JUDGMENT
Ashok Bhan, J.
1. At the instance of the Revenue, Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (for short “the Tribunal”), has referred the following question of law to this court for its opinion :
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in upholding the decision of the Appellate Assistant Commissioner that capital gains arising from transfer of agricultural land located within the municipal limits is not liable to capital gains tax ?”
2. Mr. Sanjay Bansal, learned counsel appearing for the Revenue, relying upon a judgment of this court in Tuhi Ram v. Land Acquisition Collector [1993] 199 ITR 490, contended that the sale of agricultural land situated within the municipal limits would come within the ambit of a capital asset and the transfer of the same would attract capital gains.
3. We find force in this submission of Mr. Bansal. This court in Tuhi Ram’s case [1993] 199 ITR 490, specifically differed with the view taken by the Bombay High Court in Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87 and held that the Explanation inserted in Section 2(1A) by the Finance Act, 1989, with effect from April 1, 1970, has brought about a change in the law and after that date the sale made of certain specified agricultural lands situated in the municipal limits would attract capital gains. It was held as under (reproduced from the headnote) :
“Compulsory acquisition of agricultural land under any law for the time being in force is a transfer within the meaning of Section 2(47) of the Income-tax Act, 1961. The expression ‘capital asset’ means property of any kind held by the assessee, whether or not connected with his business or profession. It, however, does not include agricultural land in India except the class of lands included in items (a) and (b) of Section 2(14)(iii). In order to qualify for such exemption, it is not enough that the land was once agricultural land. It must be agricultural land even at the time of sale or transfer. By the Finance Act, 1970, with effect from the assessment year 1970-71, certain specified lands situate in urban areas or semi-urban areas were brought within the definition of capital asset. When a capital asset is sold and if profit or gain results from such a sale, it is chargeable, not because it is revenue, but because the statute specifically charges the resulting capital gain by including it as income. Although land is the source of income, income is derived not by the use of land, but by the sale of the land, that is, by conversion of the land into cash. The resultant income is not agricultural income. The Explanation inserted in Section 2(1A) by the Finance Act, 1989, with effect from April 1, 1970, makes the position clear when it declares 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 Section 2. The Explanation completely renders ineffective the ratio of the decision in Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87 (Bom).”
4. Following the view taken by this court in Tuhi Ram’s case [1993] 199 ITR 490, it is held that the Tribunal was not right in law in holding that the capital gains arising on the transfer of agricultural land situated within the municipal limits was not chargeable to income-tax in the assessee’s hands and the question referred to us is answered in the negative, i.e., in favour of the Revenue and against the assessee. No costs.
