Agricultural land not capital asset when distance from municipality measured by approach road under s.2(14)

HC held that, for determining whether agricultural land is a "capital asset" under s. 2(14) of the Income-tax Act, the distance from the municipal limits must be measured by the approach road, not by straight-line or "as-the-crow-flies" distance. Measuring by crow's flight ignores the extent of urbanization, contrary to the statutory scheme and relevant notification. Applying the principle of consistency and noting earlier decisions, HC upheld the Tribunal's view that the land lay beyond the prescribed distance and was not a capital asset. Appeals were dismissed in favour of the assessee.

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Issues: Whether for the purposes of Section 2(14)(iii) of the Income-tax Act, 1961 the distance from the local limits of a municipality is to be measured by approach by road and not by straight line (crow's flight) distance.

Analysis: The Tribunal held that distance must be measured in terms of approach by road, relying on statutory guidance in Section 2(14)(iii) which requires the Central Government, when specifying distance by notification, to have regard to the extent of and scope for urbanization and other considerations. Measurement by straight line distance would ignore the extent and pattern of urbanization which the statute mandates be taken into account. The Tribunal's view is supported by precedent and was applied to remit the matter to the Assessing Officer to determine whether the land falls within the definition of capital asset using road distance measurement.

Conclusion: The appeal on this issue is answered against the Revenue and in favour of the assessee; distance for Section 2(14)(iii) is to be measured by approach by road rather than by straight line distance.

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