Deoki Nandan and Sons vs Commissioner of Income Tax

Pasayat, C.J.—These two reference applications have been registered on the motion of the assessee u/s 256(1) of the income tax Act, 1961 (''the Act'') by the Tribunal, Delhi Bench ''B'', and following questions have been referred for opinion of this Court :

Whether, on the facts and in the circumstances of the case, the agricultural land of the assessee-firm in Village Saran acquired by the Haryana Government under the Land Acquisition Act was a capital asset within the meaning of section 2(14)(iii)(a) of the income tax Act, 1961 ?

Whether, on a true and correct interpretation of the provisions of the Faridabad Complex (Regulation and Development) Act, 1971, the Faridabad Administration Complex is a municipality within the meaning of the section 2(14)(iii)(a) of the income tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the capital gains arising from the compulsory acquisition of the land in question is chargeable to tax u/s 45 of the income tax Act, 1961 ?

If the answer to question No. 3 is in favour of the assessee and against the revenue, whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in confirming the order of the Commissioner of income tax passed u/s 263 of the income tax Act, 1961 ?

Factual position as indicated in the statement of case is as follows :

The assessee is a partnership firm which carried on at the relevant point of time, i.e., the assessment year 1972-73, business in money-lending and in share-dealings. It also owned immovable properties and agricultural land. The assessee-firm owned 15 acres of agricultural land in Village Saran, District Ballabhgarh (Haryana). Out of this, over 13 acres of land was acquired by the State Government under two notifications dated 13-9-1971 and 6-1-1972 issued u/s 4 of the Land Acquisition Act, 1894. The Collector passed an award u/s 11 of the Act on 9-3-1972 and possession was taken on the said date. The assessee received a sum of Rs. 3,39,739 as compensation for the acquisition of land. In the return of income filed for the assessment year in question, the assessee claimed exemption in respect of such income by indicating in Part IV of its return of income. Exemption was claimed on the ground that the land in question became a part of the Faridabad Municipality only on 15-1-1972 whereas it had been acquired before that date on 13-9-1971 and 6-1-1972. The assessee contended that the land being agricultural in nature was not a capital asset within the meaning of section 2(14) of the Act as on the date of transfer. The ITO accepted this stand. Subsequently, action was taken u/s 263 of the Act by the Commissioner holding that the action of the ITO was prejudicial to the interest of the revenue. The Commissioner held that the transfer by way of compulsory acquisition was effected on 9-3-1972 and not before that date. It also held that the income constituted capital gains. Matter was carried in appeal before the Tribunal by the assessee. In the meantime, the ITO made a fresh assessment on the basis of the Commissioner''s order, by order dated 24-3-1977, including a sum of Rs. 2,52,000 as capital gains. Matter was carried in appeal before the AAC. The said authority confirmed the assessment. Matter was carried in appeal before the Tribunal. Both the appeals, i.e., one relating to section 263 of the Act and second relatable to the fresh order of assessment passed pursuant to directions of the Commissioner u/s 263 were taken up together. The assessee''s stand was that the property in question could not be held to be a capital asset and, therefore, the levy was uncalled for. Further, it was contended that the Faridabad Administration Complex is not a municipality. However, the Tribunal analysed various provisions of the Municipal Act vis-a-vis those contained in the Faridabad Complex (Regulation and Development) Act, 1971 (''Faridabad Administration Act''). Ultimately it was held that Faridabad Administration Complex is akin to a municipality and the land in question was capital asset on the date of transfer. On being moved, aforesaid four questions have been referred.

There is no appearance on behalf of the assessee. However, we have heard the learned counsel for the revenue.

We find that the Tribunal has considered factual aspects after analysing in detail the provisions contained in the Municipal Act and the Faridabad Complex Act. It has found as a matter of fact that in all essential matters, such as its composition, constitution, powers, functions, duties, etc., the Faridabad Administration Complex is akin to a municipality. According to us, the Tribunal has analysed the factual position keeping in view the correct position in law. Therefore, our answer to the first three questions is in the affirmative, in favour of the revenue and against the assessee. In view of the aforesaid answer to the first three questions, question No. 4 referred by the Tribunal is of academic interest.

The reference applications stand disposed of.