Municipal limits control agricultural land exemption under capital gains rules; village population does not determine capital asset status.

Agricultural land is excluded from capital asset status under section 2(14)(iii) only when it is not situated within the jurisdiction of a municipality, municipal corporation or similar local authority meeting the statutory population condition. The decisive test is the land's location within the municipal limits, not the population of the village or locality in which it lies. On that basis, land within municipal corporation limits does not qualify for the agricultural land exemption merely because the village population is below 10,000. The sale proceeds were therefore taxable as capital gains because the land was treated as a capital asset.

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Issues: Whether agricultural land situated within the jurisdiction of a municipal corporation, though the village had a population of less than 10,000 and the land was used for agricultural purposes, fell outside the definition of capital asset under section 2(14)(iii) of the Income-tax Act, 1961.

Analysis: Section 2(14)(iii) excludes agricultural land from the definition of capital asset only where the land is not situate in an area comprised within the jurisdiction of a municipality, municipal corporation or similar local authority having a population of not less than 10,000. The decisive factor is the jurisdictional location of the land within the municipal area, not the population of the particular village or locality within that municipal area. The cited Supreme Court and High Court authorities were applied to hold that once the land falls within the municipal corporation limits, the exemption is not available merely because the village itself has a population below the statutory threshold.

Conclusion: The land was a capital asset within the meaning of section 2(14)(iii) of the Income-tax Act, 1961, and the capital gain on its sale was taxable. The decision was in favour of the Revenue.

Ratio Decidendi: For the purpose of section 2(14)(iii) of the Income-tax Act, 1961, the relevant test is whether the land is situated within the jurisdiction of a municipality or municipal corporation; the population of the individual village or locality within that jurisdiction does not determine exemption.

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