2013 (4) TMI 395 - AT - Income Tax

Whether agricultural land held by these two assessees are capital asset within the meaning of Section 2(14)(ii)(b) by adopting the ariel distance by straight line method instead of road distance - Held that - Following the decision of Commissioner of Income Tax Versus Satinder Pal Singh 2010 (1) TMI 752 - Punjab and Haryana High Court & many other judgments this ground of these two assessees in both the appeals is allowed by holding that the distance of 8km has to be measured through approach road and not by straight line method on horizontal plane and if through approach road the distance is taken, then it is seen that the distance is beyond 8 km from the municipal limit. Accordingly, no capital gain is payable as the agricultural land sold is not a capital asset within the meaning of Section 2(14)(iii)(b) of the Act. Once held this was an agricultural land and, therefore, any consideration out of sale of agricultural land, which is not assessable as the land was situated beyond 8 kms., therefore, the direction of the learned CIT(A) that the surplus may be treated as business income, has become now meaningless.

Issues Involved:
1. Whether the agricultural land held by the assessees is a capital asset within the meaning of Section 2(14)(ii)(b) by adopting the aerial distance by straight line method instead of road distance.
2. Whether the sale consideration from the agricultural land should be treated as business income or capital gain.

Issue-wise Analysis:

1. Capital Asset Definition and Measurement of Distance:

The primary issue in both appeals was whether the agricultural land sold by the assessees qualifies as a capital asset under Section 2(14)(ii)(b) of the Income Tax Act, based on the method of measuring distance from the municipal limits. The Assessing Officer (AO) had treated the land as a capital asset by measuring the distance using the straight-line method, also known as the crow's flight method.

The Tribunal referenced its earlier decision in the case of Sanjay Nagorao Paidlewar & Nitish Rameshchandra Chordia Vs. ACIT, where it was established that the distance should be measured by the approach road and not by the crow's flight method. This approach aligns with the decision of the Hon'ble Punjab and Haryana High Court in the case of Satinder Pal Singh, which has been consistently followed by various benches of the Tribunal. The Tribunal emphasized that measuring distance by the approach road considers the extent of urbanization, which is a statutory requirement.

2. Treatment of Sale Consideration:

The second issue was whether the sale consideration from the agricultural land should be treated as business income or capital gain. The Tribunal held that since the land was agricultural and situated beyond 8 km from the municipal limits when measured by the approach road, it does not qualify as a capital asset. Consequently, any income from its sale should not be treated as business income.

The Tribunal cited several precedents, including the Hon'ble Bombay High Court's decision in CIT Vs. Smt. Debbie Alemao, which held that land shown as agricultural in revenue records and not used for non-agricultural purposes should be treated as agricultural land, exempting it from capital gains tax. The Tribunal also referenced the Supreme Court's affirmation of the Delhi High Court's ruling in DLF United Limited, which supported the non-taxability of agricultural land sale proceeds.

Conclusion:

The Tribunal concluded that the distance of 8 km should be measured through the approach road, not by the straight-line method. Since the agricultural land in question was beyond 8 km from the municipal limits when measured by the approach road, it is not a capital asset under Section 2(14)(iii)(b) of the Act. Therefore, no capital gain is payable, and the appeals of both assessees were allowed.

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