Andhra Pradesh H.C : Whether the acquisition of lands under the Requisitioning & Acquisition of Immovable Property Act, 1952 was completed before 1st March, 1970 ?

Counsel Appeared

M.S.N. Murthy, for the Revenue : N.V. Ranganadham, for the Assessee

JEEVAN REDDY, J.:

Identical questions are referred in these three cases. Though the assessees are different, the basic facts are identical. It would be enough if we set out the questions referred in R.C. No. 16 of 1982. The questions are :

“(1) Whether the acquisition of lands under the Requisitioning & Acquisition of Immovable Property Act, 1952 was completed before 1st March, 1970 ?

(2) Whether the lands were agricultural lands on the date of acquisition ? (3) Whether the benefit under s. 54B of the IT Act, 1961, was allowable in computing the capital gains in the event the acquisition was completed on 12th March, 1970 ?”

2. The lands of the assessee in R.C. Nos. 16 and 18 of 1982 are situated in Hakimpet village, which is included within the municipal limits of Hyderabad city. The lands of the assessee in R.C. No. 11 of 1982 are situated in Guddimalkapur village, which is situated within 8 kilometres of the local limits of the Hyderabad Municipal Corporation. These lands were requisitioned by the Defence authorities under the provisions of Requisitioning & Acquisition of Immovable Property Act, 1952. A few years later, i.e., in 1970 these lands were proposed to the acquired. The notification acquiring these lands under s. 7 of the said Act, was published on 12th March, 1970 though it is dt. 12th Feb., 1970. An award was passed and compensation awarded to these assessees. The IT authorities sought to tax the capital gains arising from the said acquisition. The assessees contested the taxability on three grounds, viz., (a) that the acquisition was complete before 1st March, 1970 the date prescribed in cl. (viii) of s. 47 of the IT Act, 1961 (hereinafter referred to as ‘the Act’); (b) that the lands were agricultural lands on the date of acquisition, and hence did not constitute ‘capital asset’ as defined in cl. 14(iii) of s. 2 of the Act; and (c) that, inasmuch as the assessees have purchased other agricultural lands within two years of the acquisition they are entitled to the benefit of s. 54B of the Act. All the three contentions were negatived in all the three cases by all the authorities, whereupon they have asked for and obtained these references.

3. Prior to 1st April, 1970 ‘agricultural land in India’ was excluded from the definition of ‘capital asset’ in cl. (14) of s. 2. The definition of ‘capital asset’, insofar as it is relevant, read as follows: “(14) ‘Capital asset’ means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include—….. (iii) agricultural land in India…..” Sec. 45 of the Act levies capital gains tax. It says: “45. Capital gains.—(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in ss. 53, 54, 54B and 54D be chargeable to income-tax under the head ‘capital gains’, and shall be deemed to be the income of the previous year in which the transfer took place.” Sec. 47 sets out certain transactions which shall not be regarded as transfers. There was no cl. (viii) in this section prior to 1st April, 1970. By the Finance Act, 1970, the definition of ‘capital asset’ was amended so far as it exempted agricultural lands in India. Clause (iii) in the said definition, after amendment, reads as follows: “(iii) agricultural land in India, not being land situate— (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment broad and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (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 urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;”

It is important to notice that this amendment was made w.e.f. 1st April, 1970. By the same Act, cl. (viii) was introduced in s. 47. After introduction of cl. (viii), s. 47, in so far as it is relevant for our purposes, reads thus:

“47. Transactions not regarded as transfer.—Nothing contained in s. 45 shall apply to the following transfers: ….. (viii) any transfer of agricultural land in India effected before the 1st day of March, 1970.” A reading of the above provisions yields the following position : Prior to 1st April, 1970 agricultural lands in India, whether situated in urban areas or otherwise, did not constitute ‘capital asset’ and hence no capital gains tax was leviable on the transfer of such lands. By the Finance Act, 1970, however, the agricultural land situated within the limits of a municipality, or within 8 kilometres of the limits of any municipality, was made a ‘capital asset’ w.e.f. 1st April, 1970. [The agricultural land not falling within items (a) and (b) of sub-cl. (iii) of cl. (14) of s. 2 continued to be not ‘capital asset’ for the purpose of the Act]. Since the said amendment is brought into force on and from 1st April, 1970, it is applicable to the asst. yr. 1970-71. Clause (viii) of s. 47, however, exempted sale of agricultural lands, effected before 1st March, 1970 (the date of introduction of the Finance Bill in Parliament), which means that transfer of agricultural land, which is assessable to capital gains tax in the asst. yr. 1970-71 will be exempt from such tax, if the transfer has taken place before 1st March, 1970. (It is wrong to contend, as has been done by the learned standing counsel for the Revenue, that the virtue of cl. (viii) of s. 47, all transfers of agricultural lands, wherever situated effected after 1st March, 1970, became liable to capital gains tax. Such is not and could never have been the purport of the said clause. The clause has a limited purpose as indicated above and no more).

Before the assessing authority as well as both the appellate authorities, the main contention of the assessee has been that, inasmuch as, the notification under s. 7 of the Requisitioning & Acquisition of Immovable Property Act is dt. 12th Feb., 1970 and also because notices under the said Act were issued prior to 1st March, 1970 the transfer must be deemed to have taken place prior to 1st March, 1970. This argument was advanced on the assumption that if a transfer takes place after 1st march, 1970, it is liable to capital gains tax. This contention of the assessees was, however, negatived and, in our opinion, rightly by all the authorities, following the decision of this Court in Addl. CIT vs. G. M. Omarkhan (1979) 116 ITR 950 (AP) : TC20R.539. The Requisitioning & Acquisition of Immovable Property Act expressly says that where a land under requisition is acquired, it vests in the State on the date of publication of the acquisition notification in the Official Gazette [vide s. 7(2)]. In this case, the acquisition notification was published in the Official Gazette only on 12th March, 1970 and that is the date of transfer as held by this Court in the decision referred to above. We must, therefore, answer the first question referred to us saying that the acquisition of the lands cannot be said to have been completed before 1st March, 1970.

6. The next contention of the assessees was that these lands were ‘agricultural lands’ on the date of acquisition. Their contention was that when these lands were requisitioned, they were agricultural lands, under actual cultivation by them, and that the mere fact that after requisitioning the same, the Defence authorities did not cultivate the said lands but put them to non- agricultural use, does not put an end to their agricultural character. It was contended by them that they intended to resume cultivation of these lands as and when they were derequisitioned. It was also contended that under the Requisition & Acquisition of Immovable Property Act the requisitioning authority is under an obligation to return the land in the same condition in which it was requisitioned as and when they derequisition the land. In our opinion, however, it is unnecessary to go into the question whether these lands were agricultural lands on the date of acquisition, because, even if we agree with the assessees that they were agricultural lands on the date of acquisition, it would still not avail the assessees for the following reasons: the lands concerned herein are situated either within the municipal limits or within 8 kilometres of the local limits of the Hyderabad Municipal Corporation. Therefore, they fall within the exception to exception, introduced by the Finance Act, 1970. In other words, these lands constitute ‘capital asset’, even though they are agricultural lands, for the reasons that they are situated within the urban area specified in s. 2 (14)(iii). The said amendment was brought into force w.e.f. 1st April, 1970, which means that it is applicable for the asst. yr. 1970-71. The accounting year for the said assessment year would be the financial year 1969-70, or such other accounting year as may have been opted for by the assessees, so long as the accounts of the assessees are made upto date within the said financial year. In the present case, however, there is no dispute that the financial year 1969-70 would be the previous year for the asst. yr. 1970-71 in the case of all the assessees herein. If so, it would follow that the capital gains made by these assessees during the said previous year, i.e., during the financial year 1969-70, would be assessable to capital gains tax in the asst. yr. 1970-71. It is in this connection that cl. (viii) in s. 47 becomes relevant and meaningful. According to cl. (viii) of s. 47 any transfer of agricultural land effected before 1st March, 1970 (the date on which the Finance Act, 1970 was introduced in the Parliament) would be exempt from the capital gains tax. In other words, transfers of those agricultural lands which become exigible to capital gains tax by virtue of amendment of the definition of ‘capital asset’ in s. 2(14) are exempted to a large extent. Only those transfers which have taken place on or after 1st March, 1970, i.e., after the introduction of the Finance Bill, 1970, in Parliament are made liable to tax. On a combined reading of the above provisions, it is clear that inasmuch as the lands concerned herein have been transferred on 12th March, 1970, they are liable to capital gains tax. Our answer to question No. 2, therefore, is that it is unnecessary to go into the question whether the lands concerned herein were agricultural lands or not, on the date of acquisition because even if they were agricultural lands, they are not exempt from the capital gains tax. Being situate within the municipal limits or within 8 kilometres of the municipal limits, they constitute ‘capital asset’ for the purpose of asst. yr. 1970-71, and having been transferred after 1st March, 1970, they are also not entitled to the benefit of cl. (viii) of s. 47. In this view of he matter, it is unnecessary for us to refer to the test enunciated by the Supreme Court in CWT vs. Officer-in-Charge (Court of Wards), Paigah 1976 CTR (SC) 404 : (1976) 105 ITR 133 (SC) to find out whether a land is an agricultural land, or to apply the said tests to the lands concerned herein.

Now coming to the third question, the contention of the assessee is liable to fail on the simple ground that these lands were not being used by the assessee, or a parent of his, for agricultural purposes in the two years immediately preceding the date on which the transfer took place, as required by the said section. Unless this requirement is satisfied, the assessee cannot claim the benefit provided by s. 54B, even though he may have purchased another agricultural land within two years of the transfer. Now, admittedly in all these cases the land concerned was not used by the assessee or his parent, for agricultural purposes. It was under requisition by the Defence Department and in their possession. For this reason, question No. 3 is to be answered in the negative, i.e., against the assessee and in favour of the Revenue.

For the above reasons, we answer all the three questions referred against the assessees and in favour of the Revenue. There shall be no order as to costs.

[Citation : 174 ITR 154]