2012 (8) TMI 129 - HC - Income Tax

Capital gain sale of agricultural land - assessee contended that land not coming either within the limits of any municipality or within the distance of 8 kms, from any notified municipality or urban area Held that - Land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14)(iii) of the Act is not attracted - it cannot be looked in as a capital asset within the meaning of Section 2(14)(iii)(b) of the Act also In favor of assessee

Summary

Issues:
1. Determination of long term capital gain on the sale of agricultural land.
2. Interpretation of Section 2(14)(iii)(a) & (b) of the Income Tax Act, 1961.
3. Reliance on municipal certificates for land classification.
4. Absence of Central Government notification under Section 2(14)(iii)(b).

Analysis:
1. The High Court addressed the issue of determining long term capital gain arising from the sale of agricultural land by a Hindu undivided family during the assessment year 2005-06. The crux of the matter was whether the total consideration from the sale resulted in long term capital gain amounting to Rs. 48,94,784.

2. The Court delved into the interpretation of Section 2(14)(iii)(a) & (b) of the Income Tax Act, 1961, which defines when agricultural land becomes a capital asset. Section 2(14)(iii)(a) covers land within the limits of certain municipal bodies with a minimum population, while Section 2(14)(iii)(b) includes land within 8 km of municipal limits subject to a Central Government notification.

3. An important aspect of the case was the reliance placed by the Tribunal on a certificate issued by Dasanapura Gram Panchayath regarding the location of the land in question. The Tribunal accepted the certificate, contrary to the revenue's claim that the land fell within the limits of Dasarahalli City Municipal Council. This reliance played a pivotal role in determining the classification of the land for tax purposes.

4. The Court noted the absence of any notification by the Central Government under Section 2(14)(iii)(b) for the area within 8 km of municipal limits. Despite arguments by the revenue contending the applicability of Clause (a) of Section 2(14)(iii) due to the proximity to the proposed Dasarahalli City Municipal Council, the Court found that without the necessary notification, the land could not be considered a capital asset under either Clause (a) or (b).

In conclusion, the High Court dismissed the appeal by the revenue, upholding the Tribunal's decision based on the correct interpretation of the provisions of the Income Tax Act and the absence of requisite notifications for the land in question to be classified as a capital asset.