Law:

Section:

Section 45 of the Income-tax Act, 1961-Capital gains-Chargeable as-Whether profits realised from sale of property can be subjected to capital gains tax if property answers description of a capital asset on date of its sale even though it bore character of a noncapital asset at the time of its acquisition by assessee-Held, yes Facts In the previous year ended on 31-3-1970 relevant to the assessment year 1970-71, the assessee sold agricultural lands situated within municipality limits and claimed that the resulting profit was not liable to capital gains tax. The ITO rejected the assessee's claim for exemption in view of the definition of capital asset in section 2(14)( iii) as amended in 1970. On appeal, the AAC and the Tribunal upheld the order of the ITO. On reference, though the assessee conceded that at the time of the sale its agricultural land was a capital asset, he contended that tax under the head 'Capital gains' could be charged on profits accruing from the sale or transfer of an item of property only if such property answered the description of a capital asset at the time of its acquisition as well as at the time of its sale. Held Section 2(14)( iii), before its amendment in 1970, excluded all agricultural lands, wherever situate, front the definition of capital asset'. After the amendment, agricultural land situate within the limits of municipalities and other local authorities with a population often thousand people or more was included within the definition of 'capital asset'. The assessee's land was situate within a municipality having a population of more than ten thousand residents. Since the sale of such land took place in the previous year ended on 31-3-1970, the tax treatment of the assessee's transaction fell to be considered in the light of the amended provisions of section 2(14)(iii ). There was, however, no merits in the assessee's contention that liability for capital gains tax cannot be fastened unless the property is not only a 'capital asset' at the time of sale but also answers the same description at the time of its acquisition. Under section 45, which is the charging section to capital gain-tax, the crucial requirements are that…

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