Retrospective definition of agricultural income makes capital gains from notified land taxable under the Income-tax Act.

The retrospective Explanation inserted by the Finance Act, 1989 to section 2(1A) excluded gains from transfer of land falling within section 2(14)(ii)(a) or section 2(14)(iii)(b) from the definition of agricultural income. In light of Article 366(1), the amended definition was treated as governing the constitutional understanding of agricultural income and as curing the earlier defect. As a result, capital gains from transfer of agricultural land situated within notified municipal limits or the prescribed distance from those limits were held taxable under the capital gains charging provision.

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Issues: Whether capital gains arising from the transfer of agricultural land situated within notified municipal limits or within the prescribed distance from such limits were chargeable to tax after the retrospective insertion of the Explanation to section 2(1A) of the Income-tax Act, 1961.

Analysis: The Explanation inserted by the Finance Act, 1989 with retrospective effect from 1 April 1970 declared that revenue derived from land would not include income arising from the transfer of land referred to in section 2(14)(ii)(a) or section 2(14)(iii)(b) of the Income-tax Act, 1961. In the light of Article 366(1) of the Constitution of India, the definition of agricultural income is that contained in the income-tax enactment for the time being in force. The retrospective amendment was treated as having cured the defect noted in the earlier view, and the amended definition was held to operate back into Entry 82 of List I read with Article 246(1) of the Constitution of India.

Conclusion: Capital gains arising from the sale of agricultural lands situated within the notified areas were exigible to tax, and the issue was decided against the assessee and in favour of the Revenue.

Final Conclusion: The retrospective amendment to the definition of agricultural income brought such transfers within the charging provision for capital gains, so the Revenue's appeals succeeded.

Ratio Decidendi: Where the statute retrospectively excludes from agricultural income the gains arising from transfer of specified land, such gains become taxable as capital gains notwithstanding the land's agricultural character.

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