(Appeal from the judgment and order dated September 27, 1977, of the Andhra Pradesh High Court in C.R. No.18 of 1976 and C.M.P. No.9787 of 1977).

Income-tax---

----Capital gains---Date of transfer---Requisition of immovable property by Government---Acquisition thereafter---Date when notification for acquisition is published is date of transfer---Agricultural land---Situate in a village within municipality---Population of village less than 10,000---Agricultural land in village is "capital asset"---Capital gains from acquisition taxable.

The appellant was the owner of a property known as Khader Bagh comprising buildings and lands measuring more than 45 acres. This property was situated in a village, which had a population of less than 10,000 but that village was part of the Hyderabad Municipality. An extent of this property was under requisition by the Central Government under the Requisitioning and Acquisition of Immovable Property Act, 1952. Later, the Government acquired 36 acres and 22 guntas of the land and passed a formal order on February 27, 1970. The publication of the formal order in the Official Gazette was made on March 13, 1970. The appellant claimed, inter alia, that the land was agricultural land and that it was not a capital asset because it was situated in a village with a population of less than 10,000 and that the transfer for purposes of capital gains took place prior to March 1, 1970 when the definition of "capital asset" was amended to include certain types of agricultural land. The High Court held that the land acquired was a "capital assn" with the meaning of section 2(14)(iii)(a) of the Income Tax Act, 1961, as the words "which has got a population of more than ten thousand" qualified "the municipality or cantonment" and not the expression "area", and that the transfer took place only on March 13, 1970, on the publication of the order in the Official Gazette. On appeal to the Supreme Court:

Held, affirming the decision of the High Court, (i) that the interpretation put upon section 2(14)(iii)(a) by the High Court was unexceptionable and rational;

S. Hidhayathullah Sahib v. CTT (1986) 158 ITR 20 (Mad.) approved.

(ii) that, in view of section 7(2) of the Requisitioning and Acquisition of Immovable Property Act, 1952, the date of publication of the notification for acquisition was the date when the property vested absolutely in the Government and that was the date of transfer for purposes of capital gains.

CIT (Addl.) v. G.M. Omarkhan (1979) 116 ITR 950 affirmed.

S.L. Taneja and K.L. Taneja, Advocates for Appellant.

S.C. Manchanda, Senior Advocate (S. Rajappa and Ms. A. Subhashini, Advocate with him) for Respondent.

JUDGMENT

This appeal by certificate is against the advisory judgment dated September 27,1977, of a Division Bench of the High Court of Andhra Pradesh in Reference No.18 of 1976, reported in (1979) 116 ITR 950 (AP) titled Addl. CIT v. G. M. Omarkhan.

Out of the four questions referred to the High Court, only two have survived for a decision. On question No.l, whether, on the facts and in the circumstances of the case, the lands acquired by the Government were agricultural lands, the answer has been in favour of the assessee holding that the lands acquired were agricultural lands. On question No.4, whether, on the facts and in the circumstances of the case, the mere claim of the assessee for additional compensation can be taken into account for purpose of determining the capital gains derived by the assessee, the answer has gone in favour of the assessee and against the Revenue.

The following two questions survive and are answered against the assessee:

"(2) Whether, on the facts and in the circumstances of the case, the interpretation given by the Tribunal based upon the definition of `capital asset' in section 2(14)(iii)(a) of the Income Tax Act, 1961, is correct?

(3)??????? Whether the profits or gains arising from the transfer of a `capital asset' can be chargeable to income-tax if the transfer is effected in the previous year and if no amount is received?"

The assessee-appellant is an individual. He was owner of a property known as Khader Bagh situated within the municipal limits of Hyderabad but in the Revenue Estate of Village Gaddimalkapur. The property comprised buildings and land measuring 45 acres and 10 guntas. An extent of the said property stood requisitioned by the Central Government under the provisions of the Requisitioning and Acquisition of Immovable Property Act, 1952. Later, the Government took a decision to acquire therefrom an area to the extent of 36 acres- and 22 guntas. The procedure laid down in section 7(1) of the said Act was followed by issuing a notice to the assessee and, after hearing him, the Government decided to acquire the property by passing a formal order on February 27, 1970. The publication in the Official Gazette in terms thereof under section 7(2) was made on March 12, 1970. Under the said provision, the title is ordained to pass to the Central Government on the date of the publication of the notification, i.e., on March 12, 1970 and that event has been held to attract tax on account of the capital gains having arisen from that date and hence exigible to tax. On the question of the interpretation of "capital asset" in terms of section 2(14)(iii)(a) of the Income Tax Act, 1961, as it stood at the relevant time, the plea of the assessee was that his land was in an area, which in terms meant a "village" and the population of that village was far below ten thousand. It was further maintained that the mere fact that the said area fell within the Municipality of Hyderabad, even though having population of more than ten thousand, was of no consequence. The High Court interpreting section 2(14)(iii)(a) of the Act, opined on question No.2 that the property acquired was a "capital asset" as the words "which has got a population of more than ten thousand" in the section would qualify only "the municipality or cantonment" and not the expression "area" and, therefore, the capital gains arising out of the sale of the land in question could not be exempted under the said section. Section 2(14)(iii)(a) is set out below:

"2(14)(iii) agricultural land in India, not being land situate--

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less-than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year."

We have heard learned counsel for the assessee appellant and have been taken through the judgment of the High Court as also the other relevant papers. A close reading of section 2(14)(iii)(a) suggests that agricultural lands comprised within the jurisdiction of a municipality, etc., in the nature of things being of a higher value in comparison, were brought within the scope of taxation and not all agricultural lands. Pressure on land in the vicinity of towns being what it is, profits likely to arise in its transactions would rightly catch the ear and imagination of the taxman as a fertile area for his share of the harvest. Therefore, the said provision bears an evident contrast and defining between lands in an area within the jurisdiction of the municipality, etc., and lands outside it. The limit of population fixed is to identify the focal point where transactions in lands attract taxation.

It is common knowledge that, in the entire country, local self-?government is carried out under various statutes by means of municipalities, municipal corporations, cantonment boards, etc. After their initial set-up, areas by means of those laws are added to and subtracted from and subsume as such for identity, not as a separate municipal unit but part of the already set up municipal unit. Such being the scheme of things, it is difficult to accept the plea of the appellant that even though his village was falling in the municipal area of Hyderabad, it retained its identity as a village and hence an "area" so as to stand apart for the purpose of section 2(14)(iii)(a) of the Act. In S. Hidhayathullah Sahib v. CIT (1986) 158 ITR 20, the Madras High Court, following the instant judgment under appeal, held as under (at page 22):

"A close reading of section 2(14)(iii)(a) seems to suggest that it is the population of the municipality that has to be taken into account for the purpose of that section and not the population of any area within the municipality. It is no doubt true that the language used in clause (iii) of section 2(14) is somewhat misleading. The section lays down two criteria: (1) that the agricultural land should be in an area within the municipality and (2) that the area should have a population of more than 10,000. The expression `which has a population of not less than ten thousand according to the last preceding census' is intended to qualify only the `area' and not the `municipality'. However, it is not possible to go only by the language used in that provision without having regard to the object and intendment of the provision. If the Legislature meant to fix a minimum limit of population for any area within a municipality or cantonment board, it would have specified a particular area such as village, ward, street, etc., and since the Legislature has left the area in a municipality undefined, it would not have, prescribed a limit of population for such an unspecified or t indefinite area within a municipality. It may be that a municipality may comprise of many villages, wards and streets and each assessee may claim that the limit of population is provided with reference to a village, ward or street. In such an event, the section will have no uniform application and will lead to many anomalies. Therefore, it is necessary to avoid such a interpretation of the section which leads to anomalies and which wilt make it invalid. We have to adopt such a construction which will make the section valid and certain."

This, in our view, is the correct position and has aptly and pithily been put. Nothing more is needed to be said on the subject. The interpretation put by the High Court on the provisions appears to us to be unexceptionable and rational. We affirm that interpretation.

The other contention about fixing the date of passing of title in the land in the event of acquisition is just to be noticed and rejected. In the presence of subsection (2) of section 7, there is no scope to apply subsection (1) of section 7 to determine when factually the property was ordered to be acquired and if at all on February 27, 1970, the date when the acquisition was approved by the Government. The legal mandate is in subsection (2) of section 7 which says that the date of the publication of the notification is the date when the property acquired vests absolutely in the Central Government anti on that date requisitioning of such property shall end. In other words, prior to that date the requisition subsisted, and subsist it would on the premises that it was kept owned by the person till the land, on acquisition, terminated the requisition.

Both the questions above, in our view, were rightly answered against the assessee and in favour of the Revenue. Accordingly, we find no merit in this appeal and dismiss it but without any order as to costs.

M.B.A.1726/T???????????????????????????????????????????????????????????????????????????????????? Appeal dismissed.