2017 (3) TMI 1892 - AT - Income Tax

Nature of land sold - agricultural land or capital asset - distance of agricultural land from the nearby municipality - Addition of amount received from sale of agricultural land under the head capital gain - On the basis of information obtained from MMRDA, the Assessing Officer concluded that the assessee s claim that the agricultural land cannot be treated as capital asset under section 2(14)(iii) is not acceptable - whether the distance between the agricultural land sold by the assessee is within the prescribed limit of 8 kms. of municipal limit as provided under section 2(14)(iii)? - HELD THAT - Distance measured by the competent authority is by the method of shortest road distance. On a reading of section 2(14)(iii) of the Act, we have noted that the distance as per sub clause (b) is to be measured aerially. However, such amendment brought to the statute is effective from 1st April 2014. By way of further clarification, the CBDT has issued Circular no.17 of 2015 dated 6th October 2015, wherein, it has been clarified that the measurement of the distance aerially is to be applied from the assessment year 2014 15 and not to the prior assessment years. Thus keeping in view the letter dated 2nd February 2016 of the competent authority and the CBDT circular referred to above, prima facie it appears that the agricultural land situated at Village Vardoli may not be coming within the definition of capital asset in terms of section 2(14)(iii) of the Act. Therefore, the assessee s claim of exemption, at least, in respect of the agricultural land situated at Village Vardoli appears to be valid. However, since the certificate issued by the competent authority specifying the distance have not been examined keeping in view the CBDT circular referred to above, we are inclined to set aside the impugned order of the learned Commissioner (Appeals) and restore the matter back to the file of the AO to verify assessee s claim on the basis of the certificate issued by the competent authority as well as CBDT Circular no.17 of 2015. We must observe, the Assessing Officer should afford reasonable opportunity of being heard to the assessee and pass a speaking order dealing with the objections / submissions of the assessee on the issue. Assessee s appeal allowed for statistical purposes.

Summary

Issues Involved:
1. Assessment of capital gains on the sale of agricultural land.
2. Interpretation of the term "capital asset" under section 2(14)(iii) of the Act.
3. Method of measuring the distance of agricultural land from the nearest municipality.
4. Compliance with CBDT Circular no.17 of 2015 regarding distance measurement.
5. Restoration of matters back to the Assessing Officer for verification.

Analysis:

Issue 1: Assessment of capital gains on the sale of agricultural land
The appeal was against the addition made by the Assessing Officer for the amount received from the sale of agricultural land under the head "capital gain." The Assessing Officer had computed long-term capital gains from the sale of agricultural land, rejecting the assessee's claim that the land sold was not a capital asset as per section 2(14)(iii) of the Act. The learned Commissioner (Appeals) confirmed the addition, leading to the appeal before the ITAT Mumbai.

Issue 2: Interpretation of the term "capital asset" under section 2(14)(iii) of the Act
The main dispute was whether the agricultural land sold by the assessee could be treated as a capital asset under section 2(14)(iii) of the Act. The ITAT noted that the lands were agricultural in nature, and the key contention was whether the distance between the agricultural land and the municipal limit fell within the prescribed limit of 8 kms as per the Act.

Issue 3: Method of measuring the distance of agricultural land from the nearest municipality
The distance measurement of the agricultural land from the nearest municipality was a crucial factor in determining its classification as a capital asset. The ITAT considered various letters from MMRDA and the competent authority regarding the distance measurement, emphasizing the importance of measuring the distance by the shortest road distance method.

Issue 4: Compliance with CBDT Circular no.17 of 2015 regarding distance measurement
The ITAT referred to CBDT Circular no.17 of 2015, which clarified that the aerial measurement method for distance calculation applied only from the assessment year 2014-15 onwards. This clarification was essential in determining the validity of the assessee's claim for exemption from capital gains on the agricultural land sold.

Issue 5: Restoration of matters back to the Assessing Officer for verification
Considering the discrepancies in distance measurement and the applicability of the CBDT circular, the ITAT decided to set aside the orders of the learned Commissioner (Appeals) and restore the matters back to the Assessing Officer for reevaluation. The Assessing Officer was directed to verify the distance based on the certificate issued by the competent authority and the CBDT Circular no.17 of 2015, ensuring a fair opportunity for the assessee to present their case.

Overall, both appeals were allowed for statistical purposes, highlighting the importance of accurate distance measurement and compliance with relevant circulars in determining the tax implications of the sale of agricultural land.