Commissioner of Income Tax vs George Varghese

K.S. Paripoornan, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following questions, in the above two cases, for the decision of this court :

"income tax Reference No. 61 of 1987 :

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and has jurisdiction to hold that the land in question is not a capital asset within the meaning of the definition and hence not liable to capital gains tax on its sale ?

Income Tax Reference No. 11 of 1988 :

Whether, on the facts and in the circumstances of the case, was the Tribunal right in law in holding that no tax on capital gains was leviable on the sale of the land in question ?"

The respondents are assessees to Income Tax. The assessees sold agricultural lands during the relevant accounting periods which resulted in capital gains. They put forward the plea that capital gains accruing as a result of the sale of agricultural land is not exigible to levy of Income Tax. This plea was rejected by the Income Tax Officer and affirmed by the Appellate Assistant Commissioner. In second appeal, the Appellate Tribunal, following the decision of the Bombay High Court in Manubhai A. Sheth and others Vs. N.D. Nirgudkar, 2nd Income Tax Officer, A-II Ward, Bombay and another, , held that no tax can be imposed on capital gains which arose out of the sale of agricultural property even though the property is situated in a notified area. It is thereafter at the instance of the Revenue that, the questions of law, formulated hereinabove, have been referred for the decision of this court.

We heard counsel. A Bench of this court in CIT v. T. K. Sarala Devi [1987] 167 ITR 136 dissented from the decision of the Bombay High Court in Manubhai A. Sheth and others Vs. N.D. Nirgudkar, 2nd Income Tax Officer, A-II Ward, Bombay and another, and held that capital gains arising from the sale of agricultural lands can be brought to tax under the Income Tax Act. The decision in T. K. Sarala Devi''s case [1987] 167 ITR 136 was followed in subsequent decisions, I. T. R. No. 6 of 1985 dated June 13, 1989 ( Commissioner of Income Tax Vs. Glory Paul, ), I. T. R. No. 37 of 1985 dated June 13, 1989 and ( Commissioner of Income Tax Vs. A.S. Iqbal (legal heir of late A.B. Syed Mohammed), ) and I. T. R. No. 121 of 1984 dated July 5, 1989 COMMISSIONER OF Income Tax Vs. GLORY PAUL., ).

In the light of the above decisions, the Appellate Tribunal was in error in holding that no tax on capital gains was leviable on the sale of agricultural lands in question. It will be useful to remember the amendment made in the Act by Section 3 of the Finance Act, 1989. The amendment in the statute has been made with retrospective effect which makes it clear that capital gains tax is exigible on the sale of agricultural lands situate within the notified areas.

In the light of the above, the Appellate Tribunal was in error in holding to the contrary. It should have been held that if there is capital gains by the sale of lands in question, it is exigible to capital gains tax. We answer the questions referred to us in the negative, against the assessee and in favour of the Revenue.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income Tax. Appellate Tribunal, Cochin Bench.