The distance of an “agricultural land” should be calculated from the approach road

The Hon’ble High Court at Delhi on 14.09.2015 in the case of Commissioner of Income Tax (Appellant) vs. Sri Vijay Singh Kadan (Respondent) being ITA 714 of 2015 held that to calculate the distance of an “agricultural land” from the municipal limits for the purpose of “capital asset”, the distance should be measured from the approach road and not the aerial distance.

The Bench comprised of Hon’ble Justice Dr. S. Muralidhar and Hon’ble Justice Mr. VIibhu Bakhru.

Advocates engaged in the case:

The Appellant was represented through Mr. Rohit Madan and Mr. Zoheb Hossain, Standing Counsel and the Respondent was represented through Mr. Piyush Kaushik, Advocate.

Brief facts of the case:

It was an appeal filed by the Revenue before the Hon’ble High Court at Delhi against the order passed on 12.12.2014 by the Income Tax Appellate Tribunal in ITA No.4733/Del/2011 in connection with the Assessment Year 2006-07.

During the assessment proceedings, the Assessing Officer observed that on 9.9. 2005, the assessee sold a property measuring 9625 acre, more or less, situated at village Ghata, Tehsil Sohna, District – Gurgaon. The contention of the assessee was that the capital gain arising out of the sale was not taxable as the land was an agricultural one which did not come within the scope of “capital asset” as defined under Section 2(14) of the Act.

According to the assessee, the land was not situated within a distance of 8 km from the boundary of Gurgaon Municipality. The Assessee filed a certificate issued by the Patwari in which it was clearly stated that in 2006, Ghata Village was about 9 Kms. away from Gurgaon Municipal Committee.

The Assessee also produced the certificates of two architects declaring that the distance between the land which was sold out and the outer limits of Gurgaon municipality was approximately 9.6 Kms.

However, the Assessing Officer did not rely upon the certificates filed by the Assessee as according to him the scientific way to calculate the distance by a straight line method was not applied by the architects.

The Assessing Officer relied upon the certificate issued by the Tehsildar, Sohna District and that issued by the Engineer, Gurgaon Municipal Corporation which stated that the said distance was about 6.6 Kms.

The Assessing Officer interpreted the Circular issued by the CBDT which stated that according to Section 2(14)(iii)(b) of the Income Tax Act, agricultural lands that were located in areas up to a distance of 8 Kms. from the municipal limits would not be considered as ‘capital asset’ .

According to the observation of the Assessing Officer the point of the land in question from which the distance should be measured from the outer limit of the Municipality should be the straight line distance and not a zig-zag method or even the road distance.

The PWD observed that the distance should be calculated from the outer limits of the municipality to the village where the land was situated.

Accordingly, the Assessing Officer held that according to the provisions of Section 2(14) (iii) (b), the agricultural land sold by the Assessee was a capital asset. Thereafter the Assessing Officer made an addition of Rs 7, 75, 12,500/- to the income of the assessee towards long term capital gains.

The assessee field an appeal before the Ld. CIT (A). The Ld. CIT (A) rejected the certificates field by the assessee. He stated that the distance of the agricultural land has to be measured along the road and not the aerial distance.
The Ld. CIT (A) also found that the distance should be measured from the local limits of the Municipal Corporation to the area in which the land is located and not up to the land.

The ld. CIT (A) rejected the certificate filed by the Assessing Officer from the Directorate of Survey and concluded that the shortest distance along the road from the Municipal boundary up to the limit of the village in which the land is located is 7.17 Kms.

As a result the Ld. CIT (A) confirmed the order of the Assessing Officer that the land sold was a capital asset.

Aggrieved by the said order of the CIT (A), the assessee filed an appeal before the Income Tax Appellate Tribunal which ruled in favour of the assessee. The Revenue then moved before the High Court.

Issues involved:

The issue that arose for consideration in the appeal was whether distance of the land should be calculated or up to the village within which it is located.

Judicial pronouncements:

In the case of Commissioner of Income Tax vs. Lal Singh, 325 ITR 588 (P&H), a report was provided by the Tehsildar measuring the distance of the land in connection with its khasra number from the outer limits of the municipality.

The Bombay High Court in Commissioner of Income Tax v. Nitish Rameshchandra Chordia, (2015) 394 (Bom.) held that the distance between municipal limits and property in question should be measured taking into account the shortest road distance and not the aerial distance as calculated by the Revenue. In the case of Commissioner of Income Tax v. Shabbir Hussain Pithawala (2014) it was similarly held by the Madhya Pradesh High Court that the distance of the agricultural land for the purpose of Section 2(14)(iii)(b) has to be measured from the approach road and not by the straight line distance according to crow’s flight.

The judgment passed by the Hon’ble High Court:

It was held that the conclusion of the Assessing Officer and the Ld. CIT (A) that the ‘area’ refers to the village in which such land lies has no basis. The correct interpretation of the word ‘in any area within 8 Kms. from the local limits of any municipality’ means that the land should be located within such area which is within a distance of 8 Kms. from the local limit of the municipality.

The ITAT concluded that the land should be within 8 Kms. from the outer limit of the Gurgaon municipality and not from the outer limit of the village in it is located.
As per the certificate filed by the assessee from the CPWD, it was stated that the distance of the land from the outer boundary of the Gurgaon Municipality was about 10, as such; the Tribunal held that the land owned by the assessee did not fall within Section 2 (14) (iii).

The Court held that for the purposes of Section 2 (14) (iii) (b), the distance should be measured from the land to the outer limit of the municipality by road and not by the aerial distance. The distance should be measured from the land and not from the village in which it is located. As a result, the impugned order of the ITAT stood confirmed. It was held that the appeal involves no substantial questions of law. The appeal was dismissed.