TaxTMI 
TaxTMI 
1982 (12) TMI 74
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....bjections have not been accepted in regard to the assessability of the compensation amount and that is how the assessee has been assessed in respect of capital gains. The assessee's appeal before the Commissioner (Appeals) succeeded in full since the assessee's contention that the land continued to be agricultural land and therefore does not fall within the purview of capital asset as contemplated under section 2(14)(iii) of the Income-tax Act, 1961 ('the Act'), was accepted by him. 2. The revenue has come up in appeal against the order of the Commissioner (Appeals) and the assessee has filed a cross-objection raising various other contentions which the Commissioner (Appeals) did not deal with in the view be took about the assessability of the entire amount itself. 3. The learned counsel for the revenue, Shri T.A. Ramachandran, submitted that the decision of the Commissioner (Appeals) is erroneous having regard to the language of section 2(14)(iii)(a) which is very clear in that, once an area comes within the jurisdiction of a Municipal Corporation (in this case Nangal Dewat falls within the jurisdiction of the Delhi Municipal Corporation), one need not go into any other matt....
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.... the validity of section 2(14)(iii) and argued that the contrary decision taken by the Bombay High Court in Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87 should not be followed. 4. In reply, Shri C.S. Agarwal, who appeared in a number of other cases which have been heard together, contended that the village Nangal Dewat is a part of the rural area and, therefore, should be considered as not part of the municipality which can be only urban in its character. In other words, he contended that the rural areas are outside the purview of section 2(14)(iii)(a). He has also referred to the map which describes the different areas of the Union territory of Delhi. He particularly relied on the speech of the Finance Minister as also the Memorandum explaining the provisions occurring at page 90 of the same volume. He also contended that the word 'area' occurring in section 2(14)(iii)(a) relates only to the village of the rural area and not the entire municipality. In this connection he referred to the decision of the Madras Bench of the Tribunal in K. Parameshwaran v. ITO [1982] 2 ITD 371. He further emphasised that the Gram Panchayat Raj Act alone applies so far as the c....
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....appeal tried to bring out the distinction between extending an enactment and the jurisdiction. He pointed out that the Municipal Corporation Act might apply to the entire Union territory but it does not extend to the rural areas in the Union territory of Delhi. The extension of the Municipal Corporation Act does not change the jurisdiction of the Gaon Sabhas either under the Panchayat Raj Act or under the Delhi Land Reforms Act. 8. In order to appreciate the rival contentions, it is necessary to trace the relevant provisions of the Income-tax Act. Section 2(24) defines 'income'. It is an inclusive definition. Under sub-clause (6) 'capital gains' chargeable under section 45, is income. Section 45 states that income profits or gains arising from transfer of a capital asset ... be chargeable to income-tax under the head 'capital gains' . . . capital gains would arise from the transfer of capital assets. What is a capital asset is found in section 2(14). Several categories of properties are included within its fold but there are also several other kinds of properties excluded from the meaning of capital assets. One of such exclusions is agricultural lands in India. Section 2(14), su....
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.... No distinction will be made in regard to the exemption on the basis of the population of the area, in which the properties are situated. The definition of an urban area is also being enlarged to include areas within the limits of any municipality or other similar authority having a population of 10,000 or more, with powers to cover by notification areas upto 8 kilometres outside such limits. Business premises will continue to be excluded from the proposed levy as at present. However, guest houses maintained by those liable to pay this tax will not be reckoned as business premises. Provisions are also being made to prevent avoidance of the tax by transfer, from individual or joint Hindu family ownership, to ownership by partnership firms, associations of persons and closely-held companies. Another measure which is intended to serve a similar purpose, provides for the taxation of capital gains arising from the sale or transfer of agricultural land situated within urban areas." The relevant portions of Notes on Clauses of the Finance Bill read as follows : "Sub-clause (a) seeks to amend clause (14) of section 2 of the Income-tax Act which defines the term 'capital asset'. The a....
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....o the progress of urbanisation and industrialisation. It is accordingly proposed to bring, within the scope of taxation, capital gains arising from the transfer of agricultural land situated within the limits of any municipality or cantonment board which has a population of not less than 10,000 according to the latest census for which the relevant figures have been published. Power is also being taken to the Central Government to bring within the scope of the levy (by notification in the Official Gazette), capital gains arising from transfer of agricultural lands situate outside the limits of any such municipality or cantonment board up to a maximum distance of 8 kilometres, where this is considered necessary having regard to the extent of and scope for urbanisation of that area and other relevant considerations. Agricultural land which is situated in rural areas will continue to be outside the scope of the above mentioned provision. Accordingly, no liability to tax will arise in respect of gains derived from transfer of agricultural land in rural area." From a careful reading of the idea behind the amendment introduced by the Finance Act, 1970, one thing appears to be clear, na....
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....mbers, who decided the case, have taken pains in explaining what is a municipality (reported in [1982] 2 ITD 371). After making an in-depth study and after referring to some text books on the subject, the Tribunal observed : "It is clear from what we have set out that the concept of municipalities relate to urban local self-government and the concept of Panchayat to rural self-government. Both these concepts which are mutually exclusive were well known and well established by the time the amendment to section 2(14)(iii) was made with effect from 1-4-1970. Since the concepts were well known, it would follow that if the intention of Parliament was to include Panchayats also in the term 'municipality' it would have been so mentioned in the statute along with such terms as notified area committees, town area committee and town committee. This has not been done. Apart from this there is also the well known canon of construction to quote from CIT v. Gaekwar Foam & Rubber Co. Ltd. [1959] 35 ITR 662 (Bom.) where it is stated : 'It is well established that the words which express a legal conception must have attributed to them their legal meaning. Technical words, where we find them, ....
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....e of a notification under section 507, ceases to be included in the rural areas as herein defined ;" There is also definition of 'urban areas' as per clause (61) which only reads that urban areas are meant to be the areas of Delhi which are not rural areas. Section 3(1) of the Municipal Corporation Act reads as follows : "3(1) With effect from such date as the Central Government, may, by notification in the Official Gazette appoint, there shall be a Corporation charged with the municipal Government of Delhi, to be known as the Municipal Corporation of Delhi." [Emphasis supplied.] Sub-section (2) of section 3 contemplates rural areas committee and their functions. Section 41(1) envisages that the Municipal Government of Delhi shall vest in the Corporation. The functions of the Corporation are enumerated in section 42 and from a reading of these provisions, it is clear that the Corporation is entrusted with the task of providing wholesome water, medical facilities, such as sanitation, establishment and maintenance of hospitals, dispensaries, the establishment and maintenance of and aid to schools for primary education. The task of collecting property tax is also entrusted to....
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....lage in the revenue records. As already mentioned, some of the provisions of Gram Panchayat Raj Act had been deleted as some of the powers vested in the Gram Panchayat were assigned to the Delhi Municipal Corporation. The Land Reforms Act also extends to the Union territory of Delhi. The Delhi Land Reforms Act also refers to Gaon Sabha. Under section 150 Gaon Sabhas are established. It may be also mentioned that the Land Reforms Act applies only to the rural areas of the Union territory of Delhi but does not apply to the municipal areas which were originally under the jurisdiction of the local bodies whose functions were taken over by the Municipal Corporation. Even after the Municipal Corporation Act was passed so far as the rural areas are concerned, they are still governed by the Delhi Land Reforms Act. 12. In the context of the peculiar features of the Union territory of Delhi, we have to construe the provisions of section 2(14)(iii)(a). The argument of the revenue as already pointed out is that since the entire Union territory of Delhi falls within the jurisdiction of the Municipal Corporation of Delhi, the lands, whatever may be the character are situated within the jurisd....
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....hin the mischief of section 2(14)(iii)(a). For an area where there is no municipality and there is only a Panchayat (local self-government for rural areas) section 2(14)(iii)(a) is out of place. 13. There may be a little doubt as to how the same area can have two local self-governments. In fact, it is so. If we carefully analyse the provisions of the Delhi Municipal Corporation Act as also the Gram Panchayat Raj Act, what we find is that the essential features of local self-government is embodied so far as the rural areas are concerned. Their local self-government is within the jurisdiction of the Gram Panchayat. Though the provisions of the Municipal Corporation Act are extended in the sense that it is applicable to the entire territory of Delhi, the essential features of local self-government insofar as rural areas are concerned, are absent. Undoubtedly some of the taxes like property tax, are to be collected by the Municipal Corporation but we find from the provisions of section 507(c) that the Corporation shall pay the proceeds of the taxes to the Gaon Sabha. In other words, Municipal Corporation is collecting the taxes on behalf of the Gaon Sabha but technically the power t....
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....t the real question which is posed in the present appeals was not in issue and the concept of municipality was never brought to the notice of the learned members of the Tribunal in that case. They were merely concerned with the definition of an urban area under the Wealth-tax Act and it has no relevance so far as the construction of the provisions of section 2(14)(iii)(a) is concerned. In Deoki Nandan's case the question was completely different. In that case a part of the area became within the municipality and the argument was that the area of that part or the village according to the census did not exceed 10,000 and, therefore, section 2(14)(iii) is not applicable. This argument was rightly negatived by the Tribunal inasmuch as, any area under section 2(14)(iii)(a) means the entire area. Further the special features which are applicable to the Union territory of Delhi are totally absent in that case. The Andhra Pradesh High Court in Omarkhan's case had taken a view similar to the view taken by the Tribunal in Deoki Nandan's case. In fact Deoki Nandan's case followed the decision of the Andhra Pradesh High Court. There can be no quarrel about the view taken by the Andhra Pradesh ....