(1.)IN this group of 24 special civil applications, same question relating to the constitutional validity of section 2(14)(iii) of the Income -tax Act, 1961, has been urged on various grounds. It may be pointed out that section 2(14)(iii) was amended with effect from April 1, 1970, by Act 19 of 1970. Prior to this amendment by Act 19 of the 1970, agricultural land in India was not included in the words 'capital assets' as defined by section 2(14) of the Income -tax Act, 1961. But, as a result of the amendment by Act 19 of 1970, land situated in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year, or in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to earlier, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette, is not 'agricultural land' and, therefore, would be included in the concept of 'capital assets' defined in section 2(14). It must also be pointed out that facts in all these 24 special civil applications are similar and in each case the question is of capital gains said to arise as a result of compulsory acquisition of land by the Government under the provisions of the Land Acquisition Act, 1894, for the purposes of the Gujarat Housing Board. The land in question in each of these 24 special civil applications was, prior to the relevant notifications under the Land Acquisition Act being issued, being used for agricultural purposes and in each of these 24 cases, the land is situated within the jurisdiction of the Municipal Corporation of Ahmedabad. However, to take an illustrative case, we will mention the facts arising in Special Civil Application No. 759 of 1971.
(2.)THE petitioner was the owner of Survey No. 1402 of Vadaj village and the area of this survey number was 2 acres and 2 gunthas. This land was purchased on September 2, 1941, by the petitioner's father for a sum of Rs. 3,676 -10 -0. Since the date of the purchase, the land was put to agricultural use and every year crops were being raised on this land since the date of the purchase. In 1955, the father of the petitioner died and as the son and heir, the petitioner became the owner of the land and he constituted to cultivate the land and raised crops on this land. The entries from the revenue records for the years 1961 -62 to 1970 -71 go to show that the land was being cultivated and crops were being raised by the petitioner himself on this land. With effect from June 20, 1960, this land along with several other lands of Vadaj village was brought within the limits of the Municipal Corporation of Ahmedabad. By a resolution passed by the Municipal Corporation with effect from July 20, 1960, this land and the other lands in this group were put in an agricultural zone under the development plan which was formulated by the Municipal Corporation under the provisions of the Bombay Town Planning Act, 1954. On October 28, 1963, the Municipal Corporation passed another resolution putting the land of the petitioner in residential zone but by the resolution of the State Government dated March 4, 1964, this land was put into the agricultural zone, that is, non -residential zone, in what is known as the Green Belt Scheme. Under this scheme, on the periphery of the Ahmedabad City, a belt was proposed to be imposed where only agricultural activities could be carried on. As a result of this resolution of the State Government, the land could only be used for agricultural operations so far as the petitioner was concerned. On August 21, 1965, a notification was issued under section 10(1) of the Bombay Town Planning Act sanctioning the development plan and in the development plan the land of the petitioner along with several other lands was reserved for the housing board functioning in the State of Gujarat. On January 15, 1970, a notification under section 4 of the Land Acquisition Act, 1894, was issued proposing that the lands of the petitioner and several other persons some of whom are petitioners in these special civil applications were proposed to be acquired for the development scheme of the Gujarat Housing Board and on December 19, 1970, a notification was issued under section 6 of the Land Acquisition Act where also the public purpose was for the housing board. After the section 6 notification was issued, compensation amount was determined for the petitioner in Special Civil Application No. 759 of 1971, and several other petitioners as well by mutual agreement between the housing board and the owner of the land under acquisition. The petitioner in Special Civil Application No. 759 of 1971 received Rs. 1,58,785.44 plus 15 per cent. solatium in respect of his two acres and 2 gunthas of land. It may be pointed out that, as a result of the amendment by Act 19 of 1970 in the definition of the term 'capital assets' in section 2(14) of the Income -tax Act, 1961, by the time the compensation amounts were received from the acquiring body and the acquisition authorities in each of these 24 cases, the provisions of the Income -tax Act, 1961, relating to capital gains were attracted and the main reason why they were so attracted was the amendment in section 2(14)(iii) of the Income -tax Act.
In order to appreciate the contentions urged regarding the constitutional validity of section 2(14)(iii) of the Act, it is necessary to refer to some of the provisions of the Income -tax Act relating to capital gains. Section 45 of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 33, 54 and 54B, be chargeable to income -tax under the head 'capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. Section 2(14)(iii) defines what is meant by 'capital assets' and it says that 'capital assets' means property of any kind held by an assessee whether or not connected with his business or profession, but does not include various types of properties. Till the amendment by Act 19 of 1970, that is, till April 1, 1970, agricultural land in India was not included within the definition of 'capital assets' and, therefore, any capital gains arising from the transfer of agricultural land was not capital gains for the purposes of section 45 and could not be deemed to be the income of the previous year. It may be pointed out that at the time when the proposed amendment was introduced by the Finance Bill, 1970, it was pointed out that it was proposed to extend the levy of income -tax to capital gains arising from transfer of agricultural land situate in urban areas. The Memorandum explaining the provisions of the Finance Bill, 1970, pointed out in paragraph 24 :
'Presently, capital gains arising from the transfer of a capital asset are chargeable to income -tax. The definition of 'capital asset' excludes from its scope, inter alia, agricultural land in India. Accordingly, no liability to tax arises on gains derived from transfer of agricultural land in India. This exemption of agricultural land from the scope of the levy of tax on capital gains has a historical origin and is not due to any bar in the Constitution on the competence of Parliament to legislate for such levy. Agricultural land situated in municipal and other urban areas is essentially similar to non -agricultural land in such areas in its potentialities for use due to the progress of urbanisation and industrialisation.'
(3.)AND hence it was proposed to bring, within the scope of taxation, capital gains arising from the transfer of agricultural land situated within the limits of any municipality or cantonment board which has a population of not less than 10,000 according to the latest census for which the relevant figures have been published. Power was also being given to the Central Government to bring within the scope of the levy (by notification in the Official Gazette), capital gains arising from transfer of agricultural lands situate outside the limits of any such municipality or cantonment board up to a minimum distance of 8 kilometres, where this was considered necessary having regard to the extent of land scope for urbanisation of that area and other relevant considerations. It was pointed out in the Memorandum that agricultural land which was situated in rural areas would continue to be outside the scope of the provisions regarding tax on capital gains and hence no liability to tax would arise in respect of gains derived from transfer of agricultural land in rural areas. Under section 2, sub -section (47) of the Income -tax Act, 1961, 'transfer', in relation to a capital asset, includes the compulsory acquisition of the capital asset under any law. Therefore, whenever compensation in received in respect of any capital asset at the time of compulsory acquisition, the amount thus received would be considered for ascertaining profits or gains arising from the transfer of its capital asset and by virtue of section 45 would be deemed to be the income of the previous year in which the transfer took place. Under section 47 of the Income -tax Act nothing contained in section 45 applies to the various types of transfers mentioned in section 47 and by clause (viii), which was introduced by Act 19 of 1970, any transfer of agricultural land in India effected before the 1st day of March, 1970, is not a transfer of a capital asset for the purposes of capital gains. In the instant group of cases, as we have pointed out, the notification under section 6 of the land Acquisition Act was issued on December 19, 1970, and the transfer would take place necessarily after March 1, 1970 and, therefore, section 47 would not take these transfers of the different pieces of land to the housing board outside the scope of tax on capital gains.