Vildirect: IncomeTax-caselaws-2010-VIL-423-ITAT-VPT

2010-VIL-423-ITAT-VPT

Income Tax Appellate Tribunal VISAKHAPATNAM

ITA Nos.122/Vizag/2010 To ITA Nos.126/Vizag/2010

Date: 29.10.2010

DCIT CIRCLE-1 ELURU

JASTI VAYUNANDANA RAO, SMT. JASTI RENUKA DEVI, JASTI RAMACHANDRA RAO, JASTI SARAT BABU, JASTI HARINATH BABU ELURU

For the Petitioner : Shri T.L. Peter, DR
For the Respondent : Shri Soma Sundera Sai, CA

BENCH

SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER

JUDGMENT

PER BENCH:-

These appeals are preferred by the revenue against the respective orders of the CIT(A) on common grounds. Since these appeals were heard together, these are being disposed off through this consolidated order.

2. Though various grounds are raised in these appeals, but they all relate to the chargeability of capital gain on sale of an agricultural land. All the assessees are the co-owners of the agricultural land which was sold during the previous year relevant to the impugned assessment year. For the sake of reference, we take the case of DCIT Vs. J. Vayunandana Rao in ITA No.122 of 2010 as a lead case and narrate the facts of this case as under.

3. The assessee filed the return of income for the impugned assessment year along with a note stating therein that during the year the assessee sold its agricultural land at Kapuluppada village, Bheemunipatnam Mandal of Vizag. Since the land was an agricultural land, no capital gain was shown. It was selected for the scrutiny and assessing officer has asked the assessee to substantiate its claim for exemption from capital gain. In response thereto, assessee has submitted vide letter dated 29.12.2008 as under:-

“As has already been fully and truly disclosed bona fide by a note in paragraph No.8 in the Covering Statement accompanying the Return of Income, the assessee sold agricultural land (as certified by the Village Revenue Officer) of Ac. 0.13 at Kapula Uppada Village, Bheemunipatnam Mandal, Vizag District, on 25.1.08/14.02.08. As per the Certificate issued bythe Roads and Buildings Department (a copy of which is enclosed) the location of the land is more than 8 km from Visakhapatnam Municipal limits, as contemplated/notified by Notification No.9447 dated 6.1.1994 as amended by Notification No.11186 dated 28.12.1999. This is the sole criterion presently in existence for determining the scope of rural agricultural land for purposes of Capital Gains. According to Explanation 2 thereto, the reference to municipal limits in the Schedule to the said Notification is to the limits as existing on the date on which the Notification was published in the Official Gazette, and no further Notification was made. That a Greater Visakha has been declared by a State enactment or that the land is less than 8 km from the said Greater Visakha limits has no bearing at all, as any consequential amended Notification has not been made for purposes of Income Tax Act. In the absence of any such Notification, the above mentioned Notification is a stand alone basis for the purpose in question. The view is also fortified by a detailed legal opinion dated 31st May, 2008 …………,a copy of which is filed herewith. The assessee, therefore, submits that the above sale of agricultural land is not exigible to Capital Gains.”

4. The A.O. was not convinced with the explanation of the assessee and has levied the capital gain after having observed that though the land was an agricultural land, but it was situated within the 8 kms. from the recently enlarged limit of Greater Visakhapatnam Municipal Corporation. The assessee preferred an appeal before the CIT(A) with the submission that initially the impugned land fall outside the radius of 8 kms. from the municipality limit of the Visakhapatnam Municipality. But after the incorporation of Greater Visakhapatnam Municipal Corporation, though it may fall within the radius of 8 kms. from the municipal limit but no notification, as required as per provisions of section 2(14)(iii)(b) of the I.T. Act by the Central Government was issued. In the absence of the said notification, the impugned land cannot be ceased from the agricultural land only for its location within the 8 kms. Of the Greater Visakha Municipal Corporation limit. The assessee has also placed the reliance upon the various orders of the Tribunal. The CIT(A) re-examined the issue in the light of relevant provisions of the Act and finally came to the conclusion that unless a fresh notification in the natural course of law taking into consideration the extended limit of municipality and corporation issued, the deeming provision will apply only with reference to the city, town limit as on the date of notification in force at the material time. The relevant observation of the CIT(A) is extracted hereunder:

After hearing the learned appellant’s authorized representative and going through his submissions and on perusal of the various contentions raised by the Assessing officer and on a careful consideration of the facts and issues that emanate are as under:-

(i) Whether a fresh Notification is required to cover the extended municipal limits:-

The Assessing officer has completed the assessment taking the stand that “keeping the intentions of the charging provisions in view, I decline to accept the contentions of the assessee for want of further Notifications, the above mentioned Notification dated 6.1.1994 is stand alone basis for charging capital gains tax in respect of capital asset under reference”. From a plain and reasoned reading of the text of the Explanation – “the reference to municipal limits or the limit of cantonment board in the schedule to this Notification is to the limits as existing on the date on which the Notification is published in the official Gazette”, i.e. 1994, and in the absence of any further Notification, and the appellant’s cogent reasoning and detailed representations thereon, as against those made by the Assessing Officer, I find merit in the contention raised by the appellant. I am of the opinion that unless a fresh Notification in the natural course of law, taking into consideration the extended limit of municipalities and corporations, is issued, the deeming provision will apply only with reference to the city/town limits as on the date of Notification in force at the material time. In any case, it is the Central Board of Direct Taxes which determines which municipalities are to be covered for the purposes of taxing agricultural lands in the vicinity and not the state governments. The state governments may extend the limits of certain municipalities as much as they want, but till the Central Board of Direct Taxe3s does not decide whether these limits are to be taken cognizance of, by issuance of a Notification in the Gazette, the limits cannot be determined to have been extended automatically for the purposes of determining what constitutes a capital asset u/s 2(14) of the Act.

(ii) What does the term “municipality” in Explanation 1 to Notification No.9447 denote:-

I am of the considered opinion that the words “ ‘municipality’ (whether known as a municipality, municipal corporation, notified area committee, town are committee or by any other name” refer only to the general nomenclature that is used in different areas, and not to the renaming of municipality on extension. The case-law relied on by the appellant has gone into this question in exhaustive detail and I am in agreement with the conclusions drawn.

(iii) Whether impugned land is to be treated as urban land or rural agricultural land:-

Though the above more or less settle the issue on hand, it is pertinent to address this issue too with reference to jurisdictional situation of the land in question. I agree with the appellant’s contention with specific reference to (2009) 25 DTR (Asr)(Trib) 136; (2009) 29 SOT 394 Deputy Commissioner of Income-Tax Vs. Capital Local Area Bank Limited – which discusses “municipality” threadbare and is on all fours squarely to the appellant’s case – that Bheemunipatnam Mandal has administrative control on the impugned land rather than the Greater Visakhapatnam Municipal Corporation, as the land revenue and other levies have always been collected by Bheemunipatnam Mandal. Even the transfer-deed of the land is registered with the mandal and the stamp duties and other taxes have been paid to that authority.

(iv) Since no other contrary judicial pronouncement has come to my notice, following the ratio laid down in (2009) 25 DTR (Asr)(Trib) 136; (2009) 29 SOT 0394 – Deputy Commissioner of Income Tax vs. Capital Local Area Bank Ltd.,), I hold that the land in question should be taken as rural agricultural land which is not liable for capital gains tax.”

5. Now the revenue has preferred an appeal in all these cases and has contended that the fresh notification is not required to be issued by the Central Government. If the land falls within the 8 kms. of the municipal limit of any municipalities, it may cease to be the agricultural land and the profits on the sale is exigible to capital gain.

6. The Ld. Counsel for the assessee have placed a heavy reliance upon the order of the CIT(A). Besides our attention was also invited to the order of the Tribunal in the case of Smt. C. Girija Vs. ACIT 424/Vizag/2009 in which this issue was examined by the Tribunal and the Tribunal has categorically held therein that to bring the land within the purview of clause (b) of section 2(14)(iii) of the I.T. Act, the Central Government is required to issue a notification in the Official Gazette and without a notification, a land falls within the 8 kms. From the local limits of any municipality would not cease to be an agricultural land. Therefore, the CIT(A) has rightly adjudicated the issue.

7. Having heard the rival submissions and from a careful perusal of the record, we find that undisputedly the impugned land was initially situated beyond the 8 kms. from the municipality limit of Visakhapatnam Municipal Corporation. But later on, on incorporation of Greater Visakhapatnam Municipal Corporation, it falls within the 8 kms. from the municipal limit. But no notification as required u/s 2(14)(iii)(b) of the I.T. Act was issued in the Official Gazette by the Central Government. This issue was examined by us in the case of Smt. C. Girija Vs. ACIT (supra) in which we have given a categorical finding that to bring a land within the purview of clause (b) of section 2(14)(iii), the Central Government is required to issue a notification in the Official Gazette and without a notification a land falls within the 8 kms. from the local limit of any municipality would not cease to be an agricultural land. The relevant observation of the Tribunal are extracted hereunder:

“Having carefully examined the orders of the lower authorities in this regard and the provisions of section 2(14)(iii) of the Act relating to agricultural land, we find that as per clause (a), any land which situated in an area which is comprised within the jurisdiction of municipality or a cantonement board which has a population of not less than 10,000 according to the last preceding census would not be an agricultural land. The clause (b) of section 2(14)(iii) deals with those lands which situates in any area within such distance not being more than 8 kms. from the local limits of the municipality or cantonment board as the central government may having regard to the extent of and scope for urbanisation of that area and other relevant consideration specify in this behalf by notification in the official gazette. To bring a land within the purview of clause (b), the central government is required to issue a notification in the official gazette. Without a notification, a land falls within the 8 kms. from the local limits of any municipality would not cease to be an agricultural land. But in the instant case, the impugned land is admittedly situates within area of a local limit of the GVMC for which no notification as specified in clause (b) is required to be issued by the central government. We have also examined the contention of the assessees that the GVMC was notified by the local laws and local laws cannot supersede the central laws. But we do not find any force in this argument because the municipality or the cantonment board are subject to local laws and within a state subject and are created by a notification by the state government. Central government has no jurisdiction to create a municipality, cantonment board in any state of the country. Central government is concerned with the central act. Once the municipality of the cantonment board is created by a notification by the state government as per local laws, the central act will apply. Therefore once the impugned land is situated within the jurisdiction of the local limit of the GVMC, the impugned land cease to be the agricultural land and on its sale capital gain is to be computed. We therefore, find no infirmity in the order of the CIT(A) who has rightly computed the capital gain on sale of the impugned agricultural land.”

8. Since we have taken a particular view on this issue, we find no reason to take a contrary view in these appeals. Moreover, the CIT(A) has adjudicated the impugned issue in the light of various judicial pronouncements and the relevant provisions of the Act. Since we do not find any infirmity in his order, we confirm the same.

9. In the result, the appeals of the revenue are dismissed.

Pronounced in the open Court on 29.10.2010

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