TMI Blog1991 (12) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,10555, 10556, 10557, 10558, 10559, 10560, 11898, 13291, 13292, 13293, 13294, 13295, 13296, 13297, 13298, 13299, 13300, 13301, 13302, 13303, 13304,15134,14574,14390,14392,14389,14369,14370,14368,3446,3445, 7814, 5586, 5585, 5584, 5583, 5582, 5581, 5580, 5579, 1671, 14391, 7816, 16043, 15135, 15314, 15917, 16989, 16730, 16731, 13776, 15556, 16240,16481, 16900, 16918, 17219, 17101, 17311, 16600, 17350, 17351, 17352, 17353, 17354, 17387, 16270, 17557 and 17561 of 1991. Extensive agricultural land was acquired under the Land Acquisition Act after due process of law. The Land Acquisition Collector gave his award assessing the market value of the land. On a reference under section 18 of the Land Acquisition Act, the District judge enhanced the compensation. The claimants/landholders were awarded solatium and also interest calculated in terms of sections 23(lA) and 28A, as inserted by Amending Act No. 68 of 1984. The award made by the District judge was challenged in appeal before this court and the compensation and interest payable to the claimants have been finally determined by the various judgments passed in Letters Patent appeals. The claimants received compensation. They were, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation. - For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section ;" Section 2(14) of the Act defines " capital asset " to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include Explanation.-..... (iii) agricultural land in India, not being land situate (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or (b) in any area within such distance not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Legislature (and not Parliament) which is competent to legislate and make law relating to the levy and imposition of tax on agricultural Income. The argument, therefore, is that section 2(14)(iii) of the Income-tax Act is ultra vires. The true meaning and scope of the relevant entries, namely, entries 82 of List I and 46 of List II of the Seventh Schedule to the Constitution has, therefore, to be ascertained. It is now well-settled that there is a presumption that the Legislature does not exceed its jurisdiction and the burden of establishing that an enactment is not within the competence of the Legislature or that it has transgressed the constitutional mandate as such is always on the person who challenges its vires. In Shell Company of Australia Ltd. v. Federal Commissioner of Taxation [1931] AC 275, 298, the rule in this regard appears in the following terms : " Unless it becomes clear beyond reasonable doubt that the legislation in question transgresses the limits laid down by the organic law of the Constitution, it must be allowed to stand as the true expression of the national will." In its application as a rule of construction, it would mean that if, on one construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir widest amplitude. Venkatachaliah J., speaking for the court, in Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97 ; AIR 1990 SC 1637, expressed the view that wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. Nevertheless, it could not have been the intention of the Legislature that a conflict should exist ; and, in order to prevent such a result, the two provisions must be read together and the language of one interpreted and, where necessary, modified by that of the other. It was further observed that it is the true nature and character of the legislation and not its ultimate economic result that matters. A Division Bench of the Karnataka High Court in Mysore Kirloskar Ltd. v. Union of India [1986] 160 ITR 50, while speaking on the interpretation of such entries, observed that the various entries in the three Lists of Schedule VII to the Constitution are not powers of legislation but fields of legislation. The power to legislate may be found in other, articles of the Constitution. The entries have only an enabling character and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in item 82 in List I of the Seventh Schedule to the Constitution, has thus been given a wider scope which is not open to a narrow construction as learned counsel for the petitioners contends. The intention also appears to be to bring to tax capital gains arising out of the lands which ceased to have the characteristics of agricultural land and have acquired other characteristics. In substance, what is sought to be taxed is income not from agricultural land, but income from that land which has lost all its characteristics as agricultural land. The view that we have taken is also shared by the Gujarat High Court in Ambalal Maganlal v. Union of India [1975] 98 ITR 237. Repelling the argument that the power to impose tax on agricultural income which includes within its compass the power to impose a tax on capital gains derived from the transfer of agricultural lands is within the exclusive legislative power of the State Legislature, it was held, following the reasoning of the Supreme Court in GTO (Second) v. D. H. Nazareth [1970] 76 ITR 713, that the tax on the capital gains resulting from transfer of agricultural land is not a tax imposed directly on lands and buildings but is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a transfer within the meaning of section 2(47) of the Act. The expression " capital asset " means property of any kind held by the assessee, whether or not connected with his business or profession. It, however, does not include agricultural land in India, except the classes of land included in items (a) and (b) of section 2(14)(iii) of the Act. In order to qualify for such exemption, it is not enough that the land was once agricultural land. It must be agricultural land even at the time of sale/transfer. By the Finance Act, 1970, with effect from the assessment year 1970-71, certain specified lands situate in urban areas or semi-urban areas were brought within the definition of a capital asset. However, clause (viii) (sic) inserted in section 2(47) exempts capital gains on any transfer of agricultural land in India made before April 1, 1970. Learned counsel for the petitioners argued that what is received on such compulsory acquisition of land is revenue derived from the land and is, therefore, agricultural income. This argument was expressly repelled in the case of CIT v. T. K. Sarla Devi [1987] 167 ITR 136 (Ker). It was held that when a capital asset is sold, what is realised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to learned counsel, it is agricultural income not assessable to tax. We do not agree. According to section 8(3) of the Requisition and Acquisition of Immovable Property Act, the compensation payable for the acquisition of any property under section 7 of that Act shall be the price which the requisitioned property would have fetched in the open market, if it had remained in the same condition as it was at the time of requisitioning and been sold on the date of acquisition. It will thus appear from this provision that what is payable as compensation is the price the property would have fetched in the open market, if sold on the date of acquisition. This price has to be ascertained for the land as it existed on the date of acquisition. The compensation being thus the market price/value of the land, there appears to be little distinction between the character of compensation awarded under the Land Acquisition Act and the one under the Requisition and Acquisition of Immovable Property Act. Indeed, as we shall presently see, interest has been made payable on the amount of compensation so determined even under the Requisition and Acquisition of Immovable Property Act. See Abhay Singh S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore taking possession of the land. By force of section 28 also, the court, on a reference, if it enhances the compensation offered by the Collector, is entitled to award interest on the amount of such enhanced compensation. Section 28 also provides that the court, on a reference, shall award interest on the amount of enhanced compensation. It will thus appear from the text of section 34 of the Land Acquisition Act that interest is not payable as compensation but is paid if the compensation is not paid before taking possession of the land. Interest is thus payable because of the deprivation of the possession of the land before compensation for compulsory acquisition of that land is paid. This position is now well-settled. In Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 SC ; AIR 1964 SC 1878, the observation is that interest has to be paid on the amount awarded from the time the Collector takes possession until the amount is paid or deposited. Interest is not an item of compensation. Nor is it consideration for acquisition of land. Payment of interest has been provided for separately under section 34 of the Land Acquisition Act. This is so because interest is paid after the compensati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been agreed to be paid. It has, therefore, to be held that the amount received as interest on the amount of compensation assessed under the Land Acquisition Act or under the Requisition and Acquisition of Immovable Property Act is income taxable under the Income-tax Act. Certainly, it is not agricultural income since it is neither rent nor revenue derived from the land used for agricultural purposes. It is, therefore, not exempt from income-tax under section 10(1) of the Income-tax Act as agricultural income. The Land Acquisition Collector is, therefore, perfectly justified in retaining the amount of interest payable to the holders of agricultural lands compulsorily acquired in terms of section 194A of the Act. The Land Acquisition Collector is also justified in demanding the sum paid on account of interest under section 194A of the Act. The notices issued and challenged in these petitions are, therefore, valid and perfectly justified. Before parting with the case, we would like to mention and indeed learned standing counsel for the Department duly assisted by responsible officers of the Department, candidly conceded before the courts that the income by way of interest so rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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