Does the agricultural land turn non-agricultural with expansion of municipal limits
Before the bench of the Tribunal in [2025] 180 taxmann.com 847 (Chandigarh – Trib.)[20-11-2025] a case of reopening was made out where the AO upon physical inspection /verification found the subject land was situated at a distance of less than 8 kilometres (approximately 7 kilometres) on the date of sale hence shall constitute a ”capital asset” within the meaning of section 2(14) and was accordingly exigible to tax notwithstanding the purchase deed clearly identifying it at the time of its purchase as falling outside the municipal limits.
The AO held a view that had the same position continued at the time of sale, a corresponding endorsement should have been reflected in the registered sale deed. Since it was not the case he charged the land sale to tax.
Section 2(14) does not say that agricultural land shall lose its character merely due to municipal limits expansion. Nor shall it states that the description in the sale deed shall be conclusive. There are no words such as ’on the sale of such land’ or ‘description in registered sale deed’ in section 2(14).
Agricultural land does not become a non-agricultural “capital asset” merely because, on the date of sale, it falls within municipal limits or within the specified distance from such limits. What matters under section 2(14) is the character of the land on the date of transfer, not the description in the sale deed, nor the mere expansion of municipal limits—unless the land has ceased to be agricultural either when there is conversion or agricultural operations have permanently ceased or the same is put to non-agricultural use.
Thus the idea of taxing gains in this case solely on the test of municipal limits “on the date of sale”, without examining the character of land, may not be warranted by the Act.