Agricultural land outside notified municipal limits was not a capital asset, so acquisition consideration escaped capital gains tax.

Agricultural land remained outside the definition of "capital asset" because it did not fall within the statutory categories in section 2(14)(iii), namely land within municipal limits or within the notified distance from those limits. The relevant notification did not include Puri town, and the land retained its agricultural character. On that basis, the consideration received on acquisition was not chargeable to capital gains tax, and the reference was answered in favour of the assessee.

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Issues: Whether capital gains tax was leviable on the consideration received for acquisition of the assessee's agricultural land situated outside the notified municipal area.

Analysis: Agricultural land in India stood excluded from the definition of "capital asset" unless it fell within the categories specified in section 2(14)(iii), namely land comprised within municipal limits or land situated within the notified distance from such limits. The relevant notification did not include Puri town. As the land did not fall within the statutory inclusion and continued to retain its agricultural character, the transfer did not attract capital gains tax.

Conclusion: The consideration received on acquisition of the land was not chargeable to capital gains tax and the answer to the reference was in favour of the assessee.

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