2010 (1) TMI 752 - HC - Income Tax

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 ... Agricultural land - principle of measuring distance - distance of the agricultural land belonging to the assessee- respondent has to be measured in terms of the approach by road and not by a straight line distance on horizontal plane or as per crow's flight - whether the agricultural land in question falls within the definition of capital assets u/s 2(14) of the Act by considering the distance in terms of the approach by road - HELD THAT:- If principle of measurement of distance is considered straight line distance on horizontal plane or as per crow's flight then it would have no relationship with the statutory requirement of keeping in view the extent of urbanization. Such a course would be illusory. It is in pursuance of the aforesaid provision that notification No. 9447 dated 6.1.1994 has been issued by the Central Government. Once the statutory guidance of taking into account the extent and scope of urbanization of the area has to be reckoned while issuing any such notification then it would be incongruous to the argument of the Revenue that the distance of land should be measured by the method of straight line on horizontal plane or as per crow's flight because any measurement by crow's flight is bound to ignore the urbanization which has taken place. Moreover, the judgement of the Mumbai Bench appears to have attained finality. Keeping in view the principle of consistency as laid down in Radha soawami Satsang [1991 (11) TMI 2 - SUPREME COURT], we are of the view that the opinion expressed by the Tribunal does not suffer from any legal infirmity warranting interference of this Court. Accordingly answered against the Revenue and in favour of the assessee by upholding the order of the Tribunal. Appeals accordingly stand disposed of. 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.