A division bench comprising justice DK Jain and justice Sharda Aggarwal rejected the contention of senior counsel RP Bansal that in the absence of a notification declaring the rural area of a village as forming part of the urban area, the village continued to be a rural area, beyond the control of the Municipal Corporation of Delhi (MCD). Senior counsel RD Jolly appeared for the Commissioner of Income Tax.
Capital gains tax is not leviable on transfer of agricultural lands falling outside municipalities. The question that arose was whether capital gains arising on transfer of agricultural lands in village Nangal Dewat, Delhi, is chargeable to tax.
It was pointed out that the Delhi Municipal Corporation (DMC) Act, which came into force on November 28, 1957, said that the Act extended to the entire Union Territory of Delhi, comprising rural and urban areas.
As such, village Nangal Dewat being within the union territory of Delhi, falls within the municipal area for the purpose of levying capital gains tax under the Act, observed the court.
The bench referred to a high court decision in Naresh Kumar vs Union of India. In that case, the property was situated in the revenue estate of village Bijwasan, Tehsil Mehrauli, New Delhi which is a rural area. The petitioner in that case disputed the right of the Delhi Municipal Corporation to recover tax on his property.
He had submitted that the building constructed on the property was being used for agricultural purposes and was therefore, not liable to be taxed, being situated in a rural area as well. It was held that rural areas of Delhi were part of Delhi under Section 2(52) of the DMC Act.