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Issues Involved:
1. Whether the land in question is a "capital asset" within the meaning of section 2(4A) of the Indian Income-tax Act. 2. Whether the compulsory acquisition of the land by the Government amounts to a "sale" or "transfer" within the meaning of section 12B(1) of the Indian Income-tax Act. Issue-Wise Detailed Analysis: 1. Whether the land in question is a "capital asset" within the meaning of section 2(4A) of the Indian Income-tax Act: The court considered whether the land purchased by the assessee and later compulsorily acquired by the State Government was a "capital asset" as defined under section 2(4A) of the Indian Income-tax Act. The assessee argued that the land was intended for agricultural purposes, specifically to grow herbs and plants for medicinal purposes, and hence should not be considered a capital asset. However, it was conceded that the land had never been used for agricultural purposes, either before or after its purchase. The court noted that merely showing that the land was once agricultural is insufficient; it must be agricultural at the time of sale or transfer. The court referenced the case of Mohamed Othuman Sahib v. Commissioner of Income-tax, where it was held that land not used for agricultural purposes at the crucial date does not qualify for the exemption. The court concluded that the land in question was a vacant site with no agricultural operations conducted on it, thus qualifying it as a "capital asset" under the Act. 2. Whether the compulsory acquisition of the land by the Government amounts to a "sale" or "transfer" within the meaning of section 12B(1) of the Indian Income-tax Act: The court examined whether the compulsory acquisition of the land by the Government could be considered a "sale" or "transfer" under section 12B(1) of the Act, which pertains to capital gains. The assessee contended that compulsory acquisition does not constitute a sale or transfer, as it lacks the mutual assent of the transferor and transferee. The court referenced the Calcutta High Court decision in Calcutta Electric Supply Corporation v. Commissioner of Income-tax, which held that requisition by the Government under the Defence of India Rules did not amount to a sale. However, the court noted that section 12B(1) uses the term "transfer," which is broader than "sale" and includes any means by which property passes from one person to another, including by operation of law. The court highlighted that the old section 12B included a proviso excluding compulsory acquisition from being treated as a sale or transfer, but this proviso was omitted in the current statute, indicating legislative intent to include compulsory acquisition within the scope of "sale" or "transfer." The court cited the Madhya Pradesh High Court's decision in Commissioner of Income-tax v. Shrikrishan Chandmal, which supported the view that compulsory acquisition constitutes a transfer. The court concluded that compulsory acquisition of the land by the Government falls within the ambit of "transfer" under section 12B(1). Conclusion: The court answered the reference against the assessee, holding that the land in question is a "capital asset" and that its compulsory acquisition by the Government amounts to a "transfer" under section 12B(1) of the Indian Income-tax Act. The assessee was ordered to pay the costs of the department, with counsel's fee set at Rs. 250.
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