Commissioner of Income Tax vs Smt. Neeru Aggarwal

Hemant Gupta, J.—This order shall dispose of I.T.A. No. 209 of 2012, wherein the Revenue has claimed the following substantial question of law:-- (i) Whether, on the facts and in the circumstances of the case, the learned income tax Appellate Tribunal was justified in upholding the order of the Commissioner of income tax (Appeals) in the light of the judgment of the hon''ble jurisdictional High Court in the case of Commissioner of Income Tax Vs. Smt. Anjana Sehgal, , according to which, the land sold was urban land situated in specified area of any municipality.

(ii) Whether, in the facts and in the circumstances of the case, the learned income tax Appellate Tribunal was justified in holding that the distance is to be measured from the municipality limits of Pathankot town only and not from the municipal limits of Sujanpur town?

Another appeal bearing No. I.T.A. 190 of 2012 arises against the order of assessment filed by another co-sharer whereas I.T.A. No. 208 of 2012 is against the order imposing penalty u/s 271(1)(c) of the income tax Act, 1961 (for short "the Act"). The assessees are the co-sharers and the appeals raise identical questions of law, therefore, the same are disposed of by a common order. However, for facility of reference, the facts are being taken from I.T.A. No. 208 of 2012.

The land of the appellant is situated at village Islampur, District Pathankot and the same was sold on August 29, 2005. The assessee claimed that since the land is an agricultural land, therefore, it does not attract any capital gains. Before the Assessing Officer, a certificate issued by the tehsildar, Pathankot, was filed to the effect that the land is at a distance of 9 kms from Pathankot and thus not a capital asset. The Assessing Officer took note of the fact that the Government of Punjab, vide notification dated November 31, 2004, extended the municipal limits of the Municipal Council, Sujanpur, up to Malikpur and that the said Municipal Council has established the octroi post at Malikpur and the land sold was situated inside the octroi post. Thus, it was said to be capital asset. The Commissioner of income tax (Appeals) (for short "CIT(A)") on July 14, 2011, set aside the order passed by the Assessing Officer holding that since the land is situated in the revenue limits of Pathankot, therefore, the municipal limits of Pathankot are relevant to determine whether the land is capital asset or not. It was found that the land is not within 8 kms of the Municipal Council Pathankot, thus the land is not an capital asset. Such order passed by the Commissioner of income tax (Appeals) was affirmed by the income tax Appellate Tribunal (for short "the Tribunal") on May 10, 2012. It is the said order which is dispute in the present appeals by the Revenue.

Learned counsel for the Revenue relies upon an order passed by the Division Bench of this court in Commissioner of Income Tax Vs. Smt. Anjana Sehgal, wherein it has been held that the land situated within the limits of 8 kms from any municipality would be a capital asset, the sale of which would attract capital gains. The court held to the following effect (page 298):--

A perusal of the above provisions makes it clear that what is intended to be covered in term ''capital asset'' is agricultural land comprised within the jurisdiction of a municipality and within the specified distance from the local limits of municipality or other local bodies mentioned therein as specified in the notification. It is undisputed that the land in question is within the specified distance from Panchkula municipality which falls in the State of Haryana while land is in the State of Punjab. Thus, land is urban land for the purpose of definition of ''capital asset'' u/s 2(14). The concept of municipality as a unit of State or the fact that a State has no jurisdiction to make law beyond its territory have no relevance for the purpose of determining whether particular land was ''capital asset'' or not for the purpose of taxing capital gain. If the land is adjacent to a municipality and is urban land covered u/s 2(14), even if municipality and the land fall in different States, the land will continue to be urban land. If such land is excluded from the definition of ''capital asset'', the purpose of statutory scheme will not be achieved.

The SLP filed against the said order has been dismissed on January 9, 2012. In view of the judgment of this court in Smt. Anjana Sehgal''s case (supra), the questions of law, framed in I.T.A. Nos. 209 and 190 of 2012 are answered in favour of the Revenue and against the assessee as the land is situated within the municipal limits of Municipal Council, Sujanpur. As a consequence thereof, the order of the Commissioner of income tax (Appeals) dated July 14, 2011, and learned Tribunal dated May 10, 2012, are set aside and that of the Assessing Officer is restored. In I.T.A. No. 208 of 2012, the order impugned is order setting aside penalty u/s 271(1)(c) of the Act. It has been found that the land sold by the assessee is a capital asset liable to capital gains. Thus, the orders of the Commissioner of income tax (Appeals) and of the Tribunal cannot be sustained. Since the appeal of the assessee was accepted on the grounds that the land is not a capital asset, therefore, the order passed by the Commissioner of income tax (Appeals) dated July 14, 2011, and that of the Tribunal dated May 10, 2012, are set aside. The matter is remitted back to the Commissioner of income tax (Appeals) for decision on the question of levy of penalty, if any according to law.