Municipal jurisdiction test for agricultural land brings Delhi village land within capital asset definition under income-tax law.

Agricultural land in village Dera Mandi, Delhi was treated as falling within the phrase "land situate in any area which is comprised within the jurisdiction of a municipality" under section 2(14)(iii)(a) of the Income-tax Act because the expression was construed by reference to the territorial jurisdiction of the Municipal Corporation of Delhi, not by distinguishing urban from rural character. The provision was read harmoniously with section 2(14)(iii)(b) to reflect a legislative intent to tax agricultural land situated within municipal limits. The Tribunal view that rural areas within Delhi were excluded was held inconsistent with the Supreme Court's interpretation in G.M. Omer Khan, and the land was therefore held to be a capital asset.

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Issues: Whether agricultural land situated in village Dera Mandi, Delhi, fell within the expression "land situate in any area which is comprised within the jurisdiction of a municipality" under section 2(14)(iii)(a) of the Income-tax Act, 1961, and was therefore a capital asset liable to capital gains tax.

Analysis: The expression "within the jurisdiction of a municipality" was held to refer to the territorial jurisdiction of the Municipal Corporation of Delhi and not to a distinction between urban and rural areas for the purpose of section 2(14)(iii)(a). The scheme of section 2(14)(iii)(a) and (b) was read harmoniously, and the legislative object was taken to be the taxation of agricultural lands situated within municipal limits. The earlier Tribunal view treating rural areas within Delhi differently was held to be inconsistent with the Supreme Court's interpretation in G.M. Omer Khan, which approved the proposition that once land falls within municipal jurisdiction, its character as a village or rural area does not exclude it from the statutory definition.

Conclusion: The land was held to be a capital asset within section 2(14)(iii)(a), and the assessee's contention was rejected.

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