Agricultural land sold before the statutory notification was not a capital asset, so capital gains tax did not apply.

Agricultural land sold before the issuance of a notification under section 2(14)(iii)(b) could not be treated as a capital asset merely because it lay within eight kilometres of municipal limits. The statutory definition applies only where the Central Government has already specified the relevant area in the Official Gazette, having regard to urbanisation and related factors, on the date the transfer is completed. Because the notification was issued later, it had no retrospective effect on the completed sale. The surplus from the sale was therefore not chargeable to capital gains tax.

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Issues: Whether agricultural land situated within eight kilometres of municipal limits but covered by a later notification under section 2(14)(iii)(b) of the Income-tax Act, 1961 could be treated as a capital asset so as to attract capital gains tax on a sale completed before the notification.

Analysis: The definition of "capital asset" in section 2(14)(iii)(b) applied only where the Central Government had, by notification in the Official Gazette, specified the relevant area having regard to the extent and scope for urbanisation and other relevant considerations. On the material facts, the sale transaction was completed before the notification came into existence. In the absence of the notification on the date of completion of the transfer, the land could not be brought within the statutory definition merely because it was within eight kilometres of the municipal limits.

Conclusion: The land did not constitute a capital asset on the relevant date, and the surplus from its sale was not chargeable to capital gains tax. The answer is in favour of the assessee and against the Revenue.

Ratio Decidendi: For agricultural land to fall within section 2(14)(iii)(b), the statutory notification specifying the area must exist on the date the transfer is completed; a later notification cannot retrospectively convert the land into a capital asset.

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