Law:

Section:

Section 2(1), read with section 3(24)(vi), of the Income-tax Act, 1961 - Agricultural income - Whether income from sale proceeds of land used for agricultural purposes is agricultural income within the meaning of section 2(1) - Held, no - Whether such income is chargeable to tax as capital gains under section 2(24)(vi) - Held, yes Facts Agricultural lands belonging to the assessee were compulsorily acquired, and the assessee received compensation. The assessee's claim for exemption on the resultant income was upheld by the Tribunal on the ground that the sale proceeds constituted income derived from land used for agricultural purposes and such income, being agricultural income, was not chargeable under the Act. On reference : Held The reasoning of the Tribunal was that proceeds of sale of land constituted income derived from land. If that proposition was correct, the Tribunal would be justified in saying that proceeds of sale of land used for agricultural purposes were income derived from agricultural land within the meaning of section 2(1) and therefore not chargeable under the Act. But the fallacy of that assumption was that, when land was sold, the sale proceeds did not constitute revenue, but capital. The profits or gains arising from the sale of land constituted income because section 2(24) includes as 'income' capital gains chargeable under section 45. Such gain was, nevertheless, not income derived from land ; it was income derived by the sale of land. Although land was the source of the income, income was derived not by the use of the land, but by the sale of the land, that was. by conversion of the land into cash. If income results from the sale of agricultural land, it is not 'agricultural income' within the meaning of section 2(1). When capital asset is sold, what is realised is capital receipt and not revenue receipt. If profit or gain results from such a sale, it is chargeable, not because it is revenue, but because the statute specifically charges the capital gain by including it as income. The Tribunal was, therefore, not justified in allowing the exemption. Cases referred to Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1980] 128 ITR 87…

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