Mangla Industries vs Commissioner of Income Tax

V.K. Singhal, J.—The Income Tax Appellate Tribunal has referred the following three questions of law arising out of its order dated March 31, 1987, in respect of the assessment year 1981-82 u/s 256(1) of the Income Tax Act, 1961 ;

"1. Whether the learned Tribunal was right in law in holding that gain on sale of agricultural land was not agricultural income liable to tax under the Income Tax Act, 1961 ?

Whether the learned Tribunal was right in law in upholding imposition of Income Tax under the Income Tax Act, 1961, on sale of agricultural land of the assessee by the assessee if the purchaser has purchased the impugned agricultural land for purposes other than for agricultural or have put to use for purposes other than agriculture ?

Whether the learned Tribunal having found that the impugned land was put to agricultural use by the assessee till its transfer was to be taxed to capital gain if the purchaser has purchased for non-agricultural purposes or puts to non-agricultural use after purchase ?"

The brief facts of the case are that the assessee sold a piece of land for Rs. 95,500 of which the cost of acquisition was Rs. 22,100. The said land was situated within the municipal limits of the city of Alwar. The capital gains were computed by the Income Tax Officer as the land was situated within eight kilometres from the municipal limits in accordance with the provisions of Section 2(14) of the Income Tax Act. The Income Tax Appellate Tribunal relied on its decision of ITO v. Smt. Gorja Devi Lila [1984] TW (4) 18 and sent the matter back to the Income Tax Officer for fresh decision after taking into consideration the use for which the land was sought to be put as a result of sale in question.

It is an admitted position that the land in question is situated within eight kilometres from the municipal limits of the city of Alwar and was recorded as agricultural land in the land revenue records. The Income Tax Appellate Tribunal has relied on the decision of ITO v. Smt Gorja Devi Lila. The said order of the Tribunal was considered by this court in COMMISSIONER OF Income Tax Vs. GORJA DEVI LILA., (D. B. Income Tax Reference No. 22 of 1985), decided on July 21, 1994, and in view of the retrospective insertion of the Explanation to Section 2(1A) with effect from April 1, 1970, it was held that the capital gains tax is leviable. In the Explanation inserted by the Finance Act, 1989, with effect from April 1, 1970, it was mentioned : "For the removal of doubts, it is hereby declared that the revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of Sub-clause (iii) of Clause 14 of this section". Sub-clause (iii) of Section 2(14) was also inserted with effect from April 1, 1970, and agricultural land was included within the definition of capital asset. u/s 47(viii), it was provided that any transfer of any agricultural land in India effected before the first day of March, 1970, will not be considered as a transfer and, therefore, will not be liable to capital gains tax. The decision of the Bombay High Court in the case of Manubhai A. Sheth and others Vs. N.D. Nirgudkar, 2nd Income Tax Officer, A-II Ward, Bombay and another, was held inapplicable in view of the retrospective amendment of law. The use of the land for non-agricultural purposes was liable to capital gains tax and the retrospective amendment of law from April 1, 1970, has also brought within its ambit the agricultural land liable for capital gains tax.

In these circumstances, we are of the view that the decision of the Bombay High Court referred to above does not provide any assistance to the assessee. The sale of agricultural land was liable to capital gains tax irrespective of the use it has been put to.

Accordingly, the reference is answered in favour of the Revenue and against the assessee. No order as to costs.