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Facts
The assessee, Netrananda Nayak, challenged the addition of Rs. 2.03 crores as Long Term Capital Gain (LTCG) for the AY 2013-14, arising from the compulsory acquisition of his agricultural land by the Government of Odisha for the Samuka Water Project. The assessee claimed the land was rural agricultural land, thus not a capital asset and the compensation was exempt under Section 10(37) of the Income Tax Act. The AO and CIT(A) treated the land as a capital asset, with the CIT(A) allowing cost of acquisition and indexation.
Held
The Tribunal remanded the matter back to the Assessing Officer (AO) for re-examination and verification. The AO is directed to verify the Khata and Plot numbers of the acquired land and to re-measure its distance from the Puri Municipality limits as they existed on 6.1.1994, as per Notification dated 6.1.1994 and the Finance Act 2013. If the land is found to be beyond 2 kms from the municipal limits as on that specific date, the compensation will be treated as exempt agricultural income.
Key Issues
Whether the compulsorily acquired land qualifies as a capital asset or agricultural land for capital gains tax purposes, and the correct method for determining its distance from municipal limits under Section 2(14)(iii)(b) of the Income Tax Act.
Sections Cited
250(6), 2(14)(iii)(a), 2(14)(iii)(b), 10(37), 148, 131(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: BEFORE SHRI GEORGE MATHANMANISH AGARWAL
Assessment Year : 2013-14 Netrananda Netrananda Nayak, Nayak, At: At: Vs. Income Tax Officer, Puri Income Tax Officer, Puri Khandiabandha, Khandiabandha, PO: PO: Word, Puri. Gopinathpur, Atharnala, Puri Gopinathpur, Atharnala, Puri PAN/GIR No. No.AJSPN 1567 C (Appellant (Appellant) .. ( Respondent Respondent) Assessee by : Shri Niranjan Panda, CA Niranjan Panda, CA Revenue by : Shri S.C.Mohanty, Sr DR : Shri S.C.Mohanty, Sr DR Date of Hearing : 27/01/20 2025 Date of Pronouncement : 27/01/20 025 O R D E R Per Bench This is an This is an appeal filed by the assessee against the order of the ld appeal filed by the assessee against the order of the ld CIT(A), NFAC, Delhi dated CIT(A), NFAC, Delhi dated 30.6.2023 in Appeal No. CIT(A),Bhubaneswar 30.6.2023 in Appeal No. CIT(A),Bhubaneswar- 2/10186/2019-20 20 for the assessment year 2013-14.
Shri Niranjan Niranjan Panda, ld AR appeared for the assessee and Shri the assessee and Shri S.C.Mohanty, Sr. , Sr. DR appeared for the revenue.
Grounds raised by the assessee are as under: Grounds raised by the assessee are as under:
P a g e 1 | 18 “ 1. For that the order passed by the learned CIT (Appeal) NFAC U/s,250(6) of the Income Tax Act 1961 is not just and correct on the facts and circumstances of the case.
2. For that the learned CIT (Appeal) NFAC is grossly erred in confirming the addition of Rs. 2,03,68.4801 as Long Term Capital Gain, on compulsory acquisition of land by Govt of Odisha, ignoring the fact that the said land was rural agricultural land situated beyond two kilometers from the Municipal jurisdiction, thus is not a capital asset as defined U/S-2(14) (iii) (a) & (b) of the I.T.Act 1961.
3. For that even otherwise without prejudice to the grounds taken above, learned CIT (Appeal) NFAC is grossly erred in confirming the addition of Rs. 2,03,68.4801- towards Long Term Capital Gain ignoring the fact that the said amount was received as compensation from Govt of Odisha on compulsory acquisition of agricultural land used for agricultural purpose which was exempted U/s- 10(37) of the I,T.Act 1961.
4. For that even otherwise the learned CIT (Appeal) NFAC is grossly erred in dwelling upon some inapplicable & in appropriate judicial pronouncements for drawing the conclusion that the compensation from Govt of Odisha on compulsory acquisition of agricultural land used for agricultural purpose as taxable Long Term Capital Gain.
For that the order passed by the learned CIT (Appeal) NFAC confirming the addition made by learned AO, is bad in law and liable to be quashed on the above grounds or such other grounds if any to be urged at the time of hearing on the facts and in the circumstances of the case.”
It was submitted by ld AR that the assessee is an agriculturist. The assessee owns substantial land near Puri. Nearly 8.20 acres of assessee’s agricultural land had been acquired by the Government of Odisha for the creation of Samuka Water Project. The assessee had received compensation of Rs.2.03 crores. The assessee had not filed his return of income. Notice u/s.148 of the Act came to be issued on the assessee to which, the assessee filed his return of income and also disclosed the P a g e 2 | 18 compensation received and also had claimed the same as exempt as the lands acquired were agricultural land and not capital asset. The Assessing officer on the ground that the Revenue Inspector has reported that since last 10 years, the agricultural operation had not been carried out on the said plots and the said plots are lying full of water, held that the compensation received by the assessee was in respect of capital asset liable for long term capital gains. However, the Assessing Officer did not grant the assessee the cost of acquisition nor the indexation while computing the long term capital gains.
5. On appeal before the ld CIT(A), the ld CIT(A) upheld the action of the Assessing Officer treating the acquired land as capital asset and compensation liable for taxation as long term capital gains. Ld CIT(A), however, gave the assessee benefit of cost of acquisition and indexation in the computation of long term capital gains.
6. It was submitted by ld AR before us that the lands acquired were originally agricultural land on which agricultural operation had also been done. It was the submission that the Assessing Officer was carried away by the recording in the land revenue records showing the land as ‘PATITA’. It was the submission that that the lands were originally agricultural land on which PADDY was being grown and were ‘SARADA’. It was only after the acquisition and setting off of Samuka Project, the revenue records had been modified to show the nature of land as ‘ PATITA’. It was the submission P a g e 3 | 18 that as the lands were acquired from the assessee as agricultural land on which agricultural operation were being done, the compensation received by the assessee was liable to be agricultural income and consequently exempt.
7. In reply, ld Sr DR submitted that the nature of land clearly showed that the lands were not agricultural land. Consequent to the submissions of ld AR and ld Sr DR, a remand report had been called for from the Assessing Officer. The remand report submitted by the Assessing Officer reads as follows:
P a g e 4 | 18
P a g e 5 | 18
8. In the remand report, the Assessing Officer has referred to the statements recorded from the Sarapanch. In the remand report also, the Assessing Officer has reproduced the details of crops cultivated and details of land from the Tahasildar, Puri which is as follows:
P a g e 6 | 18
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P a g e 7 | 18 P a g e 8 | 18 P a g e 9 | 18 P a g e 10 | 18
After receipt of the remand report, it was submitted by ld Sr DR that Khata and Plot Nos. in respect of the lands mentioned in the Tahasildar Report were different from that mentioned in the page 3 of the assessment order relating to the land of the assessee
A perusal of the Tahasildar report at page 2 shows in respect of same land kisam as the same shown as per original records as “SARADA-II’ and subsequently it has been marked as “PATITA”. Thus, the nature of the lands admittedly clearly as per the Tahasildar Report during the relevant point of time that the lands were acquired as Sarada only. . Further in the report, it is observed that paddy crop was grown in the said land upto F.Y. 2007-08. The initial order of acquisition was in 2009 thus within two years
P a g e 11 | 18 prior to acquisition, the land was used for agricultural purpose. The question now arises only as to whether the Khata and Plot numbers as mentioned by the Tahasildar in his report is the same and related to the land in question of the assessee as mentioned in the assessment order and same needs verification. In regard to this, as no clarity is available now for the purpose of verification as to whether the plot and Khata numbers mentioned in the Tahasildar report as extracted above is the same as that mentioned in the assessment order and to verify whether these are new particulars and subsequent to the old particulars, the issue is restored to the file of the Assessing Officer for examination. If after verification, the khata No. and plots numbers are same in respect of same lands, the compensation received by the assessee is liable to be treated as exempt as agricultural income only.
Ld Sr DR has raised an issue that the lands are within 2 kms from the Puri Muncipality. A perusal of the order of ld CIT(A) at page 12 shows that the ld CIT(A) has taken into consideration that the lands were within 2 kms distance to support his stand that the lands sold were capital assets liable for taxation as long term capital gains. However, a perusal of page 42 of PB which is a certificate issued by the Amin shows as follows:
P a g e 12 | 18
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Therefore, the dispute is with regard to the distance from the Muncipality limits to the subject land. As per the Notification No.SO.9447 File No.164/3/87-ITA.I)] dated 6.1.1994, the land is to be treated as capital asset if the same is situated in area upto the distance of 2 kms from the P a g e 13 | 18 Muncipality limit in all directions of Puri for the purpose of section 2(14)(sub-clause(iii). The notification of the Central Government was mandatory to bring the land in the definition of capital asset which is not located within the limits of the Municipality but located within the distance of 2 kms from the local limits. So far, the agricultural land which is located in the limits of Municipal Limits, same will be treated as capital asset and no further requirement is to be examined. Since the land in question is located outside the local limits of Puri Municipality, therefore, in order to determine whether the land in question falls under the mischief of sub- clause (b) of Section 2(14)(iii) of the Act, the distance of 2 kms has to be taken into account in terms of notification dated 6-01-1994. Further, in the said notification dated 6-01-1994, the explanation defines the Municipal Limits which is to be the limits as existed on the date on which the notification is published in the Official Gazette. The Explanation 2 of the notification is reproduced as under:-
‘’(2) The reference to the municipal limits or the limit of Cantonment Board in the Schedule to this notification is to the limits as existing on the date on which on which the notification is published in the official gazette.’’ 13. The revenue has contended that the distance of 2 kms should be considered from the limits of municipality of Puri as existed as on the date of acquisition of the land and not from the limits of Puri Muncipality as existed as on Notification dated 6.1.1994. However, from the perusal of the Explanation 2 to Notification dated 6.1.1994, it is in categorical terms the P a g e 14 | 18 Board has clarified that the municipality limits is to be considered as existeed on the date of notification published in the Official Gazettee i.e. on 6.1.1994. There is no amendment or withdrawal of the said notification other than the amendment made by the Finance Act 2013, where the requirement of said notification has been dispensed with for invocation of sub-clause (b) of clause (iii) of Section 2(14) of the Act w.e.f. 01-04-2014. Accordingy, we hold that the land in question which is located beyond 2 kms from the municipality limit of Puri as on 6.1.1994 i.e the date when the notification was published in the official gazette, the same would fall under the exclusion clause of the term ‘capital asset’ as per provisions of 2(14)(iii)(b) of the Act..
This view is supported by the judgment of Co-ordinate Bench of ITAT Jaipur Bench in the case of Dr. Subha Tripathi in Assessment year : 2008-09 order dated 24.5.2023. Further, the decision in the case of Subha Tripathi is followed by the Co-ordinate bench of Jaipur ITAT in the case of Khetilal Sharma HUF in which order stood confirmed by the Hon’ble Rajasthan High Court in the case of Pr. CIT vs Khetilal Sharma (HUF) in D.B.Income Tax Appeal No.170/2016 order dated 21.11.2017, wherein, it has been held as under:
“5. Counsel for the appellant contended that tribunal has committed serious error in following the decision of Coordinate Bench in the case of Dr. Subha Tripathi in for assessment P a g e 15 | 18 year 2008-09 dt. 24.5.2013.
However while considering the matter, tribunal has observed as under: 6. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee sold the agricultural land on 30/4/2005 at village Sarangpura measuring 3.33 hectare (9.32 Bigha) for Rs. 2,76,80,400/-. The ld Assessing Officer has confirmed from the Nagar Nigam that the land transaction is within 8 km or not. The Nagar Nigam, Jaipur vide his letter No. 315 dated 13/12/2010 has given the distance between the khasra sold by the assessee and municipal limit as 4.9 km only. It is not clear from the order of the al and CIT(A) that what was the municipal limit and whether this was with reference to land transaction dated 30/4/2005. The main dispute between the assessee and the revenue is that this limit is to be calculated from the date of notification by the Central Govt. or on the basis of change of municipal limit from time to time. This issue has been considered by the Coordinate Bench in the case of Dr. Subha Tripathi in for A.Y. 2008-09 order dated 24/5/2013. The operative portion of the order has been reproduced in the reply of the assessee. It has been held by the Coordinate Bench that there is no dispute that the Jaipur Municipality has been duly notified vide said notification dated 06/1/1994 and as on the date of said notification, the land in question was beyond 8 km from the municipal limit exist on that point of time. In the case of assessee, on the date of this notification dated 6th January, 1994, the municipal limit of Jaipur on Ajmer Road on which the assessee land is situated was up to ESI hospital. The ld AR placed the evidence in paper book at sl. no.
The assessee’s land is 16 km away from the ESI hospital. These facts has not been controverted by the ld DR. Being a precedence, we respectfully following the order of the Coordinate Bench and held that land sold by the assessee is not a capital asset U/s 2(14) of the Act. Thus, capital gain does not arise. On this ground, the assessee’s appeal is allowed.”
In our considered opinion, the distance of 16 km. was not disputed before the tribunal, therefore, it is an agricultural land.
In that view of the matter, issue is answered in favour of the assessee and against the department.”
P a g e 16 | 18
In the instant case, the Amin report clearly shows the distance in km from border line of Muncipality beyond 2 kms distance. The reasons for difference between the order of the ld CIT(A) and that of the Assessing Officer seems to be on account of distance being measured by the starting of the plot as adopted by the ld CIT(A) and as per the Amin report, it is from the end of the border line of Muncipality area.
This being so, in the interest of justice, the Assessing Officer is directed to have same distance measured from the land to the border of the Puri Muncipality as is existed on 6.1.1994. If the distance is beyond 2 kms then the compensation received is liable to be treated as agricultural income only. Should either of the conditions being the distance of the land from the border of the Muncipality area and Khata and Plot numbers not tallied, the compensation received would automatically liable to be taxed under the long term capital gains.
In the result, appeal of the assessee stands partly allowed for statistical purposes.