M VENKATESAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee in this case owned agricultural lands. THEy are situate within the limits of Cuddalore Municpality. THE assessee should the lands to an urban co-o0operative building society at a profits of Rs. 1,14,000. the sale took place on March 4,1970. THE assessee claimed that this profits was not liable to capital gains tax. THE claim was made i connection with his income-tax assessment for the assessment year 1970-71. THE ITo rejected the assessee claim for exemption. and bright the amount to tax under the head "Capital gains". THE Income-tax Appellate Tribunal conferred the assessment, in appeal.

(2.) IN this reference, the assessee contends that the assessment is bad in law. The contention bears examination by reference to the definition of "capital assets" in s. 2(14) of the I. T. Act and the place of agricultural lands in at definition. Section 2(14), subject to exceptions, broadly defines a "capital asset" as property of any kind held by an assessee. The exceptions are set out in s. 2(14), cls. (i) to (iv). Clause (ii) refers to agricultural lands. This clause was the subject of an amendment by Parliament in 1970 under the Finance Act of that year. before the amendment, all agricultural lands, wherever situate, were excluded from the definition of "capital asset". It may be said that all agricultural lands were non-capital assets. Under the amended provisos, however, agricultural lands situated in certain urban areas were to be distinguished from agricultural lands situate else where. The latter alone were to be treated as :"non-capital assets". The urban areas referred tin s. 2(14)(iii), as amended, cover agricultural lands with in the lifts of municipalities and other local authorities with a population of ten thousand people and more and also such peripheral belts as might be noticed by e Central Govt., in that behalf.

(3.) THIS position is not bereft of authority. The Tribunal, in their order, bad referred to a decision of the Gujart High Court on the subject in Ranchhodbhai Bhaijibhai patel, v. CIT [1971] 81 ITR 446. THIS decision taken s the same view of the effect of the relevant statutory provisions with particular references to s. 2(14)(iii). the assessee in that case acquired certain agricultural lands and was using them as such. Subsequently the assessee ceased cultivation in order to render the lands fit for use as house sites. The assessee then sold the lands to a house-buildings society at a profits. The profits was brought to charge as capital gains. The learned judge upheld that assessment. They rejects the contention that since the lands were non-capital assets at the time of their acquisitions, no tax cane be levied on the grains arising from their sale after they became capital assets. The learned judges observed that where the property transferred was no a capital asset on e date of its acquisition but because one subsequently, its character alone changes but the property remains the same. They added that to have regard for the previous different character o what is indubitably a capital asset at the time of the transfer, would be contrary to the terms of s. 45 and other related provision of the ACt.