The Principal Commissioner Of Income Tax 4, Chennai v. M/S.mansi Finance Chennai Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 01.09.2016 CORAM: THE HONOURABLE MR.JUSTICE S.MANIKUMARandTHE HONOURABLE MR.JUSTICE D.KRISHNA KUMAR T.C.A.No.483 of 2016 The Principal Commissioner of Income Tax 4,Chennai... Appellant/Appellantversus M/s.Mansi Finance Chennai Ltd.,No.22, Mansi Mansion,Mulla Saheb Street, Sowcarpet,Chennai 600 079... Respondent/Respondent Prayer: Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961, against the order of the Income Tax AppellateTribunal, "A" Bench, Chennai, made in I.T.A.No.1560/MDS/2015,dated 20.11.2015 against the order passed by the Commissioner ofIncome Tax (Appeals) - 8, Chennai ITA.No.68/14-15 dated.25/03/2015 and against the order passed by the DeputyCommissioner of Income Tax, Company circle-IV (2), Chennai, inPAN/GIR.No.AAACM5326N dated. 25/03/2014 for the Assessment year2011-2012. For Petitioner:Mr.T.R.Senthil Kumar, Senior Standing Counsel for Income Tax Department ORDER (Order of the Court was made by S.MANIKUMAR, J.) Tax Case Appeal is directed against the order dated20.11.2015 made in I.T.A.No.1560/Mds/2015, for the assessmentyear 2011-2012, in the matter of M/s.Mansi Finance Chennai Ltd.,Chennai, by which, the Tribunal has dismissed the appeal filedby the revenue.2. Brief facts leading to the appeal are that therespondent, non-banking finance company, filed its return ofincome for the assessment year 2011-12 on 26.09.2011, admitting https://hcservices.ecourts.gov.in/hcservices/ total income of Rs.25,91,180/-. The case was taken up forscrutiny and notice, under Section 143(2) of the Income Tax Act,1961 (hereinafter referred to as "the Act"), was issued on01.08.2012 and duly served on the assessee on 08.08.2012.Assessee's authorised representative appeared in person andproduced a copy of the Memorandum of Articles of the Company,financials with reports, ledger accounts of parties, copies ofpurchase and sale deed of agricultural lands, donation receipt,Demat account, details of loans, copy of Village AdministrativeOfficer Certificate, stating that the lands are fit foragricultural operations, copy of lease agreement, and otherdocuments. The assessee Company has admitted income fromfinancing business and income from other sources. They have alsoadmitted agricultural income of Rs.8,03,730/-, in Schedule 11 -"other income" and also the profit on sale of agricultural landfor Rs.3,79,99,376/-, shown in other in Schedule 11 of theprofit and loss account. However, they claimed the same, in thestatement of total income. 3.The assessing officer has called for information fromthe Tahsildar and the report of the Tahsildar was received on12.03.2014. Reports of the Tahsildar, Sri Perumpudur Taluk,Village Administrative Officer, Thandalam and Revenue Inspector,Thandalam and copies of Revenue Records, were shown to theassessee's authorised representative. The assessee was asked toshow cause, as to why, the profit on sale of agricultural landand agricultural income, should not be brought to tax, based onTahsildar's report shown to them. 4.Responding to the notices issued, the assessee produceda copy of the Village Administrative Officer's Certificate,Thandalam, which states that the lands are fit for agriculturaloperations. The assessee also contended that they carried onagricultural operations and at the time of sale, the lands wereused for agriculture and thus, claimed that the profit on saleof agricultural lands, has to be deducted. 4.Responding to the notices issued, the assessee produceda copy of the Village Administrative Officer's Certificate,Thandalam, which states that the lands are fit for agriculturaloperations. The assessee also contended that they carried onagricultural operations and at the time of sale, the lands wereused for agriculture and thus, claimed that the profit on saleof agricultural lands, has to be deducted. 5.After considering the material on record and reply ofthe assessee, the assessing officer, vide order, dated25.03.2014, completed the assessment, as hereunder:"(i) Treatment of profit on sale of agriculturalland of Rs.3,56,73,957/- as long term capital gainsarising out of sale of capital assets.(b) The AR has also raised an additional groundvide letter dated 26.09.2014 (which was admitted asthe omission of the said ground from the appeal form,was not willful or unreasonable), pleading thatagricultural income of Rs.8,03,730/- returned by it,was treated as 'Income from Other Sources. (c) Levy of interest u/s 234B." 6.Reasons for the above conclusion of the assessingofficer, are as follows:"(i) In the agreement for sale, the impugned landswere mentioned as "Land" and not "Agricultural Land".(ii) As per the Memorandum of Association the mainobject and object ancillary/incidental to theattainment of main object was money lending and notdealing with agricultural land. (iii) The appellant was registered as Non-BankingFinance Company with RBI for carrying out moneybusiness and not agricultural operations. (iv) Appellant had not filed evidence for incomeand expenditure from the agricultural operations. (v) Tahsildar approached by the Revenue reportedthat the lands in question were not cultivated for thepast 8 years. (vi) The buyer, to whom the appellant sold thelands, i.e. M/s. Rajalakshmi Education Services Pvt.Ltd., purchased the lands for the purpose ofconstruction of Engineering college." 7.Being aggrieved by the assessment order, dated25.03.2014, the assessee filed an appeal in I.T.A.No.68/2014-15,before the Commissioner of Income Tax (Appeals)-8, Chennai, andcontentions were made that the assessee purchased theagricultural land in Thandalam Village from various parties inthe financial year 2005-06 and that they have sold theagricultural land to M/s.Rajalakshmi Education Services Pvt.Ltd., and during the interregnum period, they used the lands inquestion for agricultural purposes. The assessee had also giventhe lands on lease to one Mr.D.David, vide lease deed, dated06.04.2008, with a condition that the lands were to be used onlyfor agricultural purposes. Reliance has been made to Clauses (v)and (vii) of the said lease deed, which are as follows: "(v) To use the farm for agricultural purposeonly.(vii) To farm cultivate manure and manage the farmin a good and husband like manner according to themost approved methods of cultivation, so as to keepthe farm in good condition." Therefore, it was contended that till the lands were sold in thefinancial year 2010-11, they were used for agricultural purposeand not capital assets. 8.Before the appellate authority, a further contentionhas been made that the assessee had disclosed and claimed https://hcservices.ecourts.gov.in/hcservices/ exemption, in respect of lease rentals received from theagricultural lands, in the returns filed for the assessmentyears 2009-10 and 2010-11 and out of the total amount ofagricultural income disclosed by the assessee, during assessmentyears 2009-10 and 2010-11, Rs.1,20,000/- and Rs.1,35,000/- werethe lease rentals for the assessment years 2009-10 and 2010-11respectively, and that the above were also reflected, in thereturns of income and computation of income for the assessmentyears 2009-10 and 2010-11 respectively. 8.Before the appellate authority, a further contentionhas been made that the assessee had disclosed and claimed https://hcservices.ecourts.gov.in/hcservices/ exemption, in respect of lease rentals received from theagricultural lands, in the returns filed for the assessmentyears 2009-10 and 2010-11 and out of the total amount ofagricultural income disclosed by the assessee, during assessmentyears 2009-10 and 2010-11, Rs.1,20,000/- and Rs.1,35,000/- werethe lease rentals for the assessment years 2009-10 and 2010-11respectively, and that the above were also reflected, in thereturns of income and computation of income for the assessmentyears 2009-10 and 2010-11 respectively. 9.Further contention has been made before the appellateauthority that the Village Administrative Officer of ThandalamVillage had issued certificate on 18.11.2009, certifying thatthe said lands as fit for cultivation and also issued acertificate, identifying the numbers, measurement of each land,evidence of crop cultivation etc., and though Chitta, Patta,Adangal, Fasali and other evidences were also produced beforethe assessing officer, he had failed to appreciate the same, inproper perspective. 10.It was further contended before the appellate authoritythat the intention of the assessee, at the time of purchasingthe land, was to use the same for agricultural purpose and itwas subsequently, leased out. Therefore, the gain from theagricultural land, cannot be treated as capital gains, on saleof capital assets, in the hands of the assessee. Reliance wasalso placed on a decision of the ITAT, Hyderabad, in TullaVeerender vs ACIT reported in (2014) 160 TTJ (Hyd) 435, wherein,it has been held: "It is important to note what was the intention ofthe assessee at the time of acquiring the land orinterval action by the assessee between the period frompurchase and sale of the land and the relevantimprovement/development taken place during this time isrelevant for deciding the issue whether transaction wasin the nature of trade. Though intention subsequentlyformed may be taken into account, it is the intention atthe inception which is crucial. One of the essentialelements in an adventure of the trade is the intentionto trade; that intention must be present at the time ofpurchase". 11.On the report of the Tahsildar, dated 12.03.2014,relied on by the assessing officer, certifying that, "theVillage Administrative Officer of the above village has statedthat the above lands are not cultivated for the past eightyears, and the statement of the Village Administrative Officerand the village accounts", before the appellate authority, theappellant has submitted that it was perplexing, as to how, the https://hcservices.ecourts.gov.in/hcservices/ Village Administrative Officer of Thandalam Village, who hadgiven a certificate, dated 18.11.2009, stating that the landsin question were cultivable and also certified during theFasili, evidencing that agricultural activities were carried onby the assessee, has purportedly stated that the subject landswere not cultivated for past eight years and on that basis, theTahsildar, has issued a letter, dated 12.03.2014. 12.Before the appellate authority, a further contentionhas been made that when the assessee, vide letter, dated19.03.2014, prayed to the assessing officer, for an opportunityto cross examine the above statement of the Tahsildar, relied onby the assessing officer, allegedly obtained on the back of theassessee, the assessing officer has refused to provide suchopportunity, which is in violation of the principles of naturaljustice. 13.On the said aspect, the assessee has relied on adecision of the ITAT, Hyderabad in Ramakrishnaiah v. ITOreported in [2010] 39 SOT 379, wherein, the Tribunal observedthat, 12.Before the appellate authority, a further contentionhas been made that when the assessee, vide letter, dated19.03.2014, prayed to the assessing officer, for an opportunityto cross examine the above statement of the Tahsildar, relied onby the assessing officer, allegedly obtained on the back of theassessee, the assessing officer has refused to provide suchopportunity, which is in violation of the principles of naturaljustice. 13.On the said aspect, the assessee has relied on adecision of the ITAT, Hyderabad in Ramakrishnaiah v. ITOreported in [2010] 39 SOT 379, wherein, the Tribunal observedthat, "Natural justice requires cross-examination ofwitnesses, if asked for and must be granted. Theassessee should be afforded an opportunity to deal withand rebut such material. Cross-examination to be allowedto the assessee when third party accounts are reliedupon by the Department. The normal principle is thatordinary cross examination has to be granted when askedfor. If the Department to rely on any exceptions, theburden is on the Department to establish the existenceof any exceptions. The non-providing of cross-examination of witness clearly constitutes infraction ofthe right conferred on the assessee and that vitiatedthe order of the assessment made against the assessee." 14.Further reliance has been made to a decision in RamSaroop Saini, HUF v. ACIT reported in (2007) 15 SOT 470 (Del.),wherein, the Delhi Tribunal, relying on the case of KishanchandChelaram vs. CIT reported in (19801 19 CTR (SC) 360, held asfollows: "In so far as the reliance placed by the Revenue onthe statement of K, the said statement has beencollected at the back of the assessee. Other featurethat has been noted by the CIT(A) is the lack ofopportunity to the assessee for cross-examining the saidwitness and for that reason the said evidence deservesto be ignored." 15.Therefore, before the appellate authority, a contentionhas been made that the assessee was denied an opportunity to https://hcservices.ecourts.gov.in/hcservices/ 14.Further reliance has been made to a decision in RamSaroop Saini, HUF v. ACIT reported in (2007) 15 SOT 470 (Del.),wherein, the Delhi Tribunal, relying on the case of KishanchandChelaram vs. CIT reported in (19801 19 CTR (SC) 360, held asfollows: "In so far as the reliance placed by the Revenue onthe statement of K, the said statement has beencollected at the back of the assessee. Other featurethat has been noted by the CIT(A) is the lack ofopportunity to the assessee for cross-examining the saidwitness and for that reason the said evidence deservesto be ignored." 15.Therefore, before the appellate authority, a contentionhas been made that the assessee was denied an opportunity to https://hcservices.ecourts.gov.in/hcservices/ cross-examine the Village Administrative Officer, who has givena contrary statement and that vitiates the action of theassessing officer. Further contention has also been made thatthere was no necessity to mention the lands as agriculturallands, in the agreement of sale, so long as it is classified asagricultural lands in the revenue records. Further contentionhas been made that under the sale deed, the subject lands havebeen categorically described as agricultural lands in theschedule. Reliance has been made on M.J. Thomas v DeputyCommissioner of Income-Tax reported in (2014) 47 TAXMANN 421,wherein, the Cochin Tribunal held as follows:"What is required for treating the land as capitalasset under section 2(14) is the connection between theland and the agricultural purpose and if the land iscultivated in any of the earlier years, the land has tobe treated as agricultural land. The material evidenceproduced by the assessees are - (i) the certificateissued by the Village Officer; (ii) certificate issuedby the Agricultural Officer; (iii) classification of theland by state government as agricultural land; (iv)receipt for payment of contribution to agriculturalworkers' welfare fund; and (v) Basic Tax Officer. Fromthese materials, it appears that the State Governmenthas classified the subject land as agricultural land."16.Perusal of the order of the Commissioner of Income-Tax(Appeals), dated 25.03.2014, shows that there was norepresentation, on behalf of the department to rebut anyone ofthe submissions, extracted supra. After considering thematerials on record, submissions of the authorisedrepresentative of the assessee and the decisions relied on, theCommissioner of Income Tax (Appeals), vide order dated25.03.2014, allowed the appeal filed by the assessee, thesummary of the same, extracted in the impugned order, before us,is as follows: "04. The Commissioner of Income Tax (Appeals)observed that the AO has nowhere disputed that as perrevenue records the impugned lands were classified asagricultural land. Besides as per the certification ofthe VAO of Thandalam village, the said lands werecultivable or in other words fit for cultivation, whichagain has not been questioned by the AO. Further, the AOhas also not disputed the fact that the assessee hadgiven the land on lease to Shri. D. David wherein as perthe lease deed, the lands were only to be use foragricultural purposes. Further still, the AssessingOfficer has also not disputed the fact or questionedthat the agricultural income disclosed by the assesseeduring the AYs 2009-10 and 2010-11 which is immediately "04. The Commissioner of Income Tax (Appeals)observed that the AO has nowhere disputed that as perrevenue records the impugned lands were classified asagricultural land. Besides as per the certification ofthe VAO of Thandalam village, the said lands werecultivable or in other words fit for cultivation, whichagain has not been questioned by the AO. Further, the AOhas also not disputed the fact that the assessee hadgiven the land on lease to Shri. D. David wherein as perthe lease deed, the lands were only to be use foragricultural purposes. Further still, the AssessingOfficer has also not disputed the fact or questionedthat the agricultural income disclosed by the assesseeduring the AYs 2009-10 and 2010-11 which is immediately prior to the sale of the impugned lands in the AY 2010-11 which illustrates that the impugned lands were indeedcultivated. As regards the contention of the AO that theappellant's claim of profit on sale of agriculturallands was contrary to the MOA of the assessee company,there is merit in the AR’s contention that as a non-banking financing company, the assessee was entitled topurchase or deal with any property in whichever way itdeemed fit for the purpose of making investments andthere was no limitation or restriction on the nature ofassets that the company could hold as investment whichfact becomes clear from the following clauses in theMemorandum of Association of the assessee company: Under objects incidental or ancillary to theattainment of the main objects: "12. To invest and deal with the money of thecompany not immediately required in such manner and uponsuch security or without security at all as the companymay from time to time think fit" Under other objects: "8. To invest the funds of the company in anymanner as the company may think fit and/withoutprejudice to the said generally a. In the purchase of lands and buildings, or anyinterest therein or on ground rents or where else in theworld." "13. To develop and turn to account any landacquired by the company or in which it is interested,and in particular by laying out and preparing the samefor building purposes, constructing, pulling downdecorating, maintaining, furnishing, fitting up andimproving buildings and by planting, paving, draining,farming, cultivating, letting on building lease orbuilding agreement and by advancing money to andentering into contracts and arrangement of all kind withbuilders, tenants and others. " Therefore, evidently there was no constraint evenas per the MOA, on the assessee to invest inagricultural lands and engage in agricultural activitiesand earn income thereby as the same was very muchcovered by the above referred clauses of MOA of theassessee company and therefore the AO's argument thatthe sale of the impugned lands was contrary to the MOAis also not factually borne out from the relevantdocumentation as cited above. The AR’s reliance on thejurisdictional High Court in the case of M.S. SrinivasaNaicker vs. ITO (2007) 292 ITR 481(Mad) to buttress hispoint that the intention of the buyer, in this instantcase, M/s. Rajalakshmi Education Services Pvt. Ltd. in purchasing the impugned property for the purpose ofconstruction of Engineering College was irrelevant indetermining the character of the impugned lands, isquite pertinent in the context of the present case, asundisputedly it was the intention of the assessee toearn income by way of agricultural activities whichmatters and it does not shed its character asagricultural land on the sale effected or even on thebasis of use it is subsequently put to by thetransferee, which in the case of the instant assessee'stransferee was to build an Engineering college. Therelevant part of the judgement supra is reproducedhereunder:- purchasing the impugned property for the purpose ofconstruction of Engineering College was irrelevant indetermining the character of the impugned lands, isquite pertinent in the context of the present case, asundisputedly it was the intention of the assessee toearn income by way of agricultural activities whichmatters and it does not shed its character asagricultural land on the sale effected or even on thebasis of use it is subsequently put to by thetransferee, which in the case of the instant assessee'stransferee was to build an Engineering college. Therelevant part of the judgement supra is reproducedhereunder:- ‘’It is no doubt true that the purpose for whichthe purchaser had purchased was totally different fromwhat the transferor had intended to use the land inquestion but with the admitted finding that the lands inquestion were under the agricultural operation on thedate of sale for the purpose of considering the meaningor capital assets, it matters very little how thesubsequent purchaser intended the land in question to beput to use. In the circumstances, there is no reason toaccept the plea of the Revenue that the asset inquestion is a capital asset and it attracts levy ofcapital gains tax, it having shed its character as anagricultural land on the sale effected. In the absenceof any contra indication that the assessee was using ifor intending to use it for non-agricultural purposes, itis difficult to accept the stand of the Department. Therefore correlating the ratio of the abovejurisdictional High Court judgement to the facts of theinstant assessee, it was submitted that the intention ofthe purchaser of the land from the assessee was notreally relevant in determining whether the impugned landwas agricultural land or capital asset in the hands ofthe assessee. Further, the Commissioner of Income Tax(Appeals) observed that the instant assessee purchasedlands in 2005-06 spread over 64 survey Nos. in ThandalamVillage, Sriperumbudur Taluk classified in the revenuerecords as "wet agricultural land" as certified by thejurisdictional Tahsildar and VAO extracts which isreproduced at para 7 of the assessment order. The VAOhad also certified vide certificate dated 18.11.09 thatit was also fit for cultivation. Secondly as seen fromthe records furnished at the time of appellate hearingthat the' said lands were given on lease withspecification that the said lands were to be used onlyfor agricultural purpose which it was indeed used forand also the assessee had shown lease rentals received from the said agricultural lands as agricultural incomein the relevant assessment years including the two AYsi.e. 2009-10 and 2010-11 immediately prior to the saleof the said lands in AY 2011-12 as mentioned aforesaid.The same has also not been disputed by the AO and norhas he doubted that the assessee had paid taxes forcultivating crops individually on the said agriculturallands to the State government as evidenced by the taxreceipts acknowledged by the VAO which further indicatesthat the said lands were indeed put to use foragricultural purposes, albeit not by the assesseedirectly but by the lessee, which Is a normal practiceadopted in large parts of the country including TamilNadu, by absentee landlords which the assessee in theinstant case is. Thirdly there is also no dispute thatthe impugned lands was not converted into non-agricultural land prior to the sale and therefore itretained its character as agricultural land till thetime of the sale. Fourthly it is also not disputed thatthe impugned lands were not situated as per limbs (a)and (b) of Section 2(14)(iii) of the Act. i.e. withinthe jurisdiction of a municipality or a cantonment boardhaving population of not less than ten thousand or in anarea not being more than eight kilometers from the localmunicipality / cantonment board limits. The Commissionerof Income Tax (Appeals) relied on the judgment in thecase of Sakunthala Vedhachalam Vs Vanitha Manickavasagam[2014] 90 CCH 0038 (Mad) relied on by the AR. whereinthe Madras High Court held that the assessee cannot bedenied exemption from capital gains tax, once it hasbeen accepted by revenue authorities that theclassification of land as per the revenue records wasAgricultural lands and it satisfied other conditions ofof limbs (a) & (b) of Section 2(14)(iii) of the Act. Inthe said case, the Madras High Court concluded that theTribunal was not justified in rejecting the exemptionand reasoned as follows: "Once the Tribunal had accepted that theclassification of lands as per the revenue records wereagricultural lands, which are evidenced by the adangaland the letter of the Tahsildar and satisfied otherconditions of Section 2(14) of the Income Tax Act, thecourt is of the view that the Tribunal had misdirecteditself as stated above. " Apart from the rebuttals by the AR to the AO'sreasoning for treating the impugned properties ascapital assets and its sale of long term capital gainsin the foregoing paragraphs which has considerablemerit, the four undisputed facts obtained in the case as discussed immediately above as also the ratio off thejurisdictional court cited supra is persuasive enough intreating the impugned properties as agricultural landsand therefore, the profits of its sale as profitsderived by the transfer of agricultural lands and not ofcapital assets as held by the AO. The AO is thereforedirected to treat the sale of impugned lands as sale ofagricultural lands, exempt from tax and allowed theclaim of the assessee. Further, he also treated theagricultural land as lease rent of B8,03,730/- as incomefrom agriculture as against claim of the AssessingOfficer as income from other sources." discussed immediately above as also the ratio off thejurisdictional court cited supra is persuasive enough intreating the impugned properties as agricultural landsand therefore, the profits of its sale as profitsderived by the transfer of agricultural lands and not ofcapital assets as held by the AO. The AO is thereforedirected to treat the sale of impugned lands as sale ofagricultural lands, exempt from tax and allowed theclaim of the assessee. Further, he also treated theagricultural land as lease rent of B8,03,730/- as incomefrom agriculture as against claim of the AssessingOfficer as income from other sources." 17.Being aggrieved by the order of the Commissioner ofIncome-Tax (Appeals), dated 25.03.2014, the revenue has filed anappeal before the Income Tax Appellate Tribunal inI.T.A.No.1560/Mds/2015 and made contentions as follows:"05. The ld. Departmental Representative submittedthat Tahsildar reported that lands in question was notused for agricultural purposes for the last eight yearsi.e from 2005 and filed objection with proof on21.03.2014. When it is put to the assessee by AssessingOfficer he has no response. The lease agreement inquestion is a device to claim such deduction which is anafterthought. The Revenue Tahsildar is a competentauthority to report whether the agricultural operationsare carried on the lands. The lands in question is notagricultural land at the time of sale as reported by thecompetent authority, the Revenue Tahsildar and hence thelands are treated as capital assets u/s.2(14) of theIncome Tax Act, 1961 and the Long Term Capital Gains onsale of land is brought to tax u/s.45 and alsoagricultural income is treated as income from othersources. The Departmental Representative furthersubmitted that Commissioner of Income Tax (Appeals)failed to appreciate that no agricultural operationswere carried out in the sold land for 8 years prior tothe sale as confirmed by the Tahsildhar of Sriperumbudurand the statement of the VAO, who where competentauthority in this regard. The Commissioner of Income Tax(Appeals) also failed to appreciate that the land wasshown in schedule to the balance sheet in the fixedassets and as such should be treated as capital asset.The Departmental Representative further submitted thatthe Commissioner of Income Tax (Appeals) failed toappreciate that the assessee has not given any evidenceduring the assessment proceedings to prove thatagricultural operations were actually carried out in thesold land and finally he also relied on the order of the Assessing Officer." 18.Rebutting the same, before the Tribunal, the authorisedrepresentative of the assessee has submitted as follows: Assessing Officer." 18.Rebutting the same, before the Tribunal, the authorisedrepresentative of the assessee has submitted as follows: "06. On the other hand, the ld. AuthorisedRepresentative submitted that till the assessee sold theland, agricultural operations, in fact, were carried outby the assessee. The assessing authority, in its order,stated that the land was actually under cultivation tillthe date of sale. A perusal of Sec.45 shows that therequirement as on the date of sale of transfer is thatthe asset must be capital asset, considering thedescription under the Act. The chargeability to taxunder Sec.45 arises only if on the date of sale, theland in question retained its character as a capitalasset, which means, an asset, which does not answer thedefinition of a capital asset and which is anagricultural land would automatically be outside thescope of sec.45. It is no doubt that the purpose forwhich the purchaser had purchased was totally differentfrom what the transferor had intended to use the land inquestion but with the admitted finding that the lands inquestions were under agricultural operation on the dateof sale for the purpose of considering the meaning ofcapital assets, it matters very little how thesubsequent purchaser intended the land in question tothe put to use. In the circumstances, there is no reasonto accept the plea of the Revenue that the asset inquestion is a capital asset and attracts levy of capitalgains tax, it having shed its character as anagricultural land on the sale effected. In the absenceof any contra indication that the assessee was using itor intending to use it for non agricultural purposes, itis difficult to accept of the Department. Further, hesubmitted that the assessee cannot be denied exemptionfrom capital gains tax once it has been accepted byRevenue authorities that the classification of lands asper the Revenue records was agricultural lands and itsatisfies other conditions of Sec.2(14) of the IncomeTax Act in this regard. The manner in which adjacentlands are used by the owner therein is not a ground tocome to a conclusion that the assessee’s land are notagricultural in nature and further AuthorisedRepresentative relied on the judgments of jurisdictionalHigh Court in the case of M.S. Srinivasa Naicker vs. ITO292 ITR 481 and Sakunthala Vedachalam vs. VanithaManickavasagam 369 ITR 558." 19.After hearing the learned counsel for the parties and the material on record, the Tribunal, vide order inI.T.A.No.1560/Mds/2015, dated 20.11.2015, held as follows: "07. We have heard both the parties and perused thematerial on record. It is an admitted fact that the landwas held by the assessee as a capital asset from thedate of purchase till the date of sale. There is nodispute on this aspect that it is evidenced by theentries reflected in the Balance Sheet of the assesseecompany. The assessee's contention is that it isintended to retain the agricultural land acquired as acapital asset. The assessee never treated the land asstock in trade. The assessee reflected the same in theBalance Sheet as a fixed asset. The assessee carried onagricultural operations though leasing the same to Shri.D.David. This agricultural land is situated beyond 08kmfrom any municipal limits. The Assessee has not takenany permission from the Government for making plots, asthe assessee company never had any intention to make theland into plots and carry on real estate business inrespect of the land. Thus, the assessee never created anasset as stock in trade but treated it as capital asset(agricultural land). The assessee has sold said land inthe assessment year. The same is reflected under thehead fixed assets in the Balance Sheet as on 31.03.2010.Revenue records of the above said land is brought onrecord by the assessee to prove the fact that the landheld/sold by the assessee is agricultural land. 7.1 The AR submitted that the sale transactioneffected by the assessee in respect of the aboveagriculture land constituted only sale of agricultureland, and by no stretch of imagination it can be treatedas adventure in trade and so as to treat the same as'business transaction' for the following reasons: (i) Purchase and holding of land for a period andsubsequent sale thereof itself cannot be an indicator tohold that the intention of the assessee was to carry onbusiness with those assets. The intention cannot bepresumed unless supported by evidence. In this case thetreatment given by the assessee for this asset in theaccount books clearly indicate that the intention of theassessee is to hold the same as capital asset to havegood returns from the same. (ii) The assessee held land for considerable time.The asset acquired was agriculture land as per theevidence brought on record. Thus, the assessee held theagriculture land for more than 3 years. During thatperiod the assessee carried on regular agriculturaloperations in the land by leasing for agriculturalpurpose. In the light of favourable market conditions the assessee thought it good to sell the asset torealize a good amount. Realization of better price in abooming market cannot be considered as an adventure intrade. (iii) The expression adventure in the nature oftrade occurs in the definition of business under section2(13) but the expression adventure in the nature oftrade has not been defined in the Act. It may bepertinent to mention here that a specific transactionpartake the character of business or an adventure in thenature of trade or realization of capital asset or amere conversion of asset has to be decided dependingupon facts of each case. (iv) In deciding as to whether a particulartransaction is an adventure in the nature of trade, theAssessing Officer must consider all the relevant andproved facts and circumstances. Realization ofinvestments consisting of purchase of agricultural landand resale, though profitable are clearly outside thedomain of adventure in the nature of trade. (v) The assessee treated the assets as investmentin agricultural land. Therefore disposal of the samewould not convert, what was a capital accretion, to anadventure in the nature of trade. To make it more clear,sale of agricultural land by the assessee andrealisation of good price would not alter the basicnature and characteristic of the transaction. In thecase of the assessee, land was acquired by the assesseeand reflected in the balance-sheets of the concern asfixed-assets. The assessee never treated the land asstock-in-trade and reflected in profit and loss account(closing stock). There was no element of trade attachedto the activity of the assessee in purchase and sale ofthe land. A continuous business requires more activityand greater organization. This is absent in thetransaction of sale of land by the assessee. Therefore,although there is profit in the transaction thetransaction cannot be characterized as an adventure inthe nature of trade. (vi) Whether a transaction in respect of an assetis capital or business income being adventure in thenature of trade depends on the facts and circumstancesof the case. There are many factors like frequency oftransactions, period of holding, intention for resaleetc, which determine whether the gain arising of atransaction is in the process of realisation ofinvestment or in the course of business. The mere factthat the person has purchased a land and subsequentlysold it, giving rise to a substantial profit cannot (vi) Whether a transaction in respect of an assetis capital or business income being adventure in thenature of trade depends on the facts and circumstancesof the case. There are many factors like frequency oftransactions, period of holding, intention for resaleetc, which determine whether the gain arising of atransaction is in the process of realisation ofinvestment or in the course of business. The mere factthat the person has purchased a land and subsequentlysold it, giving rise to a substantial profit cannot change the character of the transaction. It is thegeneral human tendency to earn profit out of capitalasset. No one invests to incur a loss. If the marketcondition suddenly goes up or down, it is always thetendency of a person to take a quick decision so thatthe realization on the investment is maximum or the lossis minimum. (vii) As already mentioned the assessee companycarried on regular agricultural operations in the saidagriculture land by leasing to Shri. D. David. (viii) By leasing the above agriculture land theassessee earned agriculture income which were broughtinto the account books of the assessee. Such income wasoffered to income tax. 7.2 From the above, it is clear that: (a) The assessee purchased agriculture land nowunder consideration situated beyond 8 km from themunicipal limits. (b) The assessee treated the same as fixed asset intheir books along with other agriculture land which wasalready acquired by them in the earlier years. (c) The land was identified as agriculture land inthe revenue records. (d) The assessee carried on routine agricultureoperations through Shri. D. David and the land was usedfor agriculture operations. (e) The assessee did not carry on any commercialactivity with reference to that land such as getting ofapproval for converting into sites, plotting of the sameinto sites etc. Thus, the character of the land i.e.,agriculture nature was continuing till the same was soldby the assessee company. (f) Because of favourable market conditions theassessee sold the land and the same fetched them a goodprice. 7.3 Therefore, in the present case there is nodispute that the assessees acquired agricultural land.There is also no dispute that there was agriculturaloperation in this land before sale of this land. 7.4 The Assessing Officer was of the opinion thatthe amount received on sale of this agriculturalproperty is nothing but on account of adventure in thenature of trade and the same was brought into incomefrom business. In this case, the assessee held the landalways as investment and not at all converted intostock-in-trade. The character of the land in the handsof the assessees has not changed. There is no materialon record to show that the assessee carried onactivities of buying and selling of land in a systematic manner so as to justify the action of the AO in treatingthe activities of the assessee as adventure in thenature of trade. The land was sold by the assessees inacreage and not by making plots. 7.5 Now the question as to whether a land isagricultural land or not is essentially a question offact. The question has to be answered in each casehaving regard to the facts and circumstances of thatcase. There may be factors both for and against aparticular point of view. We have to answer the questionon a consideration of all of them, a process ofevaluation and the inference has to be drawn on acumulative consideration of all the relevant facts. Itmay be stated here that not all the factors or testswould be present or absent in any case and that in eachcase one or more of the factors may make appearance andthat ultimate decision will have to be reached on abalanced consideration of the totality of thecircumstances. 7.5 Now the question as to whether a land isagricultural land or not is essentially a question offact. The question has to be answered in each casehaving regard to the facts and circumstances of thatcase. There may be factors both for and against aparticular point of view. We have to answer the questionon a consideration of all of them, a process ofevaluation and the inference has to be drawn on acumulative consideration of all the relevant facts. Itmay be stated here that not all the factors or testswould be present or absent in any case and that in eachcase one or more of the factors may make appearance andthat ultimate decision will have to be reached on abalanced consideration of the totality of thecircumstances. 7.6 The expression 'agricultural land' is notdefined in the Act, and now, whether it is agriculturalland or not has to be determined by using the tests ormethods laid down by the Courts from time to time. 7.7 The Supreme Court in the case of Smt.Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631/70Taxman 301 has approved the decision of a Division Benchof the Gujarat High Court in the case of Siddharth J.Desai (supra) and has laid down 13 tests or factorswhich are required to be considered and uponconsideration of which, the question whether the land isan agricultural land or not has to be decided oranswered. We reproduce the said 13 tests as follows: "1. Whether the land was classified in the Revenuerecords as agricultural and whether it was subject tothe payment of land revenue? 2. Whether the land was actually or ordinarily usedfor agricultural purposes at or about the relevant time?3. Whether such user of the land was for a longperiod or whether it was of a temporary character or byany of a stopgap arrangement? 4. Whether the income derived from the agriculturaloperations carried on in the land bore any rationalproportion to the investment made in purchasing theland? 5. Whether, the permission under s. 65 of theBombay 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 wasin respect of the whole or a portion of the land? If the permission was in respect of a portion of the land andif it was obtained in the past, what was the nature ofthe user of the said portion of the land on the materialdate? 6. Whether the land, on the relevant date, hadceased to be put to agricultural use? If so, whether itwas put to an alternative use? Whether such lesserand/or alternative user was of a permanent or temporarynature? 7. Whether the land, though entered in Revenuerecords, had never been actually used for agriculture,that is, it had never been ploughed or tilled? Whetherthe owner meant or intended to use it for agriculturalpurposes? 8. Whether the land was situated in a developedarea? Whether its physical characteristics, surroundingsituation and use of the land in the adjoining area weresuch as would indicate that the land was agricultural? 9. Whether the land itself was developed byplotting and providing roads and other facilities? 10. Whether there were any previous sales ofportions of the land for non-agricultural use? 11. Whether permission under s. 63 of the BombayTenancy and Agricultural Land Act, 1948, was obtainedbecause the sale or intended sale was in favour of anon-agriculturist? If so, whether the sale or intendedsale to such nonagriculturists was for non-agriculturalor agricultural user? 12. Whether the land was sold on yardage or onacreage basis? 13. Whether an agriculturist would purchase theland for agricultural purposes at the price at which theland was sold and whether the owner would have ever soldthe land valuing it as a property yielding agriculturalproduce on the basis of its yield?" 9. Whether the land itself was developed byplotting and providing roads and other facilities? 10. Whether there were any previous sales ofportions of the land for non-agricultural use? 11. Whether permission under s. 63 of the BombayTenancy and Agricultural Land Act, 1948, was obtainedbecause the sale or intended sale was in favour of anon-agriculturist? If so, whether the sale or intendeds