1977 (9) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Whether the compensation received for the acquisition of agricultural lands is assessable as capital gains u/s 12B of the Indian I.T. Act, 1922.
2. Interpretation of the term "held" in s. 2(4A) of the Indian I.T. Act, 1922.
3. Determination of whether the lands in question were agricultural lands and thus exempt from capital gains tax.

Summary:

Issue 1: Compensation as Capital Gains
The primary issue was whether Rs. 1,34,459, being the compensation paid to the assessee for the acquisition of agricultural lands minus Rs. 4,749, being the cost of those lands, is assessable as capital gains u/s 12B of the Indian I.T. Act, 1922. The ITO assessed this amount under "Capital gains," but the AAC found the lands to be agricultural and excluded the amount from assessment. The Tribunal agreed with the AAC, and the High Court upheld this view, stating that the compensation was derived from agricultural lands and thus exempt from tax.

Issue 2: Interpretation of "Held"
The revenue argued that the term "held" in s. 2(4A) connotes physical or actual possession, not constructive or symbolic possession. Since the assessee was not in actual possession of the lands due to requisition in 1949, the revenue contended that the lands were not held by the assessee as agricultural lands at the time of acquisition. The High Court rejected this argument, stating that "held" includes physical, actual, constructive, and symbolic possession.

Issue 3: Agricultural Lands Determination
The court examined whether the lands were agricultural and if the income derived was agricultural income. The Tribunal found that the lands were used for agricultural purposes and derived agricultural income. The High Court agreed, noting that the nature and character of the land at the time of acquisition determine its status. The court emphasized that temporary non-use for agricultural purposes does not change the land's character if it remains agricultural land. Therefore, the lands in question were agricultural lands, and the compensation received was not taxable as capital gains.

Conclusion:
The High Court concluded that the lands were agricultural lands at all material times, and the compensation received for their acquisition was not taxable as capital gains. The question was answered in the affirmative and in favor of the assessee, with no order as to costs.