K.P. Radhakrishna Menon, J.
1. The Revenue is before us. The questions referred for our opinion are :
'1. Whether, on the facts and in the circumstances of the case, the land in question situated within Guruvayur township can be treated as a capital asset within the definition of Section 2(14) of the Income-tax Act ?
2. Whether, on the facts and in the circumstances of the case, and the assessee being a registered firm, the assessee is entitled to have the unabsorbed depreciation carried forward and set off in its hands ?'
2. It is the common case of the parties that the second question, in the light of the recent ruling of the Supreme Court in Garden Silk Weaving Factory v. CIT : [1991]189ITR512(SC) requires to be answered in favour of the assessee. We, accordingly, answer the question in the affirmative and in favour of the assessee.
3. Coming to the first question : The case of the assessee briefly stated is: The assessee was the owner of a building known as 'Murali Sadan' with 24 cents of land and also the land lying contiguous to the said land and measuring 94 cents in extent. These properties were sold in court auction which was conducted during the assessment year 1981-82. They were sold for a sum of Rs. 15 lakhs to the Guruvayur Devaswom. The assessing authority computed the capital gains arising from the transfer of these properties at Rs. 12,38,100 and, while doing so, rejected the contention of the assessee that, inasmuch as the lands which were sold in court auction were agricultural lands, the question as to whether the assessee is liable to pay tax on capital gains does not arise at all. On appeal, the Commissioner of Income-tax (Appeals) confirmed the order of assessment. The assessee, thereupon, filed a second appeal before the Tribunal and reiterated the aforesaid contention. Elaborating this contention, he submitted that, since this agricultural land cannot be said to be situated within a municipal area, the transaction will not attract tax under Section 45. The Tribunal accepted the above contention (see 'annexure-C').
4. The answer to the question depends upon the construction of Section 2(14)(iii)(a) of the Income-tax Act. We shall read the section now :
'(14) 'Capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include . . . .
(iii) agricultural land in India, not being land situate-- (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 . . .'
5. From the plain and unambiguous language employed in the section, it is clear that, if the agricultural land is situated outside the jurisdiction of a municipality then no tax on any profits or gains arising from the transfer of such land will be chargeable under the head 'capital gains'. The question, therefore, is : Whether the agricultural land of the assessee sold in public auction can be said to be situate in an area which is comprised within the jurisdiction of a municipality. The case of the Revenue is that it is, because the Guruvayur township is a municipality within the meaning of that word in the section. On the other hand, counsel for the assessee submits that the Guruvayur township, though a local authority, cannot be said to be a municipality and, therefore, the agricultural land in dispute cannot be said to be situated in an area which is comprised within the jurisdiction of a municipality. The word 'municipality' used in the section, considered in the light of the various expressions used in the brackets, namely, 'whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name' must be held to take in its fold a township also, counsel for the Revenue submits. Of the various words included in the brackets, learned counsel for the Revenue laid emphasis on the words 'by any other name'. These words, counsel argues, take colour from the preceding words and, if that be the position, the Guruvayur township also can be called a municipality. May be that the Guruvayur township can be called a local authority. But all local authorities cannot be called municipalities. Only those local authorities which have all the trappings of a municipality can be treated as a municipality within the meaning of the section. Therefore, to find a solution to the problematic dispute, we have to give a meaning to the word 'municipality' which stands undefined in the Act. Generally understood, 'municipality' means a legally incorporated or duly authorised association of inhabitants of a limited area for local governmental or other public purposes. (Black's Law Dictionary). The above definition more or less is reflected in the provisions contained in Chapter III of the Kerala Municipalities Act, 1960, The council constituted under Section 7 with the assistance of the standing committee of the council, chairman, commissioner, etc., will administer the provisions of the Act. The council consists of such number of members as are prescribed. They are called councillors. They are elected by the residents of the area coming within the jurisdiction of the municipality. The chairman and vice-chairman of the municipality are elected by the members of the council. The commissioner is appointed by the Government in consultation with the council. It is the duty of the commissioner to carry into effect the resolutions of the council unless it be that the said resolution is suspended or cancelled by the Government. The municipality contemplated under Section 2(14)(iii)(a) must be one which satisfies the above requirements. All the local authorities included in the brackets must satisfy the above requirements to be known as a 'municipality'. The position, however, would have been different had the section contained a definition which takes in its fold the local authorities included in the brackets, namely, 'municipal corporation, notified area committee, town area committee, town committee or such other similar local authority'. In that event, the Guruvayur Township can be said to be a municipality. The plain language employed in the section, however, makes it clear that the intention of the Legislature is not to treat every local authority as a municipality ; but, on the other hand, only those local authorities which have all the trappings of a municipality as stated above, can be said to be municipalities within the meaning of the section.
6. The Guruvayur township, constituted under the Guruvayur Township Act, considered in this backdrop, cannot be said to be a municipality. The Guruvayur township is not an autonomous body like a municipality. It is constituted by the Government by a notification issued under the Guruvayur Township Act. To put it differently, the members of the township committee are not elected representatives of the residents of the area. That the Central Government also has understood the position thus is obvious from the draft notification dated February 8, 1991, published in the Gazette issued under Section 2(14)(iii)(b) of the Income-tax Act. We shall now read that part of this notification which is relevant here :
'In pursuance of item (B) of Clause (ii) of the proviso to Sub-clause (c) of Clause (1A) and item (b) of Sub-clause (iii) of Clause (14) of Section 2 of the Income-tax Act, 1961 (43 of 1961) and in supersession of the notification of the Government of India in the erstwhile Ministry of Finance (Department of Revenue and Insurance) No. S. 0. 77(E), dated the 6th February, 1973, the Central Government having regard to the extent of and scope for urbanisation of the areas concerned and other relevant considerations, hereby specifies the areas shown in column (4) of the Schedule hereto annexed and falling outside the local limits of a Municipality or Cantonment Board, as the case may be, shown in the corresponding entry in column (3) thereof and against the State or Union Territory shown in column (2) thereof for the purposes of the abovementioned provisions of the Income-tax Act, 1961 (43 of 1961).
Sl. No.Name of the State or Union TerritoryName of the Municipality or Cantonment Board falling in the State/ Union Territory mentioned under column (2)Details of areas falling outside the local limits of Municipality or Cantonment Board, etc., mentioned under column (3).
XIIKerala2. ChowghatAreas falling within Guruvayur township up to a distance of 8 Kms. from the municipal limits'.
7. It is, therefore, clear that the areas falling within the jurisdiction of the Guruvayur township cannot be said to be areas within the jurisdiction of a municipality mentioned in Section 2(14)(iii)(a). The Kerala State Legislature which enacted the Guruvayur Township Act also has understood the meaning of the word 'municipality' in the same way in which the Central Legislature has understood and that it is so can be seen from Section 2(25), Explanation I of the Kerala Land Reforms Act. The Explanation aforesaid provides that, in calculating the total extent of the land of a kudi-kidappukaran for the purposes of this clause, three cents in a city or major municipality shall be deemed to be equivalent to five cents in any other municipality, and three cents in a city or major municipality or five cents in any other municipality shall be deemed to be equivalent to ten cents in a panchayat area or township.
8. From the discussion above, it is clear that the areas lying within the jurisdiction of the Guruvayur township cannot be said to be areas lying within the jurisdiction of a municipality. In other words, the land situated within the jurisdiction of the Guruvayur township must be said to be land not situated within the jurisdiction of a municipality. If that be the position, the contention of the Revenue that the land in dispute is situated within the jurisdiction of a municipality and hence the profits the assessee got by the sale of the same in court auction is chargeable to income-tax under the head 'Capital gains' is liable to be rejected. The findings of the Tribunal are unassailable.
9. The question, therefore, is answered in the negative and in favour of the assessee.
10. A copy of this judgment under the signature of the Registrar and the seal of this court will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.