Agricultural land beyond 8 km from municipal limits qualifies as agricultural land under section 2(14)(iii)(b)

The ITAT Jaipur determined that agricultural land located at Gram Kukas, Nangal Sustawan, Jaipur was beyond 8 km from municipal limits as of 06.01.1994, qualifying it as agricultural land under section 2(14)(iii)(b). The tribunal relied on SLRA reports confirming the distance exceeded 8 km. Consistent with their earlier order dated 31.01.2014, the assessee's appeal was allowed and the revenue's appeal was dismissed, establishing the land's agricultural classification for tax purposes.

---

---

The primary legal questions considered in this matter revolve around the classification of certain land for the assessment year 2008-09 under the Income Tax Act, specifically:

(i) Whether the agricultural land sold by the assessee falls within the scope of exemption under Section 2(14)(iii)(b) of the Act, i.e., whether the land is situated beyond eight kilometers from the local limits of the municipality of Jaipur as it existed on 6th January 1994;

(ii) Whether the additions made by the Assessing Officer (AO) disallowing certain expenditure claimed by the assessee were justified;

(iii) The correctness and reliability of various certificates and reports submitted to establish the distance of the land from municipal limits;

(iv) The procedural propriety and jurisdictional correctness of remanding the matter to the AO for verification of distance instead of the Tribunal undertaking the fact-finding exercise as directed by the High Court;

(v) The nature and characterization of the land in question as agricultural or non-agricultural for the purpose of capital gains taxation.

Issue-wise Detailed Analysis:

1. Determination of Distance of Land from Municipal Limits as on 06.01.1994

The crux of the dispute is whether the land sold by the assessee lies within eight kilometers of the municipal limits of Jaipur as on 6th January 1994, which would disqualify it from exemption under Section 2(14)(iii)(b) of the Income Tax Act. The High Court remanded the matter to the Tribunal to verify this distance, directing the Tribunal to consider the Income Tax Department notification dated 6th January 1994 and relevant judicial precedents, and if necessary, to seek assistance from Revenue Authorities not below the rank of Deputy Collector for accurate measurement.

The Tribunal initially remanded the matter to the AO for fresh inquiry due to lack of supporting evidence. However, the High Court held that the Tribunal erred in remanding the matter to the AO instead of undertaking the fact-finding itself or seeking assistance from Revenue Authorities as directed. The High Court emphasized that the Tribunal is the last fact-finding authority and must comply strictly with its directions.

Following this, the Tribunal appointed an independent Court Commissioner, a senior Chartered Accountant, to assist in fact-finding. Despite extensive efforts, including communications with District Collector, Deputy Collector, and other State Revenue Authorities, and directions for the assessee to apply under the Right to Information Act, the process was protracted but ultimately culminated in a detailed report.

The Court Commissioner's report, based on inputs from State Land Revenue Authorities (SLRA), concluded that the outer limit of Jaipur as on 6th January 1994 was "Serva Mod" village, Amber, and the distance of the impugned land from this point was 11.5 kilometers by road. This finding was supported by verified measurements conducted by a team led by the Tehsildar of Amer Tehsil, who physically measured the road distance.

The Revenue Department challenged the findings, raising objections about the accuracy of the municipal limits and the measurement points used. They contended that the measurement should be to the municipal limits as per the notification dated 6th January 1994 and argued that the land was within eight kilometers. However, the Tribunal found that the Revenue's objections were not substantiated by reliable evidence and that the SLRA's report was authoritative, based on official maps and physical measurement.

The Tribunal also examined the contradictory reports and certificates submitted during earlier proceedings, including those by the Revenue Officer of Jaipur Nagar Nigam and the Inspector of the Income Tax Department. These earlier reports were found to be inconsistent, lacking in proper identification of municipal limits, and hence unreliable.

Accordingly, the Tribunal applied the legal framework under Section 2(14)(iii)(b), which exempts agricultural land situated beyond eight kilometers from municipal limits as specified by the Central Government notification, and concluded that the land in question was beyond the eight-kilometer limit as on 6th January 1994.

2. Characterization of the Land as Agricultural Land

The AO had initially rejected the assessee's claim that the land was agricultural, holding that it fell within eight kilometers of the municipal limits and thus did not qualify for exemption. The AO also noted the short holding period (land purchased in November 2007 and sold in December 2007 at a price more than 12 times the purchase price), indicating a speculative intent rather than agricultural use. The AO held that the land was not used for agricultural purposes and treated the gain as short-term capital gain taxable under the Act.

The CIT(A) upheld the AO's findings, rejecting the certificates submitted by the assessee from the Sarpanch and Patwari as invalid and unreliable, especially the certificate from an architect who admitted to issuing it without proper authority and for consideration. The CIT(A) also relied on the judgment of the Apex Court in CIT v. Gemini Pictures Circuit Pvt. Ltd., which held that the nature and use of the land are determinative for its characterization.

The Tribunal, however, accepted the certificates from the Sarpanch, Patwari, and Jaipur Nagar Nigam, as well as a GPS-based surveyor's report, holding that these were reliable evidence that the land was agricultural and situated beyond eight kilometers from the municipal limits. The Tribunal relied on established case law emphasizing that the actual use and nature of the land, rather than the owner's intention alone, determine its classification as agricultural land.

Relevant precedents cited include:

• Rasiklal Chimanlal Nagri v. CWT - emphasizing that actual use is the primary criterion for agricultural land.
• Tea Estates India (P.) Ltd. v. CWT - outlining characteristics of agricultural land involving cultivation and human labor.
• Smt. Manyam MeenakshammaIf v. CWT - land ordinarily used for agriculture or allied purposes is agricultural land.
• Shiv Shankar Lal v. CIT - actual use and non-permanent abandonment of agricultural use determine classification.

The Tribunal's approach was to weigh the totality of evidence, including revenue records and notifications, and found the assessee's claim supported by credible evidence.

3. Validity and Weight of Evidence and Certificates

A significant issue was the reliability of various certificates and reports submitted by both parties. The AO and CIT(A) rejected certificates from the Sarpanch, Patwari, and an architect employed by the assessee's family company, on grounds of lack of official authority, conflict of interest, and absence of physical verification.

The Tribunal, however, gave primacy to certificates issued by revenue authorities such as the Sarpanch and Patwari, considering them authoritative given their local knowledge and official capacity. The Tribunal also accepted the GPS-based surveyor's certificate and the Jaipur Nagar Nigam's certificate as credible evidence, especially since the latter was physically verified in the presence of Income Tax Department officials.

The Court Commissioner's report further corroborated the findings of the revenue authorities, confirming the municipal limits and distance measurement.

The Revenue Department's reliance on reports by Income Tax Inspectors and Revenue Officers was discredited due to inconsistencies, lack of clarity on measurement points, and failure to adhere to proper measurement procedures (road distance versus straight-line distance).

The Tribunal underscored that the certificates from local revenue authorities and surveyors, supported by official maps and notifications, constitute the best evidence to determine municipal limits and distance.

4. Procedural and Jurisdictional Issues Regarding Remand and Fact-Finding

The High Court's directions were explicit that the Tribunal itself must verify the distance of the land from the municipal limits and, if necessary, seek assistance from Revenue Authorities not below the rank of Deputy Collector. The Tribunal's initial remand to the AO for fresh inquiry was held to be an error, as the AO is not the final fact-finding authority in such appeals.

The Tribunal was required to comply strictly with the High Court's directions and conduct or supervise the fact-finding process, including appointing a Court Commissioner and coordinating with appropriate revenue officials. The failure to do so initially led to further litigation and delay.

Ultimately, the Tribunal complied with the High Court's directions by appointing an independent Court Commissioner, coordinating with State Land Revenue Authorities, and obtaining a detailed report, thereby fulfilling its fact-finding mandate.

5. Taxability of Capital Gains and Applicability of Section 2(14)(iii)(b)

Section 2(14)(iii)(b) of the Income Tax Act excludes agricultural land situated within eight kilometers of the local limits of a municipality with a population exceeding 10,000 from the definition of capital asset, thereby exempting gains arising from its transfer from capital gains tax.

The notification dated 6th January 1994 specifies the municipal limits for this purpose.

The Tribunal's finding that the land lies beyond eight kilometers from the municipal limits as on 6th January 1994 brings the land within the definition of agricultural land exempt from capital gains tax under the statute.

The Revenue's contention that the land was within eight kilometers and thus taxable was rejected based on the factual findings.

Conclusions:

The Tribunal concluded that the land in question is agricultural land situated beyond eight kilometers from the municipal limits of Jaipur as they existed on 6th January 1994, thus qualifying for exemption under Section 2(14)(iii)(b) of the Income Tax Act. The addition of Rs. 6,38,40,000/- as short-term capital gain by the AO was therefore deleted. The Tribunal also upheld the validity and reliability of certificates issued by local revenue authorities and surveyors over conflicting reports by departmental inspectors. Procedural errors in remanding the matter to the AO were rectified by the Tribunal's subsequent fact-finding exercise in compliance with the High Court's directions.

Significant Holdings:

"The overwhelming effect of the following evidence speaks in the favour of the assessee. These pieces of evidence are as under:-

• 1. The certificates from Patwari, Sarpanch and Jaipur Nagar Nigam which are enclosed at pages 1, 5, and 7 of the assessee's paper book. All these Revenue authorities have certified that the distance of the land sold is 9 KM from the limit of concerned municipality or Nagar Nigam etc.
• 2. A certificate from a qualified Surveyor who has worked out the distance of land sold from the local municipal limits/ municipal corporation/ notified area committee etc. The surveyor has calculated the distance at 8.2 KMs on the basis of GPS of Google Earth. The certificate is also enclosed with the reports.
• 3. Copies of Map of Jaipur Nagar Nigam with a view to identifying the municipal limits and Khatoni/ Jamabandi of land.
• 4. Copy of Notification dated 18-04-1992 issued by the State Govt. stating that this land is not include the land in the village falling under jurisdiction of Jaipur Municipal Area. This Notification has been approved as valid document for identifying the Municipal Limit by the ITAT Jaipur Bench in the case of Pratibha Goyal.
• 5. The assessee submitted her own affidavit to certify the distance of more than 8 KMs from local limit of Municipality."

"Thus, it becomes clear from the very plain reading of the above provision of Section 2(14)(iii) that even agricultural land can be treated as a 'capital asset' and consequently ' capital gain' can be charged on the net consideration arising from the sale of that land if the land sold falls within 8 KM from the local limit of any Municipality or Cantonment Board etc. as mentioned therein."

"The Tribunal is the last fact finding authority and its power in recording finding of fact is akin to that of the assessing officer / CIT (Appeals). Therefore, the tribunal itself could have recorded the finding with regard to the distance of land from the outskirts of the Jaipur city itself rather than remanding the matter to the assessing authority."

"The issue raised by the revenue of the land distance beyond the 8 KM or less is answered in favour of the assessee as the same is beyond 8 KM as reported by the State Land Revenue Authorities."

---