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D.L.F. United Limited Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 136 of 1976
Judge
Reported in[1986]161ITR714(Delhi)
ActsIncome Tax Act, 1961 - Sections 2(1), 2(14), 45 and 256(1); Land Acquisition Act - Sections 4
AppellantD.L.F. United Limited
RespondentCommissioner of Income-tax
Cases ReferredA. Sheth v. N. D. Nirgudkar
Excerpt:
- .....was converted into a capital asset as a result of the issue of notification under section 4 of the land acquisition act, 1894 4. whether, on the facts and in the circumstances of the case, income from one-half of the property situate at 16, aurangzeb road, has rightly been held to be assessable under the head 'property' 5. if the answer to question no. 4 is in negative, whether the claim for repairs and depreciation has been rightly restricted to one-half of the claim ?' 2. for an earlier assessment year 1961-62, a similar reference has been dealt with by this court in d. l. f. housing and construction (p) ltd. (now dlf united ltd. v. cit [1983] 141 itr 807. the questions therein are set out at page 809 of the report. except for the amounts, questions nos. 1, 2, 4 and 5, now referred,.....
Judgment:

D.K. Kapur, J.

1. Five questions of law have been referred to us under section 256(1) of the Income-tax Act, 1961, for the assessment year 1963-64. These questions are :

'1. Whether. on the facts and in the circumstances of the case, the compensation of Rs. 2,33,489 and enhanced compensation of Rs. 1,O4,924 received by the assessed for the acquisition of its lands by the Government is assessable to tax as the profits of the assessed's business

2. Whether, on the facts and in the circumstances of the case, the compensation of Rs. 2,33,489 and enhanced compensation of Rs. 1,04,924 was its agricultural income within the meaning of section 2(1) of the Income-tax Act, 1961, and as such exempt from income-tax

3. Whether, on the facts and circumstances of the case, the character of the assessed's lands changed from stock-in-trade and the same stood sterilised and was converted into a capital asset as a result of the issue of notification under section 4 of the Land Acquisition Act, 1894

4. Whether, on the facts and in the circumstances of the case, income from one-half of the property situate at 16, Aurangzeb Road, has rightly been held to be assessable under the head 'Property'

5. If the answer to question No. 4 is in negative, whether the claim for repairs and depreciation has been rightly restricted to one-half of the claim ?'

2. For an earlier assessment year 1961-62, a similar reference has been dealt with by this court in D. L. F. Housing and Construction (P) Ltd. (now DLF United Ltd. v. CIT [1983] 141 ITR 807. The questions therein are set out at page 809 of the report. Except for the amounts, questions Nos. 1, 2, 4 and 5, now referred, are the same with some textual changes. Question No. 3, however, was different and the present question No. 3 is, thereforee, a new question.

3. As the remaining four questions are already covered by the aforementioned decision, we may also note what was decided in the aforementioned reported case. It was held on question No. 1, that prior to the acquisition of the land in question and even till the date of the award, the assessed had made no attempt to transfer or alter the character of the agricultural land and, hence, the assessed had not taken steps to develop the land in question in its normal line of business with a view to parcel it out into plots for sites to be utilised for housing and commercial buildings. In other words, the agricultural land purchased originally by the assessed for urbanisation or conversion into building plots remained agricultural land till the acquisition and payment of compensation. Hence, the first question was answered in the negative, i.e., the profits were not business profits. The same is the position in the case of the present assessment year.

4. With regard to the second question, it was found that as the compensation had been paid for the acquisition of agricultural land, the question really involved a determination as to whether the price paid for the land by way of compensation could be included within the definition of 'agricultural income'. The judgment proceeded on the basis that only rent or revenue arising from agricultural land could be held to be agricultural income. It was further held that agricultural land was excluded from the definition of 'capital asset' occurring in section 2(14)(iii) and, hence, any gain resulting from the acquisition of agricultural land was not income, either because it was not taxable as income or because it was not taxable as capital gains. The answer to the question was that the compensation amount was not income and, hence, the question of it being exempted as being agricultural income did not arise. Question No. 4 was held in the affirmative in favor of the Department and, consequently, it was held that question No. 5 did not arise in view of its language. Question No. 3 which was different was given up by the assessed.

5. Learned counsel for the assessed urged before us that the view of the Bombay High Court in Manubhai, A. Sheth v. N. D. Nirgudkar, 2nd ITO : [1981]128ITR87(Bom) , was that even if agricultural land was sold, it was 'revenue' within the meaning of section 2(1)(c) of the Act, and hence, we should reconsider the question whether the income was not exempt as being agricultural income. In our view, the answer to question No. 2 given by us is that the gain resulting from the acquisition of the land was not income. It was not income because it did not result from a sale of any plots or urbanised land belonging to the assessed, but was an amount coming to the assessed as a result of the acquisition of its agricultural land. It was, thereforee, not income in any sense of the word. In view of the definition of 'capital asset' given in the Income-tax Act, the gain resulting from acquisition was also not taxable. thereforee, the amount was not taxable whether as income or as capital gain. We see no reason to differ from the previous view.

6. Mr. Wadhera for the Department urged that the assessed-company had as its business object acquired agricultural land for the purpose of making plots and selling them out to the public and, thereforee, the acquisition was of business assets. However, this question would, in our view, only arise if the plots had been carved out and the agricultural land transformed into building plots. But, as already held in the previously reported case and that where the agricultural land remained agricultural land and was not urbanised or converted into plots, the acquisition was of agricultural land and, thereforee, exempt. If, for instance, the land had been transformed into building plots, it would cease to be agricultural land and then it would be subject to capital gains. Without such transformation, the asset remained in its original state, i.e., agricultural land and, thereforee, the exemption granted in the case of acquisition of agricultural land, which is inherent in the fact that a 'capital' asset for the purposes of capital gains does not include agricultural land, would be available to the assessed. The gains resulting from acquisition of agricultural land would, thereforee, be exempt from capital gains tax and would not be subject to income-tax. Similarly, as the land continued to be in its original form as agricultural land, it could not be said that the proceeds would be taxable as income resulting from a sale or compulsory purchase of stock-in-trade. This was the basic answer to the two questions already dealt with in the previous judgment.

7. Mr. Wadhera stresses the fact that question No. 3 required an answer, but learned counsel for the assessed submitted that it was academic in nature. For the purpose of convenience, question No. 3 is reproduced again :

'3. Whether, on the facts and in the circumstances of the case, the character of the assessed's lands changed from stock-in-trade and the same stood sterilised and was converted into a capital asset as a result of the issue of notification under section 4 of the Land Acquisition Act, 1894 ?'

8. Mr. Wadhera stresses the fact that the notification under section 4 has no effect at all. This seems to be correct. The nature of the lands is not changed by the notification under section 4 which is at a stage prior to its acquisition. The facts of the case show that the land was acquired and compensation paid not only after the notification under section 4, but also after the subsequent notification under section 6 and an award, etc., under section 12. The case is concerned with the payment of compensation which can only result after the acquisition has been completed. If the land had been converted into plots by the time it was acquired, then the character of the land would have been altered so as to attract both capital gains or income-tax on the basis that the land was stock-in-trade. But, before any steps were taken in this respect, the character of the land would remain unchanged and we agree that the notification under section 4 makes not the slightest difference to the nature of the land actually acquired. But, this question is academic because the main point in the case is the character of the compensation actually received after the acquisition took place. The question is whether the compensation amount, or any part of it, can be treated as income, either as income resulting from business or as a capital gain. As already stated, these two questions have been answered in favor of the assessed in the previous judgment and following the same. we give the same answers as before.

9. The result would be that question No. 1 is answered in the negative on the basis that the compensation amount is not assessable as profits from the assessed's business. Question No. 2 is answered in the negative on the basis that the compensation paid is not agricultural income but is a capital gain which is exempt under the Income-tax Act as arising from agricultural land. Question No. 4 is answered in the affirmative and against the assessed and question No. 5 does not arise because of its terms. Question No. 3 is academic and though it is not pressed by the assessed, it seems clear that on the facts of the present case, the notification under section 4 has no effect on the character of the acquired land. As the case has been decided on the basis of the previous judgment, parties to bear their own costs.


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