1. This petition under article 226 of the Constitution arises out of proceedings under the Income-tax Act, 1961 (hereinafter 'the Act').
2. One Dhanvantrai Keshavlal Shah and his wife Prabhavati, petitioner No. 3, were members of the Keshavlal Ratanji Hindu undivided family (hereinafter 'the K. R. HUF') which owned agricultural land bearing Town Planning Survey No. 353 at Ghatkopar within the municipal limits of Greater Bombay. This land was sub-divided into six plots bearing Nos. 353/1 to 353/6. Five of these were sold in the previous years relevant to the assessment years 1963-64 and 1964-65. That this was agricultural land was accepted by the Department and capital gains arising from the above sales were not subjected to tax. The remaining plot No. 353/6 was sub-divided into sub-plots. On partition of the K.R. HUF, some of these sub-plots were allotted to the Hindu undivided family of Dhanvantrai. During Samvat year 2026 there was a partial partition of the Hindu undivided family of Dhanvantrai, whereafter the sub-plots, including sub-plots Nos. 353/B/5, 353/B/22 and 353/B/33, were held by Dhanvantrai in his individual capacity. As before, these continued to be agricultural lands, and, according to the petitioners, used for agricultural purposes.
3. During the previous year relevant to the assessment year 1967-68, some of these sub-plots were sold. There was no difference between the sub-plots thus sold and the remaining sub-plots. Dhanvantrai contended that no capital gains arose on the transfer of the sub-plots sold, as the same were agricultural lands. By its order dated May 10, 1974, the Income-tax Appellate Tribunal upheld this contention. Department's application under section 256(1) of the Act for reference on the question whether the lands were agricultural lands was rejected by the Income-tax Appellate Tribunal. Application to this court under section 256(1) of the Act suffered the same fate. A petition was filed for leave to appeal to the Supreme Court, but the same was subsequently withdrawn.
4. During the previous year relevant to the assessment year 1971-72, Dhanvantrai sold another sub-plot bearing No. 353/B/22 which had been allotted to him on partition of his own Hindu undivided family. This resulted in capital gains. Under section 45 of the Act, transfer of any capital asset is subject to income-tax if the said transfer results in any capital gains. However, up to the assessment year 1969-70, agricultural land was excluded from the definition of 'capital asset' under section 2(14) of the Act. In the circumstances, agricultural land transferred in the previous year relevant to the assessment year 1971-72 would not have been treated as capital asset up to and inclusive of the assessment year 1969-70. However, the Finance Act, 1970, amended section 2(14) of the Act by bringing within the definition of 'capital asset' agricultural lands in India and situate within the area comprised within the jurisdiction of a municipality cantonment board and which had a population of not less than 10,000 according to the last preceding census. In Samvat year 2026, the agricultural land of Dhanvantrai was, therefore, prima facie liable to be treated as agricultural land not excluded from the definition of capital assets.
5. In his return for the assessment year 1971-72, Dhanvantrai claimed that the gains from the sale of his agricultural land constituted agricultural income and, therefore, not chargeable to income-tax. By order dated March 22, 1974, the 1st respondent rejected this contention and assessed capital gains of Rs. 52,078 to income-tax in the hands of Dhanvantrai. In appeal therefrom, the Appellate Assistant Commissioner by his order dated December 21, 1974, accepted the contention that the sale was of an agricultural land but even so confirmed the impugned order under appeal on the ground that with effect from the assessment year 1971-72 capital gains on the sale of agricultural land situated within municipal limits were chargeable to income-tax. Against this appellate order, both Dhanvantrai as also the Department preferred appeals to the Income-tax Appellate Tribunal. Before the Tribunal, the assessee challenged the constitutional validity of the impugned amendments in sections 2(14) and 47 of the Act on the ground that the same were ultra vires the legislative powers of Parliament, being beyond its legislative competence. This challenge, however, was 'not entertained' by the Tribunal on the ground that it had no jurisdiction to go into the constitutional validity of the impugned provisions. As regards the Department's appeal, the Tribunal confirmed the finding of the Appellate Assistant Commissioner that the land was agricultural land. In doing so, the Tribunal followed its own previous orders in similar matters relating to the lands similarly situated and forming part of the same original land in the same area. In the result, the appeal of the assessee as also that of the Department were both dismissed.
6. Subsequently, by its judgment in, Manubhai A. Sheth v. N. D. Nirgudkar, II ITO : 128ITR87(Bom) , a Division Bench of this court held, inter alia, that tax on profits and gains arising from agricultural land was not a tax on land but a tax on income and by amending the definition of 'capital asset' in section 2(14)(iii) of the Act, Parliament cannot be said to have encroached on the legislative field of the States. It was further held that in amending the definition retrospectively, Parliament cannot be said to have also amended directly or indirectly the definition of 'agricultural income' and consequently the retrospective amendment of section 2(14)(iii) of the Act cannot be said to be a piece of colourable legislation. The constitutional validity of the amended provisions was thus upheld. It was, however - and this is relevant here - further held by the Division Bench that capital gains arising from sale of land situate in India, and used for agricultural purposes, would be 'revenue' - a word used in a very wide sense - derived from such land and, therefore, agricultural income within the meaning of section 2(1) of the Act and Parliament, therefore, would have no legislative competence to tax such agricultural income. Therefore, to the extent sub-clause (iii) of section 2(14) as amended retrospectively by the Finance Act, 1970, read with section 45 makes the profits or gains arising from the transfer of such lands situate in the areas mentioned in paragraphs (a) and (b) of section 2(14)(iii), subject to the levy of capital gains tax by Parliament, it would be beyond the legislative competence of Parliament, inasmuch as capital gains on the transfer of lands used for agricultural purposes and situate within these areas would fall within the legislative field of State Legislatures by reason of entry 46 in List II of the Seventh Schedule to the Constitution. It was also observed by the Division Bench that it was well settled that if certain provisions of law construed in one way would make them consistent with the Constitution and another interpretation would render them unconstitutional, the court would lean in favour of the former construction and, if necessary, uphold the validity of a statute by reading down the provisions in question. It was thus held that sub-clause (iii) of clause (14) of section 2 read with the other relevant sections of the Act does not operate to levy capital gains tax on profits or gains arising from the transfer of land used for agricultural purposes and must be read down so as to exclude, from the operation of the said sub-clause, land used for agricultural purposes even though it may be situate in any of the areas mentioned in paragraphs (a) and (b) of sub-clause (iii) of section 2(14) of the Act. This important ruling was reported some time in the middle of March, 1981, in Manubhai A. Sheth v. N. D. Nirgudkar : 128ITR87(Bom) . As soon as the said decision and the legal position therein became known to the petitioners, they have, after legal advice and consultation, approached this court in mid-September, 1981, by way of the present petition under article 226 of the Constitution.
7. Mr. Dastur, learned counsel for the petitioners, initially contended that the aforesaid impugned amended provisions of the Act were unconstitutional and void as being beyond the legislative competence of Parliament. This contention, however, no longer survives in view of the Division Bench ruling to the contrary in Manubhai Sheth's case : 128ITR87(Bom) . Though against the said ruling, leave has been granted to both parties to file appeal to the Supreme Court both under articles 132(1) and 133(1) of the Constitution, the said ruling binds this court at least as at this stage albeit subject to the final decision of the Supreme Court. Realising this, learned counsel, Mr. Dastur, found it difficult to pursue this aspect of constitutional validity any further.
8. It was then submitted by the learned counsel that even if the impugned provisions are constitutional and valid, the petitioners are entitled to the benefit of the legal position laid down in Manubhai Sheth's case : 128ITR87(Bom) . Reading down the said provisions, it is, in the light of Sheth's ruling, obvious that tax was not chargeable in respect of capital gains arising from the transfer of agricultural land used for agricultural purposes because the said capital gain constituted revenue derived from agricultural land and consequently exempt from tax under section 10(1) of the Act read with section 2(1) thereof, as agricultural land was not a capital asset within the meaning of section 2(14)(iii) of the Act. Contention thus is that in view of this legal position and even taking the impugned amended provisions to be valid, the capital gains arising from the land here sold was not chargeable to income-tax. Such tax having already been paid, refund thereof is now claimed.
9. Mr. Dhanuka, learned counsel for the respondents, contends at the outset that this petition suffers from delay and laches and this court should, on this ground alone, not interfere. Considering first this contention of delay, one finds that the ruling in Manubhai Sheth's case : 128ITR87(Bom) , though pronounced in the middle of July, 1980, was reported in the Income Tax Reports only about the middle of March, 1981. This petition has been filed in September, 1981. Apart from authorities, one would have thought that in a case such as this involving a very important question and issue of law, and whereon a Division Bench of this court also granted both to the assessee as also to the Department leave (not so usual a permission) to file appeal to the Supreme Court under articles 132(1) and 133(1) of the Constitution, the question of delay would recede to the background. Even otherwise, this petition does not suffer from any such delay as to merit its dismissal in limine. A citizen is hardly expected to know judgments handed down by different courts from time to time the moment or even soon after the same are pronounced. It is virtually impossible for him to suo motu keep himself expeditiously abreast thereof and the widely fluctuating trends thereunder. Indeed, even lawyers and judges have not found that to be an easy task. But it would be reasonable to assume knowledge of at least a judgment of importance within a reasonable time of its being published and reported. That in this case occurred in the middle of March, 1981. It may, therefore, be assumed that some time thereafter, the petitioners would have become aware of the said judgment and must then have proceeded to consider or rather reconsider their own case decided by the Tribunal and the effect of Sheth's : 128ITR87(Bom) , ruling thereon. In the process, they would then have gone to their lawyers, taken advice, held consultations and ultimately come to a decision to file this petition under article 226 of he Constitution which was done in September, 1981. And the court then hearing admissions has, in the exercise of its own judicial discretion, not rejected it (which it could have if it had found the petition suffering from unwarranted delay) but entertained and admitted the same in 1981 itself. In all the circumstances, there is no justification for this court to even so now shut its doors against the petitioners and deprive them at the very threshold of a remedy well adopted and well deserved. This would be the position apart from authorities. And, as will presently be seen, even on the cited authorities, the ground of delay fails.
10. Learned counsel Mr. Dhanuka for the respondents invited this court's attention to a ruling of the Supreme Court in Tilokchand Motichand v. H. B. Munshi : 2SCR824 , wherein it was, inter alia, observed that the court will not inquire into belated and stale claims or take note of evidence of neglect of one's own rights for a long time. This ruling is clearly distinguishable. The claim here is neither belated nor stale nor can the petitioners be said to have neglected their rights for a long time. Indeed, diligence has been their hallmark. The fact that they approached this court quite expeditiously after coming to know of this court's ruling in Manubhai Sheth's case : 128ITR87(Bom) , lends further support thereto. This again is not a case where the ruling in Manubhai Sheth's case : 128ITR87(Bom) , had accepted challenge similar to that of the petitioners herein before the Tribunal, viz., the constitutional validity of the impugned amended provisions. If that challenge were to be upheld in Sheth's case : 128ITR87(Bom) , then, of course, much could have been said against the petitioners, e.g., having failed in their own similar challenge and having acquiesced therein, they cannot later on resile and be permitted to revive the same old challenge only because some other party such as Sheth succeeded thereon in his own case. To do so would them be akin to permitting revival of a stale and belated claim. However, altogether different is the position here. This High Court in Sheth's ruling rejected the aforesaid challenge and held the impugned amended provisions to be valid and within the legislative competence of Parliament but - and this is here pertinent - excluded from its operation an asset which is an agricultural land used for agricultural purposes. One can be fairly sure that this significant position of and in law was not before the mind either of the Tribunal or even of the Department or for that matter, not even of petitioners' learned counsel before the Tribunal. Sheth's ruling : 128ITR87(Bom) was a landmark decision in the field of tax law. And the present is a case where the petitioners have approached this court on discovering, for the first time, by virtue of this landmark ruling that the impugned amended provisions, though constitutional and valid, would nevertheless not apply where the land is agricultural land used for agricultural purposes. In the circumstances, reliance placed on Tilokchand Motichand's case, : 2SCR824 , is of no avail to the respondents.
11. On the other hand, Mr. Dastur, learned counsel for the petitioners, strongly relied upon the Supreme Court ruling in D. Cawasji, & Co. v. State of Mysore, : 1978(2)ELT154(SC) . It was therein held that tell finding in Tilokchand's case, : 2SCR824 being that the payments there were not under a mistake of law, the said ruling had no relevance to a case of payment under a mistake of law. In the light of Sheth's ruling : 128ITR87(Bom) , there would, in the present case, be no difficulty in holding that the payment here made, if found to be in respect of capital gains arising out of transfer of agricultural land used for agricultural purpose, was under a mistake of law. The elaborate and detailed consideration running into several pages in Sheth's ruling : 128ITR87(Bom) , is not on facts but on the legal position ultimately leading to what, according to the Division Bench, could be the correct law on the point. If the payment here made is found and held to be under a mistake of law, then the observations of the Supreme Court in Cawasji's case : 1978(2)ELT154(SC) , certainly help the petitioners :
'.... where a suit will lie to recover moneys paid under a mistake of law, a writ petition for refund of tax within the period of limitation prescribed, i.e., within three years of the knowledge of the mistake, would also lie. For filing a writ petition to recover the money paid under a mistake of law, this court has said that the starting point of limitation is from the date on which the judgment declaring as void the particular law under which the tax was paid was rendered, as that would normally be the date on which the mistake becomes known to the party. If any writ petition is filed beyond three years after that date, it will almost always be proper for the court to consider that it is unreasonable to entertain that petition, though, even in cases where it is filed within three years, the court has a discretion, having regard to the facts and circumstances of each case, not to entertain the application.'
12. The present petition has been filed within a couple of months of the judgment in Sheth's case appearing in : 128ITR87(Bom) . But even if one were to go by the date July 18, 1980, of the said judgment itself, even so this petition is still well within a period of three years therefrom. Indeed, it is within about one year and two months therefrom.
13. Learned counsel, Mr. Dastur, also referred to a Division Bench ruling of this court in Associated Bearing Company Limited v. Union of India  E.L.T. 415, wherein, after referring to Cawasji's case : 1978(2)ELT154(SC) , it was held that a claim for refund of duty paid under a mistake of law can be entertained if the same is made within three years from the time when the mistake was discovered. In all the circumstances, I hold that this is not a case warranting dismissal on the ground of purported delay. In the first place, there is no such delay. But even assuming to the contrary, this is pre-eminently a case where this court would in the exercise of its judicial discretion, condone the same. The contention of delay thus fails and is rejected.
14. On merits, the contention of the learned counsel Mr. Dhanuka is of some relevance. He submitted that even after the ruling in Manubhai Sheth's case : 128ITR87(Bom) the question still survives from case to case not only whether the land in question was agricultural land but also whether the same was in fact used for agricultural purposes. And it was precisely qua this latter aspect that in Sheth's ruling, the Division Bench remanded the matter for determination of the question whether the agricultural land therein involved was used for agricultural purposes. In the present case, though there is a categorical finding that the land was agricultural land, there is no finding on the second aspect, viz., whether the said land was used for agricultural purposes. Therefore, continued the learned counsel, without a finding on the said equally relevant second aspect, the petitioners would not be here and now entitled to the relief claimed. In this context, learned counsel, Mr. Dastur, contended that if such is the Department's stand, then the matter may be sent back to the Tribunal for considering the question or issue whether the land was used for agricultural purposes.
15. Now, on the first aspect, we do have a finding of fact recorded by the authorities, including the Tribunal, that the land here was an agricultural land. Indeed, such a finding has been recorded by the income-tax authorities not only in this case but also in a number of other companion cases qua lands or plots or sub-plots forming part of the same original land as here. And the same has not been challenged by the Department. Indeed, even in the present case, the finding of the Tribunal that the land was an agricultural land consequently resulting in dismissal of the Department's appeal was accepted by the Department with no challenge thereto any further. However, a question equally relevant in the light of Sheth's ruling is whether this agricultural land was at or near about the relevant time used for agricultural purposes. Though not present to anyone's mind at any stage of the proceedings before the Department or the Tribunal, this aspect emerges, after Sheth's ruling : 128ITR87(Bom) (but subject to the decision of the Supreme Court in appeals therefrom) as an important and relevant issue necessary to be considered and determined for deciding upon the liability or otherwise in respect of capital gains tax, if any. In the circumstances, it is but just and proper, as fairly submitted even by the learned counsel, Mr. Dastur, for the petitioners, that the matter may go back to the Tribunal for consideration and determination of the said question and issue, viz., whether the land here which was an agricultural land was at or near about the relevant time used for agricultural purposes. I am, therefore, inclined to pass an order accordingly.
16. At this stage, learned counsel, Mr. Dhanuka, submitted that as the matter is being sent back to the Tribunal, the Tribunal's order dismissing the Department's appeal may also be set aside and the said appeal may also be restored and the Tribunal may be directed to also rehear the same along with the petitioner's appeal. Now, such a course would normally not be open to the Department because the dismissal of its appeal in the year 1976 was never challenged. In the circumstances, this court would be justified in not granting such an unusual request. However, and this stands to the credit of the petitioners' learned counsel, Mr. Dastur, that the petitioners have no objection if the said request is granted. In view of this concession, order accordingly is made below.
17. Hence Order :
18. This petition succeeds and the same is allowed. The impugned order (exhibit D) dated February 18, 1976, of the Income-tax Appellate Tribunal, to the extent it relates to the appeal of the petitioners herein and the counter-appeal of the Department, is set aside and quashed. The proceedings are sent back to the Income-tax Appellate Tribunal which will now, after notice to all the parties and after giving opportunity to them all, rehear both the aforesaid appeals, inter alia, in the light of the Division Bench ruling of this court in Manubhai Sheth's case : 128ITR87(Bom) . It, however, needs to be observed that the finding that the land here was agricultural land is a pure finding of fact and stands undisturbed and will not be reopened. However, the question whether the said agricultural land was at or near about the relevant time used for agricultural purposes (and on which question there is no finding at all) should be gone into, considered and decided.
19. Rule is made absolute in terms aforesaid but, in the circumstances, with no order as to costs.