The division bench of the Madras High Court in a recent decision observed that the amount of profit received by the assessee for the sale of agricultural land which is situated at a distance more than 8 kms from the nearest Municipality is not chargeable to tax under the head “capital gain”since it is exempted under the relevant provisions of the Income Tax Act, 1961.
The assessee, an individual approached the High Court challenging the Assessment order passed against him under the provisions of section 153 of the Income Tax Act by making addition of amount received by the assessee on account of sale of agricultural land under the head “capital gains”. The assessee maintained that he is entitled to get exemption for the sale of such land for the reason that the land in dispute is situated at a distance of more than 8 kms from Municipality. Further, presently, the land is given on lease for doing agricultural operations.According to the officer, the gain received by the assessee in respect of the sale of such land is not eligible for exemption since it was not an agricultural land and it does not satisfy the criteria laid down by the Supreme Court in the case Sarifa bibi Mohamad Ibrahim v. ClT.
On appeal, the Commissioner of Income Tax (Appeals), following the decision in Mrs.Shakunthala Vedachalam v. Mrs.Vanitha Manickavasagam, held that the assessee is eligible for the exemption since the case is covered by the said decision.Relying on the above decision, the CIT(A) set aside the order and held that the assessee’s land in question is an agricultural land situated at a distance of more than 8 Kms from the nearest Municipality and as the profit on sale of such land is not liable to tax.The Appellate Tribunal, on an appeal preferred by the Revenue against the order of the Commissioner of Income Tax (Appeals) also dismissed the Assessment order. Further, the Revenue approached the High Court for relief.
The Court noticed that the case of the assessee is fully covered by the decision in Commissioner of Income-Tax v. Lal Singh.While confirming the orders of the CIT(A) and ITAT, the Court held that “Reverting to the case on hand, and in the light of the decisions of the Courts, considered in the foregoing paragraphs and the question called upon to decide, as to whether, both the fact finding authorities, are right in accepting the reports of the Tahsildar and on the aspect, as to how, the distance between the agricultural land and nearest Municipality has to be measured, the report of the departmental inspector, we are of the view that the decision of the fact finding authorities that there cannot be any justifiable reason to reject the certificates of the Village Administrative Officer, Deputy Surveyor, AmbatturTaluk and General Manager, Metropolitan Transport Corporation (Chennai) Ltd’s, is correct.”
On the issue of determining the distance of the land in dispute from the Municipality, the Court held that due weightage must be given to the reports given by the departmental inspection, certificates of the Village Administrative Officer etc., which proves that the land in dispute is 8 km away from the Municipality. While accepting this, the Court observed that “Therefore, it is not open to the revenue to contend that as per Section 11 of the General Clauses Act, 1857, the distance between the agricultural land and the nearest municipality, has to be measured, only in a straight line or a horizontal plane. In between agricultural land and the nearest municipality, if there is a mountain, or lake or private lands or government properties, and in such other cases, where the public has no access to reach the municipality, the distance has to be measured only through the access road and not in a straight line or horizontal plane.
Read the full text of the Judgment below.
