Brief of the Case
Bombay High court held In the case of The CIT vs. Nitish Rameshchandra Chordia & others. that amendments in the statute unless a different legislative intention is clearly expressed, shall operate prospectively. Any consideration received out of sale of the agricultural land cannot be treated as Short Term Capital Gain for the purpose of income tax. For the period prior to Assessment Year 2014-15 the distance between the municipal limits and assessed property/asset is to be measured having regard to approach road distance and not as per aerial distance.
Facts of the Case
A search and seizure operation was conducted under Section 132 of the Income Tax Act, 1961 and several books of accounts and documents were seized. Notice under Section 142(1) of the Act was issued along with detailed questionnaire seeking in explanation and details from the assessee on specific seizure materials. Profits claimed as exempt on the ground that the land sold was agricultural land and not a capital asset according to Section 2(14) of the Act as it was situated beyond 8 kms from the municipality limits. The claim was rejected on the ground that the distance must be measured by shortest distance as per “the crows flight or straight line method” and not by the road distance.
Contention of the Assessee
The ld. Counsel of the assessee submitted that there are rulings in favour of the assessee to indicate that the distance needs to be measured by the approach road and not by the aerial distance. He also submitted that any amendment to a taxing statute is intended to remove any hardship caused to taxpayers and not to the tax department. When two views are available to interpreter of the provision of the taxing Statute, the interpretation which is in favour of the subject ought to be preferred.
Contention of the Revenue
The ld. Counsel of the revenue submitted that section 11 of the General Clauses Act indicates the legislative intention that the distance need to be computed aerially and not by the approach road. Accordingly he submitted that the land sold by the assessee is a capital asset being situated within 8 kms. of the Municipal Limits..
Held by CIT (A)
The CIT(A) held that the land is a agricultural land not a capital asset by referring the decision of Punjab & Haryana high court in 33 DTR 281 (P&H) (2010) (CIT vs. Santinder Pal Singh). In this decision it was held that distance of agricultural land need to be measured in terms of the approach road and not by the straight line distance or as per crow’s flight.
Held by ITAT
ITAT allowed the assessee appeal on the ground that distance of 8 kms is to be measured by the approach road, not by the straight line method.
Held by High Court
The views expressed by CIT (A) are just and reasonable. Income Tax exemptions for agricultural income are bound to promote agriculture in the country. Agricultural lands are already subjected to land revenues and other local taxes need not be overburdened.
We agree that the amendments in the statute unless a different legislative intention is clearly expressed, shall operate prospectively. In our view, if the assessee has earned business income and not the agricultural income, Section 11 of the General Clauses Act will prevail unless a different intention appears to the contrary. The impugned order appears well reasoned in the facts and circumstances to clearly indicate that any consideration received out of sale of the agricultural land cannot be treated as
business income for the purpose of income tax. The distance between the municipal limits and assessed property/asset is to be measured having regard to the shortest road distance and not as per
the crow’s flies i.e. a straight line distance. Following the judgment of (1995) 129 CTR (Del) 33 (DLF Ltd. vs. CIT), it is clear that capital gain arising from the transaction in relation to the agricultural land cannot be considered as business income.
In regard to relevance of Section 11 of the General Clause Act, It is a settle law that when there is any doubt or confusion, the view in favour of the assessee needs to be adopted. The Circular No.3/240, dt.24.1.2014 expressly stipulates that it takes effect from 1.4.2014 and therefore, prospectively applies in relation to the assessment year 2014-15 and subsequent assessment years. Hence, the question whether prior to the said assessment year 2014-15 the Authorities erred in computing the distance by road does not arise at all.
Accordingly, all the appeals dismissed.