Agricultural land and mistake apparent from record: rectification upheld where capital gains were wrongly charged on non-capital asset transfer.

Capital gains tax could not be levied on agricultural land where, on the facts found at assessment, the land did not satisfy the definition of a capital asset under the Income-tax Act. The Tribunal treated the levy as a mistake apparent from record because the assessment proceedings and related material showed that the statutory conditions for capital gains had not been properly examined, and the issue was not debatable once the factual position was accepted. Rectification under the relevant provision was therefore maintainable, and the capital gains addition had to be excluded for the agricultural land, while the transfer of shops and jhopri remained taxable.

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Issues: Whether capital gains tax could be levied on agricultural land on the facts found, and whether the assessment could be rectified under section 154 on the ground of a mistake apparent from record.

Analysis: The dispute turned on whether the agricultural land had become a capital asset within section 2(14)(iii) of the Income-tax Act, 1961, so as to attract section 45. The assessment record showed that the Income-tax Officer had not examined whether the land satisfied the statutory conditions, while the later report accepted that the land was not chargeable to capital gains tax. The Tribunal treated the rectification record as relevant because the material concerned the very issue that ought to have been examined at the assessment stage. Relying on the principle that the record for rectification includes the assessment proceedings and the law applicable, the Tribunal held that the levy on agricultural land had been made contrary to the facts and law then obtaining and that this constituted a mistake apparent from record. It also held that the issue was not debatable once the factual position as to non-applicability of capital gains tax was accepted.

Conclusion: The rectification under section 154 was maintainable and the addition of capital gains on agricultural land could not stand; capital gains tax was confined to the shops and jhopri.

Final Conclusion: The assessee succeeded to the extent that the assessment had to be corrected by excluding the agricultural land from capital gains taxation, and only the remaining transfer of shops and jhopri could be brought to tax.

Ratio Decidendi: An assessment can be rectified under section 154 where capital gains have been levied on property that, on the facts and law applicable at the time of assessment, was not a capital asset, because such an error is a mistake apparent from record and the relevant record includes the assessment proceedings and allied material bearing on the issue.

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