TMI Blog1990 (8) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and the Department was ultimately taken before the Tribunal. The Tribunal, relying upon the decision of our High Court in the case of Manubhai A. Sheth v. N. D. Nirgudkar, 2nd ITO [1981] 128 ITR 87, held that the capital gains were not taxable under the Income-tax Act as they constitute agricultural income. The Tribunal declined to refer the following question to us on the ground that the question is squarely covered by the decision of our High Court in 128 ITR 87 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in exempting capital gains arising out of transfer of land situated within the municipal limits of Rajkot City ?" In Income-tax Application No. 48 of 1990, the assessee had agricultural lands at Malegaon. These lands were laid out as plots as per permission obtained from the Collector. The lands were acquired by the State and an award was made on January 30, 1981, granting to the assessee and others a total compensation of Rs. 4,04,869. The assessee's share in this compensation was 50%. The assessee claimed exemption from capital gains on the ground that this was agricultural income, relying upon the decision of ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation to it by the Finance Act, 1989, with retrospective effect from April 1, 1970. Under this Explanation, it is provided as follows : "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 ;" As a result of this Explanation, therefore, any income arising from the transfer of any agricultural land is not to be considered as revenue derived from agricultural land. This amendment was not in existence at the time when the Tribunal decided not to refer the question to us. It was, however, introduced with retrospective effect from April 1, 1970, and is now in existence. It is contended by Mr. Dastur, learned counsel for the assessee in Income-tax Application No. 47 of 1990, that for the purpose of deciding an application under section 256(2) of the Income-tax Act, 1961, we have to examine the state of the law as it existed at the time when the Tribunal decided the appeal. If the order of the Tribunal is in accordance with law which was in exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no question of law arises", the assessee or the Commissioner may apply to the High Court and the High Court may, "if it is not satisfied with the correctness of the decision of the Appellate Tribunal", require the Appellate Tribunal to state the case and refer it to the High Court. The correctness of the decision of the Tribunal has reference to the decision under section 256(1), viz., the decision that no question of law arises. Under both the sub-sections, therefore, the High Court has to consider whether a question of law arises from the order of the Tribunal in appeal. Under section 256(2), if the High Court is not satisfied with the correctness of the decision of the Appellate Tribunal (viz., that no question of law arises), it may require the Tribunal to state a case. The question is, on what basis should the High Court decide whether it is satisfied or not with the correctness of the decision of the Tribunal under section 256(2) ? What has to be examined is, of course, the question of law decided by the Tribunal both under section 256(1) and section 256(2). In a case where the law is amended with retrospective effect, when the High Court decides an application under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee moving the High Court under article 226 of the Constitution of India, the High Court took the view that the revising authority was not free to take a different view from the one expressed by the High Court on any ground whatsoever, including any subsequent amendment in the law, and that it was bound to decide the case in conformity with the judgment of the High Court. The Supreme Court set aside the decision of the High Court, holding that the retrospective amendment clearly indicated the intention of the Legislature of restoring the assessments and orders made earlier and hence the Tribunal was entitled to take such retrospective amendment into account. The Supreme Court observed that, under the amending Act, assessments at the enhanced rate were valid notwithstanding any judgment or order of any court. Hence the Tribunal was entitled to ignore the High Court's decision in the reference. The decision, therefore, turns on the special provisions of the amending Act. Nevertheless, it is clear that a court cannot ignore the retrospective operation of a law which is in existence when it decides a matter. We do not see how a different view can be taken while deciding an ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date when the Tribunal decided the appeal and not on the basis of the law at it stood at the time when the Tribunal decided the appeal. The Explanation to section 2(1A) has been added with retrospective effect from April 1, 1970, by the Finance Act, 1989. As a result of this Explanation, revenue derived from the transfer of agricultural land is not considered as agricultural income. It is possible that the ratio of the decision of our High Court in Manubhai A. Sheth v. N. D. Nirgudkar, 2nd ITO [1981] 128 ITR 87 may apply to this amendment also. In fact, in an earlier application, being Income-tax Application No. 29 of 1988 (CIT v. Leenaben J. Sheth) we (myself and Sugla J.) had on July 25, 1990, declined the application on this ground. It is, however, now urged before us that the constitutional validity of the amendment, as a result of which this Explanation was introduced with retrospective effect in section 2(1A), cannot be gone into in a reference application and that the assessees have not filed writ petitions challenging the constitutional validity of the Explanation. Whether, by virtue of the reasoning given by our High Court in Manubhai A. Sheth v. N. D. Nirgudkar [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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