My land is more than eight kilometres from the municipal limit by road but within eight kilometres as the crow flies. For years before 2014, was it a capital asset?
No. The Bombay High Court, Nagpur Bench, held that for assessment years before the amendment took effect the distance under section 2(14)(iii)(b) is to be measured by the shortest road distance and not aerially. The amendment prescribing aerial measurement came into force on 1 April 2014 and, as the CBDT circular itself says, applies prospectively from assessment year 2014-15; the very need for the amendment shows there was confusion earlier, and the benefit of that must go to the assessee. Section 11 of the General Clauses Act therefore had no application to assessment year 2009-10. The Revenue's appeals were dismissed.
Decided by the High Court (High Court of Judicature at Bombay, Nagpur Bench — B.P. Dharmadhikari J and A.P. Bhangale J (author)) on 2015-03-30, reported as Income Tax Appeal No. 120 of 2013, with Income Tax Appeals Nos. 18 to 23 of 2015, 121, 122, 129, 131 and 140 of 2013 and 151 of 2015 (Bombay High Court, Nagpur Bench). It bears on section 2(14), section 45 of the Income Tax Act 1961, in Capital Gains and Capital Gains Exemptions matters.
Whether land is a capital asset at all decides whether there is any capital gain, and before assessment year 2014-15 the whole question often turned on how the eight kilometres were measured. This judgment settles it for the earlier years in the taxpayer's favour and aligns the Bombay High Court with the Punjab and Haryana High Court in Satinder Pal Singh and the Madhya Pradesh High Court in Shabbir Hussain Pithawala. Its reasoning is worth noting: the amendment is treated as prospective and, because Parliament legislated to remove a confusion the courts had exposed, the earlier ambiguity is resolved for the assessee. The Court also endorses DLF United, where compensation for acquisition of agricultural land was held not to be income at all because agricultural land is outside the definition of capital asset, a special leave petition against which was dismissed on merits.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A group of Revenue appeals raised a single question. The assessees had sold land near Nagpur. The dispute was how to measure the distance from the municipal limit for the purpose of section 2(14)(iii)(b), which takes agricultural land outside the definition of capital asset unless it lies within the prescribed distance — here eight kilometres — of a municipality. The assessees said the distance runs by the approach road; the assessing officer took the aerial distance and on that basis held the land to be a capital asset, so that the sale produced taxable capital gains. The Commissioner (Appeals) held the land to be agricultural and not a capital asset, following the Punjab and Haryana High Court in Satinder Pal Singh, which had approved the Mumbai Tribunal in Laukik Developers. The Tribunal upheld that, and the Revenue appealed. The lead appeal concerned assessment year 2009-10. Before the High Court the Revenue relied on section 11 of the General Clauses Act as showing a legislative intention that distance be computed aerially, and argued that income from the sale of an urban capital asset is business income and not agricultural income.
The appeals were dismissed with no order as to costs. The distance between the municipal limits and the property is to be measured having regard to the shortest road distance and not as the crow flies. Consideration received on the sale of agricultural land cannot be treated as business income for the purposes of income tax, and capital gain arising from a transaction in agricultural land cannot be considered business income. The amendment prescribing that the distance be measured aerially came into force with effect from 1 April 2014 and applies prospectively from assessment year 2014-15, so for assessment year 2009-10 the authorities cannot be faulted for computing the distance by road, and section 11 of the General Clauses Act has no application. No other substantial question of law arose.
The Court recorded its concurrence with the line of authority that measures the distance by approach road — Satinder Pal Singh in the Punjab and Haryana High Court, approving Laukik Developers in the Mumbai Tribunal, and Shabbir Hussain Pithawala in the Madhya Pradesh High Court — and with its own Division Bench in Debbie Alemao, where land shown as agricultural in the revenue records for which no permission for non-agricultural use had been sought was treated as agricultural and the distance measured by road. It accepted that amendments to a taxing statute operate prospectively unless a different legislative intention is clearly expressed. On the amendment prescribing aerial distance, the Court reasoned that the very need for it showed there had been confusion which Parliament, noticing the judgments being delivered, moved to clear; the benefit of that earlier ambiguity must go to the assessee, since where there is doubt the view in favour of the assessee is to be adopted. The CBDT circular on the Finance Act itself stated that the change in the definition of capital asset takes effect from 1 April 2014 and applies to assessment year 2014-15 and later years, which disposed of the Revenue's reliance on section 11 of the General Clauses Act for an earlier year. On the character of the receipt the Court followed DLF United, where a coloniser's agricultural land acquired by the Government was held to remain agricultural until acquisition and payment of compensation, so the profits were not business profits, and since agricultural land is excluded from the definition of capital asset in section 2(14)(iii), the gain was not income at all; the special leave petition against that ruling was dismissed on merits.
The distance between the municipal limits and assessed property/asset is to be measured having regard to the shortest road distance and not as per the crow's flies i.e. a straight line distance as canvassed by the Revenue.
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Handle my notice → Ask a CA on WhatsAppNo. The Bombay High Court, Nagpur Bench, held that for assessment years before the amendment took effect the distance under section 2(14)(iii)(b) is to be measured by the shortest road distance and not aerially. The amendment prescribing aerial measurement came into force on 1 April 2014 and, as the CBDT circular itself says, applies prospectively from assessment year 2014-15; the very need for the amendment shows there was confusion earlier, and the benefit of that must go to the assessee. Section 11 of the General Clauses Act therefore had no application to assessment year 2009-10. The Revenue's appeals were dismissed. This was decided by the High Court (High Court of Judicature at Bombay, Nagpur Bench — B.P. Dharmadhikari J and A.P. Bhangale J (author)) and bears on section 2(14), section 45 of the Income Tax Act 1961. It is reported as Income Tax Appeal No. 120 of 2013, with Income Tax Appeals Nos. 18 to 23 of 2015, 121, 122, 129, 131 and 140 of 2013 and 151 of 2015 (Bombay High Court, Nagpur Bench). Whether land is a capital asset at all decides whether there is any capital gain, and before assessment year 2014-15 the whole question often turned on how the eight kilometres were measured. This judgment settles it for the earlier years in the taxpayer's favour and aligns the Bombay High Court with the Punjab and Haryana High Court in Satinder Pal Singh and the Madhya Pradesh High Court in Shabbir Hussain Pithawala. Its reasoning is worth noting: the amendment is treated as prospective and, because Parliament legislated to remove a confusion the courts had exposed, the earlier ambiguity is resolved for the assessee. The Court also endorses DLF United, where compensation for acquisition of agricultural land was held not to be income at all because agricultural land is outside the definition of capital asset, a special leave petition against which was dismissed on merits. If it applies to you, the first step is this: For transfers before assessment year 2014-15, measure by the shortest road distance from the municipal limit and put a route map and certificate on record.
A group of Revenue appeals raised a single question. The assessees had sold land near Nagpur. The dispute was how to measure the distance from the municipal limit for the purpose of section 2(14)(iii)(b), which takes agricultural land outside the definition of capital asset unless it lies within the prescribed distance — here eight kilometres — of a municipality. The assessees said the distance runs by the approach road; the assessing officer took the aerial distance and on that basis held the land to be a capital asset, so that the sale produced taxable capital gains. The Commissioner (Appeals) held the land to be agricultural and not a capital asset, following the Punjab and Haryana High Court in Satinder Pal Singh, which had approved the Mumbai Tribunal in Laukik Developers. The Tribunal upheld that, and the Revenue appealed. The lead appeal concerned assessment year 2009-10. Before the High Court the Revenue relied on section 11 of the General Clauses Act as showing a legislative intention that distance be computed aerially, and argued that income from the sale of an urban capital asset is business income and not agricultural income. The matter was decided on 2015-03-30 by the High Court (High Court of Judicature at Bombay, Nagpur Bench — B.P. Dharmadhikari J and A.P. Bhangale J (author)). On those facts the High Court held as follows. The appeals were dismissed with no order as to costs. The distance between the municipal limits and the property is to be measured having regard to the shortest road distance and not as the crow flies. Consideration received on the sale of agricultural land cannot be treated as business income for the purposes of income tax, and capital gain arising from a transaction in agricultural land cannot be considered business income. The amendment prescribing that the distance be measured aerially came into force with effect from 1 April 2014 and applies prospectively from assessment year 2014-15, so for assessment year 2009-10 the authorities cannot be faulted for computing the distance by road, and section 11 of the General Clauses Act has no application. No other substantial question of law arose.
The Court recorded its concurrence with the line of authority that measures the distance by approach road — Satinder Pal Singh in the Punjab and Haryana High Court, approving Laukik Developers in the Mumbai Tribunal, and Shabbir Hussain Pithawala in the Madhya Pradesh High Court — and with its own Division Bench in Debbie Alemao, where land shown as agricultural in the revenue records for which no permission for non-agricultural use had been sought was treated as agricultural and the distance measured by road. It accepted that amendments to a taxing statute operate prospectively unless a different legislative intention is clearly expressed. On the amendment prescribing aerial distance, the Court reasoned that the very need for it showed there had been confusion which Parliament, noticing the judgments being delivered, moved to clear; the benefit of that earlier ambiguity must go to the assessee, since where there is doubt the view in favour of the assessee is to be adopted. The CBDT circular on the Finance Act itself stated that the change in the definition of capital asset takes effect from 1 April 2014 and applies to assessment year 2014-15 and later years, which disposed of the Revenue's reliance on section 11 of the General Clauses Act for an earlier year. On the character of the receipt the Court followed DLF United, where a coloniser's agricultural land acquired by the Government was held to remain agricultural until acquisition and payment of compensation, so the profits were not business profits, and since agricultural land is excluded from the definition of capital asset in section 2(14)(iii), the gain was not income at all; the special leave petition against that ruling was dismissed on merits. In the words reproduced by the source cited on this page: "The distance between the municipal limits and assessed property/asset is to be measured having regard to the shortest road distance and not as per the crow's flies i.e. a straight line distance as canvassed by the Revenue."
It was decided by the High Court on 2015-03-30 and is reported as Income Tax Appeal No. 120 of 2013, with Income Tax Appeals Nos. 18 to 23 of 2015, 121, 122, 129, 131 and 140 of 2013 and 151 of 2015 (Bombay High Court, Nagpur Bench). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 2(14), section 45, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed with no order as to costs. The distance between the municipal limits and the property is to be measured having regard to the shortest road distance and not as the crow flies. Consideration received on the sale of agricultural land cannot be treated as business income for the purposes of income tax, and capital gain arising from a transaction in agricultural land cannot be considered business income. The amendment prescribing that the distance be measured aerially came into force with effect from 1 April 2014 and applies prospectively from assessment year 2014-15, so for assessment year 2009-10 the authorities cannot be faulted for computing the distance by road, and section 11 of the General Clauses Act has no application. No other substantial question of law arose. It arises in Capital Gains and Capital Gains Exemptions matters, on section 2(14), section 45 of the Income Tax Act 1961, and was decided by High Court of Judicature at Bombay, Nagpur Bench — B.P. Dharmadhikari J and A.P. Bhangale J (author). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For assessment year 2014-15 onwards, use aerial distance; the amendment applies and this judgment does not help. Keep the revenue records showing the land as agricultural and show that no permission for non-agricultural use was sought; the character of the land is decisive. Do not concede that a dealer in land holds agricultural land as stock-in-trade producing business income; DLF United treats the gain as outside income altogether.
Still good law. A Division Bench judgment of March 2015 on the pre-amendment position; the source page records it cited in thirteen later matters. It is expressly confined to assessment years before 2014-15, since the Court itself holds that the amendment prescribing aerial distance applies from assessment year 2014-15 onwards. No later decision was available here to check it against. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment is confined to assessment years before the amendment; the Court's own reasoning concedes that aerial distance governs from assessment year 2014-15. The circular relied on is described as 'Circular No.3/240, dt.24.1.2014', which appears to be a typographical error in the source for Circular No. 3/2014, and the judgment does not name the Finance Act that made the amendment. Paragraph 12 records, apparently in error, that section 11 of the General Clauses Act will prevail if the assessee has earned business income, immediately before holding it inapplicable; the sentence is as it stands in the source. The assessee's surname is spelt Chorida in the document title and Chordia in the body. The Court did not separately record the facts, land parcels or amounts in the connected appeals. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with no order as to costs. The distance between the municipal limits and the property is to be measured having regard to the shortest road distance and not as the crow flies. Consideration received on the sale of agricultural land cannot be treated as business income for the purposes of income tax, and capital gain arising from a transaction in agricultural land cannot be considered business income. The amendment prescribing that the distance be measured aerially came into force with effect from 1 April 2014 and applies prospectively from assessment year 2014-15, so for assessment year 2009-10 the authorities cannot be faulted for computing the distance by road, and section 11 of the General Clauses Act has no application. No other substantial question of law arose.
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