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The judgment involves the interpretation of section 2(14)(iii)(a) of the Income-tax Act, 1961 regarding the classification of agricultural lands in Periakuppam village as capital assets based on population criteria. Interpretation of Section 2(14)(iii)(a): The case revolves around the contention that only agricultural land in an area within a municipality with a population of more than 10,000 can be considered a capital asset. The assessee argued that as Periakuppam village's population is less than 10,000, the land sold should not be classified as a capital asset. However, the Revenue maintained that the population limit applies to the municipality as a whole, not specific areas within it. The court analyzed the language of section 2(14)(iii)(a) and concluded that the population criterion pertains to the municipality and not individual areas within it. Andhra Pradesh High Court Decision: The court referenced the decision of the Andhra Pradesh High Court in Addl. CIT v. G. M. Omarkhan [1979] 116 ITR 950 (AP), which supported the interpretation that the population requirement applies to the municipality or cantonment, not specific areas within them. Based on this reasoning, the court agreed with the Tribunal's decision and held that the capital gains from the land sale cannot be exempted under section 2(14)(iii) of the Act. Conclusion: Ultimately, the court answered the questions in favor of the Revenue, stating that the capital gain arising from the sale of the land in question is not exempt under section 2(14)(iii) of the Act. The Revenue was awarded costs from the assessee, including counsel's fee of Rs. 500.
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