Capital asset test for agricultural land turns on municipality-wide population criterion under section 2(14)(iii)(a).

Agricultural land acquired by the Government was examined for capital gains treatment under the statutory exclusion for agricultural land. The controlling point was the interpretation of the population test in section 2(14)(iii)(a): the relevant population criterion applies to the municipality or cantonment board as a whole, not to any part of the municipal area or a former village area within it. Applying the settled Supreme Court rule, the land did not escape capital asset status on the argument advanced, and the issue was resolved in favour of the Revenue.

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Issues: Whether agricultural land acquired by the Government was a capital asset within the meaning of section 2(14) of the Income-tax Act, 1961, and whether, for section 2(14)(iii)(a), the relevant population criterion had to be applied to the municipality as a whole rather than to any part of the municipal area.

Analysis: The land was agricultural and had been transferred on acquisition, but its treatment for capital gains depended on whether it fell within the statutory exclusion for agricultural land. The controlling question under section 2(14)(iii)(a) was the meaning of the expression relating to a municipality having a population of not less than 10,000. The binding Supreme Court authority had settled that the population test relates to the municipality or cantonment board itself, not to any area within it or a former village area comprised therein.

Conclusion: The land did not escape the definition of capital asset on the basis contended, and the questions were answered against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered by applying the Supreme Court rule that the population threshold under section 2(14)(iii)(a) is to be assessed with reference to the municipality as a whole, leading to a decision favouring the Revenue.

Ratio Decidendi: For the purpose of section 2(14)(iii)(a) of the Income-tax Act, 1961, the population condition is to be determined with reference to the municipality or cantonment board as a whole, not to any part of its area.

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