M/S RACHANA CONSTRUCTIONS,NAGPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(2), NAGPUR

PER AMARJIT SINGH, J.M.

The assessee has filed the present appeal against the impugned

order dated 23rd November 2012, passed by the learned Commissioner

(Appeals)–I, Nagpur, relevant to the assessment year 2007–08. The

effective ground raised by the assessee is reproduced below:–

“1. The Hon'ble Commissioner of Income Tax (Appeals)-!, was totally arbitrary and unjustified in not accepting the claim of the assessee that the agricultural land in question is not a capital assets as per section 2(14) (iii) (a) and (b) and surplus arising on sale of the same is not liable to tax.

2 M/s. Rachana Constructions

business premises of the assessee. During the course of search,

certain books of accounts, documents were seized. The assessee had purchased land on 22nd August 2005, being agricultural land of 3.43

hectares at Mouza Kanhalgaon, Ph no.38, Tehsil and District Nagpur,

S.No.59 for an aggregate amount of ` 36,91,480. The said property

was sold on 18th November 2006 for ` 1,08,80,000. Thus, there was

gain of ` 71,88,520 which was liable for capital gain under the Act. The

Assessing Officer has, therefore, initiated proceedings under section

147 of the Act and issued notice under section 148 which was served upon the assessee on 10th January 2011. The assessee has claimed

that the profit from sale of land in question is exempt from tax as it is

an agricultural land and not a capital asset according to the provisions

of section 2(14) of the Act. Assessee has stated that the actual

distance between the property at mouza Kanhalgaon, Ph. no.38, Tehsil

3 M/s. Rachana Constructions and District Nagpur, S.no.59, and the municipal jurisdiction is more

than 8 km and furnished a certificate from the Patwari in support of its

claim. The Assessing Officer has rejected the appellant's claim holding

that the property in question was within the specified distance of the

municipal jurisdiction of Nagpur and therefore brought to tax an

amount of ` 71,88,520 under the head short term capital gain. In this

connection, the Assessing Officer has relied on the letter received by NMC in response to notice under section 133(6) dated 24th October

2011, stating that the distance to Kanhalgaon is 5.3 km. from NMC

limits. Further, the Assessing Officer has also ascertained the aerial

distance with the help of the Google Earth Software which showed that

the distance is less than 8 km. from municipal limits. The Assessing

Officer has relied on section 11 of the Genera Clauses Act, 1897, in

support that distance must be measured not by road distance but by

the shortest distance "as the crow flies". Being aggrieved by this order

of the Assessing Officer, the assessee filed appeal before the first

appellate authority wherein the learned Commissioner (Appeals)

upheld the order of the Assessing Officer by dismissing the appeal of

the assessee. Being aggrieved, the assessee is in further appeal before the Tribunal.

ISSUE NO.1 TO 4

4 M/s. Rachana Constructions 3. Under these issues, the claim of the assessee relates to

assessment of surplus arising on sale of agricultural land at `

71,88,520 on account of capital gain. Learned Counsel for assessee submitted that the assessee firm has acquired agricultural land on 22nd August 2005. The aforesaid agricultural land was sold on 18th

November 2006. The revenue record being extracts in Form no.7/12

were submitted before Assessing Officer which indicate that the

agricultural lands held by assessee in revenue records is shown as

agricultural land. He submitted that the assessee has never applied for

permission to use agricultural lands for non-agricultural purpose nor it

was converted for non agricultural use by any authority till the date of

sale. The learned Counsel for assessee submitted that there is no

evidence on record to show that the agricultural land owned by

assessee was put to use for the purpose other than agricultural

activity. He submitted that the fact on record is that agricultural land

sold by assessee is located beyond 8 kms. from Municipal Limit of

Nagpur and same is not within the radius of 8 kms. of any Municipal

Corporation. The agricultural land thus is not capital asset as defined

under section 2(14) of the Act. The learned Counsel for assessee

submitted that the agricultural land sold by assessee being not a

capital asset in terms of provisions of section 2(14), surplus arising on

sale of same is not exigible to tax under head long term capital gain.

The learned Counsel submitted that it is settled proposition of law that

5 M/s. Rachana Constructions when on the date of purchase and on the date of sale if the character

of asset sold is agricultural land, the surplus arising on same is not

exigible to tax. In support of this contention the learned Counsel relied

upon the following case laws:–

arising on sale of agricultural land is in the nature of agricultural

income in terms of provisions of section 2(1A) and thus the same is

not exigible to tax. In support of this contention, the learned Counsel

relied upon the following case laws:–

1) ITAT order in ITA No.362/Ju/2010 in the case of Smt. Supriya Kanwar vide order dated 13/05/2014

2) (2001) 247 ITR 150(SC) Singhai Rakesh Kumar vs. Union of India & Ors.

3) (1981) 128 ITR 87(Bom.) Manubhai A. Sheth & Ors. v/s ITO.

6 M/s. Rachana Constructions 5. The learned Counsel for assessee further submitted that the

Assessing Officer and the learned Commissioner (Appeals) both has

referred to enquiry made from NMC under section 133(6) in respect to

distance from Municipal Limits. Perusal of inquiry report indicates that

it is aerial distance and not by road. In view decision of Bombay High

Court in the case of Shishir Diote in ITA no.122 of 2013 judgment dated 30th March 2015 distance has to be measured by road and not

aerial distance for the year under consideration.

observations of the authorities below.

available on record. In the present case, the addition has been made

under the head “capital gain” in respect to surplus arising on sale of

agricultural land which was claimed exempt in the return of income.

The Assessing Officer has verified by making enquiry from Nagpur

Improvement Trust (NIT) by issue of notice under section 133(6) and

came to conclusion that agricultural land is situated at 5.3kms. (aerial

distance as per crow fly method) and thus surplus arising on sale of

agricultural land is exigible to tax at the hands of assessee, as it is

capital asset under section 2(14) of the Act. The learned Commissioner

(Appeals) upheld the order of the Assessing Officer, as it was held by

the Assessing Officer that the distance of land in question is to be

7 M/s. Rachana Constructions measured not by motorable road but in straight line on a horizontal

plane. The Co–ordinate Bench of the Tribunal, Nagpur, in the case of

Shri Nitesh P. Choradia, ITA no.113/Nag./2012, has held at Para–15

that he distance of 8 Kms. has to be measured through approach road

and not by straight line distance on horizontal plane or crow’s flight.

The aforesaid decision of the Co–ordinate Bench of the Tribunal,

Nagpur, has been upheld by Hon’ble Jurisdictional High Court in ITA no.12 of 2013 vide judgment dated 30th March 2015. The provisions of

section 2(14) of the Act, have been amended from the assessment

year 2014-15, wherein it is provided that distance is to be measure

aerially. This amendment has been noted by the Hon’ble Jurisdictional

High Court at Para–15 of the judgment and the same is held to be applicable prospectively. The Circular no.3/240 dated 24th January

2014 shows that amendment in the definition of “Capital Asset” will

take effect prospectively. In the appeal under consideration is for the

assessment year 2007-08 and thus, subsequent amendment made to

section 2(14) of the Act will not be applicable. The NIT, in reply to

enquiries made under section 133(6) of the Act by Assessing Officer, had given response vide its communication dated 24th November

2011, wherein aerial distance is specified at 5.30 kms. from the

municipal limits of Nagpur. It is this certificate which is considered by

the Assessing Officer ant the learned Commissioner (Appeals) to hold

that agricultural land of assessee is capital asset being located within 8

8 M/s. Rachana Constructions Kms. from municipal limit. The certificate issued by Talati dated 12th

September 2008 as regard to distance by approach road is placed in

paper book at Page–61 which shows that agricultural land is situated

beyond 8 kms. from Municipal limits of Nagpur. As the agricultural

land is situated beyond 8 Kms. from municipal limits of Nagpur by

approach road the agricultural land sold by assessee is not capital

asset under section 2(14) of the Act. Thus, respectfully following the

decision of the Hon’ble Jurisdictional High Court in ITA No.120 of 2012

in case of Nitish Rameshchandra Choradia (supra) which squarely

applies to the facts in the present case, we hold that profit on sale of

agricultural land situated beyond 8 Kms. of municipal limit as per

approach road is not exigible to tax. In case of assessee, agricultural

land sold is situated beyond 8 Kms. of municipal corporation by

approach road and is not capital asset as defined under section 2(14)

of the Act, as is evident from certificate issued by Talati. The

agricultural land not being capital asset and surplus arising on sale of

same is not exigible to tax. Considering the totality of facts in the

present case, we hold that the addition made by Assessing Officer at `

71,88,520 is in respect to the surplus arising on agricultural land is

not exigible to tax and is directed to be deleted. Thus, the grounds

raised by the assessee are allowed.

9 M/s. Rachana Constructions

Order pronounced in the open Court on 28.06.2017

Sd/- Sd/- AMARJIT SINGH P.K. BANSAL JUDICIAL MEMBER VICE PRESIDENT

NAGPUR, DATED: 28.06.2017

Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary (Dy./Asstt. Registrar) ITAT, Nagpur