NALINI BANDI,VISAKHAPATNAM vs. THE INCOME TAX OFFICER, WARD-3(3),, VISAKHAPATNAM

O R D E R PER BENCH

This appeal has been preferred by the Assessee against the order dated 11/02/2020 impugned herein passed by the ld. Commissioner of Income Tax (Appeals)-1 [for short, “ld. Commissioner”], Visakhapatnam u/sec. 250(6) of the Income Tax Act, 1961 (hereinafter referred to as "Act") for the A.Y. 2008-09.

The case of the Assessee was opened for the A.Y. 2008-09 while issuing notice u/sec. 148 of the Act on dated 19/03/2015. Before the AO, it was claimed by the Assessee that the land sold was rural agricultural in nature and therefore not liable for long term capital gain. It was further submitted that without prejudice to the above, the Assessee has invested the sale proceeds in the acquisition of an agricultural land during the previous year. Since the property sold was rural agriculture therefore the capital gain computation was not done while preparing the ITR for the relevant A.Y. 2008-09, however, disclosure was made in the statement of the computation of income. It was further claimed before the AO that the Assessee has complied with all the conditions mentioned in section 54B of the Act. Though, deduction u/sec. 54B was not claimed through ITR, however, the Assessee has claimed the relief to the extent of investment made in compliance with the terms and conditions stipulated u/sec. 54B of the Act. The AO did not get impressed and came to a conclusion that after verification of facts, it is seen that Rs. 14,18,157/- is still liable for long term capital gain and ultimately computed the income from short term capital gain at Rs. 14,18,157/-.

The ld. Commissioner though considered the contention and documents of the Assessee, however affirmed the order of the AO, while rejecting the claim of the Assessee by holding that section 2(14)(iii)(b) got amended in 2013 w.e.f. 01/04/2014 wherein the distance is measured aerially. Thus, it is clear that the amended provision is not applicable to A.Y. 2008-09, therefore application of provision is the erstwhile section. The ld. Commissioner also observed that as per old provision a Gazette notification is required to bring the properties within the ambit of section 2(14)(iii)(b). However, there is no notification in this regard from 1994. In other words, the extended municipal limits by GVMC is not endorsed by any Gazette of Central Government Extension of Municipal limits is within the power and purview of local Government. Gazette notification endorsing the extension of limits of municipality is in the powers of Central Government. In order to mitigate the hardship, the provision is amended and distance is adopted as „aerial distance‟.

5. Having heard the parties and perused the material available on record. It is not in controversy that as per notification of the Central Government issued on 06/01/1994, the land in question falls beyond 8 km. from the local municipality and thereafter no notification has been issued by the central Government. The Assessee in support of its contention also filed a certificate issued by the Executive Engineer (R&B) vide Letter No.638/D2/Distance/08 to the effect that the distance from old municipality Visakhapatnam to Kapuluppada village is 15.96 km. The Ld. Commissioner did not express any doubt about the said certificate and though mentioned in its order, however, did not rely upon the same. The conclusion of the Ld. Commissioner with regard to applicability of section 2(14)(iii)(b) is that the said section got amended w.e.f. 01/04/2014 where the distance is measured aerially, therefore, the amended provision is not applicable to A.Y. 2008-09.

If we consider the conclusion of the ld. Commissioner to the effect that provisions of section 2(14)(iii)(b) which got amended w.e.f. 01/04/2014 will not be applicable to A.Y. 2008-09 qua the case of the Assessee, then in principle the provisions prior to shall be applicable, whereby in 1994 the Central Government has notified the areas within the limits of Visakhapatnam municipality and as per that notification, the Assessee’s land in question is undoubtedly falls beyond 8 km. from municipal limits and thereafter no notification has been issued by the Central Government. Meaning thereby, the notification of 1994 still construed as in existence.

Even otherwise, the coordinate bench of the tribunal in the case of Jasti Vayunandana Rao (supra) dealt with the exactly similar issue related to the A.Y. 2008-09 itself, of the same village i.e. Kapuluppada village, Bheemunipatnam Mandal of Vizag, where the land in question before the Co-ordinate Bench and the land sold by the Assessee is situated. The co-ordinate bench of the tribunal thoroughly examined the issue and came to a conclusion that undisputedly the impugned land was initially situated beyond 8km. from the municipal limit of Visakhapatnam Municipal Corporation, but later on, on incorporation of Greater Visakhapatnam Municipal Corporation, it falls within 8 km. from the Visakhapatnam limits, but no notification as required u/sec. 2(14) was issued in the official gazette by the Central Government to bring the land within the purview of section 2(14)(iii)(b). The Central Government is required to issue notification in the official gazette and without notification land falls within 8 km. from the local limits of any municipality would not declare to be an agricultural land. The concluding part of the order is reproduced herein below:-

“7. Having heard the rival submissions and from a careful perusal of the record, we find that undisputedly the impugned land was initially situated beyond the 8 kms. from the municipality limit of Visakhapatnam Municipal Corporation. But later on, on incorporation of Greater Visakhapatnam Municipal Corporation, it falls within the 8 kms. from the municipal limit. But no notification as required u/s 2(14)(iii)(b) of the I.T. Act was issued in the Official Gazette by the Central Government. This issue was examined by us in the case of Smt. C. Girija Vs. ACIT (supra) in which we have given a categorical finding that to bring a land within the purview of clause (b) of section 2(14)(iii), the Central Government is required to issue a notification in the Official Gazette and without a notification a land falls within the 8 kms. from the local limit of any municipality would not cease to be an agricultural land. The relevant observation of the Tribunal are extracted hereunder:

“Having carefully examined the orders of the lower authorities in this regard and the provisions of section 2(14)(iii) of the Act relating to agricultural land, we find that as per clause (a), any land which situated in an area which is comprised within the jurisdiction of municipality or a cantonment board which has a population of not less than 10,000 according to the last preceding census would not be an agricultural land. The clause (b) of section 2(14)(iii) deals with those lands which situates in any area within such distance not being more than 8 kms. from the local limits of the municipality or cantonment board as the central government may having regard to the extent of and scope for urbanisation of that area and other relevant consideration specify in this behalf by notification in the official gazette. To bring a land within the purview of clause (b), the central government is required to issue a notification in the official gazette. Without a notification, a land falls within the 8 kms. from the local limits of any municipality would not cease to be an agricultural land. But in the instant case, the impugned land is admittedly situates within area of a local limit of the GVMC for which no notification as specified in clause (b) is required to be issued by the central government. We have also examined the contention of the assessees that the GVMC was notified by the local laws and local laws cannot supersede the central laws. But we do not find any force in this argument because the municipality or the cantonment board are subject to local laws and within a state subject and are created by a notification by the state government. Central government has no jurisdiction to create a municipality, cantonment board in any state of the country. Central government is concerned with the central act. Once the municipality of the cantonment board is created by a notification by the state government as per local laws, the central act will apply. Therefore once the impugned land is situated within the jurisdiction of the local limit of the GVMC, the impugned land cease to be the agricultural land and on its sale capital gain is to be computed. We therefore, find no infirmity in the order of the CIT(A) who has rightly computed the capital gain on sale of the impugned agricultural land.”

In overall analyzations and consideration, we do not have any hesitation to set aside the order passed by the ld. Commissioner and to delete the addition of Rs. 14,18,157/- as income of the previous year as per section 54B(1)(i) as held by the AO and sustained by the Ld. Commissioner. Consequently, the addition stands deleted.

Order Pronounced in open Court on this 23rd day of Sep., 2021.