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TMI Blog2023 (11) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In the light of decision of R.C. Jain [ 1981 (2) TMI 200 - SUPREME COURT] we have observe that land in question also not located in any local authority. Land does not fall in sub- clause (a) of section 2(14)(iii) of the Act as the land is outside of any municipality. 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, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. The outer limits of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rupa Service Station, 58/1, Singasandra, Hosur Road, Bangalore. iii M/s. Gurukrupa Auto Service, No. 15, 100 Ft Road, Near Pizza Hut, BTM Layout, Bangalore on 26-04-2018. 2.1 In the course of the search, the Search Team has found Sale Agreements of the aforesaid lands in the premises of the Purchaser M/s. AVS Tech Building Solutions India Pvt Ltd and as per the said Agreements the consideration agreed for sale was of Rs. 3,16,42,000/-, out of which a sum of Rs. 2,50,00,000/- was stated to have been received in cash by the assessee and his three family members and the balance of Rs 66,42,000/- was stated to have acknowledged as mentioned in the Sale Deed. The assessee has stated that the Sale Consideration of Rs. 66,42,000/- was mentioned in the sale deed on the basis of the prevailing guidance value applicable as on the date of sale. 2.2 The assessee in the return of income has not offered his 1/4 th share of Sale Proceeds received in cash on the ground that the Sale Proceeds are not chargeable to tax since the lands sold were the agricultural lands and exempted u/s. 2(14) of the Act. The Assessee further contended that the agricultural lands were situated beyond 20Kms fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely. These properties were sold combined for Rs. 3,16,42,000/- to M/s. AVS Tech Building Solutions India Pvt. Ltd. The assessee, after purchase of property had not declared any agricultural income as exempt in any of the assessment years which clearly shows that the assessee was not carrying on any agriculture activity in the land sold. Further, the assessee has not furnished any evidence before ld. CIT(A) that shows that the land was put to agricultural use and the land was cultivated till it was sold. 3.1 The ld. CIT(A) further observed that the assessee had sold the aforesaid properties at very high prices amounting to Rs. 3,16,42,000/- to the M/s. AVS Tech Building which is engaged in the business of manufacturing concrete business. The prices at which land was sold undisputedly no genuine agriculturist would purchase a land at a high price as in the case in hand. The value of land at which it was sold is high as comparable as that of a commercial property. In view of the above facts and circumstances of the case he found it clear that the land was not an agriculture land when it was sold and the assessee had no intention to bring it under cultivation after the purchase of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the Hon'ble Supreme Court in the case of State of UP vs. Nand Kumar Aggarwal AIR 1998 SC 473 held that the lands had been entered in the revenue records as agricultural lands would not make the lands agricultural lands. So the ld. CIT(A) opined that the reliance placed by the assessee on the decision of Hon'ble Gujarat High Court does not help. 3.5 In view of the above facts and circumstances of the case, the ld. CIT(A) observed that the land sold was not an agriculture land and therefore taxable under the head Long Term Capital Gains. So the addition made by the AO as Long Term Capital 'Gains amounting to Rs 76,30,419/- is justified and he confirmed the action of the ld. AO. Against this assessee is in appeal before us. 4. We have heard the rival submissions and perused the materials available on record. The assessee has raised legal issue before us in ground no.2 that the notice issued u/s 143(2) of the Act was not digitally signed as a result of which, assessment orders herein are bad in law. At the time of hearing, the ld. A.R. has not put serious argument on this issue. Accordingly, this ground in all the appeals is dismissed. 5. Next ground for our c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was produced that the lands were put to agricultural use and actually cultivated till it was sold, the Assessee had no intention to bring it under cultivation at any time after the purchase of the lands. The purchaser to whom the lands were sold was engaged in the business of manufacturing concrete products. iv. The Assessee has not declared any agricultural income as exempt in any of the earlier assessment years. v. The Assessee has accepted to declare the respective shares of the ae Consideration to tax. 5.4 The ld. A.R. submitted that the AO has neither caused any inspection of the land nor obtained any information from the revenue department of -anvil Nadu, but unilaterally held that the land was not cultivated and no agricultural income was disclosed for earlier years. In this regard the appellant submits that the documents obtained from the Revenue Department of Tamil Nadu, relating to cultivation of land and the distance certificate were produced before the AO as well as Ld. CIT(A) but the same were not appreciated and held that the lands sold constituted to be a capital asset exigible to capital gain tax. Accordingly, the assessee's share of Capital gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the fact that the lands were under cultivation upto the end of March 2018. Therefore, he submitted that the ld. CIT(A) was not justified to rely upon the decision of the above case and hence the same is liable to be set aside. 5.7 The ld. A.R. for the assessee placed reliance on the decision of the ITAT Mumbai in the case of ACIT v/s. Ashok W Wesavkar in ITA No. 5147/Mum/2017 dtd: 02-05-2023 (on the basis of Third Member decision) wherein it was held that the lands were in cultivation and accordingly held as Agricultural lands which is not a capital asset u/s. 2(14)(iii) of the Act. 5.8 The ld. A.R. for the assessee submitted that the Ld. CIT(A) has confirmed the addition made by the AO without appreciating the documents submitted in the course of the Appellate Proceedings relating to cultivation of land and also distance of land. The Ld. CIT(A) has erred in holding that the decision of the Hon'ble High Court of Gujarat in the case of Gordhanbhai Kahandas Dhalvadi v/s. CIT (1981) 127 ITR 664 (GUJ) was not helpful to the assessee in view of the Hon'ble Supreme Court decision in the case of Nanda Kumar Agarwal (supra). The ld. CIT(A) has misguided and misread the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of issue of these certificates and he submitted that these certificates are not produced before lower authorities. Hence, he submitted that no credence could be given to these certificates. The assessee made argument before ld. CIT(A) and the same is reproduced herein below: 14. The Appellant also produced a certificate from the President Uddanpalli Panchyath, Sholagiri Taluk, that the distance of the lands was more than 20 Kms from the end of the Hosur Municipality and the population was around four thousand and therefore the lands sold were not the capital assets as defined u/s. 2(14)(iii) of the Act and sub clause (a) and (b) thereunder. However the Ld. AO has not considered the above document and also no find was given in this regard. 15. Under these facts and circumstances it is submitted that the addition was made holding the Lands Sold were non agriculture was not based on any material evidence. On the contrary the evidence produced by the Appellant obtained from the Tamil Nadu Government was also not considered by the AO. The addition made was merely on the basis of suspicion, surmise and with the element of guess work, without causing inspection of the lands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, during the relevant point of time of sale of the land in question, the surrounding area was totally undeveloped and mere possibility to put the impugned land for non-agricultural purposes would not change the character of the land into non-agricultural land at the relevant point of sale of land by the assessee. 7.5 The state government also prescribed the procedure for conversion of agricultural land into non-agricultural land. Being so, whenever the agricultural land to be treated as non-agricultural land, the same has to be converted in accordance with the provisions of State Act. To our understanding nature of land cannot be changed by itself 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 without inference with State Government. 7.6 It is also an admitted position that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7.9. It was held in the case of CIT vs. 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 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 obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7.12. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7.14 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricultural land situated in certain areas. For this purpose, the definition of the term capital asset in section 2(14) has been amended so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less than ten thousand persons according to the last preceding census for which the relevant figures have 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 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 po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 vs. 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). 7.21 Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned per ..... 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