1996 (2) TMI 178 - AT - Income Tax

Issues Involved:
1. Whether the agricultural land sold by the assessee falls within the definition of "capital assets" under section 2(14)(iii)(a) of the Income-tax Act, 1961.
2. Interpretation of the term "within the jurisdiction of a municipality" in section 2(14)(iii)(a).
3. Applicability of the Delhi Municipal Corporation Act, 1957 to the land in question.
4. Relevance of previous judgments and decisions by various courts and tribunals.

Detailed Analysis:

1. Definition of "Capital Assets" under Section 2(14)(iii)(a):
The primary issue in this case is whether the agricultural land sold by the assessee, situated in village Dera Mandi, falls within the definition of "capital assets" under section 2(14)(iii)(a) of the Income-tax Act, 1961. The assessee argued that the land is agricultural and located in a rural area, thus not qualifying as a capital asset. The relevant provision excludes agricultural land in India, not being land situated in any area within the jurisdiction of a municipality with a population of not less than ten thousand or within such distance, not being more than 8 Kms from the local limits of any municipality, as specified by the Central Government.

2. Interpretation of "Within the Jurisdiction of a Municipality":
The assessee contended that the term "within the jurisdiction of a municipality" should be interpreted to mean areas under the governance of urban local bodies, excluding rural areas governed by Panchayats. The learned counsel argued that the land in question is governed by the Gaon Sabha and situated in a rural area, thus falling outside the jurisdiction of the Delhi Municipal Corporation. In contrast, the department argued that the expression refers to the territorial jurisdiction of a municipality, implying that any land within the Union Territory of Delhi, except New Delhi and Delhi Cantonment, falls within the jurisdiction of the Municipal Corporation of Delhi.

3. Applicability of the Delhi Municipal Corporation Act, 1957:
The learned counsel for the assessee referred to various provisions of the Delhi Municipal Corporation Act, 1957, to support the argument that the land in question is not under the jurisdiction of the Delhi Municipal Corporation. Specifically, the counsel pointed out that no notification under section 507 of the Delhi Municipal Corporation Act had been issued to declare the area as part of the urban areas. The department, however, emphasized that the entire Union Territory of Delhi, except New Delhi and Delhi Cantonment, is covered by the DMC Act, 1957, and thus the land falls within the jurisdiction of the Municipal Corporation of Delhi.

4. Relevance of Previous Judgments and Decisions:
The learned counsel for the assessee relied on previous decisions by the Tribunal in the cases of Surjan Singh and K. Parameshwaran, which concluded that rural lands could not be treated as capital assets under section 2(14) of the Income-tax Act. The department, however, argued that these decisions need reconsideration in light of the Supreme Court's decision in G.M. Omer Khan v. Addl. CIT, which upheld that agricultural land within the limits of a municipality is a capital asset. The Tribunal noted that the facts in the present case are distinct from those in Surjan Singh and K. Parameshwaran, and the decision in G.M. Omer Khan supports the department's stance.

Conclusion:
The Tribunal concluded that the land in question falls within the territorial jurisdiction of the Municipal Corporation of Delhi and is thus a capital asset under section 2(14)(iii)(a) of the Income-tax Act. The decision of the Tribunal in the case of Surjan Singh was overruled by the Supreme Court's decision in G.M. Omer Khan. Consequently, the appeal by the assessee was dismissed, and the orders of the CIT(A) were upheld.

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