Agricultural land within a development authority area may still fall outside capital asset status absent municipal limits or statutory distance.

Agricultural land does not become a capital asset merely because it falls within a special development authority area. The operative test under section 2(14)(iii) is whether the land is situate within a municipality or within the prescribed distance from municipal limits. On the stated facts, the land was within HADA but HADA was not a municipality, the village continued to be treated as gram panchayat land, and the land was stated to be more than 21 kms from the GHMC limits. The authority therefore treated the land as agricultural land outside the capital asset definition, so capital gains treatment was not attracted.

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Issues: Whether the land sold by the assessee, situated within Hyderabad Airport Development Authority limits, was agricultural land falling outside the definition of capital asset under section 2(14)(iii) of the Income-tax Act, 1961.

Analysis: The decisive question was whether inclusion of the land within HADA made it land situate within the jurisdiction of a municipality or within the prescribed distance from municipal limits. The record showed that HADA was a special development authority and not a municipality, that the village continued to be treated as gram panchayat land, and that the land was stated to be more than 21 kms away from the municipal limits of GHMC. The coordinate Bench decision in a similar HADA matter, as affirmed in further proceedings, supported the view that land within HADA did not for that reason alone lose its character as agricultural land or become a capital asset.

Conclusion: The land did not fall within section 2(14)(iii) of the Income-tax Act, 1961, and was not chargeable as a capital asset for capital gains purposes; the Revenue's challenge failed.

Final Conclusion: The assessee succeeded on the core issue, and the addition treating the land sale as short-term capital gains was not sustained.

Ratio Decidendi: Agricultural land does not become a capital asset merely because it lies within a special development authority area unless it is shown to be within a municipality or within the statutory distance from municipal limits under section 2(14)(iii).

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