Agricultural land outside municipal limits and no reliable distance proof meant capital gains addition could not stand.

Agricultural land sold by the assessee was held to fall outside section 2(14)(iii)(b) because the record did not prove that it lay within the prescribed municipal distance on a reliable road or surface basis. The Tribunal rejected reliance on administrative communications and internet location references as insufficient statutory proof of distance. It also accepted that the land retained its agricultural character and had not been converted to non-agricultural use before sale. The aerial-distance amendment introduced by the Finance Act, 2013 was treated as prospective only, so the long-term capital gain addition could not be sustained and was deleted.

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Issues: Whether the land sold by the assessee was agricultural land falling outside the statutory distance from the local limits of the municipality so as to remain excluded from the definition of capital asset, and whether the long-term capital gain addition could be sustained.

Analysis: The decisive question was whether the land was situated within the prescribed distance from the municipality for the purposes of section 2(14)(iii)(b) of the Income-tax Act, 1961. The record did not establish any reliable road or surface connectivity showing that the land fell within 8 kilometres of the municipal limits. The Tribunal noted that the Revenue had relied on material such as administrative communications and internet-based location references, but those were not treated as a proper statutory basis for determining distance. It was also found that the land retained its agricultural character and had not been converted to non-agricultural use before sale. The statutory amendment introducing aerial distance was held applicable only from the Finance Act, 2013 and not retrospectively to the assessment year in question.

Conclusion: The land was not a capital asset within section 2(14)(iii)(b), and the long-term capital gain addition was unsustainable and directed to be deleted.

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