TMI Blog1983 (3) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years. 2. The issue before us is whether on the facts and in the circumstances of the case, the capital gains arising from the sale of land of the assessee situated in Lehal, Patiala, is liable to tax under the Income-tax Act, 1961 (' the Act '). The facts which are relevant for determination of this issue lie in a narrow compass. The assessee had agricultural lands on which factually agricultural operations were carried on. During the accounting period ending 31-3-1977, relevant to the assessment year 1977-78, the assessee sold 2,133 sq. yards of the said land for Rs. 70,000. During the course of the assessment proceedings, the ITO went into the question of capital gains arising out of this transaction and their taxability. He worke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually put to agricultural use, wherever located, is not liable to tax. The learned counsel for the assessee also relied on the judgment of the Tribunal, in IT Appeal No. 250 of 1981, dated 18-11-1982 for the proposition that if in the alternative it were to be held that capital gains were chargeable on the sale of agricultural lands mentioned above, then for determining the chargeable capital gains the assessee should be given the benefit of substitution of cost as on 28-2-1970 with effect from which date agricultural lands became the capital asset due to amendment in law. He also relied on the ratio decidendi of the Supreme Court judgment in the case of CIT v. Groz-Beckert Saboo Ltd. [1979] 116 ITR 125 to support his submissions. 5. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette ;" This sub-clause came up for consideration before the Hon'ble Bombay High Court in the case of Manubhai A. Sheth and the Court has held that sub-clause (iii) of clause (14) of section 2 with other relevant sections of the Act does not operate to levy capital gains tax on profits or gains arising from the transfer of land which is used for agricultural purposes. The Hon'ble Court has observed that this must be read down so as to exclude from the operation of the said sub-clause, land which is used for agricultural purposes even though it may be situated in any of the areas mentioned in items (a) and (b) of sub-clause (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the said Court cited by it. In view of what is stated above, the alternative contention of the assessee becomes in a way infructuous. However, if we were to consider whether, when capital gains arising from the sale of said land is taxable, the assessee will be entitled to substitute the cost thereof from the date from which such land became asset within the meaning of the Act, the position is as under : It is now well settled by the decisions of the Supreme Court in the case of CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 and in the case of CIT v. Hantapara Tea Co. Ltd. [1973] 89 ITR 258 that where the assessee converts his capital assets into stock-in-trade and starts dealing in them the taxable profit on the sale must b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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