2016 (5) TMI 726 - HC - Income Tax

Agricultural land - distance measure - Held that - The distance is more than 9 kms and treating the land sold as agricultural land and, thus, no substantial question of law is arising in this appeal.

Summary

Issues Involved:
1. Distance of the land from municipal limits.
2. Agricultural nature of the land.
3. Competence of the Tehsildar to issue the distance certificate.
4. Applicability of capital gains tax on the sale of the land.

Detailed Analysis:

1. Distance of the land from municipal limits:
The primary issue was whether the land sold was situated within 8 kilometers of the municipal limits. The Assessing Officer initially concluded that the land was within 8 kilometers based on a certificate from the Tehsildar. However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) found that the land was beyond 9 kilometers from the municipal limits. This conclusion was supported by multiple certificates, including those from the Executive Engineer, Public Works Department, and a land surveyor, as well as a Google map. The Tribunal emphasized that the road distance, not the straight-line distance, should be considered for measuring the distance from municipal limits, aligning with the principle of urbanization.

2. Agricultural nature of the land:
The second issue was whether the land qualified as agricultural land. The Assessing Officer argued that the land was not agricultural because the assessee, being an advocate, did not personally cultivate it. However, the Tribunal noted that agricultural operations were carried out by one of the assessee's brothers, and there is no requirement under the Income Tax Act that only self-cultivated land qualifies as agricultural. The land was recorded as agricultural in the revenue records, and no steps were taken to change its use before the sale. The Tribunal concluded that the land was agricultural, thus exempting it from capital gains tax under Section 2(14)(iii) of the Income Tax Act.

3. Competence of the Tehsildar to issue the distance certificate:
The Tribunal addressed the argument that the Tehsildar was not competent to issue a certificate regarding the distance of the land from municipal limits. It held that the Tehsildar, being a concerned revenue officer, was indeed competent to issue such a certificate based on the information from the revenue Patwari. The Tribunal also relied on the decision from the Punjab & Haryana High Court in CIT vs. Lalsingh & Others, which supported the competence of the Tehsildar in such matters.

4. Applicability of capital gains tax on the sale of the land:
The Tribunal examined whether the sale of the land should attract capital gains tax. The Assessing Officer had applied Section 45 of the Income Tax Act, which deals with capital gains from the transfer of capital assets. However, the Tribunal found that the land, being agricultural and situated beyond the prescribed municipal limits, did not qualify as a capital asset under Section 2(14)(iii). The Tribunal emphasized that the intention of the legislature and relevant sections of the Income Tax Act must be considered, and concluded that no capital gains tax was exigible on the sale of the land.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the order of the Commissioner of Income Tax (Appeals) and holding that the land was agricultural and situated beyond 9 kilometers from the municipal limits. Consequently, the sale of the land did not attract capital gains tax. The Tribunal's decision was based on a thorough analysis of the facts, certificates from competent authorities, and relevant judicial pronouncements. The High Court upheld the Tribunal's decision, finding no substantial question of law arising in the appeal.