D.K. Kapur, J.
1. For the assessment year 1964-65, a reference under section 256(1) of the Income-tax Act, 1961, has been made to us on the following questions :
'1. Whether, on the facts and in the circumstances of the case, the compensation of Rs. 2,55,571 received by the assessed company on 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, said compensation was the agricultural income of the assessed within meaning of section 2(1)(a) of the Income-tax Act, 1961, and, as such, is exempt from income-tax
3. Whether, on the facts and in the circumstances of the case, the lands, which were the stock-in-trade of the assessed, stood sterilized a 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 assessable under the head 'Property'
5. If the answer to question No. 4 is in the negative, whether the claim for repairs and depreciation has rightly been restricted to one-half of the claim ?'
2. Some other references relating to the same assessed-company and involving more or less similar questions of law have already been decide by this court. The reference for the assessment year 1961-62 is D.L.F. Housing and Construction P. Ltd. (Now D. L. F. United) v. CIT : 141ITR806(Delhi) . Question No. 1 in that case is practically the same as question No. 1 in the present case except for the amount. Question No 2 except of the language is practically the same as question No. 2 referred in this case. However, the present question No. 3 is somewhat different from question No. 3 in the reported case. Questions Nos. 4 and 5 are practically the san except for a change in language.
3. In the reported case, the answer to question No. 1 was in the negative. Learned counsel for the Department wants to distinguish that judgment on the ground that on the facts of that case, the land in question had been used for agriculture and had not been converted and, hence, the answer to the present reference would depend on somewhat different facts.
4. As regards question No. 2, the answer in the reported case was that the compensation was not income within the meaning of the Income-tax Act. This was based on the view that the investment in land was a capital investment and, hence, the amount of gain resulting from compensation was not even agricultural income.
5. As regards questions Nos. 4 and 5, the answers in the reported case were against the assessed, question No. 4 being answered in the affirmative and question No 5 did not arise because it depended on question No.4 being answered in the negative.
6. We first take up question No. 3. As far as this question in concerned, we cannot see how the issue of the notification under section 4 of the Land Acquisition Act, 1894, changed the position of the lands. If they were the stock-in-trade of the company, they would continue to be so; their nature was not converted by reason of the notification under section 4. In fact, the notification under section 4 is only an indication that the Government intends to acquire the land. The nature of the receipt following actual acquisition would depend on the nature of the land. We would, thereforee, answer this question in the negative against the contention of the assessed. We would also mention that no serious attempt to press this point was made by the learned counsel.
7. It is now necessary to refer to question No. 1. Learned counsel for the Department urges that there is a difference in the present case from the facts of the reported case. It is now necessary to see if there was, in fact, any difference. In the reported case, a sum of Rs. 1,65,660 was the net profit from the acquisition. The amount of compensation received in the accounting year ending 30th September, 1960, was Rs. 7,90,548. This compensation had been paid for land purchased in certain villages situated in the Union Territory of Delhi for the purpose of developing them and selling them as residential/commercial plots. The acquired land measuring 300 bighas was close to a colony called West Rajouri Gardens. On facts, the assessed claimed that there was no intention of utilising this land for developing plots and only agricultural operations were carried on in the land. This place was rejected by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal. The main point urged before the court was that the land having been found to be stock-in-trade, the finding was conclusive as far as the court was concerned. This question was considered by the court and the findings are at page 81 of the report (of 141 ITR) :
'On the contrary, the farm account of the assessed shows that substantial amounts were spent on the agricultural farm and income there from was also received. It may be that the layout plan for West Rajouri Gardens which had been submitted by the assessed earlier to the D.D.P.A. for sanction was not approved and the assessed realised that there was no prospect whatsoever of the scheme in question being sanctioned. All the same, the fact remains that no step was taken towards development of the land in dispute and it retained its agricultural nature even at the time of its acquisition by the Government. This is a vital circumstance which cannot be lost sight of for determining whether the profits are assessable as those arising out of a venture in the nature of a trade or it was merely appreciation of the capital investment.'
8. The final conclusion of the court was based on the fact that the assessed had not taken any steps to convert the agricultural land into plots. It was observed as follows (p. 824) :
'So, the mere circumstance that the land in question may have been purchased with a view to develop it later on and sell it at a profit in the shape of plots would be hardly enough to justify the inference that it was a trading asset or a venture in the nature of trade. Having regard to the fact that prices of lands both urban and rural in and around Delhi have been soaring sharply in the post-partition era, the appreciation of the investment even in agricultural land was bound to be there. There was nothing abnormal about it. Hence, we answer this question in the negative.'
9. Thus, it would appear that the answer to the first question was principally based on the fact that agricultural land had been purchased by the assessed with a view to develop it into plots, but no steps had been taken in this respect. No colony had been charted out or anything done towards development which might have converted the agricultural land into urban land. The assessed-company was, thereforee, in no different position from any other person owning agricultural land which was acquired.
10. In the case of agricultural land close to the developed area of a town and specially in the case of a large town, there is every possibility of agricultural land being eventually transformed into urban plots. However, before any positive steps could be taken in this direction, the land had been acquired. We have now to see whether there is any difference on the facts in the present case.
11. Learned counsel for the Department stresses that the Tribunal had found that this land was not used for agricultural purposes. It is further stressed that in the acquisition proceedings, the land had been classified as rosly, banjar qadim, banjar jadid, ghair mumkin and banjar and, thereforee, much of it was unfit for agricultural use. There is some confusion on the facts of the case because we have not been able to determine whether the compensation amount received in this year was for agricultural land pure and simple or just barren land. In the assessment order, the Income-tax Officer has given details of Awards Nos. 1387, 1421 and 1422, but later on in the order he states that the Awards Nos. 1421, 1422, 1497, 1548 and 1596 relate to the present year and the others relate to earlier years.
12. In order to determine what was the extent of cultivable agricultural land and non-cultivable agricultural land, we would have to ask for a further statement. However, we are of the view that there is no doubt that compensation has been paid for this very land on the ground that it is an agricultural land. The very mention of the type of land in the awards is based on the agricultural quality of the land and compensation has been awarded not on the basis of the land being a developed colony, but on the basis that it is agricultural land.
13. Learned counsel for the assessed has referred to a judgment of this court in Gaon Sabha of Lado Sarai v. Jage Ram, 2nd  1 Delhi 984, where some useful observations have been made regarding the nature of agricultural land. It was stated by the court as follows :
'In our opinion, it is a mistake to consider that banjar qadim or ghair mumkin are not agricultural lands, These two types of lands are also covered by the provisions of the Act. In Land Revenue Assessment Rules, 1929, which were framed by the Governor-General in exercise of the powers conferred by section 60 of the Punjab Land Revenue Act, 1887, on December 23, 1929, by Notification No. 6073-R, dated December 23, 1929, under rule 2, sub-rule (2), it is stated that : '(2) The most important classes of uncultivated land are as follows : (a) banjar jadid : land which has remained unsown for four successive harvests :
(b) banjar qadim : Land which has remained unsown for eight successive harvests; and
(c) ghair mumkin : land which has for any reason become uncultivable, such as land under roads, buildings, streams, canals, tanks, or the like, or land which is barren, sandy or ravines'.'
14. This is quotation would show that land which is banjar qadim or banjar jadid or ghair mumkin is land which is not cultivable, but nevertheless, it was held by the court that the said land was an agricultural land.
15. Though a person who is the owner of agricultural land which he does not cultivate and the same is acquired by the Government, there can be little doubt that the compensation amount will not be income. The question that has arisen in this case is whether it makes any difference if the owner happens to be a person who has bought the agricultural land with the object of cavorting it into urban plots. Before such plots have been carved out and steps taken for developing the same, the land was acquired by the Government. This means that the land retained its agricultural characteristics and the compensation would still be compensation paid for agricultural land. Let us say a person buys an agricultural land with a view to selling it on profit. The net profit would not be taxable as a business receipt because it would be a profit out of agricultural land. It would be a kind of capital gain exempt from taxation. This is approximately the reasoning in the previous case. So, we would answer the first question on the footing that the compensation amount is not taxable as a profit from business.
16. It is necessary to mention here that capital gains are taxable on the transfer of a capital asset, but the definition of capital asset excludes agricultural land as per section 2(14)(iii). As the character of this land remained agricultural land, the gain would not be taxable. It is necessary here to mention that the amount of Rs. 2,55,571 mentioned in the question is the extra compensation over and above the cost of the acquired agricultural land. So, in actual fact, the question is related to a capital gain resulting from the acquisition of the land in question.
17. The second question involves the interpretation of section 2(1) of the Act. This provision defines agricultural income. The answer given in the reported case was that the amount was not income being a compulsory purchase of agricultural land. Learned counsel for the assessed claims that even if it was treated as income, we should hold that this was rent or revenue derived from land which is situated in villages and is used for Agricultural purposes. It has already been held by the Income-tax Officer and other authorities under the Act that the land which was acquired was not being used for agricultural purposes by the assessed. So, in a sense, this question is answered against the assessed by the finding that the land was not used for agriculture. However, it is also true that the land was not being used for any other purpose by the assessed. It would thus retain its agricultural character for the purposes of this provision. Learned counsel for the assessed urged that a broader meaning could be given to the term 'revenue' and 'rent' and referred us to certain cases. As this point is already covered by the previous reported judgment, we would not go any further into this point, but merely follow the reported case and hold that in this case the receipt is not income being in the nature of capital gains.
18. For the purpose of this question, it would be useful to refer to another line of cases, viz., those in which land has been sold after a long time though it was not being used for cultivation. In Sercon Pvt. Ltd. v. CIT : 136ITR881(Guj) , the land in question was not used for agricultural purposes, but it was shown in the revenue records as an agricultural land and as no permission had been taken for non-agricultural user under the Bombay Land Revenue Code and there was no evidence of preparation, etc., it was held that the land retained its character as an agricultural land and hence the surplus realised on its sale was not capital gain liable to tax. In another case also decided by the Gujarat High Court, Manibhai Motibhai Patel v. CIT : 131ITR120(Guj) , the purchasers had applied for permission to us the land for non-agricultural purposes, but the sellers had been using it for agriculture all along. The court held that the Tribunal was not right in holding that the sale of agricultural land was liable to capital gains tax
19. It would be apparent that if the assessed-company had sold this land without development or conversion into plots to somebody else, it would be liable to tax. The liability to tax would arise if it had made a scheme for converting the agricultural land and into urban plots. So, we would answer the second question on the basis that the receipt in this cases in the nature of a capital gain resulting from the acquisition of agricultural land and the fact that the land was lying fallow and not being used for agriculture makes no difference.
20. The result would be that we would follow the reported judgment in regard to the answers to questions Nos. 1 and 2 also, but leave the parties to bear their own costs.