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TMI Blog2024 (7) TMI 1291X X X X Extracts X X X X X X X X Extracts X X X X ..... 5]:- "1. This appeal is by special leave against an order passed by the High Court of Andhra Pradesh in a batch of cases. By that order, the High Court considered the effect of a combined reading of Sections 2(1-A) and 2 (14) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") and has held that (i) capital gains arising from sale of land used for agricultural purposes would be revenue derived from such land and, therefore, "agricultural income" within the definition under Section 2(1-A) of the Act with the result that Parliament would have no legislative competence to tax such agricultural income; and (ii) amended Section 2 (14) (iii) should be read down to preserve its constitutionality. All land used for agricultural purposes whether situated in areas mentioned in Section 2 (14) (iii) (a) and (b) should be held to be excluded from the definition of capital asset. Thus Section 2 (14) (iii) should read as excluding from capital asset agricultural land in India, not being land situated in the areas mentioned therein. Upon such interpretation, Section 2 (14) (iii) does not enable levy of tax on capital gains arising from transfer of land which is used for agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admit the appeal on the following question of law:- A. Whether the ITAT is legally justified in not admitting and adjudicating legal grounds taken by the Revenue with regard to applicability of section 115JB of the Act?" 2. The appellant is essentially aggrieved by the Tribunal having refused to admit and rule upon certain grounds which were urged with regard to the applicability of Section 115JB of the Income Tax Act, 1961 [Act]. We deem it appropriate to briefly recapitulate the following essential facts in order to provide some context to the issues which arise. 3. The respondent/assessee is stated to have undertaken a sale transaction with respect to a piece of agricultural land along with houses constructed thereon in Assessment Year [AY] 2006-07. It was claimed that the profit from the sale of that property would be exempt from taxation since it constituted a sale of agricultural land and would thus not fall within the ambit of the expression 'capital asset' as defined by Section 2 (14) of the Act. Before us, it was not disputed that the land constituted rural agricultural land and would not fall within the scope of Section 2 (14) (iii). 4. The submission of Mr. Meharch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son of his connection with the land, requires as a dwelling house, or as a store-house, 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 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 [* * *] or [(B) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the definition of "capital asset" and hence, any gain arising from the transfer of such agricultural land was brought within the purview of capital gains taxation. Certain Courts have, however, held that profits from the sale of agricultural land constitute "agricultural income" and, therefore, it is exempt from tax under section 10 of the Income-tax Act. Some Courts have held that such income is taxable. The settlement of the judicial controversy by a decision of the Supreme Court may take a long time. Till then, uncertainty in law would not be desirable. Therefore, as a measure of rationalisation, it is proposed to clarify by way of insertion of an Explanation that capital gains arising from the transfer of the aforesaid agricultural land will not constitute "revenue" within the meaning of section 2(IA) of the Income-tax Act This amendment will take effect retrospectively from 1st April, 1970, and will, accordingly, apply in relation to the assessment year 1970-71 and subsequent years." 7. According to Mr. Meharchandani, Section 2(1-A) came to be amended with retrospective effect from 01 April 1970 and in terms of which agricultural land, though broadly excluded from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural lands coming within section 2 (14) (iii) (a) and (b) and the other declaration, if at all discernible, being per incuriam does not even have a persuasive effect on us. Further there is a contrary decision by a Division Bench of our own High Court reported in CIT v. T. K. Sarala Devi (1987) 167 ITR 136 (Ker). xxxx xxxx xxxx 21. We see from section 10 of the Act that agricultural income is granted an exemption under the Income-tax Act. Sub-clause (2) of the first Explanation to section 115JB, provides a downward adjustment of the profits as revealed from the books of account, to that income, to which any of the provisions of sections 10, 10A, 10B, 11 or 12 applies. Hence, if any portion of the profits as reflected in the books of account relates to agricultural income, then there is a clear exemption provided under section 10. In view of the exemption under section 10, any revenue from agricultural land would have to be reduced from the profits in computing the "minimum alternate tax" (MAT) under section 115JB. Explanation 1 of section 2(1A) however specifically excludes any income derived from transfer of land, referred to in items (a) and (b) of section 2 (14) (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd used for agricultural purposes were income derived from agricultural land within the meaning of section 2 (1) and, therefore, not chargeable under the Act. But the fallacy of that assumption is that, when land is sold, the sale proceeds do not constitute revenue but capital:(see Commissioner of Agricultural Income-tax v. Kailas Rubber and Co. Ltd. (1966) 60 ITR 435 (SC) ; MANU/SC/0206/1965 and A. K. T. K. M. Vishnudatta Antharjanam v. Commr. of Agrl. I.T. (1970) 78 ITR 58 (SC) ; MANU/SC/0217/1970. The profits or gains arising from the sale of land constitute income because section 2(24) of the Act includes as 'income' capital gains chargeable under section 45. Such gain is, nevertheless, not income derived from land ; it is income derived by the sale of land. Although land is the source of the income, income is derived not by the use of the land, but by the sale of the land, that is, by conversion of the land into cash. If income results from the sale of agricultural land, it is not 'agricultural income' within the meaning of section 2 (1)." We respectfully follow the dictum as laid down by the Division Bench of this court in T. K. Sarala Devi and find that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invited our attention to the following passages from the decision of the Bombay High Court in Manubhai A. Sheth vs. N.D. Nirgudkar1980 SCC OnLine Bom 345: "18. So far as the first ground of challenge is concerned, four questions arise for consideration. They are: (1) Whether profits or gains made on transfer of agricultural land is income? (2) If so, whether such income is "revenue "within the meaning of that word as used in sub-cl. (a) of cl. (1) of s. 2 of the I.T. Act, 1961? (3) If such income is "revenue" within the meaning of that word as used in s. 2 (1)(a), whether it is "revenue derived from land"? (4) Whether the expression "agricultural land" in s. 2 (14) (iii) means the same thing as the expression "land which is used for agricultural purposes" in s. 2 (1) (a)? 19. The first of these questions presents no difficulty, for it is now definitively decided by the Supreme Court in Navinchandra Mafatlal v. CIT, [1954] 26 ITR 758 that profits or gains arising from the sale of a capital asset are income. Navinchandra's case was an appeal to the Supreme Court from a judgment of the Bombay High Court on a reference made under s. 66 (1) of the Indian I.T. Act, 1922. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify capital gains either according to its natural import or common usage or according to judicial interpretation of relevant legislation both in England and in India. It was further argued that English lawyers and English jurists as also English legislative practice always recognised a clear line of demarcation between "income" and "capital", and, therefore, the British Parliament which enacted the Govt. of India Act, 1935, must be regarded as having understood and used the word "income." in entry 54 in that sense. After examining this argument the Supreme Court pointed out that what was relied upon by the appellant-assessee as being legislative practice was nothing but judicial interpretations of the word "income" as appearing in fiscal statutes and that a perusal of those cases revealed that they were concerned with ascertaining the meaning of that word in the context of the income-tax legislation. The Supreme Court referred with approval to the following observations of Lord Wright in Kamakshya Narain Singh v. CIT, [1943] 11 ITR 513, 521 (PC): "Income, it is true, is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e printed in italics.] has been supplied by us.) 22. We now turn to consider whether profits or gains on sale of agricultural land would be revenue within the meaning of that word as used in s. 2 (1) (a) of the I.T. Act, 1961. For the purpose of this discussion, we will treat the expression "agricultural land" as if it were synonymous with' the expression "land which is used for agricultural purposes Murray's Oxford English Dictionary, inter alia, defines "revenue" as "that which comes in to one as a return from property or possessions, esp., of an extensive kind; income from any source (but esp., when large and not directly earned)." The Concise Oxford Dictionary, inter alia, defines the word "revenue" as "income, esp., of large amount, from any source that the word "revenue" in sub-cl. (a) of cl. (1) of s. 2 has been used in a very wide sense is shown by that sub-clause itself. That sub-clause states, "any rent or revenue derived from land". The word "any" qualifies not merely the word "rent" but also the word "revenue". The word "any", when used affirmatively, means "whichever, of whatever kind, of whatever quantity" (See Murray's Oxford English Dictionary). The Shorte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown by the judgment of the Federal Court in Hulas Narain Singh v. Province of Bihar, [1942] 10 ITR 115 (FC). In that case, a suit was filed in the Court of the First Subordinate Judge, Patna, to challenge the validity of 'the Bihar Agrl. I.T. Act, 1938. The suit was transferred for hearing and disposal to the Patna High Court and a Special Bench of that High Court dismissed the suit. An appeal against that judgment was dismissed by the Federal Court. One of the contentions urged was that the definition of "agricultural income" in the Bihar Act was in some respects wider and in other respects narrower than the definition in the Indian I.T. Act, 1922, and that this departure from the definition in the Central Act rendered the impugned Act invalid. An argument in support of this contention was that while the definition of "agricultural income" in the Indian I.T. Act, 1922, used the words "rent or revenue", the words used in the Bihar Act were "rent or income". Before the Federal Court it was conceded by the appellants that this variation was immaterial. Though this point was conceded, on a perusal of the judgment of the Federal Court, it will appear that according to the Federal Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of 115JB as raised in ground no.3, we find that, firstly neither the issue of computation or taxation of book profit u/s. 115JB has been raised by the Assessing Officer, nor such grounds were raised in the original grounds of appeal by the Department. Apart from that, once Assessing Officer has not treated the said gain for the purposes of book profit then by way of such ground the issue cannot be raised by the Department. Otherwise also when the income of agricultural land is exempt from tax, then the said exempt income cannot be added to the books profit while calculating the MAT u/s.115JB. Thus, the said ground raised by the Revenue cannot be entertained and same is dismissed." 13. We are of the opinion that since the question which was raised was purely legal, the Tribunal would have been well advised to have accorded an opportunity to respective sides to address submissions on the merits before proceeding to hold that the same could not be entertained. 14. We, accordingly and for the aforesaid reasons, allow the instant appeal and answer the question framed for our consideration in the negative and in favour of the appellant. The order of the Tribunal dated 15 May 2018 is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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