2015 (7) TMI 1372 - AT - Income Tax

Nature of land sold - capital asset u/s 2(14) or agricultural land - Addition on sale of land by treating the same as agricultural land - whether the distance of 8 kms. is to be taken from TMC Thane Municipal Corporation or NMMC Navi Mumbai Municipal Corporation - whether CIT (A) was justified in not appreciating the provisions of section 2(14)(iii)(b) of the Act correctly in as much as he held that the capital gain on the sale of land even though situated within 5 Kms. of Navi Mumbai Municipal Corporation will not be taxable? - HELD THAT - What is intended to be covered in the term capital asset is agricultural land comprised within the jurisdiction of a municipality and within the specified distance from the local limits of municipality or other local bodies mentioned therein a specified in the notification. As undisputed that the land in question is within the specified distance from the Panchkula municipality which falls in the State of Haryana while the land is in the State of Punjab. Thus the land is urban land for the purpose of definition of capital asset under section 2(14). The concept of municipality as a unit of State or the fact that a State has no jurisdiction to make law beyond its territory have no relevance for the purpose of determining whether a particular Land was capital asset or not for the purpose of taxing capital gains. If the land is adjacent to a municipality and is urban land covered under section 2(14) even if municipality and the land fall in different States the land will continue to be urban land. If such land is excluded from the definition of capital asset the purpose of the statutory scheme will not be achieved. We find that the judgments of Anjana Sehgal 2011 (3) TMI 695 - PUNJAB AND HARYANA HIGH COURT and Khazan Singh 2014 (6) TMI 261 - PUNJAB HARYANA HIGH COURT were delivered on 01. 03. 2011 and on 20. 02.14 whereas the decisions of various benches of the Tribunal relied upon by the AR are of the year 2009 2010 and 2012. Clearly the Benches of the Tribunal did not have the benefit of the order of the Hon ble High Court. Hon ble Court has decided the issue against the assessee. Judicial decision and proprietary stipulate that in such matter the wisdom of higher forum should prevail. So following the decisions of the Hon ble P H High Court we are reversing the decisions of the FAA. - Decided in favour of revenue.

Summary

Issues Involved:

1. Justification of deleting the addition on sale of land by treating it as agricultural land.
2. Correct appreciation of the provisions of section 2(14)(iii)(b) of the Income-Tax Act, 1961.
3. Determination of the jurisdictional municipality for the purpose of calculating the distance for capital gains tax applicability.

Detailed Analysis:

1. Justification of Deleting the Addition on Sale of Land by Treating it as Agricultural Land:

The Assessing Officer (AO) challenged the CIT(A)'s decision to delete the addition on the sale of land by treating it as agricultural land. The AO argued that the land sold by the assessee should not be considered agricultural land and thus should be subject to capital gains tax. The assessee had sold immovable property for Rs. 3.80 crores but did not disclose any income from capital gains. The AO found that the land was within 5 kilometers of Navi Mumbai Municipal Corporation (NMMC) limits, making it non-agricultural as per section 2(14) of the Income-Tax Act, 1961. The AO determined the net sale consideration at Rs. 2.63 crores and calculated the Long-Term Capital Gains (LTCG) at Rs. 2.57 crores.

2. Correct Appreciation of the Provisions of Section 2(14)(iii)(b) of the Income-Tax Act, 1961:

The CIT(A) held that the land was agricultural and situated beyond 8 kilometers from Thane Municipal Corporation (TMC), based on a certificate from Thane Urban Agglomeration and Agricultural Department. The CIT(A) noted that the land was separated from NMMC jurisdiction before the sale date, thus not falling within the taxable limits as per section 2(14)(iii)(b). The AO, however, maintained that the land was within 5 kilometers of NMMC, making it a capital asset subject to tax. The Tribunal reversed the CIT(A)'s decision, citing judgments from higher courts which clarified that the distance should be considered from the nearest municipality, irrespective of jurisdictional changes.

3. Determination of the Jurisdictional Municipality for the Purpose of Calculating the Distance for Capital Gains Tax Applicability:

The core issue was whether the distance of 8 kilometers should be measured from TMC or NMMC. The Tribunal referred to judgments from higher courts, including Anjana Sehgal and Khazan Singh, which established that the distance should be measured from the nearest municipality or cantonment board, regardless of state boundaries or jurisdictional changes. The Tribunal emphasized that the statutory scheme aims to include urban lands within specified distances from municipalities as capital assets for tax purposes. Hence, the land in question, being within 5 kilometers of NMMC, qualifies as a capital asset under section 2(14) and is subject to capital gains tax.

Conclusion:

The Tribunal concluded that the land sold by the assessee falls within the definition of a capital asset as per section 2(14) of the Income-Tax Act, 1961, due to its proximity to NMMC. The Tribunal reversed the CIT(A)'s decision and upheld the AO's determination of LTCG at Rs. 2.57 crores. The appeal filed by the AO was allowed, and the order was pronounced in the open court on 3rd July 2015.