1. The assessee is a HUF and it owned lands measuring 31 bighas 10 1/3 biswas in the village known as Nangal Dewat in the Union territory of Delhi. The Land Acquisition Collector, Delhi, paid compensation to the extent of Rs. 2,24,677. The assessee claimed higher compensation in a reference under Section 18 of the Land Acquisition Act. It is not known as to the further progress of the litigation in relation to the amount of compensation. However, the ITO while dealing with the assessment of the assessee took into account the amount claimed by the assessee as higher compensation for the purpose of finding out the taxability of the surplus on account of compensation received by the assessee, under the head 'Capital gains'. In the absence of any details as to the cost of the acquisition of the land, the value of the land was estimated at Rs. 1,500 per bigha as on 1-1-1954. The assessee's objections have not been accepted in regard to the assessability of the compensation amount and that is how the assessee has been assessed in respect of capital gains.
The assessee's appeal before the Commissioner (Appeals) succeeded in full since the assessee's contention that the land continued to be agricultural land and therefore does not fall within the purview of capital asset as contemplated under Section 2(14)(iii) of the Income-tax Act, 1961 ('the Act'), was accepted by him.
2. The revenue has come up in appeal against the order of the Commissioner (Appeals) and the assessee has filed a cross-objection raising various other contentions which the Commissioner (Appeals) did not deal with in the view he took about the assessability of the entire amount itself.
3. The learned counsel for the revenue, Shri T.A. Ramachandran, submitted that the decision of the Commissioner (Appeals) is erroneous having regard to the language of Section 2(14)(iii)(a) which is very clear in that, once an area comes within the jurisdiction of a Municipal Corporation (in this case Nangal Dewat falls within the jurisdiction of the Delhi Municipal Corporation), one need not go into any other matter and the entire land even though agricultural in character is hit by the mischief of the provisions relating to the assessability of capital gains. In other words, what Mr. Ramachandran contended was that the definition of 'capital asset' takes within its fold all lands whatever be the character, once the lands are within the limits of the municipality-Delhi Municipal Corporation as in this case.
While elaborating this argument he has tried to explain the meaning of the words 'area' 'comprised' 'included in' and so on and so forth which words occur in Section 2(14). He has particularly referred to the notes on clauses on the Finance Bill, 1970 [1970] 75 ITR (St.) 69 as also the Select Committee Report of the Taxation Laws Amendment Bill, 1969 (Gazette of India Extraordinary, Part II, Section 2, dated 3-8-1970 at 766) to show the intention of the Legislature in regard to Section 2(14). He has also relied on the decision of the Tribunal in Deep Chand's case [IT Appeal Nos. 962 to 972 of 1974-75, dated 17-9-1972].
He has also relied on the decision of the Tribunal in Deoki Nandan & Sons' case [IT Appeal No. 3850 of 1976-77 and 1583 of 1978-79, dated 18-2-1980]. He further brought to our notice the decision of the Andhra Pradesh High Court in the case of Addl. CIT v. G.M. Omarkhan [1979] 116 ITR 950, which according to Mr. Ramachandran deals with more or less similar case as the present one before us. He also tried to distinguish other decisions of the Tribunal which the assessee relied on and to which we will have the occasion to deal with at the appropriate place.
He has also contended that the definition of 'capital asset' does not either specifically or by implication make a distinction based upon the quality of land situated in a municipality as urban or rural. He further referred to the rules regarding the interpretation of statute specifically the concept that different sections of a statute are to be read as a whole and that it is permissible to refer to the Notes on Clauses. Finally, he has dealt with the provisions of the Municipal Corporation Act as also the Delhi Panchayat Raj Act and tried to argue that the village even though governed by the Gram Panchayat Raj Act for same purpose comes within the limits of Delhi Municipal Corporation. He has also relied on the decision of the Gujarat High Court in Ambalal Magan Lal v. Union of India [1975] 98 ITR 237 which deals with the validity of Section 2(14)(iii) and argued that the contrary decision taken by the Bombay High Court in Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87 should not be followed.
4. In reply, Shri C.S. Agarwal, who appeared in a number of other cases which have been heard together, contended that the village Nangal Dewat is a part of the rural area and, therefore, should be considered as not part of the municipality which can be only urban in its character. In other words, he contended that the rural areas are outside the purview of Section 2(14)(iii)(a). He has also referred to the map which describes the different areas of the Union territory of Delhi. He particularly relied on the speech of the Finance Minister at [1970] 75 ITR (St.) 22 as also the Memorandum explaining the provisions occurring at page 90 of the same volume. He also contended that the word 'area' occurring in Section 2(14)(iii)(a) relates only to the village of the rural area and not the entire municipality. In this connection he referred to the decision of the Madras Bench of the Tribunal in K.Parameshwaran v. ITO [1982] 2 ITD 371. He further emphasised that the Gram Panchayat Raj Act alone applies so far as the concept of the local self-government is concerned and the Delhi Municipal Corporation Act has no relevance in this connection.
5. Mr. Vidyalankar, who is the son of the karta of the assessee's family, himself argued. We must put on record our appreciation for the way in which he has placed the viewpoint on behalf of the assessee with such great emphasis and clarity. He has taken us through the relevant provisions of the Delhi Land Reforms Act, the Delhi Panchayat Raj Act and the Delhi Municipal Corporation Act. His main argument can be summarised as under: Provisions of Section 2(14)(iii)(a) have to be understood in the light of the peculiar features of Union territory of Delhi which consists not only of urban areas but also of rural areas. Insofar as rural areas are concerned even though the Municipal Corporation Act applies, they are out-side the purview of Section 2(14)(iii)(a).
These provisions would apply only in respect of these rural areas which are to be urbanised from time to time. The word 'municipality' occurring in Section 2(14)(iii)(a) has to be understood as an urban area as contradistinguished from rural areas and the provisions of Section 2(14)(iii)(a) would apply only to such urban areas which are added from time to time. This is also supportable from the provisions of Section 2(14)(iii)(b). The Delhi Panchayat Raj Act still is applicable to the rural areas and these areas cannot be regarded as a part of the municipality in order that the lands under the rural areas would be covered by the provisions of Section 2(14)(iii)(a). The provisions of Section 2(14)(iii)(b) are in a way inapplicable to the Union territory of Delhi by its very peculiar nature. The Municipal Corporation Act itself envisages urban areas as well as rural areas, which feature is not found in any of the Municipal Corporation Acts in India.
6. Mr. Bansal appearing in some of the appeals which are also heard along with the appeal under consideration, apart from supporting the arguments already advanced, contended that the subject of local self-government is covered by List 2 of the Seventh Schedule of the Constitution of India and the Delhi Panchayat Raj Act as well as the Delhi Land Reforms Act are special Acts which must give way to the general Acts, namely, the Municipal Corporation Act or the provisions of the Income-tax Act.
7. Mr. Misra appearing in another appeal tried to bring out the distinction between extending an enactment and the jurisdiction. He poined out that the Municipal Corporation Act might apply to the entire Union territory but it does not extend to the rural areas in the Union territory of Delhi. The extension of the Municipal Corporation Act does not change the jurisdiction of the Gaon Sabhas either under the Panchayat Raj Act or under the Delhi Land Reforms Act.
8. In order to appreciate the rival contentions, it is necessary to trace the relevant provisions of the Income-tax Act. Section 2(24) defines 'income'. It is an inclusive definition. Under Sub-clause (6) 'capital gains' chargeable under Section 45, is income. Section 45 states that income profits or gains arising from transfer of a capital asset...be chargeable to income-tax under the head 'capital gains'...capital gains would arise from the transfer of capital assets.
What is a capital asset is found in Section 2(14). Several categories of properties are included within its fold but there are also several other kinds of properties excluded from the meaning of capital assets.
One of such exclusions is agricultural lands in India. Section 2(14), Sub-clause (iii), which actually excludes agricultural land in India has undergone a vital change by the Finance Act, 1970. The original provision merely mentioned the exclusion of agricultural land in India but with effect from 1-4-1970 Clause (iii) reads as follows: (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board 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; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board 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 this behalf by notification in the Official Gazette ; When the amendment was introduced, the then Finance Minister, who also happened to be the Prime Minister, spoke as follows: Honourable Members are aware that we are at present examining practical means of imposing a ceiling on urban property. While the legal and other aspects of the matter are being examined, it is proposed to increase the additional wealth-tax on urban lands and buildings, so that the objective of a ceiling on urban property is achieved, at least in part, within the framework of the powers already available to the Centre. At present, the additional wealth-tax on urban lands and buildings is leviable, in the case of individuals and Hindu undivided families, on the value of lands and buildings situated in cities and towns with a population exceeding one lakh and with an initial exemption ranging from Rs. 4 to Rs. 7 lakhs in different categories of cities. The tax is leviable on the balance at rates ranging from 1 per cent to 4 per cent. The maximum rate is reached when the value of urban lands and buildings exceeds Rs. 19 to Rs. 22 lakhs. It is now proposed to levy a tax of 5 per cent on the value of urban lands and buildings in excess of Rs. 5 lakhs and at the rate of 7 per cent on the value of excess of Rs. 10 lakhs. No distinction will be made in regard to the exemption on the basis of the population of the area, in which the properties are situated. The definition of an urban area is also being enlarged to include areas within the limits of any municipality or other similar authority having a population of 10,000 or more, with powers to cover by notification areas upto 8 kilometres outside such limits.
Business premises will continue to be excluded from the proposed levy as at present. However, guest houses maintained by those liable to pay this tax will not be reckoned as business premises.
Provisions are also being made to prevent avoidance of the tax by transfer, from individual or joint Hindu family ownership, to ownership by partnership firms, associations of persons and closely-held companies. Another measure which is intended to serve a similar purpose, provides for the taxation of capital gains arising from the sale or transfer of agricultural land situated within urban areas. ([1970] 75 ITR (St.) 22) The relevant portions of Notes on Clauses of the Finance Bill read as follows: Sub-clause (a) seeks to amend Clause (14) of Section 2 of the Income-tax Act which defines the term 'capital asset'. The amendment seeks to bring within the term 'capital asset' agricultural land situated within the limits of any municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board having a population of 10,000 or more according to the last census for which the figures have been published before the first day of the previous year. Further, agricultural land situated in areas lying within a distance not exceeding 8 kilometres from the local limits of such municipalities or cantonment boards will also be covered by the amended definition of 'capital asset', if such areas are, having regard to the extent of and scope for their urbanisation and other relevant considerations, notified by the Central Government in this behalf. The effect of the proposed amendment will be that capital gains arising from the transfer of agricultural land situated in municipal or other urban areas or notified adjoining areas will be liable to income-tax for the assessment year 1970-71 and subsequent years. However, in view of the proposed amendment to Section 47 of the Income-tax Act, under Clause 11 of the Bill, capital gains arising from transfers of such land effected prior to 1st March, 1970, will be excluded from taxation.
Agricultural land which is situated outside such municipal or other urban areas or the notified adjoining areas will, however, continue to be excluded from the term 'capital asset' and no capital gains tax will be payable with reference to the transfer of such agricultural land, as hitherto. ([1970] 75 ITR (St.) 69) In the same tenor the Memorandum explaining the provisions in the Finance Bill reads as follows: Presently, capital gains arising from the transfer of a capital asset are chargeable to income-tax. The definition of 'capital asset' excludes from its scope, inter alia, agricultural land in India. Accordingly, no liability to tax arises on gains derived from transfer of agricultural land in India. This exemption of agricultural land from the scope of the levy of tax on capital gains has a historical origin and is not due to any bar in the Constitution on the competence or Parliament to legislate for such levy. 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. It is accordingly proposed to bring, within the scope of taxation, capital gains arising from the transfer of agricultural land situated within the limits of any municipality or cantonment board which has a population of not less than 10,000 according to the latest census for which the relevant figures have been published. Power is also being taken to the Central Government to bring within the scope of the levy (by notification in the Official Gazette), capital gains arising from transfer of agricultural lands situate outside the limits of any such municipality or cantonment board up to a maximum distance of 8 kilometres, where this is considered necessary having regard to the extent of and scope for urbanisation of that area and other relevant considerations. Agricultural land which is situated in rural areas will continue to be outside the scope of the above-mentioned provision. Accordingly, no liability to tax will arise in respect of gains derived from transfer of agricultural land in rural area.
([1970] 75 ITR (St.) 90) From a careful reading of the idea behind the amendment introduced by the Finance Act, 1970, one thing appears to be clear, namely, that the definition of 'capital asset' was enlarged so as to bring within its fold some lands, which are factually agricultural lands, because of the potentiality which such lands possessed in view of the urbanisation. It is well known that the cities in India are growing fast. Those lands which are adjacent to the city areas, which were essentially rural areas, are gradually getting urbanised with the result that the value of such proportion have been going up. It is also well known that the value of urban lands is much higher than the value of lands in the rural areas. The Parliament wanted to bring the surplus arising out of sale of agricultural lands also within the net of taxation under the capital gains, if essentially those lands partake the character of urban land. It is also very clear from the Prime Minister's speech that lands in the rural areas are not to be affected by the amended provisions.
9. With the above background let us closely analyse the provisions of Section 2(14)(iii). All agricultural land is outside the purview of meaning of capital asset but any land situated in an area which is comprised within the jurisdiction of a municipality is treated as a capital asset. Here area means the entire area which is comprised within the jurisdiction of a municipality. Some argument was advanced on behalf of the assessee that the word 'area' should be given a restricted meaning in the sense that it is confined to a part of the area within the jurisdiction of a municipality. But in our opinion that makes no sense. In the context in which it is used it means the entire area within the jurisdiction of a municipality. The Legislature has used the word 'municipality' in the sense of a local self-government.
Again it means only an urban local self-government as distinguished from a rural local self-government. The concept of municipality itself shows that it is urban in its concept. The words used in the bracket, namely, (...municipality, municipal corporation, notified area committee, town area committee, town committee...) are indicative of the urban character of the local self-government. The urban local self-government may be called by any name but it must be an urban local self-government. The concept of municipality has come up for consideration before a Bench of the Tribunal in [IT Appeal No. 213 (Mad.) of 1976-77] and the learned members, who decided the case, have taken pains in explaining what is a municipality (reported in [1982] 2 ITD 371). After making an in-depth study and after referring to some text books on the subject, the Tribunal observed: It is clear from what we have set out that the concept of municipalities relate to urban local self-government and the concept of Panchayat to rural self-government. Both these concepts which are mutually exclusive were well known and well established by the time the amendment to Section 2(14)(iii) was made with effect from 1-4-1970. Since the concepts were well known, it would follow that if the intention of Parliament was to include Panchayats also in the term 'municipality' it would have been so mentioned in the statute along with such terms as notified area committees, town area committee and town committee. This has not been done. Apart from this there is also the well known canon of construction to quote from CIT v. Gaekwar Foam & Rubber Co. Ltd. [1959] 35 ITR 662 (Bom.) where it is stated: It is well established that the words which express a legal conception must have attributed to them their legal meaning.
Technical words, where we find them, must have their technical sense ascribed to them and not their popular sense-uti loqultor vulgus.
The principle is of cogency when the words in question represent legal conceptions....
From what we have set out earlier, it is clear that the terms 'municipality', 'notified area committee', 'town area committee' and 'town committee' have legal conceptions and the terms must be given their legal meaning. If given their legal meaning the terms 'municipality', 'notified area committee', 'town area committee' and 'town committee' are entirely different concepts from the term 'panchayat', be it a village panchayat or a town panchayat.
It is further to be noted that even a land situated within the jurisdiction of a municipality will not be covered by the meaning of capital asset if the population of that municipality is less than 10,000. There is further extension of agricultural land coming within the purview of capital asset if it is within 8 kms. from the local limits of any municipality, etc., provided the Central Government notifies it to be so but before the Central Government notifies, it should take into account the extent of and scope for urbanisation of that area. Here again the emphasis is on the urban character of the land which alone comes for being considered as a capital asset.
10. Now we will take the basic facts which are not in dispute and apply the provisions mentioned above. Undoubtedly, the land with which we are concerned is agricultural land. In fact, there is no dispute and the whole assessment proceeded on that basis. It is also not in dispute that the land is within the Union territory of Delhi. The Delhi Municipal Corporation Act, 1957 was passed on 28-12-1957. This is an Act to consolidate and amend the law relating to the municipal Government of Delhi. It extends to Delhi. Delhi is meant to be the entire area of the Union territory of Delhi except New Delhi and Delhi Cantt. Delhi cantonment and New Delhi are again defined. There is an important definition of rural areas under Clause (52) of Section 2. It means: (52) 'rural areas' means the areas of Delhi which immediately before the establishment of the corporation are situated within the local limits of the District Board of Delhi established under the Punjab District Boards Act, 1883 (Punjab Act XX of 1883), but shall not include such portion thereof as may, by virtue of a notification under Section 507, ceases to be included in the rural areas as herein defined; There is also definition of 'urban areas' as per Clause (61) which only reads that urban areas are meant to be the areas of Delhi which are not rural areas. Section 3(1) of the Municipal Corporation Act reads as follows: 3(1) With effect from such date as the Central Government, may, by notification in the Official Gazette appoint, there shall be a Corporation charged with the municipal Government of Delhi, to be known as the Municipal Corporation of Delhi.
Sub-section (2) of Section 3 contemplates rural areas committee and their functions. Section 41(1) envisages that the Municipal Government of Delhi shall vest in the Corporation. The functions of the Corporation are enumerated in Section 42 and from a reading of these provisions, it is clear that the Corporation is entrusted with the task of providing wholesome water, medical facilities, such as sanitation, establishment and maintenance of hospitals, dispensaries, the establishment and maintenance of and aid to schools for primary education. The task of collecting property tax is also entrusted to the Municipal Corporation as per provisions of Section 144 of the Act.
Corporation has also the power to collect the general tax on lands and buildings within the rural areas. Transfers in regard to properties are also to be dealt with by the Corporation under Section 147 of the Act.
The Public Streets vest in the Corporation. There are, however, special provisions regarding the rural areas and they are contained in Section 507 of the Municipal Corporation Act. Clause (a) of Section 507 reads as follows: (a) the Corporation with the previous approval of the Central 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; Clause (b) of Section 507 gives special power to the Corporation in regard to concessions to be given in regard to rural areas. Clause (c) stipulates that the Corporation shall pay the proceeds of the various rates and taxes to the Gaon Sabha, which is constituted under the Gram Panchayat Raj Act. The Municipal Corporation Act further deletes many provisions of the Delhi Panchayat Raj Act, 1954. At this stage it may be mentioned that earlier the District Board was the local body established under the Punjab District Board Act, which was applicable to the Estate of Delhi, which was treated as Part 'C State until the constitutional amendment abolishing the different types of States.
Delhi became Union territory and, therefore, it became necessary to delete the provisions regarding District Board. Similarly, the other provisions relating to the functions of the Gram Panchayat have also been deleted as they came within the purview of the Municipal Corporation.
11. We will have a quick look at the Delhi Land Reforms Act and the Delhi Panchayat Raj Act as their impact on the provisions of Section 2(14) also will have to be considered. The Delhi Panchayat Raj Act, 1954 is an Act to establish and develop local self-government in the rural areas of the Delhi State and to make better provisions for village administration and development. It extends only to the rural areas in the Union territory of Delhi. The meaning of the expression 'rural areas' is same as given under the Delhi Municipal Corporation Act. Village means any local area regarded as a village in the revenue records. As already mentioned, some of the provisions of Gram Panchayat Raj Act had been deleted as some of the powers vested in the Gram Panchayat were assigned to the Delhi Municipal Corporation.
The Land Reforms Act also extends to the Union territory of Delhi. The Delhi Land Reforms Act also refers to Gaon Sabha. Under Section 150 Gaon Sabhas are established. It may be also mentioned that the Land Reforms Act applies only to the rural areas of the Union territory of Delhi but does not apply to the municipal areas which were originally under the jurisdiction of the local bodies whose functions were taken over by the Municipal Corporation. Even after the Municipal Corporation Act was passed so far as the rural areas are concerned, they are still governed by the Delhi Land Reforms Act.
12. In the context of the peculiar features of the Union territory of Delhi, we have to construe the provisions of Section 2(14)(iii)(a). The argument of the revenue as already pointed out is that since the entire Union territory of Delhi falls within the jurisdiction of the Municipal Corporation of Delhi, the lands, whatever may be the character are situated within the jurisdiction of the Municipal Corporation and, therefore, are directly hit by Section 2(14)(iii)(a), while the argument of the assessee is that the municipality occurring in Section 2(14)(iii)(a), should be understood as a local self-government for an urban area as different from local self-government for rural area. In our considered opinion there is lot of weight in what the assessee pleads. The word 'municipality' in Section 2(14)(iii)(a) has to be understood only as a body for the Governments of urban local area. The very concept of municipalities indicates that it applies only to urban areas. It cannot by any stretch of imagination apply to a rural area, which is kept separate and having a distinct entity. It is not as though some of the lands in the urban area are agricultural lands because agricultural operations are being carried on or that they are separately recorded as such in the revenue records. The entire Union territory of Delhi is basically divided into two parts; one is an urban area and the other is a rural area. So far as urban area is concerned, there is definite local self-government governed by the Delhi Municipal Corporation Act. In the rural areas there is a different type of local self-government, which is governed by the provisions of the Gram Panchayat Raj Act. It is true that on a superficial reading of Section 2(14)(iii)(a) any area within the jurisdiction of municipality (whatever be its nature) is caught within the mischief of that provision but on a closer analysis in the background of the peculiar features of the Union territory of Delhi coupled with the concept of a municipality as also the intention of the Parliament as reflected in the Prime Minister's speech at the time of introduction of the provision, it is evident that as far as the rural areas are concerned, which are governed by separate local self-government, they cannot be treated as a part of municipality. Municipality by its very nature envisages a local urban area. Municipality is nothing but a body for local self-government of an urban area. One cannot conceive of a municipality for a rural area. At the cost of repetition, we may state that the word 'municipality' occurring in Section 2(14)(iii)(a) must be related to the local self-government body for urban areas. Therefore, the area falling within the urban areas of the local self-governing body would be caught within the mischief of Section 2(14)(iii)(a). For an area where there is no municipality and there is only a Panchayat (local self-government for rural areas) Section 2(14)(iii)(a) is out of place.
13. There may be a little doubt as to how the same area can have two local self-governments. In fact, it is so. If we carefully analyse the provisions of the Delhi Municipal Corporation Act as also the Gram Panchayat Raj Act, what we find is that the essential features of local self-government is embodied so far as the rural areas are concerned.
Their local self-government is within the jurisdiction of the Gram Panchayat. Though the provisions of the Municipal Corporation Act are extended in the sense that it is applicable to the entire territory of Delhi, the essential features of local self-government insofar as rural areas are concerned, are absent. Undoubtedly some of the taxes like property tax, are to be collected by the Municipal Corporation but we find from the provisions of Section 507(c) that the Corporation shall pay the proceeds of the taxes to the Gaon Sabha. In other words, Municipal Corporation is collecting the taxes on behalf of the Gaon Sabha but technically the power to collect the taxes is vested with the Municipal Corporation. Various other powers and duties in regard to rural areas, especially so far as they relate to the local self-government are kept intact and they are vested in the Gram Panchayat under the Gram Panchayat Raj Act. It is, therefore, clear to our mind that insofar as the rural areas are concerned, which have their own local self-government and which do not fall within the category of a municipality, Section 2(14)(iii)(a) has no application.
The moment the lands in the rural area are urbanised in exercise of the powers vested in the Corporation under Section 507(a), the provisions of Section 2(14)(iii) would be immediately applicable to those areas as those areas will be outside the rural local self-government and they come within the purview of urban local self-government, namely, Delhi Municipal Corporation. In this connection, it may be necessary to refer to item (b) of Section 2(14)(iii). Perhaps Mr. Vidyalankar is right that so far as Union territory of Delhi is concerned, those provisions would be hardly applicable. Item (6) provides that upto 8 kilometres from the limits of municipality any lands can be treated as capital assets having regard to its urbanisation, etc. This power is vested with the Government, namely, Centre. The same Central Government has the authority under Section 507(a) of the Municipal Corporation Act to declare any portion of a rural area as an urban area. The moment the power is exercised under Section 507(a), the need for notification under Section 2(14)(iii)(b) would not arise. Similarly the moment the Central Government feels that a particular area within 8 kilometers of the limits of the municipality has to be treated as an urban area, the need for exercise of power under Section 507(a) would also cease. Thus two provisions are in a way complimentary to each other and at times overlap.
14. Now, we will consider a few of the authorities cited before us. On behalf of the revenue Mr. T.A. Ramachandran relied on a decision of the Tribunal in Deepchcmd's case (supra). The Bench there was concerned no doubt with the definition of urban area in the Schedule to the Wealth-tax Act for the purpose of levy of additional wealth-tax. The Bench held that the areas within the village of Nangal Dewat would fall within the definition of urban area but it may be straightaway pointed out that the real question which is posed in the present appeals was not in issue and the concept of municipality was never brought to the notice of the learned members of the Tribunal in that case. They were merely concerned with the definition of an urban area under the Wealth-tax Act and it has no relevance so far as the construction of the provisions of Section 2(14)(iii)(a) is concerned. In Deoki Nandan's case (supra) the question was completely different. In that case a part of the area became within the municipality and the argument was that the area of that part or the village according to the census did not exceed 10,000 and, therefore, Section 2(14)(iii) is not applicable.
This argument was rightly negatived by the Tribunal inasmuch as, any area under Section 2(l4)(iii)(a) means the entire area. Further the special features which are applicable to the Union territory of Delhi are totally absent in that case. The Andhra Pradesh High Court in Omarkhan's case (supra) had taken a view similar to the view taken by the Tribunal in Deoki Nandan's case (supra). In fact Deoki Nandan's case (supra) followed the decision of the Andhra Pradesh High Court.
There can be no quarrel about the view taken by the Andhra Pradesh High Court in view of what we have stated above. In that case no doubt there was a village by name Gudimalka-pur. But that had already been merged with the city of Hyderabad and the Municipal Corporation Act fully extends to it. Gudimalkapur was no longer governed by the village local self-government. It became part of the urban local self-government. In our view, therefore, this decision does not advance the case of the revenue. In the case of CIT v. Charan Singh & Nafe Singh [IT Reference No. 46 of 1976], the question again arose under the Wealth-tax Act as to what is meant by a place occurring in Section 5(1)(iv)(a). That provision contemplates exemption of a residential house in a place with a population not exceeding 10,000. There again the same village was involved namely, Nangal Dewat. Their Lordships observed as follows: As pointed out by the Appellate Assistant Commissioner, the word 'place' Nangal Dewat has its own Panchayat which is governed by the Panchayat Act. He has also pointed out that the census reports of 1961 and 1971 have separately recorded the population of the village as an urnbanised area. While no doubt the provisions of Delhi Municipal Corporation Act were applicable to this area also, since for the purposes of the said Act the word 'Delhi' has been defined in Section 2(10) as the entire area of the Union territory of Delhi except New Delhi and Delhi Cantonment, it has been pointed out that no declaration has been issued in regard to this village under Section 507 of the Delhi Municipal Corporation Act. For all these reasons the authorities have held that the village retains its administrative individuality and that since its population was less than 10,000 at the relevant time, the provisions for exemption in Section 5(1)(iva) and (b) would be applicable.
The judgment of the Tribunal in D.L.F. United Ltd. [IT Appeal No. 4971 of 1971-72] brought to our notice by the revenue does not throw much light on the question in issue.
Number of authorities have also been cited by Mr. T.A. Ramachandran in support of his contention that the provisions of the statute can be construed with reference to the Notes on Clauses of the Finance Minister's speech. We think Mr. Ramachandran is right in his submission and in fact the other side also relied on the same decisions.
15. The assessees have lastly relied on the decision of the Bombay High Court in the case of Manubhai (supra). This case really does not touch the point we have considered. They held that even in respect of agricultural lands situated in urban area are not covered by Section 2(14)(iii)(a) for the purpose of levy of capital gains on their transfer. They further pointed out that if such lands are to be covered by the provisions of Section 2(14)(iii)(a) the Parliament would be incompetent to legislate and that the provisions should be so construed that they did not become invalid on account of lack of power. In other words, they construed the provisions of Section 2(14)(iii)(a) that agricultural lands are outside the purview of Section 2(14)(iii)(a) in the case before us, we need not go to the extent of holding that all agricultural lands even though in urban area cannot be brought out of the provisions of Section 2(14)(iii) and it is, therefore, unnecessary to dilate such on the decision of the Bombay High Court.
16. For all the above reasons, we hold that the provisions of Section 2(14)(iii)(a) are not applicable to the rural areas of Union territory of Delhi and Nangal Dewat being a part of the rural area, the agricultural lands therein are outside the definition of capital asset.
The capital gains, therefore, cannot be charged on the surplus arising out of the transfer of the lands in the village Nangal Dewat. The order of the Commissioner (Appeals) is accordingly upheld.17. In view of the above other points, do not survive for consideration. The cross-objection is merely supporting the view taken by the Commissioner (Appeals).