1995 (2) TMI 42 - HC - Income Tax

Summary

Issues:
1. Taxability of gain on sale of agricultural land under the Income-tax Act, 1961.
2. Imposition of income-tax on sale of agricultural land for non-agricultural purposes.
3. Taxation of agricultural land for capital gains if used for non-agricultural purposes.

Analysis:
The High Court of Rajasthan addressed the tax implications of selling agricultural land under the Income-tax Act, 1961. The case involved three key questions referred by the Income-tax Appellate Tribunal. Firstly, the court deliberated on whether the gain on the sale of agricultural land should be considered as agricultural income subject to taxation. Secondly, it examined the imposition of income-tax on the sale of agricultural land by the assessee for non-agricultural purposes. Lastly, the court considered the taxation of agricultural land for capital gains if it was used for non-agricultural purposes post-sale.

The facts of the case revealed that the assessee sold a piece of land within the municipal limits of Alwar city, leading to a computation of capital gains by the Income-tax Officer based on the land's proximity to municipal limits. The Tribunal referred to a previous decision in ITO v. Smt. Gorja Devi Lila and remanded the matter for fresh consideration by the Income-tax Officer to assess the land's intended use post-sale.

The court acknowledged that the land was within eight kilometers of the city's municipal limits and was recorded as agricultural land in land revenue records. It cited the retrospective insertion of an Explanation to section 2(1A) and relevant amendments to clarify that revenue derived from land, including agricultural land, was subject to capital gains tax. The court highlighted the retrospective amendment from April 1, 1970, which expanded the scope of agricultural land liable for capital gains tax.

In light of the legal developments and precedents, the court concluded that the sale of agricultural land was subject to capital gains tax regardless of its subsequent use. It distinguished the decision of the Bombay High Court and ruled in favor of the Revenue, emphasizing the tax liability on agricultural land sales for capital gains. As a result, the reference was answered in favor of the Revenue, with no costs awarded to either party.