COMMISSIONER OF INCOME TAX Vs. UMRAO SINGH

JUDGEMENT

(1.) This is a reference under Section 256( I ) of the Income Tax Act, at the instance of the Revenue arising out of the assessment year 1976-77 seeking opinion of the High Court on the question of law :

(2.) During the accounting year ending 31.3.1976 the assessee had received compensation and interest on compulsory acquisition of his agricultural land. The assessee did not declare any capital gains on the ground that it was outside the ambit of capital assets as defined in the Income Tax Act, 1961. The ITR, however, observed that capital gains were taxable and brought them to tax. The AAC upheld the order of assessment. The Tribunal relying on Bombay High Court decision in Manubhai A. Sheth & Ors. v. ITO,. held that capital gains could not be taxed on transfer of agricultural land in this case.

(3.) The law had changed with retrospective effect by the amendment incorporated in Sub-section (14) of Section 2 of the Income Tax Act by the Finance Act, 1970 w.e.f. 1.4.1970 and the explanation added to Sub-section (1-A) of Section 2 of the Income Tax Act defining the agricultural income by the Finance Act, 1989 giving retrospective effect from 1.4.1970. The effect of the amendment is that the revenue derived from land shall not indude and shall be deemed never to have included any income arising from transfer of any lands referred to in item (a) or item (b) of Sub-clause (iii) of Clause (14) of Section 2. Admittedly in the case at hand, the land was situated in the Municipal limits.