2020 (3) TMI 472 - HC - Income Tax

Nature of land sold - Capital asset u/s 2(14) or agricultural land - jurisdiction of a municipality or a cantonment board - HELD THAT - For land to be excluded from capital asset, it has to be agricultural land in India; such land to be not agricultural must fulfill two conditions viz. it must be land situated in any area which is comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less than 10,000. These two conditions are pre-conditions and must be read conjunctively. If both the conditions are present then it would not be agricultural land and would be treated as capital asset. However, inversely speaking, if either of the two conditions are absent then the land would be agricultural land and excluded from capital asset. Though we have held the land in question to be within the jurisdiction of a municipality we find the second condition to bring the land outside the ambit of agricultural land i.e. that the area has a population which is not less than 10,000 absent. In this connection, Tribunal had considered the census report as well as the population certificate of the village dated 02.06.2008 and other relevant documents and thereafter returned a finding of fact that at the time of sale, the land in question was situated at village Juchandra, the population of which was 5,912 which is less than the statutory requirement of 10,000. Thus, this condition being absent the sold land was rightly treated as agricultural land, not included within the ambit and meaning of capital asset. This is a finding of fact which has not been questioned by the revenue as perverse being contrary to the record as would be evident from the two questions which have been raised. On this finding of fact, we are of the opinion that Tribunal was justified in holding that the lands which were sold were agricultural lands, not forming part of capital asset within the meaning of Section 2(14) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the land sold by the assessee was agricultural land and not within the jurisdiction of any municipality.
2. Whether the land transaction was in the nature of trade and liable to tax.

Issue-wise Detailed Analysis:

1. Agricultural Land and Municipal Jurisdiction:

The primary issue was whether the land sold by the assessee was agricultural land situated outside the jurisdiction of any municipality and thus exempt from being considered a capital asset under Section 2(14)(iii)(a) of the Income Tax Act, 1961. The Assessing Officer contended that the land fell within the Vasai-Virar Municipal Corporation limits as per the notifications dated 03.07.2009 and 31.05.2011, thus making it non-agricultural and taxable. However, the Tribunal found that the land in Juchandra village became part of the Vasai-Virar Municipal Corporation only on 31.05.2011 and had a population of 5,912, which is less than the statutory requirement of 10,000 for it to be considered a capital asset. The High Court upheld this finding, stating that the two conditions under Section 2(14)(iii)(a) must be read conjunctively. Since the population condition was not met, the land remained agricultural and outside the purview of capital asset.

2. Nature of Land Transaction:

The second issue was whether the assessee's land transactions were in the nature of trade and thus liable to tax. The Assessing Officer argued that the assessee was engaged in the business of construction and land development, treating the land as a capital asset. The Tribunal, however, held that the land sold was agricultural and not a capital asset, thus exempting it from tax. The High Court agreed with the Tribunal’s assessment, noting that the land was agricultural and not within the jurisdiction of a municipality with a population of 10,000 or more at the time of sale.

Conclusion:

The High Court dismissed the revenue's appeal, affirming the Tribunal's decision that the land sold by the assessee was agricultural and not a capital asset, thus exempt from tax. The Court emphasized the conjunctive reading of the conditions under Section 2(14)(iii)(a) and upheld the factual findings regarding the population and municipal jurisdiction. The appeal was dismissed with no order as to costs.