2021 (9) TMI 346 - AT - Income Tax

Chargeability of capital gains on sale of land - nature of land sold - capital asset within the meaning of Section 2(14) OR agricultural land - whether the agricultural land parcel in question situated at Village Adalaj, Gujarat falls within the definition of capital asset under s. 2(14)? - doctrine of consistency - claim of deduction u/s 54B - HELD THAT - The view taken in the case of other co-owner has attained finality and ought to have been followed as a matter of judicial discipline. The Revenue cannot be permitted to take different stand in two different cases emanating from same set of facts. The case of the assessee for exclusion of agricultural land from the definition of capital asset placed in identical factual matrix thus requires to be upheld on this ground alone. As assessee has successfully demonstrated that the land parcels situated as Adalaj does not fall within the meaning of expression Municipality or Municipal Corporation and therefore falls in exception provided in sub-clause (a) to Section 2(14)(iii) of the Act. As stated on behalf of assessee, the development authority i. e. GUDA is a creation of statute. It cannot be equated with Municipal Corporation in the light of the ratio of decisions of Hon ble Kerala High Court in the case of Murali Ldge 1991 (6) TMI 38 - KERALA HIGH COURT and Smt. T. Urmila 2012 (12) TMI 610 - ITAT HYDERABAD as rightly pointed out on behalf of the assessee. Hence the impugned land falls outside the ambit of definition of capital asset provided in Section 2(14) of the Act. Consequently, the capital gains arising on sale of agricultural land which is not a capital asset cannot be brought to charge under s. 45 of the Act. We thus find merit in the plea of the assessee for exemption of capital receipt from ambit of taxation.Once, it is found that the capital gains arising from sale of agricultural land itself is not susceptible to chargeability, the claim of deduction under s.54B becomes infructuous and therefore not adjudicated upon. - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the agricultural land sold by the assessee falls within the definition of 'capital asset' under Section 2(14) of the Income Tax Act, 1961.
2. Whether the capital gains arising from the sale of the agricultural land are chargeable to tax.
3. Whether the exemption claimed under Section 54B of the Income Tax Act was correctly restricted by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Definition of 'Capital Asset' under Section 2(14) of the Income Tax Act:

The primary issue was whether the agricultural land sold by the assessee qualifies as a 'capital asset' under Section 2(14) of the Income Tax Act, 1961. The assessee argued that the land in question did not fall within the definition of 'capital asset' as it was situated in a village administered by a Gram Panchayat and not by a municipality. The assessee further contended that the final figures of Census 2011 were not published before 1st April 2011, and as per the Census 2001, the population of the village Adalaj was less than 10,000. Therefore, the sub-clause (a) of Section 2(14)(iii) would not be applicable.

The assessee also argued that the Gandhinagar Urban Development Authority (GUDA) is not a municipality but a creation of statute, and therefore, cannot be equated with a Municipal Corporation. The provisions regarding aerial measurement of distance were introduced by the Finance Act, 2013, and hence, the distance between the impugned land and the municipality should be measured via the shortest road distance.

2. Chargeability of Capital Gains:

The Tribunal noted that the CIT(A), Gandhinagar, in the case of another co-owner of the impugned land, had held that the land is not a 'capital asset' within the meaning of Section 2(14) of the Act and consequently, not susceptible to capital gains tax. The Tribunal emphasized the importance of consistency in judicial decisions and stated that the revenue cannot take different stands in similar cases arising from the same set of facts. Therefore, the Tribunal upheld the assessee's plea for exclusion of the agricultural land from the definition of 'capital asset'.

3. Exemption under Section 54B:

Since the Tribunal concluded that the land in question does not fall within the definition of 'capital asset' and hence, the capital gains arising from its sale are not chargeable to tax, the issue of exemption under Section 54B became infructuous. The Tribunal did not adjudicate on this matter as it was rendered irrelevant by the primary finding.

Conclusion:

The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and quashing the additions made by the AO. The Tribunal concluded that the agricultural land sold by the assessee does not fall within the definition of 'capital asset' under Section 2(14) of the Act, and therefore, the capital gains arising from its sale are not chargeable to tax. Consequently, the claim of deduction under Section 54B was not adjudicated upon. The order was pronounced on 31/08/2021.