2021 (5) TMI 469 - AT - Income Tax

Land Classification for Taxation: Distance & Use Key Factors

The High Court emphasized the importance of accurately determining the classification of land for taxation purposes based on its location and use. The ... Nature of land sold - Capital asset u/s 2(14) or agricultural land - Addition made on account of sale of land by treating the same as agriculture land - AO found that the assessee had not disclosed any income from capital gains - HELD THAT:- Assessee had obtained certificate dated 18/01/2021 from independent registered Architect who had certified the distance between land and the boundary of Navi Mumbai Municipal Corporation by stating that aerial distance is approximately 3.5 kilometers and by road distance it is 9.01 kilometers and more. We find that assessee had also obtained a certificate from Town Planning department of NMMC for travel distance by road on 14/10/2015 which certificate has also been taken due cognizance by the Hon’ble High Court in para 14 of its order. This certificate has been issued by the Architect and Interior designer Mr. Suresh Kirtane on 18/01/2021 on the basis of map generated with Google map for shortest travel distance by road, Google Earth for aerial distance along with map of NMMC boundary and proposed land – Mumbai Metropolitan Regional Plan. The subject mentioned land sold is an agricultural land. What is to be seen is only whether it is a rural agricultural land or urban agricultural land which would determine the taxability under the head ‘income from capital gains’. We find that the Hon’ble High Court had restored this issue to the Tribunal to consider a certificate dated 14/10/2015 issued by the Town Planning department of NMMC. We have considered the said certificate and from the perusal of the same, it is categorically clear that the travel distance of Nighu village by road is around 9 kilometers from boundaries of Navi Mumbai Municipal Corporation and hence, the same would decide the ambit of definition of capital asset within the meaning of Section 2(14) of the Act and hence, there cannot be any levy of capital gains. We find that the ld. CIT(A) had rightly deleted the addition made on account of long term capital gains. - Decided against Reveue. Issues:1. Justification of deletion of addition on account of sale of land by treating it as agricultural land.2. Determination of capital gains tax liability based on the classification of land as rural or urban agricultural land.Issue 1:The appeal in ITA No.996/Mum/2013 for A.Y.2009-10 was filed against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961, where the Assessee had sold agricultural land and claimed exemption from capital gains tax. The ld. AO assessed long term capital gains of &8377; 2.57 Crores, considering the land as urban agricultural land due to its proximity to the Municipal limit. However, the ld. CIT(A) deleted the addition after verifying the distance of the land from the Municipal limit and observing that the land was indeed agricultural and situated beyond 8 kilometers from the Thane Municipal Corporation. The Hon’ble High Court's order emphasized the need to consider the distance measurement method and directed the Tribunal to examine the issue further.Issue 2:The Hon’ble High Court highlighted the lack of clarity in the statutory provision regarding the method of measuring distance between the land and the Municipal limit for the relevant assessment year. The introduction of the provision mandating aerial distance measurement in the Finance Act 2013 was deemed prospective. The Assessee obtained certificates from an Architect and the Town Planning department of Navi Mumbai Municipal Corporation, showing the distance by road to be around 9 kilometers from the Municipal boundary. The certificates confirmed that the land was rural agricultural land, exempting it from capital gains tax. The Tribunal, considering the certificates and the High Court's directions, upheld the deletion of the addition made by the ld. CIT(A) on account of long term capital gains.In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the addition on the grounds that the land in question was rural agricultural land situated beyond the specified distance from the Municipal Corporation limit, thus exempt from capital gains tax liability. The judgment emphasized the importance of accurately determining the classification of land for taxation purposes based on its location and use.