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Income Tax Laws – I

Notes 4. In the case of Manubhai A. Sheth (supra) the Hon’ble Bombay High Court held that
amendment made to charge capital gain on transfer of agricultural land was not
valid/approved and noted the change in the definition of “income” in the following
words:
“The sale price received on the sale of capital asset would be capital receipt. This is,
however, a wholly different thing from saying that the profits or gains arising from
the sale of a capital asset are a capital receipt. Such profits or gains are income. Not
only clause (24) of section 2 of the 1961 Act, which defines the word “income”, by
sub-clause (vi) includes “any capital gains chargeable under section 45” within the
meaning of the word “income”, but the Supreme Court also has in Navinchandra’s
case [1954] 26 ITR 758, held such capital gains to be income. It is also pertinent to bear
in mind that under the proviso to sub-section (3) of section 10 of the 1961 Act capital
gains chargeable under the provisions of section 45 are expressly excluded from
receipts which are of a casual and a non-recurring nature. Thus, capital gains statutorily
are of recurring nature. In view of these statutory provisions and in view of the
judgment of the Supreme Court in Navinchandra’s case [1954] 26 ITR 758, it is not
open to the respondents to argue that capital gains are capital receipt and not a
revenue receipt.”
5. In the case of Ambalal Maganlal (supra) their Lordships of Gujarat High Court took
a view different one from that was taken by Bombay High Court and held that
capital gain on sale of agricultural land was taxable income. Their Lordships made
the following observation:
“After the decision of the Supreme Court in Navinchandra Mafatlal v. CIT [1954] 26
ITR 758, it is obvious that Parliament has, by virtue of entry 82 in List I of the Seventh
Schedule, the power to enact a law relating to tax on capital gains and, therefore,
also to amend the law relating to tax on capital gains since such a tax would be a tax
on income. It is also clear that by amending the appropriate definition in any
enactment relating to Indian Income-tax, Parliament has the power to define what is
meant by “agricultural income” and, by virtue of entry 82, it has power to levy tax
on income other than agricultural income as thus defined. Under these circumstances,
it was competent to Parliament to enact section 2(14)(iii) so as to provide for tax on
capital gains arising from agricultural lands which are under consideration in the
present case.”
6. In the case of T. K. Sarala Devi (supra) where the leading decision taking a view
contrary to that of Bombay High Court in Manubhai A. Sheth’s case (supra) were
considered, their Lordships of Kerala High Court observed as under:
“The profits or gains arising from the sale of land used for agricultural purposes
constitute income because section 2(24) of the Income-tax Act, 1961, includes as
“income” capital gains chargeable under section 45. Such gain is not income derived
from land but is income derived from the sale of the land. Although land is the
source of the income, income is derived not by the use of the land, but by the sale of
the land, that is, by conversion of the land into cash and if income results from the
sale of the agricultural land, it is not agricultural income within the meaning of
section 2(1).”
7. In the case of Sevantilal Maneklal Sheth (supra) their Lordship of Hon’ble Supreme
Court while considering the question of taxability of capital gain derived by wife
on assets transferred by the assessee’s husband based its decision on amendment of
definition of “income” made in section 2(6C) in 1947. Their Lordship observed as
under:
Contd...

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