1981 (2) TMI 7 - HC - Income Tax

Summary

Issues involved:
The judgment deals with the assessment of capital gains tax on the profit from the sale of agricultural lands by the assessee, based on the definition of "capital asset" under section 2(14) of the Income Tax Act.

Assessment of Capital Gains Tax:
The assessee claimed that the profit from the sale of agricultural lands was not liable to capital gains tax. However, the Income Tax Officer (ITO) rejected the claim and brought the amount to tax under the head "Capital gains." The Income-tax Appellate Tribunal also upheld the assessment in appeal.

Interpretation of "Capital Asset":
The definition of "capital asset" in section 2(14) of the Income Tax Act was crucial in determining the tax liability. The amendment in 1970 distinguished agricultural lands in urban areas from those elsewhere, with only the latter being treated as "non-capital assets."

Requirement for Taxation:
The argument was made that for capital gains tax to be charged, the property must qualify as a "capital asset" not only at the time of sale but also at the time of acquisition. However, the court held that the liability for capital gains tax is based on the property being a capital asset at the time of transfer, with no further implication regarding its status at any other point in time.

Precedent and Authority:
The Tribunal referred to a decision of the Gujarat High Court which upheld the assessment of capital gains tax on lands that were initially non-capital assets but later became capital assets. The court agreed with this view, emphasizing that the property's character at the time of transfer determines the tax liability.

Conclusion:
The court ruled that the sum of Rs. 1,14,000 from the sale of agricultural lands was liable to be taxed as capital gains, in favor of the Revenue. The assessee was directed to pay the costs of the Department along with counsel's fee.