2019 (8) TMI 733 - HC - Income Tax

Capital asset u/s 2(14) - agricultural land - scope of word any municipality used in definition - HELD THAT - Contention of the writ petitioner's counsel cannot be accepted for the reason that Section 2(14)(iii)(b) contemplates calculating distance of the land in question from the nearest municipality. Merely because Villukury Village falls within Padmanabhapuram Division, it does not mean that Padmanabhapuram Municipality will have to be taken as the jurisdictional municipality for the purpose of computing the distance. The expression used is any municipality . Of course, as rightly contended by the writ petitioner's counsel, we will have to take note of the qualifying expression namely as referred to in item (a) . It only means that the municipality from which the distance is calculated should have a population of not less than 10 thousand and that it should be a municipality as statutorily understood. It has no other meaning or connotation beyond it. In this view of the matter, I hold that the order impugned in this writ petition is very much sustainable. There is no merit in this writ petition.

Summary

Issues:
1. Interpretation of Section 2(14) of the Income Tax Act regarding the definition of "capital asset."
2. Determination of the jurisdictional municipality for calculating the distance under Section 2(14)(iii)(b) of the Act.

Analysis:
1. The writ petitioner, an income tax assessee, filed returns for the assessment year 2015-16. The case underwent complete scrutiny due to a credit of ?1,92,01,588/- to the petitioner's capital account. The respondent assessed long term capital gains at ?1,78,20,328/- on the sale of agricultural lands near Nagercoil Municipality. The petitioner argued that the lands were agricultural and situated closer to Padmanabhapuram Municipality, invoking the concept of jurisdictional municipality. Various legal precedents were cited to support this claim. The court analyzed the amendment to Section 2(14) of the Act in 2014 and affirmed that the lands were within a town panchayat, not a municipality, hence not falling under Section 2(14)(iii)(a). The main dispute revolved around the calculation of distance from the nearest municipality, Nagercoil, as per the Act's provisions.

2. The court held that the distance for determining capital gains must be measured from the nearest municipality, Nagercoil, with a population exceeding 1 lakh but not exceeding 10 lakhs. Despite the lands being in Padmanabhapuram Division, the jurisdictional municipality for distance calculation remained Nagercoil Municipality as per the Act's clear language. The expression "any municipality" in Section 2(14)(iii)(b) referred to a municipality with a population of at least 10,000, without additional implications. Consequently, the court dismissed the writ petition, upholding the assessment order's validity. No costs were awarded, and the connected miscellaneous petition was closed.

This detailed analysis of the legal judgment from the Madras High Court showcases the interpretation of relevant provisions of the Income Tax Act and the application of legal principles to resolve the dispute regarding the taxation of agricultural lands and the jurisdictional municipality for calculating capital gains.