Agricultural land sale within notified municipal limits remained agricultural income and escaped income-tax under the retrospective Explanation.

Profit on sale of agricultural land within 8 kms of a notified municipality was treated as agricultural income and not chargeable to income-tax. The Court relied on its earlier ruling in J. Raghottama Reddy and held that the retrospective Explanation to section 2(1A) introduced by the Finance Act, 1989 did not alter the position that income from transfer of land used for agricultural purposes remained outside tax under the facts considered. The Tribunal's view was sustained, and the reference was answered in favour of the assessee.

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Outcome: The reference applications were allowed and the question of law was referred for decision, with the issue relating to the taxability of gains from agricultural land kept open for adjudication on the framed question.

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