2015 (7) TMI 1372 - AT - Income Tax

Land near NMMC qualifies as capital asset for LTCG, Tribunal upholds AO's calculation.

Income tax Officer-11 (2) (3), Mumbai Versus Mr. Hari J. Thakur

Income tax Officer-11 (2) (3), Mumbai Versus Mr. Hari J. Thakur - TMI Issues Involved:1. Justification of deleting the addition on sale of land by treating it as agricultural land.2. Correct appreciation of the provisions of section 2(14)(iii)(b) of the Income-Tax Act, 1961.3. Determination of the jurisdictional municipality for the purpose of calculating the distance for capital gains tax applicability.Detailed Analysis:1. Justification of Deleting the Addition on Sale of Land by Treating it as Agricultural Land:The Assessing Officer (AO) challenged the CIT(A)'s decision to delete the addition on the sale of land by treating it as agricultural land. The AO argued that the land sold by the assessee should not be considered agricultural land and thus should be subject to capital gains tax. The assessee had sold immovable property for Rs. 3.80 crores but did not disclose any income from capital gains. The AO found that the land was within 5 kilometers of Navi Mumbai Municipal Corporation (NMMC) limits, making it non-agricultural as per section 2(14) of the Income-Tax Act, 1961. The AO determined the net sale consideration at Rs. 2.63 crores and calculated the Long-Term Capital Gains (LTCG) at Rs. 2.57 crores.2. Correct Appreciation of the Provisions of Section 2(14)(iii)(b) of the Income-Tax Act, 1961:The CIT(A) held that the land was agricultural and situated beyond 8 kilometers from Thane Municipal Corporation (TMC), based on a certificate from Thane Urban Agglomeration and Agricultural Department. The CIT(A) noted that the land was separated from NMMC jurisdiction before the sale date, thus not falling within the taxable limits as per section 2(14)(iii)(b). The AO, however, maintained that the land was within 5 kilometers of NMMC, making it a capital asset subject to tax. The Tribunal reversed the CIT(A)'s decision, citing judgments from higher courts which clarified that the distance should be considered from the nearest municipality, irrespective of jurisdictional changes.3. Determination of the Jurisdictional Municipality for the Purpose of Calculating the Distance for Capital Gains Tax Applicability:The core issue was whether the distance of 8 kilometers should be measured from TMC or NMMC. The Tribunal referred to judgments from higher courts, including Anjana Sehgal and Khazan Singh, which established that the distance should be measured from the nearest municipality or cantonment board, regardless of state boundaries or jurisdictional changes. The Tribunal emphasized that the statutory scheme aims to include urban lands within specified distances from municipalities as capital assets for tax purposes. Hence, the land in question, being within 5 kilometers of NMMC, qualifies as a capital asset under section 2(14) and is subject to capital gains tax.Conclusion:The Tribunal concluded that the land sold by the assessee falls within the definition of a capital asset as per section 2(14) of the Income-Tax Act, 1961, due to its proximity to NMMC. The Tribunal reversed the CIT(A)'s decision and upheld the AO's determination of LTCG at Rs. 2.57 crores. The appeal filed by the AO was allowed, and the order was pronounced in the open court on 3rd July 2015.