Case Law Details
ITAT, HYDERABAD BENCH `B’, HYDERABAD,
Srinivas Pandit (HUF) Vs. ITO,
APPEAL NO: ITA No. 56/HYD/2007,
DECIDED ON April 23, 2010
RELEVANT PARAGRAPH
______ORDER________
Per Shri N.R.S. Ganesan, Judicial Member:
This appeal preferred by the assessee is directed against the order passed by the CIT(A)-VI, Hyderabad dated 5.10.2006 and pertains to the assessment year 2003-04.
2. Shri Rama Rao, learned counsel for the assessee submitted that the assessee sold agricultural land to the extent of 2 acres 20 quntas and claimed exemption from payment of capital gain tax. According to the learned counsel, the agricultural land cannot be considered to be a capital asset u/s 2(14) of the Income Tax Act. The learned counsel further submitted that the agricultural land is situated at Himayat Sagar Village, which falls under the Rajedranagar Mandal, R.R District According to the learned counsel, Rajendra Nagar Municipality was not notified by the Central Government, therefore the agricultural land which falls under Rajendranagar Mandal cannot be considered to be a capital asset within the meaning of u/s 2(14) of the IT Act. Further, the learned counsel submitted that the assessing officer brought the profit on sale of agricultural land for taxation, on the grounds that the agricultural land was located within the radius of 8 km., from the limits of Hyderabad Municipal Corporation. Referring to the decision of the Amristar Bench in DCIT Vs. Capital Local Area Bank Ltd. (2009) 29 SOT 394 the learned counsel further submitted that the sale of the land was made through Rajendranagar Revenue Authorities and not through the Revenue Authorities in Hyderabad District. Therefore the land in question cannot be considered to be an asset within the meaning of Sec.2(14) of the IT Act simply because it was said to be situated within 8 kms from the radius of Hyderabad Municipal Corporation. According to the learned counsel, the agricultural land does fall within the Revenue District of Hyderabad District. The agricultural land which falls within the Rajendranagar Revenue Mandal, does not form part of Hyderabad Municipal Corporation, therefore it cannot be treated as a capital asset u/s 2(14) of the IT Act.
3. On the contrary, Shri Nagendra Prasad, the learned Departmental Representative submitted that the Central Govt. notified Hyderabad Municipal Corporation u/s 2(14) of the IT Act. As per this notification of Central Govt., agricultural land falls within the territorial jurisdiction of Hyderabad Municipal Corporation and all lands which falls within 8 km. radius in all directions from the limits of Municipal Corporation of Hyderabad has to be treated as capital asset within the meaning of Sec.2(14) (iii) of the IT Act. According to learned departmental representative, admittedly, the land in question is situated at Himayatsagar Village which falls under Rajendranagar Mandal. Though the assessee claimed that the agricultural land falls beyond 8 kms radius of Hyderabad Municipal Corporation, the assessing officer found that the land in question falls within 8 km radius of Hyderabad Municipal Corporation. Referring to the assessment order, the learned departmental representative pointed out that the assessee claimed that the land was situated at 18.5km. on road from Hyderabad to Vikarabad. The assessing officer found that the assessee took the distance from Mahatma Gandhi Bus Terminus to the land in question. The learned departmental representative submitted that the distance has to be taken
from the local limits of Hyderabad Municipal Corporation Limited. Therefore the agricultural land in question falls within 8 km radius of Hyderabad Municipal Corporation. Therefore, according to the departmental representative, the agricultural land has to be treated as capital asset within the meaning of section 2(14) (iii) of the Act
4. The learned departmental representative placed reliance onthe judgementsAp High Court CIT Vs. Bola Ramaiah (1987) (174 ITR 154) and submitted that when the land was situated within 8 km of the local limits of Hyderabad Municipal Corporation it is liable for capital gain irrespective of facts whether falls under Rajendranagar Mandal or otherwise. The learned departmental representative has also placed his reliance on the judgement of Apex High Court CIT Vs. Gemini pictures Circuit (P) Ltd (1996) (220 ITR 43) and submitted that mere fact that the land in question was agricultural land cannot be a ground to claim for exemption u/s 2(14) of the IT Act when it was situated within 8 kms of the local limits of the Hyderabad Municipal Corporation.
5. In view of the above judgements, the learned departmental representative submitted that the land sold by the assessee is a capital asset therefore the surplus realized by the assessee on sale of land is assessable as capital gain. The learned departmental representative placed reliance on the Apex Court in the case of G.M. Omar Khan Vs. CIT 1991 (196 ITR 269) (SC) and submitted that when the capital asset falls within the limits of Municipal Corporation as notified by the Central Govt. it has to be treated as capital asset therefore the assessing officer has rightly got the same for taxation.
6. We have considered rival submissions on either side and also perused the material available on record. Admittedly, the assessee sold two acres and 20 quntas of agricultural land which situated at Himayatsagar village in Rajendranagar Mandal. Rajendranagar is also one of the Municipal Corporation. However, the same was not notified by the Govt. of India u/s 2(14)(iii) of the IT Act. The contentions of the assessee counsel is that Himayatsagar Village falls within Rajendranagar Revenue Mandal, therefore it cannot be taken as part and parcel of the Hyderabad Municipal Corporation. According to the assessee counsel 8km radius of the Municipal Corporation of Hyderabad cannot be extended to another Revenue District or Mandal. The issue arises for consideration is when the agricultural land has admittedly situated in Rajendranagar Revenue Mandal, can we say that the said land falls within 8 kms radius from the limits of Hyderabad Municipal Corporation? We have carefully gone through the judgement of the Andhra Pradesh High Court in the case of Bola Ramaiah cited supra. In the case before the Andhra Pradesh High Court, the assessee sold the land in Hakimpet Village which was part of the Hyderabad Municipal Corporation and also a land situated in Gudimalkapur Village which is situated within 8 kms. Of local limits of Hyderabad Municipal Corporation. The Andhra Pradesh High Court after referring to Sec.2(14)(iii) of the Act found that the agricultural land falls within 8 kms radius of the local limits of Municipal Corporation would form part of the capital asset w.e.f. 1.4.1970. We have also carefully gone through the judgement of the Apex High Court in the case of Gemini Pictures cited supra. In the case before the Apex high Court, the assessee cultivated Banana Plantation and thereafter vegetable thereon. The land was situated within the limits of Madras Municipal Corporation. It was located on the Mount Road which is in the main artery of the city and its business centre, and falls within the limits of Chennai Municipal Corporation, in those situations, the Apex high Court held that though the assessee cultivated, since the land falls within the Madras Municipality, it has been treated as capital asset.
7. We have also carefully gone through the judgement of the Apex High Court in the case of Omar Khan cited supra. In the case before the Apex High Court, the assessee contended that the population of 10,000 has to be taken for a particular village or a street. Rejecting that contention, the Apex high Court held that the population of more than 10,000 has to be taken for the entire municipality or cantonment area and it cannot be restricted to any particular village or street. This is not the issue before us therefore this judgement of the Apex Court may not be of any assistance to the Revenue.
8. We have also carefully gone through the provisions of section 2(14)(iii) of the Act. Section 2(14)(iii) (b) clearly says that any area within such distance not being more than 8 kms from the local limits of any municipality, has to be treated as capital asset for the purpose of Income Tax Act. The Legislature used the word `any municipality’. When the legislature used `any municipality’, the question is can it be a Hyderabad Municipal Corporation or it be a Rajendra Nagar Municipality. This question of assessee’s is important since Himayatsagar Village falls within Rajendra Nagar Mandal. If it is Hyderabad Municipal Corporation, then it may fall within 8 kms as contended by the Revenue. If it is Rajendra Nagar Municipality, then admittedly, Himayatsagar Village is situated beyond the Rajendra Nagar Municipality. Moreover, Rajendra Nagar Municipality was not notified by the central Govt. for the purpose of provisions of sec.2(14)(iii) of the IT Act. These issues were not considered by either the Apex high Court or A.P. High Court in Gemini Pictures (P) Ltd. (Supra), G.M. Omar Khan (Supra) and in Bolla Ramaiah (supra). Therefore, these judgements may not be of any assistance to the Revenue.
9. The Amritsar Bench of the Tribunal had an occasion to consider this issue specifically in DCIT Vs.Capital Local Area Bank Ltd., (123 TTJ (Asr)918 (2009). After considering the provisions of sec.2(14)(iii) and the concept of municipality Amritsar Bench has observed as follows in Para Nos. 24 to 29:
24. A plain reading of s.2(14)(iii) shows that agricultural land situated in any area comprised within the jurisdiction of municipality where the population is not less than ten thousand as per the last preceding census before the first day of the previous year does fall within the meaning of `capital asset’ as defined by section 2(14) and any agricultural land within 8 kms. from the local limits of such municipality, as notified by the Central Govt. in the Office Gazette, also does fall within the definition of `capital asset’ as prescribed in s.2(14) of the Act.
25. The AO in the present case observed that even if it was taken that the land in question lies beyond the municipal limits of Phagwara, it is situated within 8 kms. Of the municipal limits of Jalandhar City and that thus also, this land falls outside the exemption provided by s.2(14) of the IT Act. The issue is as to whether the assessing officer was correct in holding so.
26. The AO seems to have taken that what is envisaged by s.2(14)(iii)(b) of the IT Act is that if a land lies beyond (sic within) 8 kms. From the local limits of any municipality, it falls outside the scope of the exemption provided by s.2(14) of the Act.
27. In considering so, however, the AO appears to have lost sight of the fact that the words `any municipality’ in s.2(14) (iii)(b0 cannot be read divorced from their qualifying words, i.e. referred to item (a), lest they lose their legislative intent. The AO seems to have read `municipality’ mentioned in S.2(14)(iii) (b) to mean any municipality having 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. 28. Now the municipality detailed in s.2(14)(iii)(a) is the municipality within the jurisdiction of which the area, in which the concerned land is situated is comprised 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. Both these conditions are concurrent and not mutually exclusive. The municipality must have jurisdiction over the land as well as it must have a population of more than ten thousand as per the last preceding census of which the relevant figures have been published before the last day of the previous year. And the primary requirement is that of jurisdiction of the municipality over the land. If a municipality does not have jurisdiction over the land. If a municipality does not have jurisdiction over the land, it is not the municipality mentioned in s.2(14) (iii) (b). In Municipal Corporation for the City of Bombay Vs. CIT (1984) 16 ITR 165 (Bom) it has been held inter alia, to the effect that jurisdiction of a municipality does not extend outside its prescribed area of jurisdiction.
29. “From the above, it becomes amply clear that the `municipality’ referred to in s.2(14) (iii) (b) of the IT Act is the very one referred in s.2(14) (a). To reiterate, s.2(14)(iii)(b) is unambiguous in as much as it uses the expression `referred to in item (a)’. Taking any other interpretation of the section, as has been done by the AO in the present case, would amount to nothing other than gross misreading and misinterpretation of s.2(14)(iii) (b)”.
10. Amritsar Bench further observed as follows at Para Nos. 73, 74 and 75:
73. Now, as per s.2(14)(iii)(b), the central govt. is required to specify the area falling within 8 kms from the local limits of any municipality as referred to in s. 2(14)(iii)(a) by notification in the official gazette. A plain construction of s. 2(14)(iii)(b) reveals that `capital asset’ within the meaning of this section excludes agricultural land situated in any area beyond 8 kms from the local limits of any municipality having a population of at least ten thousand (as referred to in s 2(14)(iii)(a) as notified in the Official gazette by the central govt. having regard to the extent of, and scope for, urbanization of that area and other relevant considerations.
74. Therefore, if a central Government specifies, by notification in the official gazette, any area as an area falling outside the local limits of a municipality, having regard to the extent of and scope for, urbanization of the said area and other relevant considerations, agricultural land composed within such area shall stand excluded from the definition of capital asset as envisaged in sec. 2(14) by virtue of operation of the law contained in s. 2(14)(iii)(b) .
75. Now, in the present case, the Central Govt. issued Notification No. 9447/F.No. 164/3/87-ITA-I dated 6th January, 1994 116 CTR (St) 13 (1994) 205 ITR (St 121 by publication in the Official Gazette, in the exercise of the powers conferred by section 2 (1A) (c) proviso, clause (ii) (B) and section 2(14) (iii) (B) of the Act. Section 2 (1A) incidentally deals with “agricultural income”. Sub clause (A) and (B) of 2 (1A) (c) proviso, clause ii are identical to items (a & b) respectively of section 2 (14) (iii).
11. The Tribunal further observed as follows at Para Nos. 77 to 84:
77. “Now undisputedly, the land in question lies in village Khajurala, which falls in Tehsil Phagwara, District Kapurthala and is more than 2 kilometers in all directions, from the municipal limits of Phagwara Municipality. According to the notification, areas up to two kilometers away from the local limits of Phagwara Municipality stand notified as falling outside its local limits. The land in question is admittedly more than 2 kilometers from the local limits of Phagwara Municipality. It would not have fallen within the exemption provided by s. 2(14)(iii)(b) were it situate within 2 kilometers from the local limits of Phagwara Municipality. However, it is nobody’s case that the land in question is situate in an area within 2 kilometers from the local limits of Phagwara Municipality. Rather, the AO case is that though admittedly, the land is beyond the municipal limits of Phagwara it is within 8 kilometers of the municipal limits of Jalandhar City and so, it is outside the exemption of s.2(14)”. 78. When the area specified in col. (4) of the notification stands identified by the central govt. with Phagwara Municipality, the AO could not hold de hors the notification to bring it within the governance of Jalandhar Municipality.
79. Now a notification u/s 2(14) (iii) of the IT Act is issued specifying areas as falling outside the local limits of a municipality `having regard to the extent of, any scope for urbanization of the areas concerned and other relevant consideration’.
80. Urbanizations of an area, then falls within the exclusive domain of the concerned municipality exercising regulatory as well as administrative control over such area. It is such concerned municipality, id est, the parent municipality, or jurisdictional municipality of the area, which has to carry out the urbanization of the area. Area situate within the local limits of a Gram Panchayat, when included within the limits of a city, become urban areas. Sec. 44 of the PMC Act makes it incumbent on the concerned municipal corporation established there under, to make adequate provision for the matters provided under the said section. These matters are matters concerning urbanization.
81. It is thus evident that it is the parent/jurisdictional municipality, which is responsible for the areas falling within its territorial jurisdiction and for the lands situate within such areas. Such control cannot be said to vest in any other municipality. It was only thus that the purchase and sale of the land in question was made through the Phagwara Revenue authorities and not the ones of Jalandhar. In the notification itself also, the areas falling outside the Jalandhar Municipality have been separately specified from those falling outside the Phagwara Municipality. Even the areas falling outside the Kapurthala Municipality have been separately specified, though Kapurthala is the District of which Phagwara is a Tehsil. The bye laws applicable to the area within which the land in question is situate, are the bye laws of Kapurthala District and not of Jalandhar District.
82. Reverting to the order under appeal, the learned CIT (A) has held and in our considered opinion, quite correctly that: “The case of the AO based on observation in para 11 of the order that the land being within 8 kms. Of municipal limits of Jalandhar it was capital asset within the meaning of s. 2(14) of the IT Act. I agree that said observation was not confronted to the appellant. However, the same is considered in the light of provisions of s. 2(14)(iii) read with its cls. (a) and (b) as well as the notifications on the subject. No doubt the land falls within a distance of 8 kms. From the municipal limits in all directions as per the notification no. 9447/File No. 164/3/87 ITA 1, dt. 6th Jan. 1994 (reported in (1994) 116 CTR (St.) 113: (1994) 205 ITR (st.) 121) issued by Govt. in the context of cl. (b) of S. 2 14 (iii) of the IT Act. But the relevant land is outside the jurisdiction of Jalandhar District because it is in the jurisdiction of Kapurthala District nearer to its Tehsil Phagwara. As per the said notification the areas specified in Phagwara Municipality cannot be related with Jalandhar, against which the areas have been separately specified. Being outside the area of Jalandhar District all the bye laws which are applicable in that area are of Kapurthala District. Due to the said fact the purchase as well as the sale transactions of the said land were carried out through the offices of Land Revenue Authorities at Phagwara than at Jalandhar. For all the regulatory and administrative controls it falls within the jurisdiction of Kapurthala District. Therefore, the observation of the AO that it becomes a capital asset being falling within 8 kms of municipal limit of Jalandhar cannot be upheld in view of the notification and the peculiar placement of the land”.
83. The AO in this regard held as follows: “Even if it is admitted that it is beyond the municipal limits of Phagwara, however, the land in question is within 8 km of the municipal limits of Jalandhar City and on this very ground also the land in question is outside the exemption provided u/s 2(14) of the IT Act”.
84. The conclusion of the AO, therefore, as seen in the preceding Paras, is a non est conclusion, arrived at in oblivion of the settled law on the subject, statutory as well as precedent. The learned CIT(A) has ergo, correctly dissented from the conclusion of the AO that falling within 8 kms from Jalandhar, the land in question acquires the nature of a capital asset within the meaning of S.2(14) of the IT Act”.
12. In this case also admittedly, the entire transactions was made through Rajendra Nagar Revenue Authorities and not through Hyderabad Revenue Authorities. Therefore, as found by the Coordinate Bench of the Tribunal in the case of Capital Local Area Bank Ltd. (supra) , the jurisdictional Municipality is Rajendra Nagar Municipality and not the Hyderabad Municipality. Since Rajendra Nagar Municipality is not admittedly notified by the Central Government, the agricultural land in question cannot be treated as capital asset by taking the distance from the limits of Hyderabad Municipality. By respectfully following decisions of the Coordinate Bench cited supra, we hold that the land in question cannot be treated as capital asset within the meaning of Sec. 2(14)(iii)(b) of the IT Act. Accordingly, Orders of the lower authorities are set aside.
13. In the result, the appeal of the assessee is allowed.
