MONICA MUNICHANNARAYAPPA,BENGALURU vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(2)(1), BENGALURU

Shri H.C. Hanumaiah (HUF), E-72, Hemmigepura, The Income Post, Tax Officer, 2110/Bang/ Bangalore South Taluk, Ward 3 (2) (3), 2018 Bangalore – 560 060. Bangalore. PAN: AADHH6525E : Shri S.R. Kiran, CA, Assessee by Dr. C.P. Ramaswamy, Advocate Revenue by : Smt. Padma Meenakshi, JCIT (DR) Date of hearing : 09.04.2019 Date of Pronouncement : 31.05.2019 O R D E R Per Shri A.K. Garodia, Accountant Member All these 11 appeals are filed by different assessees of the same extended family and in all these appeals, except in one case i.e. ITA No.

ITA Nos. 144 to 148, 2106 to 2110 & 2233/Bang/2018 Page 3 of 14 2233/Bang/2018 in which the Assessment Year is 2007-08, in all the remaining 10 appeals, the Assessment Year is 2008-09. All these appeals are directed against separate orders of ld. CIT (A)-3, Bangalore of various dates such as 19.10.2017, 06.02.2018, 07.02.2018, 09.03.2018 and 22.05.2018. At the time of hearing, it was agreed by both sides that the facts and the issue involved in all these appeals are identical and the arguments are also same and all these appeals can be decided on the basis of facts and arguments in any one case. Hence, for the sake of convenience, all these appeals are being disposed of by this common order.

ITA Nos. 144 to 148, 2106 to 2110 & 2233/Bang/2018 Page 4 of 14 Additional Ground No. 8 – “8. Without prejudice to the above grounds made, the impugned agricultural landsdo not constitute "Capital asset" as they do not fall in the notified area specifiedin the board circle and consequently there is no capital gain chargeable to tax.” Ground No. 2 – ITA No. 2110/Bang/2018 “2. The assessing Officer has made gross error in concluding that agricultural landunder question is a capital asset ignoring all the representation made by theAppellant. The basis which he has taken that is the notification of BengaluruMahanagarapalike as the basis is totally incorrect in view of the fact that thecentral Government has notified the vicinity of urban areas under provision II Bof clause IA for the purpose of exemption of income from agricultural propertyand the same has been ignored completely by the Assessing Officer. Accordingto Government of India notification taking into consideration the development and urbanisation in and around the lands it has been declared that the area up todistance of 8 kilometer from the municipal limits in all direction of Bangalore.As, such the Bengaluru Mahanagarapalike notification will not affect for thepurpose of exemption as agriculture lands. The appellant has also produced legalopinion that it is still agricultural land since Central Government has not yetextended the limits by giving public notice and assessing the urbanisation andthen consider the vicinity areas. In the circumstance the opinion of the AssessingOfficer that the lands in question as urban land holds no water. There are lakhsof acres of agricultural land under Bangalore MahanagaraPalike which remains agricultural land till they are given conversion under Revenue Act. In short, theimpugned agricultural lands do not constitute "Capital asset" as they did not fallin the notified area specified in the board circular consequently there is nocapital gains chargeable tax.” Ground No. 2 – ITA No. 2233/Bang/2018 “2. The impugned agricultural lands do not constitute "Capital Asset" as they didnot fall in the notified area specified in the gazettenotification andconsequentially there is no Capital Gains chargeable to tax.”

7. c) iii) Indexed cost of acquisition in F.Y 2007-08 Land sold on 11.06.2007 =56,000 x 551 = Rs. 3,08,560/- 100 Land sold on 19.07.2007 =49,600 x 551 = Rs. 2,73,296/-“ 100 to 148, 2106 to 2110 & 2233/Bang/2018 Page 8 of 14 4. The ld. AR of assessee has submitted synopsis of the arguments which are as under. “The five appeals filed in the case of the above appellant and 4 of his family members (ITA.Nos.144 to 148/B/2018) are on the same issue of claiming exemption of capital gains on sale of agricultural lands in the village of Hemmigepura, Kengeri. This village is situated about 20 kilometers from city limits of Bangalore City. 2. As per the Census taken in 2001, issued by the Directorate of Census Operation, Karnataka, the details of population profile of Hemmigepura Village are extracted below: Permanent District / Total Population Total Location Taluk / number of Code Village / Person Male Female Households Number Town / Ward 02059200 Hemmigepura 312 1658 867 791 A certified copy of the full profile is enclosed for kind consideration ofthe Hon'ble Bench. 3. In the impugned assessment order the A.O. held as under (videparagraph 5(b) on page 4 of the order) with regard to the claim that theagricultural lands sold fall outside the definition of "capital asset" in terms ofSection 2(14) of the I.T.Act, 1961. "5 (b) During the course of hearing the assessee'sAR hasclaimed that the land was purely agricultural in nature and isnot a Capital Assets as per sec 2(14) of the IT Act. Copies of Paani showing the agricultural activity carried out on the land are submitted to claim that since agricultural activity is carried out the land is not a Capital Asset and therefore the receipts of sale consideration is not chargeable to tax as capital gains. The assessee'scontentions are not acceptable. The agricultural land sold by the assessee at Hemmigepura Village was classified as "Urban Residential' vide Gazette of the Government of Karnataka in No.UDD92 MNY 2006 dated 16.01.2007.HemmigepuraGrama Panchayat which is listed in schedule 'A' of the said notification, was included in the limits of the BruhatBangalore MahanagaraPalike with effect from 16.01.2007. Therefore, the lands situated at HemmigepuraGrama Panchayat from 16.01.2007 are 'Capital Assets' as per sec 2(14) of the ITAct 1961 and gains on the sale of the lands are taxable capital gains.” 4. It is submitted that the reliance placed by the A.O. on the aboveGazette Notification of Government of Karnataka is misplaced.  Section 2 (14) Clause (Hi) in Explanation thereof reads as under: to 148, 2106 to 2110 & 2233/Bang/2018 Page 9 of 14 “(iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of amunicipality (whether known as a municipality, municipalcorporation, notified area committee, town area committee,town committee, or by any other name) or a cantonment boardand which has a population of not less than ten thousandaccording to the last preceding census of which therelevant figures have been published before the first dayof the previous year; or (b) in any area within such distance, not being more than eight kilometers, 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;" (emphasis supplied) 5. As per the Central Government Gazette Notification No. S.O.10/6- 1-1994 : see 205 ITR (St.) 121 superseding Notification No. SO 77(E)/6-2-73 and amended by Notification No. S. O. 1302/28-12-1999 : see 248 ITR (St.) 258, the impugned agricultural lands do not fall within the mischief of sub-clause (b) above. In the Karnataka list only Bangalore City is included in serial No.1 and NOT Bruhat Bangalore MahanagarPalike. 6. Similarly, it is submitted that even sub-clause (a) is notattracted because, of the twin conditions, the second condition is notcomplied with in the view that as given in the factual details ofCertified Census as published for the year 2001, the total populationat the relevant point of time (F.Y.2007-08 and A.Y.2008-09) ofHemmigepuraGrama Panchayat is only 1658. 7. Thus, it is submitted that the agricultural land sold by the five assessees falls outside the purview of the definition of capital assetu/s 2(14) of the I.T.Act, 1961. Consequently, there is no chargeable capital gains arising out of sale of pure agricultural lands. Submitted for kind consideration, as directed by the Hon'ble Bench onhearing the case on 20 July 2018. Encl: Certified copy of population profile of Bangalore District, Karnataka in2001.” 5. He also submitted a copy of census certificate in which it is stated that population of the Gram Panchayat for the village Hemmigepura is only 1658 as per the census of the year 2001. He also placed reliance on the Tribunal order of Ahmedabad Bench rendered in the case of Ramjibhai P. Chaudhry Vs. DCIT as reported in [2009] 314 ITR (A.T.) 259 (ITAT [Ahm]) and in to 148, 2106 to 2110 & 2233/Bang/2018 Page 10 of 14 particular, my attention was drawn to Para no. 5 of this Tribunal order and it was pointed out that sub-clause (iii) of section 2(14) has defined specified urban areas and if the land does not fall in this specified urban area, that land does not constitute capital asset. It was submitted by him in course of arguments that in present case also, this condition is not being satisfied and in support of his contention, it was submitted that the land in question is situated in the village of Hemmigepura, Kengeri and it was submitted that this village is situated about 20 kms. from city limits of Bangalore City and as per the census taken in 2001, issued by the Directorate of Census Operations, Karnataka, the total population of this village was only 1,658. It was also submitted that the AO has proceeded on the basis of Gazette of the Government of Karnataka in No. UDD92 MNY 2006 dated 16.01.2007 wherein it was stated that Hemmigepura Grama Panchayat which is listed in schedule ‘A’ of the said notification, was included in the limits of the Bruhat Bangalore Mahanagara Palike with effect from 16.01.2007. It was submitted that as per sub-section (14) of section 2, agricultural land should fall within 8 kms from the local limits of municipality or cantonment board as the Central Government may specify in by notification in the official gazette. It is submitted that the Central Government Gazette Notification No. S.O.10/6-1-1994: see 205 ITR (St.) 121 superseding Notification No. SO 77(E)/6-2-73 and amended by Notification No. S.O. 1302/28-12-1999: see 248 ITR (St.) 258, the impugned agricultural lands do not fall within the mischief of sub-clause (b) of clause (iii) of section 2(14) and it is also submitted that sub-clause (a) is not attracted because the population is less than 10,000 according to last censes for which the relevant figures have been published before the first day of previous year. The submission of assessee that because of these facts, the agricultural land sold by the various family members of these assessees falls outside the purview of the definition of capital asset u/s. 2(14) of the IT Act and therefore, as a consequence, no capital gain is chargeable to tax in the present case. 6. As against this, the ld. DR of revenue supported the orders of authorities below. He also submitted that in the present case, sub-clause (a) of clause to 148, 2106 to 2110 & 2233/Bang/2018 Page 11 of 14 (iii) to section 2(14) is applicable and not sub clause (b) as argued by ld. AR of assessee. He also submitted that the issue raised by the assessee as per additional grounds is not a legal issue and therefore, this additional ground should not be admitted. In the rejoinder, it was submitted by ld. AR of assessee that the issue is a pure legal issue and all the facts are available on record and therefore, additional ground should be admitted. Regarding this argument that sub-clause (a) of clause (iii) of section 2(14) is applicable, he submitted that as per sub-clause (a) of clause (iii) of section 2(14), two conditions are required to be specified which includes this condition that the village in question should have population of more than 10,000 but in the present case, the population of village in question is only 1,658 and therefore, this clause is also not applicable.

in the present cases.

8. Now I reproduce the provisions of clause (iii) of section 2(14) of IT Act, 1961 because the same is regarding exception to which, section 2 (14) is not applicable. The same is as under. “(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 to 148, 2106 to 2110 & 2233/Bang/2018 Page 12 of 14 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 such distance, not being more than eight kilometers, 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.”

9. From the above provisions of sub-clause (iii) of section 2(14), it is seen that as per sub-clause (a), the land shall be situated within the local limits of municipality (known by any name) or cantonment board of which the population should not be less than 10,000 and as per sub-clause (b), the area of land should be situated within 8 kms from the local limits of municipality or cantonment board referred to in item (a) which has a population of more than 10 Lakhs. In my humble understanding, for clause (a), the land should be situated within the local limits of municipality or cantonment board of which the population should not be less than 10,000 and for clause (b), the land may be situated within 8 Kilometres from the local limits of municipality or cantonment board.

10. In my considered opinion, the difference in these two clauses is this that clause (a) is applicable in respect of municipality or cantonment board of which the population is not less than 10,000 but is less than ten lacs and the land in question is situated within the local limits of such municipality or cantonment board and clause (b) is applicable in respect of municipality or cantonment board of which the population is not less than ten lacs, and the land question is situated within 8 kms from the local limits of municipality or cantonment board. Both types of these lands will be outside the scope of section 2 (14). In my considered opinion, for the purposes of both these clauses, the name of the municipality (known by any name) or cantonment board should be as notified by the central government in official gazette. In my considered opinion, the municipality as per State Govt. gazette notification cannot be considered for this exclusion from the scope of section 2 (14) as has been done by the AO in the present case. From sub- clause (b) of clause (iii) of section 2(14) which also includes municipality to 148, 2106 to 2110 & 2233/Bang/2018 Page 13 of 14 and cantonment board referred to in clause (a) also, it is seen that the Official Gazette to be considered for this purpose should be of Central Government and not of the State Government and hence, the basis adopted by the AO is incorrect and the same cannot be approved. As per the Gazette Notification of Central Government, in the State of Karnataka, 23 municipalities or cantonment board are specified which includes 1) Bangalore 2) Belgaum 3) Bellary 4) Bhadravathi 5) Bidar 6) Bijapur 7) Chitradurg 8) Davangere 9) Gadag 10) Gangavathi 11) Gulbarga 12) Hassan 13) Haveri 14) Hospet 15) Hubli Dharwar 16) Koppal 17) Mangalore 18) Mysore 19) Raichur 20) Rannebennur 21) Shimoga 22) Tumkur 23) Udupi

11. I find that there is no mention of Bruhat Bangalore Mahanagara Palike (BBMP). In this regard, I find force in this submission also of the learned AR of the assessee that had the intention been to include BBMP also, it should to 148, 2106 to 2110 & 2233/Bang/2018 Page 14 of 14 have been specified in that manner and in support of his contention, it was pointed out by him that on page no. 467, the names of municipalities of Maharashtra are noted and in that, in respect of Bombay, Greater Bombay is mentioned and therefore, in the present case, it cannot be said that instead of Bangalore, BBMP is the intention. It was submitted by him that under these facts, it cannot be said that agricultural land in the present case is a capital asset. I find that this is not the case of the AO that the land in question is situated within local limit of Bangalore Municipality or within 8 KMs. of Bangalore Municipality. Hence, I hold that the land in question is not covered by any one of these two exception clauses i.e. sub clause (a) or sub clause (b) of clause (iii) of section 2 (14) and therefore, it is covered by section 2 (14) and as a consequence, it is not a capital asset and profit on sale of this land is not liable to capital gain tax u/s 45.

12. In view of this decision, for other grounds, no adjudication is called for.

13. In the result, all these 11 appeals of various assessees of the same family are allowed. Order pronounced in the open court on the date mentioned on the caption page.