Strict reading of agricultural land exclusion under capital gains law confirms taxable status when statutory locality conditions are unmet.

The article explains that the exclusion of agricultural land from "capital asset" under section 2(14)(iii) must be read strictly on its plain language. It states that the statutory exception applies only where the land is situated within the jurisdiction of a municipality or cantonment board and the prescribed population condition is met. The Delhi High Court is described as rejecting any expansion of the exemption to village land merely because the village forms part of a municipal area, applying the literal and golden rules of interpretation. On that basis, the land was treated as falling within the taxable capital gains net.

---

---

Issues: Whether capital gains arising on transfer of agricultural land in village Nangal Dewat, Delhi, was chargeable to tax under the definition of capital asset in section 2(14)(iii) of the Income-tax Act, 1961.

Analysis: The expression excluding agricultural land from the definition of capital asset was held to be clear and unambiguous. On a plain reading, the statutory exclusion applies where the land is situate in an area comprised within the jurisdiction of a municipality or cantonment board and satisfies the prescribed population requirement. The Court declined to add words to the provision or extend it to land in a village merely because the village formed part of a municipal area. Applying the literal and golden rules of interpretation, and following the binding view that the population criterion relates to the municipality rather than an undefined local area within it, the land in question fell within the taxable ambit.

Conclusion: The question was answered in the negative and against the assessee. Capital gains on the transfer were held chargeable to tax.

Final Conclusion: The reference was disposed of by holding that the transferred agricultural land was a capital asset for the purposes of capital gains taxation, and the Revenue succeeded on the substantive question referred.

Ratio Decidendi: Where the language of an exclusionary tax provision is clear, courts must give effect to its plain meaning and cannot expand the exemption by reading in words not found in the statute.

---