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TMI Blog2009 (1) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... was without evidence. In his dual role as investigator as well as adjudicator, it was for the AO to call for evidence, which was not done. The land was sold on marla basis. AO had gone wrong in observing that in Punjab, land intended for agriculture is not purchased/sold in marlas. There is no basis for this finding. On the other hand, the Jamabandi produced by The assessee before the AO itself depicts the land to be in kanals and marlas. AO has also failed to support his observation that considering the investment and the possible return on account of agricultural produce, no agriculturist could purchase this land at the rate at which it was purchased or sold by the assessee. Moreover, even if this observation is taken as correct, this sole observation is not determinative of the character of the land. Therefore, it becomes amply clear that the municipality referred to in s. 2(14)(iii)(b) is the very one referred in s. 2(14)(iii)(a). To reiterate, s. 2(14)(iii)(b) is unambigious inasmuch as it uses the expression referred to in item (a) . Taking any other interpretation of the section, as has been done by the AO in the present case, would amount to nothing other than gross misread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identified by the Central Government with Phagwara Municipality, the AO could not hold de hors the notification to bring it within the governance of Jalandhar Municipality. It is thus evident that it is the parent/jurisdictional municipality, which is responsible for the areas falling within its territorial jurisdiction and for the lands situate within such areas. Such control cannot be said to vest in any other municipality. It was only thus that the purchase and sale of the land in question was made through the Phagwara Revenue authorities and not the ones of Jalandhar. In the notification itself also, the areas falling outside the Jalandhar Municipality have been separately specified from those falling outside the Phagwara Municipality. Even the areas falling outside the Kapurthala Municipality have been separately specified. though Kapurthala is the District of which Phagwara is a Tehsil. The bye-laws applicable to the area within which the land in question is situate, are the bye-laws of Kapurthala District and not of Jalandhar District. The conclusion of the AO, therefore, is a non est conclusion, arrived at in oblivion of the settled law on the subject, statutory as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, did not accept the explanation offered by the assessee. It was observed that entries in the Revenue record, though material evidence, are not conclusive; that at the relevant time, the said land was not ordinarily used for agricultural purposes, though the assessee had produced a photograph to claim that crops were cultivated on it at the relevant time; that a close look at the photograph revealed that what was claimed to be standing crops, was actually wild growth on the land; that from the purchase and sale documents filed by the assessee, it was observed that the assessee had held it for a short period from that year 2003 to 29th March, 2005 and it had then sold it; that considering this short period, the inescapable conclusion was that it was only a stop-gap arrangement; that no income derived from agriculture from the said land had been shown by the assessee at any point of time during its possession with the assessee; that the sale had realised a sum 3.20 times the original investment by the assessee, in a short span of one year and nine months; that this was due to other factors like proximity of the land to the national highway and its great potential for commercial expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e records as agricultural and whether it was subject to the payment of land revenue? (ii) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (iii) Whether such user of the land was for a long period or whether it was of temporary character or by way of a stop-gap arrangement? (iv) Whether the income derived from the agricultural operations carried on the land bore any rational proportion to the investment made in purchasing the land? (v) Whether the land, on the relevant date, had ceased to be put to use? If so, whether it was put to an alternative use. Whether such user and/or alternative user was of a permanent or temporary nature? (vi) Whether the land, though entered in the Revenue record, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes? (vii) Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? (viii) Whether there were any previous sales of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, since it was governed by the Phagwara Municipality and not the Jalandhar Municipality. The learned counsel for the assessee has thus sought the appeal to be dismissed as carrying no merit. 9. We have heard both the parties and have perused the material placed on record. The AO made the addition holding that the tests laid down in CIT vs. Siddharth J. Desai, as follows, were not fulfilled by the assessee: (i) Whether the land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue? (ii) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (iii) Whether such user of the land was for a long period or whether it was of temporary character or by way of a stop-gap arrangement? (iv) Whether the income derived from the agricultural operations carried on the land bore any rational proportion to the investment made in purchasing the land? (v) Whether the land, on the relevant date, had ceased to be put to use? If so, whether it was put to an alternative use. Whether such user and/or alternative user was of a permanent or temporary nature? (vi) Whether the land, though enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence. In his dual role as investigator as well as adjudicator, it was for the AO to call for evidence, which was not done. 14. At the relevant time, the land in question had not ceased to be put to use. It was used as agricultural land, as it was when it had been purchased by the assessee, and it was not put to any alternative use. 15. The land, as proved on record, was actually being used for agriculture involving, without gainsaying, ploughing as well as tilling. Obviously, the assessee/owner meant and intended to use it and in fact, actually used it for agricultural purposes. Besides, in CIT vs. Borhat Tea Co. Ltd. (1982) 26 CTR (Cal) 320 : (1982) 138 ITR 783 (Cal), it has been held that for the purpose of land being agricultural land, actual agricultural operations or cultivation or tilling thereon is not necessary, if the land is otherwise capable of agricultural operations being carried on thereat. 16. There was no previous sale of any portion of the land for non-agricultural use. The lands surrounding the land in question were agricultural lands. In such a situation, it has been held in Addl. CIT vs. Tarachand Jain (1980) 123 ITR 567 (Pat), that the presumption is in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s report, such observation does not make the non est report of the Inspector to be legally valid and sound. This short report, a copy whereof is to be found at p. 30 of the assessee's paper book, reads as follows: "Subject: Report of enquiry in the case pertaining to land of Capital Local Area Bank, Jalandhar-Asst. yr. 2005-06-Regarding. As directed, I visited village Khajurala located on the G.T. Road, Jalandhar to enquire about the status of land. The land in question is situated on the Cantt. Road, Jalandhar near Dada Motor Workshop and is about 20 kanals. A boundary wall has been erected on the land. With a view to enquire as to whether there was any agricultural activities on this land presently- or in the past, enquiries were made from them local residents of the village who informed that the land in question belongs one Shri Karnail Singh who had sold it to the Capital Local Area Bank about 3-4 years back, I was further informed that the land in question was cultivated by Shri Karnail Singh who was the owner of the land prior to the present assessee i.e., M/s Capital Local Area Bank and after Shri Karnail Singh sold it, no agricultural activities have been seen on this. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to, or entrusted by the Government with, the control or management of a municipal or local fund." 33. However, 'municipality' does not find a definition in the General Clauses Act as well. 34. In State of Orissa vs. Titaghur Paper Mills Co. Ltd. (1985) Tax LR 2948 (SC) the Hon'ble Supreme Court has held that: "The dictionary meaning of a word cannot be looked at where the word has been statutorily defined or judicially interpreted. But where there is no such definition or interpretation, the Courts may take aid of dictionaries to ascertain the meaning of a word in common parlance bearing in mind that a word is used in different sense according to its context and a dictionary gives all the meanings of a word and the Court has therefore, to select the particular meaning which is relevant to the context in which it has to interpret that word." 35. Accordingly, let us see how some of the renowned dictionaries define 'municipality'. 36. According to the Concise Oxford English Dictionary, 'municipality' means a town or district that has local Government; the governing body of such an area. 37, The Cambridge Advanced Learner's Dictionary defines 'municipality' as a city or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itional area', 'a smaller urban area', or 'a larger urban area' means such area as the Governor may, having regard to the population of the area, the density of the population therein, the revenue generated for local administration, the percentage of employment in non-agricultural activities, the economic importance or such other factors as he may deem fit, specify by public notification for the purposes of this part." 44. Then, the Punjab Municipal Act, 1911 (the "PMA", for short) an Act to make better provision for the administration of municipalities in Punjab, deals with the concept of 'municipality' at length. The provisions of the PMA, which are relevant for our current purpose, are as follows: "3(4) 'committee' means a municipal council or a Nagar Panchayat, as the case may be, constituted under s. 12 of this Act. 3(9) 'Municipality' means an institution of self-government constituted as a Nagar Panchayat or a municipal council under sub-s. (2) of s. 4 of this Act. 3(8c) 'Municipal area' means the territorial area of a municipality specified under s. 4 of this Act. 3(8) 'inhabitant' includes any person ordinarily residing or carrying on business, or owning or occupying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om a transitional area or a smaller urban area and included in. the area of any other local authority. the State. Government may pass such orders as it may deem fit as to the transfer to such local authority or disposal otherwise of, the assets or institution, of such local authority in that area or as to the discharge of the liabilities, if any, of such local authority, relating to such assets and institutions. (5) Every area, which immediately before the commencement of the Punjab Municipal (Amendment) Act 11, 1994 was constituted as a municipality under this Act, shall be deemed to have been constituted as smaller urban area under sub-s. (1) and municipality existing for that area before such commencement and specified in Sch. II shall be deemed to have been constituted under this Act for that area. (6) Every area, which immediately before the commencement of the Punjab Municipal (Amendment) Act 11, 1994, was constituted as a notified area under s. 241 of this Act, shall be deemed to have been specified as a transitional area or a smaller urban area under sub-s. (1), and a municipality of the category as indicated in Sch. III shall be deemed to have been constituted under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects; (9) safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded; (10) slum improvement and upgradation; (11) urban poverty alleviation; (12) provisions of urban amenities and facilities such as parks, gardens and playgrounds; (13) promotion of cultural, educational and aesthetic aspects; (14) burials and burial grounds, cremations, cremation grounds and electric crematoriums; (15) cattle ponds and prevention of cruelty to animals; (16) vital statistics including registration of births and deaths; (l7) public amenities including street lighting, parking lots, bus stops and public conveniences; and (18) regulation of slaughter houses and tanneries. (2) Nothing contained in the provisions of this section shall be construed to divest the municipalities of various powers and functions vested in them under various provisions of this Act, rules and bye-laws made thereunder. 56. Property vested in committee: (1) Subject to any special reservations mane or to any special conditions imposed by the State Government, all property of the nature hereinafter in this section specified and situated within the municipality, shall vest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintain a register and a map of all immovable property of which it is the proprietor, or which vests in it; or which it holds in trust for the State Government." 45. In State of A.P. vs. Municipal Council 1974 (1) AWR 182, dealing with "municipality" under the PMA, it was held that municipality in a strict proper sense is a body politic and corporate, constituted by the incorporation Of the inhabitants of a city or town or any other defined locality for the purposes of Local Government, its chief characteristics being independent succession and continuity of identity notwithstanding increase or decrease of its membership. 46. Sec. 4 of the PMA concerns specification of local areas to be smaller urban areas or transitional areas and constitution of municipal councils and Nagar Panchayats. 47. As per Des Raj Juneja vs. Union of India 1979 (2) RCR 210 (P&H), a municipality comes into existence when limits-of its area are defined by notification and final decision taken after inviting objections. 48. Tirlok Chander Sharma vs. State of Punjab 67 PLR 452 holds that s. 4 of the PMA is meant for constituting a municipal committee for the first time, when certain areas are included; an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties, as delineated in s. 56(1), and situated within a municipality, shall vest in and be under the control of such municipal committee which exercises jurisdiction over it to the specific exclusion of any such control by any other municipality or municipal committee over such property. The word "vest" means that the property is owned by the person or the authority in whom it vests, as held in Fruits & Vegetable Merchants Union vs. Delhi Improvement Trust AIR 1957 SC 344. 54. All the above clearly suggests that the concept of 'municipality' is a pretty serious matter, all the facets of which have been dealt with specifically at length, under the PMA, revealing that the comprising of a particular land within the local limits of a particular municipality is not by way of merely pick and choose-there is a specific elaborate procedure provided therefor under the mandate of the PMA. 55. Then, the Punjab Municipal Corporation Act, 1976 (the 'PMC Act', for short) is an Act to provide for the establishment of municipal corporations for certain cities in the State of Punjab. The provisions of the PMC Act, which are relevant for our present purpose, are as follows: "Sec. 2(25-a): 'Munic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not their popular sense. But words used in a statute dealing with a matter relating to the general public are presumed to have been used in their popular rather than in their narrow legal or technical sense. The doctrine applicable in construing the words used in statutes dealing with matters relating to the public in general is of loquitur ut vulgus, i.e., according to the common understanding and acception of the terms. This was held in P. Alikuryu, M.A. Nazeer Cashew Industries vs. CIT (1987) 65 CTR (Ker) 214 : (1987) 166 ITR 804 (Ker). 58. In Bardolia Textile Mills vs. ITO (l985) 45 CTR (Guj) 274 : (1985) 151 ITR 389 (Guj)(FB), it has been held to the effect that an expression used in several sub-sections of the same section should receive the same interpretation in all those sub-sections and that normally, unless it is shown that the context calls for a different meaning to be given to the term used in the same section, one would be justified in assuming that the term has been used so as to have the same meaning. In Mandai Ginning & Pressing Co. Ltd. vs. CIT (1973) 90 ITR 332 (Guj), it has been held that the statute or the relevant provision or clause must be looked at as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de such limits." 62. The spirit of s. 2(14)(iii) is clear from the afore-extracted portion of the Finance Minister's Budget Speech and this intention is clearly indicative of one and only one municipality, and no more. 63. In CIT vs. Bolla Ramaiah & Ors. (1988) 74 CTR (AP) 64 : (1988) 174 ITR 154 (AP), it has been held that the lands being situated within the municipal limits or within eight kilometres of the municipal limits as may have been specified, would constitute capital asset and it was unnecessary to enquire whether they were agricultural lands or not, since even if they were agricultural lands, they would still be regarded as capital assets on account of their situation within the limits referred to. 64. In CIT vs. Shree Hanuman Sugar & Industries Ltd. (1992) 195 ITR 625 (Cal), it has been held, inter alia, that by the amendment in s. 2(14)(iii) by the Finance Act, 1970, a capital asset being agricultural land which is situated in the urban areas specified in the sub-clauses or in their vicinity, notified by the Central Government, would come within the purview of tax on capital gains. 65. In Tuhi Ram vs. Land Acquisition Collector & Ors. (1992) 105 CTR (P&H) 378 : (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction of Gaon Sabha Nangal Dewat is less than 10,000, the population of the area comprised within the jurisdiction of DMC is over 10,000. Obviously, such a situation could not be said to have been provided for in s. 2(14)(iii)(a), otherwise, the Parliament would have enacted some guidelines for making appropriate choice for including or not including in the definition of capital asset such an agricultural land. We, accordingly, refuse to Interfere with the finding of the CIT(A)." 68. In A.R. Rajagopalan vs. ITO (1978) 5 TTJ (Mad) 319, it has been held as follows: "In the instant case the Parliament has laid down in the policy by amending cl. (iii) of s. 2(14) of the IT Act, 1961. The policy is that agricultural lands situate within the jurisdiction of a municipality etc. are to be treated on 'capital assets' with effect from the date of coming into force of the amendment and the agricultural lands outside the jurisdiction of the municipality, etc. but within a distance of not more than 8 kms. are to become capital assets by way of modification being made by the Central Government. It is further seen that the Central Government should before issuing the notification take n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been published before the first day of the previous year. The Central Government has been authorised to notify in the Official Gazette any area outside the limits of any municipality or cantonment board having a population of not less than ten thousand, upto a maximum distance of 8 kms. from such limits. For the purpose of this provision, such notification will be issued by the Central Government having regard to the extent of, arid scope for, urbanisation of such area, and, when any such area is notified by the Central Government, agricultural land situated within such areas will "stand included within the term 'capital asset'. Agricultural land situated in rural areas, i.e., areas outside any municipality or cantonment board having a population of not less then ten thousand and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, will continue to be excluded from the term 'capital asset'." 72. Thus, the intention of the legislature is explicit that the municipality being talked about in both sections, i.e., s. 2(14)(iii)(a) as well as s. 2(14)(iii)(b), is one and the same, i.e., one and only one municipality. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e IT Act, 1961 (43 of 1961), in the Gazette of India, Extraordinary, Part II, s. 3, sub-cl. (ii), dt. 13th Feb., 1991, under the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. S.O. 91(E), dt. 8th Feb., 1991 [(1991) 92 CTR (St) 25], for specifying certain areas for the purposes of the said clauses and objections and suggestions were invited from the public within a period 45 days from the date the copies of the Gazette of India containing such notification became available to the public; And whereas copies of the said Gazette were made available to the public on 13th Feb., 1991: And whereas the objections and suggestions received from the public on the said draft notification have been considered by the Central Government: Now, therefore, in exercise of the powers conferred by item (B) of cl. (ii) of the proviso to sub-cl. (c) of cl. (1A) and item (b) of sub-cl. (iii) of cl. (14) of s. 2 of the IT Act, 1961 (43 of 1961), and in suppression of the notification of the Government of India in the erstwhile Ministry of Finance (Department of Revenue and Insurance) No. S.O. 77(E), dt. 6th Feb., 1973, the Central Government having regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittedly, the land is beyond the municipal limits of Phagwara, it is within eight kilometres of the municipal limits of Jalandhar City and so, it is outside the exemption of s. 2(14). 78. When the area specified in Col. (4) of the Notification stands identified by the Central Government with Phagwara Municipality, the AO could not hold de hors the notification to bring it within the governance of Jalandhar Municipality. 79. Now, a notification under s. 2(14)(iii) of the IT Act is issued specifying areas as falling outside the local limits of a municipality, 'having regard to the extent of, any scope for urbanisation of the areas concerned and other relevant consideration'. 80. Urbanisation of an area, then, falls within the exclusive domain of the concerned municipality exercising regulatory as well as administrative control over such area. It is such concerned municipality, id est, the parent municipality or jurisdictional municipality of the area, which has to carry out the urbanisation of the area. Areas situate within the local limits of a Gram Panchayat, when included within the limits of a city, become urban areas. Sec. 44 of the PMC Act makes it incumbent on the concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchase as well as the sale transactions of the said land were carried out through the offices of Land Revenue Authorities at Phagwara than at Jalandhar. For all the regulatory and administrative controls it falls within the jurisdiction of Kapurthala District. Therefore, the observation of the AO that it becomes a capital asset being falling within eight kilometres of municipal limit of Jalandhar cannot be upheld in view of the notification and the peculiar placement of the land." 83. The AO, in this regard, held as follows: "Even if it is admitted that it is beyond the municipal limits of Phagwara, however, the land in question is within 8 kilometres of the municipal limits of Jalandhar City and on this very ground also the land in question is outside the exemption provided under s. 2(14) of the IT Act." 84. The conclusion of the AO, therefore, as seen in the preceding paras, is a non est conclusion, arrived at in oblivion of the settled law on the subject, statutory as well as precedent. The learned CIT(A) has, ergo, correctly dissented from the conclusion of the AO that falling within eight kilometres from Jalandhar, the land in question acquires the nature of a capital a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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