2013 (3) TMI 53 - HC - Income Tax

Land acquisition - Whether land acquired is agricultural land or a capital asset within the meaning of Section 2(14) - land of the assessee the subject matter of present assessment, was intended to be acquired by way of a notification dated 04.05.1995 issued under Section 4 of the Land Acquisition Act, 1894 - whether the compensation shall be assessed in the year of receipt or as and when the matter is finally resolved ? - Held that - From the perusal of the affidavits filed by the assessee the part of the land owned by the assessee was acquired in the year 1989 i.e. for development of Sectors 24 to 28, Panchkula. Sector 28 is at a distance of seven and half kilometers from the District Headquarter i.e. Majri Chowk, which has been treated as a zero point by the assessee themselves in the matter pertaining to determination of compensation. The land acquired, the present subject matter, is at a distance of 1 Km from such zero point. In land acquisition cases, the assessee have projected that the land has a potential for being developed as a residential and commercial area located in close proximity of developed Panchkula city. Haryana Urban Development Authority is a local authority in terms of Section 3 of the Haryana Urban Development Authority Act, 1977. It is a corporate body, authorized to develop property, make plots, allot plots, carve out zones in planning, construct plots and delegate its authority of construction to other agencies. As decided in Union of India & others Vs. R.C.Jain & others 1981 (2) TMI 200 - SUPREME COURT OF INDIA the local authority in terms of Section 3 (31) of the General Clauses Act means a Municipality. Therefore, conversely, the expression Municipality in Section 2 (14) of the Act would include a local authority. Sub-clause (a) of clause (iii) of Section 2 (14) deals with an area which falls within the jurisdiction of a Municipality, whereas clause (b) enable the Central Government to declare an area situated within 8 kms from the local limits of any Municipality referred to in clause (a) to notify having regard to extent and scope for urbanization of that area. The notification dated 06.01.1994 takes into its ambit an area within 5 kms of the Municipality in the expression capital asset . Therefore, the urban area developed by the Authority forms part of a Municipality. Considering the expression Municipality as defined in Black s Law Dictionary, the Court observed that the tests were, the administration of the provisions the Kerala Municipalities Act, 1960 was vested with the standing committee consisting of chairman and commissioner etc. Such members are elected by the residents of the area. The Chairman and vice-chairman of the municipality are elected by the members of the council. The Commissioner is appointed by the Government in consultation with the council. The expression by any other name appearing in Item (a) of clause (iii) of Section 2 (14) has to be read ejusdem generis with the earlier expressions i.e. municipal corporation, notified area committee, town area committee, town committee. The Court has also not considered the scope and ambit of Section 3 (31) of the General Clauses Act defining local authority. Thus in view of the above discussion it is held that the land, subject matter of acquisition, is a capital asset falling within the scope of clause (iii) of Section 2 (14) of the Act - the question of law is answered in favour of the Revenue and against the assessee.

Issues Involved:
1. Whether the land acquired is agricultural land and, therefore, the compensation should be assessed in the year of receipt or when the matter is finally resolved.
2. Applicability of Section 45(5) of the Income Tax Act, 1961.
3. Interpretation of Section 2(14) of the Income Tax Act regarding the definition of 'capital asset' and 'agricultural land'.
4. Relevance and applicability of the notification dated 06.01.1994 concerning the area within 5 km from the municipal limits of Panchkula.
5. Consideration of previous judgments and findings, including the Supreme Court's direction and the Tribunal's opinion.

Detailed Analysis:

1. Whether the land acquired is agricultural land and, therefore, the compensation should be assessed in the year of receipt or when the matter is finally resolved.
The court examined whether the land acquired was agricultural land, which would affect the timing of compensation assessment. The land in question was acquired through a notification dated 04.05.1995. The Assessing Officer initially assessed interest on the compensation as taxable in the year under consideration. However, the Commissioner of Income Tax (Appeals) and the Tribunal held that since litigation regarding compensation was pending, the interest was not taxable. The Revenue appealed, arguing that the land was not agricultural and thus compensation should be assessed in the year of receipt.

2. Applicability of Section 45(5) of the Income Tax Act, 1961.
The Revenue raised questions regarding the applicability of Section 45(5) of the Income Tax Act, which deals with the taxation of enhanced compensation. The court referred to a previous order dated 27.10.2010 and the Supreme Court's judgment in Commissioner of Income Tax Vs. Ghanshyam (HUF), which stated that income is taxable in the year of receipt, irrespective of whether litigation regarding compensation has attained finality.

3. Interpretation of Section 2(14) of the Income Tax Act regarding the definition of 'capital asset' and 'agricultural land'.
The court analyzed Section 2(14) of the Income Tax Act, which excludes agricultural land from the definition of 'capital asset' if it is not situated within municipal limits or within a specified distance from such limits. The court considered whether the land fell within the jurisdiction of a municipality or similar authority, which would classify it as a capital asset and not agricultural land.

4. Relevance and applicability of the notification dated 06.01.1994 concerning the area within 5 km from the municipal limits of Panchkula.
The court examined a notification dated 06.01.1994, which stated that land within 5 km of Panchkula's municipal limits should not be considered agricultural land. The assessee argued that Panchkula Municipality was constituted only on 25.01.2001, making the 1994 notification inapplicable. However, the court found that the area developed by Haryana Urban Development Authority (HUDA) as a satellite town of Chandigarh was effectively an urban area, thus falling within the definition of a municipality or similar authority.

5. Consideration of previous judgments and findings, including the Supreme Court's direction and the Tribunal's opinion.
The court reviewed previous findings, including the Supreme Court's direction to the Tribunal to determine whether the land was agricultural. The Tribunal concluded that the land was not agricultural, a finding that the Supreme Court did not explicitly endorse but also did not reject. The court also considered the development and urbanization of the area, concluding that the land was indeed a capital asset.

Conclusion:
The court held that the land in question was a capital asset within the meaning of Section 2(14) of the Income Tax Act, and thus, the compensation was taxable in the year of receipt. The question of law was answered in favor of the Revenue, and the appeal was disposed of accordingly.

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