Capital asset test for rural land: absent a valid notification, nearby land was not taxable as capital gains property.

Land sold in the vicinity of a newly notified municipality was treated as outside the capital asset definition where no valid notification extended the municipal limits to that area. The Tribunal noted that the relevant CBDT notification covered specified areas in Haryana and land within the notified distance from Kalka, but there was no separate notification for Pinjore municipality or its surrounding land. On that basis, and following coordinate bench decisions, land in the nearby area of a newly notified municipality could not be taxed as a capital asset under section 2(14)(iii) without a valid notification covering it, making the capital gains addition unsustainable.

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Issues: Whether the land sold by the assessee was a capital asset within the meaning of section 2(14)(iii) of the Income-tax Act, 1961 so as to attract capital gains tax.

Analysis: The Tribunal noted that the relevant CBDT notification dated 06.01.1994 specified the municipal limits for Haryana and included areas within the notified distance from Kalka, but no separate notification was issued for Pinjore municipality or the land in its vicinity. Relying on the absence of a specific notification extending the notified municipal area and following coordinate bench decisions, it held that land in the nearby area of a newly notified municipality cannot be treated as a capital asset in the absence of a valid notification covering it.

Conclusion: The land was not a capital asset and the addition made on account of capital gains was unsustainable; the issue was decided in favour of the assessee.

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