For the purpose of S.2(14)(iii)(b), distance needs to be measured in terms of “Approach roads” and not as per straight line distance on a horizontal plane or as per crow’s flight:

Assessee sold his agricultural lands situated near Sanand. No gain arising thereon was offered to tax since the said lands, being agricultural lands, didn’t fall within the ambit of capital asset as per S.2(14)(iii)(b). AO, on the basis of certificate issued by Talati, found that the said lands were located within two kms of Municipality limits of Sanand and as per Notification dated 06^th January 1994, Sanand Municipal Area has been notified in all directions upto two kms from Municipal limits for the purpose of S.2(14)(iii)(b). Hence, he was of the view that the said lands are capital assets and gain arising thereon must be taxed as capital gain. Hon’ble ITAT observed that at the time of selling the said lands, there was only one approach road and as per the distance measured through the said approach road, the lands were more than two kms away from Municipal limits of Sanand. It was held that such distance must be measured in terms of approach road and not as per straight line distance on a horizontal plane or as per crow’s flight. Accordingly, the said lands did not fall within the ambit of capital assets as per S.2(14)(iii)(b) and hence, appellant is not liable for any tax on gain arising on sale of such lands.

[ITO vs. Smt. Ashaben Lallubhai Desai – ITA No.2122/Ahd/2012]