDA AND TRIED TO PROJECT THE SAME AS REQUISITE PERMISSION. THE DEFENDANT DID NOT INVEST ANY AMOUNT OVE R THE PROJECT. THE DEFENDANT OUGHT TO HAVE COMPLETED ENTIRE PROJE CT BY END OF DECEMBER 22 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) 201L. DEFENDANT MISERABLY FAILED TO COMMENCE THE PROJECT WITHIN 5 YEARS OF DATE OF DEVELOPMENT AGREEMENT. CLAUSE (7) THE DEFENDANT NO.1 (DEVELOPER) IS LIABLE TO PAY DA MAGES FOR BREACH OF CONTRACT. AN AMOUNT OF RS.13 LAKHS PER AC RE WAS FURNISHED AS I SECURITY FOR PERFORMANCE GUARANTEE OF THE DEVELOPME NT I AGREEMENT. IT IS SUBMITTED THAT AS THE DEVELOPER FAILED TO PERFORM ITS OBLIGATIONS THE DEPOSIT IS FORFEITED. 17.0 THE WEBSITE OF M/S AMSRI DEVELOPERS WAS SEEN IN COU RSE OF APPEAL PROCEEDINGS. EVEN AS ON 28 TH DECEMBER 2013 THE WEBSITE HAD TWO DISTINCT CLASSES OF PROJECTS (A) ONGOING-UNDER WHIC H 3 PROJECTS WERE LISTED AND (B) PROPOSED PROJECTS-UNDER WHICH 9 PROJECTS WE RE LISTED WITH THE PRESENT PROJECT UNDER DISCUSSION BEING LISTED AT S I.NO.8 AS AMSRI GLOBAL VILLAGE. THE CLASSIFICATION BY THE DEVELOPER ITSELF AS 'PROPOSED' AS DISTINCT FROM 'ONGOING' IS SIGNIFICA NT. 18.0 ON FURTHER CLICKING THE PROJECT ON THIS WEBSITE TH E ONLY DESCRIPTION AVAILABLE IS - 'THE PROJECT IS BEING IMPLEMENTED AT BOWRAMPET HYDERABAD ADJACENT TO OUTER RING ROAD AS AN INTEGR ATED TOWNSHIP SPREAD OVER AN AREA OF 260 ACRES. THIS IS PROPOSED AS A MO DERN TOWNSHIP COMPLETE WITH RESIDENTIAL COMMERCIAL RETAIL ENTE RTAINMENT AND SCHOOLING FACILITIES FOR THE RESIDENTS.' THE COPIES OF WEBSIT E PAGES (2 NOS.) ARE OVERLEAF. THE BUILT UP AREA DETAILS ARE MENTIONED AS : - 'TO BE ANNOUNCED' THE APPROXIMATE SFT PRICE IS ALSO GIVEN AS 'TO BE ANNOU NCED'. 19.0 THE ABOVE LENDS CREDIBILITY TO THE STAND OF APPELLA NT THAT THERE WAS NO WILLINGNESS OR PART-PERFORMANCE ON PART OF THE DEVE LOPER DURING THE RELEVANT PREVIOUS YEAR OR EVEN FOR NEXT 4 YEARS FIN ALLY LEADING TO COLLAPSE OF THE AGREEMENT WHEN A SUIT SEEKING ITS CANCELLATION IS FILED AND IS PRESENTLY IN COURT. 20.0 IT IS ALSO SEEN THAT APART FROM THE RS 13 LAKH PER ACRE THAT THE APPELLANTS AND OTHERS RECEIVED AS REFUNDABLE SECURI TY DEPOSIT THERE WAS NO FURTHER PAYMENT. SINCE 2007 MAY THERE WAS NO FURTH ER MOVEMENT AND NO WILLINGNESS OF THE DEVELOPER TO DO HIS PART OF THE DEAL COULD BE SEEN. I AM THEREFORE CONSTRAINED TO HOLD THAT NO CAPITAL GAINS ARISE TO THE APPELLANT IN THE YEAR 2008-09 BASED ON THIS DEVELOPMENT AGREEMEN T WHICH TURNED OUT TO BE A NON-STARTER. CONSEQUENTLY THERE IS NO INCOME TO BE TAXED AS CAPITAL GAINS ON ACCOUNT OF THE DEVELOPMENT AGREEME NT. THIS GROUND OF APPEAL IS THUS ALLOWED. 23 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) 16. THE LEARNED AR AT THE OUTSET SUBMITTED THAT T HE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT HYDERABAD IN CASE OF ACIT VS. R. SRINIVASA RAO IN ITA NO. 1786/HYD/12 AND OTH ERS DATED 28/08/14 AS WHILE DECIDING IDENTICAL ISSUE THE ITA T HAS UPHELD ASSESSEES CLAIM THAT THERE WAS NO TRANSFER OF PROP ERTY UNDER THE DEVELOPMENT AGREEMENT. 17. THE LEARNED DR THOUGH ACCEPTED THE FACT THAT I TAT UPON CONSIDERING SIMILAR FACTS AND IDENTICAL ISSUE HAS A CCEPTED THE CLAIM OF ASSESSEE BUT HE NEVERTHELESS SUBMITTED BEFORE US THAT CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCO UNT OF CAPITAL GAIN SINCE THERE IS CLEARLY A TRANSFER AS PER SECTION 2( 47) AS ASSESSEE IN TERMS OF THE DEVELOPMENT AGREEMENT HAS DELIVERED TH E POSSESSION OF THE PROPERTY TO THE DEVELOPER. 18. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. IT IS QUITE EVIDENT FROM THE ASSESSMENT ORDER THAT AO HAS ASSESSED CAPITAL GAIN IN THE IMPUGNED ASSESSMENT YEAR FOR TH E REASON THAT ASSESSEE AS PER THE TERMS OF THE DEVELOPMENT AGREEM ENT ENTERED WITH THE DEVELOPER HAS HANDED OVER POSSESSION OF T HE PROPERTY. HOWEVER AS CAN BE SEEN FROM THE ORDER OF LEARNED C IT(A) AS WELL AS OTHER FACTS AND MATERIALS ON RECORD THERE IS NO EV IDENCE THAT THE DEVELOPER HAS TAKEN ANY STEPS FOR DEVELOPMENT TOWAR DS PERFORMANCE OF HIS PART OF CONTRACT UNDER THE DEVELOPMENT AGREE MENT BY UNDERTAKING ANY STEPS FOR DEVELOPMENT OF THE PROPER TY. ON THE OTHER HAND FACTS AND MATERIALS CLEARLY SHOW THAT THERE I S COMPLETE LACK OF WILLINGNESS ON THE PART OF THE DEVELOPER IN UNDERTA KING THE DEVELOPMENT ACTIVITY. IN FACT FOR THAT REASON ASSE SSEE AND OTHER LAND HOLDERS INSTITUTED A SUIT AGAINST THE DEVELOPER SEE KING CANCELLATION OF DEVELOPMENT AGREEMENT. FURTHER ON A PERUSAL OF THE ORDER PASSED BY THE COORDINATE BENCH IN CASE OF SRI R. SRINIVASA RA O IN ITA NO. 1786/HYD/12 AND OTHERS (SUPRA) WE FIND THAT ON CON SIDERING IDENTICAL 24 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) FACTS AND CIRCUMSTANCES ARISING OUT OF SAME DEVELOP MENT AGREEMENT WITH M/S AMSRI DEVELOPERS THE COORDINATE BENCH HA S GIVEN CATEGORICAL FINDING WHILE UPHOLDING THE ORDER OF LE ARNED CIT(A) THAT THERE IS NO TRANSFER AS ENVISAGED U/S 2(47)(V) SINC E THERE IS NO WILLINGNESS ON THE PART OF THE DEVELOPER TO UNDERTA KE THE DEVELOPMENT ACTIVITY. THE OBSERVATIONS OF THE COORDINATE BENCH IN THIS REGARD ARE EXTRACTED HEREUNDER IN ITS ENTIRETY FOR THE SAKE OF CLARITY. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIALS ON RECORD ALONG WITH THE ORDE RS PASSED BY THE REVENUE AUTHORITIES. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIONS PLACED BEFORE US. IT IS CLEAR FROM THE ASSESSMENT ORDER THAT THE AO HAS COMPUTED CAPITAL G AIN IN THE IMPUGNED ASSESSMENT YEAR SOLELY ON THE BASIS OF THE FACT THAT ASSESSEE HAS ENTERED INTO THE DEVELOPMENT AGREEMENT WITH THE DEVELOPER 04/05/2007 AND HANDED OVER POSSESSION OF THE PROPERTY. HE HAS ALSO PUT STRESS ON THE FACT THAT T HE ASSESSEE HAS RECEIVED REFUNDABLE SECURITY DEPOSIT FROM THE D EVELOPER @ RS. 13 LAKHS PER ACRE. HOWEVER AS RIGHTLY HELD BY THE LEARNED CIT(A) NEITHER ENTERING INTO THE DEVELOPMENT AGREEM ENT OR HANDING OVER OF THE POSSESSION OF PROPERTY ARE THE SOLE AND EXCLUSIVE CRITERIA TO CONSTRUE TRANSFER OF CAPITAL ASSET AS ENVISAGED U/S 2(47)(V) OF THE ACT. ON PLAIN READING OF SECTION 2(47)(V) WOULD MAKE IT CLEAR THAT IT REFERS TO HAND ING OVER POSSESSION OF THE PROPERTY UNDER A DEVELOPMENT AGRE EMENT TOWARDS PART PERFORMANCE OF CONTRACT AS ENVISAGED U /S 53A OF THE TP ACT. HOWEVER THE HANDING OVER OF POSSESSION BY THE ASSESSEE TOWARDS PART PERFORMANCE OF CONTRACT WILL NOT AMOUNT TO TRANSFER UNLESS THE TRANSFEREE IS ALSO WILLING A ND READY TO PERFORM HIS PART OF THE CONTRACT UNDER THE DEVELOPM ENT AGREEMENT. AS CAN BE SEEN FROM THE FACTS AND MATERI ALS ON RECORD THE DEVELOPER APART FROM MAKING PAYMENT OF THE REFUNDABLE SECURITY DEPOSIT OF RS. 13 LAKHS PER ACR E HAS NOT TAKEN ANY STEP TOWARDS DEVELOPMENT OF THE PROPERTY. IN FACT THE MOST IMPORTANT ACT OF CONVERTING THE NATURE OF LAND FROM AGRICULTURE TO NON AGRICULTURE HAS NOT BEEN PUT INT O MOTION. THE NATURE AND CHARACTER OF LAND REMAINS AS IT IS EVEN TODAY. THE DEVELOPER HAS NOT TAKEN ANY STEPS TO GET SANCTION/A PPROVAL OF PLAN BUILDING CONSTRUCTION ETC. FROM THE COMPETEN T AUTHORITIES. EVEN NOT A SINGLE DEVELOPMENT ACTIVITY LIKE LEVELIN G OF LAND SALES PROMOTION HAS BEEN INITIATED BY THE DEVELOP ER. THESE FACTS WHICH HAVE NOT BEEN CONTROVERTED BY THE DEPA RTMENT CLEARLY DEMONSTRATE UNWILLINGNESS ON THE PART OF TH E DEVELOPER TO PERFORM HIS PART OF THE CONTRACT. IT IS ALSO A M ATTER REQUIRING CONSIDERATION THAT THE ASSESSEE ALONG WITH OTHER LA ND OWNERS 25 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) HAVE FILED A CIVIL SUIT FOR CANCELLATION OF THE DEV ELOPMENT AGREEMENT WHICH CLEARLY BRINGS OUT THE DISPUTE BET WEEN THE LAND OWNERS AND DEVELOPER AND ALSO THE FACT THAT DE VELOPER HAS NOT ONLY FAILED TO PERFORM BUT IS ALSO UNWILLING TO PERFORM HIS PART OF THE CONTRACT. THEREFORE WHEN THE DEVELOPER HAS NOT PERFORMED OR THERE IS UNWILLINGNESS TO PERFORM HIS PART OF THE CONTRACT IT CANNOT BE CONCLUDED THAT THERE IS TRAN SFER OF CAPITAL ASSET IN TERMS WITH SECTION 2(47(V) READ WITH SECTI ON 53A OF THE TP ACT ONLY BECAUSE THE ASSESSEE HAS ENTERED INTO A DEVELOPMENT AGREEMENT OR EVEN HANDED OVER POSSESSIO N OF THE LAND TO THE DEVELOPER DURING THE PREVIOUS YEAR RELE VANT TO AY UNDER DISPUTE. AS RIGHTLY HELD BY THE LD. CIT(A) HANDING OVER POSSESSION OF THE PROPERTY IS NOT THE SOLE CTRITERI A BUT ONE OF THE CRITERIA TO CONSTRUE TRANSFER U/S 53A OF THE T.P. ACT. THE ITAT HYDERABAD BENCH IN CASE OF SMT. K. RADHIKA VS. DCIT (SUPRA) HAS HELD AS UNDER: 48. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO EXPRESSED IN THIS COMMENTARY ON THE PROVISIONS OF T HE TRANSFER OF PROPERTY ACT. IT IS THUS CLEAR THAT 'WI LLINGNESS TO PERFORM' FOR THE PURPOSES OF SECTION 53A IS SOME THING MORE THAN A STATEMENT OF INTENT; IT IS THE UNQUALIF IED AND UNCONDITIONAL WILLINGNESS ON THE PART OF THE VENDEE TO PERFORM ITS OBLIGATIONS. UNLESS THE PARTY HAS PERFO RMED OR IS WILLING TO PERFORM ITS OBLIGATIONS UNDER THE CON TRACT AND IN THE SAME SEQUENCE IN WHICH THESE ARE TO BE PERFO RMED IT CANNOT BE SAID THAT THE PROVISIONS OF SECTION 53 A OF THE TRANSFER OF PROPERTY ACT WILL COME INTO PLAY ON THE FACTS OF THAT CASE. IT IS ONLY ELEMENTARY THAT UNLESS PROVI SIONS OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT ARE SAT ISFIED ON THE FACTS OF A CASE THE TRANSACTION IN QUESTION CANNOT FALL WITHIN THE SCOPE OF DEEMED TRANSFER UNDER SECT ION 2(47)(V) OF THE IT ACT. LET US THEREFORE CONSIDER W HETHER THE TRANSFEREE ON THE FACTS OF THE PRESENT CASE C AN BE SAID TO HAVE 'PERFORMED OR IS WILLING TO PERFORM' I TS OBLIGATIONS UNDER THE AGREEMENT. 49. EVEN A CURSORY LOOK AT THE ADMITTED FACTS OF TH E CASE WOULD SHOW THAT THE TRANSFEREE HAD NEITHER PERFORME D NOR WAS IT WILLING TO PERFORM ITS OBLIGATION UNDER THE AGREEMENT IN THE ASSESSMENT YEAR UNDER CONSIDERATIO N. THE AGREEMENT BASED ON WHICH CAPITAL GAINS ARE SOUG HT TO BE TAXED IN THE PRESENT CASE IS AGREEMENT DATED 11.05.2005 BUT THIS AGREEMENT WAS NOT ADHERED TO BY THE TRANSFEREE. THE TRANSFEREE ORIGINALLY MADE A PAYMEN T OF RS.10 LAKHS ON 11.5.2005 AND ANOTHER PAYMENT OF RS. 90 LAKHS ON THE SAME DAY AS REFUNDABLE SECURITY DEPOSI T. HOWEVER OUT OF THIS A SUM OF RS.50 LAKHS WAS SAID TO BE REFUNDED BY THE LANDLORD TO THE DEVELOPER ON 5.3.20 09. AS SUCH THE ASSESSEE HAS RECEIVED ONLY A MEAGER AMOUN T 26 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) AS REFUNDABLE SECURITY DEPOSIT WHICH CANNOT BE CONS TRUED AS RECEIPT OF PART OF SALE CONSIDERATION. ADMITTEDL Y THERE IS NO PROGRESS IN THE DEVELOPMENT AGREEMENT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE MUNICIPAL SANCTION FOR DEVELOPMENT WAS OBTAINED NOT IN THIS ASSESSMENT YEAR AND IT WAS OBTAINED ONLY ON 17.09.2 006 FROM THE HYDERABAD URBAN DEVELOPMENT AUTHORITY. THE SANCTION OF THE BUILDING PLAN IS UTMOST IMPORTANT F OR THE IMPLEMENTATION OF THE AGREEMENT ENTERED BETWEEN THE PARTIES. WITHOUT SANCTION OF THE BUILDING PLAN THE VERY GENESIS OF THE AGREEMENT FAILS. TO ENABLE THE EXECU TION OF THE AGREEMENT FIRSTLY PLAN IS TO BE APPROVED BY T HE COMPETENT AUTHORITY. IN FACT THE BUILDING PLAN WAS NOT GOT APPROVED BY THE BUILDER IN THE ASSESSMENT YEAR UNDE R CONSIDERATION. UNTIL PERMISSION IS GRANTED A DEVEL OPER CANNOT UNDERTAKE CONSTRUCTION. AS A RESULT OF THIS LAPSE BY THE TRANSFEREE THE CONSTRUCTION WAS NOT TAKEN PLAC E IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THERE IS A BRE ACH AND BREAK DOWN OF DEVELOPMENT AGREEMENT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. NOTHING IS BRO UGHT ON RECORD BY AUTHORITIES TO SHOW THAT THERE WAS DEVELOPMENT ACTIVITY IN THE PROJECT DURING THE ASSE SSMENT YEAR UNDER CONSIDERATION AND COST OF CONSTRUCTION W AS INCURRED BY THE BUILDER/DEVELOPER. HENCE IT IS TO B E INFERRED THAT NO AMOUNT OF INVESTMENT BY THE DEVELO PER IN THE CONSTRUCTION ACTIVITY DURING THE ASSESSMENT YEA R IN THIS PROJECT AND IT WOULD AMOUNT TO NON-INCURRING O F REQUIRED COST OF ACQUISITION BY THE DEVELOPER. IN T HE ASSESSMENT YEAR UNDER CONSIDERATION IT IS NOT POSS IBLE TO SAY WHETHER THE DEVELOPER PREPARED TO CARRY OUT THO SE PARTS OF THE AGREEMENT TO THEIR LOGICAL END. THE DE VELOPER IN THIS ASSESSMENT YEAR HAD NOT SHOWN ITS READINESS OR HAVING MADE PREPARATION FOR THE COMPLIANCE OF THE AGREEMENT. THE DEVELOPER HAS NOT TAKEN STEPS TO MAK E IT ELIGIBLE TO UNDERTAKE THE PERFORMANCE OF THE AGREEM ENT WHICH ARE THE PRIMARY INGREDIENT THAT MAKE A PERSON ELIGIBLE AND ENTITLED TO MAKE THE CONSTRUCTION. THE ACT AND CONDUCT OF THE DEVELOPER IN THIS ASSESSMENT YEAR SH OWS THAT IT HAD VIOLATED ESSENTIAL TERMS OF THE AGREEME NT WHICH TEND TO SUBVERT THE RELATIONSHIP ESTABLISHED BY THE DEVELOPMENT AGREEMENT. BEING SO IT WAS CLEAR THAT IN THE YEAR UNDER CONSIDERATION THERE WAS NO TRANSFER OF NOT ONLY THE FLATS AS SUPERSTRUCTURE BUT ALSO THE PROPO RTIONATE LAND BY THE ASSESSEE UNDER THE JOINT DEVELOPMENT AGREEMENT. AS PER CLAUSE NO. 12.11 AND 19.1 OF DEVELOPMENT AGREEMENT-CUM POWER OF ATTORNEY TIME I S THE ESSENCE OF THE CONTRACT AND AS PER CLAUSE NO.12 .11 THE SAID PROPERTY IS TO BE DEVELOPED AND HAND OVER THE POSSESSION OF THE OWNERS ALLOCATION TO THE OWNERS AND OR 27 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) THEIR NOMINEES WITHIN 24 MONTHS FROM THE DATE OF RECEIVING THE SANCTION OF THE PLAN FROM HUDA AND MUNICIPALITY/GRAM PANCHAYAT WITH A FURTHER GRACE PE RIOD OF 3 MONTHS. BUT THE FACT REMAINS THAT THE TRANSFER EE WAS NOT ONLY FAILED TO PERFORM ITS OBLIGATIONS UNDER TH E AGREEMENT BUT ALSO UNWILLING TO PERFORM ITS OBLIGA TIONS IN THE ASSESSMENT YEAR UNDER CONSIDERATION. EVEN OTHERWISE THE ASSESSING AUTHORITIES HAS NOT BROUGH T ON RECORD THE ACTUAL POSITION OF THE PROJECT EVEN AS O N THE DATE OF ASSESSMENT OR HE HAS NOT RECORDED THE FINDI NGS WHETHER THE DEVELOPER STARTED THE CONSTRUCTION WORK AT ANY TIME DURING THE ASSESSMENT YEAR UNDER CONSIDERA TION OR ANY DEVELOPMENT HAS TAKEN PLACE IN THE PROJECT I N THE RELEVANT PERIOD. HE WENT ON TO PROCEED ON THE SOLE ISSUE WITH REGARD TO HANDING OVER THE POSSESSION OF THE PROPERTY TO THE DEVELOPER IN PART PERFORMANCE OF TH E DEVELOPMENT AGREEMENT-CUM-GENERAL POWER OF ATTORNEY . IN OUR OPINION THE HANDING OVER OF THE POSSESSION OF THE PROPERTY IS ONLY ONE OF THE CONDITION U/S 53A OF TH E TRANSFER OF PROPERTY ACT BUT IT IS NOT THE SOLE AND ISOLATED CONDITION. IT IS NECESSARY TO GO INTO WHETHER OR NO T THE TRANSFEREE WAS 'WILLING TO PERFORM' ITS OBLIGATION UNDER THESE CONSENT TERMS. WHEN TRANSFEREE BY ITS CONDUC T AND BY ITS DEEDS DEMONSTRATES THAT IT IS UNWILLING TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT IN THIS ASSESSM ENT YEAR THE DATE OF AGREEMENT CEASES TO BE RELEVANT. IN SUCH A SITUATION IT IS ONLY THE ACTUAL PERFORMANCE OF TRANSFEREE'S OBLIGATIONS WHICH CAN GIVE RISE TO THE SITUATION ENVISAGED IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT. ON THESE FACTS IT IS NOT POSSIBLE TO HOLD THAT THE TRANSFEREE WAS WILLING TO PERFORM ITS OBLIGATIO NS IN THE FINANCIAL YEAR IN WHICH THE CAPITAL GAINS ARE SOUGH T TO BE TAXED BY THE REVENUE. WE HOLD THAT THIS CONDITION L AID DOWN UNDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT WAS NOT SATISFIED IN THIS ASSESSMENT YEAR. ONCE WE COME TO THE CONCLUSION THAT THE TRANSFEREE WAS NOT 'WILL ING TO PERFORM' AS STIPULATED BY AND WITHIN MEANINGS ASSI GNED TO THIS EXPRESSION UNDER SECTION 53A OF THE TRANSFE R OF PROPERTY ACT ITS CONTRACTUAL OBLIGATIONS IN THIS P REVIOUS YEAR RELEVANT TO THE PRESENT ASSESSMENT YEAR IT IS ONLY A COROLLARY TO THIS FINDING THAT THE DEVELOPMENT AGRE EMENT DT. 11.5.2005 BASED ON WHICH THE IMPUGNED TAXABILIT Y OF CAPITAL GAIN IS IMPOSED BY THE AO AND UPHELD BY THE CIT(A) CANNOT BE SAID TO BE A 'CONTRACT OF THE NAT URE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPE RTY ACT' AND ACCORDINGLY PROVISIONS OF SECTION 2(47)(V) CA NNOT BE INVOKED ON THE FACTS OF THIS CASE CHATURBHUJ DWARKA DAS KAPADIA V. CIT'S CASE (SUPRA) UNDOUBTEDLY LAYS DOWN A PROPOSITION WHICH MORE OFTEN THAN NOT FAVOURS THE 28 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) REVENUE BUT ON THE FACTS OF THIS CASE THE SAID J UDGMENT SUPPORTS THE CASE OF THE ASSESSEE INASMUCH AS 'WILLINGNESS TO PERFORM' HAS BEEN SPECIFICALLY RECO GNIZED AS ONE OF THE ESSENTIAL INGREDIENTS TO COVER A TRAN SACTION BY THE SCOPE OF SECTION 53A OF THE TRANSFER OF PROP ERTY ACT. REVENUE DOES NOT GET ANY ASSISTANCE FROM THIS JUDICIAL PRECEDENT. THE VERY FOUNDATION OF REVENUE' S CASE IS THUS DEVOID OF LEGALLY SUSTAINABLE BASIS. 50. THAT IS CLEARLY AN ERRONEOUS ASSUMPTION AND AN THE PROVISIONS OF DEEMED TRANSFER UNDER SECTION 2(47)(V ) COULD NOT HAVE BEEN INVOKED ON THE FACTS OF THE PRE SENT CASE AND FOR THE ASSESSMENT YEAR IN DISPUTE BEFORE US. IN THE PRESENT CASE THE SITUATION IS THAT THE ASSESSE E HAS RECEIVED ONLY A MEAGER AMOUNT' OUT OF TOTAL CONSIDERATION THE TRANSFEREE IS AVOIDING ADHERING TO THE AGREEMENT AND THERE IS NO EVIDENCE BROUGHT ON RECOR D BY THE REVENUE AUTHORITIES TO SHOW THAT THERE WAS ACTU AL CONSTRUCTION HAS BEEN TAKEN PLACE AT THE IMPUGNED PROPERTY IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO THERE IS NO EVIDENCE TO SHOW THAT THE RIGHT TO RECEIVE THE SALE CONSIDERATION WAS ACTUALLY ACCRUED TO THE ASSESSEE. WITHOUT ACCRUAL OF THE CONSIDERATION TO T HE ASSESSEE THE ASSESSEE IS NOT EXPECTED TO PAY CAPIT AL GAINS ON THE ENTIRE AGREED SALES CONSIDERATION. WHE N TIME IS ESSENCE OF THE CONTRACT AND THE TIME SCHED ULE IS NOT ADHERED TO IT CANNOT BE SAID THAT SUCH A CONTR ACT CONFERS ANY RIGHTS ON THE VENDOR/LANDLORD TO SEEK REDRESSAL UNDER SECTION 53A OF THE TRANSFER OF PROP ERTY ACT. THIS AGREEMENT CANNOT THEREFORE BE SAID TO B E IN THE NATURE OF A CONTRACT REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT. IT CANNOT THEREFORE BE SAID THAT THE PROVISIONS OF SECTION 2(47)(V) WILL APPLY IN TH E SITUATION BEFORE US. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS DISCUSSED ABOV E WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE DES ERVES TO SUCCEED ON REASON THAT THE CAPITAL GAINS COULD N OT HAVE BEEN TAXED IN THE IN THIS ASSESSMENT YEAR IN A PPEAL BEFORE US. THE OTHER GROUNDS RAISED BY THE ASSESSEE S IN THEIR APPEALS HAVE BECOME IRRELEVANT AT THIS POINT OF TIME AS WE HAVE HELD THAT PROVISIONS OF SECTION 2(47)(V) WILL NOT APPLY TO THE ASSESSEES IN THE ASSESSMENT YEAR U NDER CONSIDERATION. . 12. THE COORDINATE BENCH AGAIN IN CASE OF M/S BINJU SARIA PROPERTIES (SUPRA) FOLLOWING ANOTHER DECISION OF SA ME COORDINATE BENCH HELD AS UNDER: 29 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) 12. IT IS AN UNDISPUTED FACT THAT AS ON DATE T HERE WAS NO DEVELOPMENTAL ACTIVITY ON THE LAND WHICH IS SUBJECT MATTER OF DEVELOPMENT AGREEMENT. THE PROCESS OF CONSTRUCTION HAS NOT BEEN EVEN INITIATED AND NO APPROVAL FOR THE CONSTRUCTION OF THE BUILDING IS OBTAINED. THUS THE SALE CONSIDERATION IN THE FORM OF DEVELOPED AREA HAS NOT BEEN RECEIVED. MERE RECEIPT OF REFUND ABLE DEPOSIT CANNOT BE TERMED AS RECEIPT OF CONSIDERATION. FURTH ER AS SUBMITTED THE ASSESSING OFFICER CALCULATED THE CAPITAL GAIN O N THE ENTIRE LAND EVEN THOUGH THE ASSESSEE HAS RETAINED 38% SHARE TO ITSELF. THE VALUATION WAS ALSO DISPUTED. THERE IS THEREFORE NO ACCRUAL OF INCOME IN FAVOUR OF THE ASSESSEE AS PER S.48 OF THE ACT. DUE TO LAPSE ON THE PART OF THE TRANSFEREE THE CONSTRUCTI ON HAS NOT TAKEN PLACE IN THE YEAR UNDER CONSIDERATION AND IT HAS N OT COMMENCED EVEN NOW. IN THE FACTS AND CIRCUMSTANCES OF THE P RESENT CASE WHEREIN WHILE THE ASSESSEE HAS FULFILLED ITS PART O F THE OBLIGATION UNDER THE DEVELOPMENT AGREEMENT THE DEVELOPER HAS NOT DONE ANYTHING TO DISCHARGE THE OBLIGATIONS CAST ON IT UN DER THE DEVELOP AGREEMENT THE CAPITAL GAINS CANNOT BE BROUGHT TO T AX IN THE YEAR UNDER APPEAL MERELY ON THE BASIS OF SIGNING OF THE DEVELOPMENT AGREEMENT DURING THIS YEAR. WE ARE SUPPORTED IN TH IS BEHALF BY THE DECISION OF THE TRIBUNAL DATED 3 RD JANUARY 2014 IN THE CASE OF FIBARS INFRATECH PVT. LTD. (SUPRA) WHEREIN IT WAS HELD AS FOLLOWS- 59. ON THESE FACTS IT IS NOT POSSIBLE TO HOLD THAT THE TRANSFEREE WAS WILLING TO PERFORM ITS OBLIGATIONS I N THE FINANCIAL YEAR IN WHICH THE CAPITAL GAINS ARE SOUGH T TO BE TAXED BY THE REVENUE. WE HOLD THAT THIS CONDITION L AID DOWN UNDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT WAS NOT SATISFIED IN THIS ASSESSMENT YEAR. ONCE WE COME TO THE CONCLUSION THAT THE TRANSFEREE'S 'WILLING TO PERFORM' THE CONTRACT IS ASCERTAINABLE IN THE ASSESSMENT YEA R AS STIPULATED BY AND WITHIN THE MEANINGS ASSIGNED TO T HIS EXPRESSION UNDER SECTION 53A OF THE TRANSFER OF PRO PERTY ACT ITS CONTRACTUAL OBLIGATIONS IN THIS PREVIOUS Y EAR RELEVANT TO THE PRESENT ASSESSMENT YEAR IT IS ONLY A COROLLARY TO THIS FINDING THAT THE DEVELOPMENT AGRE EMENT DT. 15.12.2006 BASED ON WHICH THE IMPUGNED TAXABIL ITY OF CAPITAL GAIN IS IMPOSED BY THE AO AND UPHELD BY THE CIT(A) CANNOT BE SAID TO BE A 'CONTRACT OF THE NAT URE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPE RTY ACT' AND ACCORDINGLY PROVISIONS OF SECTION 2(47)(V) CA NNOT BE INVOKED ON THE FACTS OF THIS CASE. THE JUDGEMENT IN THE CASE OF CHATURBHUJ DWARKADAS KAPADIA V. CIT (SUPRA) UNDOUBTEDLY LAYS DOWN A PROPOSITION WHICH MORE OFT EN THAT NOT FAVOURS THE REVENUE BUT ON THE FACTS OF THIS CASE THE SAID JUDGMENT SUPPORTS THE CASE OF THE ASSESSEE INASMUCH AS 'WILLINGNESS TO PERFORM' HAS B EEN SPECIFICALLY RECOGNIZED AS ONE OF THE ESSENTIAL ING REDIENTS TO COVER A TRANSACTION BY THE SCOPE OF SECTION 53A OF THE 30 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) TRANSFER OF PROPERTY ACT. THE REVENUE DOES NOT GET ANY ASSISTANCE FROM THIS JUDICIAL PRECEDENT. THE VERY FOUNDATION OF REVENUE'S CASE IS THUS DEVOID OF LEGA LLY SUSTAINABLE BASIS. 60. THAT IS CLEARLY AN ERRONEOUS ASSUMPTION AS THE PROVISIONS OF DEEMED TRANSFER UNDER SECTION 2(47)(V ) COULD NOT HAVE BEEN INVOKED ON THE FACTS OF THE PRE SENT CASE AND FOR THE ASSESSMENT YEAR IN DISPUTE BEFORE US. IN THE PRESENT CASE THE SITUATION IS THAT THE ASSESSE E HAS NOT RECEIVED ANY CONSIDERATION AND THERE IS NO EVI DENCE BROUGHT ON RECORD BY THE REVENUE AUTHORITIES TO SHO W THAT THERE WAS ACTUAL CONSTRUCTION TAKEN PLACE AT THE IMPUGNED PROPERTY IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO THERE IS NO EVIDENCE TO SHOW THAT THE RIGHT TO RECEIVE THE SALE CONSIDERATION WAS ACTUALLY ACCRUED TO THE ASSESSEE. WITHOUT ACCRUAL OF THE CONSIDERATION TO THE ASSESSE E THE ASSESSEE IS NOT EXPECTED TO PAY CAPITAL GAINS ON TH E ENTIRE AGREED SALES CONSIDERATION. WHEN TIME IS ESS ENCE OF THE CONTRACT AND THE TIME SCHEDULE IS 30 MONTHS TO COMPLETE CONSTRUCTION WITH ADDITIONAL GRACE PERIOD OF 6 MONTHS IT CANNOT BE SAID THAT SUCH A CONTRACT CONF ERS ANY RIGHTS ON THE VENDOR/LANDLORD TO SEEK REDRESSAL UND ER SECTION 53A OF THE TRANSFER OF PROPERTY ACT. THIS AGREEMENT CANNOT THEREFORE BE SAID TO BE IN THE N ATURE OF A CONTRACT REFERRED TO IN SECTION 53A OF THE TRA NSFER OF PROPERTY ACT. IT CANNOT THEREFORE BE SAID THAT TH E PROVISIONS OF SECTION 2(47)(V) WILL APPLY IN THE SI TUATION BEFORE US. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS DISCUSSED ABOVE WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE DESERVES TO SUCCE ED ON THE REASON THAT THE CAPITAL GAINS COULD NOT HAVE BEEN TAXED IN THE IN THIS ASSESSMENT YEAR IN APPEAL BEFO RE US. 13. IN THE LIGHT OF THE FOREGOING DISCUSSION WE SET ASIDE THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND HOLD THAT THE CAPITAL GAINS ON THE PROPERTY IN QUESTION CANNOT BE BROUGHT TO TAX IN THE YEAR UNDER APPEAL AND CONSEQUENTLY DELETE THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A ). ASSESSEES GROUNDS ON THIS ISSUE ARE ALLOWED. 13. ON GOING THROUGH THE AFORESAID DECISIONS OF THE COORDINATE BENCH THE RATIO WHICH EMERGES IS UNLESS THERE IS WILLINGNESS ON THE PART OF THE DEVELOPER TO PERFORM HIS PART OF THE CONTRACT THERE CANNOT BE A TRANSFER OF CAPIT AL ASSET AS ENVISAGED U/S 2(47)(V) READ WITH SECTION 53A OF THE TP ACT. THE RATIO LAID DOWN AS ABOVE SQUARELY APPLIES TO THE FA CTS OF THE 31 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) PRESENT CASE AS THE DEPARTMENT HAS FAILED TO CONTRO VERT THE FINDING OF THE LEARNED CIT(A) BY BRINGING MATERIAL ON RECORD TO SHOW THAT THE DEVELOPER HAS TAKEN ANY STEPS TOWARDS DEVELOPMENT ACTIVITY. FURTHER WE MAY OBSERVE THOU GH THE AO REFERRING TO THE DEVELOPMENT AGREEMENT HAS INFERRED THAT POSSESSION OF THE PROPERTY WAS HANDED OVER TO THE D EVELOPER HOWEVER ON GOING THROUGH THE PLEADINGS AND PRAYER OF THE PLAINTIFFS IN THE PLAINT FILED IN CIVIL COURT A CO PY OF WHICH IS AT PAGE 51 OF ASSESSEES PAPER BOOK IT APPEARS ASSESS EE ALONG WITH OTHERS ARE STILL HAVING PHYSICAL POSSESSION OV ER THE PROPERTY. BE THAT AS IT MAY AFTER CAREFUL CONSIDER ATION OF FACTS AND MATERIALS ON RECORD WE ARE OF THE VIEW CIT(A )S ORDER BEING WELL FOUNDED AND WELL REASONED NEEDS TO BE UP HELD. ANOTHER CRUCIAL ASPECT WHICH NEEDS TO BE COMMENTED UPON IS THE CIT(A) HAS ALSO HELD THAT THE TRANSACTION WILL NOT ATTRACT CAPITAL GAIN AS THE ASSET TRANSFERRED BEING AN AGRI CULTURAL LAND IS NOT A CAPITAL ASSET AS DEFINED U/S 2(14) OF THE ACT. THIS FINDING OF THE LEARNED CIT(A) REMAINS UNCHALLENGED AND UNCONTROVERTED BY THE DEPARTMENT. FOR THIS REASON A LSO SHORT TERM CAPITAL GAIN COMPUTED BY THE AO CANNOT BE SUST AINED. IN VIEW OF THE AFORESAID WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). THE AFORESAID DECISION OF THE COORDINATE BENCH SQUA RELY APPLIES TO THE FACTS OF THE ASSESSEES CASE HENCE RESPECTFUL LY FOLLOWING THE SAME WE UPHOLD THE ORDER OF LEARNED CIT(A) AND THE GROUNDS RAISED BY REVENUE ARE DISMISSED. 19. IN THE RESULT DEPARTMENTS APPEAL IS DISMISSED. 20. TO SUM UP ASSESSEES APPEAL IS ALLOWED AND THE DEPARTMENTS APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 26 TH NOVEMBER 2014. SD/- SD/- (P.M. JAGTAP) ( SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD DATED: 26 TH NOVEMBER 2014 32 ITA NOS 212 & 368/HYD/2014 SRI RAJAMALLU (INDL.) KV COPY TO:- 1) SRI B. RAJAMALLU (INDL.) 1-9-647 DR. K.L. RAO RESIDENCY VIDYANAGAR HYDERABAD 2) ACIT CENTRAL CIRCLE 4 8 TH FLOOR AAYAKAR BHAVAN BASHEERBAGH HYDERABAD 500 004 3) CIT(A)-VII HYDERABAD 4)CIT(CENTRAL) HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE I.T.A.T. HYDER ABAD.