V.K.SINGHAL - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated May 6, 1983, in respect of the assessment year 1972-73 under section 256(1) of the Income-tax Act, 1961 :
(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal was right in relying on a decision of the Honble Bombay High Court in Manubhai A. Sheth v. N. D. Nirgudkdar, 1981 128 ITR 87(Bom) and thereby cancelling the penalty of Rs. 17,580 imposed under section 271(1)(c) ; The brief facts relevant to the disposal of the present reference are that the assessee is the karta of the Hindu undivided family. There was a bigger-Hindu undivided family in the name of Harbux and Sons which had agricultural lands. The said land was partitioned amongst the members of the Hindu undivided family. The said lands were subsequently sold to a co-operative society on the basis of which the Income-tax Officer found that the assessee is liable for capital gains tax. The land was sold for Rs. 56,150 and the cost of the land as on January 1, 1954, was shown at Rs. 23,118. Deduction of Rs. 14,332 was claimed under section 54B(1) on the ground that the assessee had purchased agricultural land out of other sale proceeds. The Income-tax Officer also found that the assessee had purchased the same land from some co-operative society by paying higher price. On this mode adopted by the assessee, the assessing authority found that it was a device adopted by the assessee in collusion with the society for reducing his tax liability by claiming deduction under section 54B. The deduction was accordingly disallowed and the value of the land as on January 1, 1954, was taken at Rs. 7,800. The returned income shown by the assessee was Rs. 8,909 and the assessment was made at a figure of Rs. 31,300. The final income was assessed, as determined by the Tribunal at Rs. 26,490. Since there was a difference of Rs. 17,581, proceedings for furnishing inaccurate particulars of income were initiated by the Income-tax Officer. In regard to the deduction claimed by the assessee under section 54B, a finding was recorded by the Income-tax Officer that in the instant case neither was the land which the assessee repurchased agricultural nor was it land other than the land sold by the assessee. Therefore, the assessee is not entitled to the benefit under section 54B. èThe value of the land as on January 1, 1954, was adopted by the Income-tax Officer at Rs. 3,000 against the cost shown of Rs. 23,118, which was determined at Rs. 7,800 by the Appellate Assistant Commissioner, and Rs. 10,400 by the Income-tax Appellate Tribunal. The Income-tax Officer found that the assessee had concealed the concealed the particulars of his income by furnishing inaccurate particulars thereof. He placed wrong facts before the Income-tax Officer and claimed residential land as agricultural land, which was evident from the allotment letter issued by the society and, therefore, penalty under section 271(1)(c) of Rs. 17,580 was imposed by the Income-tax Officer. In the appeal before the Appellate Assistant Commissioner, the levy of penalty was set aside relying on the decision of Hindustan Steel Ltd. v. State of Orissa, 1972 83 ITR 26(SC) and also for the reason that the information for computation of capital gains was furnished by the assessee. The Revenue had challenged this before the Income-tax Appellate Tribunal, where a contention was raised by the assessee that the profit arising from the sale of agricultural land amounts to revenue within the meaning of clause (a) of section 2(1), and, therefore, it is agricultural income which is exempt under section 10(1) of the Act. Reliance was placed on the decision of the Bombay High Court in Manubhai A. Sheth v. N. D. Nirgudkar, 1981 128 ITR 87(Bom) . On the basis of the observations of the Bombay High Court, that capital gains made on the sale of land situate in India, which land is used for agricultural purposes would be revenue derived from such land, and, therefore, agricultural income within the meaning of section 2(1) of the Income-tax Act, 1961, and Parliament would have no legislative competence to tax such agricultural income. It was observed by the Tribunal that despite the retrospective amendment made in section 2(14), any profit arising from the sale of agricultural land cannot be subject to capital gains tax, because it is agricultural income being revenue within the meaning of section 2(1)(a) and, therefore, the same is exempt under section 10(1). The Tribunal has also taken note of the observations of the Bombay High court that if the land used for agricultural purposes is situate within the area described in para (a) or (b) of clause (iii) to section 2(14), any capital gain arising from the sale of such land cannot be subject to capital gain arising from the sale of such land cannot be subject to capital gains tax. Since there was no liability of tax on this ground the penalty under section 271(1)(c) was held not leviable. Section 2(1A) of the Act defines agricultural income. Section 2(14) defines capital asset. By the Finance Act, 1970, agricultural lands were excluded from the definition of the term ;capital asset;, but this exclusion is not applicable to land which is comprised within the jurisdiction of a municipality or cantonment board which has a population of not less than 10,000 person in their voters list according to the last preceding census and also in any area within such a distance not being not èbeing more than 8 kms. from the local limits of any municipality or cantonment board as may be notified in the Official Gazette. By the Finance Act, 1970, under section 47(viii), it was provided that any transfer of agricultural land in India effected before the 1st day of March, 1970, will not be considered as a transfer, and, therefore, not liable to capital gains tax. By the Finance Act, 1989, an explanation was added to section 2(1A) retrospectively with effect from April 1, 1970, which is as under :
(3.) EXPLANATION. - For 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.; By the above amendment of the Finance Act, 1989, inserting the EXPLANATION in clause 2(1A), the interpretation which has been given by the Bombay High Court cannot be relied on as this explanation clarifies that capital gains arising from the transfer of agricultural land situated in the specified areas, which are referred to under item (a) or item (b) of sub-clause (14) of section 2 will not constitute revenue within the meaning of section 2(1A). Thus, the profits and against arising from the transfer of such agricultural land would be eligible to capital gains tax. Because the Finance Act, 1989, has given effect to other explanation retrospectively from April 1, 1970, therefore, we are of the view that the Income-tax Appellate Tribunal was not justified in relying on the decision of the Bombay High Court reported in Manubhai A. Sheth v. N. D. Nirgudkar, 1981 128 ITR 87(Bom) and thereby cancelling the penalty of Rs. 17,580 imposed under section 271(1)(c) of the Act. Accordingly, the reference is answered in favour of the Revenue and against the assessee. No order as to costs. The Appellate Assistant Commissioner, in the present case, had set aside the penalty on the basis of the decision given by the apex court in the case of Hindustan Steel Ltd. v. State of Orissa, 1972 83 ITR 26(SC) as well as merits, that all the particulars have been disclosed by the assessee. The Income-tax Appellate Tribunal has not taken into consideration both the points, i.e., the merits of the case, and the judgment of the apex court, but has proceeded altogether on a different point which was not raised before the authorities below. Since we have come to the conclusion that the transfer of agricultural land will attract capital gains tax, it would be in the interest of justice that the matter be sent back to the Tribunal to consider as to whether the penalty was leviable in the facts and circumstances of the case. The Tribunal would give opportunity to both the parties and would pass the order afresh in accordance with law considering the view taken by us that the transfer of the agricultural land is liable to capital gains tax.;