Agricultural land in municipal limits may attract capital gains tax on acquisition compensation under the amended definition of capital asset.

Agricultural land situated within the limits of a municipality having the prescribed population, or within the specified distance from those limits, falls within the amended definition of "capital asset" under section 2(14)(iii) of the Income-tax Act, read with the retrospective Explanation below section 2(1A). Where such land is transferred, the compensation or gains arising from acquisition are taxable as capital gains. The principle applied is that the statutory amendment brings these lands within the capital gains net despite their agricultural character. On that basis, compensation received on acquisition of the land was held taxable under the head "Capital gains".

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Issues: Whether compensation received on acquisition of agricultural land situated within municipal or specified suburban limits was taxable as capital gains.

Analysis: Agricultural land falling within the limits of a municipality having the prescribed population, or within the specified distance from such limits, was brought within the amended definition of capital asset by the relevant amendment to section 2(14)(iii) of the Income-tax Act, 1961, read with the retrospective Explanation inserted below clause (1A) of section 2. In such cases, the transfer of the land gives rise to taxable capital gains.

Conclusion: The compensation received on acquisition of the agricultural land was taxable under the head 'Capital gains', and the question was answered in favour of the Revenue and against the assessee.

Ratio Decidendi: Agricultural land situated within the prescribed municipal limits or specified distance therefrom falls within the amended definition of capital asset and the resulting gains on transfer are chargeable to tax as capital gains.

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