2012 (12) TMI 610 - AT - Income Tax

Sale of land - whether a land is agricultural land or not - CIT(A) assumed that once the land fall within the limits of the Hyderabad Airport Development Authority (HADA) constituted under A.P. Urban Areas (Development) Act it is a municipality under section 2(14)(iii) of the Income Tax Act, 1961. - the land in question is classified in the Revenue records as agricultural land - assessee has not applied for conversion of this agricultural land for non-agricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. Held that - HADA was formed by the notification under Urban Area (Development) Act, 1975 with a view to promoting and securing planned development of the area in and around the proposed international Airport at Shamshabad. - HADA is basically and essentially a creation of the Act of State Legislature consisting of persons appointed by the State Government on salary basis. The Board Members are not elected by the people and there is no element of people choice being represented in any manner in the constitution of the Board. The Board functions strictly under the supervision and control of the State Government and does not hold or possess a local fund . Being so, HADA cannot be called as a local authority. - HADA cannot be treated as a Municipality and as such the agricultural lands situated within the jurisdiction of HADA do not constitute capital asset. - Decision in the case of Commissioner of Income-tax v. Murali Lodge 1991 (6) TMI 38 - KERALA HIGH COURT followed. Mere inclusion of land in the special zone without any infrastructure development thereupon or without establishing and proving that the land was put into use for non-agricultural purposes does not and cannot convert the agricultural land into non-agricultural land. In the instant case, at the relevant point of sale of the land in question, the surrounding area was totally undeveloped and except mere future possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into non-agricultural land at the relevant point of time when the land was sold by the assessee. The agricultural land of the assessee is outside the Municipal Limits of Hyderabad Municipality and that also 8 km away from the outer limits of this Municipality, assessee s land does not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. When the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, and also it is not the transfer of any share in the right in the development of such land through any joint development agreement, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset.

Summary

Issues Involved:

1. Whether the land sold by the appellant is agricultural land.
2. Whether the Hyderabad Airport Development Authority (HADA) is a 'municipality' under section 2(14)(iii) of the Income Tax Act.
3. Whether the sale of the land falls under the definition of a capital asset.
4. Whether the appellant is eligible for exemption under section 10(37) of the IT Act.
5. Whether the appellant can claim deduction under section 54F without filing a revised return.

Detailed Analysis:

1. Agricultural Land Status:

The appellant argued that the land sold was agricultural, as it was classified as such in revenue records and used for agricultural purposes up to the date of sale. The appellant cited various legal precedents to support the claim that the land retained its agricultural character. The Assessing Officer (AO) contended that the land's inclusion in the Hyderabad Airport Development Authority (HADA) area and its sale for non-agricultural purposes changed its character to a capital asset. The Tribunal emphasized that the land's classification in revenue records and its actual use for agricultural purposes were crucial factors. The Tribunal concluded that mere inclusion in HADA does not alter the land's agricultural character if it continues to be used for agricultural purposes at the time of sale.

2. HADA as a Municipality:

The appellant argued that HADA is not a municipality as defined under section 2(14)(iii) of the IT Act, and therefore, the land does not fall under the definition of a capital asset. The Tribunal examined the constitutional and statutory provisions governing municipalities and concluded that HADA, being a Special Area Development Authority constituted under the Andhra Pradesh Urban Areas (Development) Act, 1975, does not qualify as a municipality. The Tribunal noted that HADA does not have elected members, does not provide civic amenities, and does not have the power to levy taxes, which are essential characteristics of a municipality.

3. Definition of Capital Asset:

The AO argued that the land's inclusion in HADA and its sale for non-agricultural purposes made it a capital asset. The Tribunal disagreed, stating that the land's classification and use for agricultural purposes at the time of sale were decisive factors. The Tribunal emphasized that potential non-agricultural use or inclusion in a development area does not change the land's character if it continues to be used for agricultural purposes.

4. Exemption under Section 10(37):

The appellant claimed that the sale was a case of compulsory acquisition by the state government and should be exempt under section 10(37) of the IT Act. The Tribunal did not specifically address this issue, as it concluded that the land was agricultural and not a capital asset, making the question of exemption under section 10(37) moot.

5. Deduction under Section 54F:

The appellant sought an alternative claim for deduction under section 54F, arguing that the claim was made only after the AO refused the exemption from capital gains. The AO rejected the claim, citing the Supreme Court's decision in Goetze (India) Ltd. that claims not made through a revised return cannot be entertained. The Tribunal did not address this issue in detail, as it concluded that the land was agricultural and not subject to capital gains tax, rendering the question of deduction under section 54F irrelevant.

Conclusion:

The Tribunal held that the land sold by the appellant was agricultural land, not a capital asset, and therefore not subject to capital gains tax. The Tribunal emphasized the importance of the land's classification and actual use for agricultural purposes at the time of sale. The Tribunal also concluded that HADA is not a municipality under section 2(14)(iii) of the IT Act. Consequently, the appellant's appeal was partly allowed, and the issues of exemption under section 10(37) and deduction under section 54F were rendered moot.