In the Tax Forum dated July 27, 2009, it has been stated as regards the effect of extension of municipal limits on capital gains as: “Unless a fresh notification taking into consideration the extended limit of municipalities and corporation is issued, the deeming provision will apply only with reference to the city/ town limits as on the date of notification in force at the time of sale.” Notification No. S.O.87(E) dated November 9, 1993, specifies the urban areas around Chennai and other named cities for the purpose of Sec. 2(ea) of the Wealth Tax Act. Should the lands to be considered as urban lands for wealth tax purposes also be with reference to the limits as on the date of notification and not with reference to the present city limits, which have since been extended?
A fresh notification in the light of the extended limits would be necessary because the notification by the Board has to be issued under the statute considering the scope of urbanisation so that application of mind on the part of the Board would be necessary, if fresh areas are to be brought within the scope of the notified periphery.
Such reasoning had the support of the views expressed by the Tribunal as mentioned in my earlier answer in Levleen Singhal v Dy. CIT (2007) 111 TTJ (Del) 326 and Om Prakash v ITO (2008) 25 SOT 198 (Del). However, it has to be borne in mind that the land within the extended limit of the city will be urban land. It is only as regards notified periphery, such periphery will be reckoned with reference to city limits at the time the notification was brought into force.
As regards the question relating to wealth tax raised by the reader, Swarnalatha Ganapathy, C.A., one has only to compare the meaning of urban land in the definition of agricultural land under Sec. 2(14) of the Income-tax Act with Sec. 2(ea) of the Wealth Tax Act.
Sec. 2(14) defines “agricultural lands” as: “(iii) Agricultural land in India, not being land situate (a) 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 10,000 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 8 km from the local limits of any municipality or cantonment board referred to in item (a), 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.”
The definitions are the same both for taxation of capital gains and wealth tax. Agricultural land, other than deemed urban land is exempt for purposes of capital gains tax, while what is taxable is only urban land, including deemed urban land and land appurtenant to a building for wealth tax. What is stated as regards periphery for capital gains tax in these columns referred by the reader, will apply for wealth tax as well.S. RAJARATNAM