TMI Blog1973 (11) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the relevant figures have been published before the first day of the previous year, or in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to earlier, as the Central Government may, having regard to the exent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette, is not "agricultural land" and, therefore, would be included in the concept of "capital assets" defined in section 2(14). It must also be pointed out that facts in all these 24 special civil applications are similar and in each case the question is of capital gains said to arise as a result of compulsory acquisition of land by the Government under the provisions of the Land Acquisition Act, 1894, for the purposes of the Gujarat Housing Board. The land in question in each of these 24 special civil applications was, prior to the relevant notifications under the Land Acquisition Act being issued, being used for agricultural purposes and in each of these 24 cases, the land is situated within the jurisdiction of the Municipal Corporation of Ahmeda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons some of whom are petitioners in these special civil applications were proposed to be acquired for the development scheme of the Gujarat Housing Board and on December 19, 1970, a notification was issued under section 6 of the Land Acquisition Act where also the public purpose was for the housing board. After the section 6 notification was issued, compensation amount was determined for the petitioner in Special Civil Application No. 759 of 1971, and several other petitioners as well by mutual agreement between the housing board and the owner of the land under acquisition. The petitioner in Special Civil Application No. 759 of 1971 received Rs. 1,58,785.44 plus 15 per cent. solatium in respect of his two acres and 2 gunthas of land. It may be pointed out that, as a result of the amendment by Act 19 of 1970 in the definition of the term "capital assets" in section 2(14) of the Income-tax Act, 1961, by the time the compensation amounts were received from the acquiring body and the acquisition authorities in each of these 24 cases, the provisions of the Income-tax Act, 1961, relating to capital gains were attracted and the main reason why they were so attracted was the amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng from the transfer of agricultual land situated within the limits of any municipality or cantonment board which has a population of not less than 10,000 according to the latest census for which the relevant figures have been published. Power was also being given to the Central Government to bring within the scope of the levy (by notification in the Official Gazette), capital gains arising from transfer of agricultural lands situate outside the limits of any such municipality or cantonment board up to a maximum distance of 8 kilometres, where this was considered necessary having regard to the extent of and scope for urbanisation of that area and other relevant considerations. It was pointed out in the Memorandum that agricultual land which was situated in rural areas would continue to be outside the scope of the provisions regarding tax on capital gains and hence no liability to tax would arise in respect of gains derived from transfer of agricultural land in rural areas. Under section 2, sub-section (47) of the Income-tax Act, 1961, "transfer", in relation to a capital asset, includes the compulsory acquisition of the capital asset under any law. Therefore, whenever compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any use other than agricultural or from transferring them for a purpose other than agricultural, from the operation of section 2(14)(iii) comes within the vice of treating unequals as equals and non-exclusion of such lands defeats the very object of classification and, therefore, the newly amended section 2(14)(iii) violates article 14. Thus, on submissions (1) and (2) it was contended that it was not within the legislative competence of Parliament to enact section 2(14)(iii) and on submissions (3) and (4) it was contended that, at any rate, the impugned section 2(14)(iii) as amended was violative of article 14 of the Constitution. At this stage it will not be out of place to refer to some of the provisons of the Constitution. Under the scheme of distribution of legislative powers as set out in Chapter I of Part XI of the Constitution, under article 245, subject to the provisions of the Constitution, Parliament may make laws for the whole or any part of the State. No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. Under article 246, clause (1), notwithstanding anything in clauses (2) and (3), Parliament ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters in the Concurrent List, but not including fees taken in court. Thus, Parliament derives power of taxation from two sources: source number one being a specific entry in List I, and the second source is that to the extent to which the power of taxation is not conferred upon the State legislature, by any of the entries 45 to 63 in the State List, Parliament gets power by virtue of article 248 and entry 97 of List I the residuary power including the power of taxation. Entry 82 is as follows: "Taxes on income other than agricultural income" and entry 86 "Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies". It is obvious that entry 86 of List I cannot confer power on Parliament to levy a tax on capital gains arising from the transfer of a capital asset and the power to levy capital gains can only be derived from entry 82, namely, taxes on income other than agricultural income or under the residuary power under entry 97 of List I read with article 248. Entry 45 of the State List is "Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... House of Parliament of a Bill or amendment which varies the meaning of the expression "agricultural income" as defined for the purposes of enactments relating to Indian income-tax and to this extent it is contemplated that with the prior recommendation of the President a Bill or amendment varying the meaning of the expression "agricultural income" can be introduced or moved in either House of Parliament and can be subsequently enacted into legislation. It is, therefore, clear that while trying to ascertain the scope of the entries 18, 46 and 49 in the State List, that is, List II in the Seventh Schedule, one cannot overlook the definition of "agricultural income" in article 366, clause (1). It is important to bear in mind in this connection that the Constitution does not confine the definition of "agricultural income" with reference to the definition in any enactment relating to Indian income-tax as in force at the commencement of the Constitution but to all enactments relating to Indian income-tax. Therefore, whenever there is any provision in any enactment relating to Indian income-tax regarding the definition of "agricultural income" by virtue of article 366, clause (1), that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject to legislation in the States and by entry 49 taxes of whatever description on lands in that large sense and buildings generally fall also in the jurisdiction of the State. Reference is made to entries 45, 46, 47 and 48 of the State List in which certain taxes are to be imposed on land and agricultural land or income from agriculture exclusively by the States in contrast with entries 82, 86, 87 and 88 where the taxes are imposed on properties other than agricultural land or income from agriculture. It is submitted, therefore, that the general scheme of division of taxing and other entries by which land, particularly agricultural land, and income therefrom is reserved for the States shows that taxes on lands and buildings read liberally must also cover taxes in respect of gifts of land, particularly agricultural land and buildings. If the entry so read can be reasonably said to include the tax, then there can be no question of recourse to the residuary powers of Parliament." This was the argument and the Supreme Court held that, however attractive the argument, it could not be accepted. At page 718 of the report, Hidayatullah C.J. has pointed out: " The Constitution divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning of the Supreme Court in the gift-tax case in Second Gift-tax Officer, Mangalore v. D. H. Nazareth to the provisions regarding capital gains in section 45 read with section 2(14)(iii) and section 2(47) of the same Act, it is clear that the tax on capital gains is not a tax imposed directly upon lands and buildings but is a tax upon the profits or gains arising from the transfer of a capital asset which may include lands and buildings. It is a tax upon the profits or gains arising by reason of the transfer of the capital asset made in a year which is above the exempted limit. There is no tax upon lands or buildings as units of taxation, and since entry 46 of the State List contemplates a tax directly levied on agricultural income, it cannot include the tax on capital gains arising from transfer of land which includes such agricultural land. In our opinion, therefore, by virtue of the definition in section 2(1) of the Income-tax Act, 1961, as it stood with effect from April 1, 1970, the tax on profits or gains arising from transfer of agricultural lands as mentioned in the definition of "agricultural income" particularly, proviso, clause (ii), sub-clauses (A) and (B) is not with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Commissioner of Wealth-tax, that the true test to be applied for the purpose of determining whether a particular land is agricultural land or not, is not whether the land is capable of being used for agricultural purpose, but whether, having regard to the various relevant factors, the general nature or character of the land is such that it can be regarded as agricultural land. It was there held that if the land is used for agricultural purposes, ordinarily it would be correct to say that the land is agricultural land and vice versa. But even this test may not always furnish a correct answer, for there may be cases where land admittedly non-agricultural (such as a building site) may be used temporarily for agricultural purposes. In that particular case the plots in dispute were situate in a wholly residential area with numerous residential buildings around the plots, and they were situated in an area in respect of which a town planning scheme was in force for some years and three out of the four plots in question were cultivated up to about 1934-35, but had ceased to be cultivated since then, and no agricultural operations were carried on in those plots since about 21 to 22 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is well-settled law that legislatures have very wide powers of classification while enacting taxation laws. Under the law it is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification and this burden is all the heavier when the legislation under attack is a taxing statute. In East India Tobacco Co. v. State of Andhra Pradesh Venkatarama Aiyar J., delivering the judgment of the Supreme Court, has pointed out that in taxation even more than in other fields, legislatures possess the greatest freedom in classification. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it. This principle has also been recognised by the Supreme Court in Twyford Tea Co. v. State of Kerala. There it was held that there is a wide range of selection and freedom in appraisal not only in the objects of taxation and the manner of taxation but also in the determination of the rates applicable. The burden of proving discrimination is always heavy and heavier still when a taxing statute is under attack, and it is on a person complaining of discrimination. The burden is of proving no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hole idea is that lands in the vicinity of urban centres or in or near the urban centres, though agricultural operations may be for the time being carried on on such lands, stand in a different category from lands in villages where similar agricultural operations also have been carried on. Though the property is similar or same class of property, it is not similarly situated and thus, in the light of the decision in K. T. Moopil Nair v. State of Kerala, it is obvious that article 14 cannot be invoked against this piece of legislation which treats same kind of property which is not similarly situated. The result, therefore, is that the challenge on the basis of article 14 cannot be sustained since equals are not being treated unequally nor are unequals being treated equally. We may point out that in K. C. Thomas v. Agricultural Income-tax Officer questions similar to the question before us came up for consideration before the Kerala High Court and there the learned single judge of the Kerala High Court has come to the same conclusions as we have done regarding article 366(1) and the entries in List II of the Seventh Schedule and also article 274(1) of the Constitution. The conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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