Avtar Singh v. ITO (2024) 230 TTJ 506  239 DTR 113

Avtar Singh v. ITO (2024) 230 TTJ 506  239 DTR 113

🏡 Avtar Singh vs. ITO – ITAT Chandigarh on Sale of Agricultural Land Beyond Municipal Limits (2024)

📌 Background

The classification of agricultural land as a capital asset under Section 2(14)(iii) of the Income-tax Act, 1961 has always been a contentious issue. The key factor determining taxability of gains from the sale of agricultural land is whether such land falls within the limits of a municipality or within a specified distance from it, based on population criteria.

In Avtar Singh v. ITO [(2024) 230 TTJ 506 / 239 DTR 113 / 166 taxmann.com 278 (Chandigarh Tribunal)], the Income Tax Appellate Tribunal (ITAT) Chandigarh examined whether the sale of agricultural land located in village Chhatt, outside the municipal limits of Zirakpur (Punjab), would attract capital gains tax under Section 45.

📂 Facts of the Case: Avtar Singh vs ITO

• Assessee: Avtar Singh
• Assessment Year: 2017–18
• Location: Agricultural land in village Chhatt
• Issue: Whether the land sold by Avtar Singh was a capital asset

Notifications and census data were examined to determine the distance of the land from the Zirakpur municipal limits.

Key Notifications:

1. Notification No. 9447 dated 6 January 1994: Defined municipal limits of Zirakpur.
2. Notification dated 4 December 2012: Gram Panchayat of village Chhatt created by the Department of Rural Development & Panchayats, Punjab.
3. Notification No. 10/16/16-3 SS3/2788 dated 19 December 2016: Municipal limits of Zirakpur extended to include village Chhatt.

Census Data: As per the 2011 Census, Zirakpur had a population of 95,443.

❓ Point of Dispute

Whether the agricultural land located more than four kilometers away from the municipal limits of Zirakpur at the time of sale (prior to 2016 notification) qualifies as a capital asset under Section 2(14)(iii), making the sale consideration taxable as capital gains under Section 45.

📑 Submissions by the Assessee

• The land was agricultural and located outside municipal limits as per Notification No. 9447 dated 6 January 1994.
• On the date of sale, village Chhatt was not part of Zirakpur municipality.
• The inclusion of Chhatt within Zirakpur’s limits occurred only through Notification dated 19 December 2016, which is subsequent to the relevant assessment year.
• Hence, the land did not fall within the ambit of “capital asset” under Section 2(14)(iii), and therefore, the sale consideration was not taxable.

📑 Submissions by the Revenue

• The Revenue argued that since the municipal limits were later extended to include Chhatt, and Zirakpur had a substantial population, the land should be treated as urban land for taxation purposes.
• They contended that agricultural operations were minimal and that the proximity to Zirakpur indicated potential urbanization.

⚖️ Legal Principles & Tribunal’s Findings

1. Definition under Section 2(14)(iii)

The term capital asset excludes “agricultural land” which is:

• Situated in an area beyond certain distances from municipal limits, depending on population as per the last preceding census.

For a municipality with a population between 10,000 and 1,00,000, the relevant distance is more than 2 km, and for above 1,00,000, it is more than 6 km.

Since Zirakpur had 95,443 people (as per 2011 Census), the 4 km criterion applied.

2. Geographical Verification

Based on maps, satellite data, and government notifications, the Tribunal confirmed that the land was located more than four kilometers away from the then-existing municipal limits of Zirakpur.

3. Timing of Municipal Inclusion

The Tribunal emphasized that the relevant factor is the municipal limit as it existed on the date of sale, not subsequent extensions.
Thus, the inclusion of Chhatt into Zirakpur municipality through the 2016 notification was not applicable to the transaction under review.

4. Agricultural Character of Land

The land was used for agricultural purposes, and there was no evidence of conversion for non-agricultural or commercial use.

🏁 Held

The ITAT held that:

✅ The land in village Chhatt was agricultural land located more than four kilometers from the Zirakpur municipal limits as per the 2011 Census and Notification No. 9447 (1994).

✅ It did not form part of a “capital asset” under Section 2(14)(iii).

✅ Therefore, the sale consideration received by the assessee was not chargeable to capital gains tax under Section 45.

✅ Practical Impact for Taxpayers

• Location Verification Crucial: Taxpayers must verify the municipal limits applicable as on the date of sale of land and not rely on later expansions.
• Population Census Reference: The latest published Census is the guiding benchmark for determining applicability of Section 2(14)(iii).
• Documentary Evidence: Notifications, revenue records, and satellite measurements play a vital role in establishing the agricultural and geographical status of land.
• Protection for Genuine Agriculturists: Ensures that genuine agricultural land sales remain outside the capital gains tax net.

🔑 Key Takeaways

1. Municipal inclusion must exist at the time of sale, not post-transaction.
2. Distance measurement is based on the shortest road distance, not aerial distance.
3. Population of the municipality is to be taken from the last Census preceding the sale.
4. Agricultural use and absence of conversion strengthen the taxpayer’s position.

📢 Why This Case Matters

The ruling in Avtar Singh v. ITO (2024) reinforces clarity on the tax treatment of agricultural land near expanding urban areas. With rapid urbanization, disputes on whether land is “rural” or “urban” are frequent. The Tribunal’s reasoning provides a definitive benchmark:

• Only land within notified municipal limits or within prescribed distance (based on Census data) can be taxed as a capital asset.

This case serves as valuable precedent for taxpayers, real estate professionals, and assessing officers alike.

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