1971 (12) TMI 34 - HC - Income Tax

Assessee s father, Kolappa Pillai, purchased from the Maharajah of Travancore on 18th August, 1956, a landed property known as Singarathope having an extent of a little over 9 acres situated within the municipal limits of Trivandrum town for Rs. 34,500, including registration expenses - Whether sale of agricultural land in town as building sites results in capital gains - It cannot be held that the property cease to be agricultural by the mere intention of the assessee to convert it into housing sites - Tribunal was right in not treating the land in question as a capital asset and also in holding that the income derived by the sale of the land was not assessable as capital gains.

Issues Involved:
1. Whether the land in question is a capital asset.
2. Whether the income derived from the sale of the land is assessable as capital gains.

Issue-wise Detailed Analysis:

1. Whether the land in question is a capital asset:

The court examined whether the property purchased by the assessee's father, Kolappa Pillai, from the Maharajah of Travancore, was agricultural land or a capital asset. The property, known as Singarathope, was a garden land with over 300 coconut trees, jack trees, sandalwood trees, and other fruit-bearing trees. It had facilities such as electricity, tap water, two wells, and a tank. The Maharajah used to auction the usufructs of the trees annually and pay land revenue, indicating the land was used for agricultural purposes.

The Income-tax Appellate Tribunal held that the property was agricultural land, thus not a capital asset. The court referred to several precedents, including the Supreme Court's definition of "agriculture" in *Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy*, which includes both basic and subsequent operations involving human skill and labor. The court also considered the property's historical use, the presence of agricultural activities, and the lack of any conversion to non-agricultural use by the assessee.

The court concluded that the property remained agricultural land in the hands of the Maharajah and the assessee, as there was no act converting it to non-agricultural land. Therefore, it was not a capital asset.

2. Whether the income derived from the sale of the land is assessable as capital gains:

The court examined whether the income derived from the sale of the land could be assessed as capital gains under Section 12B of the Indian Income-tax Act, 1922. The definition of "capital asset" excludes any land from which the income derived is agricultural income. Agricultural income, as defined under Section 2(1), includes income derived from land used for agricultural purposes.

The court referred to precedents, including *Mahajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax* and *Commissioner of Income-tax v. Ramakrishna Deo*, which emphasized that income from spontaneous growth of trees without human intervention is not agricultural income. However, in this case, the trees were planted and tended by the Maharajah, indicating agricultural operations.

Further, the court considered the property's location within the municipal limits and the assessee's intention to convert it into housing sites. However, it concluded that mere intention does not change the character of the land unless there are definitive acts converting it to non-agricultural use.

The court held that the property was agricultural land, and the income derived from its sale was agricultural income, not assessable as capital gains.

Conclusion:

The court answered both questions in the affirmative, affirming that the Tribunal was right in not treating the land as a capital asset and in holding that the income derived from the sale of the land was not assessable as capital gains. No order regarding costs was passed, and a copy of the judgment was to be sent to the Tribunal as required by law.

← Previous Next →