| SooperKanoon Citation | sooperkanoon.com/66263 |
| Court | Income Tax Appellate Tribunal ITAT Hyderabad |
| Decided On | May-29-1993 |
| Reported in | (1993)46TTJ(Hyd.)706 |
| Appellant | income Tax Officer |
| Respondent | P. VenkataramanA. |
2. The brief facts essential for deciding this appeal are as under. The assessee, an official in Assistant Agricultural Office, was the owner of agricultural land of the extent of 2.5 acres. The said agricultural land was situated in Palamaner town. Government of Andhra Pradesh by Gazette notification dt. 13th Oct., 1977 acquired these lands for which a compensation of Rs. 1,78,251 was determined as payable. The date of the award in this case is 9th May, 1980. The said land was acquired by Govt. of A. P. for the purpose of constructing RTC depot in the town of Palamaner.
3. The Revenue was of the opinion that capital gain had accrued to the assessee on the transfer of the impugned land. Accordingly, the Assessing Officer issued a notice under S. 148 to the assessee. In response to the said notice, the assessee filed a nil return of income on 12th Feb., 1982. The assessee was of the view that on the facts and in the circumstances of the case, he is not liable to capital gains tax under the provisions of IT the Act, 1961.
4. The Assessing Officer, however, during the course of the assessment proceedings, was of the view that the agricultural land of 2.5 acres was a capital asset as defined under S. 2(14) of the IT Act. He examined the provisions of S. 2(14)(iii)(a) and came to the conclusion that though the land in question is agricultural in nature, yet it is an asset within the provisions of the Act. The Assessing Officer has, as a matter of fact, laid down a very interesting proposition which is extracted below : "........ The reproduction of S. 2(14)(iii)(a) is clear that agricultural land situated in India is also taken as a capital asset which fulfils the condition that any area which has a population of more than 10,000 according to the last preceding census. The assessees claim is that the land in question is situated in Palamaner town which comes under a Panchayat and not a municipality, though the population exceeds 10,000 as per the last census should not be assessed to Capital gains. Several names are given in each State in India which are innumerable. Perhaps the legislature found it difficult or not practicable to list out all the names in existence throughout the country in the above said sub-clause. Therefore, the clause "or by any other name" is added after giving few categories. The name of the Palamaner town i.e., Panchayat therefore, certainly comes under this "any other name".
Further, if an area consists of a population of more than 10,000, the agricultural land situated in such area takes a shape of capital asset.
In this context, it is not out of place to mention that there is only one condition which should be fulfilled in treating the land as capital asset i.e., any agricultural land situated in any area which has a population of not less than 10,000. There are no two conditions like an area must be called by a particular name and that area must have the population of not less than 10,000. It is because there is no comma (,) before and in between the name of the area and the population. For understanding the English language, there are certain punctuations which are used suitably to give a right meaning." Thereafter, the Assessing Officer has illustrated his point of view by adverting to the definition of "person" as per S. 2(31) of the Act. The assessment order of the Assessing Officer lays down - (1) the words used by the Act like municipality and town area are not very important; (3) Only the population of more than 10,000 is the determining factor under S. 2(14) of the Act.
Since the population of Palamaner town was admittedly more than 10,000, the Assessing Officer brought to tax capital gains. He, therefore, computed the net capital gain at Rs. 1,25,190 and demanded a tax of Rs. 88,669 from the assessee.
5. The assessee was aggrieved and filed an appeal before the CIT(A). It was contended by the assessee before the CIT(A) that the agricultural land, which was acquired by Govt. of A. P., is not a capital asset within the meaning of S. 2(14) of the IT Act. The CIT(A), however, went on an aspect which in fact did not arise out of the order of the ITO and gave relief to the assessee by following the decision of the Andhra Pradesh High Court in the case of J. Raghothama Reddy vs. ITO (1987) 35 Taxman 298 (AP). He did not discuss the issue whether the agricultural land was a capital asset within the meaning of S. 2(14) of the IT Act as the said land admittedly was situated in a Gram Panchayat and not within Municipal limits.
6. The Revenue is aggrieved. The learned Departmental Representative Shri K. Vasanth Kumar, draws our attention to the decision of the Supreme Court in the case of G. M. Omer Khan vs. Addl. CIT (1992) 196 ITR 269 (SC) and points out that the Assessing Officer was justified in treating the transfer of the land as liable to capital gains tax within the meaning of the provisions of the IT Act. The land was situated in the town of Palamaner and the admitted population of the said town was more than 10,000. The learned Departmental Representative also points out that the CIT(A) was not justified in placing reliance on the decision of the Andhra Pradesh High Court in the case of J. Raghothama Reddy (supra). He, therefore, prays that the order of the CIT(A) should be vacated and that of the ITO restored.
7. On the other hand, the learned counsel for the assessee, Shri M. J.Swamy, argued that the land in question was admittedly an agricultural land and the said land was also not situated within municipal limits as specified by the Act. On the facts and in the circumstances of the case, the assessee is not liable for capital gains tax on the transfer of such land.
8. Alternatively, the learned counsel also points out that even if it is held that the assessee is liable for capital gains tax, it cannot be assessed in the asst. yr. 1978-79 as the land vested in the Government on 9th May, 1980. For the year under consideration, the assessees year of accounted ended on 31st March, 1978. According to the learned counsel, the date of award is the material date and hence, since the date of award in the case before us was 9th May, 1980, there was no transfer of capital asset during the year under consideration. In this regard, the learned counsel has drawn our attention to the decision of the Andhra Pradesh High Court in the case of S. Appala Narasamma vs.
CIT (1987) 168 ITR 17 (AP). In any case, therefore, the capital gain cannot be brought to tax in the year under consideration.
9. In reply the learned Departmental Representative opposes the contention of the learned counsel and points out that the date of notification for acquisition is the date of transfer for the purpose of taxing capital gains under the IT Act. In this regard, the learned Departmental Representative has drawn our attention to the decision of the Supreme Court in the case of G. M. Omer Khan (supra).
10. We have heard the parties at length. We consider it essential to extract the relevant portion of S. 2(14) of the IT Act : "2(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 - (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;" A plain reading of S. 2(14) demonstrates that agricultural land in India is not an asset within the meaning of the said section of the IT Act. However, the section itself has provided the exception to this general rule and according to this exception, agricultural land in India would be a capital asset under S. 2(14) if such land is situate within a municipality, municipal corporation or cantonment board which has a population of net less than 10,000 according to the last preceding census of which the relevant figures have been published before the first day of the previous year. To take an agricultural land away from S. 2(14), therefore, it is essential that the said agricultural land should not be situated within the municipal limits or cantonment board limits which has a population of not less than 10,000 according to the last census. If the land is situated in a village or under a Gram Panchayat or Panchayat, in our view, such agricultural land will not be held as a capital asset within the meaning of the said section.
11. The Assessing Officer, in the case before us, has expressed an opinion that if the population of a village, town or any other place where the land is situated is more than 10,000, such land would be a capital asset within the meaning of S. 2(14) of the IT Act. Such a proposition, in our view, is not in accordance with law. The section speaks of agricultural land in India, not being land situate within the jurisdiction of a municipality, municipal corporation or cantonment board which has a population of not less than 10,000. Thus, the interpretation of the Assessing Officer that the land may be situate anywhere is, in our view, not correct. The Assessing Officer was perhaps influenced only by the limited aspect of population of the place. He was wrongly under the impression that even if the land is outside the jurisdiction of a municipality, municipal corporation or cantonment board and is situated in a village the population of which is not less than 10,000, the land would be a capital asset within the meaning of S. 2(14) of the Act. The Supreme Court in the case of G. M.Omer Khan vs. Addl. CIT (supra), has laid down that the provisions of S. 2(14)(iii)(a) suggest that it is the population of the municipality that has to be taken into account for the purpose of that section and not the population of any area within the municipality. The Supreme Court has thus upheld the decision of the Andhra Pradesh High Court in the case of Addl. CIT vs. G. M. Omar Khan, (1979) 116 ITR 950 (AP), wherein it was held that the expression "which has got a population of more than ten thousand" would qualify only the municipality or cantonment board and not the "area". The Assessing Officer was, therefore, palpably wrong in holding that if an area consists of a population of more than 10,000, the agricultural land situated in such an area would be a capital asset within the meaning of S. 2(14) of the IT Act. Thus, on this issue the correct legal position according to us would be that the land, for the purpose of bringing it within the mischief of S. 2(14) of the Act, should be situated within a municipality, municipal corporation, cantonment board etc., which has a population of not less than 10,000. In the case before us, though the population of Palamaner town is more than 10,000, the said town is not within the limits of a municipality, municipal corporation or cantonment board.
12. The Assessing Officer has also expressed the opinion that the words "municipality, municipal corporation, cantonment board etc." are mentioned by the legislature as an illustration only. In his opinion, the clause "or by any other name" would also include a Panchayat or a Gram Panchayat also. In the opinion of the Assessing Officer, there is no difference between the expressions "municipality" and "Gram Panchayat". This observation of the Assessing Officer is also without any substance. There is an enactment governing the affairs of municipalities for the State of Andhra Pradesh which is known as the Andhra Pradesh Municipalities Act, 1965. The provisions of S. 2(22) of the said Act assign the following meaning to the word "Municipality" : "Municipality means any of the following grades of Municipality declared as such by the Government from time to time by notification in the Andhra Pradesh Gazette : (i) third grade municipality means a municipality with an annual income of not more than rupees three lakhs; (ii) second grade municipality means a municipality with an annual income of more than rupees three lakhs but not more than rupees six lakhs; (iii) first grade municipality means a municipality with an annual income of more than rupees six lakhs but less than rupees ten lakhs; (iv) special grade municipality means a municipality with an annual income of rupees ten lakhs and above; (v) selection grade municipality means a municipality with an annual income of rupees ten lakhs and above and declared as such by the Government having due regard to its population extent and commercial importance." These various types of municipalities under the Andhra Pradesh Municipalities Act, 1965, as it is apparent from the definition, do not include a Gram Panchayat. As a matter of fact, there is a different Act for Gram Panchayats which is known as the Andhra Pradesh Gram Panchayats Act, 1964. The said Act specifically excludes municipal corporations etc. Secs. 1 and 2 of the said Act read as under : "1. (1) This Act may be called the Andhra Pradesh Gram Panchayats Act, 1964.
(a) the municipal corporations governed by the Hyderabad Municipal Corporation Act, 1955; (b) the municipalities Governed by the law relating to municipalities for the time being in force in the State; The said Act has been enacted by Andhra Pradesh State legislature under Entry 5 of the State List (List II) in the Seventh Schedule to the Constitution. This Act is intended for village administration through a gram panchayat and specifically excludes municipalities, municipal corporation, cantonment boards, etc. It is therefore, clear, in our view, that there is a distinction between municipal corporation, municipality, cantonment board etc. on the one hand and gram panchayat on the other. Sec. 2(14) of the IT Act excludes from the purview of the definition of capital asset lands which are situate outside municipal limits etc., and, therefore, it is clear to our mind that lands situated in villages, which do not fall within a municipality, go out of the purview of S. 2(14) of the IT Act even if their population is more than 10,000.
13. This issue was also examined by the Tribunal, Madras Bench C, in the case of K. Parameshwaran vs. ITO (1982) 2 ITD 371 (Mad). In the said case, the assessee sold certain lands belonging to him which were situated in a taluk headquarters with a population of over 10,000 but which was a town panchayat governed by the Madras Panchayats Act. The ITO took the view that the term municipality used in S. 2(14)(iii)(a) would cover such town panchayats also and brought the capital gains to tax. On these facts, it was held : "The historical evolution of local self-Government in the State shows that municipalities are governed by the Municipalities Act while the panchayats are governed by the Panchayats Act and the concept of the former relates to urban local self-Government whereas the latter relates to rural self-Government. The terms municipality notified area committee, town area committee and town committee used in S.2(14)(iii)(a) have legal conceptions and must, therefore, be given their legal meaning and consequently, they would be entirely different concepts from the term panchayat, be it a village panchayat or a town panchayat. The rule of ejusdem generis, relied upon by the Revenue to brings the panchayat under the category of any other name would also not apply since panchayats are a distinct genus by themselves.
Panchayats cannot, therefore, be treated as municipalities under S.2(14)(iii)(a) and, hence, sale of the impugned lands could not attract capital gains tax." 14. In the case before us, it bears repetition that the acquired land was situated in Palamaner town which is governed by the Panchayats Act and does not fall within any municipality, municipal corporation or cantonment board and, hence, the agricultural land fall outside the purview of S. 2(14) of the IT Act. The Revenue was, therefore, not justified in levying capital gains tax. We, therefore, uphold the order of the CIT(A), though for different reasons.