SHRI DINESH NIGAM,INDORE vs. INCOME TAX OFFICER 2 (3), INDORE, INDORE

आदेश / O R D E R

PER KUL BHARAT, J.M: This appeal by the assessee is directed against order of

the CIT(A)-1, Indore dated 18.11.2016 pertaining to the

assessment dated 18.11.2016 pertaining to the

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore]

assessment year 2013-14. The assessee has raised

following grounds of appeal:-

grounds: 2

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] “That, the Learned ITO erred in law and on facts in adopting the value determined by the stamp valuation authority at Rs.1,00,60,000/- for the calculation of LTCG while he ought to have adopted the amount actually received by the appellant to the tune of Rs.72,82,000/- to compute the amount of LTCG. The learned authority erred in law in applying Section 50C which is not applicable to the appellant’s case in the light of ITAT decision ITO, Ajmer V Raj Kumar Parashar ITA No.11/JP/2016 decided on 28.9.2017 by ITAT Jaipur.” 3. The facts giving rise to the present appeal are that

case of the assessee was selected for scrutiny assessment

and the assessment u/s 143(3) of the Income Tax Act,

1961 (hereinafter called as ‘the Act’) was framed vide order

dated 9.3.2016. The A.O. observed in the assessment

order that the assessee had sold an agricultural land

bearing Khasra No.117/3, Patwari halka No.38, village

Jakhya, Tehsil Sanwer, Dist. Indore admeasuring 0.614

hectare on 11.2.2013at a sale consideration of

Rs.72,82,000/-. The stamp valuation authority had

adopted market value of property at Rs.1,00,60,000/-. The

A.O. observed that the assessee has claimed cost of

improvement as well as the cost of acquisition for the

purpose of capital gain. Further, claim u/s 54B of the Act 3

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] was made which was restricted to 1/3rd of the claim on the

basis that the new asset was purchased in joint ownership

with the other brothers of the assessee. Hence, the A.O.

computed taxable capital gain at Rs.41,13,018/- against

the income disclosed by the assessee in the return of

income at Rs.1,97,440/-. Aggrieved by this, the assessee

preferred an appeal before the Ld. CIT(A), who after

considering submissions partly allowed the appeal, thereby

the claim of improvement of asset was allowed. Hence, the

addition of Rs.91,280/- was allowed. The other claim of

the assessee related to the land in question being not

capital asset and the claim of deduction u/s 54B of the Act

on the entire sale consideration was rejected by the Ld.

CIT(A). Now the assessee is in the present appeal.

present appeal filed was barred by 115 days. The assessee

had filed an application seeking condonation of delay. The

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] Ld. Counsel for the assessee reiterated the submissions as

made in the application. The application is duly supported

by the affidavit. However, the Ld. D.R. opposed the

condonation of delay and submitted that there is no

reasonable cause which prevented the assessee for filing

the appeal in time. Ld. Counsel for the assessee has taken

us through the contents of the application and also

submitted that the assessee suffered from Typhoid and

Liver infection. Assessee was thus prevented to file the

present appeal in time.

available on record and gone through the contents of the

application as well as the affidavit filed in support thereof.

The assessee was suffering from disease and was advised

for rest. Keeping the fact in view coupled with the fact that

revenue has not demonstrated that this was a tool to evade

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore]

tax or take an undue advantage. We therefore, condone

the delay and take up the appeal for hearing.

treating the agricultural land as capital asset. Ld. Counsel

for the assessee reiterated the submissions as made in the

statement of facts. The submission of Ld. Counsel in the

statement of facts are as under:

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] High Court of M.P. on 3.2.2014 and 11.11.2014 respectively. Thus, these notifications lost its efficacy, corollary, therefore, follows that the directives of these notifications cannot be used to measure the distance of subject land, since at the point of time of sale of land, the territorial limit was not extended by way of emerging additional 29 villages as intended in the above notifications. Thus, the only existing notification was dated 12.8.1994 for measurement of territorial limit. It is, therefore, submitted that the distance ought to have been measured from the limit of Indore Municipal, Indore as laid down in the notification dated 12.8.1994. Thus, the crux of submission is that the distance of subject land ought to have been calculated from the limits provided in notification issued on 12.8.1994. (b) That, however, the ITO got measured the distance of subject land by issuance of a statutory notice to Tehasildar, Sanwer, Dist. Indore whose report reveal, that the distance of subject land is 4 km. This report, on which the entire controversy arose is, prima facie incorrect and illegal. It does not disclose the starting and ending point of measurement of land and also does not disclose the method of measurement. On the contrary, the appellant at his own, measured the distance of land is arrived more than 8 kms from Banganga Railway station, Indore. The appellant sought the help of goodle search engine, which too reports the distance of land is more than 8 kms from the precincts given in notification, 1994 thus, it is crystal clear that the land of appellant is not capital asset within the meaning of section 2(14)(iii) of the Act.” 7. Ld. Counsel for the assessee has also taken us

through the M.P. Municipal Corporation Act, 1956. The

Ld. Counsel has drew our attention to section 405 of the

M.P. Municipal Corporation Act. In the light of the

provisions of section 405 of the Municipal Corporation Act,

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] Ld. Counsel vehemently argued that the notification which

has been relied by the Ld. CIT(A) taking the Municipal limit

of the Indore Municipality being extended is factually

incorrect. Ld. Counsel submitted that the notification

dated 5.2.2013 and 4.3.2014 to extend the territorial limit

of Indore Municipal Corporation was quashed by the

Hon'ble High Court on 3.2.2014 and 11.11.2014. Ld.

Counsel has taken us through the judgement of the

Hon'ble M.P. High Court to buttress his argument. Ld.

Counsel for the assessee further submitted that the Ld.

CIT(A) has relied upon the notification dated 17.2.2012.

He contended that Ld. CIT(DR) grossly erred in considering

the notification dated 17.2.2012 as if this notification was

issued u/s 405 sub section (3). In fact this notification

issued u/s sub section (1) of the Section 405. He

submitted that this notification was made to call for

objections from the public at large in respect of extension

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] of territory of Municipal Corporation of Indore. Ld. Counsel

submitted that there was no notification u/s 405(3)

confirming notification u/s 405(1) at the time of sale of the

land in question. Therefore, the authorities below grossly

misdirected themselves by adopting the distance, which

was proposed in the notification issued u/s 405(1) of the

Municipal Corporation Act, 1956.

and supported the order of the authorities below. He

submitted that the Ld. CIT(A) has rightly relied upon the

notification issued in the year 2012.

materials available on record and gone through the orders

of the authorities below. The issue, which requires

adjudication is that whether there was a valid notification

issued for extension of territory of Indore Municipal

Corporation at the time of transfer of land in question? For 9

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] the sake of clarity, provisions of Section 405 of the

Municipal Corporation Act which is reproduced as under:

“[405. Power of Governor to include or exclude certain area – (1) the Governor may by notification in the gazette declare the intention to include within or exclude from the limits of the city any specified area. (2) If the local authority having jurisdiction in the said area or any person resident therein, objects to such declaration such authority or person may submit an objection in writing to the Collector within a prescribed period and the Governor shall take such objection into consideration. (3) When the said period has expired and the Governor has considered the objection under sub-section (2), the Governor may by notification, include within or exclude from the limits of the city any specified area. Provided that when an area is excluded from the limits of any municipal area, such area notwithstanding such exclusion shall continue to be within the limits of the municipal area until the area so excluded is included in a duly constituted Panchayat area.” 10. From the aforesaid provision, it is clear that Governor

is empowered to issue notification to include or exclude

from the limits of the city any specified area. For this

purpose, 1st notification u/s 405(1) of the Municipal

Corporation Act is to be issued notifying the declaration to

include or exclude from the limits of city any specified area

once it is notified, sub-section (2) of Section 405 entitles

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] any person residing therein for objecting to such

declaration, such objections are required to be submitted

to the Collector within a prescribed period and then the

Governor would take such objection into consideration and

as per sub-section (3) of section 405, when the prescribed

period had expired and the Governor has considered the

objection under sub-section (2), the Governor may by

notification include within or exclude from the limits of the

city any specified area. Now it is to be seen which

notification duly notified under section 405(3) of the M.P.

Municipal Corporation Act was in vogue at the time of

transfer of agricultural land in question. It is to be borne

in mind that transfer of agricultural land would not ipso

facto be taxable unless it falls under the category of capital

asset. For the sake of clarity, section 2(14) of the Act,

which defines capital asset is reproduced as under:

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] “Section 2(14) “Capital asset” means:-

(a) property of any kind held by an assessee, whether or not connected with his business or profession;

(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992;

but does not include:

(i) any stock-in-trade, other than the securities referred to in sub-clause (b), consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes:

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

Explanations:

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] (a) the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;

(b) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956;

(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; or

(b) in any area within the distance, measured aerially:

(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation: For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year.

(iv) 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;

(v) Special Bearer Bonds, 1991, issued by the Central Government;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government.

of capital asset subject to its location being beyond the 13

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] distance as prescribed by law. In the given case the

agricultural land should be beyond 8 km. from the Indore

Municipal Corporation for allowing the claimed deduction.

observing as under:

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore]

relied upon notification dated 17.2.2012. As per Ld.

CIT(A), this notification had extended the boundary of

Indore Municipal Corporation. However, the A.O. in para-

3.1 of the assessment order has observed as under:

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] 14. We find that report of the Tahsildar is not enclosed in

the paper book. The assessee has placed on record order of

the Hon'ble High Court of Madhya Pradesh, Indore Bench

dated 11.11.2014 passed in writ petition No.3538 of 2014

in the case of Anil Trivedi and another Vs. State of M.P.

and others. The Hon'ble High Court has observed that the

petition was directed against the notification dated

17.2.2012 issued u/s 405(1) of the M.P. Municipal

Corporation Act, 1956 as also the notification dated

4.3.2014 issued u/s 405(3) of the Act. Hence, it is clear

that Ld. CIT(A) undisputedly relied upon notification dated

17.2.2012 which was issued u/s 405(1) of the M.P.

Municipal Corporation Act, therefore, in our considered

view, the Ld. CIT(A) erred in following the notification

issued u/s 405(1) of the M.P. Municipal Corporation Act.

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] 15. As discussed hereinabove, the notification u/s 405(1)

of the Act in itself would not extend the boundary of any

Municipality unless it is confirmed by the another

notification u/s 405(3) of the M.P. Municipal Corporation

Act. From the records, it is transpired that the A.O. has

reported that as per Tahsildar report the land in question

was within 8 kms. of the limit of Indore Municipal

Corporation. It is not clear as to what was the basis of

reporting the distance being within 8 kms. of the Indore

Municipal Corporation. We therefore, set aside the order of

the Ld. CIT(A) on this issue and direct him to decide it

afresh. The Ld. CIT(A) would verify the status of land in

question as on the date when sale deed was executed by

the assessee and would also verify the notification which

was in force as issued u/s 405(3) of the M.P. Municipal

Corporation Act. Needless to say, Ld. CIT(A) would afford

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] the reasonable opportunity to the assessee. Hence, ground

Nos.1 to 4 are allowed for statistical purposes only.

the deduction u/s 54B of the Act as claimed by the

assessee. Ld. Counsel for the assessee reiterated the

submissions as made before the Ld. CIT(A). It is contended

that the new asset was purchased by the sale consideration

of the capital asset in question. The Ld. Counsel for the

assessee vehemently argued that the authorities below

have not considered the facts in right perspective. It is

contended that where immovable property transferred for

consideration, two or more persons and such consideration

is paid out of fund belonging to them in common they are

in absence of a contract to the contrary respectively

entitled to interest in such property identical as nearly as

may be with the interest to which they were respectively

entitled in the fund. The reliance is placed upon the

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] section 45 of the Transfer of property Act in support of this

contention. It is stated that the assessee had invested

entire sale proceeds and purchased another agricultural

land along with his two brothers at Rs.1,72,01,945/0

including cost of stamps and registration fees. He

submitted that since the assessee had invested the entire

sale proceeds against the acquisition of new agricultural

land, therefore, he is entitled to get benefit of deduction on

entire sale proceeds u/s 54B of the Act. As his right unto

the property would be nearly the same ratio in which fund

was contributed by the joint owners.

and submitted that the law is very clear on this issue.

There is no ambiguity under the law. The assessee is

required to invest the sale proceeds of capital asset in new

asset in accordance with the provisions of section 54B of

the Act for becoming entitled for the benefit u/s 54B of the

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] Act. He drew our attention to the provisions of section 54B

of the Act. He contended that nowhere law permits that

the investment can also be made in the name of brothers of

the assessee for claiming the deduction. He submitted that

the assessee failed to produce any material related to the

investment made by other brothers out of their own

sources. He submitted that therefore, under these facts,

Ld. authorities below were justified in declining claim of

deduction u/s 54B of the Act.

materials available on record and gone through the orders

of the authorities below. The issue to be decided is

whether the assessee would be entitled for deduction u/s

54F of the Act, even if the investments have been made

jointly with other brothers? Alternatively, whether the

assessee would be entitled for deduction u/s 54B of the Act

in respect of the entire sale proceeds invested jointly with

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore]

other brothers? For the sake of clarity, section 54B of the

Act is reproduced as under:

“54B [(1)] [Subject to the provisions of sub-section (2), where the capital gain arises] from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by [the assessee being an individual or his parent, or a Hindu undivided family] for agricultural purposes [(hereinafter referred to as the original asset)], and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say—

(i) If the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or (ii) If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain.] [(2) The amount of the capital gain which is not utilised by the assessee for the purchase of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset; Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase of the new asset within the period specified in sub-section (1), then—

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] (i) The amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of two years from th date of transfer of the original asset expires, and (ii) The assessee shall be entitled to withdraw such amount in accordance with the sheme aforesaid.”

Act by observing as under:

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore]

requisite details related to investment of sale proceeds were

not filed. However, the issue whether assessee would be

entitled to claim deduction of the entire fund invested

jointly along with other brothers is not adjudicated. We

therefore set aside the order of Ld. CIT(A) to decide it afresh

after considering the submissions that the assessee is

entitled for deduction u/s 54B of the Act in respect of

entire sale proceeds invested by him along with his other

brothers in new asset. The Ld. CIT(A) would verify the

details, if any supporting the investment of fund in new

[ITA No.457/Ind/2017] [Mr. Dinesh Nigam, Indore] asset. This ground of the assessee’s appeal is allowed for

statistical purposes.

needs no separate adjudication.

The delay has already been allowed, therefore, this ground

of the assessee’s appeal is allowed.

allowed for statistical purposes as indicated herein above.

Order was pronounced in the open court on 13 .05.2019.

Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIALMEMBER

Indore; �दनांक Dated : 13/05/2019 VG/SPS

Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Assistant Registrar, Indore