1995 (9) TMI 51 - HC - Income Tax

Agricultural Income, Agricultural Land, Business Income, Capital Asset, Capital Gains, Finality Of Findings Of Fact

Issues Involved:
1. Taxability of compensation amounts received for acquisition of lands.
2. Classification of compensation amounts as agricultural income.
3. Change in the character of lands from stock-in-trade to capital assets due to notifications under the Land Acquisition Act.
4. Assessment of income from property under the head 'Property'.
5. Restriction of claims for repairs and depreciation.

Detailed Analysis:

1. Taxability of Compensation Amounts:
The primary issue was whether the compensation amounts received by the assessee for the assessment years 1967-68, 1968-69, and 1969-70 for the acquisition of its lands by the Government are assessable to tax as profits of the assessee's business. The court, referring to the decision in DLF United Ltd. v. CIT [1986] 161 ITR 714, held that the compensation amount is not assessable as profit from the business. The compensation received was not considered business profits because the lands were agricultural and remained so until acquisition.

2. Classification as Agricultural Income:
The court examined whether the compensation amounts could be classified as agricultural income under section 2(1)(a) of the Income-tax Act, 1961, and thus exempt from income tax. It was held that the compensation paid to the assessee is not agricultural income but rather a capital gain, which is exempt under the Income-tax Act as it arises from agricultural land. This conclusion was consistent with previous judgments, including DLF Housing and Construction (P.) Ltd. v. CIT [1983] 141 ITR 806.

3. Change in Character of Lands:
The court addressed whether the character of the assessee's lands changed from stock-in-trade to capital assets due to notifications under sections 4 and 6 of the Land Acquisition Act, 1894. The court held this question to be academic but still concluded that the notification under section 4 has no effect on the character of the acquired land. This was based on the consistent view that the land retained its agricultural character until acquisition.

4. Assessment of Income from Property:
The court considered whether income from one-half of the property at 16, Aurangzeb Road, New Delhi, was rightly assessed under the head 'Property'. The court answered this question in the affirmative and against the assessee, consistent with its earlier decisions.

5. Restriction of Claims for Repairs and Depreciation:
This issue was contingent on the answer to the fourth question. Since the income from the property was assessed under the head 'Property', the claim for repairs and depreciation was rightly restricted to one-half of the claim. The court held that question No. 5 does not arise because of its textual terms.

Conclusion:
The court answered the questions of law in Income-tax References Nos. 259-261 of 1977 and Income-tax Reference No. 287 of 1977 consistently with its previous judgments. The compensation amounts were not assessable as business profits but were considered capital gains exempt from tax. The character of the lands remained agricultural until acquisition, and income from the property was rightly assessed under the head 'Property'. Claims for repairs and depreciation were restricted accordingly. The references were disposed of with no order as to costs.

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