ARUNDHATI BALKRISHNA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee, Smt. Arundhati Balkrishna of Ahmedabad, whose main source of income is from interest on securities, income from dividends, and income from investment, etc., in her return of income filed in respect of the asst. year 1969 70 (sic) disclosed an income of Rs. 2,25,000. It appears that during the course of the relevant period the assessee had sold her 1/2 share in a parcel of land admeasuring 8,578 sq. yds. (her share being 4,289 sq. yds.) situated within the limits of the Municipal Corporation of Ahmedabad. The lands fell within the purview of a draft town planning scheme. The sale transaction yielded a sum of Rs. 2,34,063 (1/2 of Rs. 4,68,125). The assessee assumed the posture that this land which had originally cost a petty sum of Rs. 21,445 and which upon being sold resulted in a profit equivalent to about ten times its cost price (i.e., Rs.2,12,618) did not fall within the definition of "capital asset" as defined by S. 2(14) of the IT Act of 1961, as it stood at the material time, mainly because of the following two factors, viz., (1) it was entered in revenue records as agricultural land and was assessed to assessment on that basis, (2) a crop which yielded a gross annual normal income of less than Rs. 200 (two hundred) was grown on the same during the relevant years. It was the case of the assessee that accordingly the profit of Rs. 2,12,618 derived by her from this transaction was not exigible to tax as capital gains under S. 45 of the Act. The ITO by his order as per annex. "B" negatived the contention and included 45per cent of the amount of total capital gains accuring to her as her income for the relevant year. The appeal preferred by the assessee in so far as this question was concerned was dismissed by the AAC by his appellate order at annex. "C". The Tribunal, Ahmedabad Bench 'B', confirmed the order of assessment on a different ground. Thereupon three questions have been referred to us by the Tribunal at the instance of the assessee and one question has been referred to us at the instance of the Revenue.

(2.) IT appears that the Tribunal partly upheld the contention of the assessee in the sense that on the mixed question of law and fact as to the character of the land in question, the Tribunal formed the opinion that it was agricultural land. The Tribunal, however, permitted the Revenue to raise a ground based on a legal aspect which was not urged before the ITO or the AAC. The said argument which ultimately found favour with the Tribunal was raised in the context of the following facts. Though the sale deeds in respect of the land in question were executed prior to March 1, 1970, the documents in question were not presented for registration till March 1, 1970, and registration was effected "after" April 1, 1970. In view of these circumstances, recourse was made to the amendment introduced by the Finance Act of 1970, w.e.f. April 1, 1970, in respect of the definition of "capital asset" contained in, S. 2(14) r/w S. 47(iii) of the Act r/w S. 45 of the Act. Prior to the amendment which became operative w.e.f. April 1, 1970, the definition of "capital assets" excluded agricultural land from its purview. With effect from April 1, 1970, the scope of the expression "capital asset" has been enlarged. Certain categories of agricultural lands (excepting the excluded categories) are brought within the sweep of the expression "capital asset" Inter alia, lands within the municipal limits of a town having a population exceeding ten thousand according to the last preceding census falling within the description of S. 2(14)(iii)(c) are now included in the definition of "capital asset". Along with the amendment in S. 2(14), an amendment was also brought about in s. 47. Clause (viii) of S. 47 now provides that any transfer of agricultural land effected before 1st day of March, 1970, would not be treated as a transfer attracting exigibility to capital gains tax under S. 45 of the Act. In view of the alteration in law brought about in the aforesaid manner, even if the land in question was agricultural land, if a transfer of the said land was made on or after 1st March, 1970, the gains arising out of such a transfer would be exigible to tax as capital gains under s. 45 provided the land was situated within the limits of a municipal corporation. That is the reason why the question assumed importance before the Tribunal, the Tribunal having disagreed with the view taken by the ITO and the AAC that the land in question was not agricultural land and having taken the view that it was agricultural land. The question assumed importance because even if it was agricultural land, still the gains arising in the context of the transfer of such land would be exigible to tax as capital gains under S. 45 of the Act, in case the transfer of the land was effected on or after March 1, 1970. In the present case while the sale deed was executed in the sense that the assessee had appended her signature to the sale deed prior to March 1, 1970, the sale deed was presented for registration and was in fact registered "after" March 1, 1970. It was in this background that the question arose whether the "transfer" of the land in question was "before" March 1, 1970, or "after" March 1, 1970. The Tribunal took the view, that the transfer was effected after March 1, 1970, having regard to the fact that the transaction of sale was not complete till the document was presented for registration and was registered. As it was common ground that the document was presented for registration after March 1, 1970, the Tribunal formed the opinion that the transaction in question was not exempted under S. 47(viii) of the Act and the gains arising out of the transaction were exigible to tax as capital gains. As we indicated in the course of our discussion hereinbefore, this aspect was not realised by the ITO and the AAC and their decision was based solely on the finding on the mixed question of law and fact as to the character of the land which in their opinion was not agricultural land. The, Tribunal disagreed with the finding on this aspect and took the view that it was "agricultural land" but came to the conclusion that having regard to the amendment of the definition of "capital asset" w.e.f. April, 1970, and the provision contained in S. 47(viii), the gains arising out of this transaction were exigible to tax as capital gains notwithstanding the fact that these were agricultural lands because the transfer was effected on or after March 1, 1970. Since this dimension of the matter was urged before the Tribunal for the first time by the Revenue, one of the questions that has arisen, and is referred to us, is whether the Tribunal was justified in permitting the Department to raise this contention. The other question which has been referred to us is in the context of the finding as to the date on which the transaction was effected. It has assumed importance by reason of the fact that if the date of signing the sale deed is considered to be crucial, the transaction would not attract the provision of S. 45 r/w S. 2(14) r/w S. 47(viii). If on the other hand it is the date of the presentation for registration or the actual registration which is the crucial date for the purpose of determining the date on which the transaction is effected, the gains arising out of the transaction would be exigible to tax as capital gains, even if the land is treated as agricultural land. And it was, in view of the stand taken by the assessee that the Tribunal was not justified in examining this dimension of the matter in the light of the amendment introduced by the Finance Act of 1970 which became effective from April 1, 1970, that the Revenue sought a reference on the question whether or not the finding recorded by the Tribunal on the mixed question of law and fact as to the character of the land was justified in the facts and circumstances of the case (the ITO and the AAC having, taken the view that it was not agricultural land and the Tribunal having taken the view that it was agricultural land). That is how three questions have come to be, referred to us at the instance of the assessee and one question has come to be referred to us at the instance of the Revenue. We may incidentally mention for the purposes of record that one more question had been referred at the instance of the assessee but that question is not debated before us as it is concluded against the assessee by a decision of this High Court rendered in Smt. Padmavati Jaykrishna vs. CIT. (1975) 101 ITR 153 (Guj). Under the circumstances, the main questions which have been debated before us are the aforesaid three questions raised at the instance of the assessee and one question raised at the instance of the Revenue.

(3.) THE question whether the land involved in the transaction giving rise to the controversy was agricultural land as contended by the assessee or whether it was non agricultural land as contended by the Revenue is a mixed question of law and fact which will have to be decided on the following facts which are not in dispute: