By TIOL News Service

CHEENAI, AUG 31, 2016: THE issue is - Whether it is open to Revenue to contend that as per Sec 11 of General Clauses Act, 1897, distance between agri land and municipal limit is to be measured, only in straight line or horizontal plane, when it is clear that there is no straight jacket formulae as per intent of the legislature. NO is the answer.

Facts of the case

The assessee is the Founder-Chairman of Veltech Group of Educational Institutions, Avadi. There was a search, in the premises of the educational institutions run by the Trust, in which, the assessee was one of the Trustees. The assessee's premises were also searched u/s 132 on 27/8/2008. For the AY 2009-10, assessee filed a e-return of income on 31/7/2009, disclosing a total income of Rs.3,50,07,409/-. He filed a revised return of income, disclosing a total income of Rs.4,38,44,341/-. Subsequently, a revised return was filed on 22/12/2010, declaring a total income of Rs.1,29,32,780/-. According to the department, the difference in the income originally returned and the revised return represented capital gains of Rs.3,09,11,561/- on the sale of land, at Morai Village, Ambattur Taluk originally offered, but withdrawn, in the revised return. During the course of original assessment proceedings, assessee contended that the land sold by him at Morai village was an agricultural land and therefore, contended that the profit on sale of such agricultural land was not liable to tax. The department, on verification, found that the land was not an agricultural land and it was sold to the Trust and the assessment was completed, by bringing the entire capital gains of Rs.3,09,11,561/-, as originally offered, in the return of income, and accordingly, determined the income at Rs.4,38,44,341/-.

On appeal, CIT(A) confirmed the assessment of capital gains, on the sale of the land at Morai village. On further appeal, Tribunal had filed a certificate from the Public Transport Department, showing that the land was situated, at a distance of more than 8 kms from Avadi limits. The assessee had also filed a certificate from the Village Administrative Officer, to the effect that the land was given on lease to M/s.Vel Horticultures Ltd, for doing agricultural operations. As the said evidence produced before the Tribunal, was not considered originally by AO, the Tribunal, set aside the orders of the lower authorities and remanded the matter back to the file of AO for re-adjudicating the issue afresh, after verifying all the documents, and to pass a speaking order.

The AO, during the remand proceedings, placed reliance on the decision of SC in Sarifabibi Mohamad Ibrahim v. CIT 2002-TIOL-1045-SC-IT, and held that the assessee's land was not an agricultural land, as it does not fulfil the criteria laid down by the court, in the aforesaid decision. AO had also stated that the land was barren, when the Inspector inspected the land, that the buyer was not an agriculturist, and the land was situated in a developed area. Thus, the AO completed the assessment u/s 143(3) r/w. Section 254 r/w. Section 153A. Holding that the land was not an agricultural land and by denying the assessee's claim for exemption on the profit, by sale of the land at Morai village, Rs.4,38,44,341/- was brought to tax as capital gains. On appeal, after going through the earlier appellate orders, submissions of the assessee and evidence on record, in particular, certificates of the Village Administrative Officer, Deputy Surveyor, Ambattur Taluk and General Manager, Metropolitan Transport Corporation (Chennai) Ltd's, certifying that the land was situated, at a distance of more than 8 Kms., from Avadi Municipality and the lease deed, between the assessee, other family members & M/s.Vel Horticultures, leasing the land for agricultural operations, accepted in the scrutiny assessment, and also the fact that a source of investment had been made made by the assessee, CIT(A) held that the land was an agricultural land, situated at a distance more than 8 Kilometres, from the nearest Municipality (Avadi).

CIT(A) had further observed that it was evident from the letter from Tahsildar that she had made independent enquiries with regard to the distance of the land in question, from the nearest Municipality (Avadi), result of which, clearly proved that the land in question was not situated within a distance of 8 Kms from the nearest Municipality. CIT(A) had further held that no reason had been assigned by AO, as to why, he had not accepted the report of Tahsildar. With regard to the report of the Inspector that the land in question was situated at a distance of 5.5 Kms submitted before the AO, CIT(A) held that the route used by the inspector to reach the land was a private road laid and maintained by CRPF and on the facts and circumstances of the case, evidence adduced by both parties, CIT(A) observed that public have no free access to the said road, as it was not under the control of local administration. CIT(A) had categorically held that the issue was squarely covered by the judgment of HC in Mrs. Shakunthala Vedachalam v. Mrs.Vanitha Manickavasagam reported in (2014) 369 ITR 558 and following the aforesaid decision, it had held that the assessee's land in question was an agricultural land situated at a distance of more than 8 Kms from the nearest Municipality and as the profit on sale of such land was not liable to tax.

Having heard the parties, the High Court held that,

++ in CIT v. Lal Singh reported in 325 ITR 588 (P & H), the Punjab and Haryana HC, held that the measurement of distance made by the Tahsildar, for determining the distance between the agricultural land and the nearest municipality, cannot be ignored and there was no justification for the Assessing Officer to reject the report. While carving the section, legislature has also made it clear that for the purpose of any Act, that distance, shall unless a different, intention appears, be measured in a straight line or a horizontal plane. Thus while enacting the section, legislature has also foreseen that measurement of distance, would be on the context of the purpose to be achieved in any enactment and it is not a straight jacket formula that in all cases, under all circumstances, notwithstanding the purpose for which an act is made, measurement of the distance should be made on horizontal plane. Reverting to the case on hand, and in the light of the decisions of the Courts, considered in the foregoing paragraphs and the question called upon to decide, as to whether, both the fact finding authorities, are right in accepting the reports of the Tahsildar and on the aspect, as to how, the distance between the agricultural land and nearest Municipality has to be measured, vis-a-vis, the report of the departmental inspector, we are of the view that the decision of the fact finding authorities that there cannot be any justifiable reason to reject the certificates of the Village Administrative Officer, Deputy Surveyor, Ambattur Taluk and General Manager, Metropolitan Transport Corporation (Chennai) Ltd's, is correct. Our view is also fortified by the decision of the Punjab and Haryana High Court in CIT v. Lal Singh reported in 325 ITR 588 (P & H).

++ we also wish to state that in the matter giving weightage to the evidence, report of the departmental inspection vis-a-vis certificates of the Village Administrative Officer, Deputy Surveyor, Ambattur Taluk and General Manager, Metropolitan Transport Corporation (Chennai) Ltd's, for the purpose of Section 2(14)(iii)(b), certificates of the Revenue Authorities and Public Transport Corporation Ltd., on the measurement of distance, by the approach road, should be given weightage and accepted, unless the contrary is proved. Therefore, it is not open to the revenue to contend that as per Section 11 of the General Clauses Act, 1857, the distance between the agricultural land and the nearest municipality, has to be measured, only in a straight line or a horizontal plane. In between agricultural land and the nearest municipality, if there is a mountain, or lake or private lands or government properties, and in such other cases, where the public has no access to reach the municipality, the distance has to be measured only through the access road and not in a straight line or horizontal plane. There are no valid grounds to reverse the abovesaid orders, stated supra. Question of law raised is answered against the revenue and in favour of the assessee. In the result, the Tax Case Appeal is dismissed.

(See 2016-TIOL-1919-HC-MAD-IT)