COMMISSIONER OF INCOME TAX V. KHAZAN SINGH

ITA/339/2007

AI Insights

The case revolves around the classification of agricultural land in Mangwal village for tax purposes under the Income Tax Act, 1961. The primary legal issue was whether the land sold by Shri Khazan Singh, which is located within 5 kilometers of the Sangrur Municipal limits, qualifies as a capital asset. The Assessing Officer initially classified the land as a capital asset, leading to a tax assessment. However, the CIT(A) and the Tribunal reversed this decision, leading to the revenue's appeal in the High Court. The High Court found that the land did fall within the municipal jurisdiction and thus was a capital asset, reversing the lower authorities' decisions.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 730354 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 20-02-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: AAKASH SINGLA
• Assessee Lawyers: SAVITA SAXENA
• Keywords: Agricultural Land; Capital asset; Capital Gain; Jurisdiction; Municipality
• Section: 2(14)

Judgement Text

" ITA No. 339 of 2007 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH I.T.A. No. 339 of 2007 (O&M) Date of Decision: 20.02.2014 The Commissioner of Income Tax, Patiala. ... Appellant vs. Shri Khazan Singh ... Respondent CORAM: HON'BLE MR. JUSTICE AJAY KUMAR MITTAL HON'BLE MRS. JUSTICE ANITA CHAUDHRY Present:- Ms. Savita Saxena, Advocate for the appellant. Mr. Aakash Singla, Advocate for the respondent. --- ANITA CHAUDHRY, J. 1. Through the instant appeal preferred by the revenue, a challenge has been laid to the order dated 24.01.2007 passed by the Income Tax Appellate Tribunal, Chandigarh Bench (for brevity, 'the Tribunal'), affirming the order of Commissioner of Income Tax(Appeals)(in short, 'CIT(A)') ordering deletion of Rs. 12,83,930/- relating to assessment year 2002-03. 2. On 12.11.2007, the appeal was admitted for determining following substantial questions of law:- (i) Whether on the facts and in the circumstances of the case, the ITAT is right in law in concurring with the findings of the first Appellate Authority that the land in question falls within the jurisdiction of Mangwal village Gram Panchayat, an autonomous local authority that has all the ingredients of Municipality to Sharma Jiten 2014.04.24 11:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No. 339 of 2007 2 cover it fully in Section 2(14)(iii)(a) of the Income Tax Act, 1961, and as this Panchayat does not find place in the Board's notification dated 6.1.1994, therefore, the land in question does not come under the definition of capital asset and thereby deleting the addition of Rs. 12,83,930/- made by the Assessing Officer under the head Capital Gain? (ii) Whether on the facts and in the circumstances of the case, the ITAT is right in law in upholding the order of the CIT(A) that the land being within the 5 kms from the jurisdiction of municipality of Sangrur would itself not constitute a capital asset within the meaning of Section 2(14(iii)(b) unless village Mangwal falls within the jurisdiction of municipality of Sangrur whereas Section 2(14) (iii)(b) does not impose any such requirement? 3. The brief facts of the case are that the assessee- respondent purchased land in question at village Mangwal during financial year 2000-01 for a consideration of `21,40,000/- and sold the same on 12.12.2001 for a sum of `34,23,932/-. He did not show any income while filing the return for the assessment year 2002-03. The Assessing Officer, vide order dated 25.11.2003 held that the land sold by the assessee falls within the definition of capital asset as provided under Section 2(14) of the Income Tax Act, 1961 (in short, 'the Act') and accordingly assessed an amount of `12,83,930/- as short term capital gain by Sharma Jiten 2014.04.24 11:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No. 339 of 2007 3 making the following observations:- “I have considered the arguments putforth by the assessee and not convinced with it. The assessee's land in question is situated within 5km from the limit of Sangrur Municipal Committee, the facts has not been denied by the assessee as per order sheet entry dated 20/10/2003. As per Board's notification dated 6/1/94 issued u/s 2(1A)(c) proviso, clause (ii) (B) and section 2(14)(iii)(b) in which urban area has been defined. Under the said notification the area in respect of Sangrur town upto the distance of 5 km from the Municipal limits in all the directions has been notified as urbanized area.” 4. The appeal against the aforesaid order was filed by the assessee before the CIT(A), which was allowed on 1.11.2004 by making the following observations:- “4.2 In view of the above, it is clear that the land in question falls within the jurisdiction of village Gram Panchayat, an autonomous local authority that has all the ingredients laid down by the Hon'ble Kerala High Court (supra) to cover it within the definition of Municipal in section 2(14)(iii)(a) of the Income Tax Act, 1961 and this Gram Panchayat Mangwal has a population less than 10,000 as per the latest census. This Panchayat Mangwal does not find Sharma Jiten 2014.04.24 11:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No. 339 of 2007 4 place in the said notification whereas Municipality of Sangrur finds place at Sr. No. 40 of Punjab at Sr. No. 18 of said notification. Thus land being within the 5 kms from the jurisdiction of Municipality of Sangrur would itself not constitute an asset within the meaning of section 2(14)(iii)(b) unless village Mangwal falls within the jurisdiction of Municipality of Sangrur also like village Nangal Dewat falls within the jurisdiction of Municipal Corporation of Delhi. Undisputedly village Mangwal is not within the jurisdiction of Municipality of Sangrur. Hence, the land in question is not a land to constitute an asset within the meaning of section 2(14)(iii)(a) or (b) of the I.T. Act, 1961. Hence, the Assessing Officer is directed to treat the said land not an asset within the meaning of section 2(14)(iii)(a) of the I.T. Act, 1961. The addition made on this account of the tune of Rs. 12,83,930/- is thus deleted.” 5. The Tribunal dismissed the appeal of the revenue and affirmed the deletion made by the CIT(A). Dis-satisfied with the same, revenue has filed the instant appeal. 6. For adjudication of the issues, let us first advert to Section 2(14)(iii)(a) and (b) of the Act, which reads as under:- “14. 'Capital asset' means property of any kind held by an assessee, whether or not connected Sharma Jiten 2014.04.24 11:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No. 339 of 2007 5 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.” 7. From the plain and unambiguous language used in clause (a) of this sub-section, it is clear that if the agricultural land is situated outside the jurisdiction of a municipality, then no tax on any profits or gains arising from the transfer of such land will be chargeable under the head “capital gains”. However, under Sharma Jiten 2014.04.24 11:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No. 339 of 2007 6 clause (b) any area within 8 kms from the local limits of any Municipality or Cantonment referred in Clause (a) or within such area as the Central Government may specify by way of a notification having regard to the extent and scope of urbanisation of that area would be within the ambit of capital asset. 8. In the case in hand, it is evident that at no point of time the assessee had disputed that the land in question did not fall within the area of 5 kms from municipal limits of Sangrur. Even CIT(A) has also mentioned in its order that the land is situated within 5 kms of Sangrur Municipal Committee. Not only this, a perusal of notification dated 6.1.1994 issued by the Government of India under the provisions of Section 2(14)(iii)(b), makes it clear that areas upto distance of 5 kms from municipal limits of Sangrur in all directions falls within the local limits of Sangrur municipality. Once there was no denial of the fact that the land in question falls within 5 kms of Sangrur Municipal Committee, there was no occasion for the CIT(A) as well as the Tribunal to interpret otherwise and hold that the land in question would not constitute a capital asset within the meaning of provisions ibid. 9. Thus, we find that the CIT(A) as well as the Tribunal fell into error while ordering the deletion. Consequently, we allow the appeal and answer the questions framed above in favour of the revenue. (AJAY KUMAR MITTAL) (ANITA CHAUDHRY) JUDGE JUDGE 20.02.2014 Jiten Sharma Jiten 2014.04.24 11:37 I attest to the accuracy and integrity of this document High Court Chandigarh "