SH. AVTAR SINGH,CHANDIGARH vs. ITO, W-2(5), CHANDIGARH

आदेश/ORDER

PER A.D.JAIN, VICE PRESIDENT

This is assessee's appeal for assessment years 2017-18

against the order of the ld. Commissioner of Income Tax

(Appeals) NFAC, Delhi [in short ‘the ld. CIT(A)’] dated

17.05.2023.

ITA 389/CHD/2023 A.Y.2017-18 2 treating agricultural land sold to be a Capital Asset allegedly being within the municipal limits which is arbitrary and unjustified. 2. That the Commissioner of Income Tax (Appeals) has erred in law as well as on facts in not considering the notification dated 04.12.2012 placed on record but applying notification dated 19.12.2016 which is not applicable and as such the order passed is arbitrary and unjustified. 3. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in not accepting the figure of population as per last census Which was available as per census 2011 and ignoring the provision of section 2(14) which is arbitrary and unjustified. 4. That the Commissioner of Income Tax(Appeals) has further erred in treating the land sold on the basis of unregistered agreement to be complete during the year in utter disregard of the decision of the Hon'ble Apex Court in the case of Balbir Singh Maini reported in 398 ITR 531 (S.C) duly cited before him and as such the order passed is arbitrary and unjustified. 5. That the Ld. Commissioner of Income Tax(Appeals) has further erred in not considering the fact that the assessee was eligible to claim deduction u/s 54B of the Act for which the necessary details were on record and as such the order is arbitrary and unjustified. 6. That the Ld. Commissioner of Income Tax(Appeals) has further erred in the upholding the alleged finding of the Assessing Officer that the possession of land had been handed over to the sellers without any evidence and as such the order passed on incorrect facts is arbitrary and unjustified. 3. The facts are that the assessee filed return of income

for the year under consideration declaring income at

Rs.5,40,190/- after claiming deduction under Chapter VI-A

of the Income Tax Act, 1961. The case was selected for

scrutiny through “complete scrutiny” with the reason

“capital gains/loss on sale of property and claim of large

exempt income”. In the return, the assessee had shown

inter-alia, income of Rs.3,13,13,131/- and had claimed it as

exempt. The AO required the assessee to furnish the basis

ITA 389/CHD/2023 A.Y.2017-18 3 for such claim of exemption and required the assessee to

furnish the details of properties sold/purchased during the

year under consideration. The assessee had agricultural

land in village Chhatt in Punjab. The assessee had sold the

same to Maya Builders for Rs.4,13,13,132/-, out of which,

Rs.3,13,13,131/- had been received in Financial Year 2016-

17 relevant to the year under consideration, i.e., assessment

year 2017-18, and had claimed that the same was exempt

from capital gain as the land was agricultural in nature and

the sale of such land was not the sale of a capital asset. The

AO concluded the assessment by treating the land sold as

capital asset liable to be taxed under Long Term Capital

Gain.

agricultural land in village Chhatt in Punjab, outside the

municipal limits, as described in Notification No. 9447 dated

06.01.1994; that the assessee sold the same to M/s Maya

Builders during the year and received Rs.3,13,13,131/- for it

during the year, which was claimed exempt as sale

consideration of agricultural land. The AO expressed the

view that the land sold was a capital asset as per the

provisions of Section 2(14)(ii)(a) of the Income Tax Act and

ITA 389/CHD/2023 A.Y.2017-18 4 that the Notification No. 9447 of dated 06.01.1994 was not

applicable in view of the amended provisions of Section 2(14)

of the Act, as applicable w.e.f. 01.04.2014. The AO had

show caused the assessee in this regard. The assessee

stated in response that the land was situated in village

Chhatt, which was not having any Municipal Committee in

the year 2016-17, i.e., the year in which the land was

transferred and it was under Gram Panchayat at that time;

that the nearest Municipal Council at that time was Zirakpur

Municipal Council at a distance of about 8 kms, measured

aerially; that as such, the issue of population was irrelevant;

that even so, as per the latest Census, the population of

Zirakpur Municipal Committee was 95,443; that the distance

of the land sold from the nearest Municipal Committee of

Zirakpur was more than 8 kms, measured aerially, and that

so, the transfer of the land could not be held liable for

capital gains tax as per the amended provisions of Section

2(14)(iii)(a) of the Income Tax Act. For his assertion

regarding village Chhat having been under Gram Panchayat

and it having no Municipal Committee at the time of the sale

of the land, the assessee placed reliance on Notification

ITA 389/CHD/2023 A.Y.2017-18 5 dated 04.12.2012, of the Government of Punjab, Department

of Rural Development and Panchayats.

not relevant, since the assessee had sold land in Financial

Year 2016-17 and had given the possession also in Financial

Year 2016-17; that therefore, the year of sale was considered

as Financial Year 2016-17, in which the entire sale

consideration of the land was liable to be taxed as Long Term

Capital Gain, in view of the provisions of Section 2(47) of the

Income Tax Act, 1961, read with the provisions of Section

53A of the Transfer of Property Act, 1882; that the land was

situated in village Chhatt, Tehsil Dera Bassi Hadbast No.

286, which was included in the Municipal Committee during

Financial Year 2016-17, vide Notification No. 10/16/16-

3/553/2788 dated 19.12.2016, issued by the Department of

local Government (Local Bodies Department), Punjab; that

the land was situated on a prime location and it was sold to

a real estate builder; that it was seen from Google Wikipedia

that as per overview of the Zirakpur Population Census 2011

to 2019, Zirakpur is a Municipal Council constituted in the

District of Mohali, Pubjab; that Zirakpur city is divided into

15 Wards, for which, elections are held every five years; that

ITA 389/CHD/2023 A.Y.2017-18 6 Zirakpur Municipal Council has a population of more than

1.5 Lakh as per Report released by Census India 2011; that

however, during the year under consideration, the

population of Zirakpur was around 2.50 lakh, as there was a

considerable expansion of the city and its population; that

the provisions of Section 2(14)(iii) of the Income Tax Act have

been amended w.e.f. 01.04.2014; that therefore, the

assessee's plea that the land is outside the municipal limits,

was not acceptable; that the case of the assessee falls under

sub-clause (iii) of clause (a), since the land is situated in the

Municipal Council of Zirakpur; that therefore, the assessee's

plea that the land sold is not a capital asset and is exempt

as per Notification dated 06.01.1994, was not acceptable.

held that the assessee had relied on a 1994 Notification to

claim that the capital asset was situated beyond the

prescribed limits of any Municipality whose population is in

excess of one lakh as per the figures of the latest published

Census; that the assessee has, at one place claimed that the

land is situated about 8 kms from the Municipality, whereas,

at another place, he has claimed that the land is beyond 8

kms from the Municipality; that since the date of transfer of

ITA 389/CHD/2023 A.Y.2017-18 7 the land was taken to be falling within the Financial Year

from 01.04.2016 to 31.03.2017, the Notification dated

19.12.2016, relied on by the AO, could not be found fault

with; and that the other data brought on record by the AO

regarding population was also a relevant factor for holding

that the land transferred falls within the definition of

“Capital Asset” under the Act and that therefore, it is

exigible to capital gains.

ld. CIT(A) has erred in confirming the addition of

Rs.4,10,35,211/-, treating the agricultural land sold to be a

capital asset, alleging it arbitrarily and unjustifiably to be

within municipal limits; that the ld. CIT(A) has erred in not

considering the Notification dated 04.12.2012, but instead

applying Notification dated 19.12.2016, which latter

Notification is not applicable to the case at all; that the ld.

CIT(A) has erred in not accepting the figure of population as

per the last Census, which was available, i.e., the Census of

2011 and ignoring the provisions of Section 2(14) of the

Income Tax Act; that the ld. CIT(A) has erred in treating the

land sold to be a capital asset transferred, on the basis of an

unregistered Agreement, wrongly disregarding the decision of

ITA 389/CHD/2023 A.Y.2017-18 8 the Hon'ble Supreme Court in the case of “CIT Vs Balbir

Singh Maini”, 398 ITR 537 (S.C); and that the ld. CIT(A) has

erred in upholding the finding of the AO that the possession

of the land had been handed over to the sellers, without

there being any evidence to this effect on record.

reliance on the impugned order.

material on record. As per the provisions of Section 2(14) of

the Act, “Capital Asset” means property of any kind held by

an assessee, but it does not include, inter-alia, agricultural

land in India, not being land situated in any area which is

comprised within the jurisdiction of a Municipality and

which has a population of not less than ten thousand, or in

any area within the distance, measured aerially, not being

more than two kilometers from the local limits of any

Municipality and which has a population of more than ten

thousand but not exceeding one lakh. As per the

Explanation to the Section, “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.

ITA 389/CHD/2023 A.Y.2017-18 9 9.1 As per Notification No. SODP-SASN/DB/Ss 34 and

10/PA-9/94/2012/3907 (APB 8-9), issued by the Department

of Rural Development and Panchayats, Government of

Punjab, relied on by the assessee before the authorities

below, the Governor of Punjab declared the village or group

of contiguous villages mentioned in the said Notification, to

constitute a Gram Sabha area and to constitute a Gram

Panchayat, in block Dera Bassi, District SAS Nagar. At Item

93 (APB-9) of the Notification, village Chhatt has been shown

to be a village constituting Gram Sabha area, for which, the

Gram Panchayat was constituted, i.e., Gram Panchayat

Chhatt. Thus, evidently, it was by virtue of the aforesaid

Notification dated 04.12.2012, that the Gram Panchayat of

village Chhatt was created. Before that, village Chhatt had

no Gram Panchayat. This also proves that village Chhatt, at

that time, was not comprised within the municipal limits of

Zirakpur and had its own Gram Panchayat. In this regard,

in “ITO Vs P.Venkatramana” 46 ITD 484 (Hyd), it has been

held that land falling in a Gram Panchayat is not a capital

asset.

9.2 The AO clearly erred in holding that the Notification

dated 04.12.2012 was not relevant. He held so in ignorance

ITA 389/CHD/2023 A.Y.2017-18 10 or oblivion of the provisions of Section 2(14) of the Act,

which clearly spell out as to which land constitutes a capital

asset, as discussed herein above. In the face of the

unambiguous provisions of Section 2(14), the reasoning

given by the AO to hold the Notification of 04.12.2012 to be

not relevant, is faulty, in as much as without considering the

express requirements of the provisions, the AO merely held

that the land sold was included in the Municipal Committee

during Financial Year 2016-17, relevant to the year under

consideration, when the land was sold and possession was

given.

9.3 The ld. CIT(A), remarkably, has not entered any

comment on this aspect of the matter in the order under

appeal and still, the assessment order has been upheld. It is

further seen that it was by virtue of Notification (APB 23-25)

dated 19.12.2016, i.e., Notification No.10/16/16-3

SS3/2788, issued by the Department of Local Bodies, Govt.

of Punjab, that the municipal limits of Zirakpur were

extended and village Chhatt got to be included therein. The

Notification clearly states that vide Resolution No. 88 dated

08.08.2016, passed by the Nagar Council, Zirakpur, Distt.

SAS Nagar area comprising of Gram Panchayats of, inter-

ITA 389/CHD/2023 A.Y.2017-18 11 alia, village Chhatt, has been resolved to be included within

the limits of Zirakpur, considering which, vide Notification

No. 10/16/16-3 SS 3/2236, dated 04.11.2016,

objections/suggestions were invited within 30 days under

the provisions of Section 5(2) of the Municipal Act, 1911;

that it has been intimated by the concerned officer, Nagar

Council, Zirakpur, vide letter No.1578, dated 06.12.2016,

that no objection/suggestion has been received within the

stipulated time; and that therefore, the Governor of Punjab

was pleased to increase the boundaries of Zirakpur and the

new boundaries were increased as per the Schedule of

Boundaries. The Schedule of Boundaries contained in the

Notification shows increase in all directions in the Nagar

Council, Zirakpur Boundaries. It is the increase in the

Southern side which shows inclusion of village Chhatt,

Hadbast No. 286, in the Zirakpur Boundary.

9.4 Undeniably, the date of issuance of the aforesaid

Notification, i.e., 19.12.2016, is much later than the date of

last payment of advance against the sale consideration

received by the assessee for the sale of the land situated in

village Chhatt, i.e., in Financial Year 2016-17, relevant to

the year under consideration, i.e., assessment year 2017-18,

ITA 389/CHD/2023 A.Y.2017-18 12 as brought on record by the assessee. Thus, the assessee is

correct in contending that village Chhatt, at the relevant

time, was not forming part of the municipal limits of

Zirakpur and it was included in the municipal limits of

Zirakpur only by virtue of the said Notification dated

19.12.2016. It also remains unchallenged that the land is

situated more than four kilometers away from the municipal

limits of Zirakpur, as applicable at that time. In view of

these undisputed facts, the only conclusion that can be

arrived at is that the land in question did not fall within the

definition of “capital asset”, as per the definition contained

in Section 2(14) of the Income Tax Act.

9.5 For the above reason, the ld. CIT(A) has clearly erred in

holding that the AO was correct in relying on the Notification

dated 19.12.2016 to decide the matter against the assessee

and hold that the land sold was a capital asset. While

concluding so, the ld. CIT(A) has not taken into

consideration the above discussed aspect of the matter.

9.6 Then, even the position with regard to the population of

Zirakpur has not been correctly appreciated by either of the

authorities below. It again remains undisputed that as per

the last Census (APB 10-12), i.e., the Census of 2011,

ITA 389/CHD/2023 A.Y.2017-18 13 Zirakpur had a population of 95,443. Firstly, the provisions

of Section 2(14) of the Act, i.e., the Explanation to the

Section, clearly state that “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. The AO went wrong in ignoring the

contention of the assessee that given the distance of the

situs of the land in question from the nearest Municipal

Committee, i.e., the Zirakpur Municipal Council, the issue of

population was not relevant. Further, the AO again went

wrong in not taking into consideration the population figure

of 95,443, as per the latest published Census, i.e., the

Census of 2011, and holding that the Zirakpur Municipal

Council had a population of more than 1.5 lakh, as per the

Report released by Census India, 2011. Nothing has been

brought on record by the AO to support this rounded off

figure of 1.5 lakh, as against the exact figure of 95,443, as

made available by the Census 2011-2020, a copy whereof has

been appended by the assessee at APB 10-12. The relevant

portion thereof, at APB 12, states in no uncertain terms that

“the Zirakpur Municipal Council has a population of 95,553

of which 50,497 are males while 45,056 are females as per

ITA 389/CHD/2023 A.Y.2017-18 14 Report released by Census India, 2011. Population of

children with age of 0-6 is 12,074 which is 12.64% of total

population of Zirakpur (M-Cl). Therefore, indubitably, the

AO has fallen in error in relying on a wrong figure of

population of the Zirakpur Municipal Council, to decide the

issue against the assessee. Going by the officially published

figure of 95,553 the population of Zirakpur Municipal

Council falls squarely within the definition of “population”

within the meaning ascribed to it by the Explanation to

Section 2(14) of the Act, squarely excluding the land in

question from the definition of “capital asset”.

the ld. CIT(A) is, at best, nebulous, in as much as the ld.

CIT(A) holds that “………….the other data brought on record

by the AO regarding population also is a relevant factor in

holding that the impugned land transferred falls within the

definition of “capital asset” under the Act and therefore,

exigible to capital gain…………..” As to how it is so, has not

been elaborated upon by the ld. CIT(A).

10.1 Further still, the AO has erred in holding that the

population of Zirakpur during the year under consideration

was around 2.50 lacs as there was considerable expansion of

ITA 389/CHD/2023 A.Y.2017-18 15 the city and its population. This finding of the AO is also

without any basis and it is in direct conflict with the

definition of population, as provided by the provisions of the

Explanation to Section 2(14)(iii) of the Act, as discussed

herein above. To reiterate, the population is to be taken at

the figure of the last preceding Census, of which, the

relevant figures have been published before the first day of

the previous year. As correctly contended, and not disputed,

the last Census before 2020 was the Census of 2011. The

figure published therein, in the Financial Gazette is of

95,553. The AO was not authorized to stretch the same to

an imaginary figure of 2.50 lacs. In this regard, reliance has

rightly been placed on the decision of the Hon'ble Bombay

High Court in “Pr. CIT-3 Vs Anthony John Pereira”, 115

taxmann.com 368 (Bom). Therein, it has been held that as

per the requirements of clause (iii) (a) of sub-section (14) of

Section 2 of the Income Tax Act, for land to be excluded from

“capital assets”, it has to be agricultural land in India; that

such land, to be not agricultural land, must fulfil two

conditions, viz., that it must be land situated in any area

which is comprised within the jurisdiction of a Municipality

and which has a population of not less than 10,000; that

ITA 389/CHD/2023 A.Y.2017-18 16 these two conditions are pre-conditions and must be read

conjunctively; that in other words, if both the conditions are

present, then it would not be agricultural land and would be

treated as a capital asset; that however, inversely speaking,

if either of the two conditions is absent, the land would be

agricultural land and would get excluded from the definition

of “capital asset”. On facts, it was held that though the land

in question therein had been held to be within the

jurisdiction of a municipality, their Lordships found that the

second condition to bring the land outside the ambit of

agricultural land, i.e., that the area has a population which

is not less than 10,000, was absent; and that so, the

Tribunal had rightly treated the land as agricultural land not

included within the ambit and meaning of “capital asset”. It

was held that this was a finding of fact which had not been

questioned by the Revenue as perverse being contrary to the

record, and that the Tribunal was justified in holding that

the lands which were sold were agricultural lands not

forming part of “capital asset” within the meaning of Section

2(14) of the Act.

attending before the Hon'ble Bombay High Court in the case

ITA 389/CHD/2023 A.Y.2017-18 17 of “Anthony John Pereira” (supra), as discussed in the

preceding paragraph. In the case before us also, to reiterate,

the population has been found to be less than the figure of

10 lakh, for which, the second condition to bring the land

outside the ambit of agricultural land, is absent. Therefore,

in keeping with “Pr. CIT-3 Vs Anthony John Pereira” (supra),

as elaborately dealt with by us, we hold that the land sold

was agricultural land, not forming part of “capital asset”,

within the meaning of Section 2(14) of the Income Tax Act.

that in view of Notification (APB 18-22) No. 9447, dated

06.01.1994, relied on by the assessee all through, the

amount received by the assessee is exempt, as rightly

contended. This is so, since at the time of receipt of the last

payment by the assessee in the year under consideration,

Zirakpur was not a Municipality. As is evident from a

perusal thereof, which, again has not been denied on behalf

of the Department. Too, the Sale Deed dated 21.03.2018

(APB 57-66) clearly mentions that the possession of the land

was handed over by the assessee to the purchaser at the site

after receipt of the entire amount of payment, before the

Joint Sub Registrar, Zirakpur. In this regard, reliance has

ITA 389/CHD/2023 A.Y.2017-18 18 rightly been placed on the decision of the Hon'ble Supreme

Court in the case of “CIT Vs Balbir Singh Maini” (supra).

order under appeal is found to be unsustainable in law and

the same is hereby reversed. The claim of the assessee, by

way of Ground Nos. 1, 2, 4 and 6, is found to be justified

and it is accepted as such.

ground taken in the alternative to Ground Nos. 1 to 4 and 6,

which we have accepted, as above. Ordered accordingly.

Order pronounced on 03.04. 2024.

Sd/- Sd/-

(VIKRAM SINGH YADAV) (A.D.JAIN ) VICE PRESIDENT ACCOUNTANTMEMBER “Poonam” आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�/ CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar