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Urban agricultural land treated as capital asset under section 2(14) Position upto assessment year 2013-14

(i) Statutory provision

Section 2(14) defines the term capital asset. It provides an inclusive definition of capital asset. As per section 2(14) capital asset does not include agricultural lands in India within its ambit. But all agricultural lands in India are not out of the scope of capital asset. As a consequence the following agricultural lands being urban agricultural land are treated as capital asset and their transfer will give rise to capital gains.

(a) Land situated in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or

(b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or a cantonment board referred to in item (a) above as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette.

(ii) Scope of section 2(14) enlarged to cover agricultural land in certain areas by the Finance Act, 1970 [Explanation given by Circular No. 45, dated 2-9-1970 ]

The Finance Act, 1970 brought certain agricultural lands within the scope of capital asset. Circular No. 45, dt, 2-9-1970 thus explained the amendment :

The Finance Act, 1970, has amended the relevant provisions of the Income Tax Act so as to bring within the scope of taxation, capital gains arising from the transfer of agricultural land situated in certain areas. For this purpose, the definition of the term capital asset in section 2(14) has been amended so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less than 10,000 persons according to the last preceding census for which the relevant figures have been published before the first day of the previous year. The Central Government has been authorised to notify in the Official Gazette any area outside the limits of any municipality or cantonment board having a population of not less than 10,000 up to a maximum distance of 8 kms. from such limits, for the purposes of this provision. Such notification will be issued by the Central Government having regard to the extent of, and scope for, urbanisation of such area, and, when any such area is notified by the Central Government, agricultural land situated within such area will stand included within the term capital asset . Agricultural land situated in rural areas, i.e., areas outside any municipality or cantonment board having a population of not less than 10,000 and also beyond the cantonment board having a population of not less than 10,000 and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, will continue to be excluded from the term capital asset . [Exphasis supplied by author]

(iii) Specified urban areas vis-a-vis agricultural land

According to sub-clause (b) of section 2(14)(iii), an agricultural land situated in an area, not being more than 8 kms. from the local limits of any municipality or cantonment board referred to in sub-clause (a), as the Central Government may notify in the Official Gazette having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations constitutes a capital asset.

There is a Notification No. 9447, dated 6-1-1994 amended by Notification No. 11186, dated 28-12-1999 which is operative from the date of notification itself. It provides, statewise and, in the state, citywise, the distance from the local limits of the municipality or cantonment board, the agricultural land situated wherein would be regarded as capital asset for the purposes of section 45 of the Income Tax Act.

In this notification, Municipality shall mean any areas which is comprised within the jurisdiction of a municipality, (whether known as a municipality, municipal corporation, notified areas committee, town areas committee, town committee or by any other name) which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year.

The reference to municipal limits or the limit of Cantonment Board in the schedule to this notification is to the limits as existing on the date on which the limits as existing on the date on which the notification is published in the Official Gazette.

(a) Applicability of the notification

In view of the fact that the Draft Notification of 1981 has got the finality on 6-1-1994, only the Notification of 6-2-1973 should remain in force upto 5-1-1994 and in case any city is not covered by that list, the agricultural land in the vicinity of that city should not be considered to be a capital asset as the new provisions of section 2(14) provide that all the agricultural land in the area of a municipality, municipal corporation, cantonment board are a capital asset and the land in the vicinity of such municipality or Board not beyond 8 kms., if notified in the Official Gazette, shall be the capital asset. If there is no such Notification the land in the vicinity of such unnotified bigger cities even will not be a capital asset.

(b) Notification notifying specified areas of urban land under section 2(14)(iii)(b) and section 2(1A)(c), proviso (ii)(B)

In exercise of the powers conferred by item (B) of clause (ii) of the proviso to sub-clause (c) of clause (1A) and item (b) of sub-clause (iii) of clause (14) of section 2 of the Income Tax Act, 1961, and in supersession of the notification of the Government of India in the erstwhile Ministry of Finance (Department of Revenue and Insurance) No. S.O. 77(E), dated 6-2-1973, the Central Government having regard to the extent of, and scope for urbanisation of the areas concerned and other relevant considerations, specified vide Notification No. 9447, dated 6-1-1994 as amended by Notification No. 11186, dated 28-12-1999 the areas shown in column (3) of the schedule hereto annexed and falling outside the local limits of municipality or cantonment board, as the case may be, shown in the corresponding entry in column (2) thereof and against the State or Union Territory shown in heading in bold for the purposes of the above mentioned provision of the Income Tax Act, 1961 (43 of 1961).

SCHEDULE

Name of the Municipality or Cantonment Board falling in the State/Union Territory

Details of areas falling outside the local limits of Municipality or Cantonment Board, etc.

I. Andhra Pradesh

1.

Adailabad

Areas upto a distance of 8 kms. from municipal limits in all directions

2.

Adoni

Areas upto a distance of 3 kms. from municipal limits in all directions

3.

Ananthapur

Areas upto a distance of 8 kms. from municipal limits in all directions

4.

Bhimavaram

Areas upto a distance of 8 kms. from municipal limits in all directions

5.

Bhodan

Areas upto a distance of 8 kms. from municipal limits in all directions

6.

Bhongir

Areas upto a distance of 8 kms. from municipal limits in all directions

7.

Chilakaluripet

Areas upto a distance of 3 kms. from municipal limits in all directions

8.

Chirala

Areas upto a distance of 3 kms. from municipal limits in all directions

9.

Chittoor

Areas upto a distance of 8 kms. from municipal limits in all directions

10.

Cuddappah

Areas upto a distance of 6 kms. from municipal limits in all directions

11.

Eluru

Areas upto a distance of 8 kms. from municipal limits in all directions

12.

Gudivada

Areas upto a distance of 5 kms. from municipal limits in all directions

13.

Gudur

Areas upto a distance of 2 kms. from municipal limits in all directions

14.

Gunthakal

Areas upto a distance of 5 kms. from municipal limits in all directions

15.