1981 (2) TMI 7

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....with his income-tax assessment for the assessment year l970-71. The ITO rejected the assessee's claim for exemption, and brought the amount to tax under the head " Capital gains ". The Income-tax Appellate Tribunal confirmed the assessment, in appeal. In this reference, the assessee contends that the assessment is bad in law. The contention bears examination by reference to the definition of " capital asset " in s. 2(14) of the I.T. Act and the place of agricultural lands in that definition. Section 2(14), subject to exceptions, broadly defines a " capital asset " as property of any kind held by an assessee. The exceptions are set out in s. 2(14), cls. (i) to (iv). Clause (iii) refers to agricultural lands. This clause was the subject of....

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....d the assessment, basically, on the same considerations. Before us, the assessee's learned counsel does not take up the stand that the assessee's agricultural lands can be regarded as " non-capital assets " at the time of their sale. What is urged by him, however, is that at the time of their acquisition, those lands were non-capital assets. Learned counsel urged that tax under the head " Capital gains " cannot be charged on the profits accruing from the sale or transfer of an item of property merely because such property answers the definition of a capital asset " at the time of sale. According to learned counsel, there is a further implied requirement under the statute that the property in question must also answer the description of a....

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.... transfer must be of a capital asset. The implication is that at the time of the transfer the subject of the transfer must be a capital asset. There is no further implication. The section does not say that the subject of the transfer must have been a capital asset at any other point of time. Conversely, the charge under s. 45 does not become exigible where the subject of transfer is a non-capital asset. It is not a further requirement for immunity from taxation that the non-capital asset in question must also have been a non-capital asset at the time of its acquisition or at any other material time. In other words, taxation or exemption from taxation depends upon the subject of transfer answering or not answering the definition of capital a....