Income Tax Dept seeks compensation details from farmers and businessmen

RAIPUR: Income Tax Department has sent letters to farmers and others, who have sold their land to Naya Raipur development authority (NRDA), seeking details of compensation received by them for giving land for developing the new state capital.
As 25 per cent of the land in the area falls within municipal periphery, IT department is considering it as capital asset—meaning that compensation received by assesse on this head would become taxable.
Talking to TOI, Income Tax Chief Commissioner KC Ghumaria said, “NRDA has acquired more than 7000 acres of land from farmers and businessman, for which NRDA paid around Rs 450 crore to farmers and businessmen of the area. We are not issuing notice but formally asking them to furnish to IT department details of the compensation received by them. “We are examining the cases of farmers more cautiously to avoid any unjustified action against them”, added.
However, farmers and businessmen are not convinced to pay tax on agriculture land sold to NRDA but IT department holds a view that its justified as the acquired land is considered as capital asset as it falls within eight kilometres from the local limits of any municipality or cantonment board. Technically this provision is also mentioned in Income Tax Section 2 (14) as well.
Other than 25% of the acquired land, which falls under Raipur Municipal Corporation limits, rest of the acquired land in Naya Raipur is under NRDA periphery, to which Income Tax Department is considering equivalent to municipality or corporate body as per the section 2(14).
To justify NRDA is equivalent to municipality, Income Tax Department’s Chief Commissioner cited the judgement by High Court of Punjab & Haryana between Commissioner of Income Tax versus Rani Tara Devi. The verdict of this case upheld Income Tax Act as, “the expression ‘Municipality’ in section 2 (14) of the Act is very wide. It is not restricted to municipality constituted under the relevant Municipal Laws…., but it would include any other area known by any other name.”
To prove that NRDA is equivalent to municipal authority and that as per provision of section 2 (14) (iii) and section 2 (14) (iii) (b) of the Income Tax Act, 1961 that the piece of land transferred by the assesse to NRDA is not qualified to be excluded from being a capital assets, Raipur Income Tax Department has filed a case in the state High Court against assess, who challenged Assessing officer in this context in Income Tax Tribunal Raipur bench. The matter is still pending in the HC.
The farmers would be exempted from paying tax in two situations if its established that agriculture activity was carried-out on the sold land before selling it to NRDA and secondly, if the farmer has invested the amount in buying some property. Hence tax would be exempted as per the documentation is produced accordingly. But the case of would be not similar.