TaxTMI 
TaxTMI 
2009 (1) TMI 358
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....tal asset" in terms of s. 2(14) of the IT Act, 1961; that the said agricultural land was more than two kilo metres away from Phagwara Municipality, as notified by the Central Government for the purpose of urbanization; that, therefore, no short-term capital gain was liable to be taxed in the hands of the assessee; that as per the Revenue record in the Fard Jamabandi for 1999-2000, the land was cultivated and the assessee had never changed its character from agricultural land to non-agricultural land; and that the commercial complexes in the nearby area had started coming up only after the assessee had sold its land, whereas during the relevant period, the entire surroundings were used for agricultural purposes only. The assessee placed before the AO a photograph of the land taken after the sale, showing crops standing on the said land. 3. The AO, however, did not accept the explanation offered by the assessee. It was observed that entries in the Revenue record, though material evidence, are not conclusive; that at the relevant time, the said land was not ordinarily used for agricultural purposes, though the assessee had produced a photograph to claim that crops were cultivated o....
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.... was agricultural land at the time of its transfer or during its possession by the assessee and, therefore, not a capital asset within the meaning of s. 2(14) of the IT Act. The AO, as such, added a sum of Rs. 1,52,38,400 to the income of the assessee on account of short-term capital gain. 5. The learned CIT(A), by virtue of the impugned order, having deleted the aforesaid addition, for the detailed reasons recorded in the impugned order, which we shall presently discuss, the Department is aggrieved and has filed the present appeal. 6. The learned Departmental Representative, challenging the order under appeal, has submitted that in CIT vs. Siddharth J. Desai, the following tests for determining whether the land is agricultural or not, have been laid down, none of which tests was satisfied by the assessee: (i) Whether the land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue? (ii) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (iii) Whether such user of the land was for a long period or whether it was of temporary character or by way of a stop-gap....
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....eal. It has been submitted that the assessee had been able to duly establish that the land in question was agricultural land; that the Jamabandi for 1999-2000 showed the land as agricultural land which had been cultivated; that the photograph of the crops standing on the land in question at the relevant time was not effectively rebutted by the AO; that the Inspector's report was not at all reliable, since it did not contain the name of any specific person from whom such enquiry was purportedly made; that the land had been assigned to a caretaker, who had carried on cultivation on the said land in lieu of services as watch and ward thereof; that it was as such that the assessee did not earn any agricultural income from the said land, nor incurred any expenditure on it; and that the learned CIT(A) correctly held the land not to be falling within the municipal limits of Jalandhar Municipality, since it was governed by the Phagwara Municipality and not the Jalandhar Municipality. The learned counsel for the assessee has thus sought the appeal to be dismissed as carrying no merit. 9. We have heard both the parties and have perused the material placed on record. The AO made the additi....
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....the sale of the land by the assessee, had been produced by the assessee before the AO. The AO summarily rejected this photograph by holding that what was claimed to be standing crops was actually wild growth. This conclusion of the AO was reached without recording any firm finding. It cannot be gainsaid that the AO is not an expert in such matters. Moreover, the photograph was not held to be false or fabricated. 13. The assessee had assigned the land to one Shri Chander Bhan, caretaker. This caretaker cultivated the land in lieu of his services as watch and ward thereof. It was, therefore, that neither the assessee earned any agricultural income from the land, nor incurred any expenditure thereon. The AO did not deem it appropriate to put the assessee to proof of its contention in this regard. Rather, he wrongly tried to shift the onus on to the assessee by holding that the contention of the assessee was without evidence. In his dual role as investigator as well as adjudicator, it was for the AO to call for evidence, which was not done. 14. At the relevant time, the land in question had not ceased to be put to use. It was used as agricultural land, as it was when it had been ....
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....ortion was purchased from S/Shri Jagdish Singh and Balwinder Singh, sons of Shri Milkha Singh, residents of village Kotkalan, District Jalandhar, whereas 2.5 marlas of this land was purchased by the assessee from Shri Karnail Singh. The Inspector's report did not contain the name of any specific person from whom such enquiry had allegedly been made; such a report is no report in the eye of the law. The AO erred in law in holding that: "..... enquiries made by the Inspector cannot be held to be vague for the simple reason that no specific person has been named from whom the enquiries have been made." This is entirely not in keeping with the law. When enquiry is made from certain persons, if the enquiry report does not contain mention of such persons, the enquiry report is a nullity in law. Though the AO has tried to validate his said conclusion by observing that the assessee's claim was not being considered only on the Inspector's report, such observation does not make the non est report of the Inspector to be legally valid and sound. This short report, a copy whereof is to be found at p. 30 of the assessee's paper book, reads as follows: "Subject: Report of enquiry in the ....
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....this stage, to deliberate upon the concept of 'municipality' at some length. 31. The word 'municipality', it may be noted, has not been defined under the IT Act. Now, where a term has not been defined in a particular Central Act, one has to turn to its definition as given in the General Clauses Act of 1897, the purpose of which Act is, as per its preamble, of avoid superfluity of language in statutes wherever it is possible to do so, and to place in one single statute provisions as regards interpretation of words and legal principles which would otherwise have to be specified separately in many different Acts and Regulations. Whatever the General Clauses Act says, whether as regards meanings of words, or as regards legal principles, as has been held in Chief Inspector of Mines vs. K.C. Thapar AIR 1961 SC 838, has to be read into every statute to which it applies, provided the statute does not contain anything repugnant to them in its subject or context, or does not produce a different intention. Sec. 3 of the General Clauses Act states as follows: "3. Definitions: In this Act, and in all Central Acts and Regulations made after the commencement of this Act, unless there is any....
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....in some other Acts in the relevant branches of law. 41. In the Constitution of India (hereinafter referred to as 'the Constitution') the Mother Statute, the concept of 'municipality' in India has been laid down. 42. Part IX-A of the Constitution deals with municipalities. Article 243P(e) of the Constitution defines 'municipality' as follows: "243P. Definitions: In this part, unless the context otherwise requires,- (a) to (d) ........... (e) 'Municipality', means an institution of self-government constituted under Art. 243Q." 43. Article 243Q of the Constitution of India provides for constitution of municipalities. It runs as follows: "Article 243Q Constitution of municipalities.-(1) There shall be constituted in every State,- (a) a Nagar Panchayat (by whatever name called) of a transitional area, that is to say, an area in transition from a rural area to an urban area; (b) a municipal council for a smaller urban area; and (c) a municipal corporation for a larger urban area, in accordance with the provisions of this part: Provided that a municipality under this clause may not be constituted in such urban area or part thereof as the Governor may, havi....
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....f shall be included, in such transitional area or a smaller urban area: Provided further that such an urban area or part thereof, as the State Government may, having regard to the size of the area and municipal services being provided or proposed to be provided by an industrial establishment in that area and such other factors as it may deem fit, by notification, specify to be an industrial township shall not form part of a transitional area or a smaller urban area. (2) Where an area is specified as a transitional area or as a smaller urban area under sub-s. (1), the State Government may, by notification in the Official Gazette, constitute for the transitional area so specified a Nagar Panchayat and for the smaller urban area so specified a municipal council of the first class, second class or third class: Provided that the State Government may, after consulting the municipal council by notification change its classification from one class to another (3) Where any area which is within the jurisdiction of any other local authority, is constituted as or included in a transitional area or smaller urban area, the State Government may pass such orders as it may deem fit as t....
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....ies: (1) Subject to the provisions of this Act and the rule, regulations and bye-laws made thereunder, the municipal administration of a smaller urban area and a transitional area shall vest in the municipal council and a Nagar Panchayat respectively. (2) Without prejudice to the generality of the provisions of sub-s. (1), it shall be the duty of the municipality to consider all periodical statements of the receipts and disbursements and all progress reports and pass such resolutions thereon as it thinks fit. 50B. Power and authorities of municipalities: (1) Without prejudice to the generality of the provisions of sub-s. (1) of s. 50A, the State Government may, by notification endow the municipalities with such powers and authorities as may be necessary to enable them to function as institutions of self-government, subject to such conditions as may be specified therein, with respect to,- (i) the preparation of plans for economic development and social justice; (ii) the performance of functions and implementation of which may be entrusted to them including the following, namely: (1) urban planning including town planning; (2) regulation of land-use and construction....
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....es in or under any public street, or constructed by or for the committee alongside any public street, and all works, materials and things appertaining thereto; (d) all dust, dirt, dung, ashes, refuse, animal matter or filth or rubbish of any kind or dead bodies of animals, collected by the committee from the street, houses, privies, sewers, cesspools or elsewhere or deposited in places fixed by the committee under s. 154; (e) all public lamps, lamp-posts, and apparatus connected therewith or appertaining thereto; (f) all land or other property transferred to the committee by the Government or acquired by gift, purchase or otherwise for local public purposes; (g) all public streets, not being land owned by Government and the pavements, stones and other materials, thereof, and also trees growing on and elections, materials, implements and things provided for such streets. (2) Where any immovable property is transferred otherwise than by the sale by the State Government to a municipal committee for public purposes, it shall be deemed to be a condition of such transfer, unless specially provided to the contrary, that should the property be at any time resumed by Governme....
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....ts in application of the Acts, Rules and bye-laws, etc. It also entails imposition of taxes. The object of publication of declaration of intention of the Government is to apprise, the people about the proposal of the Government to include the area within the municipal limits, so that they may, if they so desire, file objections before the area is included within the limits. This has been duly noticed in Hindustan Wire Products vs. Punjab Government 1979 PLR 459. 50. In Abhey Kumar vs. Faquir Chand 56 PLR 437 (Punj), it has been held that a notification altering the limits of a municipality issued by the Government takes effect from the date on which it becomes known to the public and not on the date on which it is made; and that such a notification cannot have retrospective effect. 51. The purpose of declaration of its intention by the Government by issuance of a notification to include within a municipality any local area in the vicinity of the same and defined in the notification is that the inhabitants of the local area concerned in respect of which the notification has been published may, should they object to the alteration proposed, submit their objections in writing. I....
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....rated for local administration, the percentage of employment in non-agricultural activities, the economic importance or such other factors as he may deem fit specify by a notification in the Official Gazette." Sec. 421: Special provisions as to rural areas-Notwithstanding anything contained in the foregoing provisions of this Act,- (a) the corporation with the previous approval of the Government may, by notification in the Official Gazette, declare that any portion of the rural areas shall cease to be included therein and upon the issue of such notification that portion shall be included in and form part of the urban areas; (b) the corporation with the previous approval of the Government may, by notification in the Official Gazette: (i) exempt the rural areas or any portion thereof from such of the provisions of this Act as it deems fit; (ii) levy taxes, rates, fees and other charges in the rural areas or any portion thereof at rates lower than those at which such taxes, rates, fees and other charges are levied in the urban areas or exempt such areas or portion from any such tax, rate, fee and other charge." 56. In CIT vs. Gangadhar Banerjee & Co. (P) Ltd. (1965) ....
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....essment year, was narrowed down as a result of substitution of new sub-cl. (iii) in s. 2(14) from the asst. yr. 1970-71, by the Finance Act, 1970. As a result of this substitution, all agricultural lands in India are no longer outside the purview of "capital asset" and only those agricultural lands in India are falling outside the scope of "capital asset", as they do not fall either under item (a) or item (b) of s. 2(14)(iii). In other words, out of agricultural lands in India, the lands falling in these two items would fall within the definition of "capital assets". These lands are (a) agricultural lands situated within the jurisdiction of municipality and which has a population of not less than ten thousand according to the last preceding census, of which, the relevant figures have been published before the first day of the previous year; and (b) agricultural lands situated in any area within such distance, not more than eight kilometres, from the local limits of any municipality referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in the Official Gazette. 61.....
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....fied lands situated in urban areas or semi-urban areas were brought within the definition of "capital asset". As per this judgment, it is only when a capital asset, i.e., land not falling within the exemption provided by s. 2(14)(iii), is sold and if profits or gains result from such a sale, it is chargeable, not because it is revenue, but because the statute specifically charges the resulting capital gain by including it as income. 66. In Heminder Kumari vs. Asstt. CIT (1996) 56 TTJ (Del) 280 : (1996) 57 ITD 409 (Del), it has been observed, with reference to s. 2(14)(iii)(b) of the Act, that "in the said item (b) it is clearly provided that the limit of 8 kms. has to be with reference to 'the local limits of any municipality or cantonment board referred to in item (a) as the Central Government may specify by notification in the Official Gazette'. Viewed from this angle, the notification which may be issued under s. 507(a) of the DMC Act, 1957 will have no bearing with reference to the application of the provisions of s. 2(14)(iii)(a) of the IT Act as the area of village Dera Mandi is, in any case, within the territorial jurisdiction of the Municipal Corporation of Delhi". 67....
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.... 70. In J. Raghottama Reddy vs. ITO (1988) 68 CTR (AP) 99 : (1988) 169 ITR 174 (AP), it was held, inter alia. that lands used for agricultural purposes whether situated in areas mentioned in ss. 2(14)(iii)(a) or (b) should be read to be excluded from the definition of "capital asset" and thus, s. 2(14)(iii) should be read as excluding from "capital asset", agricultural land in India not being lands situated in the areas mentioned therein; and that upon such interpretation, s. 2(14)(iii) does not enable levy of tax on capital gains arising from the transfer of land which is used for agricultural purposes, wherever it may be situated. 71. In the Explanatory Notes on the Provisions of the Finance Act, 1970, vide Circular No. 45, dt. 2nd Sept., 1970, the CBDT, on the issue, has stated as follows: "30...........Agricultural land situated in municipal and other urban areas is essentially similar to non-agricultural land in such areas in its potentialities for use due to the progress of urbanisation and industrialisation. The Finance Act, 1970, has accordingly amended the relevant provision of the IT Act so as to bring within the scope of taxation capital gains arising from the t....
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...., if the Central Government specifies, by notification in the Official Gazette, any area as an area falling outside the local limits of a municipality, having regard to the extent of, and scope for, urbanization of the said area and other relevant considerations, agricultural land comprised within such area shall stand excluded from the definition of "capital asset" as envisaged by s. 2(14), by virtue of operation of the law contained in s. 2(14)(iii)(b). 75. Now, in the present case, the Central Government issued Notification No. 9447/F. No. 164/3/87-ITA-I, dt. 6th Jan., 1994 [(1994) 116 CTR (St) 13 : (1994) 205 ITR (St) 121], by publication in the Official Gazette. in exercise of the powers conferred by s. 2(1A)(c), proviso, cl. (ii)(B) and s. 2(14)(iii)(b) of the Act. Sec. 2(1A), incidentally, deals with "agricultural income". Sub-cls. (A) and (B) of s. 2(1A)(c) proviso, cl. (ii) are identical to items (a) and (b), respectively, of s. 2(14)(iii). 76. In the aforesaid notification, the Central Government specified areas falling outside the local limits of municipalities all over India. This included the Municipalities of Phagwara and Jalandhar separately. For ready referenc....
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....nbsp; Details of areas falling No. State or municipality outside the local limits Union or cantonment of municipality or Territory board falling cantonment board, etc. in the State/ mentioned under Co1. (3) Union Territory mentioned under Col. (2) ------------------------------------------------------------- (1) (2) (3)&n....
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....estion is admittedly more than two kilo metres from the local limits of Phagwara Municipality. It would not have fallen within the exemption provided by s. 2(14)(iii)(b), were it situate within two kilometres from the local limits of Phagwara Municipality. However, it is nobody's case that the land in question is situate in an area within two kilometres from the local limits of Phagwara Municipality. Rather, the AO's case is that though admittedly, the land is beyond the municipal limits of Phagwara, it is within eight kilometres of the municipal limits of Jalandhar City and so, it is outside the exemption of s. 2(14). 78. When the area specified in Col. (4) of the Notification stands identified by the Central Government with Phagwara Municipality, the AO could not hold de hors the notification to bring it within the governance of Jalandhar Municipality. 79. Now, a notification under s. 2(14)(iii) of the IT Act is issued specifying areas as falling outside the local limits of a municipality, 'having regard to the extent of, any scope for urbanisation of the areas concerned and other relevant consideration'. 80. Urbanisation of an area, then, falls within the exclusiv....