Commissioner of Income Tax vs Pyare Lal

R.C. Lahoti, J.—The Tribunal has, u/s 256(1) of the Income Tax Act, 1961, and at the instance of the Revenue referred for the opinion of the High Court the following two questions of law, relating to the assessment year 1974-75 ;

"1. Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that Gaon Sabha Nangal Dewat was within the meaning of Sub-clause (a) of Section 2(14)(iii), a municipality within whose jurisdiction there was comprised the area in which the land in question was situate ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the land in question being used for agricultural purposes did not constitute capital asset within the meaning of Section 2(14) of the Income Tax Act ?"

The assessed is a Hindu undivided family having small income assessable as income from house property and by way of interest. During the previous year relevant to the assessment year 1974-75 certain land belonging to the assessed stood transferred as a result of acquisition by the Government. The land was agricultural and situated in village Nangal Dewat. The compensation received by the assessed from the Land Acquisition Collector was taken by the Income Tax Officer into account for determining the capital gains. The assessed went in appeal. The Commissioner of Income Tax (Appeals) set aside the order of the Income Tax Officer and directed him to exclude the income computed under the head "Capital gains".

The Revenue preferred an appeal to the Income Tax Appellate Tribunal which has been dismissed.

The controversy stands resolved by the law laid down by the Supreme Court in the case of G.M. Omer Khan Vs. The Additional Commissioner of Income Tax, A.P., Hyderabad, . Their Lordships have approved the decision of the Madras High Court in S. Hidhayathullah Sahib Vs. Commissioner of Income Tax, . According to the Madras High Court, it is the population of the municipality that has to be taken into account for the purpose of Section 2(14)(iii)(a), and not the population of any area within the municipality. In other words, the part of the sentence--"which has a population of not less than 10,000", refers to municipality or a cantonment board, and not to any area comprised in the erstwhile village or any fraction of the area Constituting the municipality or cantonment board.

Consistently with the law laid down by the Supreme Court, both the questions are answered in the negative, i.e., in favor of the Revenue and against the assessee.