Retrospective amendment to agricultural income definition brings capital gains on notified agricultural land within taxable capital gains.

The retrospective amendment to the definition of agricultural income under the Income-tax Act excludes gains from transfer of land covered by section 2(14), so capital gains arising from the sale of agricultural land within notified municipal limits are taxable. The text notes that the amended definition operates for income-tax purposes under the constitutional allocation of taxing power, and that the earlier view treating agricultural character as sufficient no longer applies after the statutory change. As a result, such transfer gains fall within the taxable capital gains regime notwithstanding the land's agricultural nature.

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Issues: Whether capital gains arising from transfer of agricultural land situated within notified municipal limits are taxable after the retrospective amendment to the definition of agricultural income.

Analysis: The amended Explanation to section 2(1A) of the Income-tax Act, 1961, inserted by the Finance Act, 1989 with retrospective effect from 1 April 1970, provides that revenue derived from land does not include income arising from the transfer of land covered by section 2(14). In the light of Article 366(1) of the Constitution of India and the legislative power under Entry 82 of List I read with Article 246(1), the amended definition of agricultural income operates for income-tax purposes. Once the statutory amendment brought such transfer gains outside agricultural income, the earlier view that mere inclusion of land as a capital asset was insufficient no longer governed the issue.

Conclusion: Capital gains arising from the sale of agricultural land situated within the notified areas are exigible to tax.

Final Conclusion: The revenue's position was upheld and the appeals were allowed on the basis that the retrospective statutory amendment brought such gains within the taxable capital gains regime.

Ratio Decidendi: Where the definition of agricultural income is retrospectively amended so as to exclude gains from transfer of specified agricultural land, such gains become chargeable as capital gains notwithstanding the land's agricultural character.

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