The AO not authorized to stretch the published census population to an imaginary figure – ITAT
In a recent judgment, the Hon’ble ITAT has deleted addition made by AO treating the agricultural land as Capital Asset held that AO is not authorized to stretch published census population to an imaginary figure.
ABCAUS Case Law Citation:
ABCAUS 3939 (2024) (04) ITAT
Important Case Laws relied upon:
ITO Vs P. Venkatramana 46 ITD 484 (Hyd)
Pr. CIT Vs Anthony John Pereira 115 taxmann.com 368 (Bom)
CIT Vs Balbir Singh Maini 398 ITR 537 (SC)
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of Assessing Officer (AO) denying the exemption on the sale of agricultural land and treating it as Capital Asset.
The assessee filed return of income for the relevant year. The case was selected for scrutiny through “complete scrutiny” with the reason “capital gains/loss on sale of property and claim of large exempt income”.
The assessee had agricultural land in village. The assessee had sold the same to a Builder out of which, the amount claimed as exempt had been received in the relevant Financial Year and was claimed as exempt from capital gain as the land was agricultural in nature and the sale of such land was not the sale of a capital asset.
The AO required the assessee to furnish the basis for such claim of exemption and required the assessee to furnish the details of properties sold/purchased during the year under consideration.
Before the AO, the assessee stated that he owned agricultural land in village which was outside the municipal limits, as per Notification issued in this regard. It was stated that the said village was not having any Municipal Committee in the relevant year in which the land was transferred and it was under Gram Panchayat at that time; that the nearest Municipal Council was at a distance of about 8 kms, measured aerially; that as such, the issue of population was irrelevant. Even so as per the latest Census, the population of Municipal Committee was less than one lakh.
The AO observed that the land was situated in village which was included in the Municipal Committee during relevant Financial Year vide Notification dated December of the relevant financial year. The AO further noted that the Population of the municipal council was more than 1.5 Lakh as per Report released by Census India 2011.
The AO expressed the view that the land sold was a capital asset as per the provisions of Section 2(14)(ii)(a) of the Income Tax Act, 1961 (the Act) and that the assessee’s plea that the land was outside the municipal limits, was not acceptable.
The AO concluded the assessment by treating the land sold as capital asset liable to be taxed under Long Term Capital Gain.
The Tribunal observed that as per the provisions of Section 2(14) of the Act, “Capital Asset” means property of any kind held by an assessee, but it does not include, inter-alia, agricultural land in India, not being land situated in any area which is comprised within the jurisdiction of a Municipality and which has a population of not less than ten thousand, or in any area within the distance, measured aerially, not being more than two kilometers from the local limits of any Municipality and which has a population of more than ten thousand but not exceeding one lakh. As per the Explanation to the Section, “population” means the population according to the last preceding Census, of which, the relevant figures have been published before the first day of the previous year.
The Tribunal noted that as per notification relied on by the assessee before the authorities below, the State Government declared the village to constitute a Gram Sabha area and to constitute a Gram Panchayat in the block including the village under consideration. Thus, evidently, it was by virtue of the aforesaid Notification the Gram Panchayat of village was created. Before that, the village had no Gram Panchayat. This proved that village, at that time, was not comprised within the municipal limits and had its own Gram Panchayat. it has been held that land falling in a Gram Panchayat is not a capital asset.
The ITAT opined that AO clearly erred in holding that the Notification was not relevant. The AO the AO merely held that the land sold was included in the Municipal Committee during Financial Year, relevant to the year under consideration, when the land was sold and possession was given.
The Tribunal pointed out that the later notification which included the subject village under the municipal limits was much later than the date of last payment of advance against the sale consideration received by the assessee for the sale of the land. Therefore, the assessee was correct in contending that village Chhatt, at the relevant time, was not forming part of the municipal limits.
Further the Tribunal observed that Explanation to Section 2(14)(iii) of the Act states that the population is to be taken at the figure of the last preceding Census, of which, the relevant figures have been published before the first day of the previous year. The Tribunal stated that undisputed fact was that the assessee had relied upon the figures of last Census as published in the Financial Gazette. The AO was not authorized to stretch the same to an imaginary figure of 2.50 lacs.
The Tribunal noted that as held by the Hon’ble High Court the two conditions of municipal limit and population are pre-conditions and must be read conjunctively; that in other words, if both the conditions are present, then it would not be agricultural land and would be treated as a capital asset; that however, inversely speaking, if either of the two conditions is absent, the land would be agricultural land and would get excluded from the definition of “capital asset”.
The Tribunal stated that since the population was found to be less than prescribed, for which, the second condition to bring the land outside the ambit of agricultural land, is absent. Therefore, in keeping with the judgment of the Hon’ble High Court the Tribunal held that the land sold was agricultural land, not forming part of “capital asset”, within the meaning of Section 2(14) of the Act.
Accordingly, the addition was reversed.
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