2012 (4) TMI 627 - AT - Income Tax

Nature of land sold - location of the property - agricultural lands - capital gains - Held that - The land in question at the time of sale by the assessees was agricultural land within the meaning of Section 2 (14) (iii), therefore, it was not capital asset u/s 2 (14). No capital gain is chargeable on sale of such land by the assessees.

Issues Involved:
1. Classification of the land as a "capital asset" under Section 2(14)(iii)(b) of the Income Tax Act, 1961.
2. Determination of whether the land was agricultural land.
3. Measurement of the distance from the municipal limits of Gurgaon.
4. Applicability of interest under Section 234B of the Income Tax Act, 1961.

Detailed Analysis:

1. Classification of the Land as a "Capital Asset":
The primary issue was whether the land sold by the assessee was a "capital asset" under Section 2(14)(iii)(b) of the Income Tax Act, 1961. The assessee contended that the land was not a capital asset as it was located beyond 8 kilometers from the municipal limits of Gurgaon. The assessee relied on a certificate dated 13.10.2010 issued by the Patwari and Tehsildar and computer-generated maps showing the distance as more than 8 kilometers. The Revenue, however, obtained another certificate showing the distance as 7.7 kilometers. The Tribunal noted that the distance must be measured with regard to the motorable travel of the land from the municipal limits, and the road in question did not exist at the time of sale. The Tribunal concluded that the land was beyond 8 kilometers from the municipal limits at the time of sale, thus not a capital asset.

2. Determination of Whether the Land was Agricultural Land:
The Tribunal examined whether the land was agricultural land. The assessee provided evidence such as Khasra Girdawari showing agricultural use until 2005. The Revenue argued that the land was part of a "controlled area" and was not used for agricultural purposes for at least two years prior to the sale. The Tribunal found that the land was described as agricultural in the revenue records and was used for agricultural purposes for a long period. The Tribunal applied the 13 tests laid down by the Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim vs. CIT and concluded that the land retained its agricultural character.

3. Measurement of the Distance from the Municipal Limits of Gurgaon:
The Tribunal addressed the conflicting certificates regarding the distance of the land from the municipal limits. The assessee's certificate showed a distance of 8.5 kilometers, while the Revenue's certificate showed 7.7 kilometers. The Tribunal noted that the distance must be measured based on the motorable road existing at the time of sale. The Tribunal accepted the assessee's contention that the road used by the Revenue for measurement did not exist at the time of sale and relied on a certificate from the Executive Engineer of HUDA confirming this. The Tribunal concluded that the distance was more than 8 kilometers.

4. Applicability of Interest under Section 234B:
The Tribunal did not specifically address the issue of interest under Section 234B in detail, as the primary issue of whether the land was a capital asset was resolved in favor of the assessee. Since the land was not considered a capital asset, the question of levying interest under Section 234B did not arise.

Conclusion:
The Tribunal allowed the appeals filed by the assessees, concluding that the land sold was not a "capital asset" under Section 2(14)(iii)(b) of the Income Tax Act, 1961, as it was agricultural land situated beyond 8 kilometers from the municipal limits of Gurgaon at the time of sale. Consequently, no capital gain was chargeable on the sale of the land, and the addition of Rs. 8.36 crores as long-term capital gain was deleted. The issue of interest under Section 234B was rendered moot.

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