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Nadirshah Rustamji Mulla Vs. Income-tax Officer, Companies Circle Vi(4), Bombay and Another - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberW.Ps. Nos. 1907 and 1908 of 1982
Judge
Reported in[1985]154ITR629(Bom); [1987]31TAXMAN9(Bom)
Acts Income Tax Act, 1961 - Sections 2(1) and 2(14)
AppellantNadirshah Rustamji Mulla;meherbai Nadirshah Mulla
Respondentincome-tax Officer, Companies Circle Vi(4), Bombay and Another;first Income-tax Officer, D(1)-ward,
Excerpt:
.....lands although they may be notified under section 2 (14) (iii) (b) - no tax can be levied on sale of lands covered by section 2 (14) (iii) (b) - no question of payment of interest under section 220 (2) when no tax is payable. - - the petitioners have paid tax on the said capital gains as well as interest on the said amount under the provisions of..........purpose of the i.t. act, 1961.4. the ito by his assessment order dated december 27, computed the capital gains on the sale of the said agricultural lands and farm house at rs. 5,98,639. since each of the petitioners had a half share in these lands, the amount of capital gains so ascertained was apportioned half and half between the petitioners. the petitioners have paid tax on the said capital gains as well as interest on the said amount under the provisions of s. 220, sub-s. (2), of the i.t. act, 1961.5. the petitioners filed appeals before the assistant commissioner of income-tax in respect of the computation of capital gains. from the decision of the aac, appeals were preferred to the income-tax appellate tribunal. in the appeals, the issue raised was whether the market value of the.....
Judgment:

Sujata V. Manohar, J.

1. In Writ Petition No. 1907 of 1982, the petitioner Nadirshah Rustamji Mulla. His wife, Meherbai Nadirshah Mulla, is the petitioner in Write Petition No. 1908 of 1982. The petitioners in both these petitions, at the relevant time, were co-owners of about 80 acres of agricultural land situated at Majiwade, District Thane. These lands were purchased by them in the year 1944. The lands have been used used for agricultural purposes and the agricultural income from these lands is disclosed in the return of income filed by the petitioners.

2. By a conveyance dated February 28, 1974, the petitioners sold a portion of the said agricultural land and measuring 42,788 square metres to Uni Abex Alloy Products Ltd. for a price of Rs, 4,86,700. By another conveyance dated March 29, 1974, the petitioners sold a further portion of the said agricultural land with a farm house and a small portion of non-agricultural land, all together admeasuring 38,148 square meters to Universal Ferro & Allied Chemicals Ltd. for a price of Rs. 4,33,743. Out of the lands sold under this conveyance, non-agricultural land admeasured 7,383 square metres and the proportionate sale price of non-agricultural land was computed at Rs. 83,945. Hence, under the conveyance of March 29, 1974, the price realised for the agricultural lands and farm house was Rs. 3,49,798. The total sale consideration received by the petitioners in respect of sales of agricultural lands and farm house for the assessment year 1974-75 was Rs. 9,06,498.

3. These lands were originally outside the limits of the Municipal Corporation of Greater Bombay. However, by a notification bearing No. S.O. 77(E) dated February 6, 1973, issued by the Central Government, the said lands were brought within the purview of the definition of 'capital assets' for the purpose of the I.T. Act, 1961.

4. The ITO by his assessment order dated December 27, computed the capital gains on the sale of the said agricultural lands and farm house at Rs. 5,98,639. Since each of the petitioners had a half share in these lands, the amount of capital gains so ascertained was apportioned half and half between the petitioners. The petitioners have paid tax on the said capital gains as well as interest on the said amount under the provisions of s. 220, sub-s. (2), of the I.T. Act, 1961.

5. The petitioners filed appeals before the Assistant Commissioner of Income-tax in respect of the computation of capital gains. From the decision of the AAC, appeals were preferred to the Income-tax Appellate Tribunal. In the appeals, the issue raised was whether the market value of the said lands should be ascertained as on January 1, 1954, or on February 6, 1973, when these lands were brought within the purview of the I.T. Act. The Income-tax Appellate Tribunal confirmed the original assessment which was made on the basis of the market value of said land as on January 1, 1954.

6. A reference in respect of these findings was granted on the application of the petitioners, and this reference is still pending. Thereafter, at a later date, the petitioners made an application for amending the reference by raising an additional question of law as to whether any capital gains tax was payable in respect of these sales. This application was rejected by the Tribunal, since this point had not been raised before the Tribunal at all.

7. The petitioners there after filed a miscellaneous application on the issue as to whether capital gains on the sale of agricultural lands was liable to be taxed. The said miscellaneous application was rejected by Income-tax Appellate Tribunal by its order dated May 12 1982. A rectification application dated October 17, 1980, was also filed by the petitioners with the ITO for this purpose, but the same was also rejected by the 1st respondent by its order November 20, 1981. The petitioners have thereafter filed the present petitions.

8. In petition No. 1908 of 1982, a similar question also arises in respect of another subsequent conveyance dated August 5, 1974, under which the petitioners sold a further portion of the said agricultural land admeasuring 22,232 square meters to Dae Ichi Karkaria Pvt. Ltd. for a sum of Rs. 2,30,037. The share of the petitioner in Writ Petition No. 1908 of 1982 was disclosed by her in her return for the assessment year 1975-76. The ITO assessed capital gains on the said sale at Rs. 1,83,503 and determined the half share of the petitioner in Writ Petition No. 1908 of 1982 at Rs. 91,751. He passed the assessment order for the assessment year 1975-76 accordingly and the petitioners in Writ Petition No. 1908 of 1982 has paid tax on the said capital gains as also interest the on under s. 220, sub-s. (2), of the Act. In respect of this assessment order also, an appeal which was filed has been rejected on the same basis as the appeal in respect of the previous assessment orders relating to the sale of other agricultural lands mentioned earlier. In respect of this assessment order also, the application for referring additional question of law was rejected and a miscellaneous application made in that respect to the Tribunal was also rejected.

9. The short question that arises for determination in the present petitions is whether any tax is payable in respect of the capital gains arising from the sale of agricultural lands. Under the amended sub-cl. (iii) of cl. (14) of s. 2 of the I.T. Act, 1961, 'capital asset' does not include :

'(iii) agricultural land in India, not being land situate - ...

(b) in any area within the such distance, not being more than eight kilometers from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette.'

10. In view of this definition of capital asset, it is the contention of the respondent that agricultural lands which are notified as per sub-cl. (iii)(b) of cl. (14) of s. 2 are capital assets and any capital gains arising from the sale of this capital assets are liable to be taxed.

11. In the case of Manubhai A. Sheth v. N. D. Nirgudkar, Second ITO : [1981]128ITR87(Bom) , a Division Bench of this court had held that capital gains arising from transfer of lands used for agricultural purposes would be revenue derived from such land within the meaning of s. 2(1) the I.T. Act, 1961. It is, therefore, agricultural income within the meaning of s. 2(1). It is, therefore, not expiable to income-tax, including capital gains tax. The Division Bench has interpreted sub-cl. (iii) of cl. (14) of s. 2 of the said Act and has held that for reasons which are set out in the judgment, the said sub-cl. (iii) of cl. (14), when read with our relevant provision of the said Act, does not operate to levy a capital gains tax on profits and gains arising from transfer of lands which are used for agricultural purposes. The court had read down sub-cl. (iii) in order to exclude from its operation lands which are used for agricultural purposes, even though such lands may be notified under sub-cl. (iii)(b). In view of this decision of the Division Bench of this court, no tax can be levied on capital gains arising from the sale or transfer of agricultural lands, although they may be notified under s. 2(14)(iii)(b) of the I.T. Act, 1961. Hence, in the present case, no tax can be levied on the sale of the lands, though covered by the cl. (iii)(b) of cl. (14) of s. 2 of the I.T. Act, 1961. If no tax is payable, there can be no question of payment of any interest under s. 220, sub-s. (2), of the said Act.

12. In the premises, both the petitioner are allowed.

13. Rule is made absolute in terms of prayer (b) as amended.

14. Respondents will pay to the petitioners costs of the petition.


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