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TMI Blog2012 (12) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... le and there is no element of people choice being represented in any manner in the constitution of the Board. The Board functions strictly under the supervision and control of the State Government and does not hold or possess a "local fund". Being so, HADA cannot be called as a local authority. - HADA cannot be treated as a 'Municipality' and as such the agricultural lands situated within the jurisdiction of HADA do not constitute capital asset. - Decision in the case of Commissioner of Income-tax v. Murali Lodge [1991 (6) TMI 38 - KERALA HIGH COURT] followed. Mere inclusion of land in the special zone without any infrastructure development thereupon or without establishing and proving that the land was put into use for non-agricultural purposes does not and cannot convert the agricultural land into non-agricultural land. In the instant case, at the relevant point of sale of the land in question, the surrounding area was totally undeveloped and except mere future possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into non-agricultural land at the relevant point of time when the land was sold by the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and still it is held that the land is agricultural in spite of the fact that the purpose for which it is sold is not agricultural and there by violated the principles of binding precedents. 4. The learned CIT(A) erred in assuming that once the land fall within the limits of the Hyderabad Airport Development Authority (HADA) constituted under A.P. Urban Areas (Development) Act it is a 'municipality' under section 2(14)(iii) of the Income Tax Act, 1961 failing to appreciate that HADA is not a 'municipality' as defined under section 2(14)(iii) of IT Act it loses its character of agriculture. 5. The learned CIT(A) erred in not holding that the notified authority Hyderabad Airport Development Authority is not a municipality nor it is Municipality being called so to fall within the definition U/s. 2(14)(iii) (a) of IT Act 1961. 6. Without prejudice, the learned CIT(A) failed to appreciate that the case of the appellant is rather a case of compulsory acquisition by State Government and therefore was exempt under the provisions of section 10(37) of the IT Act. 7. The learned CIT(A) erred in not entertaining the alternate plea to direct the AO to consider deduction u/s. 54F on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of attorney in favour of Ramky on 5.5.2007 to receive the possession of the said land and enter into and to hold, defend, management and administer the property and deal with the property in any manner as Ramky may agree upon with any third party/ developer and to have the property developed by the construction of the project, as per the scheme or arrangement, as agreed by Ramky with HUDA/any third party developer and if need be to execute an irrevocable power of attorney in favour of the developer. 4. The Assessing Officer also noted that the Government of Andhra Pradesh had issued orders for development of the above said land into Integrated Township vide its order bearing GO Rt No. 93 dated 16.5.2007. It was noted that the assessee had sold impugned land admeasuring 20.07 acres, by entering into an agreement to sell and the sale consideration of Rs. 14,12,25,000 had also been received in full on 21.8.2007. Further, the assessee had also handed over the possession of the said land to Ramky on the said date itself. On an examination of the above facts, the Assessing Officer opined that the above said transfer of the land by the assessee to Ramky attracted the provisions of sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer found the objections of the assessee untenable. He reiterated that consequent to the Government notification regarding constitution of a Local Authority by the name HADA and inclusion of Village Srinagar in the limit thereof, the status of the land was that of a capital asset. He noted that by way of the said notification, the area had been declared as a Special Development Area in and around the Shamshabad International Airport, for which Special Planning Control, high level of infrastructural and managerial inputs, status of Special Investment Zone, etc. had been specified. 7. The Assessing Officer also noted that the assessee had filed a petition before the Hon'ble High Court of Andhra Pradesh on 1.8.2006: praying them to quash the acquisition notification, fearing that the Government might give a meagre compensation since the use of the lands in the area has already been changed and the real estate companies had been purchasing lands therein at high prices, as the average market value in the Srinagar village became Rs. 70 lakhs per acre. It had also been mentioned in the said petition that the land notified in the acquisition notification was in Srinagar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so that of the Hon'ble A.P. High Court in the case of CIT v. G. M. Omar Khan (116 ITR 950), which was upheld by the Hon'ble Supreme Court also later, as reported in 196 ITR 269. Accordingly, he observed that the land sold by the assessee was a non agricultural land and, therefore, a capital asset as per s. 2(14) of the Act, liable to capital gains u/s. 45 of the Act. 9. The Assessing Officer noted that the assessee's contention is further not acceptable on account of the fact that the nature of the land sold had changed to non agricultural asset after the Government notification regarding the development thereof into a Township. He observed that the same was no longer agricultural land at the time of transfer, as the notification for development preceded the same. He also noted that on account of the Government notification, a big corporate group like Ramky who are non agriculturists, had purchased the land for construction of township, which is a non agricultural use at a high price of Rs 70 lakhs per acre. He observed that had the land been agricultural, and it would have been purchased for agricultural use, such price could not have been fetched. Accordingly, he observed that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned AR submitted that the assessee sold lands admeasuring 20.07 acres in Sy. Nos.224, 225, 226, 230 and 231 at Srinagar (V) for Rs.14,12,25,000 during the year relevant to A.Y.2008-09, and claimed the same to be exempt on the ground that the said lands were agricultural lands, not covered by the definition of Capital Asset u/s 2(14) of the Act. The AR submitted that the agricultural lands in question were located in Srinagar village, comprised in the area within the jurisdiction of Gram Panchayat of Mankhal and as such they were situated in an area outside any municipality or cantonment board, having a population of not less than ten thousand, and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board. The said land of Ac 20.07 Gts was purchased by the Assessee in the May 1993 and from then onwards the assessee has been carrying on agricultural operations on the said land. It is an undisputed fact that such lands had been held by the Assessee for more than 13 years, upon which agricultural operations were carried out regularly throughout the period of holding till the date of sale and the agricultural income there f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee were agricultural in nature at the point of time when they were sold. 15. The AR further submitted that the impugned sale was, in fact, not voluntary but was made under certain compelling circumstances. The Government of Andhra Pradesh issued a notification u/s 4(1) of the Land Acquisition Act, 1894 for compulsory acquisition of the land pertaining to the assessee along with other tracts of land in the vicinity. As the assessee was not interested in parting with her agricultural land, she, along with others, challenged the Acquisition Notification before the High Court of Andhra Pradesh and obtained a stay. The Government was seriously pursuing the case and a Special Counsel had been entrusted with the job of taking necessary steps to get the stay vacated. As the matter was pending before the High court, M/s. Ramky Estates & Farms P. Ltd. approached the Government of Andhra Pradesh and Hyderabad Urban Development Authority (HUDA) with a proposal for development of an integrated township under Joint Development Model, by utilizing the land which was the subject matter of the Acquisition Notification. Considering the fact that the acquisition process could not proceed further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, whether or not connected with his business or profession, but does not include- (iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette; 18. The AR submitted that it is very clear that the gain on sale of an agricultural land would be exigible to tax only when the land transferred is located within the jurisdiction of a municipality. The fact that all the expressions enlisted after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sen by direct election from the territorial constituencies in the Municipal area and for this purpose each Municipal area shall be divided into territorial constituencies to be known as wards. (2) The Legislature of a State may, by law, provide- (a) for the representation in a Municipality of- (i) persons having special knowledge or experience in Municipal administration; (ii) the members of the House of the People and the members of the Legislative Assembly of the State representing constituencies which comprise wholly or partly the Municipal area; (iii) the members of the Council of States and the members of the Legislative Council of the State registered as electors within the Municipal area; (iv) the Chairpersons of the Committees constituted under clause (5) of article 243S: Provided that the persons referred to in paragraph (i) shall not have the right to vote in the meetings of the Municipality; (b) the manner of election of the Chairperson of a Municipality." Further, it is categorically provided that all the state laws dealing with the municipalities should be consistent with the provisions contained in Part- IXA. 21. The AR submitted that the above provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity. This definition will not at all fall in the definition of capital asset given in section 2(14)(iii)(b) of the Act. Admittedly, Perumbakkam and Arasankalani villages are separate Panchayats having population of less than 10,000 as stated above. Admittedly, the lands sold were agricultural lands and these were agricultural lands and doing cultivation was done thereon till the date of sale. A Panchayat is entirely different from a Municipality. Thus, Sholinganallur Town Panchayat cannot come within the purview of Municipality. The population of both the villages is less than 10,000. Both the villages are not notified by Central Government for urbanization which is a condition precedent for doing s0. The intention of the legislature is to exclude transaction relating to agricultural land from capital gains, unless it falls within the notified area of 8 km. of Municipal or Cantonment Boards. The words used municipality, municipal corporation, notified area committee, town area committee and town committee all refer to urban local self-government institutions. The Panchayats are rural self-government institutions whether they are Town Panchayats or Village Panchayats. The Municipal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total area: 59% Percentage of irrigated area to total cultivable area: 47% Existing Work Force - Total Workers- 51.29%; Male-56.35%; Female-45.83% The work force is predominantly agriculture (primary sector) based which is above 90% while in secondary sector it is below 8% while the tertiary sector work force is a marginal 2%. In the Draft Master Plan la total work force of 1.25 lakhs is assumed. Number of Villages covered in the prohibited zone of the Catchment area of Himayatsagar lake: 40 (55% of HADA area) Existing Land Use of HADA Area (May, 2002) Sl. No. Land Use Extent in Ha Percentage 1. Dry agriculture 20768.60 45.27 2. Wet agriculture 8040.80 17.51 3. Layout plots area 3277.00 7.14 4. Vacant land 2809.00 6.12 5. Industrial 600.30 1.30 6. Forest land 1256.10 2.73 7. Poultry sites 703.00 1.53 8. Institutional 259.00 0.56 9. Settlements 1170.10 2.55 10. Garden/orchard 560.30 1.22 11. Brick kilns 73.70 0.16 12. Residential colonies 547.40 1.19 13. Transportation 71.50 0.15 14. Public utilities 2106.00 4.60 15. Hillocks 680.40 1.48 16. Water bodies 1229.00 2.67 17. Total 45896.00 100.00 24. He drew ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the character of land at the time of sale. At the same time, the Supreme Court held that whether a land is an agricultural land or not is essentially a question of fact, which has to be answered in each case having regard to the facts and circumstances of that case. It was further observed that there may be factors both for and against a particular point of view and the court has to answer the question on a consideration of all of them by a process of evaluation and the inference has to be drawn on a cumulative consideration of all the relevant facts. The Supreme Court has further stated that not all these factors or tests would be present or absent in any case and that in each case one or more of those factors may make appearance and that the ultimate decision will have to be reached on a balanced consideration of the totality of the circumstances. Accordingly, on a cumulative consideration of all the facts as existing in that case, the land in question was held to be non-agricultural. The facts militating against the assessees' plea that the said land was an agricultural land on the date of sale were as under: (1) It was within the municipal limits, situated at a distance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as followed in the case of CIT v. Smt. Debbie Alemao 331 ITR 59 (Bom), where the assessee had claimed exemption from capital gains on transfer of land which was shown in the revenue record as agricultural land and no permission was ever obtained for non-agricultural use by the assesses and such permission for non-agricultural use was obtained for the first time by the purchaser after it had purchased the land. 30. The ld. AR submitted that from the analysis of the facts and the legal position following picture emerges when the facts of the assessee's case are tested on the touchstone of the guidelines, approved by the Apex Court in the case of Sarifabibi: (i) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue - YES (ii) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time -YES (iii) whether such user of the land was for a long period or whether it was of a temporary character or by any stopgap arrangement - YES. It was used for about 14 years. (iv) Whether the income derived from the agricultural operations carried on in the land bore any rational p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court and as such the said lands were agricultural in nature at the point of time when they were sold. On almost identical facts, the land was held to be agricultural in the following cases: (1) Surjeet Kaur v. CIT 74 TTJ 722 (Hyd) (2) Harish V. Milani v. JCIT 111 TTJ 310 (Pune) (3) M.S. Srinivasa Naicker v. ITO 292 ITR 481 (Mad) 32. The AR further submitted that it is a settled law that the character of the land at the time of sale has to be examined in the light of the facts as existing in the case of the seller/transferor and as such the purpose for which the land was purchased from the assessee or the fact that such land was the subject matter of compulsory acquisition for use other than for agricultural purpose are wholly irrelevant considerations. In the case of Hindustan Industrial Resources Ltd. v. Asst. CIT 335 ITR 77 (Delhi), where the land was subject to acquisition for industrial use, it was held by the Hon'ble High Court of Delhi that the intention of the land acquiring authority was a wholly irrelevant consideration for determining the character of land at the time of sale. It was observed that where the nature of the land both at the time of purchase and sale/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was not a capital asset, in terms of s. 2(14) of IT Act, and as such the gain on transfer of such land is not eligible to tax. 34. The learned DR submitted that it is an undisputed fact that the land sold by the assessee was in the Srinagar Village, which, on the date of sale, stood included within the limits of Hyderabad Airport Development Authority (HADA). It is also clear that HADA itself has been constituted as a Special Area Development Authority by the State Government. Besides, by the time of such sale, the Government of Andhra Pradesh had also issued a land acquisition notification in respect of the said land for developing the area into an integrated Township. Therefore, It is clear that as a consequence o the above notifications, the status of the impugned land itself had changed and the land could not be said as an agricultural land anymore. 35. The DR further submitted that considering the potential user of the land and the surrounding circumstances, M/s. Ramky Estates and Farms Pvt. Ltd., a leading construction company, had evinced their interest in the said land much before the date of sale by the assessee. It was for this reason that they had submitted a proposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid, would not make it agricultural. (8) Mere capability of being used as agricultural land is not enough. 37. The DR submitted that applying the above tests it can be seen that the land was not only in proximity of building or building sites, but was very much a part of the proposed integrated township. It was for this reason only that it was sold to a construction or Real Estate company, who purchased it not for agricultural operations, but for developing the same and had even submitted a proposal to HUDA in this regard. The criteria regarding 'measure of sale of land' in the instant case is not of much importance, as in this case the land was a part of a larger proposed township, and therefore, was acquired in its entirety in terms of acre. Further, it is also clear that the price of Rs. 70 lakhs per acre was non-viable, if the land was to be put to agricultural use by the purchaser. On the other hand, the assessee herself had filed a petition before the Hon'ble High Court of Andhra Pradesh, fearing that the Government may not give it the price, as high as that being given by the Real Estate companies. The price of Rs. 70 lakhs per acre was, therefore, more consistent with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble P &H High Court in the case of Rockman Cycle Industries Ltd. v. CWT & Anr. (2010-TMI-207740, in WT Appeal No. 6 to 8 of 2004, dated 13.1.2010) also supports the view that the change in the land use is indeed the determining factor. In the case of the present assessee, the Government notifications and orders regarding inclusion of the relevant land in the HADA area and the development of the area into a township indeed establish that the land sold by the assessee in the said area was not agricultural land at time of sale. There is no infirmity in the action of the Assessing Officer in treating the receipt of Rs. 14,12,25,000 on account of the above sale as liable to capital gains. 39. The DR submitted that with regard to the claim of exemption of Rs. 7,19,28,000 u/s. 54F, such claim was made by the assessee without prejudice to the claim that the profits on account of sale of the land under consideration were not taxable at all. In this regard, it has been submitted that the assessee had filed a letter before the Assessing Officer making the claim for deduction u/s. 54F. However, the same was not discussed in the assessment order. Contending that even in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be considered and upon consideration of which, the question whether the land is an agricultural land or not has got to be decided or answered. We reproduce the said 13 tests as follows : 1. Whether the land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue? 2. Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? 3. Whether such user of the land was for a long period or whether it was of a temporary character or by any of a stopgap arrangement? 4. Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? 5. Whether, the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? 6. Whether the land, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illing of the land, sowing of the seeds, planting and similar work done on the land itself and this basic conception is essential sine qua non of any operation performed on the land constituting agricultural operation and if the basic operations are there, the rest of the operations found themselves upon the same, but if the basic operations are wanting, the subsequent operations do not acquire the characteristics of agricultural operations. The Constitution Bench of the Hon'ble Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence. 46. The Hon'ble Gujarat High Court in the case of Dr. Motibhai D. Patel v. CIT [1982] 27 CTR (Guj) 238 : [1981] 127 ITR 671 (Guj) referring to the Constitution Bench of the Hon'ble Supreme Court had stated that if agricultural operations are being carried on in the land in question at the time when the land is sold and further if the entries in the Revenue records show that the land in question is agricultural land, then, a presumption arises that the land is agricultural in character and unless that presumption is rebutted by evidence led by the Revenue, it must be held that the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltural or not. 50. We may refer to a judgment of the Hon'ble Madras High Court in the case of CWT v. E. Udayakumar [2006] 284 ITR 511 (Mad) where the Hon'ble Madras High Court has referred to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Smt. Savita Rani [2004] 186 CTR (P&H) 240 : [2004] 270 ITR 40 (P&H) and has observed and held as under : "8. It is well settled in the case of CIT v. Smt. Savita Rani [2004] 186 CTR (P&H) 240 : [2004] 270 ITR 40 (P&H), wherein it is held that the land being located in a commercial area or the land having been partially utilised for non-agricultural purposes or that the vendees had also purchased it for non-agricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B. 9. In the abovesaid case, the assessee an individual sold 15 karnals, 18 marlas of land out of her share in 23 karnals, 17 marlas land during the financial year 1990-91, relevant to the asst. yr. 1991-92, the sale was effected by three registered sale deeds. While filing her return of income, she claimed exemption from levy of capital gains under s. 54B of the Act on the ground that the land sold by her was ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein that there is no dispute with regard to facts that the assessee has been carrying on agricultural operations on the impugned property and agricultural income was declared by the assessee in her return of income from this land from year to year. Further it is important to mention that mere inclusion of impugned property in the HADA vide GO MS No. 352 (M.A.) dated 30.7.2001 cannot change the character of the property. According to the lower authorities HADA has been constituted as a Special Area Development Authority by the A.P. Government u/s. 3A of the A.P. Urban Areas (Development) Act, 1975 and the lower authorities observed that notification to this effect has been issued by the Municipal Administration and Urban Development (II) Department vide GO MS No. 352 M.A. dated 30.7.2001 wherein 87 villages from 7 Mandals in the vicinity and surrounding International Airport at Shamshabad have been notified as special development area. Srinagar of Maheswaram Mandal is included in the above notification. According to the lower authorities the property loses its original character. In our opinion mere inclusion of the property in the HADA by State Government notification does not chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it can be continued without any inhibition, irrespective of the zone in which it is shown. The 2006 Act, on the other hand, is intended to regulate the conversion of an agricultural land for non-agricultural purposes. That Act operates, vis-à-vis the lands situated in rural as well as urban areas. It is different matter that the Act in its operation does not reflect the intended purposes. A perusal of the same discloses that, if a stipulated amount is paid, the concerned authority has no option, whatever, except to accord permission. In a way, the Act turned out to be a money generating devise, than the one, to prevent or curb indiscriminate conversion of agricultural lands to other uses. Once the authority under that Act accords permission to convert an agricultural land, the matter ends there, and it would not at all be concerned, whether the land is put to industrial, residential, commercial or any such other use. It is lastly urged by the petitioners that insistence on clearance under the 2006 Act, even where a land ceased to be agricultural, prior to the enactment of that legislation cannot be sustained in law. In this regard, it needs to be observed that there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Rangareddy District. If by GO cited supra the nature of land covered by this notification changes from agriculture into non-agriculture then there is no question of conversion of this land for non-agricultural purposes by the Revenue authorities concerned. To our understanding nature of land cannot be changed by this notification and the land owners are required to apply to the concerned Revenue authorities for the purpose of conversion of the agricultural land into non-agricultural land and there is no automatic conversion per se by this notification. 54. It is also an admitted position that mere inclusion of land in the special zone without any infrastructure development thereupon or without establishing and proving that the land was put into use for non-agricultural purposes does not and cannot convert the agricultural land into non-agricultural land. In the instant case, at the relevant point of sale of the land in question, the surrounding area was totally undeveloped and except mere future possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into non-agricultural land at the relevant point of time when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e limits of municipal corporation, notified area committee, town area committee, town committee, or cantonment committee and which has a population of not less than 10,000. 10. Section 2(14)(m)(b) of the Act covers the situation where the subject land is not only located within the distance of 8 kms from the local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires the fulfilment of the condition that the Central Government has issued a notification under this Clause for the purpose of including the area up to 8 kms, from the municipal limits, to render the land as a "Capital Asset. 11. In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14][iii] of the Act is not attracted. 12. However, though it is contended that it is located within 8 knits,, within the municipal limits of Dasarahalli City Municipal Council in the absence of any notification issued under Clause (b) to section 2(14)(iii) of the Act, it cannot be looked in as a capital asset within the meaning of Section 2(14)(iii)(b) of the Act also and therefore though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of " capital asset" and any gain from the sale thereof was not to be included in the total income of an assessee tinder the head "capital gains". In order to determine whether a particular land is agricultural land or not one has to first find out if it is being put to any use. If it is used for agricultural purposes there is a presumption that it is agricultural land. If it is used for non-agricultural purposes the presumption is that it is non-agricultural land. This presumption arising from actual use can be rebutted by the presence of other factors. There may be cases where land which is admittedly non-agricultural is used temporarily for agricultural purposes. The determination of the question would, therefore, depend on the facts of each case. 'The assessee, Hindu, undivided family, had obtained some land on a partition in 1939. From that time, up to the time of its sale, agricultural operations were carried on in the land. There was no regular road to the land and it was with the aid of a tractor that agricultural operations were being carried on. The land was included within a draft town planning scheme. The assessee got permission of the Collector to sell the land for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me by which such municipality is called. This fact is further substantiated by the provisions contained under clause (b) wherein it has been clearly provided that the authority referred to in clause (a) was only municipality. 60. We find force in the argument of the AR that clarifying within the brackets in the section 2(14)(iii)(a) is for the apparent reason that the name of the local body varies based on the nature of the area for which it is constituted and also for the reason that there is a lack of uniformity all over India with reference to the nomenclature of the urban local authority. In fact, municipality is known by different names in various parts of the country. This fact is also evident from Art.243Q of the Constitution of India, dealing with creation of municipalities. The term 'municipality' is not defined u/s 2(14) of the Act. However, the same is defined under article 243 P(e) of the Constitution of India, which is reproduced hereunder: "243 P(e): "Municipality" means an institution of self-Government constituted under article 243Q." Since "Municipality" is defined to mean an institution constituted under Article 243Q, the same is extracted hereunder: "243Q. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a trade or business carried on by it which accrues or arises from the supply of a commodity or service [(not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area]. [Explanation. - For the purposes of this clause, the expression "local authority" means - (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924); 63. Under the provisions of section 10(20) of the Income-tax Act, 1961, the income of a local authority which is chargeable under the head 'Income from house property', 'Capital gains' or 'Income from other sources' or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service not being water or electricity within its own jurisdictional area or from the supply of wat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 3(31) of the General Clauses Act, 1897: (1) The authority must have separate legal existence as a corporate body. It must be a legally independent entity. (2) The body must function in a defined area and ordinarily, wholly or partly, directly or indirectly be elected by the inhabitants of the area. (3) The body must enjoy a certain degree of autonomy, with freedom to decide for itself questions of policy affecting the area administered by it. (4) The body must be entrusted by statute with such Governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc. Broadly such body may be entrusted with the performance of civic duties and functions, which would otherwise be Governmental duties and functions. (5) The body must have the power to raise funds for the furtherance of their activities and the fulfilment of their projects by levying taxes, rates, charges, or fees. Essentially, control or management of the funds mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute such Authority for a specified purpose, depending on the specific requirements for which it is proposed to be set up, by way of a simple notification and the power to notify such Authority is drawn from an Act specially legislated for the said purpose. State Government is having power to regulate method of recruitment, conditions of service, etc, of officers so appointed u/s. 4 of the Andhra Pradesh Urban Areas (Development) Act, 1975. The exercise of power by the Board so constituted by the State Government is not only subject to the provisions of the Andhra Pradesh Urban Areas (Development) Act, 1975 but also subject to the control of the State Government. Thus, the Board has to comply with such directions as may be issued to it by the State Government from time to time. The object and activities carried on by the HADA are also with reference to the said Act. The State Government will exercise superintendent and control over the HADA at all times. Thus, HADA is basically and essentially a creation of the Act of State Legislature consisting of persons appointed by the State Government on salary basis. The Board Members are not elected by the people and there is no element of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the GO makes it abundantly clear that HADA was entrusted with only the job of granting technical sanction or approval for any proposed construction or development in the area, in order to regulate and ensure planned development in and around the proposed airport and the role of concerned local authorities was not done away with. Thus, HADA is only entrusted with the responsibility of preparing draft Master Plans and granting technical approval for any proposed construction or development in its jurisdiction. It does not have any power or ability to collect taxes nor is it responsible for provision of civic amenities which would be within the exclusive domain of the local authorities. 68. Further a careful and comprehensive reading of S.8 and S.36 of Andhra Pradesh Urban Areas (development) Act, 1975 clearly suggests that HADA, being a Development/Special Area Authority constituted under the said Act, cannot be either equated with a distinct municipality or considered as a complete substitute of a municipality or any other local authority. S.8 provides that the Special Area Authority constituted under the Act may cover an area comprised in more than one local authority, whether mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions/ development of lay-outs. 70. Further, Hyderabad Airport Development Authority (HADA) has been constituted, under the provisions of the Andhra Pradesh Urban Areas (development) Act, 1975, as a Special Area Authority by the state Government, and notified as such vide G.O.Ms. No. 352, MA, dt. 30-07-2001. It was neither constituted under AP Municipalities Act nor was it notified as a municipality by the state government. Further, the Development/ Special Area Authority can be dissolved, on achieving the purpose for which it is created, by way of a notification, as per S.60 of the Andhra Pradesh Urban Areas (development) Act, 1975, which is reproduced hereunder, whereas it is not possible in case of a municipality: "S.60 (1) Where the government are satisfied that the purpose for which the Authority is constituted under this Act, has been substantially achieved so as to render the continued existence of the Authority, in the opinion of the Government, unnecessary, the Government may by notification, declare that the said Authority shall be dissolved with effect on and from such date as may be specified in the notification; and the Authority shall be deemed to be dissolved accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction of the municipality. The chairman and vice-chairman of the municipality are elected by the members of the council. The commissioner is appointed by the Government in consultation with the council. It is the duty of the commissioner to carry into effect the resolutions of the council unless it be that the said resolution is suspended or cancelled by the Government. The municipality contemplated under section 2(14)(iii) (a) must be one which satisfies the above requirements. All the local authorities included in the brackets must satisfy the above requirements to be known as a 'municipality' .......... The Guruvayur township, constituted under the Guruvayur Township Act, considered in this backdrop, cannot be said to be a municipality. The Guruvayur township is not an autonomous body like a municipality. It is constituted by the Government by a notification issued under the Guruvayur Township Act. To put it differently, the members of the township committee are not elected representatives of the residents of the area" 72. Since the facts of the case are similar to those of the case cited above and the provisions of AP Municipalities Act, concerning the constitution an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area, is exempt from income-tax. The expression "local authority" is not defined in the Income-tax Act. Section 3(31) of the General Clauses Act, however, defines "local authority" as under: 'Local authority' shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund. The test for determining whether a body is a local authority have been laid down in Union of India v. R.C. Jain's [1981] 2 SCR 854. First, the authorities must have separate legal existence as corporate bodies. They must not be mere Governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area. Next they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of dependence may vary considerab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Clauses Act. Therefore, the High Court was not correct in coming to the conclusion that the respondent was a local authority and entitled to exemption under section 10(20) of the Act. 76. Further it is nobody's case that the property falls within any area which is comprised within the jurisdiction of a municipality or cantonment board or which has a population of not less than 10,000 according to the last preceding Census of which the relevant figures have been published before the first day of the previous year. In other words, the land does not fall in sub-clause (a) of section 2(14)(iii) of the Act as the land is outside of any municipality including GHMC. Further we have to see whether the land falls in clause (b) of section 2(14)(iii). This section prescribes that any area within such distance, not being more than 8 km from the local limit of any municipality or cantonment board as referred to in sub-clause (a) of section 2(14)(iii) of the Act, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. 77. We have carefully g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment as held by the Karnataka High Court in the case of Madhukumar N. (HUF) (cited supra). 78. Further, the Visakhapatnam Bench in the case of Tadavarthy Kanakavalli w/o. T. Dasaratha Rama Rao in ITA No. 74/Vizag/2011 and CO No. 3/Vizag/2011 considered the similar issue of taxability of agricultural land on sale covered by this Notification No. GO MS 352 (MA) dated 30.7.2001. Vide order dated 4.7.2011 the Tribunal held in para 4 as follows: "4. The grounds numbered as 1, 2 and 7 in the appeal of the revenue are general in nature and hence require no adjudication. In the grounds numbered as 5 and 6, the revenue is raising a new claim that the impugned lands fall within the limits of area declared as special development area by G.O. Ms. No. 352, MA, dtd. 30-7-2001 issued by the Municipal administration and urban development, Government of Andhra Pradesh. However, we notice that this was not the case of the assessing officer for bringing the impugned gain on sale of land. Secondly, it was not shown that the authority concerned with the development of the areas is a municipality as defined u/s 2(14) of the Act. As per the provisions of sec. 2(14)(iii) of the Act, the agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X
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