2023 (5) TMI 413 - AT - Income Tax

Long term capital gain - nature of land sold - capital asset u/s 2(14) - land as situated within Municipal Limit or not?- Disallowance of deduction u/s 54B/54F - assessee had not been able to substantiate the purchase of agricultural land subsequent to the said sale - Whether the land sold is a capital asset as per the provisions of the Act applicable to the A.Y. 2013-14? - HELD THAT - The land in question is undisputedly situated in the village Garhi Alawalpur situated in the District Rewari which is within 5 KMs of the present Municipality Dharuhera . This Municipality has not been mentioned in the said notification. The Revenue could not bring to our notice any other notification issued wherein the Municipality Dharuhera situated in District Rewari is mentioned for the purpose of provisions of Section 2(14) of the Income Tax Act, 1961. As gone through the entire list of Municipal Committees/Municipal Counsel in the State of Haryana and we could not find Daruhera as notified Municipal Committee in the District Mahendragarh (Annexure-C). We have gone further to verify whether there is any village/municipality by name Daruhera in the entire district of Mahendragarh from the Government of Haryana public document (Annexure-D). We could find none. We have also gone through the list of PIOs as per the Directorate of Urban Local Bodies to verify whether any local body in the name of Daruhera (Annexure-E). We could find none. Hence, we apprehend that an error might have crept in the notification dated 06.01.1994. The concerned authorities may look into this issue. Since, the Tribunal cannot venture to alter/modify the notification, the issue is being adjudicated as per the notification in force. On going through the entire facts, it can be held that Dharuhera of District Rewari do not find place in the notification issued consequence to the provisions of Section 2(14) of the Income Tax Act, 1961. Hence, the land which is situated at Garhi Alawalpur cannot be treated as the capital asset, ergo the proceeds are not liable to tax under the head Long Term Capital Gains . We are conscious of the fact that the amendment in the said Section has been brought w.e.f. 01.04.2014 and the land in question before us was sold on 21.03.2013 pertaining to A.Y. 2013-14. Hence, the provisions applicable to that period has been taken into consideration. Since, the proceeds cannot be treated as taxable in the hands of assessee any adjudication on the issue of deduction u/s 54F and u/s 54B becomes only academic in nature and hence not resorted to.

Summary

Issues Involved:
1. Whether the land sold is a capital asset as per the provisions of the Act applicable to the A.Y. 2013-14?
2. Whether the assessee is eligible for deduction u/s 54F?
3. Whether the assessee is eligible for deduction u/s 54B?
4. Validity of charging interest u/s 234A, 234B, 234C & 234D.
5. Validity of initiating penalty proceedings u/s 271(1)(b) & 271(1)(c).

Summary:

1. Capital Asset Determination:
The primary issue was whether the land sold by the assessee qualifies as a capital asset under Section 2(14) of the Income Tax Act, 1961, for A.Y. 2013-14. The land in question is situated in Village Garhi Alawalpur, District Rewari, within 5 KMs of Dharuhera Municipality. The notification dated 06.01.1994, relevant for the assessment year, did not mention Dharuhera Municipality in District Rewari but mentioned "Daruhera" in District Mohindergarh. The Tribunal found no evidence of a municipality named "Daruhera" in District Mohindergarh and concluded that "Dharuhera" in District Rewari was not covered by the notification. Consequently, the land sold by the assessee was not considered a capital asset, and the proceeds were not taxable under Long Term Capital Gains.

2. Deduction u/s 54F:
Since the land was not considered a capital asset, the issue of deduction u/s 54F for construction expenses became academic. The Tribunal did not adjudicate on this matter.

3. Deduction u/s 54B:
Similarly, the question of eligibility for deduction u/s 54B for re-investment in agricultural land was rendered academic and was not addressed due to the primary finding that the land was not a capital asset.

4. Interest u/s 234A, 234B, 234C & 234D:
The Tribunal did not specifically address the issue of charging interest under sections 234A, 234B, 234C, and 234D, as the primary finding rendered the taxability of the proceeds moot.

5. Penalty Proceedings u/s 271(1)(b) & 271(1)(c):
The Tribunal did not specifically address the initiation of penalty proceedings under sections 271(1)(b) and 271(1)(c), as the primary finding rendered the taxability of the proceeds moot.

Conclusion:
The appeal was allowed, and the proceeds from the sale of the land were not considered taxable under Long Term Capital Gains due to the land not being classified as a capital asset as per the relevant provisions and notifications.