2012 (12) TMI 280 - AT - Income Tax

Capital gains - transfer of agriculture land - alleged that the land sold was located within a distance of eight kilometers from the limits of the Hyderabad Municipal Corporation and, therefore, was a capital asset within the meaning of section 2(14) of the IT Act Held that - Mere fact that the land in question was agricultural land cannot be a ground to claim for exemption under section 2(14) of the Act as the land is situated within the local limits of Hyderabad Municipal Corporation - land transferred by the assessee is a capital asset, liable for capital gain in favor of revenue. Decision in the case of Gousia Begum 2011 (11) TMI 475 - ITAT HYDERABAD followed.

Summary

Issues:
1. Taxability of capital gains on the sale of agricultural land beyond municipal limits.
2. Interpretation of the definition of "capital asset" under section 2(14) of the IT Act.
3. Consideration of proximity to municipal limits in determining tax liability on capital gains.

Analysis:
1. The case involved the taxability of capital gains arising from the sale of agricultural land beyond municipal limits. The Assessing Officer (AO) concluded that the land sold was a capital asset within the meaning of section 2(14) of the IT Act due to its location within eight kilometers from the Hyderabad Municipal Corporation limits. The AO issued a notice under section 148 as no return of income was filed by the assessee. The AO determined the long-term capital gain taxable at Rs. 1,91,03,648 after rejecting various exemption claims made by the assessee.

2. The assessee raised an additional ground of appeal before the CIT(A), arguing that the property sold was agricultural land beyond the municipal limits and not covered under the definition of a "capital asset." The CIT(A) referenced judicial precedents, including a decision by the Hon'ble ITAT, Hyderabad, and the jurisdictional Tribunal, to support the view that agricultural land in a revenue mandal without specific notification by the Central Government cannot be considered a capital asset for tax purposes under section 2(14) of the Act. The CIT(A) deleted the addition made towards long-term capital gains.

3. The revenue appealed the CIT(A)'s decision before the ITAT, arguing that the land transferred by the assessee fell under Rajendra Nagar Municipality, which was not notified by the Central Government for treating it as a capital asset under section 2(14)(iii)(b) of the IT Act. The ITAT considered a similar issue in a previous case and held that the land in question, though used for agricultural purposes, was urban land within the municipal limits and thus constituted a capital asset. The ITAT emphasized the proximity to municipal limits in determining tax liability on capital gains and allowed the revenue's appeal, holding the land transferred as a capital asset liable for capital gain.

In conclusion, the ITAT upheld the revenue's appeal, emphasizing the interpretation of the definition of a capital asset under the IT Act and the significance of proximity to municipal limits in determining tax liability on capital gains from the sale of land.