RAGHOTTAMA REDDY J Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) : The petitioners question the legislative competence of Parliament to levy capital gains tax on transfer of agricultural lands situated within the limits of the municipalities (with a population of more than 10,000) and within a radius of 8 kilometres thereof. Article 14 of the Constitution is also brought in to impugn the validity of the levy. For the sake of convenience, we shall refer to the facts in W.P. No. 2592 of 1981.

(2.) THE petitioner owns agricultural lands within a radius of 8 kms. of Nellore Municipal limits. He sold 5 acres out of it in July, 1976, for a consideration of Rs. 45,000. He did not submit a return showing any income on that account. Even otherwise, he is not an income-tax assessee. THE ITO, D-Ward, Nellore, issued a notice under s. 139(2) of the Act, in response to which the petitioner filed a return declaring an income of Rs. 5,630 as capital gain arising out of the said transaction and Rs. 2,500 as agricultural income. THE ITO, by his order dt. 30th Jan., 1980, determined the capital gain in the hands of the petitioner at Rs. 36,630 and levied a tax of Rs. 5,746. According to the petitioner, the land sold was always put to agricultural use and paddy was grown at the time of sale. In the counter-affidavit filed by the respondents, the facts stated above are not denied. It is, however, submitted that the petitioner ought to have filed an appeal against the order of assessment and that the writ petition filed one year after the service of assessment order suffers from laches. We may mention that in the other writ petitions, there is no specific allegation that the lands were being cultivated and were put to agricultural use at the time of transfer.

(3.) NOW, the first and the main contention of learned counsel for the petitioners is this : Parliament's power to tax the income is derived from entry 82 in the Union List of the Seventh Schedule to the Constitution, which reads "taxes on income other than agricultural income". In other words, Parliament is not competent to levy a tax on agricultural income, which power belongs to the State Legislature alone, as provided by entry 46 in the State List, which reads "taxes on agricultural income". The expression "agricultural income" is defined in cl. (1) of Article 366 of the Constitution, to mean "agricultural income as defined for the purposes of the enactments relating to the Indian IT Act, 1922". At the time of the framing of the Constitution, the IT Act in force was the Indian IT Act, 1922, but, by virtue of the General Clauses Act, the words "Indian IT Act" in the said definition would now refer to the IT Act, 1961, which means that the expression "agricultural income" occurring in the aforesaid entries in the Seventh Schedule should be understood in the manner, and in the sense defined by cl. (a) of s. 2 of the IT Act. According to sub-cl. (a) of the said definition in the IT Act, "any.........revenue derived from land which is situated in India and is used for agricultural purposes" constitutes agricultural income. Income derived by transfer of land is also revenue derived from land, as held by the Supreme Court. If so, taxing such agricultural income is beyond the legislative competence of Parliament. No doubt, the definition of "capital asset" includes all agricultural lands situated within the limits of a municipality and a radius of 8 kms. thereof, but the definition of "agricultural income" has not been correspondingly amended. Even today, in spite of the amendment of the definition of "agricultural income" by the Taxation Laws (Amendment) Act, 1970, the income derived from agricultural land (which includes income derived from sale of such land) situated within the limits of a municipality--and its 8 kilometres' radius, if notified--continues to be agricultural income. The proviso in the said definition, even after it was substituted by the said Amendment Act, is only a proviso to sub-cl. (c); the said proviso is not applicable to sub-cls. (a) and (b) of the definition. Sub-cl. (c) deals only with income derived from the building connected with the land and owned/occupied by the receiver of rent or income from agricultural land. If so--it is argued--the inclusion of agricultural land situated within the municipal limits and its radius of 8 kilometres, within the definition of "capital asset" is incompetent and beyond the legislative power of Parliament. This contention, in our opinion, requires serious examination.