1991 (8) TMI 9 - SC - Income Tax

Land requisitioned by the Central Government - Whether the interpretation given by the Tribunal based upon the definition of capital asset in section 2 (14)(iii)(a) of the Income-tax Act, 1961, is correct - Whether the profits or gains arising from the transfer of capital asset can be chargeable to income-tax if the transfer is effected in the previous year and if no amount is received

Summary

Issues:
1. Interpretation of the definition of 'capital asset' in the Income-tax Act, 1961.
2. Taxability of profits or gains arising from the transfer of 'capital asset' if no amount is received.

Detailed Analysis:
The case involved an appeal against an advisory judgment of the High Court of Andhra Pradesh regarding the acquisition of agricultural lands by the Government. The Supreme Court addressed the interpretation of the definition of 'capital asset' under section 2(14)(iii)(a) of the Income-tax Act, 1961. The appellant claimed that his land, situated within a municipal area but with a population below ten thousand, should not be considered a 'capital asset.' The Court analyzed the provision and concluded that lands within municipal jurisdictions, being of higher value, were intended to be taxed, distinguishing them from lands outside such areas. The population criterion was established to identify areas where land transactions would attract taxation, supporting the taxman's interest in urban land transactions.

The Court rejected the appellant's argument that his village within a municipal area retained its separate identity for tax purposes. It cited a previous judgment emphasizing that the population criterion in the statute referred to the municipality itself, not specific areas within it. The Court held that the legislative intent was to tax lands within municipal jurisdictions based on the population of the municipality as a whole. The judgment affirmed that lands within municipal areas, regardless of specific village identities, were subject to taxation under the relevant provision.

Regarding the taxability of gains from the transfer of 'capital asset' without receiving any amount, the Court upheld the High Court's decision against the appellant. It clarified the legal mandate under section 7 of the acquisition act, stating that the date of publication of the acquisition notification marked the transfer of property ownership to the Government. The Court dismissed the appellant's contentions on this issue, affirming the High Court's ruling in favor of the Revenue.

In conclusion, the Supreme Court found no merit in the appellant's appeal and dismissed it without any order as to costs. The judgment clarified the taxability of lands within municipal jurisdictions under the Income-tax Act and the legal provisions governing the transfer of property ownership in cases of government acquisition.