K.C. Agrawal, J. - (1.) JAGWANSH Kumar has challenged the validity of Sub-clause (iii)(b) of Clause (14) of Section 2 of the Income-tax Act, 1961.
(2.) SECTION 3 of the Finance Act, 1970, substituted SECTION 2(14)(iii) from April 1, 1970, by a new provision, the relevant portion of which is reproduced below : "3. Amendment of SECTION 2.--In SECTION 2 of the Income-tax Act,-- (a) in Clause (14), for Sub-clause (iii), the following sub-clause shall be substituted, namely :-- ' (iii) agricultural land in India, not being land situate--... (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), 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 The object of this amendment is to bring within the term "capital asset", agricultural land situated within any 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 having a population of 10,000 or more. Further, agricultural land situated in areas lying within a distance not exceeding eight kilometres from the local limits of such municipalities, could also be covered by the amended definition of "Capital asset" if such areas are, having regard to the extent and scope for their urbanisation and other relevant considerations, notified by the Central Government in that behalf. The effect will be that capital gains earned from the transfer of agricultural land covered by the aforesaid clause will be liable to income-tax for the assessment year 1970-71 and subsequent years. The petitioner's main contention was that profits or gains arising from transfer of lands which are used for agricultural purpose is revenue derived from such land within the meaning of Section 2(1)(a) and is, therefore, agricultural income within the meaning of Section 2(1) and not exigible to capital gains tax by Parliament. The main reliance placed by the petitioner was on Manubhai A. Sheth v. N.D. Nirgudkar, 2nd ITO [1981] 128 ITR 87 (Bom).
(3.) CONTRARY view has been taken in Ambalal Maganlal v. Union of India [1975] 98 ITR 237 (Guj) and in B.S. Jayachandra v. ITO [1986] 161 ITR 190 (Kar). Apart from the decision in Manubhai A. Sheth's case [1981] 128 ITR 87 (Bom), learned counsel for the petitioner relied on a number of other rulings for the various propositions advanced before us, but we will presently show that, on the facts, we are not called upon to decide those it questions. The contention of the petitioner could hold the field provided was established that the land on which capital gains is being charged from the petitioner was being used for agricultural purposes but since it is found that it was not being used for agricultural purpose on the date on which it was transferred, the question of validity of Section 2(14)(iii) would not arise.;