2019 (1) TMI 1845 - AT - Income Tax

LTCG addition - capital asset u/s 2(14) - measurement of distance - whether the assessee s land sold was a capital asset or not falling within 8 Kms. of the GHMC u/s 2(14)(III)(B) of the Act as applicable in the impugned Assessment Year? - taxpayer stand throughout is that its land is not a capital asset since it is situated beyond 8 Kms. distance of any municipality whereas the Revenue s case is that Mamidipally gram panchayat is adjacent to the GHMC limits - HELD THAT - There is no evidence on record put forth at the Revenue s behest specifically quoting any road or surface connectivity of the assessee s lands to be within 8Kms. distance from any municipality including GMCH . Lower authorities have strongly relied upon the some aviation sector SEZ which cannot be taken as the relevant factor is 8 Kms distance not fulfilled u/s 2(14)(III)(B) of the Act. They have further relied upon Google assistant in coming to the conclusion that the assessee s lands are within 6 Kms. of the GHMC limits. Such a method has nowhere been prescribed in the Act. The legislature; in Finance Act, 2013 w.e.f. 01/04/2013, has made it clear whilst substituting the earlier provision with the distance of the land in question has to be measured as per aerial distance. This is not the Revenue s case that the said amendment carries any retrospective operation. Meaning thereby that 8 Kms distance condition has to be measured in terms of the road only as held in the case of CIT vs. Vijay Singh Kadan 2015 (9) TMI 755 - DELHI HIGH COURT . Revenue fails to dispute that neither of the lower authorities has quoted any surface link between the assessee s land and the nearest municipality namely GHMC so as to treat its lands as capital asset giving rise to long term capital gains on transfer. We direct the Assessing Officer to delete the impugned long term capital gains addition - Decided in favour of assessee.

Summary

Issues:
Assessment of long term capital gain (LTCG) addition under the Income Tax Act, 1961 for Assessment Year 2009-10 based on the classification of land as a capital asset within 8 Kms. of a municipality.

Analysis:
The appeal challenged the addition of long term capital gain (LTCG) amounting to ?3,09,77,775 by the Assessing Officer, which was confirmed by the Commissioner of Income Tax (Appeals). The primary issue revolved around whether the land sold by the assessee, situated in Mamidipally Mandal Saroonagar district Ranga Reddy, was a capital asset falling within 8 Kms. of the Greater Hyderabad Municipal Corporation (GHMC) as per Section 2(14)(III)(B) of the Act. The assessee contended that the land was agricultural and not within the specified distance, while the Revenue argued otherwise, citing the economic activity and proximity to GHMC. The case involved a detailed examination of various documents, including government notifications, city planner's letters, and revenue department memos, to determine the nature and location of the land in question.

The Tribunal analyzed the statutory provisions and factual evidence to ascertain the classification of the land. It noted that there was no evidence of the land being converted from agricultural to non-agricultural use before the sale. The Tribunal rejected the Revenue's argument based on the proximity to GHMC and economic activity, emphasizing the importance of the land's actual use for agricultural purposes. The Tribunal highlighted that the distance criterion of 8 Kms. should be measured in terms of road distance, as per the legislative amendments, and not aerial distance. It also emphasized that reliance on tools like "Google" for distance calculation was not appropriate, as it was not prescribed in the Act. The Tribunal referred to a previous court ruling to support the interpretation of the distance criterion.

Ultimately, the Tribunal accepted the assessee's argument, ruling in favor of the appellant and directing the Assessing Officer to delete the LTCG addition. The decision was based on the lack of evidence establishing the land's proximity to GHMC within the specified distance, as required by the Act. The appeal was allowed, and the LTCG addition was set aside.

This judgment provides a comprehensive analysis of the legal and factual aspects concerning the classification of land as a capital asset for taxation purposes under the Income Tax Act, highlighting the importance of statutory provisions, documentary evidence, and judicial interpretations in determining the tax liability related to capital gains arising from the sale of immovable property.