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TMI Blog2024 (7) TMI 1291X X X X Extracts X X X X X X X X Extracts X X X X ..... unal appears to have not only refused to admit the additional grounds which was sought to be urged, it also and simultaneously appears to have ruled on the merits of the question which stood raised as read coming to the issue of 115JB as raised in ground no.3, we find that, firstly neither the issue of computation or taxation of book profit u/s. 115JB has been raised by the AO, nor such grounds were raised in the original grounds of appeal by the Department. Apart from that, once AO has not treated the said gain for the purposes of book profit then by way of such ground the issue cannot be raised by the Department. Otherwise also when the income of agricultural land is exempt from tax, then the said exempt income cannot be added to the books profit while calculating the MAT u/s.115JB. Thus, the said ground raised by the Revenue cannot be entertained and same is dismissed. We are of the opinion that since the question which was raised was purely legal, the Tribunal would have been well advised to have accorded an opportunity to respective sides to address submissions on the merits before proceeding to hold that the same could not be entertained. We, allow the instant appeal and answ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on many grounds and our attention has been drawn to several decisions not only taking similar but also a contrary view. The respondents having remained ex parte, we requested Shri Dhruv Mehta, learned advocate to assist the Court as amicus curiae. We are beholden for the valuable assistance rendered by him to the Court. 3. By the Finance Act, 1989, explanation to Section 2(1-A) was inserted with effect from 1-4-1970 to supersede the view expressed in the order under appeal and several decisions setting out similar ratio. This declaratory amendment having retrospective operation though coming into force during the pendency of this appeal must be given effect to. The said explanation clearly declares that the revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in Section 2 (14) (iii)(a) or (b). The upshot of the same is that income derived from sale of such agricultural lands cannot be treated as agricultural income . Thus, the whole basis of the decision has been lost and, therefore, the order under appeal cannot be sustained and deserves to be set aside. According to learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to learned counsel, Section 115JB puts in place a special mode and methodology of assessment based on the book profits of an assessee. Learned counsel firstly referred to Explanation 1 of that provision which defines book profit to mean the profit as discernable from the statement of profit and loss that may be maintained by the assessee, as increased by the amount or amounts of expenditure relatable to any income to which Section 10 may apply as one of the various heads which are set out in clauses (a) to (k) thereof. Explanation 1 refers to Section 10 in clause (f). Proceeding further, we note that the provision after factoring for the aforenoted additions then speaks of book profit being liable to be reduced by the amount of income to which the provisions of Section 10 would be applicable. Apart from that deduction are others which are set out in clauses (i) to (ii-h). 5. Undisputedly, agricultural income is liable to be excluded from total income as per Section 10(1) of the Act. The expression agricultural income is defined by Section 2(1-A) as follows: (1-A) agricultural income means (a) any rent or revenue derived from land which is situated in India and is used for agric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section; [Explanation 2. For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income;] [Explanation 3. For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income;] [Explanation 4. For the purposes of clause (ii) of the proviso to sub-clause (c), population means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;] 6. Mr. Meharchandani had drawn our attention to the significant amendments which came to be introduced in Section 2(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel, the definition of capital asset was also amended pursuant to which the concept of urban agricultural land came to be introduced and specifically included within the meaning of the expression capital asset . 8. Mr. Meharchandani submitted that the Kerala High Court in CIT vs. Harrisons Malayalam Ltd. 2018 SCC OnLine Ker 23366 while examining the interplay between Section 115JB and the aforenoted amendments had pertinently observed as under: 15. We notice from the judgment of the Division Bench of the Andhra Pradesh High Court in S. Muthiyam Reddy (supra) that therein the question arose as to whether Parliament was competent to levy tax on sale of agricultural lands situated within the limits of municipalities and cantonments, as provided under section 2 (14) (iii)(a) and (b) of the Act. The assessee therein also held lands coming within items (a) and (b) of section 2 (14) (iii) of the Act. The Division Bench, while considering the issue, found that the sale of agricultural land would be agricultural income and also held that the provision bringing in capital gains on such agricultural lands situated within the municipal area would not be exigible to tax. The provision en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing drawn of inclusion of sale of agricultural land as agricultural income or as revenue derived from land. Obviously the Explanation was brought in, to render invalid the declaration of the Andhra Pradesh High Court in S. Muthiyam Reddy (supra). The question then arises as to whether the consideration on sale of agricultural land not coming within section 2 (14) (iii)(a) and (b) would be agricultural income as defined under section 2(1A) ; as a revenue derived from land. 22. Agricultural income as defined under section 2(1A) inter alia takes within its ambit any rent or revenue derived from land, which is situated in India and is used for agricultural purposes . The question arises as to whether on sale of agricultural land, it could be said that there is an agricultural income derived by the owner of the land, who sells such property. We revert back to All India Tea and Trading Co. Ltd. Therein the specific question considered was whether the compensation received on requisition of agricultural land, would come within the definition of capital gains. The honourable Supreme Court had specifically noticed that the requisition was for the purpose of handing over the lands to the ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and would be reflected in the book profits, for assessment under section 115JB. There is no statutory provision enabling a downward adjustment of the said sum from the book profits in the computation as provided in section 115JB. In view of the aforesaid it was Mr. Meharchandani s contention that since the issue which was sought to be canvassed was purely legal, the Tribunal had clearly erred in refusing to admit the issue for consideration. 9. Mr. Agarwal, learned counsel appearing for the respondent/assessee, on the other hand, submitted that the question which is sought to be canvassed by the appellant was rightly not admitted by the Tribunal since undisputedly the aspect of computation and taxation of book profit under Section 115JB had neither been raised before the Assessing Officer [AO] nor was it a ground urged in the appeal as originally preferred. Quite apart from the above, Mr. Agarwal submitted that the position that income arising from transfer of rural agricultural land would not fall within the ambit of Section 2 (14) is one which is no longer res integra as would be apparent from the following observations of the Supreme Court in Singhai Rakesh Kumar vs. Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature. This question came up by way of a reference because in those days it had not been definitively settled that the High Court could not decide the validity of a taxing statute or any of its provisions in a reference made under that taxing statute. The same question had come up earlier for decision before the Bombay High Court in another reference, namely, J.N. Duggan v. CIT, [1952] 21 ITR 458. In that case a Division Bench of the Bombay High Court held the imposition of capital gains tax to be intra vires the Central Legislature. However, each of the two judges who composed the Division Bench based their finding on different grounds. Chagla C.J. held that the imposition of tax by the Central Legislature was valid as it fell within entry 55 in List I in the Seventh Schedule to the Govt, of India Act, 1935. The said entry 55 provided as follows: 55. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies, and taxes on the capital of companies. 20. The corresponding entry in the Constitution of India is entry 86 in List I of the Seventh Schedule to the Constitution. Tendolkar J., on the other hand, held that the tax fell within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en included as taxable income. The Supreme Court further pointed out that in construing an entry in a legislative list the widest possible construction according to their ordinary meaning must be put upon, the words used therein. The following passage from the judgment of the Supreme Court is relevant and requires to be reproduced in extensso (p. 764 of 26 ITR): What, then, is the ordinary, natural and grammatical meaning of the word income ? According to the dictionary it means a thing that comes in . (See Oxford Dictionary, Vol. V, p. 162; Strouds, Vol. II, pp, 14-16). In the United States of America and in Australia, both of which also are English-speaking countries, the word income is understood in a wide sense so as to include a capital gain. Reference may be made to Eisner v. Macomber, [1919] 252 USR 189; 64 L Ed. 521, Merchants' Loan Trust Co. v. Smietanka, [1920] 255 USR 509; 65 LEd. 751 and United States of America v. Stewart, [1940] 311 USR 60; 85 L Ed. 40 and Resch v. Federal Commissioner of Taxation, [1943] 66 CLR 198. In each of these cases very wide meaning was ascribed to the word income as its natural meaning. The relevant observations of the learned judges deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes Sub-clause (b) speaks of any income derived from such land by one of the three modes specified in that sub-clause. Sub-clause (c) speaks of any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paras, (ii) and (iii) of sub-cl. (b) is carried on . The proviso to sub-cl. (c) lays down the conditions subject to which such income under sub-cl. (c) would become agricultural income. Thus, sub-cls. (b) and (c) deal with specific types of income derived from land situate in India and used for agricultural purposes. Sub-clause (a) deals with two types of income, namely, (1) rent, and (2) revenue derived from land which is situate in India and used for agricultural purposes. The word revenue is not used in sub-cl. (a) merely as a synonym for the word rent . It is used to cover every type of income which does not fall under the heading Rent or does not come under sub-cls. (b) and (c) provided such income is derived from land which is situate in India and is used for agricultural pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in one of these cases, which judgment seems to have governed the decision of all the other suits, is reported as Jhalak Prasad Singh v. Province of Bihar, [1941] 9 ITR 386 (Pat) [FB]. The point that revenue and income meant the same thing was not conceded before the Patna High Court. The Patna High Court considered that point and repelled the contention that revenue was something different from income. Harries C.J., in the course of his judgment, said (at p. 396): In my view the word revenue in the Income-tax Act is used to denote income or a revenue receipt as opposed to a capital receipt and therefore covers all income from agricultural land other than rent. No real distinction can be drawn between the expressions rent or revenue and rent or income , and in my view it cannot be said that by the use of the words rent or income the Provincial Government are taxing something more than is permissible by the definition in the Income-tax Act. (Emphasis [ Here printed in italics.] has been supplied by us.) 24. Fazal Ali J., in a concurring judgment, observed (p. 431): But as revenue in clause (a), Income-tax Act, is used in the same sense as income, the difference in the two provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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