1972 (11) TMI 5 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the profits on the sale of cooly lines situated on agricultural lands are liable to be charged to income-tax under section 45 of the Income-tax Act ? Does the exemption of agricultural land from the definition of capital assets in section 2(14)(iii) take in buildings situated on agricultural land in view of the maxim that whatever is attached to the soil becomes part of it ?

Summary

Issues:
Whether profits on the sale of structures on agricultural lands are liable to be charged to income-tax under section 45 of the Income-tax Act?
Whether buildings situated on agricultural land fall under the exemption of 'agricultural land' from the definition of capital assets in section 2(14)(iii)?

Analysis:
The case involved the question of whether profits from the sale of structures on agricultural lands are taxable under section 45 of the Income-tax Act and if buildings on agricultural land are exempt from being considered capital assets under section 2(14)(iii). The assessee argued that the structures, known as "cooly lines," were integral to the agricultural operations and should be considered part of the agricultural land, thus falling under the exemption for agricultural land in the definition of capital assets. The argument was based on the principle that what is attached to the land belongs to the land and the character of the attached property is the same as that of the land. However, the court rejected this argument, stating that the principle does not apply in India and cited various legal precedents to support this position.

The court examined the definition of 'capital asset' under section 2(14) of the Income-tax Act, which excludes agricultural land from the definition. The assessee contended that the structures in question were agricultural lands due to their attachment to the land and should, therefore, be exempt. However, the court held that the principles of attachment and character similarity between land and attached property, as argued by the assessee, were not applicable in India. The court referred to legal precedents, including decisions by the Privy Council and the Supreme Court, to establish that the principles relied upon by the assessee were not valid in the Indian legal context.

In conclusion, the court ruled against the assessee, holding that profits from the sale of the structures on agricultural lands were taxable under the Income-tax Act. The court answered both questions in the affirmative for the department, stating that the structures did not fall under the exemption for agricultural land in the definition of capital assets. The parties were directed to bear their respective costs, and a copy of the judgment was to be sent to the Appellate Tribunal as required by the Income-tax Act.