TMI Blog1996 (4) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market ; or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause ; (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on; Provided that-- (i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a storehouse, or other out-building, and (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated-- (A) in any area which is comprised within the jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of learned counsel for the petitioner is that in fact entry 82 of List I of the Seventh Schedule lays down that Parliament will be competent to legislate on taxes on income other than agricultural income and entry 46 of List II of the Seventh Schedule confers power on the State Legislature to legislate on taxes on agricultural income. Learned counsel for the petitioner, therefore, contended that Parliament has no jurisdiction to legislate on this subject as the taxes on agricultural income are within the competence of the State Legislature. Therefore, the main question which is before us is whether the Explanation inserted by the Amendment Act of 1989 has really changed the whole complexion of the expression "agricultural income" or not. Before we deal with the large number of cases cited by learned counsel for the petitioner/assessee on the subject, suffice it to say that section 2(1A) of the Act only talks about income arising from the agricultural operations. A close reading of section 2(1A) goes to show that "agricultural income" means any rent or revenue derived from land which is situated in India and is used for agricultural purposes ; that means if any land is use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral operation or any rent or revenue and it never intended to convey that if any agricultural land is sold, then income arising from transfer of such land would also be treated as agricultural income ; but none the less on account of the decision of the Bombay High Court, a doubt arose and the same was clarified by inserting the Explanation. Therefore, if any land which has been sold within the municipal area and any income is derived therefrom, that would not be treated to be agricultural income. Normally when the area of the municipality is extended looking to the urbanisation on account of pressure of population, then slowly these agricultural lands are converted into urban areas and they form part of such urban areas. It is true that even after the forming of municipal areas, there might exist some lands which may be under cultivation, but that becomes an urban area with the passage of time. There is always struggle between the tax collecting agencies and ingenuity of the tax evaders and it is always an attempt of the tax collectors to tax the areas which are susceptible for evasion of the tax. In the present case, the land is situated within the municipal limits. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e came up for consideration and their Lordships observed with regard to the Kerala Agricultural Income-tax Act, thus (headnote of AIR 1963 SC) : "Article 366 provides that unless the context otherwise requires, the expression 'agricultural income' in the Constitution means agricultural income as defined for the purpose of the enactments relating to Indian income-tax. Therefore, the agricultural income about which a State Legislature may enact under entry 46 of List II would be such income as defined in the Indian Income-tax Act. The income derived from the sale of tea grown and manufactured by the seller is not solely derived from agriculture. It is an income which is derived partially from agricultural operations and partially from manufacturing processes." It is recognised that whatsoever definition has been given in the Income-tax Act shall be deemed to have been adopted under the Constitution also. The agricultural income which has been defined in the Income-tax Act does not include any other income than the income derived from agricultural operations or rent or revenue from the land and not from the sale of the land. Therefore, Parliament is competent under entry 82, List ..... X X X X Extracts X X X X X X X X Extracts X X X X
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