Compulsory acquisition of agricultural land was not business income or capital gains, while one-half share property income was taxable under Property.

Compensation received on compulsory acquisition of agricultural land was not assessable as business profits because the land had remained agricultural and had not been converted into stock-in-trade or plots for business use. It was also not agricultural income, but the receipt was not taxable as capital gains because agricultural land fell outside the definition of capital asset. Income from the assessee's one-half share in the property at 16, Aurangzeb Road was assessable under the head 'Property' by following the earlier decision, and that issue was decided against the assessee.

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Issues: (i) Whether compensation received on acquisition of agricultural land was assessable as business profits or taxable income; (ii) Whether the compensation could be treated as agricultural income or as taxable capital gains; (iii) Whether income from one-half share in the property at 16, Aurangzeb Road was assessable under the head "Property".

Issue (i): Whether compensation received on acquisition of agricultural land was assessable as business profits or taxable income.

Analysis: The land had remained agricultural land until acquisition. No steps had been taken to convert it into plots or otherwise alter its character in the assessee's business. The compensation was received only because of compulsory acquisition and did not arise from sale of stock-in-trade or from any business transaction.

Conclusion: The compensation was not assessable as business profits and the answer was in favour of the assessee.

Issue (ii): Whether the compensation could be treated as agricultural income or as taxable capital gains.

Analysis: The amount received on acquisition was not rent or revenue from agricultural land and therefore did not constitute agricultural income. At the same time, agricultural land was outside the definition of capital asset, so the gain arising from its acquisition was not chargeable either as income or as capital gains.

Conclusion: The compensation was not agricultural income, but the receipt was not taxable as capital gains either, and the issue was decided in favour of the assessee on the question of taxability.

Issue (iii): Whether income from one-half share in the property at 16, Aurangzeb Road was assessable under the head "Property".

Analysis: The issue was covered by the earlier decision referred to by the Court and followed for the present assessment year.

Conclusion: The income from one-half of the property was assessable under the head "Property" and the issue was decided against the assessee.

Final Conclusion: The reference was answered by following the earlier decision, with the compensation on acquisition of agricultural land held not taxable as business income and not chargeable as capital gains, while the property-income question was answered against the assessee.

Ratio Decidendi: Compensation received on compulsory acquisition of land remains non-taxable as business income where the land has not been converted from agricultural land into stock-in-trade or building plots, and agricultural land does not give rise to chargeable capital gains under the relevant definition of capital asset.

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