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2014 (12) TMI 599 - AT - Income TaxAddition made by AO on LTCG Distance of land more than 8 Kms. From the Muincipality so as to be treated it as agricultural land or not - Whether distance of the land is to be considered from Sohna Municipal Corporation or Gurgaon Municipal Corporation - assessee claimed that the capital gain from the sale of land is not taxable because the land is agricultural land which does not fall within the definition of capital asset u/s 2(14) Held that - The land does not fall in any area which is comprised within the jurisdiction of a municipality or a cantonment board which has a population of not less than ten thousand - the provisions of clause (b) of Section 2(14)(iii) are unambiguous, plain and simple i.e. distance of the land can be considered from the local limits of any of the municipalities relying upon Commissioner of Income-Tax, Chandigarh Versus Smt. Anjana Sehgal 2011 (3) TMI 695 - PUNJAB AND HARYANA HIGH COURT thus, the land is capital asset which was within the distance of 8 Kms. from a municipality in Haryana while the land was situated in the State of Punjab - distance of the land under consideration can be measured from Gurgaon Municipal Corporation for the purpose of Section 2(14)(iii)(b). Whether aerial distance is to be considered or as per road distance Held that - CIT(A) rightly held that the distance is to be measured as per road distance and not as per aerial distance following the decision in CIT v. Satinder Pal Singh 2010 (1) TMI 752 - Punjab and Haryana High Court - capital asset would not include any agricultural land which is not situated in any area within such distance as may be specified in this behalf by a notification in the Official Gazette which may be issued by the Central Government thus, the distance of the land is to be measured as per road distance and not aerial distance as per crow s flight. Whether distance up to the land should be considered or up to the village within which such land is situated Held that - The view taken by the CIT(A) cannot be accepted - the land should be within the area whose distance is not more than 8 Kms. - There is no mention that if the land is in any particular village, then the distance of 8 Kms. is to be considered from the outer limit of the village. Area word has not been defined in the Income-tax Act - the area only means any open space or portion of earth s surface - the correct interpretation of the word in any area within such distance not being more than 8 Kms. from the local limits of any municipality would mean the land should be within such area which is not more than 8 Kms. from the local limit of the municipality thus, the land should be within the distance of 8 Kms. from the local limit of the municipality and not from the outer limit of the village in which such land falls. Final determination of distance of the land from Gurgaon Municipality Held that - Assessee had also produced the certificates from Shri I.D. Rustogi, former Additional Director General, CPWD who had certified the distance of the land from Gurgaon Municipality as 10.4 Kms. in which he has given point to point route distance - No valid reason has been given by the Revenue authorities for rejecting this certificate - Considering the certificate of the Tehsildar coupled with his statement before the Assessing Officer, certificate of the Assistant Engineer, Gurgaon Municipal Corporation and the certificate from Shri I.D. Rustogi, former Additional Director General, CPWD, the distance of the land from Gurgaon Municipal Corporation is established to be beyond 8 Kms - the land sold by the assessee does not fall within the ambit of either clause (a) or (b) of Section 2(14)(iii) - the land sold by the assessee was agricultural land and therefore, out of the purview of capital asset, hence, not chargeable to capital gain tax Decided in favour of assessee. Forfeited (balance) out of advance money received under forfeiture clause deleted Held that - As per Section 51, any advance received and forfeited by the assessee in respect of any negotiations for transfer of capital asset is to be deducted from the cost of the asset - at the relevant time i.e. during AY 2006-07, there was no provision under the Income-tax Act for treating the forfeiture of advance received during the course of negotiations of a transfer of a capital asset as income from other sources - The provision has come into effect with effect from 1.4.2015 only thus, the order of the CIT(A) is upheld Decided against revenue.
Issues Involved:
1. Distance measurement for determining capital asset status. 2. Method of distance measurement (aerial vs. road). 3. Point of distance measurement (up to the land vs. village). 4. Taxability of forfeited advance money. Issue-Wise Detailed Analysis: (A) Distance Measurement from Sohna or Gurgaon Municipal Corporation: The primary issue was whether the distance of the land should be considered from Sohna Municipality or Gurgaon Municipality. The tribunal upheld that the distance can be measured from any municipality, including Gurgaon, which is nearer to the land than Sohna. This decision was supported by the ruling in the case of Smt. Anjana Sehgal by the Punjab & Haryana High Court, which clarified that the land's distance from any municipality's local limits, irrespective of state boundaries, is relevant for determining if it is a capital asset under Section 2(14)(iii)(b). (B) Method of Distance Measurement (Aerial vs. Road): The tribunal agreed with the CIT(A)'s view that the distance should be measured as per road distance and not aerial distance. This conclusion was based on the decision of the Punjab & Haryana High Court in CIT v. Satinder Pal Singh, which emphasized that urbanization considerations necessitate measuring distance by road. The tribunal found no contrary decisions and noted that the Revenue did not challenge this finding in their appeal. (C) Point of Distance Measurement (Up to the Land vs. Village): The tribunal disagreed with the CIT(A) and the Assessing Officer's view that the distance should be measured from the municipal limits to the area (village) in which the land is situated. Instead, the tribunal held that the distance should be measured up to the land itself. The tribunal referenced the dictionary meaning of "area" and found no basis for the assumption that it referred to the village. The tribunal supported this interpretation with a graphical presentation and the decision in CIT Vs. Lal Singh & Ors., which accepted the distance measured up to the land. (D) Final Determination of Distance from Gurgaon Municipality: The tribunal evaluated multiple certificates provided by both the assessee and the Revenue. The tribunal found the certificates from the Tehsildar and the Assistant Engineer, which measured the distance by road to be approximately 9 Kms and 9.94 Kms respectively, to be credible. These distances were beyond the 8 Kms limit, thus supporting the assessee's claim. Consequently, the tribunal concluded that the land did not fall within the ambit of Section 2(14)(iii)(b) and was not a capital asset, exempting it from capital gains tax. Taxability of Forfeited Advance Money (Revenue's Appeal): The Revenue challenged the deletion of an addition of Rs. 27,66,016/- made by the Assessing Officer under the head income from other sources. The tribunal noted that the Finance No.2 Act, 2014, which made forfeited advance money taxable under Section 56(2)(ix), was effective from 1.4.2015 and not applicable to the assessment year 2006-07. At the relevant time, Section 51 provided for the adjustment of forfeited advance against the cost of acquisition of the asset. Since there was no provision to tax the excess forfeited amount as income from other sources during the assessment year in question, the tribunal upheld the CIT(A)'s decision to delete the addition. Conclusion: The tribunal allowed the assessee's appeal, holding that the land was not a capital asset and thus not subject to capital gains tax. The Revenue's appeal regarding the taxability of the forfeited advance money was dismissed, as the relevant tax provision was not applicable for the assessment year 2006-07. The decision was pronounced in the open Court on 12th December, 2014.
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