1982 (4) TMI 156 - AT - Income Tax

Summary

Issues:
1. Inclusion of Rs. 85,000 as capital gains on the sale of agricultural land.
2. Interpretation of s. 2(14)(iii)(b) regarding agricultural land as a capital asset.
3. Application of the decision in (1981)22 CTR(Bom)41 on capital gains tax.
4. Determination of capital gains tax liability on the sale of agricultural land.

Analysis:
1. The appeal pertains to the inclusion of Rs. 85,000 as capital gains on the sale of agricultural land by the assessee during the assessment year 1976-77. The dispute arose from the difference in the purchase consideration and the actual sale price due to an increase in the land value. The assessee contended that the agricultural land sold was beyond one kilometer from the required location as per Notification No. S.O. 77(6), dt. 6th Feb., 1973, and thus should not be considered a capital asset subject to capital gains tax.

2. The arguments presented by the counsel focused on the interpretation of s. 2(14)(iii)(b) in conjunction with the notification, which specified the areas considered as capital assets. The counsel contended that only a portion of the total agricultural land should be charged to capital gains based on the proximity to the designated road limit. Additionally, it was argued that the land being used for agricultural purposes should be excluded from capital gains tax liability, citing a relevant decision (1981)22 CTR(Bom)41.

3. The Tribunal analyzed the submissions and referred to the decision cited by the assessee, emphasizing that land used for agricultural purposes, even within a specified distance from municipal limits, is excluded from the definition of capital assets and is not liable to capital gains tax. The Tribunal found that the land in question was indeed agricultural and fell within the exclusion criteria based on the notification and legislative intent. Consequently, the sale proceeds from the agricultural land were not deemed chargeable to capital gains tax, aligning with the precedent set in the referenced case.

4. Ultimately, the Tribunal allowed the appeal of the assessee, ruling in favor of excluding the agricultural land from capital gains tax liability. The decision was based on the clear legislative intent to exempt agricultural land used for farming activities from capital gains taxation, as outlined in the relevant provisions and notifications. The Tribunal upheld that only a specific portion of the land fell within the defined criteria for capital assets, warranting the exclusion of the surplus from capital gains calculations.