2015 (4) TMI 227 - HC - Income Tax

Measurement of distance for the purpose of agricultural land - ITAT held that the distance of 8 kms. ought to be measured by the approach road and not by the straight line method ? - Held that - If the assessee has earned business income and not the agricultural income Section 11 of the General Clauses Act will prevail unless a different intention appears to the contrary. The impugned order appears well reasoned in the facts and circumstances to clearly indicate that any consideration received out of sale of the agricultural land cannot be treated as business income for the purpose of income tax. The distance between the municipal limits and assessed property/asset is to be measured having regard to the shortest road distance and not as per the crow s flies i.e. a straight line distance as canvassed by the Revenue. The income out of transactions of immovable property in the nature of agricultural land is held as capital gain exempted under the Income Tax as arising from the agricultural land. See DLF United Ltd. vs. Commissioner of Income Tax 1995 (9) TMI 51 - DELHI High Court Insofar as relevance of Section 11 of the General Clauses Act is concerned it needs to be noted that here the relevant amendment prescribing distance to be counted must be aerial has come into force w.e.f. 1st April 2014. The need of amendment itself shows that in order to avoid any confusion the exercise became necessary. The Parliament noticed the Judgments being delivered and therefore emphatically pointed out aerial distance as the relevant norm. This exercise to clear the confusion therefore shows that benefit thereof must be given to the assessee. It is settled law that in such matters when there is any doubt or confusion the view in favour of the assessee needs to be adopted. The Circular No.3/240 dt.24.1.2014 shows vide clause no.4 amendment in definition of Capital Asset and clause 4.5 dealing with applicability expressly stipulates that it takes effect from 1.4.2014 and therefore prospectively applies in relation to the assessment year 2014 15 and subsequent assessment years. Hence the question whether prior to the said assessment year 2014 15 the Authorities erred in computing the distance by road does not arise at all. The IT cannot be questioned on that ground. For these reasons Section 11 of the General Clauses Act also has no application in the present matter where the ITAT was concerned with the assessment year 2009 10 or prior to the time when amendment took effect. - Decided in favour of assessee.

Issues Involved:
1. Measurement of distance for determining agricultural land under Section 2(14)(iii)(b) of the Income Tax Act.
2. Determination of whether income from the sale of agricultural land is considered business income or exempt capital gain.

Issue-wise Detailed Analysis:

1. Measurement of Distance for Determining Agricultural Land:

The substantial question of law raised is whether the ITAT was correct to hold that the distance of 8 kms. ought to be measured by the approach road and not by the straight line method.

The Assessing Officer measured the distance using the "crow's flight or straight line" method, thus classifying the land as a capital asset within 8 kms. of the municipal limits, which was contested by the assessee who argued that the distance should be measured by the approach road.

Various precedents were cited, including Commissioner of Income Tax vs. Satinder Pal Singh (2010) 229 CTR (P&H) 82, which supported the assessee's view that distance should be measured by the approach road. The ITAT Mumbai Bench in Laukik Developers Vs Deputy Commissioner of Income Tax (2007) 108 TTJ (Mumbai) 364 and Commissioner of Income Tax Vs Shabbir Hussain Pithawala (2014) 98 DTR (MP) 62 also held that the distance for agricultural land should be measured by the road.

The court concurred with these views, stating that "Income Tax exemptions for agricultural income are bound to promote agriculture in the country" and that the distance should indeed be measured by the approach road.

Regarding Section 11 of the General Clauses Act, which indicates that distance should be computed aerially, the court noted that amendments in taxing statutes should operate prospectively unless a different legislative intention is clearly expressed. The court found the impugned order well-reasoned, indicating that any consideration received out of the sale of agricultural land cannot be treated as business income for income tax purposes.

2. Determination of Income from the Sale of Agricultural Land:

The court examined whether the income from the sale of agricultural land should be treated as business income or exempt capital gain. The assessee argued that the land was agricultural and thus exempt from capital gains tax, while the revenue contended it was business income.

The court referred to the ruling in the case of DLF United Ltd. vs. Commissioner of Income Tax (1995) 129 CTR (Del) 33, where it was held that compensation received for the acquisition of agricultural land was not income and that agricultural land was excluded from the definition of 'capital asset' under Section 2(14)(iii).

The court found that "capital gain arising from the transaction in respect of agricultural land cannot be considered as business income," and this ruling was applicable to the present case.

Regarding the relevance of Section 11 of the General Clauses Act, the court noted that the amendment prescribing aerial distance came into force on 1st April 2014. It emphasized that the benefit of any doubt or confusion must be given to the assessee, and the amendment should apply prospectively. Therefore, the ITAT's decision to measure the distance by the road for the assessment year 2009-10 was upheld.

Conclusion:

The court dismissed the appeal, affirming that the distance for determining agricultural land should be measured by the approach road and not by the straight line method. Additionally, income from the sale of agricultural land was held to be exempt from capital gains tax and not business income. The appeal was dismissed with no order as to costs, and other related appeals were also dismissed accordingly.

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