Sale proceeds from agricultural land treated as capital gains, not agricultural income, under the Income-tax Act.

Sale proceeds from land acquired or sold under agricultural use were treated as a capital receipt, not agricultural income, because the gain arose from the sale of the land and not from the use of the land itself. The article explains that such profit is taxable only as capital gains under the Income-tax Act, since it falls within the charging provision for capital gains rather than the exemption for agricultural income. The Kerala High Court accordingly answered the issue against the assessee and in favour of the Revenue.

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Issues: Whether the sale proceeds of agricultural land acquired under land acquisition proceedings constituted agricultural income and were outside the charging provisions of the Income-tax Act, 1961.

Analysis: The land was sold in the relevant accounting year and the resulting receipt was a capital receipt, not a revenue receipt. A profit or gain on sale of land is chargeable as income only because the Act includes capital gains within the definition of income and specifically taxes such gains under the charging provision. Such gain is not income derived from land, but income derived from the sale of land. Even if the land was used for agricultural purposes, the sale proceeds did not become agricultural income within the meaning of the Act.

Conclusion: The question was answered in the negative. The sale proceeds were held to be capital receipt and not agricultural income, in favour of the Revenue and against the assessee.

Ratio Decidendi: Profit arising from the sale of land is a capital gain and not agricultural income, because it is derived from the sale of the land and not from the use of the land itself.

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