TaxTMI 
TaxTMI 
2009 (1) TMI 358
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....e 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 on it at the relevant time; that a close....
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.... 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 arrangement? (iv) Whether the income derived from....
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....blish 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 addition holding that the tests laid down in CIT vs. Siddharth J. Desai, as fol....
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....ly 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 purchased by the assessee, and it was not put to any alternative use. 15. The land, as proved on record,....
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.... 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 case pertaining to land of Capital Local Area Bank, Jalandhar-Asst. yr. 2005-06-Regarding. As directed, I visited villag....
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....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 anything repugnant in the subject or context..........." 32. Sec. 3(31) of the General Clauses Act runs as follows: "3(31) 'Local authority' s....
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....pt 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, having regard to the size of the area and the municipal services being provided or proposed to be provided by an industrial establishment in that area and such other factors as he may deem ....
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.... 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 to the transfer of such area to the Nagar Panchayat of such transitional area or disposal otherwise, of the assets or institutions of such local authority and as to the discharge of the liabilities, if any, of ....
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.... 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 of building; (3) planning for economic and social development; (4) roads and bridges; (5) water supply for domestic, industrial and commercial purposes; (6) public health, sanitation conservancy and solid waste management; (7) ....
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....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 Government, the compensation payable therefor shall, notwithstanding anything to the contrary in the Land Acquisition Act, 1894, in no case exceed the amount if any paid to the Government for the transfer, together with the cost or the present value, whichever shall be less, or any buildings ....
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.... 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. It was so held in Harbans Singh vs. State of Haryana 1988 (2) RRR 89. 52. Chapter III-A of the PMA concerns functions of municipalities. Sec. 50A deals with the general powers of municipalities, whereas s. 50B is with regard to powers and authorities of municipalities. 53. Sec. 56 of the PMA deals w....
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....ons 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) 57 ITR 176 (SC), it has been held that in construing the words in a statute, one must bear in mind the context in which they are used; if they are capable of being understood in two senses, that which accords with the context, should be adopted. 57. It is well settled that words which express a legal concept must have their le....
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....e 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. In this regard, the then Finance Minister, in his Budget Speech, 1970-71, made before the introduction of s. 2(14) in the statute book by virtue of the Finance Act, 1970, stated that: "............ the definition of urban area is also being enlarged to include areas within the limits of any municipality or other such authority having a....
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.... 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. In ITO vs. Narain Singh (1981) 12 TTJ (Del) 396, it has been held as follows: "The net result is that at best it can be said that the agricultural land in question was situated in an area which is comprised within the jurisdiction of Municipality of Delhi, known as Delhi Municipal Corporation as also within the jurisdiction of Municipality of Nanga....
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....icultural 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 transfer of agricultural land situated in certain areas. For this purpose, the definition of the term 'capital asset' in s. 2(14) of the IT Act has been amended so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less t....
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....isaged 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 reference, the relevant extract of the said notification is reproduced as under: "Income-tax Act, 1961: Notification under s. 2(1A)(c), proviso, cl. (ii)(B) and s. 2(14)(iii)(b): Urbanisation of areas. Notification No. S.O...........dt. 6th Jan., 1994. Whereas a draft notification was published by the Central Government in exercise of the powers conferred by item (B) of cl. (ii) of....
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....nbsp; in the State/ mentioned under Co1. (3) Union Territory mentioned under Col. (2) ------------------------------------------------------------- (1) (2) (3) (4) ------------------------------------------------------------- 1 ........... ............. ...................... to 17 ------------------------------------------------------------- 18 Punjab 16. Jalandhar. Area....
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....ly, 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 exclusive domain of the concerned municipality exercising regulatory as well as administrative control over such area. It is such concerned municipality, id est, the parent municipality or jurisdictional municipality of the area, which has to carry out the urbanisation of the area. Areas situate within the local limits of a Gram Panchayat, when included within the limits of a city, become urban areas. Sec. 44 of the PMC Act makes it incumbent on the concerned....