International Taxation :- Budget 2013

      Tax Residency certificate :- Section 90 (4) /90A(4)

Existing Act	Proposed Changes (w.r.e.f AY 2013-14)
·         Assessee, not being a resident ·         to whom DTAA applies ·         Shall not be entitled to claim any relief under DTAA, ·         Unless a Certificate, containing particulars of his being a resident in any country outside India or specified territory. ·         Is obtained from the government of that country or territory.	New Sub section (5) inserted: ·      The certificate of being a resident in a country outside India or specified territory outside India, ·      as the case may be, ·      referred to in sub-section (4), ·      shall be “necessary but not a sufficient condition” ·      for claiming any relief under the agreement referred to there.

Comment:

1. Finance Act 2012 brings an amendment in section 90 according to which submission of “Tax Residency Certificate” is mandatory and only condition to claim treaty benefit. Interestingly it has been mentioned in ‘Memorandum explaining Finance Bill 2012’ that TRC would be necessary but not a sufficient condition for getting the treaty benefit. Though the said wordings was not part of Finance Act 2012, it is now proposed in finance bill 2013 to reintroduce the same with retrospective effect from AY 2013-14. 

2. As per proposed amendment “Tax Residency Certificate” produced by a Non- Resident shall not be sufficient to take treaty benefit. What else the taxing authority is expecting from them is best known to them only.

3. Mauritius is a popular source of foreign investments into India, accounting for around 40% of portfolio inflows according to some estimates. As per Memorandum explaining Finance Bill 2012 “ It is noticed that in many instances the taxpayers who are not tax resident of a contracting country do claim benefit under the DTAA entered into by the Government with that country. Thereby, even third party residents claim unintended treaty benefits.”

Proposed amendment will give tax authorities to identify the actual beneficiary instead of FIIs operative in front end activities. These FIIs buy Indian assets on behalf of their clients through subsidiaries with double tax treaties with India, meaning under Indian law, only the banks and brokerages are registered as the foreign investor, while the end investor remains outside the purview of Indian tax authorities.

4. In Circular No. 789 dated 13.04.2000, CBDT had clarified that with respect to DTAA with Mauritius, wherever the certificate of residence is issued by Mauritian Authorities, such certificate will constitute sufficient evidence for accepting the status of residence of a taxpayer.

Hon’ble Supreme Court in Azadi Bachao Andolan (132 Taxman 373) had held circulars in no case curtail the powers of assessing officer. Accordingly Apex Court had upheld the validity of circular no. 789.

Advance Ruling in case of E Trade Mauritius Ltd (190 Taxman 232) has accepted the above principle. In this case Investment had brought in India thorough a company of Mauritius, the parent of which was a

USA based company. AAR held that treaty benefit cannot be denied as the assessee is a tax resident of Mauritius holding TRC certificate issued by the government.  

5. Amid pressure from foreign investors, Finance ministry had issued a press release dated 01.03.2013 clarifying that sub section (5) of section 90 does not mean that the tax residency certificate produced by a resident of a contracting state could be questioned by the taxing authorities.

     It has been clarified that Tax Residency Certificate produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the Tax Authorities in India will not go behind the TRC and question his resident status.

      It is also clarified that for Mauritius, circular no. 789 dated 13.4.2000 continues to be in force, pending ongoing discussions between India and Mauritius.

Even Finance Minister after the budget speech said “It has not become law yet. It's a bill. When I read that clause again, I said it is clumsily worded," 

6. The said clarification is clearly in contradiction of scheme of the proposed amendment as clear from the memorandum explaining finance bill given below. The said clarification seems to calm down the anxiety of foreign investors till the time finance bill becomes Act.

 Extract of Memorandum:

“The scheme of interplay between DTAA and domestic legislation ensures that a taxpayer, who is resident of one of the contracting country to the DTAA, is entitled to claim applicability of beneficial provisions either of DTAA or of the domestic law. Sub-section (4) of sections 90 and 90A of the Income-tax Act inserted by Finance Act, 2012 makes submission of Tax Residency Certificate containing prescribed particulars, as a condition for availing benefits of the agreements referred to in these sections.

       It is proposed to amend sections 90 and 90A in order to provide that submission of a tax residency certificate is a necessary but not a sufficient condition for claiming benefits under the agreements referred to in sections 90 and 90A. This position was earlier mentioned in the memorandum explaining the provisions in Finance Bill, 2012, in the context of insertion of sub-section (4) in sections 90 & 90A.”

    Taxation of Royalty / Fees for technical services :- Section 115A

Existing Act

Proposed Changes

· Where the total income of a non-resident taxpayer includes any income by way of · Royalty and Fees for technical services (FTS) received under an agreement entered after 31.03.1976 and · which are not effectively connected with permanent establishment, if any, of the non-resident in India. · then tax is payable on the gross amount of income at the rate of -          30%, (if the agreement is on or before 31.05.1997) / -          20%  (if the agreement is after  31.05.1997 but before 01.06.2005) -          and 10% if the agreement is after 01.06.2005.

Tax will be payable on the gross amount of income at the rate of 25% if the agreement is on or after 31.03.1976.

Comment:

1. India has tax treaties with 84 countries, majority of tax treaties allows India to levy tax on gross amount of royalty at rates ranging from 10% to 25% (like for tax residents of UK- USA @15%, for tax residents of Denmark-Italy.. @20%, for tax residents of Poland – Romania.. @ 22.5% & for tax residents of magnolia @25%) whereas the tax rate as per section 115A is 10%.

As per section 90 of IT Act, DTAA provisions will apply to a taxpayer in a beneficial manner and accordingly by applying section 115A payment to resident of above mentioned country is get taxed @ 10% though DTAA prescribes a higher rate.  

Extract of Memorandum:   

“  In order to correct this anomaly, the tax rate in case of non-resident taxpayer, in respect of income by way of royalty and fees for technical services as provided under section 115A, is proposed to be increased from 10% to 25%. This rate of 25% shall be applicable to any income by way of royalty and fees for technical services received by a non-resident, under an agreement entered after 31.03.1976, which is taxable under section 115A.”

    General Anti Avoidance Rules (GAAR) :-      

Applicable w.e.f. 01.04.2016

GAAR was originally introduced by Finance Act 2012 to ‘COUNTER AGGRESIVE TAX PLANNING.’  However the applicability of the same was differed till 31.03.2014. A number of representations were received against the provisions relating to GAAR. An Expert Committee was constituted by the Government and based on the report of the committee, following amendments are proposed in original GAAR: (A)   GAAR provisions will come into force with effect from April 1, 2016 and shall apply from the assessment year 2016-17. (B)   An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. (C)   The factors like, period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement, would be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement (D)   An arrangement shall also be deemed to be lacking commercial substance, if it does not have a significant effect upon the business risks, or net cash flows of any party to the arrangement apart from any effect attributable to the tax benefit that would be obtained but for the application of Chapter X-A.

    Tax incentive for Foreign funding in Infra Sector :- Section 194LC

Existing Act

Proposed  changes   (w.e.f. 01.06.2013)

ü Specified company ü borrows money in Foreign currency ü from a source outside India ü Under loan agreements or by way of issue of long term infra bonds. ü As approved by CG, then ü Interest income paid shall be subjected to ü TDS @ 5% (plus applicable surcharge and cess). The specified company shall be an Indian company engaged in the business of - ü construction of dam, operation of Aircraft, ü manufacture or production of fertilizers, ü construction of port including inland port, ü construction of road, toll road or bridge; ü generation, distribution of transmission of power ü construction of ships in a shipyard; or ü Developing and building an affordable housing project.

A new proviso inserted : ·  where a non-resident (not being a company) or a foreign company has deposited ·  any sum of money in foreign currency in a designated account through which ·  such sum, as converted in rupees, ·  is utilised by the non-resident or the foreign company,   ·  to subscribe to any long-term infrastructure bonds issued by the specified company in India, ·  then, such borrowing, ·  shall be deemed to have been made by the Specified company in foreign currency. Designated account” means an account of a person in a bank which has been opened solely for the purpose of deposit of money in foreign currency and utilisation of such money for payment to the specified company for subscription in the long-term infrastructure bonds issued by it;

Comment:

1. The amendment is proposed to provide tax incentive for making investment in Infra sector to make it more attractive for foreign investor.

Extract of Memorandum:  

“ In order to facilitate subscription by a non-resident in the long term infrastructure bonds issued by an Indian company in India (rupee denominated bond ), it is proposed to amend section 194LC of the Income-tax Act so as to provide that where a non-resident deposits foreign currency in a designated bank account and such money as converted in rupees is utilised for subscription to a long-term infrastructure bond issue of an Indian company, then, for the purpose of this section, the borrowing by the company shall be deemed to be in foreign currency. The benefit of reduced rate of tax would, therefore, be available to such non-resident in respect of the interest income arising on such subscription subject to other conditions provided in the section.”

Other Amendments :- Budget 2013

      Pass through status of certain Alternative Investment funds:- Section 10(23FB)

Existing Act

Proposed  New changes  (w.r.e.f AY 2013-14)

Section 10(23FB) Any income of a Venture Capital Company (VCC) or Venture Capital Fund (VCF) from investment in a Venture Capital Undertaking (VCU) shall be exempt from taxation. Section 115U Income accruing or arising or received by a person out of investment made in a VCC or VCF shall be taxable in the same manner as if the person had made direct investment in the VCU. Both sections provides a tax pass through status (i.e. income is taxable in the hands of investors instead of VCF/VCC).

The SEBI (Alternative Investment Funds) Regulations, 2012 (AIF regulations) have replaced the SEBI (Venture Capital Fund) Regulations, 1996 (VCF regulations) from 21st May, 2012. In order to provide benefit of pass through to similar venture capital funds it is proposed that : (i)      The existing VCFs and VCCs would continue to avail pass through status as currently available. (ii)    In the context of AIF regulations, the VCC shall be defined as a company and VCF shall be defined as a fund set up as a trust, which has been granted a certificate of registration as VCF being a sub-category of Category I Alternative Investment Fund and satisfies the following conditions:- a) That at least two-thirds of its investible funds are invested in unlisted equity shares or equity linked instruments of venture capital undertaking. b) No investment has been made by such AIFs in a VCU which is an associate company. c) Units of a trust set up as AIF or shares of a company set up as AIF, are not listed on a recognised stock exchange. (iii) In the context of AIF regulations, the Venture Capital Undertaking shall be defined as it is defined in the Alternative Investment Funds Regulations.

      Tax on distributed income by the Mutual Funds :- Section 115R

Existing Act	Proposed  New changes  (w.e.f 01.06.2013)
Any amount of income distributed by the specified company or a Mutual Fund to its unit holders is chargeable to additional income-tax as under: ·         In case of any distribution made by a fund other than equity oriented fund to person other than individual and HUF, @ 30%. ·         in case of distribution to an individual or an HUF it is @12.5% or @25% depending on the nature of the fund.	In case of distribution to an individual or an HUF the tax rate will be 25%. Tax @ 5% on income distributed shall be payable in respect of income distributed by a Mutual Fund under an IDF scheme to a non-resident Investor.

      Taxation of Securitisation Trust:- New Chapter XII-EA (Section 115TA -115TC)

New Sections (w.e.f.  01.06.2013)

Section 161 of the Income-tax Act provides that in case of a trust if its income consists of or includes profits and gains of business then income of such trust shall be taxed at the maximum marginal rate in the hands of trust. The special purpose entities set up in the form of trust to undertake securitisation activities were facing problem due to lack of special dispensation in respect of taxation under the Income-tax Act A special tax regime for Securitisation Trust is proposed, the salient features of the same are :- (i)     In case of securitisation vehicles which are set up as a trust and the activities of which are regulated by either SEBI or RBI, the income from the activity of securitisation of such trusts will be exempt from taxation. (ii)    The securitisation trust will be liable to pay additional income-tax on income distributed to its investors on the line of distribution tax levied in the case of mutual funds. The additional income-tax shall be levied @ 25% in case of distribution being made to investors who are individual and HUF and @ 30% in other cases. No additional income-tax shall be payable if the income distributed by the securitisation trust is received by a person who is exempt from tax under the Act. (iii)   Consequent to the levy of distribution tax, the distributed income received by the investor will be exempt from tax. (iv)  The securitisation trust will be liable to pay interest at the rate of 1% for every month or part of the month on the amount of additional income-tax not paid within the specified time. (v)   The person responsible for payment of income or the securitisation trust will be deemed to be an assessee in default in respect of amount of tax payable by him or it in case the additional income-tax is not paid to the credit of Central Government.

Procedural Compliance :- Budget 2013

    Defective Return :- Section 139(9)

Present Law	Proposed Changes (w.e.f. 01.06.2013)
·  Where the AO considers that the Return of Income (ROI) furnished by the assessee is defective, ·  he may intimate the defect to the assessee ·  and give him an opportunity to rectify the defect ·  Within a period of fifteen days.	New Sub clause (aa) inserted: ·  ROI will also be treated as defective ·  If taxes due i.e. Advance Tax & self assessment tax ·  has not been paid ·  on or before the date of filing of return. **This defect is non-curable.

Comment:

1. As per existing section 139(9), if the ROI has been found to be defective, then as per the direction of the AO, assessee can rectified the defect within a period of 15 days and after such rectification, the return can be treated as valid return. However, as per proposed amendment, ROI without payment of ‘taxes due as per return’ shall be treated as defective.

2. The proposed amendment seems to be too harsh for the reason that merely because of non payment of returned taxes, ROI of the assessee will be treated as defective ‘which cannot be rectified’, except by filing a fresh ROI.

       Suppose an assessee is claiming the deduction u/s 80-IA and filing the ROI on 30^th Sept i.e. on the last day without paying due taxes. As per proposed amendment the ROI filed by the assessee will be treated as defective and other provisions of the act will apply as if the no ROI has been filed by the assessee.     

       Assessee, after paying the taxes, is filing the ROI once again on 30^th October. Now the assessee will not be eligible for deduction u/s 80-IA, because as per section 80AC, for claiming deduction u/s 80-IA, the ROI should be filed on or before the due date i.e. on or before 30^th Sept. 

2. The proposed amendment is seems to be a tax collection measure at the earliest point of time. From the taxpayers point of view, the said provision is seems to be quite harsh as merely non payment of returned tax liability will lead to a conclusion that assessee had not filed the tax return.   

Extract of Memorandum:

“  It has been noticed that a large number of assessees are filing their returns of income without payment of self-assessment tax.

     It is, therefore, proposed to amend the aforesaid Explanation so as to provide that the return of income shall be regarded as defective unless the tax together with interest, if any, payable in accordance with the provisions of section 140A has been paid on or before the date of furnishing of the return. .”

      Special Audit: - Section 142[2A]:

Present Law

Proposed Changes (w.e.f. 01.06.2013)

·  If at any stage of the proceeding, the AO having regard to the ·  nature and complexity of the accounts ·  of the assessee and ·  the interests of the revenue, ·  is of the opinion that it is necessary so to do, ·  he may, with the approval of the Chief Commissioner or Commissioner, ·  Direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.

· If at any stage of the proceeding, the AO having regard to the o   nature and complexity of the accounts or  o   volume of the accounts, or o   doubts about the correctness of the accounts, or o   multiplicity of transactions in the accounts or o   specialized nature of business activity, ·  of the assessee and ·  the interests of the revenue, is of the opinion that it is necessary so to do, ·  he may, with the approval of the Chief Commissioner or Commissioner, ·  Direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.

Comment:

1. AO, with the previous approval of CIT or CCIT, can direct the assessee to get his accounts audited, if he feels necessary by taking into consideration one of the various factors as above.

2. Following case decisions seems to have been overruled by the proposition of this amendment:

a) Peerless General Finance (236 ITR 671) Kolkata, wherein HC held an opinion has to be formed having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue and both the factors are necessary ingredients for exercise of power. In the absence of the same direction u/s 142(2A) is void.  

b) Heera lal (106 TTJ 114) Jaipur, wherein ITAT had held that as there is no evidence in the assessment record that the AO had considered the nature and complexity of the accounts and hence proceedings u/s 142(2A) is invalid.

c) Rajendra Singh (117 TTJ 885) Mumbai, wherein ITAT held that there was no application of mind at all by AO to form an opinion that having regard to the nature and complexity of accounts and the interests of Revenue, and accordingly direction of special audit is invalid.

3. A larger accountability is now cast on the CIT or CCIT to check the basis on which the permission of special audit had been sought.

Extract of Memorandum:  

“   The expression “nature and complexity of the accounts” has been interpreted in a very restrictive manner by various courts. It is, therefore, proposed to amend the aforesaid sub-section so as to provide that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.”

    Application of seized assets u/s 132B:

Existing Act

Proposed  changes (w.e.f. 01.06.2013)

·      Seized assets may be adjusted against ·      any existing liability ·      under the Income-tax Act, Wealth-tax Act, the Expenditure-tax Act, the Gift-tax Act and the Interest-tax Act and ·      the amount of liability determined on completion of assessments pursuant to search, ·      including penalty levied or interest payable and ·      in respect of which such person is in default or deemed to be in default..

Explanation inserted: Existing liability does not include advance tax payable.

Comment:

1. Following case decisions are likely to be overruled by this amendment:

a) Jyotindra B Mody (ITA/3741/2010) Bombay, wherein Hon’ble HC had held that seized cash can be adjusted against advance Tax liability when assessee had made specific request to treat the seized cash as advance tax.

b) Kesr Kiman Karyalaya (278 ITR 596) Delhi: HC in this held when offer for adjustment of seized cash was made by the assessees before the advance tax liability became due then the same could be adjusted against advance tax liability.

c) Vishwanath Khanna (335 ITR 548) Delhi: HC had held that Department would not be justified in levying interest under ss. 234B and 234C, as the amount of advance tax payable by the petitioner assessee for relevant assessment years could be adjusted from the amount lying with the Department in the petitioner’s own account consequent to search and seizure operation.

d) Ram S Sarda 13 ITR 457 (Rajkot), wherein ITAT held that cash seized at the time of search should be treated as Advance Tax and accordingly should be adjusted accordingly.

2. Cash seized during the course of search proceedings will not be adjusted against the advance tax liability. It means the assessee has to make an extra effort to make arrangements for payment of Advance Taxes.

 Extract of Memorandum:

“Various courts have taken a view that the term “existing liability” includes advance tax liability of the assessee, which is not in consonance with the intention of the legislature. The legislative intent behind this provision is to ensure the recovery of outstanding tax/interest/penalty and also to provide for recovery of taxes/interest/penalty, which may arise subsequent to the assessment pursuant to search.”

    Online filing of wealth tax return: Section 14A / Section 14B

Present Law	New Section (w.e.f.01-06-2013)
Section 14 of Wealth Tax ·  Every assessee, whose net wealth exceeds INR 30 Lakh, ·  is required to file wealth tax return (in paper form)  ·  along with relevant supporting documents.	Section 14A / Section 14B Eligible assessee may file a return of net wealth in electronic mode (e-filing) similar to Income tax returns. CBDT will prescribe the relevant rules accordingly.

Comment:

1. Paper returns will become history soon as proposed amendment will enable the assessee to file their wealth return online. Hope assessee will prefer the same.

2. For governments point of view now they can get the data in a systematic manner and administrative burden will be reduced to a certain extent as the online return is supposed to be processed in centralised processing centre.

Extract of Memorandum:

“ Sections 139C and 139D of the Income-tax Act contain provisions for facilitating filing of annexure-less return of income in electronic form by certain class of income-tax assessees. In order to facilitate electronic filing of annexure-less return of net wealth, it is proposed to insert new sections 14A and 14B in the Wealth-tax Act on similar lines.”

      “Taxes Due” Re- Defined:- Section 179 

Existing Act	Proposed  changes (w.e.f. 01.06.2013)
·         Where the “Tax Due” ·         from a private company cannot be recovered from such company, ·         then the director/s ·         shall be jointly and severally liable for ·         payment of such tax ·         Unless they proves that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on their part.	“Tax Due” includes penalty, interest or any other sum payable under the Act.

Comment:

1. Earlier in case of non payment of Income tax by the company, same can be recovered from the directors. However recovery of interest and penalty from the directors had been litigated. Definition of Tax due is proposed to be amended to include interest and penalty and according the same can be recovered from the directors.

2. Following case decisions are likely to be overruled by the proposed amendment:

a) Dinesh T tailor (326 ITR 85) Bombay, wherein Hon’ble HC held that taxes for the purpose of section 179 does not include penalty.

b) H Ebrahim (332 ITR 122) Karnataka: High Court had held that as per section 179 director of the company is liable to pay tax component only and not the penalty & interest.

c) Sanjay Ghai (WP 5175/2012) Delhi: In this case, AO computed outstanding dues of the assessee company including tax, interest and penalty, to be payable by the lone director. HC held that assessee in this case cannot be made liable for anything more than the tax.      

Extract of Memorandum:  

“ Some courts have interpreted the phrase ‘tax due’ used in section 179 to hold that it does not include penalty, interest and other sum payable under the Act. In view of the above, it is proposed to clarify that for the purposes of this section, the expression “tax due” includes penalty, interest or any other sum payable under the Act. Amendments on the similar lines for clarifying the expression ‘tax due’ is proposed to be made to the provisions of section 167C”

      Extended time for completion of assessments:

Present Law

Proposed Changes

Section 153 - Explanation 1 (iii) ·         The period commencing from the date on which ·         AO directs the assessee to get his accounts audited u/s 142 (2A) and ·         ending with the last date on which the assessee is required to furnish a report of such audit, ·         is excluded in computing the period of limitation for the purposes of assessment or reassessment. Section 153 - Explanation 1 (viii) ·         The period commencing from the date on which ·         a reference for exchange of information is made ·         by an competent authority u/s 90 or 90A and ·         ending with the date on which the information so requested is received by the Commissioner or a period of one year, whichever is less, ·         in computing the period of limitation for the purposes of section 153.

Section 153 - Explanation 1 (iii) : Revised ·         The period .... ·         AO ... ·         ending ...., or   ·         where such direction is challenged before a court, ending with the date on which the order setting aside such direction is received by the Commissioner ·         is excluded .. Section 153 - Explanation 1 (viii) : Revised ·         The period commencing from the date ·         on which a reference or first of the references for exchange of information is made ·         by an competent authority u/s 90 or 90A and. ·         and ending with the date on which the information requested is last received by the Commissioner or a period of one year, whichever is less, ·         shall be excluded in computing the period of limitation for the purposes of section 153..

Comment:

1. AO will get additional time if the special Audit has been set aside by any court. Further AO will also get additional time for completion of assessment when any information has been sought from foreign authorities.

2. Supreme Court decision in case of Sahara India 300 ITR 403 is seems to be overruled by the proposed amendment. In this case Apex Court had given a direction not to challenge the time limit prescribed u/s 142(2A).

Extract of Memorandum:

“....Under the existing provisions of clause (iii) of Explanation 1 to section 153, the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assessee is required to furnish a report of such audit, is excluded in computing the period of limitation for the purposes of assessment or reassessment.

However, the existing provision does not provide for exclusion of time in case the direction of the Assessing Officer is set aside by the court.”

      Penalty for non-filing of Annual Information return :- Section 271FA

Present Law	Proposed Changes
·         If a person who is required to furnish an annual information return (AIR), as per section 285BA, and ·         fails to furnish such return within the time limit, then ·         the income-tax authority may direct that ·         such person shall pay, a penalty of ·         INR 100 for every day during which the failure continues.	Provisio Inserted ·         In case person fails to furnish the return within the period specified in the notice, ·         he shall pay, by way of penalty, ·         INR 500 per day for every day during which the failure continues, ·         Beginning from the day immediately following the day on which the time specified in such notice for furnishing the return expires.

      Definition of Capital Assets:- Section 2(14)

Existing Act

Proposed  New changes

Capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include.... (iii) Agricultural land in India, not being land  situated a)      in any area within the jurisdiction of a municipality or cantonment board having population of not less than ten thousand according to last preceding census, or b)        land situated in any area within such distance not exceeding eight kilometres from the local limits of any municipality or cantonment board, as notified by the Central Government having regard to the extent and scope of urbanization and other relevant factors, forms part of capital asset.

Section 2(14)(iii)(b) redefined: Land situated in any area within the distance, measured aerially (shortest aerial distance), (I)      not being more than 2 kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 10,000 but not exceeding 1 lakh; or (II)    not being more than 6 kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 1 lakh but not exceeding 10 lakh; or (III)  not being more than 8 kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 10 lakh, forms part of capital asset.