6-ITXA-1223-17.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY 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 Appellant. Mr. N.M.Gandhi for Respondents. CORAM: UJJAL BHUYAN, & MILIND N. JADHAV, JJ. DATE : FEBRUARY 4, 2020 P.C:- . Heard Mr. Tejveer Singh, learned standing counsel, revenue for appellant and Mr. N.M.Gandhi, learned counsel for respondent-assessee. 2. This appeal has been fled under Section 260A of Income Tax Act, 1961 ( Act for short) by revenue against order dated 25.08.2016 passed by Income Tax Appellate Tribunal, Bench, Mumbai ( Tribunal for short) in Income Tax Appeal No. 1103/Mum/2016 for Assessment Year 2011-12. Sonali Kilaje 1 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc 3. appeal has been preferred projecting following two questions as substantial questions of law : (a) Whether on facts and in circumstances of case and in law, Tribunal is justifed in holding that land sold by assessee was not within jurisdiction of any municipality being agricultural land and was not situated within 8 kms from any municipality though record clearly shows that Government of Maharashtra has constituted Vasai-Virar Municipal Corporation vide Notifcation No.MIS 2306/412/CR-223/2006/UD-24 dated 03.07.2009 and Tribunal is wrong in holding that Vasai-Virar Municipal Corporation is constituted by Notifcation No. VVM 2009/88/CR-244/09/UD-23 dated 31.05.2011 without appreciating fact that it only amends notifcation dated 03.07.2009 ?3 (b) Whether on facts and in circumstances of case and in law, Tribunal is justifed in not appreciating fact that assessee was engaged in Sonali Kilaje 2 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc sale of land and therefore, land transaction was in nature of trade and liable to tax ?3 4. To appreciate questions proposed, it would be necessary to advert to relevant facts. 5. In assessment proceedings for Assessment Year 2011-12, Assessing Ofcer noted that though assessee had disclosed 17 sale transactions pertaining to Assessment Year under consideration, 3 transactions were not disclosed. transactions took place on 21.04.2010, 01.05.2010 and 20.08.2010. After giving notice to assessee and after hearing assessee, Assessing Ofcer in his Assessment Order dated 28.03.2014 took view that assessee was making investment in land and was in business of construction and land development. In response to contention of assessee that land which were sold could not be brought within tax regime as those were agricultural land being outside urban limits, Assessing Ofcer did not accept such contention and relying upon Government of Maharashtra notifcations dated 03.07.2009 and 31.05.2011 held that lands Sonali Kilaje 3 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc which were sold fell within Municipal Corporation of Vasai- Virar and, therefore, could not be treated as agricultural land to take same outside purview of Act. It was held that such land was to be treated as capital asset and profts on sale of such land was to be included in total income of assessee. 6. Assessee preferred appeal before Commissioner of Income Tax (Appeals)-3,Thane, against aforesaid order of assessment. By appellate order dated 21.01.2016 frst appellate authority upheld fndings of Assessing Ofcer and dismissed appeal of assessee. 7. Aggrieved by same, assessee preferred further appeal before Tribunal. By impugned order dated 25.08.2016 Tribunal allowed appeal of assessee by holding that land sold was agricultural land situated at village Juchandra and became urban land only on and from 31.05.2011 being part of Vasai-Virar Municipal Corporation. Tribunal also held that population of village Juchandra was 5,912 as per latest census. Therefore vide impugned order Sonali Kilaje 4 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc Tribunal allowed appeal of assessee on above ground. 8. Aggrieved by above, revenue is in appeal before us raising above two questions for consideration. 9. In hearing which took place on 27.01.2020, learned standing counsel was directed to produce Government of Maharashtra notifcations dated 14.09.2006, 03.07.2009 and 31.05.2011 relating to constitution of Vasai-Virar Municipal Corporation. 10. In hearing today, Mr. Singh, learned standing counsel, revenue for appellant has produced copies of above three notifcations. 11. Contention of Mr. Singh, learned standing counsel, revenue is that by notifcation dated 03.07.2009 issued by Urban Development Department, Government of Maharashtra 03.07.2009 was specifed as day on which Municipal Corporation of city of Vasai-Virar was constituted. Municipal Corporation of city of Vasai-Virar comprises of Sonali Kilaje 5 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc Vasai Municipal Council, Navghar-Manikpur Municipal Council, Nalasopara Municipal Council, Virar Municipal Council smaller area and 53 villages in district of Thane. He submits that on objection raised that 53 villages should be excluded from Municipal Corporation of city of Vasai-Virar, Government of Maharashtra in Urban Development Department issued subsequent notifcation dated 31.05.2011 excluding 29 villages but village of Juchandra was not excluded. Therefore, his contention is that village of Juchandra was part of Municipal Corporation of Vasai-Virar on and from 03.07.2009. sale of land having taken place thereafter during Assessment Year 2011-12, those lands cannot be treated as agricultural lands and earnings from sale of such land would be income from capital gains. 12. On other hand, learned counsel for respondent submits that questions as framed relates to fnding of fact by Tribunal and, therefore, no question of law arises therefrom. He has referred to impugned order passed by Tribunal as well as provisions of Section 2(14)(iii)(a) of Act to contend that there was no error or infrmity in view Sonali Kilaje 6 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc taken by Tribunal. He submits that frstly Tribunal was justifed in holding that Juchandra village became urban land as part of Vasai-Virar Municipal Council on and from 31.05.2011; secondly, Tribunal had returned fnding of fact based on ofcial document that population of village Juchandra was 5,912 which is less than statutory fgure of 10,000 and therefore land situated within Juchandra village would stand excluded from meaning of capital asset. Third contention is that even though village Juchandra became part of Vasai-Virar Municipal Corporation on and from 31.05.2011, said Municipal Corporation actually started functioning as Municipal Corporation w.e.f. assessment Year 2012-13. Therefore, Tribunal was fully justifed in treating sale transaction pertaining to land in village Juchandra as sale of agricultural land and thus exempt from payment of income tax. 13. Submissions made by learned counsel for parties have been considered. 14. Before adverting to order passed by Tribunal it would be apposite to refer to relevant statutory provisions. Sonali Kilaje 7 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc Section 2 of Act is defnition section. Sub-section (14) thereof defnes capital asset . Though sub-section (14) is quite longish, only that portion which is relevant for present application would be referred to. Briefy stated, sub-section (14) defnes capital asset to mean property of any kind held by assessee, whether or not connected with his business or profession; and any securities held by Foreign Institutional Investor which has invested in such securities in accordance with regulations made under Securities and Exchange Board of India Act, 1992 but does not include agricultural land in India not being land situated in any area which is comprised within jurisdiction of municipality by whatever name called or cantonment board and which has population of not less than 10,000. This is mentioned in Clause (iii) (a) of sub-section 14 of Section 2 of Act. 15. Therefore, what this provision i.e., Section 2(14)(iii) (a) of Act contemplates is that capital asset does not include agricultural land. But land would not be treated as agricultural land if it is situated within jurisdiction of municipality or cantonment board and which has population of not less than Sonali Kilaje 8 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc 10000. Therefore, inversely speaking, land which is outside jurisdiction of municipality or cantonment board and which has population of less than 10000 would come within ambit of expression agricultural land to be excluded from capital asset . use of word and between two conditions i.e., frst condition being not situated within jurisdiction of municipality or cantonment board and second being such area having population of not less than 10000, to bring land outside purview of agricultural land, is indicative of legislative intent that two requirements as alluded to hereinabove would have to be read conjunctively. In other words, both requirements or conditions would have to be fulflled to bring land outside scope and ambit of agricultural land to be treated as capital asset. Otherwise, even if one is not fulflled or is not present, it would be agricultural land which would not be included within and treated as capital asset. 16. At this stage, we may mention that learned standing counsel, revenue had argued that expression any area has to be read as synonymous with expression municipality Sonali Kilaje 9 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc when such area becomes part of municipality. On careful reading of Clause (iii)(a) of Section 2(14) of Act, we are unable to agree to such contention of learned standing counsel. Reading provision as whole we are of considered opinion that municipality as mentioned therein is larger area comprising many smaller areas and expression any area is fraction of larger area. Therefore, expression any area would refer to smaller area within municipality. This is because population of municipality has to be more than population of any area ; certainly more than 10,000. 17. Having discussed legal provisions as above, we may now advert to relevant facts. 18. There is no dispute that Government of Maharashtra had issued draft notifcation on 14.09.2006 proposing to form city having corporation to be called Municipal Corporation of city of Vasai-Virar. schedule given comprised of 53 villages including village of Juchandra at Serial No. 19. After hearing claims and objections, Government of Maharashtra Sonali Kilaje 10 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc issued notifcation dated 03.07.2009 constituting Municipal Corporation of city of Vasai-Virar specifying date of such constitution as 03.07.2009. said corporation included village of Juchandra as per fnal notifcation. It appears that objection was made thereafter for excluding all 53 villages including village of Juchandra. After considering matter, Government of Maharashtra issued notifcation dated 31.05.2011 excluding from Municipal limits of Municipal Corporation of city of Vasai-Virar 29 villages as per schedule to said Notifcation. However, village in question i.e. village of Juchandra was not included in list of excluded villages. Therefore, it continued to remain within Municipal Corporation of city of Vasai-Virar. 19. We may now advert to impugned order passed by Tribunal. In para-9 of impugned order, Tribunal held that agricultural land situated at village Juchandra remained as rural area and became urban land on and from 31.05.2011. That apart Tribunal held that Municipal Corporation started collecting taxes from Assessment Year 2012-13 onwards. Besides, revenue records disclosed Juchandra village as Sonali Kilaje 11 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc separate entity till 31.05.2011. In this backdrop, Tribunal concluded that land sold by respondent-assessee at Juchandra village was agricultural land since sale transaction had taken place prior to 31.05.2011. 20. On this point, we cannot agree with fnding returned by Tribunal. Government of Maharashtra notifcation dated 03.07.2009 clearly mentioned that under sub- sections - (2) and (2A) of Section (3) of Bombay Provincial Municipal Corporations Act, 1949, Vasai-Virar Municipal Corporation was constituted and 03.07.2009 was specifed to be date when larger urban area comprising whole of Vasai Municipal Council, Navghar-Manikpur Municipal Council, Nalasopara Municipal Council, Virar Municipal Council smaller area and 53 villages including village of Juchandra were declared as forming city having Corporation by name of Municipal Corporation of city of Vasai-Virar. Therefore, legally speaking, 03.07.2009 is date of constitution of larger urban area by name of Municipal Corporation of city of Vasai-Virar of which village Juchandra became part. It is another matter that by subsequent notifcation dated Sonali Kilaje 12 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc 31.05.2011, 29 villages were excluded from aforesaid urban area, but that does not mean that 31.05.2011 is date for constitution of Municipal Corporation. Late collection of tax by Municipal Corporation or mentioning / recording in revenue record that said village continued to be separate entity till 31.05.2011 would not make any material diference to legal position that village became part of larger urban area on and from 03.07.2009. 21. Having noted that, we may once again revert back to requirements of Clause (iii)(a) of sub-section (14) to Section- 2 of Act. For land to be excluded from capital asset, it has to be agricultural land in India; such land to be not agricultural must fulfll two conditions viz. it must be land situated in any area which is comprised within jurisdiction of municipality or cantonment board and which has population of not less than 10,000. These two conditions are pre-conditions and must be read conjunctively. In other words, if both conditions are present then it would not be agricultural land and would be treated as capital asset. However, inversely speaking, if either of two conditions are absent then land would be Sonali Kilaje 13 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc agricultural land and excluded from capital asset. Though we have held land in question to be within jurisdiction of municipality we fnd second condition to bring land outside ambit of agricultural land i.e. that area has population which is not less than 10,000 absent. In this connection, Tribunal had considered census report as well as population certifcate of village dated 02.06.2008 and other relevant documents and thereafter returned fnding of fact that at time of sale, land in question was situated at village Juchandra, population of which was 5,912 which is less than statutory requirement of 10,000. Thus, this condition being absent sold land was rightly treated as agricultural land, not included within ambit and meaning of capital asset. 22. This is fnding of fact which has not been questioned by revenue as perverse being contrary to record as would be evident from two questions which have been raised. On this fnding of fact, we are of opinion that Tribunal was justifed in holding that lands which were sold were agricultural lands, not forming part of capital asset within Sonali Kilaje 14 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: 6-ITXA-1223-17.doc meaning of Section 2(14) of Act. 23. Consequently and in light of above, we answer both questions in favour of assessee and against revenue. 24. Appeal is accordingly dismissed. However, there shall be no order as to costs. (MILIND N. JADHAV, J.) (UJJAL BHUYAN,J.) Sonali Kilaje 15 of 15 ::: Uploaded on - 04/03/2020 ::: Downloaded on - 11/07/2020 12:54:06 ::: Pr. Commissioner of Income-tax-3, Thane v. Anthony John Pereira