Income‑tax‑‑‑

‑‑‑‑Capital gains ‑‑‑Capital asset‑‑‑Definition‑‑‑Agricultural land‑‑‑‑Definition excluding from exemption agricultural land situate within stipulated limits of Municipal Corporation‑‑‑Levy of capital gains tax on transfer of agricultural land‑‑‑No material available regarding situation of agricultural land‑‑ Tribunal justified in directing Assessing Officer to re‑do assessment.

The assessee sold some lands and tire Income‑tax Officer computed the capital gains and levied tax on the sale of lands. The Appellate Assistant Commissioner held that the Central Government had no authority to levy tax on income arising on sale of agricultural lands. The Revenue contended before the Tribunal that the lands were situated within the stipulated limits of the Municipal Corporation and hence the Appellate Assistant Commissioner was not correct in holding that capital gains arising on sale of such land was not liable to tax. The Tribunal set aside the assessment with a direction to re do the assessment in accordance with law. On a reference:

Held, since no material was available with regard to the situation of the agricultural lands it was not possible to decide whether the sale value was liable to capital gains tax. Accordingly, the Tribunal was justified in directing the Income‑tax Officer to re‑do the assessment in accordance with law.

Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO (1981) 128 ITR 87 (Bom.) ref.

R. Sivaraman for C.V. Rajan for the Commissioner.

P.H. Aravindh Pandian for Subbaraya Aiyar for the Assessee.

JUDGMENT

S. JANARTHANAM, J.‑‑The assessee‑‑‑Sri P. Balasubramaniam‑‑ is an assessee both in the status of a Hindu undivided family and an individual for the assessment year 1981‑82.

R.A. No. 73 of 1987 is in respect of the individual assessment, whereas R.A. No. 74 of 1987 is in respect of the Hindu undivided family.

During the accounting year relevant to the assessment year, the assessee sold some lands, which resulted in capital gains.

The Income‑tax Officer computed the capital gains arising in the case of the Hindu undivided family at Rs.70,364 and in the case of the individual at Rs.58,700 and levied tax thereon.

Aggrieved by the above orders of the Income‑tax Officer, the assessee filed appeals before the Appellate Assistant Commissioner, claiming that the lands sold were agricultural in nature and in view of the decision of the Bombay High Court in the case of Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO (1981) 128 ITR 87, the Central Government has no authority to levy tax on income arising on sale of agricultural lands and so, levy of tax on capital gains arising on the sale of agricultural land is not correct.

The Appellate Assistant Commissioner upheld the assessee's contention and allowed the appeals.

On further appeal by the Revenue to the Tribunal, the Revenue contended that the said lands are within the stipulated limits of the Municipal Corporation and so, the Appellate Assistant Commissioner is not correct in holding that the capital gains arising on the sale of such lands is not liable to tax.

The Tribunal, however, set aside the assessments in both the cases with a direction for the assessment to be re‑done in accordance with law.

On the above facts, the Tribunal at the instance of the Commissioner of Income‑tax, Coimbatore, under section 256(1) referred the common question of law as below for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 2(14) of the Income‑tax Act, 1961, the Appellate Tribunal is right in directing the Income tax Officer to re do the assessment in accordance with the law and principles laid down in the case of Manubhi A. Sheth (1981) 128 ITR 87 (Bom.) ?"

Arguments of Mr. R. Sivaraman, learned counsel representing Mr. C.V. Rajan, learned junior standing counsel representing the Revenue, and Mr. P.H. Arvindh Pandian, learned counsel appearing for the assessee, were heard.

Section 2(1) as it stood then of the Income‑tax Act defines "agricultural income" by way of a definition: section 10 of the Act relates to income not included in total income. According to subsection (1) of section 10, the agricultural income shall not be included in computing the total income of the previous year of any person.

Section 2(14) defines "capital assets" by way of a definition with certain exclusions. Such exclusions are contained in sub‑clauses (i) to (v) of the said section. Sub‑clause (iii) of the said section which is relevant for our purpose reads as under:

"(14) Capital asset's means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include‑‑‑

(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; or

(b) in any area, within such distance, not being more than eight kilometres, from the local limits of any municipality or Cantonment Board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by Notification in the Official Gazette;..."

It is thus crystal clear that the lands situate within the jurisdiction of a municipality or Cantonment Board, having 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 or the lands situate in any area within such distance, not being more than eight kilometres from the local limits of any municipality or Cantonment Board in relation to which the Central Government may, having regard to the extent of, and scope for, urbanisation of that area or other relevant considerations specify in that behalf by a Notification in the Official Gazette, do fall within the definition of "capital asset" as defined under section 2(14) of the Income‑tax Act.

In the case in hand, no material, worth the name is available, relatable to the situation of the so‑called agricultural land, either within the municipal areal or a cantonment having a population of not less than ten thousand or in any area not more than eight kilometres of any municipality or Cantonment Board in relation to which the Central Government has, having regard to the extent of, and scope for, urbanisation of that area or other relevant considerations specified in that behalf by any notification in the Official Gazette. Without such factual matrix it is not plausible or possible to decide as to whether the sale value of the so‑called agricultural land is liable to be taxed, on capital gains.

In this view of the matter, we are of the view that the Appellate Tribunal is right in directing the Income‑tax Officer to re‑do the assessment in accordance with law and we answer the question accordingly:

The tax cases are thus, disposed of. There shall, however, be no order as to costs, on the facts and in the circumstances of the case.

M.B.A./649/FCOrder accordingly.