COMMISSIONER OF INCOME TAX Vs. KRISHAN KUMAR KAPOOR

JUDGEMENT

(1.) THESE two reference applications involve the following common question, which has been referred by the Income tax Appellate Tribunal Delhi Bench D ('Tribunal' in short) pursuant to the direction given by this Court under S. 256(2) of the IT Act, 1961 (in short the 'Act'), for the opinion of this Court :

(2.) FACTUAL position in nutshell is an follows : Assessees Krishan Kumar Kapoor and R.K. Kapoor who are the sons of one Murlidhar Kapoor, inherited separate pieces of land from their father wherein agricultural operations were carried on till 1949 50, when in each case assessee's land was requisitioned by the Punjab Government for extracting earth for manufacture of bricks. Extraction was continued upto 1953 54 though no brick kiln was created on the said land, which continued to be in possession of the Punjab Government till 1963, when a notification for acquisition of the land was issued. But there was de requisition and the land was released in 1970. Prior to the release, in the year 1966, assessee in each case entered into agreement to sell the land to Delhi Land and Finance Corporation (in short DLFC). Sale deed in each case was executed in June, 1971. Out of the total consideration paid, assessees' share in each case in the sale proceeds was claimed as exempt and was so indicated in Part III of the return of the income filed. In the case of K.K. Kapoor the amount was taken at Rs. 80.561 and in the case of R.K. Kapoor, the amount was Rs. 80,205. Both the assessees claimed that as surplus received was on account of sale of agricultural land, there is no question of levy of any tax. The ITO however, added Rs. 73,618 and Rs. 71.974, respectively, in the income of the two assessees as capital gains after getting off the cost of acquisition of land as per valuation on 1st Jan., 1954 i.e. Rs. 8.587 in each case. Matter was carried in appeal before the Appellate Assistant Commissioner (in short 'AAC'). In the case of R.K. Kapoor, AAC held by his order dt. 2nd Dec., 1978, that land remained in possession of the Government right from 1949 50 to 1970 and agricultural operations were not carried on in the land in question, and there was change in character, and it became non agricultural. Therefore, at the time of sale it lost its character as agricultural land and exemption as claimed was not available. In the case of K.K. Kapoor assessee's appeal was allowed. It was held that the land was taken over by the Punjab Government as agricultural land and, therefore, the sale did not attract capital gains. Appeal was filed by R.K. Kapoor challenging the conclusions of the AAC in his case; while questioning correctness of the decision rendered in K.K. Kapoor's case, Revenue filed appeal. Both the appeals were taken up together and Tribunal held as follows :

(3.) WE have heard learned counsel for Revenue. There is no appearance on behalf of assessee in spite of notice. The main plank of learned counsel for Revenue's argument was that the mere fact that rent was paid as agricultural land or that there was prohibition under the Punjab Scheduled Roads and Controlled Areas (Restriction or Unregulated Development) Act, 1963 regarding change of character of the land did not make the land in question agricultural land. According to him the fact that there was no agricultural operation for more than two decades clearly indicates that the land did not continue to be agricultural in nature.