Wednesday, December 19, 2012

Airport Authority isn’t a ‘municipality’; agriculture land in its limit but beyond municipal limit isn’t a cap. asset

As Hyderabad Airport Development Authority (“HADA”) can’t be treated as a ‘municipality’, agricultural land situated within its jurisdiction isn’t a ‘capital asset’ by virtue of exclusion u/s 2(14)(iii) and capital gains resulting from sale of such land aren’t taxable as capital gains

In the instant case, the moot question that arose before the Tribunal was whether HADA could be considered as municipality and agricultural land situated within its jurisdiction could be considered as capital asset under section 2(14)(iii)(a)/(b).

The Tribunal held as under:

1) It was  clear from section 2(14)(iii)(a)/(b) that the gain on sale of an agricultural land would be exigible to tax only when the land transferred was located within the jurisdiction of a municipality;

2) HADA was basically and essentially a creation of the Act of the State Legislature consisting of persons appointed by the State Government on salary basis. The Board Members were not elected by the people and there was no element of people’s choice being represented in any manner in the constitution of the Board. The Board functioned strictly under the supervision and control of the State Government and did not hold or possess a “local fund”. Being so, HADA couldn’t be called as a local authority;

3) HADA was only entrusted with the responsibility of preparing draft Master Plans and granting technical approval for any proposed construction or development in its jurisdiction. It didn’t have any power or ability to collect taxes nor was it responsible for provision of civic amenities which would be within the exclusive domain of the local authorities;

4) HADA, being a Development/Special Area Authority constituted under the said Act, couldn’t be either equated with a distinct municipality or considered as a complete substitute of a municipality or any other local authority;

5) HADA couldn’t be treated as a 'Municipality' and, as such, the agricultural lands situated within the jurisdiction of HADA wouldn’t constitute capital asset. Thus, gains consequential to sale of such land wouldn’t be chargeable to tax - Smt. T. Urmila v. ITO [2012] 28 222 (Hyderabad - Trib.)