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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 ..... n not looking into the decisions that are relied upon by the assessee and further erred in not appreciating the fact that in one such decision (292 ITR 481) their lordships has also considered the decision of Hon'ble Supreme Court in the case of Sarifa Bibi Mohd. Ibrahim (204 ITR 631) 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006 to the Hyderabad Urban Development Authority (HUDA) for the development of the integrated township in a joint venture with them on the land for which acquisition notice was given by the Government of Andhra Pradesh including the above mentioned land. It was further noticed that the assessee had registered an irrevocable power 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sec. 2(14) of the Act, liable to be taxed u/s. 45 thereof. 6. In response to the show cause notice issued in this regard, the assessee vide her letter dated 24.12.2010, objected to the treatment proposed to be given by the Assessing Officer. It was claimed that the reasons cited to this effect in the show cause letter are not relevant. However, 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 compensati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the Hon'ble Delhi High Court have held that the Faridabad Administrative Complex was akin to a Municipality. The Assessing Officer observed that the HADA also had a population of more than 10,000 as per Census, 2001. He also referred to the decision of the Hon'ble Madras High Court in the case of S. Hidaytullah Sahib v. CIT (158 ITR 20), as also 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 corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral for the purpose of capital gains tax. Accordingly, considering that the land had been held for more than 36 months by the assessee the receipt of Rs. 14,12,25,000 was brought to long term capital gains tax. 11. On appeal, the CIT(A) confirmed the finding of the Assessing Officer. Against this the assessee is in appeal before us. 12. The learned 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 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural land in question was included in urban area, by itself, was not enough to conclude that the user of the same had been altered. The AR further submitted that there is no development in the subject area even as on date and agriculture is being carried out in the area even as on date. In view of the above facts and law, the lands sold by the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord municipality are placed within the brackets starting with the words 'whether known as' clearly indicates that such expressions are used to denote a municipality only, irrespective of the name by which such municipality is called. 17. The AR submitted the word "Capital Asset" is defined in Section 2(14) to mean property of any kind held by an 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained under Part-IXA of the Indian Constitution and Art. 243R therein categorically states that all the members of the municipality shall be directly elected by the people of the respective territorial wards. The said article is extracted hereunder: "243R. Composition of Municipalities.- (1) Save as provided in clause (2), all the seats in a Municipality shall be filled by persons chosen 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 2(14)(iii) of the Act. The relevant portion of the decision is extracted hereunder: "But as per the Act, the provisions of section 2(14) are attracted if the land falls within 8 km. of the municipality and nothing else. Therefore, in our opinion also the assessing officer has stretched the definition of municipality in his own manner. Even though Sholinganallur Town Panchayat is notified for Urban Agglomeration, it is not a Municipality. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4935 6089 5534 3. Narkhuda 2520 3234 2616 4. Pedda Shapur 2466 3144 2616 5. Jukal 1709 2043 1355 6. Palmakole 3351 4757 3926 7. Turka Yamjal 3690 6230 2151 8. Mailardevpally 2529 9945 21210 9. Gaganpahad 1887 3908 5386 10. Mamidpally 4600 5478 3494 11. Mankhal 6066 7701 3598 12. Tukkuguda 2843 3223 4309 13. Pahadi Sharif 2565 2853 3506 Area and economy is predominantly agriculture based. Percentage of cultivable area to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; The Appellate Assistant Commissioner also recorded a finding of fact, based on relevant evidence, that at least 10 acres of the land out of 25 acres was in fact used for non-agricultural purposes for seven years prior to the date of transfer of the land. 27. The AR submitted that in the decision in the case of Sarifabibi Mohmed Ibrahim v. CIT 204 ITR 631, the Hon'ble Supreme Court approved as many as 13 tests laid down by the High Court in CIT v. Siddharth J. Desai 139 ITR 628 (Guj) for ascertaining 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the said land was agricultural. (iii) The assessees had neither converted nor made any plans nor taken any steps towards the conversion of the said land into non-agriculture. (iv) The subject land had continued to be put to agricultural use and that it was always used for agricultural purpose. 29. The AR also submitted that the Hon'ble High Court observed that as the assessees had satisfied most of the tests which were laid down by the Hon'ble Supreme Court in the case of Sarifabibi, the lands in question were agricultural in nature. This decision was 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O (xii) Whether the land was sold on yardage or on acreage basis - ACREAGE BASIS. (xiii) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield - NOT APPLICABLE since the sale in the Assessee's case was in consequence of notification for compulsory acquisition and as such it was not voluntary. 31. The AR submitted that, as is evident from the above facts, the impugned land satisfies almost all the guidelines laid down by the Hon'ble Supreme 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Minguel Chandra Pais (supra), wherein it was held that the price paid is not decisive to say whether the land is agricultural or not. Further, it was held in the case of CIT v. Smt. Debbie Alemao 331 ITR 59 (supra), that the use to which the purchaser would put could not be a factor for the inference that the land is not agricultural in the hands of the assessee at the time of transfer. Reliance is also placed on the decision of the Hon'ble High Court of Madras in the case of M.S. Srinivasa Naicker v. ITO (supra). The AR submitted that in view of the above factual and legal position, HADA is not a Municipality. And therefore the land sold by the Assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes; (2) Sale of land for non-agricultural purposes; (3) Sale of land by a measure with reference to square yards and not acres; (4) Price being such as to be non-viable, if the land is put to agricultural use by the purchaser, while it is more consistent with the price fetched for urban plots than for agricultural land. (5) Character of the land. (6) The purpose for which the land was held by the present owner. A firm which holds it may well be presumed to have held it as stock in trade and not for carrying out agricultural operations. (7) As regards use of the land for agricultural purposes prior to sale, more use in remote past though land revenue is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint of view, and therefore, the question has to be answered on a consideration and evaluation of all of them. The inference, accordingly, has to be drawn on a "cumulative consideration" of all of the relevant factors. On a consideration of the relevant facts in the case of the present assessee, it becomes abundantly clear that almost all of the tests laid down lead to the conclusive inference that the agricultural land sold by the assessee was not an agricultural land at the time of sale. The DR submitted that under similar facts even the Cochin Bench of the ITAT have taken a similar view in the case of M. K. Abdul Rehiman v. DCIT (2011) by relying on the decisions discussed above. Besides, the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case one or more of the factors may make appearance and that ultimate decision will have to be reached on a balanced consideration of the totality of the circumstances. 43. The expression 'agricultural land' is not defined in the Act, and now, whether it is agricultural land or not has got to be determined by using the tests or methods laid down by the Courts from time to time. 44. The Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim (204 ITR 631) has approved the decision of a Division Bench of the Hon'ble Gujarat High Court in the case of CIT v. Siddharth J. Desai [1982] 28 CTR (Guj) 148 : [1983] 139 ITR 628 (Guj) and has laid down 13 tests or factors which are required to 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Supreme Court stated that the term 'agriculture' and 'agricultural purpose' was not defined in the Indian IT Act and that we must necessarily fall back upon the general sense in which they have been understood in common parlance. The Hon'ble Supreme Court has observed that the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and raising on the land all products which have some utility either for someone or for trade and commerce. It will be seen that the term 'agriculture' receives a wider interpretation both in regard to its operation as well as the result of the same. Nevertheless there is present all throughout the basic idea that there must be at the bottom of its cultivation of the land in the sense of tilling 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court observed that the potential non-agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land on the relevant date of sale. 49. We may also refer to the case of Gopal C. Sharma v. CIT [1994] 116 CTR (Bom) 377 : [1994] 209 ITR 946 (Bom), in which, the case of Smt. Sarifabibi Mohamed Ibrahim & Ors. v. CIT (supra) was referred to and relied, amongst other cases. In this case, the Division Bench of the Bombay High Court has stated that the profit motive of the assessee selling the land without anything more by itself can never be decisive for determination of the issue as to whether the transaction amounted to an adventure in the nature of trade. In other words, the price paid is not decisive to say whether the land is agricultural 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That the land in question is adjacent to the hospital is totally irrelevant." 51. Adverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared in the return of income filed by the assessee for the past several years as agricultural income. It is also an admitted fact that the assessee has not applied for conversion of this agricultural land for non-agricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property nor the surrounding areas were subject to any developmental activities. 52. Further, we are inclined to mention herein 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to prepare and publish master plan for the urban development area. The master plan in turn, would stipulate the use to which the respective areas shown in it can be put. These include commercial, residential, industrial, recreational uses, etc., and each of the areas are called zones. The types of construction that can be made in the respective zones are also enlisted. Once an area is shown in a particular zone in the master plan, it cannot be put to a different use (Section 15). For example, in the residential zone, establishment of an industry cannot be permitted. The power to convert land use in a particular zone to a different one, is vested in the Government. Section 49 of the 1975 Act contains a provision, which directs that, if agriculture is being carried on any land within the area covered by master plan, 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes) Act, 2006. Further, HADA was formed by the notification under Urban Area (Development) Act, 1975 with a view to promoting and securing planned development of the area in and around the proposed international Airport at Shamshabad. The State Government have declared the areas covered by GO MS 352 (MA) dated 30.7.2001 fall under the jurisdiction of HADA which is a statutory body. HADA Board consists of Special Chief Secretary to Government, Transport, Roads and Buildings Department as the Chairman, the Principal Secretary to Government, Municipal Administration and Urban Development Department; the Managing Director of APIIC and the Vice Chairman, HUDA, as members. The Vice Chairman of HUDA is also the Vice Chairman of HADA. The jurisdiction of HADA is 458 sq. km and covers 89 revenue villages from 7 Mandals all falling in 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 req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa Rao v. Special Court [2006] 4 SCC 214 where it was observed that the fact that agricultural land in question is included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of time. Thus, the fact that the land in question in the instant case is brought in special zone cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes. 55. Recently the Karnataka High Court in the case of CIT v. Madhukumar N. (HUF) [2012] 78 DTR (Kar) 391 held as follows: "9. An agricultural land in India is not a capital asset but becomes a capital asset if it is the land located under Section 2(14)(iii)(a) & (b) of the Act, Section 2(14) (iii) (a) of the Act covers a situation where the subject agricultural land is located within the 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly, the agricultural land of the assessee is outside the Municipal Limits of Rajarhat Municipality and that also 2.5 KM away from the outer limits of the said Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. Accordingly, we quash the assessment order qua charging of capital gains on very jurisdiction of the issue is quashed. The cross objection of the assessee is allowed." 57. It was held in the case of CIT v. Manilal Somnath (106 ITR 917) as follows: "Under the Income-tax Act of 1961, agricultural lend situated in India was excluded from the definition 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 agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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; 59. It is very clear from the above 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 the word municipality are placed within the brackets starting with the words 'whether known as' clearly indicates that such expressions are used to denote a municipality only, irrespective of the name 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Municipal area; (vii) the members of the Council of States and the members of the Legislative Council of the State registered as electors within the Municipal area; (viii) 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; (d) 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. 62. We also perused the meaning of the term local authority as referred in section 10(20) of the Act. (20) 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 water or electricity within or outside its own jurisdictional area]. [Explanation. - For the purposes of this clause, the expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewerage, town planning and development, roads, markets, transportation, social welfare services, etc. Broadly they may be entrusted with the performance of civic duties and functions which would otherwise be Governmental duties and functions. Finally, they 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. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority. 64. Thus, it was laid down by the Supreme Court in the case of Union of India v. R.C. Jain [(AIR) (1981) SC 951] the following five ingredients, which are required to be fulfilled cumulatively before an authority can be said to be a 'local authority', in the light of the definition of 'local authority' as given 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 el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The provisions governing the constitution, composition and functioning of municipalities are contained in part IX-A of the Constitution and the relevant laws laid down by the respective state governments, AP Municipalities Act,1965 in the instant case, should be in consistency with such provisions. The term 'Municipality' is defined u/s. 2(22) of AP Municipalities Act,1965 to mean a municipality of such grade as may be declared by the Government, from time to time, by notification in the Andhra Pradesh Gazette on the basis of income and such other criteria as may be prescribed. Thus, in the state of Andhra Pradesh, a municipality has to be mandatorily constituted in terms of s. 3 of AP Municipalities Act,1965, as per the guidelines laid down in the constitution, and has to be so notified by the Government whereas setting up of a Development/ Special Area Authority is not mandatory. A state Government may decide to constitute 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of not less than ten thousand up to a maximum distance of 8 kilometres from such limits, for the purposes of this provision. Such notification will be issued by the Central Government, having regard to the extent of, and scope for, urbanisation of such area, and, when any such area is notified by the Central Government, agricultural land situated within such area 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 than 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". 67. Further it is very clear that the area comprised in the jurisdiction of HADA was essentially rural in nature, the economy of which was predominantly agriculture based. Further, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Vice-Chairman of the Authority shall be deemed to be the Executive Authority and the Authority shall strictly exercise the powers transferred to it under sub-section (1) within the area under the territorial jurisdiction of the local authority concerned." 69. As per the above section, only in the event of suspension of any of the powers and functions of a local authority of any area and subsequent delegation thereof to a Special Area Authority, it would be deemed to be such local authority, to the limited extent of performing/exercising the functions/powers so entrusted. In the instant case, the village in which the agricultural land was located was comprised in the area within the jurisdiction of Gram Panchayat of Mankhal village and as such the Special Area Authority, being HADA, shall be deemed to be such Gram Panchayat, to the extent of execution of the delegated function of granting technical approval for constructions/ 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities which have all the trappings of a municipality can be treated as a municipality within the meaning of the section. Therefore, to find a solution to the problematic dispute, we have to give a meaning to the word "municipality" which stands undefined in the Act. Generally understood, 'municipality' means a legally incorporated or duly authorised association of inhabitants of a limited area for local governmental or other public purposes. (Black's Law Dictionary). The above definition more or less is reflected in the provisions contained in Chapter III of the Kerala Municipalities Act, 1960. The council constituted under section 7 with the assistance of the standing committee of the council, chairman, commissioner, etc., will administer the provisions of the Act. The council consists of such number of members as are prescribed. They are called councillors. They are elected by the residents of the area coming within the 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 ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Mankhal village and as such the Special Area Authority, being HADA, shall be deemed to be such Gram Panchayat, to the extent of execution of the delegated functions, if any. As per Part-IX of the Indian Constitution, Panchayat refers to rural self government, as distinct from municipality, which refers to urban self-government and as such agricultural land located within the jurisdiction of a village panchayat is not covered by the definition of Capital Asset u/s 2(14). 75. It was held in the case of CIT v. UP Forest Corporation (230 ITR 945) as follows: "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 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, def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealth, education, town planning, markets, transportation etc. Finally, and which is more important, the respondent does not have the power to raise funds by levying taxes, rates, charges or fees. In the case of the respondent-Corporation, the Act does not enable it to levy any tax, cess or fee. It is the income from the sale of the forest produce which goes to augment its funds. It has no power under the Act of compulsory exaction such as taxes, fees, rate or charges. Like any commercial organisation it makes profit from sale of forest produce and it has been given the power to raise loans. Whereas municipal or local funds are required to be spent for providing civic amenities, there is no such obligation on the respondent to do so. Merely because section 17 of the U. P. Forest Corporation Act states that the fund of the Corporation "shall be a local fund" that would not make it a local fund (IS contemplated by 3(31) of the 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areas continues to be excluded from that definition. And as in the present case, admittedly, the agricultural land of the assessee is outside the Municipal Limits of Hyderabad Municipality and that also 8 km away from the outer limits of this Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. This is supported by the order of Kolkata Bench of this Tribunal in the case of Arijit Mitra (cited supra), Harish V. Milani (supra) and M.S. Srinivas Naicker v. ITO (292 ITR 481) (Mad). By borrowing the meaning from the above section, we are not able to appreciate that the land falls within the territorial limit of any municipality without notification of Central Government 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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