S HIDHAYATHULLAH SAHIB Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following two questions have been referred to this court for its consideration at the instance of the assessee by the Income-tax Appellate Tribunal "(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the agricultural lands in Periakuppam village which had a population of less than 10, 000 constitute capital asset within the meaning of section 2(14) ?(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the population referred in section 2(14)(iii)(a) refers to 'municipality' and not to 'area' comprised in it ?" *THE assessee in this case is an individual. On November 2, 1973, the assessee had sold 15 cents of agricultural lands together with a tiled house situate in Periakuppam village within the Trivellore Municipality for consideration of Rs. 27, 000. Before the Income-tax Officer, the assessee claimed that the capital gains arising out of the sale of the above land were exempt by virtue of the provisions of section 2(14)(iii) of the Income-tax Act, 1961, hereinafter referred to as "the Act", on the ground that Periakuppam village in which the land is situate had a population of less than 10, 000.

(2.) THE Income-tax Officer rejected the said contention on the ground that the land is situate within the municipal limits of Trivellore whose population is more than I 0, 000. He, therefore, brought to tax the capital gains computing the same at Rs. 22, 575 in respect of the sale of the above land. On appeal, the Appellate Assistant Commissioner upheld the order of the Income-tax Officer. When the matter went before the Tribunal, it, following the decision of the Andhra Pradesh High Court in Addl. CIT v. G. M. Omarkhan upheld the order of the Appellate Assistant Commissioner. Aggrieved by the said order of Tribunal, the assessee has sought and obtained this referenceFrom the facts stated above, it will be clear that the case involves the proper interpretation of section 2(14)(iii)(a) of the Act. According to the assessee, on a proper interpretation of section 2(14)(iii)(a), the lands sold by the assessee could not be classified as capital assets, for, as per the above provision, only agricultural land in an area within a municipality which has a population of more than 10, 000 can be treated as capital asset, that inasmuch as the population of Periakuppam village where the land is situate is less than 10, 000, the agricultural land sold by the assessee is not a capital asset and that consequently capital gains tax is not exigible. THE Revenue, on the other hand, contends that as per the said provision it is only the population within the municipal limit that is taken into account and not the population in any other local area as the village, ward, street, etc., and that in this case as the population of the municipality admittedly exceeds 10, 000, the lands transferred should be treated as a capital asset.In this case, it is common ground that the land sold by the assessee is agricultural land situate in Periakuppam village within Trivellore municipality. As per section 2(14)(iii)(a), agricultural land in an area of municipality with a population of more than 10, 000 would fall within the term "capital asset". Periakuppam village is an area within the Trivellore municipality and admittedly has a population of less than 10, 000 though the municipality has a population of over 10, 000.