TaxTMI 
TaxTMI 
2024 (7) TMI 1291
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....n of India vs. S. Muthyam Reddy [(1999) 7 SCC 545]:- "1. This appeal is by special leave against an order passed by the High Court of Andhra Pradesh in a batch of cases. By that order, the High Court considered the effect of a combined reading of Sections 2(1-A) and 2 (14) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") and has held that (i) capital gains arising from sale of land used for agricultural purposes would be revenue derived from such land and, therefore, "agricultural income" within the definition under Section 2(1-A) of the Act with the result that Parliament would have no legislative competence to tax such agricultural income; and (ii) amended Section 2 (14) (iii) should be read down to preserve its constitutionality. All land used for agricultural purposes whether situated in areas mentioned in Section 2 (14) (iii) (a) and (b) should be held to be excluded from the definition of capital asset. Thus Section 2 (14) (iii) should read as excluding from capital asset agricultural land in India, not being land situated in the areas mentioned therein. Upon such interpretation, Section 2 (14) (iii) does not enable levy of tax on ....
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....s dismissed." 5. Prima facie, we find ourselves unable to sustain the view as taken. We, consequently admit the appeal on the following question of law:- A. Whether the ITAT is legally justified in not admitting and adjudicating legal grounds taken by the Revenue with regard to applicability of section 115JB of the Act?" 2. The appellant is essentially aggrieved by the Tribunal having refused to admit and rule upon certain grounds which were urged with regard to the applicability of Section 115JB of the Income Tax Act, 1961 [Act]. We deem it appropriate to briefly recapitulate the following essential facts in order to provide some context to the issues which arise. 3. The respondent/assessee is stated to have undertaken a sale transaction with respect to a piece of agricultural land along with houses constructed thereon in Assessment Year [AY] 2006-07. It was claimed that the profit from the sale of that property would be exempt from taxation since it constituted a sale of agricultural land and would thus not fall within the ambit of the expression 'capital asset' as defined by Section 2 (14) of the Act. Before us, it was not disputed that the land constitut....
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.... (i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated- (A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand [* * *] or [(B) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than si....
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....tion of not less than ten thousand) or in any area outside the limits of any Municipality or Cantonment Board (having a population of not less than ten thousand) up to a maximum distance of 8 Kms. from such limits as notified by the Central Government was included within the definition of "capital asset" and hence, any gain arising from the transfer of such agricultural land was brought within the purview of capital gains taxation. Certain Courts have, however, held that profits from the sale of agricultural land constitute "agricultural income" and, therefore, it is exempt from tax under section 10 of the Income-tax Act. Some Courts have held that such income is taxable. The settlement of the judicial controversy by a decision of the Supreme Court may take a long time. Till then, uncertainty in law would not be desirable. Therefore, as a measure of rationalisation, it is proposed to clarify by way of insertion of an Explanation that capital gains arising from the transfer of the aforesaid agricultural land will not constitute "revenue" within the meaning of section 2(IA) of the Income-tax Act This amendment will take effect retrospectively from 1st April, 1970, a....
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....preme Court has found the decision to have no basis on the introduction of the Explanation, leaving no room to find any portion of the decision having been affirmed or left to survive. Then the question arising before the Andhra Pradesh High Court was only on the taxability of sale consideration of agricultural lands coming within section 2 (14) (iii) (a) and (b) and the other declaration, if at all discernible, being per incuriam does not even have a persuasive effect on us. Further there is a contrary decision by a Division Bench of our own High Court reported in CIT v. T. K. Sarala Devi (1987) 167 ITR 136 (Ker). xxxx xxxx xxxx 21. We see from section 10 of the Act that agricultural income is granted an exemption under the Income-tax Act. Sub-clause (2) of the first Explanation to section 115JB, provides a downward adjustment of the profits as revealed from the books of account, to that income, to which any of the provisions of sections 10, 10A, 10B, 11 or 12 applies. Hence, if any portion of the profits as reflected in the books of account relates to agricultural income, then there is a clear exemption provided under section 10. In view of the exemption under s....
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....of this court in CIT v. T. K. Sarala Devi (1987) 167 ITR 136 (Ker). This court in paragraph No. 4 thereof held thus (page 137): "The reasoning of the Tribunal is that proceeds of sale of land constituted income derived from land. If that proposition was correct, the Tribunal would be justified in saying that proceeds of sale of land used for agricultural purposes were income derived from agricultural land within the meaning of section 2 (1) and, therefore, not chargeable under the Act. But the fallacy of that assumption is that, when land is sold, the sale proceeds do not constitute revenue but capital:(see Commissioner of Agricultural Income-tax v. Kailas Rubber and Co. Ltd. (1966) 60 ITR 435 (SC) ; MANU/SC/0206/1965 and A. K. T. K. M. Vishnudatta Antharjanam v. Commr. of Agrl. I.T. (1970) 78 ITR 58 (SC) ; MANU/SC/0217/1970. The profits or gains arising from the sale of land constitute income because section 2(24) of the Act includes as 'income' capital gains chargeable under section 45. Such gain is, nevertheless, not income derived from land ; it is income derived by the sale of land. Although land is the source of the income, income is derived not by the use of....
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.... of revenue derived from land and thus fall outside the scope of agricultural income. It was his submission that since in the present case the land which formed the subject matter of sale was rural agricultural land, the argument which is sought to be canvassed is liable to be negated. 11. Apart from the decision in Singhai Rakesh Kumar, learned counsel also invited our attention to the following passages from the decision of the Bombay High Court in Manubhai A. Sheth vs. N.D. Nirgudkar1980 SCC OnLine Bom 345: "18. So far as the first ground of challenge is concerned, four questions arise for consideration. They are: (1) Whether profits or gains made on transfer of agricultural land is income? (2) If so, whether such income is "revenue "within the meaning of that word as used in sub-cl. (a) of cl. (1) of s. 2 of the I.T. Act, 1961? (3) If such income is "revenue" within the meaning of that word as used in s. 2 (1)(a), whether it is "revenue derived from land"? (4) Whether the expression "agricultural land" in s. 2 (14) (iii) means the same thing as the expression "land which is used for agricultural purposes" in s. 2 (1) (a)? ....
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...., but in view of certain other arguments advanced before us on the other questions arising in connection with the consideration of the second ground of challenge mentioned above, it is necessary to refer to the Supreme Court judgment in Navinchandra's case, [1954] 26 ITR 758 in some detail. It was sought to be argued before the Supreme Court on behalf of the appellant-assessee that the word "income" did not signify capital gains either according to its natural import or common usage or according to judicial interpretation of relevant legislation both in England and in India. It was further argued that English lawyers and English jurists as also English legislative practice always recognised a clear line of demarcation between "income" and "capital", and, therefore, the British Parliament which enacted the Govt. of India Act, 1935, must be regarded as having understood and used the word "income." in entry 54 in that sense. After examining this argument the Supreme Court pointed out that what was relied upon by the appellant-assessee as being legislative practice was nothing but judicial interpretations of the word "income" as appearing in fiscal statutes and that a perusal of th....
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....tions of Lord Wright to which reference has already been made......... The argument founded on an assumed legislative practice being thus out of the way, there can be no difficulty in applying its natural and grammatical meaning to the ordinary English word 'income As already observed, the word should be given its widest connotation in view of the fact that it occurs in a legislative head conferring legislative power." (emphasis [ Here printed in italics.] has been supplied by us.) 22. We now turn to consider whether profits or gains on sale of agricultural land would be revenue within the meaning of that word as used in s. 2 (1) (a) of the I.T. Act, 1961. For the purpose of this discussion, we will treat the expression "agricultural land" as if it were synonymous with' the expression "land which is used for agricultural purposes Murray's Oxford English Dictionary, inter alia, defines "revenue" as "that which comes in to one as a return from property or possessions, esp., of an extensive kind; income from any source (but esp., when large and not directly earned)." The Concise Oxford Dictionary, inter alia, defines the word "revenue" as "income, esp., of large ....
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....[1933] 1 ITR 78 (Mad) [FB], it was observed that the word "revenue" is a word of wider import than the word "rent". It was for this reason that in sub-cl. (a) of s. 2 (1) of the Indian I.T. Act, 1922, it was used separately and is so used in s. 2 (1) (a), of the I.T. Act, 1961. The scheme of cl. (1) of s. 2 shows that it is not used synonymously with "rent" but, on the other hand, is used in contradistinction to it. That "revenue" is the same as "income" is; also shown by the judgment of the Federal Court in Hulas Narain Singh v. Province of Bihar, [1942] 10 ITR 115 (FC). In that case, a suit was filed in the Court of the First Subordinate Judge, Patna, to challenge the validity of 'the Bihar Agrl. I.T. Act, 1938. The suit was transferred for hearing and disposal to the Patna High Court and a Special Bench of that High Court dismissed the suit. An appeal against that judgment was dismissed by the Federal Court. One of the contentions urged was that the definition of "agricultural income" in the Bihar Act was in some respects wider and in other respects narrower than the definition in the Indian I.T. Act, 1922, and that this departure from the definition in the Central Act rendered ....