SINGHAI RAKESH KUMAR Vs. UNION OF INDIA

JUDGEMENT

(1.) BY this writ petition, the petitioner has challenged the validity of Section 2(1A) and Section 2(14)(iii) levying income-tax on agricultural income.

(2.) THE brief facts giving rise to this writ petition are that the petitioner sold certain agricultural lands within the municipal limits of Bina. Capital gains thereon was assessed by the Assessing Officer by order dated October 17, 1983. In the second appeal filed before the Income-tax Appellate Tribunal, the Tribunal by order dated May 24, 1985, following the decision of the Bombay High Court in the case of Manubhai A. Sheth v. N. D. Nirgudkar, Second ITO [1981] 128 ITR 87, held that the agricultural lands though situated within the municipal limits are not exigible to capital gains tax. THE Commissioner of Income-tax filed a reference application under Section 256(1) of the Income-tax Act, 1961, and the Tribunal referred the question whether profits arising from sale of agricultural lands amount to capital gains within the meaning of the Income-tax Act, 1961, or not. THE Bombay High Court in the above case held that capital gains arising from the sale of agricultural lands would be revenue derived from such land within the meaning of Section 2(1) of the Act and Parliament would have no competence to legislate on this item as agricultural income is exempted from tax and that is within the competence of the State Legislature. It was further held that land falling in the municipal areas should be held to be excluded from the definition of "asset" even under the amended Sub-clauses (iii) of Section 2(14) of the Act. It was further held that Section 2(14)(iii) does not cover capital gains arising from a transfer of any land used for agricultural purposes, even though it may be situated in an area within municipal limits. THE Act was thereafter amended by inserting the Explanation to Clause (1A) of Section 2 with retrospective effect from April 1, 1970, by the Finance Act, 1989, with a view to effectuate the levy of tax on capital gains arising from the transfer of such agricultural lands.

(3.) (Explanation inserted by the Finance Act of 1989, with retrospective effect from April 1, 1970).