Agricultural Land is not Capital Asset if not within notified area & no capital gain on transfer of such land

IN THE ITAT KOLKATA BENCH ‘C’

Deputy Commissioner of Income-tax

versus

Arijit Mitra

IT APPEAL NO. 1679(KOL.) OF 2010 AND C.O. NO. 184 (KOL.) OF 2010

[ASSESSMENT YEAR 2007-08]

AUGUST 12, 2011

ORDER

Mahavir Singh, Judicial Member

The appeal by revenue and Cross Objection by assessee are arising out of order of CIT (A)-VIII, Kolkata in Appeal No. 283/CIT(A)-VIII/Kol/09-10 dated 29.06.2010. Assessment was framed by DCIT, Circle-8, Kolkata for Assessment Year 2007-08 u/s. 143(3) Income Tax Act, 1961 (hereinafter referred to as “the Act”) vide his order dated 29.12.2009. For the sake of brevity and clarity, we dispose of both these appeal and cross objection by this consolidated order.

2. First we will take up Cross Objections of assessee as the issue raised in this Cross Objection of assessee is on jurisdiction, which will go to the root of the case. The only issue in this Cross Objection of assessee is, whether the asset transferred is agricultural land and, therefore, falls within the definition of capital asset as defined under section 2(14)(iii) of the Act or not. For this, assessee has raised following three effective grounds in his Cross Objection:

“1. For that on the facts and in the circumstances of the case, the CIT (A) erred in law and in fact in not upholding the assessee’s contention that no capital gains was chargeable to tax arose on sale of land as the asset transferred was “Agricultural Land” and therefore did not fall within the definition of “capital asset” defined in Sec. 2(14) of the I.T. Act.

2. For that on the facts and in the circumstances of the case, since the land in question was regularly assessed to land revenue and the same was recorded in the Land Records as agricultural land and there being standing Mango Trees which were planted by the predecessor in title and the agricultural activities having been carried; on the said land, the authorities below erred not accepting the assessee’s claim that the land in question was “agricultural land” & therefore profit on its sale was not chargeable to tax.

3. For that on the facts and in the circumstances of the case, the land in question being used for agricultural purposes and the same being more than 8 KMs away from any of the notified. Municipalities, the authorities below ought to have held that the land was agricultural land and therefore fall within the meaning of agricultural land defined in Sec. 2(14) of the I. T. Act and therefore no capital gains was chargeable to tax on the transfer of the said land.”

3. The brief facts leading to the above issue are that the assessee filed his return of income for relevant assessment year 2007-08 on 20.11.2007 and was selected for scrutiny by issuing notice u/s. 143(2) and 142(1) of the Act. The assessee is owner of land at village Kalaberia, Dist. 24 Parganas (North). A part of land situated at JL No.30, Touzi No. 10, LR Khaitan no.476 was inherited by assessee from his father through will and youngest grandfather. During Financial Year 2006-07 assessee sold this land for a sum of Rs.2,08,20,133/-. The assessee claimed that this is agricultural land and does not fall within the definition of capital asset as defined in section 2(14)(iii) of the Act because this land is 8/9 kms from municipality office of Rajarhat Municipality. The assessee in support of same filed certificate from Pradhan, Rajarhat, Bishnupur-1 No Gram Panchayat during assessment proceedings. Assessing Officer treated this land as capital asset falling within the provisions of section 2(14)(iii) of the Act vide para 3 of his assessment order as under:

“3. In the course of assessment proceedings, enquiries were carried out from different State Government Authorities, Local Authorities and few other persons. The findings are discussed in subsequent The argument given by the assessee was considered and these are discussed in subsequent paragraphs:-

(i) As discussed above, the assessee submitted a certificate dated 08.12.2006 from Pradhan, Rajarhat Bishnupur, 1 No. Gram Panchayat which states that distance of assessee’s land from office of Rajarhat Municipa1ity is 8 to 9 kilometers. However, as per provisions of section 2(14)(iii) of the Act, the agricultural land will not be considered as a ‘capital assets’ if it is situated in any area within such distance, not being more than 8 kilometers from the local limits of Municipality or cantonment board. It means that the distance of 8 kilometers is to be computed from the local limit of the municipality. In present case the distance of assessee’s 1and from the outer limit of Rajarhat municipality is approximately 2.5 Kilometers. This fact is evident from two certificates dated 13.10.2009 issued by Pradhan, Rajarhat Bishnupur, I No. Gram Panchayat. These certificates are enclosed at Annexure-II of this order. Further communication was made with BL & LRO, Rajarhat, North 24-arganas to know the distance of assessee’s plot from boundary of Rajarhat Municipality, A copy of reply received from BL & LRO vide letter no.2031 /BL & LRO/RHT/09 dated 06.11.2009 is enclosed at Annexure-III from which it is evident that the distance of assessee’s plot from Rajarhat Municipality boundary is approximately 2.5 kilometers. The certificates at Annexure-II and III establishes beyond doubt that assessee’s land is a capital assets as defined in section 2(14)(iii) of the I.T. Act.

(ii) In the course of his statement on oath under section 131 of the 1.T. Act, 1961 on 05.11.2009, Shri Arijit Mitra again submitted a letter dated 26.10.2009 from Pradhan, Rajarhat Bishnupur, 1 No. Gram Panchyat which states that the distance of assessee’s land from the Municipality Board or Office is 8 to 9 Kilometers. The assessee is again calculating distance of land from the Municipality Office which is not correct. If assessee’s logic is to be believed than a land in Kasba, Gariahaat or Lake Garden would not be a capital asset because distances of these places are more than 8 K.M. from the office of the Kolkata Municipal Corporation at S.N. Banerjee Road (behind New Market). The provisions of section 2(14)(iii) of the Act uses the word ‘limits’ which means that the distance has to be ca1euted from the boundary of the Municipality.

(iii) The statement of Shri Arijit Mitra was recorded under oath under section 131 of the Act on 05.11.2009. In his statement, he stated that he is not aware of any procedures involved in agricultural activity. It was also stated that he did not make any investment in the agriculture. He has not shown any agriculture income in his return of income in any past assessment years. It was also stated by him that the land in question consists of pond, mango orchard, paddy field etc. On field enquiry it was found that the land consists of pond and mango orchard. Vide a letter dated 24.12.2009 the assessee stated that most of the land is covered by mango and other trees. Thus, it is very much clear that almost no agriculture activity was carried out on the land of the assessee. So the land in question cannot be termed as an ‘agriculture’ land.”

Aggrieved against the action of Assessing Officer holding the land as capital asset falling in section 2(14)(iii) of the Act, assessee preferred appeal before CIT(A), who also confirmed the action of Assessing Officer by holding as under:

“In this ground, the appellant is disputing the Assessing Officer (AO)’s decision that the land sold by it was not agricultural land. The reasons behind the said decision have been spelt out in the assessment order. The appellant’s submission at the appellate stage is a reiteration of his submissions before the AO. The crux of the issue appears to be that the appellant’s lands are situated at a distance of around 2.5 km from the boundaries of Rajarhat Municipality. This appears to go against the definition of agricultural land as given in Sec. 2(14)(iii)(b) of the Income Tax Act. Once it is established that the land is at a distance of 2.5 km. from the outer boundaries of the municipality the issue of limits, as spoken about in the said section, becomes paramount. In fact, the appellant in his submission has also admitted that ‘here, a question arise whether distance has to be measured from the Jurisdiction of the Municipality (i.e. outer boundary) or local limits of the Municipality (i.e. Municipality Office). Also, the appellant’s reliance on Notification No.9447 dated 06.01.1994 and the subsequent amended Notification No.1186 dated 28.12.1999, in my opinion, does not help his case because no mention of Rajarhat Municipality is seen there. I may add that, as per the definition, the character of the land is immaterial. So the question of whether an orchard can be classified as agricultural land is immaterial to the case. Similarly, whether or not any agricultural operations have been carried out therein is also not material. None of the arguments advanced by the appellant, in my opinion, bolster his case that the land in question is agricultural. Also none of the case laws cited by the appellant deal with the issue of the provisions of Sec. 2(14)(iii)(b) of the Act. Respectfully, differing from these, I hold that the land in question cannot be said to be agricultural. The AO’s decision on this issue is confirmed and this ground of appeal is dismissed.

Aggrieved, now assessee is in Cross Objection before us.

4. We have heard rival contentions and gone through facts and circumstances of the case. The Ld. Counsel for the assessee Shri D. S. Damle, at the outset, referred to the definition of capital asset as given in section 2(14)(iii) of the Act of ‘agriculture’ land, and argued that what is to be considered as capital asset. The relevant definition referred, reads as under:-

“DEFINITIONS

Section 2. In this Act, unless the context otherwise requires,-

(14) “capital asset” means 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, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;]”

Ld. Counsel also referred to assessee’s paper book pages 2 to 4, wherein letter dated 06.11.2009 of BL & LRO, Rajarhat North 24 Parganas is enclosed at page 2 of the same, which reads as under:

“Memo No. 2031/B.L & L.R.O./RHT/09 date 06.11.09

Sub : Calling for Information u/s. 133(6) of Income Tax Act, 1961 with respect to land sold by Shri Arijit Mitra

Ref: His Office Memo no. Circle-8/Kol/Arijit/2009-10/1048

Reference above this is to inform that

1. Distance of boundary of Rajarhat Municipality from plots No. 231, 233, 234, 235 and 236 of Mouza Kalaberia JL No. 30 is approximately 2.5 KM.

2. Important land mark of municipality area is mouza Gopalpur Rajarhat from above mentioning plots. “

Further, at page 3 of assessee’s paper book, copy of certificate of Pradhan Rajarhat Bishnupur 1 No Gram Panchayat was also referred, which reads as under:

“To Whom It may concern

This is to certify that Sudhanshu Kr. Mitra owned land at Mouza Kalaberia (JL No. 30, RS Dag No. 338, 366, 344, 360, 314, 316, Khatian No. 476) under this Gram Panchayat jurisdiction. The distance of above land from nearest important land mark situated in Rajarhat Municipality area is Raigachi. The distance of above land from the nearest boundry of Rajarhat Gopalpur Municipality (Raigachi) is 2.5 KM (approx.)”

Ld. Counsel as well as Ld. CIT-DR Shri Niraj Kumar were on agreement in respect to the facts of the case that the assessee’s land is situated at Village Kalaberia which is 2.5 KM from Rajarhat Municipality. Both admitted that Rajarhat Municipality came into existence in 1994 and it is also a fact that distance of assessee’s land from outer limit of Rajarhat Municipality is approx. 2.5 KM as certified by Pradhan, Rajarhat Bishnupur 1 No Gram Panchayat and BL &LRO. The Ld. Counsel also referred to revenue records maintained by B.L. & LRO, Rajarhat, which issued land records as on 8.12.2010, qualifying this land as ‘shali’, ‘garden’ and ‘pond’. In view of these facts, Ld. Counsel Shri D. S. Damle stated that this land is agricultural land and not falling under the definition of capital asset as provided in section 2(14)(iii) of the Act in view of the fact that it does not come under the ambit of sub-clause (a) as this land does not fall within the jurisdiction of any municipality or in any area within such distance not being more than 8 KM from the local limits of any municipality as notified by Central Govt. in the official gazette. He referred to notification under section 2(1A)(c), proviso (ii) (B) and 2(14)(iii)(b) vide No. 9447 (F. No.164/3/87-ITA-I), dated 6.1.1994 as amended by Notification No. 11186 dated 28.12.1999. The Ld. Counsel referred to pages 52 to 54 of the assessee’s paper book, wherein municipalities of State of West Bengal are covered and referred to the fact that Rajarhat Municipality is not covered under this definition.

5. Ld. CIT-DR heavily relied on the fact that this land is within 8 KM from the local limits of Rajarhat Municipality as admitted in the certificate issued by BL&LRO and Pradhan, Rajarhat Bishnupur 1 No Gram Panchayat. According to him, this land falls squarely under the definition of capital asset u/s. 2(14)(iii) of the Act as it falls under sub-clause (b) of this section, reason being this land not being more than 8 Kms from Rajarhat Municipality and it is within 2.5 Km from the local limits of Rajarhat Municipality.

6. It is a fact that this land does not fall in any area which is comprised within the jurisdiction of Municipality 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 1st day of previous year. That means the land does not fall in sub-clause (a) of section 2(14)(iii) of the Act as this land is out of Municipal limit of Rajarhat Municipality and moreover it is 2.5 km from the outer limits of Rajarhat Municipality as certified by B.L & L.R.O, Rajarhat North 24 Parganas. Now, we have to see whether this land falls in clause (b) of section 2(14)(iii) of the Act as this section prescribes that any area within such distance, not being more than 8 km, from the local limits 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. As referred by Ld. Counsel the latest notification that is Notification under section 2(1A)(c), proviso (ii)(B) and 2(14)(iii)(b), i.e. Notification No.9947[F. No.164/3/87-ITA-I] dated 6.1.1994 whereas a draft notification was published by central government in exercise of powers conferred by item B of clause (ii) of the proviso to sub-clause (c) of clause (1A), and item (b) of sub-clause (iii) of clause 14 of section 2 of the Act, in the Gazette of India, Extraordinary, Part II, Section3, subsection (ii), dated 13.2.1991 under the Notification of Govt. of India in the Ministry of Finance, Department of Revenue, No. SO 91(E) dated 8.2.1991, for specifying certain areas for the purpose of said clauses and objections and suggestions were invited from the public within a period of 45 days from the date of the copies of the Gazette of India containing notification became available to the public. Further, this was amended by Notification No. 11186 dated 28/12/1999 in exercise of powers conferred by item (B) of clause (ii) of the proviso to sub-clause (c) of clause (1A), and item (b) of sub-clause (iii) of clause 14 of section 2 of the Act, and in supersession of the notification of Govt. of India in the erstwhile Ministry of Finance, Department of Revenue, No. SO 77(E) dated 6.2.1973, the Central Government having regard to the extent of, and scope for urbanization of the areas concerned and other relevant consideration, hereby specifies the areas shown in column (4) of the Schedule hereto annexed and falling outside the local limits of municipality or cantonment board, as the case may be, shown in the corresponding entry in column (3) thereof and against the State or Union Territory shown in column (2) thereof for the purpose of the above mentioned provision of the Income-tax Act, 1961 (43 of 1961).

7. From the above, it is clear that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of such Municipalities or Cantonment Boards are covered by the amended definitions of ‘capital asset’, if such areas are, having regard to the extent of and scope for their urbanization and other relevant considerations, is notified by the Central Government in this behalf. Central Government in exercise of such powers has issued the above notification, as amended latest by Notification No. 11186 dated 28.12.1999 clearly clarifies that agricultural land situation in rural areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the outer limits of any such municipality or cantonment board etc., still continues to be excluded from the definition of ‘capital asset’. Accordingly, in view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression ‘capital asset’, the agricultural land situated in rural 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 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. The C.O. of the assessee is allowed.

8. Coming to revenue’s appeal in ITA No. 1679/K/2010, since we have already allowed the CO of the assessee on jurisdiction, that the AO has no jurisdiction to assessee the assessee’s land being out of the purview of capital asset u/s. 2(14)(iii) of the Act, on merits the issue has become academic and requires no consideration. Appeal of the revenue is dismissed.

9. In the result, appeal of revenue is dismissed and the CO of assessee is allowed.