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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
These three appeals by the Revenue are directed against the order of Commissioner of Income Tax (Appeals)-1&2, Kolhapur in the respective case of three different assessees.
Since, the issues raised in all these appeals are identical and are arising from same set of facts, these appeals are taken up together for adjudication and are being disposed of vide this common order. In all the three appeals the primary issue for adjudication before the Tribunal is :
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“Whether the compensation received on compulsory acquisition of agriculture land is exempt from tax u/s. 2(14) of the Act or is taxable under the head “Capital Gains”.
As the facts in all the three cases are identical, the case of Shri Dharamsi Hirji Chauhan in ITA No. 1185/PUN/2015 is taken as a lead case and the facts are narrated from the said appeal.
The brief facts of the case as emanating from records are : The assessee was a joint owner of agriculture land having 1/4th share. The land of the assessee was acquired by the State Government for development of Naya Raipur. In lieu of acquisition of land the owners of the land were paid compensation of Rs.2,45,71,750/-. The assessee filed return of income disclosing total income of Rs.11,55,508/-. The total income declared by the assessee includes income from capital gains Rs.1,22,959/- and income from other sources Rs.10,32,549/-. In the return of income the assessee claimed compensation received on account of acquisition of agricultural land as exempt and claimed refund of Rs.16,89,498/-. In scrutiny assessment proceedings the Assessing Officer held that since the agricultural land was not under cultivation the land ceases to be agricultural in nature and hence compensation received on acquisition of land is taxable under the head Capital Gains. The Assessing Officer made addition of Rs.59,79,095/- i.e. 1/4th share in the total capital gain in the hands of the assessee. The Assessing Officer further made addition of Rs.94,10,966/- in respect of assessee‟s individual holding of land acquired by the State Government for development of Naya Raipur.
Aggrieved by the assessment order dated 26-03-2014, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The First
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Appellate Authority deleted the addition with respect to Long Term Capital Gain arising on account of acquisition of agricultural land holding the same to be exempt. Against the findings of Commissioner of Income Tax (Appeals) the Revenue is in appeal before the Tribunal by raising following grounds : ―(1) On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition on account of capital gain on sale of land as the said land was comprised within the jurisdiction of Naya Raipur Development Authority constituted, by a Notification by Govt. of Chhatisgarh to plan, implement and administer the Naya Raipur City. (2) On the facts and in the circumstances of case and in law, the CIT(Appeals) is erred to held that the Naya Raipur Development Authority is not a local authority but a capital development authority, whereas the facts on record prove that it is a municipality as provided under section 2(14)(b)(ii) of IT Act, 1961. (3) On the facts and in the circumstances of the case, the CIT(appeals) has erred in deleting the addition on account of capital gain on sale of land as the total population of the area within the jurisdiction of Naya Raipur Development Authority was more than ten thousand. (4) On the facts and in the circumstances of the case, the CIT(A), Kolhapur has erred in deleting the addition on account of capital gain on sale of land as the said land was urban land not utilized for agricultural purposes for the last five years.‖
Shri Satish Chauhan appearing on behalf of the assessee submitted that the assessee along with his brothers had acquired agricultural land comprising in S. No. 247/3, 250, 251/1, 251/2, 251/4, 251/6, 251/8, 252/1, 252/2, 253/1, 253/2, 253/3, 253/4, 271/3, 274, 275, 276/1, 276/3 and 282(19) situated at Village Tuta, Tal. Abhanpur, Distt.-Raipur. The assessee had purchased the abovementioned land in the Financial Year 1990-91. The land of the assessee was acquired by State Government for Naya Raipur Development Authority (NRDA). During the period relevant to the assessment year 2011-12 the assessee along with other co- owners jointly received compensation of Rs.2,45,71,750/- on account of
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acquisition of land. The assessee is having 1/4th share in the land. Since, the land acquired was agricultural land the assessee claimed compensation received to be exempt u/s. 2(14) of the Act. In scrutiny assessment proceedings the Assessing Officer held the land to be within 8 Kms. of the Municipality, therefore, the assessee was held not entitled to claim benefit of exemption u/s. 2(14) of the Act. The Assessing Officer further observed that since no agricultural activities were carried out on the land for the past 20 years, the land is barren and hence does not fall within the ambit of provisions of section 2(14) of the Act. The ld. AR controverting the findings of Assessing Officer referred to Land Revenue records at pages 111 to 116 of the paper book No. 2 to show that the land comprising in Khasra No. 247/3 was under cultivation. The land of the assessee has been classified as “Padat” or fallow land as per Revenue records. The assessee cultivated crops like „Alasi‟ and „Koda‟ in the part of land as is evident from Land Revenue records. The assessee regularly paid Land Revenue (Lagan) for agriculture land to the State Government. The land of the assessee was acquired for NRDA as agricultural land and at no point of time the assessee ever applied for N.A. permission. The ld. AR submitted that this fact was brought to the notice of authorities below. The Commissioner of Income Tax (Appeals) after considering this fact held the assessee eligible for exemption under the provisions of section 2(14) of the Act. The ld. AR submitted that it is not necessary that the cultivation should be done on the entire land. If the agricultural activities are carried out on the part of land it is sufficient compliance for claiming exemption u/s. 2(14) of the Act. In support of his submissions the ld. AR placed reliance on the following decisions : i. Smt. T. Urmila Vs. ITO, 57 SOT 88 (Hyd.); ii. CIT Vs. Murali Lodge, 59 Taxman 590 (Kerala);
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iii. CIT Vs. P J Thomas, 211 ITR 897 (Mad.); iv. ITO Vs. P Venkataramana, 46 ITD 484 (Hyd.).
3.1 The ld. AR contended that the agricultural land of the assessee is at a distance of approximately 14 km from Raipur Municipal limits, NRDA may be a local Authority but it is not akin to Municipality. None of the members of NRDA are elected. All the members are nominated by the State Government. Further, NRDA is not performing basic public functions of a municipality such as Registration of Births and Deaths, providing water connections, necessary sanitation services etc. The Chhattisgarh Lok Sewa Guarantee Act, 2011 under which the aforementioned public services are offered does not apply to NRDA.
On the other hand Dr. Vivek Aggarwal representing the Department vehemently defended the assessment order and prayed for setting aside the impugned order. The ld. DR has filed written submissions. The same are reproduced here-in-below : ―01. During the course of hearing before the Honable Bench it was argued by the Ld. AR that the Naya Raipur Development Authority (NRDA) does not fall in definition of Municipality as per section 2(14 ) of the Income Tax Act. The Ld.AR also argued that the distance of 8 klm should be considered from the municipal limits of Raipur Municipal Corporation. On the strength of these arguments, the Ld.AR submitted that the land acquired by NRDA is not a capital assets, chargeable to capital gain tax as it is situated beyond 8 km from the Raipur Municipal Corporation. 02. In this regard it is humbly submitted that the argument of the Ld.AR that the Naya Raipur Development Authority (NRDA) does not fall in definition of Municipality as per section 2(14) of the Income Tax Act was on the strength of judgment of the Hon'ble Kerala High Court in the case of CIT Vs. Murali Lodge wherein the land was situated within Guruvayur township constituted under the Guruvayur Township Act. The Court has held that Guruvayur Township can be a local authority, but all local authorities cannot be called Municipalities. With due respect to the judgment, it is humbly submitted that the judgment of the Hon'ble Kerala HC was considered and analysed in detail by the Hon'ble Punjab & Haryana HC in the case of CIT Vs. Rani Tara Devi (copy enclosed). The Hon'ble Punjab & Haryana HC dissented with the view
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taken by the Hon'ble Kerala HC and held that Haryana Development Authority is a municipality within the definition provided in section 2(14) of the Income Tax Act. The relevant findings are as under: On page 7 of the judgment of the Hon'ble Punjab & Haryana HC held as under: The expression 'Municipality' in Section 2(14) of the Act is very wide. It is not restricted to a Municipality constituted under the relevant Municipal Laws. such as Haryana Municipal Act, but it would include any other area known by any other name. Sub-clause (a) of clause (iii) of Section 2 (14) deals with an area which falls within the jurisdiction of a Municipality, whereas clause (b) enable the Central Government to declare an area situated within 8 kms from the local limits of any Municipality referred to in clause (a) to notify having regard to extent and scope for urbanization of that area. The notification dated 06.01. 1994 takes into its ambit an area within 5 kms of the Municipality in the expression 'capital asset'. Therefore, the urban area developed by the Authority forms part of a Municipality. On page 9 of the judgment of the Hon'ble Punjab & Haryana HC held as under: With respect, we are unable to agree with the view expressed by the Kerala High Court in the aforesaid judgment. The expression 'by any other name' appearing in Item (a) of clause (iii) of Section 2 (14) has to be read ejusdem generis with the earlier expressions i.e. municipal corporation, notified area committee, town area committee, town committee. The Court has also not considered the scope and ambit of Section 3 (31) of the General Clauses Act defining local authority. The judgment of Bombay High Court in H. V. Mungale's case (supra) again deals with the provisions of Wealth Tax Act so as to determine; whether the asset is an agricultural asset or not. The expression 'Municipality' will include a local authority was not the question raised or decided. In view of the above discussion, we hold that the land, subject matter of acquisition, is a capital asset falling within tile scope of clause (iii) of Section 2(14) of the Act. The LD.AR has also relied on the following cases. It is humbly submitted that the facts of these cases are entirely different and not applicable to the case of the assessee. i) CIT Vs. Smt. T Urmila (Andhra Pradesh HC) - In this case the land was acquired by Hydrabad Airport Development Authority. The Court Held that Hydrabad Airport Development Authority is not a body within the meaning of clauses a and b of the section 2( 14 )(iii) of the IT Act. ii) CIT Vs. P.J.Thomas( Madras HC)- In this case the land acquired was situated in the Gram Panchayat. The Court held that the land situated in the Gram Panchyat is beyond the municipal limit of the city and therefore, goes out of the preview of the section 2(14)(of the IT Act. iii) ITO Vs. P. Venkataramana(ITAT Hyd.) In this case the land acquired was situated in the Gram Panchayat. The Tribunal held that the land situated in the Gram Panchyat is beyond the municipal limit of the city and therefore, goes out of the preview of the section 2(14)(of the IT Act.
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Therefore it is humbly submitted that, the case of the assessee squarely covered by the judgment of Hon'ble Punjab & Haryana HC in the favour of the Revenue. 03. Further more it is humbly submitted that Chhattisgarh Government constituted under Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973, Naya Raipur Development Authority (NRDA). NRDA is the nodal agency for comprehensive development of this GreenfieldCity i.e. Naya Raipur. The constitution and the function of NRDA are more akin and similar to the functions of the Municipality including the power of zonalisation prescribed the use to which each zone is to be put, demolition of constructions made contrary to zoning regulations. Still further, such authority is a separate corporate entity. Though the members of the Authority are not elected, but they are non official members as well in terms of Section 3 of the Act. These facts would be clear from the following relevant clauses of the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973:- The Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973 (No. 23 of 1973); a) General Introduction:- This Act was enacted by the Chhattisgarh Legislature in the Twenty-fourth Year of the Republic of India and received the assent of the President on the "Chhattisgarh Gazette" (Extraordinary), dated the 26th April, 1973. This is an Act to make provision for planning and development and use of land; to make better provision for the preparation of development plans and zoning plans with a view to ensuring town planning schemes are made in a proper manner and their execution is made effective, to constitute Town and Country Planning Authority for Proper implementation of town and country development plan. b) As Clause 4 of per this Act 4. Establishment of regions. - The State Government may, by notification,- (a) declare any area in the State to be a region for the purposes of this Act; (b) define the limits of such area; and (c) specify the name by which such region shall be known. (2) The State Government may, by notification, after the name of any such region and on such alteration, any reference in any law or instrument or other document to the region shall be deemed to be a reference to the region as renamed, unless expressly otherwise provided or the context so required. (3) The State Government may by notification,- (a) alter the limits of a region so as to include therein or exclude therefrom such area as may be specified in the notification; (b) amalgamate two or more regions so as to form one region; (c) divide any region into two or more regions; or (d) declare that the whole or part of the area comprising a region shall cease to be a region or part thereof. c) As per clause 10 of this Act 10. Restriction on use of land or development thereof. – (1) Notwithstanding anything contained in any other law for the time being in force, on or after the date of publication of the draft regional plan, no person,
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authority, department of Government or any other person shall change the use of land for any purpose other than agriculture, or carry out any development in respect of any land contrary to the provisions of the draft plan, without the prior approval of the Director or an officer not below the rank of Deputy Director authorised by the Director, in this behalf. (2) Notwithstanding anything contained in any law for the time being in force, the permission referred to in sub-section (1) shall not be granted otherwise than in conformity with the provisions of the draft or final plan and no permission, if granted shall be construed to confer any legal right whatsoever on the person seeking the permission. d) As per clause 17 of this Act 17. Contents of development plan. - A development plan shall take into account any draft five-year and Annual Development plan of the district prepared under the Chhattisgarh Zila Yojana Samiti Adhiniyam, 1995 (No. 19 of 1995) in which the planning area is situated and shall. (a) indicate broadly the land use proposed in the planning area; (b) allocate broadly areas or zones of land, keeping in view the regulations for natural hazard prone areas, for- (i) residential, industrial, commercial or agricultural, purpose; (ii) open spaces, parks and gardens, green-belts, zoological gardens and playgrounds; (iii) public institutions and offices; (iv) such special purposes as the Director may deem fit;
Constitution of Committee. - (1) The State Government shall constitute a committee consisting of the following, namely :-
(a) Mayor of the Municipal Corporation or President of the Municipal Council or Nagar Panchayat, as the case may be, which wholly or partly fall within the planning area;
(b) President of the Zila Panchayat which wholly or partly fall within the planning area;
(c) Members of Parliament representing constituencies which wholly or partly fall within the planning area;
(d) All Members of the State Legislative Assembly representing the constituencies which wholly or partly fall within the planning area;
(e) Chairman of the Town and Country Development Authority, or Special Area Development Authority, if any, which wholly or partly fall within the planning area;
(f) President of the Janpad Panchayat which wholly or partly fall within the planning area;
(g) Sarpanchas of the Gram Panchayats which wholly or partly fall within the planning area;
(h) other persons not exceeding seven to represent specific interests to be nominated by the State Government;
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(i) an officer not below the rank of Deputy Director, Town and Country Planning to he nominated by the Director, who shall be the Convenor of the Committee.
(2) The Committee constituted under sub-section (1) shall hear the objections alter publication of the draft development plan under Section 18 and suggest modifications or alterations, if any, to the Director,
(3) The Convenor of the Committee shall record in writing all the suggestions, modifications and alterations recommended by the committee under sub-section (2) and thereafter, forward his report to the Director.
e) A per clause 34 of the Act
Establishment of Town and Country Development Authority. - (1) The State Government may, by notification, establish a Town and Country Development Authority by such name and tor such area as may be specified in the notification.
(2) The duty of implementing the proposal in the development plan, preparing one or more town development schemes and acquisition and development of land for the purpose of expansion or improvement of the area specified in the notification under sub-section (1) shall, subject to the provision of this Act vest in the Town and Country Development Authority established for the said area.
Provided that, the duty imposed on the Town and Country Development Authority shall, till that authority is established for any area under sub-section (1), be performed by the local authority having jurisdiction over such area as if it were a fawn and Country' Development Authority established under this Act.
(3) On the establishment of the Town and Country Development Authority for the area to which the proviso to sub-section (2) applies, the following consequences shall ensue in relation to that area, namely:-
(i) all assets and liabilities acquired and incurred by the local authority in the discharge of the duty under the proviso to sub-section (2) shall belong to and be demand to be the assets and liabilities of the Town and Country Development Authority established in place of such local authority;
(ii) all records and papers belonging to the local authority referred to in clause (i) shall vest in and be transferred to the Town and Country Development Authority established in its place.‖
To controvert the submissions of DR, the AR of the assessee also filed written submissions. The relevant extract of the same are reproduced here-in-below : ―As per Ld D R the identical issue came up before CIT vs Rani Tara Devi [2013] 31 taxmann.com 234 (P & H) in that case it was held that Haryana Development Authority (HUDA) is a local authority similar to municipality and
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Hon'ble P & H High Court dissented with the view taken by Hon'ble Kerala High Court on which assessee relies. The case of Smt Rani Tara Devi is distinguishable on facts; (i) In said case agriculture land which was acquired by HUDA was located in Panchkula city. As per provision of sec 3(2) of HUDA Act 1977, HUDA is a local Authority. (Page no 6 & 7) (ii) As per sec 13 the objects of HUDA was to develop an Urban land and not rural or village land. (Page no 7) (iii) The notification dated 06-01-1994 takes into ambit an area within 5 kms of the municipality in the expression capital asset. Therefore urban area developed by Authority is part of municipality. (Page 8) (iv) The area of Municipal Corporation', Punchkula (Earlier Municipal Council) was created in 1989 (Refer page page 6) This included 96 village of Naraingarh Tehsil. Out of this 96 village 4 villages were fully merged with Panchkula Urban Estate an area developed by HUDA . The entire area of Punchkula Urban Estate developed by HUDA is satellite town of Chandigarh.(Refer page 6) (v) The assessee in said case was taking conflicting claims. Before Income tax matter she claimed the said land as agriculture land and in matter of compensation before acquisition authority making different claim (Page 3) (vi) The acquired land is situated in Panchkula city and is extensively developed area amidst developed sectors on N H -73. The area around land under consideration was totally developed and was surrounded by Hotel North Park" Police station, ITBP residential Complex" Fun City, BRS Dental College, ,Heart Institute, etc (Page 4) There after by examining definition of Local Authority as per General Clauses Act it and looking into urban development and the notification of CBDT dated 06-01-1994 which takes into ambit an area within 5 kms of the municipality in the expression capital asset, it was held that HADA is Local Authority akin to municipality. In this context Hon'ble Court dissented with the views of Hon'ble Kerala H.C. in case of Murali Lodge. The dissented view is mainly because of above peculiar facts of the case. In present case of assessee NRDA is not local authority even this fact is admitted by NRDA in its Final report. In this report it is mentioned that 11 It has been decided that NRDA shall be responsible for management and urban governance of Naya Raipur till a sustainable population is in place and an Urban Local Body is constituted." This aspect was considered by Ld Ld.CIT(A) The CIT(A) also gave findings that Local Gram Panchayat of Tuta still exists The population of the area is not sustainable to pay for public amenities. Therefore all infrastructure will be developed by NRDA out of Government Funds which are otherwise created by local body out of taxes paid by local population. Thus CIT(A) has considered these facts and held that the NRDA is not a municipality.(Refer para 8 and para 9 page 7 of CIT(A) order).
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It is to be mentioned that NRDA is declared as Local Urban Body vide Gazette notification dated so" Jan 2014 ie in AY 2014-15 (Refer page 13 of P.B. Corroborative evidence) (vii) The NRDA is a special purpose vehicle having functions of development of particular area and is created by notification under ―Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam 1973. Thus NRDA is not local authority as The Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam 1973 nowhere considers that NRDA is Local Authority rather the said Act itself defines Local Authority vide sec (2)(k) which includes Municipal corporation, Municipal Council etc but does not include NRDA. Further local authority like Municipality, Municipal corporation of Gram panchayat has to give Grant in Aid /funds to NRDA and NRDA have no independent source of revenue by way of levy of taxes or cess etc. As per sec 17 A of The Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam 1973 the Constitution of Committee itself envisages its members as mayor of the Municipal Corporation or President of the Municipal Council or Nagar Panchayat" along with chairman of Special development authority i.e. NRDA etc. (viii) In case of Rani Tara Devi the Hon'ble P & H has given finding that HUDA is a local authority as provided in HUDA act itself and is formed for development of Urban Area only and there was already huge urban development around land under consideration and said area was notified under notification dated 06-01-1994 as urban area within meaning of sec 2(14)(iii)(b) So HUDA was considered as local authority akin to Municipality called by any other name. So facts in case of Rani Tara Devi are distinguishable and is not applicable in present case. (ix) There are three different words used in context of sec 2(14)(iii) (a) Local Authority (b) Municipality (c) Municipality or known by any other name. The word used in section 2(14)(iii) are Municipality, Municipal Corporation, Notified Area Committee, Town Area Committee, all refer to Urban Local Self Government. So "any other name "appearing in sec 2(14)(iii) derives the colour from word Municipality by applying principle of Ejusden Generis. So local authority, if it has genus of Municipality than only such local authority will be Municipality or such local authority known by any other name. (x) The Ld DR has simply said that decisions in cases of (1) CIT vs Smt T Urmila (2) CIT vs P J Thomas ITO vs P Venkataramana are distinguishable on facts and are not applicable. The facts of case of Smt T Urmila vs ITO 28 taxmann.com (Hyd) which was approved by AP High Court vide ITIA n0297 of 2013 dated 17- 07-2013, are identical to the facts of present case. In the said case the assessee had sold an agriculture land in village Srinagar beyond 8 kms from Municipality limits of Maheshwararn Mandal. But the village was falling under area being developed by Hydrabad Airport Development Authority (HADA).The HADA was
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formed by Notification under provisions of A P Urban Areas (Development) Act 1975 for development of integrated Township. In this case it was held that HADA is not Municipality within meaning of sec 2(14)(iii) of the I T Act. Mere notification of HADA does not change character or nature of land. (Refer para 52 of the ITAT order) In this case it was analysed in detail (Para63,64) whether a body like HADA is local authority or not. After considering Apex court decision in case of UOI vs R C Jain, 2 SCC 308 it was held that a Government entity which is formed independently by elected members and having defined area and functions and duties which are civic in nature ie providing amenities to the inhabitants like health, education, water sewerage roads, town planning, social welfare, transportation, markets, etc. They must have power to raise funds by way of levying taxes, fees, charges cess etc. The control or management of funds must vest in the authority. Then only such body can be called as local authority. In light of above ingredients it was found that the all members of HADA to whom the work of development was entrusted, were not elected members, as chairman, or other members are nominated members of state government and are employees of state government. The formation of HADA is not mandatory where as formation of Municipality is mandatory under constitution. The HADA has to function under supervision and control of state Government and does not possess local fund. HADA has no power to levy taxes etc where as levy of taxes is exclusive domain of Municipality / local authority. ( para 67,68) Thus HADA is not a municipality or local authority or similar body known by any other name or complete substitute of municipality or local authority.(Para73) Hence agriculture land under HADA is not a capital asset within sec 2(14)(iii) . In present case of assessee the agriculture land is located in NRDA which is formed by Notification under 'The Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam 1973 11 is not a local Authority". As HADA and NRDA are having similar functions, constitution, no members are elected, has no power to levy taxes etc so NRDA is not a local urban authority or body akin to Municipality. (xi) The decision of CIT vs P J Thomas 2111TR 897 (Mad) directly applicable present case. In the said case the agriculture land was within Panchayat limits and it was held that Panchayat could not be regarded as falling within the scope of sec 2(14) (iii) of the I T Act. In present case also the land falls within limits of Tuta Panchayat so it is not a capital asset within meaning of sec 2(14)(iii) of the I T Act 1961 . Similarly in case of ITO vs P Venkataramana 46 ITD 484 (Hyd) the population of village is more than 10,000 but since it falls within village or Gram Panchayat limits so same is not a capital asset within meaning of sec 2(14) (iii) of the I T Act. (xii) The Ld. DR has quoted various sections or clauses of The Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam 1973 , like: (i) Sec 4 establishment of regions, (ii) sec 10 restriction to use land for development, (iii) sec 17 contents of development plan (iv) Sec 17 A Constitute of Committee
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(v) Sec 38 Establishment of Town and Country Development Authority. On going through these sections it no where supports the view that the NRDA is a local authority akin to Municipality within meaning of sec 2(14)(iii) of the I T Act 1961. Rather section 17 A supports assessee's view.‖
We have heard the submissions made by representatives of rival sides at length and have perused the orders of authorities below. We have also considered the decisions and various documents referred to at the time of arguments by both the sides. The two issues that have emerged for adjudication in the present appeal are : i. Whether the land of the assessee acquired for development of Naya Raipur is agricultural land; and ii. Whether Naya Raipur Development Authority is a Municipality.
Agriculture Nature of land 7. The assessee with support of land revenue records has tried to substantiate that the land acquired for Naya Raipur Development Authority is an agricultural land and suitable for cultivation. The ld. AR has drawn our attention to the pages 48 to 100 of Paper Book No. 2 to show that the land of assessee was agricultural land. We observe that the primary reason for holding the land of assessee as nor agricultural by the Assessing Officer is : (i) That the land was not under cultivation for quite sometime; and (ii) The land falls within 8 kms. from the municipal limits of Naya Raipur Development Authority.
In so far as the first objection of the Assessing Officer is concerned the ld. AR has shown from the land revenue record that part of the land was still being cultivated by the assessee. A perusal of the land Revenue
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Record shows that on land comprising in S. No. 247/3 the assessee has cultivated Flax seeds (Alsi) and some other crops. As per Revenue records the land continues to be agricultural land. The Revenue has not furnished any document to show that at any point of time the assessee has converted the nature of land from agricultural to non-agricultural. In so far as the observations of the Assessing Officer that the assessee has not shown agricultural income in the return of income is concerned, the Hon‟ble Bombay High Court in the case of Commissioner of Income Tax Vs. Smt. Debbie Alemao reported as 331 ITR 59 has held that if no agricultural income is shown from the land which was shown as agricultural land in the revenue records and never sought change of use for non-agricultural purposes by the assessee till it was sold the land has to be treated as agricultural land, even though no agricultural income was shown by the assessee from the land. Hence, no capital gain is assessable on the sale of such land. Similar view has been taken by the Co-ordinate Bench of the Tribunal in the case of Thanmal Ganeshmal Parmar Vs. Income Tax Officer in ITA No. 266/PN/2013 for assessment year 2007-08 decided on 04-11- 2015. Thus, in view of the documentary evidence furnished by the assessee before the authorities below substantiate the contentions of the assessee is that the land continues to be agricultural land.
As regards the second objection of land within 8 kms. of municipal limits is concerned this objection is decided along with the second issue i.e. whether Naya Raipur Development Authority is the municipality.
Naya Raipur Development Authority – whether Municipality
The ld. DR has vehemently argued that after acquisition of land the land falls within the municipal limit of Naya Raipur Development
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Authority. On the contrary the ld. AR of assessee has asserted that Naya Raipur Development Authority is a local development authority and is not a municipality.
A perusal of section 2(14) of the Act defines „capital asset‟. There are certain exclusions in sub-section (14). Agricultural land is excluded from the term „capital asset‟ provided the land is not situated in an area which is comprised within the jurisdiction of municipality. For the sake of completeness the relevant extract of sub-section 2(14) is reproduced-here- below : "(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 (15 of 1992), but does not include— (i) xxxxxxxxxx (ii) xxxxxxxxxx (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.‖
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The term „municipality‟ has not been defined under the Act. The Hon‟ble Kerala High Court in the case of Commissioner of Income Tax Vs. Murali Lodge (supra) had occasion to deal with similar case where the assessee had sold agricultural land in Guruvayur township. The question before the Hon‟ble High Court for consideration was :
―Whether, on the facts and in the circumstances of the case, the land in question situated within Guruvayur township can be treated as a capital asset within the definition of section 2(14) of the Income tax Act, 1961? The Hon‟ble High Court while adjudicating the issue explained the term „municipality‟. The relevant extract of the judgment reads as under : ―From the plain and unambiguous language employed in the 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'. The question, therefore, is: Whether the agricultural land of the assessee sold in public auction can be said to be situate in an area which is comprised within the jurisdiction of a municipality. The case of the Revenue is that it is, because the Guruvayur township is a municipality within the meaning of that word in the section. On the other hand, counsel for the assessee submits that the Guruvayur township, though a local authority, cannot be said to be a municipality and, therefore, the agricultural land in dispute cannot be said to be situated in an area which is comprised within the jurisdiction of a municipality. The word ‗municipality' used in the section, considered in the light of the various expressions used in the brackets, namely, "whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name" must be held to take in its fold a township also, counsel for the Revenue submits. Of the various words included in the brackets learned counsel for the Revenue laid emphasis on the words "by any other name". These words, counsel argues, take colour from the preceding words and, if that be the position, the Guruvayur township also can be called a municipality. May be that the Guruvayur township can be called a local authority. But all local authorities cannot be called municipalities. Only those local authorities which have all the trappings of a municipality can be treated as a municipality within the meaning of the section. Therefore, to find a solution to the problematic dispute, we have to give a meaning to the word "municipality" which stands undefined in the Act. Generally understood, ‗municipality' means a legally incorporated or duly authorised association of inhabitants of a limited area for local governmental or other public purposes. (Black's Law Dictionary). The above definition more or less is reflected in the provisions contained in Chapter III of the Kerala Municipalities Act, 1960. The council constituted under s. 7 with the assistance of the standing committee of the council, chairman, commissioner, etc., will administer the provisions of the Act. The council consists of such number or members as are prescribed. They are
18 ITA Nos. 1185, 1186 & 1187/PUN/2015, A.Y. 2011-12
called councillors. They are elected by the residents of the area coming within the jurisdiction of the municipality. The chairman and vice-chairman of the municipality are elected by the members of the council. The commissioner is appointed by the Government in consultation with the council. It is the duty of the commissioner to carry into effect the resolutions of the council unless it be that the said resolution is suspended or cancelled by the Government. The municipality contemplated under s. 2(14)(iii)(a) must be one which satisfies the above requirements. All the local authorities included in the brackets must satisfy the above requirements to be known as a ‗municipality'. The position, however, would have been different had the section contained a definition which takes in its fold the local authorities included in the brackets, namely, "municipal corporation, notified area committee, town area committee, town committee or such other similar local authority". In that event, the Guruvayur Township can be said to be a municipality. The plain language employed in the section, however, makes it clear that the intention of the Legislature is not to treat every local authority as a municipality; but, on the other hand, only those local authorities which have all the trappings of a municipality as stated above, can be said to be municipalities within the meaning of the section.‖
After examining the documents on record we find that Naya Raipur Development Authority is a Local body notified under Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973. None of its members are elected. One of the distinguishing features of the municipality is that the members of the municipality are elected by the residents of the area. NRDA is neither performing basic functions of Municipal Corporations viz. Sanitation, water supply etc. After considering the documents furnished by the assessee which are already part of record, we concur with the findings of Commissioner of Income Tax (Appeals) and holding that Naya Raipur Development Authority does not fall within the meaning of municipality or notified area committee.
The ld. DR has vehemently relied on the decisions of Commissioner of Income Tax Vs. Rani Tara Devi (supra). We observe that the Hon‟ble Punjab and Haryana High Court while rendering the said decision has considered the decision in the case of Murali Lodge (supra) and has
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expressed reservations in accepting the view expressed by Hon‟ble Kerala High Court in the aforesaid judgment. Both the sides have not brought to our knowledge any decision of Hon‟ble Jurisdictional High Court. It is a trite law that if there are two conflicting decisions of non Jurisdictional High Courts, then the decision in favour of the assessee should be followed [CIT Vs. Vegetable Products Ltd., 88 ITR 192 (SC)].
The Revenue has merely on this ground that since land has been acquired by Naya Raipur Development Authority it falls within Municipal limits consequently the land falls within the meaning of „capital asset‟. Now, that we have held that Naya Raipur Development Authority is not a municipality, the character of land acquired for the purpose of development of new township has also not changed till the time assessee received compensation. The assessee at page 101 of the paper book has filed a certificate from NRDA stating that the limits of village Tuta and the land of assessee is beyond 14.5 kms. form the municipal limits of Raipur. Hence, the land of the assessee does not fall within the ambit of „capital asset‟, therefore, any gain arising from acquisition of said land is not liable for tax under the head Capital Gains.
We do not find any merit in the appeal of Revenue. Accordingly, the impugned order is upheld and the appeal of Revenue is dismissed.
ITA Nos. 1186 & 1187/PUN/2015
Both sides are unanimous in stating that the facts in ITA Nos. 1186 & 1187/PUN/2015 are identical to ITA No. 1185/PUN/2015. The submissions made by both the sides in ITA No. 1185/PUN/2015 would apply to the ITA Nos. 1186 & 1187/PUN/2015, as well.
20 ITA Nos. 1185, 1186 & 1187/PUN/2015, A.Y. 2011-12
Both sides heard. In view of the undisputed fact that the grounds raised in ITA Nos. 1186 & 1187/PUN/2015 are identical to ITA No. 1185/PUN/2015 and that the case of all the assessees/appellants are at par with each other, the findings given by us while deciding the appeal in ITA No. 1185/PUN/2015 would mutatis mutandis apply in the present set of appeals, as well. Accordingly, the impugned orders in respective appeals are upheld and both the appeals of Revenue are dismissed.
To sum up, all the three appeals by the Revenue are dismissed.
Order pronounced on Wednesday, the 17th day of October, 2018.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 17th October, 2018 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-1&2, Kolhapur 3. 4. The CIT-I/II, Kolhapur/CIT (Central), Pune ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “बी” बेंच, 5. ऩुणे / DR, ITAT, “B” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune