1985 (10) TMI 121 - AT - Income Tax

Summary

Issues Involved:

1. Determination of the nature of the land sold (agricultural or non-agricultural).
2. Applicability of Notification No. SO. 77(E), dated 6-2-1973.
3. Entitlement to depreciation on drawings and designs amounting to Rs. 5,53,404.

Issue-wise Detailed Analysis:

1. Determination of the Nature of the Land Sold:

The primary issue was whether the land sold by the assessee was agricultural land, which would exempt the capital gains from taxation. The Commissioner (Appeals) accepted the assessee's contention that the land was agricultural, relying on entries in the record of rights and evidence of agricultural operations, even though on a small scale. The Commissioner noted that the land had been shown as agricultural in the records and that income from agriculture, though minimal, had been reported by the assessee. The revenue objected, arguing that the evidence was insufficient and that the land's agricultural income was nominal. However, the Tribunal upheld the Commissioner's decision, emphasizing that the land had been used for agricultural purposes and that the records and sale deeds supported this classification. The Tribunal referenced the Supreme Court's decision in *Officer-in-Charge (Court of Wards) v. CWT [1976] 105 ITR 133* and the Bombay High Court's decision in *CWT v. H. V. Mungale [1984] 145 ITR 208*, which supported the view that land recorded as agricultural and used for agricultural purposes remains agricultural land even if parts are lying fallow.

2. Applicability of Notification No. SO. 77(E), dated 6-2-1973:

The revenue argued that the notification issued by the Central Government on 6-2-1973 should take effect from 1-4-1970, thereby making the lands in question taxable under the head 'Capital gains'. The Tribunal disagreed, stating that the notification did not have retrospective effect as there was no express provision in the statute for such retrospective application. The Tribunal noted that neither the Finance Act, 1970, nor section 2(14)(iii) of the Income-tax Act empowered the Central Government to issue a notification with retrospective effect. The Tribunal upheld the Commissioner (Appeals)'s decision that the notification would take effect only from the date of issue, i.e., 6-2-1973, and not earlier. The Tribunal found that any other interpretation would lead to confusion and chaos in respect of completed transactions of sale.

3. Entitlement to Depreciation on Drawings and Designs:

The Tribunal had previously remanded the issue of depreciation on drawings and designs to the AAC, who had rejected the claim on the ground that such items were not considered plant. The Commissioner (Appeals), following the Tribunal's direction, found that the assessee satisfied the conditions for claiming depreciation under section 32(1)(i) of the Income-tax Act. The Commissioner relied on the Gujarat High Court's decision in *CIT v. Elecon Engg. Co. Ltd. [1974] 96 ITR 672*, which classified manufacturing documents and patterns as plant. The Tribunal upheld the Commissioner (Appeals)'s decision, noting that the revenue's only argument was that the matter was pending appeal before the Supreme Court. The Tribunal confirmed the order of the Commissioner (Appeals) and allowed the depreciation claim.

Conclusion:

The Tribunal dismissed the appeal, confirming the Commissioner (Appeals)'s decisions on all issues. The lands sold were agricultural and not subject to capital gains tax, the notification did not have retrospective effect, and the assessee was entitled to depreciation on drawings and designs.