Query – 2 similer Queries depends on section 2(14) of the Income Tax Act !

2(14)

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  1. Whether Gram Panchayat, Pachayat Samiti are covered under term Municipality for purpose of section 2(14) of the Act?

 

The historical evolution of local self-government in the States shows that ‘municipalities’ are governed by the Municipalities Act while the panchayats are governed by the Panchayat Act and the concept of the former relates to urban local self-government whereas the latter relates to rural self-government.

The terms ‘municipality’, ‘notified area committee’, ‘town area committee,’ and ‘town committee’ used in section 2(14)(iii)(a) has legal conceptions and must, therefore, be given their legal meaning and consequently, they would be entirely different concepts from the term ‘panchayat’, be it a village panchayat or a town panchayat.

Panchayats cannot, therefore, be treated as municipalities under section 2(14)(iii)(a). [K. Parameshwaran v. ITO [1982] 2 ITD 371(Mad.), Chandar HUF[2011] 12 taxmann.com 305 (Chennai)]

 

Similar View:

  • The land should be within the distance of 8 Kms. from the local limit of the nearest municipality from land and not from the outer limit of the village in which such land falls. (ACIT vs. Vijay Singh Kadan , ITA No. 4733/Del/2011, ITAT Delhi)

 

  1. Whether, where population of town is more than 10,000 but the said town is not within the limits of a Municipality, agricultural land in such town could be treated as capital asset?

The land, for the purpose of bringing it within the mischief of section 2(14), should be situated within a Municipality, Municipal Corporation, Cantonment Board, etc., which has a population of not less than 10,000. In the instant case, though the population of the town, where the land was situated, was more than 10,000, the said town was not within the limits of a Municipality, Municipal Corporation or Cantonment Board. [P. Venkataramana (1993) 46 TTJ (Hyd) 706]

Therefore, it is clear that lands situated in villages which does not fall within a Municipality, goes out of the purview of section 2(14) even if their population is more than 10,000.

 

 

Similar View:

Population of Municipality and not of village Panchayat decides whether asset is a capital asset or not – Srichand Dembla vs. DCIT [2013] 39 taxmann.com 180 (Jodhpur – Trib.)

  1. C) SUMMARY:

 

Chargeability of Land situated in: (up to A.Y. 2013-14)

  • Village within limits of MC & Pop. Of MC >10K: Taxable
  • Village within limits of MC & Pop. Of MC <10K: Exempt
  • Village outside limits of nearest notified MC-but within 8 KM: Taxable
  • Village outside limits of nearest notified MC-beyond 8 KM: Exempt

Land situated outside the limits of non-notified MC is outright exempt.

 

Notes:

1) Village is governed by Panchayat – i.e. Rural Self Govt. therefore Pop. Of MC is to be considered & not of area/village within which the land is situated

2) Nearest M.C. from location of land is to be considered

3) Pop. As per published census as on: 30.03.2012- for A.Y. 12-13- 2001 census

30.03.2013- For A.Y. 13-14- 2011 census

4) Notified towns are listed statewise in CBDT Circular No. 9447 dt. 01.06.1994 (applicable up to A.Y. 2013-14)

IMPORTANT ISSUE:

If agricultural land fell beyond 8 kms of municipal Limits on date of publication of relevant CBDT notification but fell within 8 kms on date of sale of land, it would still fall outside term ‘capital asset. [Subha Tripathi vs. DCIT, [2013] 34 taxmann.com 286 (Jaipur – Trib.)]

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