Capital asset test for agricultural land failed where statutory municipal-distance requirement was not proved for capital gains purposes.

Agricultural land sold by the assessee was not proved to fall within 8 kilometres of the municipal limits, so it could not be treated as a capital asset under Section 2(14)(iii)(b) of the Income-tax Act. The Revenue relied on a report suggesting a distance of 7 to 8 kilometres, but the assessee produced a Municipal Corporation reply stating the distance was around 9 kilometres. On that evidentiary record, the statutory distance requirement was not established, and the addition towards long-term capital gains could not be sustained.

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

Analysis: The question turned on whether the land fell within 8 kilometres of the municipal limits. The lower authorities relied on a report indicating a distance of between 7 and 8 kilometres, while the assessee produced a reply from the Municipal Corporation stating that the distance was around 9 kilometres. On this evidence, the Revenue failed to establish that the land was situated within the statutory limit for treating it as a capital asset.

Conclusion: The land was not shown to be a capital asset under Section 2(14)(iii)(b), and the addition towards long-term capital gains could not be sustained. The issue was decided in favour of the assessee.

Final Conclusion: The impugned assessment on account of long-term capital gains was deleted and the assessee's appeal succeeded.

Ratio Decidendi: Where the Revenue fails to substantiate that agricultural land falls within the statutory distance from municipal limits, the land cannot be treated as a capital asset for capital gains purposes.

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