The Karnataka High Court in the case of Commissioner of Income Tax vs. Shri Madhukumar N (HUF) (ITA 396 of 2009) has held that if there is no notification that is issued by the Central Government as per Section 2(14) (iii) (b) of Income Tax Act, an agricultural land which is situated outside the limits of a municipality or a town area committee, etc. will not be considered as a capital asset.
If there is no such notification and the said land is situated within 8 kms of municipality limits, it will be treated as an “agricultural land”.
Hon’ble Justice D.V. Shylendra Kumar in the instant case held that the land cannot be treated as a capital asset within the meaning of section 2(14) (iii) of the Income Tax Act.
Brief facts of the case:
The assessee was a Hindu undivided family (HUF) and the relevant assessment year was 2005-06. The question was whether the agricultural land they sold on 02.03.2005 for a consideration of Rs. 52,00,000/- yielded long term capital gain amounting to Rs. 48,94,784/-. The Assessing Officer passed the order against the assessee. The assessee filed an appeal before the Tribunal.
The assessee contended that the amount gained from sale of such land did not amount to capital gain as the sale was relating to agricultural land which did not fall within the limits of any municipality or within a distance of 8 kms from any notified area. The Tribunal chose to accept the version of the assessee and allowed the appeal filed by the assessee.
The Revenue was of an opinion that the land was located within 8 kms of Dasarahalli City Municipal Council, and therefore the subject land was under the definition of “capital asset”. But the assessee contended that the same cannot be considered as a capital asset under Section 2(14) (iii) (a) & (b) of the Act. It was also argued that the Central Government did not issue any notification as per Section 2(14) (iii) (b) of the Act.
Aggrieved by the order of the Tribunal, the Revenue preferred the instant appeal before the High Court.
Arguments made by the Revenue:
The learned counsel for the Revenue vehemently argued that the Tribunal has committed a mistake in relying upon a certificate that has been issued by Dasanapura Gram Panchayath and has ignored the fact that the village was situated within 8 kms of Dasarahalli City Municipal Council which was covered under Section 2(14) (iii) (a) & (b) of the Act.
Provisions of section 2(14) (iii) (b) of the Income Tax Act:
An agricultural land is normally not considered as a capital asset in India but becomes so when it is located under Section 2(14) (iii) (a) & (b) of the Act. Section 2(14) (iii) (a) of the Act deals with situations where the agricultural land is located within the limits of a municipal corporation or a notified area committee, etc. and having a population of not less than 10,000.
The Section covers situations where the land is located within the distance of 8 kms from the local limits, and also requires that a condition should be fulfilled, that is, the Central Government should issued a notification under this provision to treat the land as a “Capital Asset”.
The judgment:
The High court after hearing both sides came to the conclusion that the decision of the Tribunal was a correct one. As such, there was no need to interfere in the appeal. Accordingly the appeal was dismissed.
