Agricultural land exclusion and compulsory acquisition: vacant land remained a capital asset, and forced divestiture triggered capital gains tax.

Land acquired by the Government was held to be a capital asset because it was not actually agricultural at the relevant time: it had never been used for agricultural operations, no agricultural income had been derived, and it was only a vacant fallow site. Compulsory acquisition was also held to amount to a transfer within section 12B(1), because the term transfer is of wide import and includes divestiture of title by operation of law. The absence of voluntary assent did not prevent capital gains tax from applying, and the resulting surplus was chargeable to tax.

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Issues: (i) whether the land acquired by the Government was excluded from the definition of capital asset as agricultural land; (ii) whether compulsory acquisition amounted to a transfer within section 12B(1) so as to attract capital gains tax.

Issue (i): Whether the land acquired by the Government was excluded from the definition of capital asset as agricultural land.

Analysis: The land had never been used for agricultural operations, no agricultural income had ever been derived from it, and it was found to be a vacant site lying fallow. The exclusion from the definition of capital asset applies only where the land is in fact agricultural in character at the relevant time, not merely because it is capable of agricultural use or was once intended for such use.

Conclusion: The land was a capital asset and not excluded as agricultural land.

Issue (ii): Whether compulsory acquisition amounted to a transfer within section 12B(1) so as to attract capital gains tax.

Analysis: Though compulsory acquisition may not amount to a voluntary sale, the expression transfer in section 12B(1) is of wide import and includes divestiture of title by operation of law. The omission of the earlier proviso excluding compulsory acquisition indicated that such transactions were intended to fall within the charging provision. The essential test was not mutual assent, but whether the assessee's title was extinguished and passed to another.

Conclusion: Compulsory acquisition amounted to a transfer within section 12B(1), and the resulting surplus was taxable as capital gains.

Final Conclusion: The reference was answered against the assessee, and the capital gain arising from compulsory acquisition was held chargeable to tax.

Ratio Decidendi: Land is not excluded from capital asset status unless it is actually agricultural at the relevant time, and compulsory acquisition constitutes a transfer for capital gains purposes where title is divested by operation of law.

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