Commissioner of Income Tax vs Mrs. Teresa Joseph

K.S. Paripoornan, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal (the Tribunal) has referred the following question of law for the decision of this court in the above-referred cases :

"Whether, on the facts and in the circumstances of the case, the consideration received on the sale of agricultural lands is exigible to Income Tax on capital gains ?"

The respondent is an assessee to Income Tax. We are concerned with the assessment years 1980-81, 1981-82 and 1982-83, for which the respective accounting periods ended on March 31, 1980, March 31, 1981, and March 31, 1982. The sole question that arose for consideration was whether capital gains arising on the sale of agricultural lands situated in Palluruthy Village can be brought to tax. The Income Tax Officer held that it could be brought to tax, rejecting the plea of the assessee to the contrary. This was confirmed by the Commissioner of Income Tax (Appeals) in the first appeal. In the second appeals filed by the assessee before the 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, , it was held that no capital gains assessable to tax on the sale of agricultural lands is possible even though the land was situated within the municipal limits. Since, on the facts of this case, it was agreed that the properties sold by the assessee was agricultural lands, following the decision of the Bombay High Court aforesaid, the Tribunal held that no capital gains on the sale of agricultural lands arose for consideration. It is thereafter, at the instance of the Revenue, that the question of law has been referred by the Tribunal at the instance of the Revenue, for the decision of this court. In CIT v. T.K. Sarala Devi [1987] 167 ITR 136, a Bench of this court 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 tax on the sale of agricultural lands is exigible. The said decision was followed by subsequent Benches of this court in Income Tax Reference No. 121 of 1984 ( COMMISSIONER OF Income Tax Vs. GLORY PAUL., ) and Income Tax Reference No. 37 of 1985 Commissioner of Income Tax Vs. A.S. Iqbal (legal heir of late A.B. Syed Mohammed), ), etc. In the light of the above Bench decisions of this court, it is too late in the day to contend that capital gains arising out of the sale of agricultural lands is not liable for levy of tax under the Income Tax Act. Moreover, the amendment made by Section 3 of the Finance Act, 1989, to Section 2(14) of the Income Tax Act with retrospective effect, will show that tax on capital gains is exigible on the sale of agricultural lands.

In the light of the above Bench decisions, we are of the view that the Appellate Tribunal was in error in holding that the consideration received on the sale of agricultural lands is not exigible to capital gains tax.

We answer the question referred to this court in the affirmative, against the assessee and in favour of the Revenue. The references are answered as above.

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