2016 (4) TMI 946 - AT - Income Tax

Capital gain U/s 45 - sale of agricultural land - municipal limit - whether land transaction was found within 8 km from the municipal limit. Therefore, it is a capital asset as per section 2(14)(iii)(b)? - Held that - This issue has been considered by the Coordinate Bench in the case of Dr. Subha Tripathi 2013 (10) TMI 594 - ITAT CHANDIGARH wherein held that the Jaipur Municipality has been duly notified vide said notification dated 06/1/1994 and as on the date of said notification, the land in question was beyond 8 km from the municipal limit exist on that point of time. In the case of assessee, on the date of this notification dated 6th January, 1994, the municipal limit of Jaipur on Ajmer Road on which the assessee land is situated was up to ESI hospital. The ld AR placed the evidence in paper book at sl. no. 91. The assessee s land is 16 km away from the ESI hospital. These facts has not been controverted by the ld DR. Being a precedence, we respectfully following the order of the Coordinate Bench and held that land sold by the assessee is not a capital asset U/s 2(14) of the Act. Thus, capital gain does not arise. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the agricultural land sold qualifies as a capital asset under Section 2(14)(iii)(b) of the Income Tax Act, 1961.
2. Assessment of Long Term Capital Gain by the Assessing Officer.
3. Deduction claims under Sections 54F and 54B of the Income Tax Act.
4. Allowability of transfer expenses and indexed cost of acquisition.

Issue-wise Detailed Analysis:

1. Agricultural Land as Capital Asset:
The primary issue is whether the agricultural land sold by the assessee qualifies as a capital asset under Section 2(14)(iii)(b) of the Income Tax Act, 1961. The assessee contended that the agricultural land sold is not a capital asset as per the said section and thus not liable for capital gain tax. The CIT(A) did not accept this contention, holding that the distance of the land from the municipal limits should be considered as of the date of the transaction, not the date of the notification (06/01/1994). The Tribunal referred to the case of Dr. Subha Tripathi, where it was held that the distance should be measured from the municipal limits as they existed on the date of the notification. The Tribunal concluded that the land sold by the assessee is not a capital asset under Section 2(14) of the Act, as it was beyond 8 km from the municipal limits at the time of the notification, thus no capital gain arises.

2. Assessment of Long Term Capital Gain:
The Assessing Officer assessed the Long Term Capital Gain at ?2,75,09,939/-, rejecting the assessee's claim of nil income. The AO found that the land sold was within 8 km of the municipal limit based on a certificate from Nagar Nigam, Jaipur. The Tribunal, however, overturned this assessment based on the finding that the land did not qualify as a capital asset.

3. Deduction Claims under Sections 54F and 54B:
The CIT(A) and the Assessing Officer both disallowed the deduction claims under Sections 54F and 54B. The AO noted that the investments were made in the names of individual family members rather than the HUF, and the construction was completed after the due date of filing the return under Section 139(1). The CIT(A) supported this view, citing that Section 54B benefits are intended for individuals and not HUFs. The Tribunal did not need to adjudicate these points further since the primary issue was resolved in favor of the assessee, negating the capital gain.

4. Allowability of Transfer Expenses and Indexed Cost of Acquisition:
The Assessing Officer did not allow the transfer expenses of ?4,00,000/- and calculated the indexed cost of acquisition at ?1,70,461/- instead of ?3,23,050/- claimed by the assessee. The Tribunal's decision on the primary issue rendered these points moot, as no capital gain was recognized.

Conclusion:
The Tribunal allowed the appeal, concluding that the agricultural land sold by the assessee is not a capital asset under Section 2(14) of the Income Tax Act, 1961. Consequently, no capital gain arises from its sale, and the other grounds of appeal related to deductions and expenses were not required to be adjudicated. The order was pronounced in the open court on 18/03/2016.