Gram Panchayat agricultural land stays outside capital asset definition despite population exceeding the statutory threshold.

Agricultural land situated in a Gram Panchayat area does not become a capital asset merely because the local population exceeds 10,000. Section 2(14)(iii)(a) applies only to agricultural land within a municipality, municipal corporation or cantonment board having the prescribed population, and the population test qualifies that municipal area rather than creating a separate urban category. A Gram Panchayat is legally distinct from a municipality, and ejusdem generis does not support equating the two. On this reasoning, such land falls outside the capital asset definition and capital gains tax is not leviable on its transfer.

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Issues: Whether agricultural land situated in a Gram Panchayat area, but having a population exceeding 10,000, falls within the definition of capital asset under section 2(14) of the Income-tax Act, 1961 and is therefore chargeable to capital gains tax.

Analysis: The exception in section 2(14)(iii)(a) applies only to agricultural land situated within the jurisdiction of a municipality, municipal corporation or cantonment board having the prescribed population. The population test qualifies the municipal area referred to in the provision and does not independently convert every area with a population above 10,000 into a taxable urban area. Land situated in a Gram Panchayat remains outside the statutory exception, and the concepts of municipality and panchayat are legally distinct. The principle of ejusdem generis does not justify treating panchayats as municipalities for this purpose.

Conclusion: The agricultural land in question was not a capital asset within section 2(14) and capital gains tax was not leviable on its transfer; the issue is decided in favour of the assessee.

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