Itxa/1223/2017 Of The Pr. Commissioner Of Income Tax-3, Thane v. Anthony John Pereira

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1223 OF 2017 Pr. Commissioner of Income Tax-3, Thane..Appellant v/s. Anthony John Pereira ..Respondent Mr. Tejveer Singh for the Appellant.Mr. N.M.Gandhi for the Respondents. CORAM: UJJAL BHUYAN, & MILIND N. JADHAV, JJ. P.C:- DATE : FEBRUARY 4, 2020 .Heard Mr. Tejveer Singh, learned standing counsel,revenue for the appellant and Mr. N.M.Gandhi, learned counselfor the respondent-assessee. 2.This appeal has been fled under Section 260A of theIncome Tax Act, 1961 (“the Act” for short) by the revenueagainst the order dated 25.08.2016 passed by the Income TaxAppellate Tribunal, “A” Bench, Mumbai (“Tribunal” for short) inIncome Tax Appeal No. 1103/Mum/2016 for the Assessment Year2011-12. 3.The appeal has been preferred projecting thefollowing two questions as substantial questions of law : (a)Whether on the facts and in the circumstancesof the case and in law, the Tribunal is justifed in holdingthat the land sold by the assessee was not within thejurisdiction of any municipality being an agriculturalland and was not situated within 8 kms from anymunicipality though record clearly shows thatGovernment of Maharashtra has constituted Vasai-VirarMunicipal Corporation vide Notifcation No.MIS2306/412/CR-223/2006/UD-24 dated 03.07.2009 andthe Tribunal is wrong in holding that Vasai-VirarMunicipal Corporation is constituted by Notifcation No.VVM 2009/88/CR-244/09/UD-23 dated 31.05.2011without appreciating the fact that it only amends thenotifcation dated 03.07.2009 ?3 (b)Whether on the facts and in the circumstancesof the case and in law, the Tribunal is justifed in notappreciating the fact that the assessee was engaged in sale of land and therefore, the land transaction was inthe nature of trade and liable to tax ?3 4.To appreciate the questions proposed, it would benecessary to advert to the relevant facts. 5.In the assessment proceedings for the AssessmentYear 2011-12, Assessing Ofcer noted that though the assesseehad disclosed 17 sale transactions pertaining to the AssessmentYear under consideration, 3 transactions were not disclosed.The transactions took place on 21.04.2010, 01.05.2010 and20.08.2010. After giving notice to the assessee and afterhearing the assessee, Assessing Ofcer in his Assessment Orderdated 28.03.2014 took the view that assessee was makinginvestment in land and was in the business of construction andland development. In response to the contention of theassessee that the land which were sold could not be broughtwithin the tax regime as those were agricultural land beingoutside urban limits, the Assessing Ofcer did not accept suchcontention and relying upon Government of Maharashtranotifcations dated 03.07.2009 and 31.05.2011 held that lands which were sold fell within the Municipal Corporation of Vasai-Virar and, therefore, could not be treated as agricultural land totake the same outside the purview of the Act. It was held thatthe such land was to be treated as “capital asset” and theprofts on sale of such land was to be included in the totalincome of the assessee. 6.Assessee preferred appeal before the Commissionerof Income Tax (Appeals)-3,Thane, against the aforesaid order ofassessment. By the appellate order dated 21.01.2016 the frstappellate authority upheld the fndings of the Assessing Ofcerand dismissed the appeal of the assessee. 7.Aggrieved by the same, assessee preferred furtherappeal before the Tribunal. By the impugned order dated25.08.2016 Tribunal allowed the appeal of the assessee byholding that the land sold was agricultural land situated atvillage Juchandra and became urban land only on and from31.05.2011 being part of Vasai-Virar Municipal Corporation.Tribunal also held that the population of village Juchandra was5,912 as per latest census. Therefore vide the impugned order 6.Assessee preferred appeal before the Commissionerof Income Tax (Appeals)-3,Thane, against the aforesaid order ofassessment. By the appellate order dated 21.01.2016 the frstappellate authority upheld the fndings of the Assessing Ofcerand dismissed the appeal of the assessee. 7.Aggrieved by the same, assessee preferred furtherappeal before the Tribunal. By the impugned order dated25.08.2016 Tribunal allowed the appeal of the assessee byholding that the land sold was agricultural land situated atvillage Juchandra and became urban land only on and from31.05.2011 being part of Vasai-Virar Municipal Corporation.Tribunal also held that the population of village Juchandra was5,912 as per latest census. Therefore vide the impugned order Tribunal allowed the appeal of the assessee on the aboveground. 8.Aggrieved by the above, revenue is in appeal beforeus raising the above two questions for consideration. 9.In the hearing which took place on 27.01.2020,learned standing counsel was directed to produce Governmentof Maharashtra notifcations dated 14.09.2006, 03.07.2009 and31.05.2011 relating to constitution of Vasai-Virar MunicipalCorporation. 10.In the hearing today, Mr. Singh, learned standingcounsel, revenue for the appellant has produced copies of theabove three notifcations. 11.Contention of Mr. Singh, learned standing counsel,revenue is that by the notifcation dated 03.07.2009 issued bythe Urban Development Department, Government ofMaharashtra 03.07.2009 was specifed as the day on whichMunicipal Corporation of the city of Vasai-Virar was constituted.Municipal Corporation of the city of Vasai-Virar comprises ofSonali Kilaje 5 of 15 5 of 15 Vasai Municipal Council, Navghar-Manikpur Municipal Council,Nalasopara Municipal Council, Virar Municipal Council smallerarea and 53 villages in the district of Thane. He submits that onobjection raised that the 53 villages should be excluded fromthe Municipal Corporation of the city of Vasai-Virar, Governmentof Maharashtra in the Urban Development Department issuedsubsequent notifcation dated 31.05.2011 excluding 29 villagesbut the village of Juchandra was not excluded. Therefore, hiscontention is that village of Juchandra was part of MunicipalCorporation of Vasai-Virar on and from 03.07.2009. The sale ofland having taken place thereafter during the Assessment Year2011-12, those lands cannot be treated as agricultural landsand earnings from the sale of such land would be income fromcapital gains. 12.On the other hand, learned counsel for therespondent submits that questions as framed relates to fndingof fact by the Tribunal and, therefore, no question of law arisestherefrom. He has referred to the impugned order passed bythe Tribunal as well as provisions of Section 2(14)(iii)(a) of theAct to contend that there was no error or infrmity in the view taken by the Tribunal. He submits that frstly Tribunal wasjustifed in holding that Juchandra village became urban land aspart of Vasai-Virar Municipal Council on and from 31.05.2011;secondly, Tribunal had returned a fnding of fact based on ofcialdocument that the population of village Juchandra was 5,912which is less than the statutory fgure of 10,000 and thereforeland situated within Juchandra village would stand excludedfrom the meaning of capital asset. Third contention is that eventhough village Juchandra became part of the Vasai-VirarMunicipal Corporation on and from 31.05.2011, the saidMunicipal Corporation actually started functioning as a MunicipalCorporation w.e.f. the assessment Year 2012-13. Therefore,Tribunal was fully justifed in treating the sale transactionpertaining to the land in village Juchandra as sale of agriculturalland and thus exempt from payment of income tax. 13.Submissions made by learned counsel for the partieshave been considered. 14.Before adverting to the order passed by the Tribunalit would be apposite to refer to the relevant statutory provisions. 13.Submissions made by learned counsel for the partieshave been considered. 14.Before adverting to the order passed by the Tribunalit would be apposite to refer to the relevant statutory provisions. Section 2 of the Act is the defnition section. Sub-section (14)thereof defnes ‘capital asset’. Though sub-section (14) is quitelongish, only that portion which is relevant for the presentapplication would be referred to. Briefy stated, sub-section (14)defnes ‘capital asset’ to mean property of any kind held by anassessee, whether or not connected with his business orprofession; and any securities held by a Foreign InstitutionalInvestor which has invested in such securities in accordancewith the regulations made under the Securities and ExchangeBoard of India Act, 1992 but does not include agricultural land inIndia not being land situated in any area which is comprisedwithin the jurisdiction of a municipality by whatever name calledor a cantonment board and which has a population of not lessthan 10,000. This is mentioned in Clause (iii) (a) of sub-section14 of Section 2 of the Act. 15.Therefore, what this provision i.e., Section 2(14)(iii)(a) of the Act contemplates is that capital asset does not includeagricultural land. But land would not be treated as agriculturalland if it is situated within the jurisdiction of a municipality or acantonment board and which has a population of not less than 10000. Therefore, inversely speaking, a land which is outsidethe jurisdiction of a municipality or a cantonment board andwhich has a population of less than 10000 would come withinthe ambit of the expression “agricultural land” to be excludedfrom ‘capital asset’. The use of the word “and” between the twoconditions i.e., frst condition being not situated within thejurisdiction of a municipality or a cantonment board and secondbeing such area having a population of not less than 10000, tobring the land outside the purview of agricultural land, isindicative of the legislative intent that the two requirements asalluded to hereinabove would have to be read conjunctively. Inother words, both the requirements or conditions would have tobe fulflled to bring the land outside the scope and ambit ofagricultural land to be treated as capital asset. Otherwise, evenif one is not fulflled or is not present, it would be an agriculturalland which would not be included within and treated as capitalasset. 16.At this stage, we may mention that learned standingcounsel, revenue had argued that the expression “any area” hasto be read as synonymous with the expression municipality when such area becomes part of the municipality. On a carefulreading of Clause (iii)(a) of Section 2(14) of the Act, we areunable to agree to such contention of learned standing counsel.Reading the provision as a whole we are of the consideredopinion that the municipality as mentioned therein is a largerarea comprising many smaller areas and the expression “anyarea” is a fraction of the larger area. Therefore, the expression“any area” would refer to a smaller area within the municipality.This is because the population of the municipality has to bemore than the population of “any area”; certainly more than10,000. 17.Having discussed the legal provisions as above, wemay now advert to the relevant facts. 18.There is no dispute that Government of Maharashtrahad issued draft notifcation on 14.09.2006 proposing to form acity having a corporation to be called Municipal Corporation ofthe city of Vasai-Virar. The schedule given comprised of 53villages including the village of Juchandra at Serial No. 19. Afterhearing claims and objections, Government of Maharashtra 17.Having discussed the legal provisions as above, wemay now advert to the relevant facts. 18.There is no dispute that Government of Maharashtrahad issued draft notifcation on 14.09.2006 proposing to form acity having a corporation to be called Municipal Corporation ofthe city of Vasai-Virar. The schedule given comprised of 53villages including the village of Juchandra at Serial No. 19. Afterhearing claims and objections, Government of Maharashtra issued notifcation dated 03.07.2009 constituting the MunicipalCorporation of the city of Vasai-Virar specifying the date of suchconstitution as 03.07.2009. The said corporation included thevillage of Juchandra as per fnal notifcation. It appears that anobjection was made thereafter for excluding all the 53 villagesincluding the village of Juchandra. After considering the matter,Government of Maharashtra issued notifcation dated31.05.2011 excluding from the Municipal limits of MunicipalCorporation of the city of Vasai-Virar 29 villages as per scheduleto the said Notifcation. However, the village in question i.e.village of Juchandra was not included in the list of excludedvillages. Therefore, it continued to remain within the MunicipalCorporation of the city of Vasai-Virar. 19.We may now advert to the impugned order passed bythe Tribunal. In para-9 of the impugned order, Tribunal held thatthe agricultural land situated at village Juchandra remained as arural area and became urban land on and from 31.05.2011.That apart Tribunal held that the Municipal Corporation startedcollecting taxes from the Assessment Year 2012-13 onwards.Besides, the revenue records disclosed Juchandra village as a separate entity till 31.05.2011. In this backdrop, Tribunalconcluded that the land sold by the respondent-assessee atJuchandra village was agricultural land since the saletransaction had taken place prior to 31.05.2011. 20.On this point, we cannot agree with the fndingreturned by the Tribunal. Government of Maharashtranotifcation dated 03.07.2009 clearly mentioned that under sub-sections - (2) and (2A) of Section (3) of the Bombay ProvincialMunicipal Corporations Act, 1949, the Vasai-Virar MunicipalCorporation was constituted and 03.07.2009 was specifed to bethe date when the larger urban area comprising the whole ofVasai Municipal Council, Navghar-Manikpur Municipal Council,Nalasopara Municipal Council, Virar Municipal Council smallerarea and 53 villages including the village of Juchandra weredeclared as forming the city having a Corporation by the nameof Municipal Corporation of the city of Vasai-Virar. Therefore,legally speaking, 03.07.2009 is the date of constitution of thelarger urban area by the name of Municipal Corporation of thecity of Vasai-Virar of which the village Juchandra became a part.It is another matter that by the subsequent notifcation dated 31.05.2011, 29 villages were excluded from the aforesaid urbanarea, but that does not mean that 31.05.2011 is the date forconstitution of the Municipal Corporation. Late collection of taxby the Municipal Corporation or mentioning / recording in therevenue record that the said village continued to be a separateentity till 31.05.2011 would not make any material diference tothe legal position that the village became part of the largerurban area on and from 03.07.2009. 31.05.2011, 29 villages were excluded from the aforesaid urbanarea, but that does not mean that 31.05.2011 is the date forconstitution of the Municipal Corporation. Late collection of taxby the Municipal Corporation or mentioning / recording in therevenue record that the said village continued to be a separateentity till 31.05.2011 would not make any material diference tothe legal position that the village became part of the largerurban area on and from 03.07.2009. 21.Having noted that, we may once again revert back tothe requirements of Clause (iii)(a) of sub-section (14) to Section-2 of the Act. For land to be excluded from capital asset, it has tobe agricultural land in India; such land to be not agriculturalmust fulfll two conditions viz. it must be land situated in anyarea which is comprised within the jurisdiction of a municipalityor cantonment board and which has a population of not lessthan 10,000. These two conditions are pre-conditions and mustbe read conjunctively. In other words, if both the conditions arepresent then it would not be agricultural land and would betreated as capital asset. However, inversely speaking, if eitherof the two conditions are absent then the land would be agricultural land and excluded from capital asset. Though wehave held the land in question to be within the jurisdiction of amunicipality we fnd the second condition to bring the landoutside the ambit of agricultural land i.e. that the area has apopulation which is not less than 10,000 absent. In thisconnection, Tribunal had considered the census report as well asthe population certifcate of the village dated 02.06.2008 andother relevant documents and thereafter returned a fnding offact that at the time of sale, the land in question was situated atvillage Juchandra, the population of which was 5,912 which isless than the statutory requirement of 10,000. Thus, thiscondition being absent the sold land was rightly treated asagricultural land, not included within the ambit and meaning ofcapital asset. 22.This is a fnding of fact which has not beenquestioned by the revenue as perverse being contrary to therecord as would be evident from the two questions which havebeen raised. On this fnding of fact, we are of the opinion thatTribunal was justifed in holding that the lands which were soldwere agricultural lands, not forming part of capital asset within the meaning of Section 2(14) of the Act. 23.Consequently and in the light of the above, weanswer both the questions in favour of the assessee and againstthe revenue. 24.Appeal is accordingly dismissed. However, there shallbe no order as to costs. (MILIND N. JADHAV, J.) (UJJAL BHUYAN,J.)