Rakesh Kumar Vs. Union of India & Ors  INSC 589 (28 November 2000)
Doraswaimy Raju,, Ruma Pal Bharucha, J.
Under challenge are the orders of a Division Bench of the High Court of Madhya
Pradesh dismissing a writ petition filed by the appellant-assessee and
answering against him a reference made by the Income Tax Appellate Tribunal of
the following question : Whether on the facts and in the circumstances of the
case, the Tribunal was right in holding that the profit arising from the sale
of agricultural lands did not amount to capital gains within the meaning of
Income Tax Act, 1961? The reference related to the Assessment Years 1981-82 and
previous years relevant to the Assessment Years 1981-82 and 1983-84 the assessee
sold agricultural lands which were situated within the municipal limits of Bina.
He made capital gains thereon and the Income Tax Officer made him liable to
capital gains tax. The first appellate authority agreed with the Income Tax
Officer and the assessee approached the Tribunal. The Tribunal held that the
profit on the sale of agricultural lands was not capital gains within the
meaning of the provisions of the ncome Tax Act, 1961. From the order of the
Tribunal the question aforestated was referred to the High Court. Pending the
reference, the assessee filed in the High Court the writ petition the order
upon which is impugned. The writ petition asked the H gh Court to declare as
unconstitutional the Explanation to sub-section (1A) and clause (iii) of
sub-section (14) of Section 2 of the Income Tax Act, 1961 and to declare that
capital gains arising from the sale of agricultural lands within a municipal
are were not liable to capital gains tax under the Income Tax Act, 1961. The
High Court dismissed the writ petition and answered the reference against the assessee.
366 defines, in clause (1), agricultural income to mean agricultural income as
defined for the purposes of the enactments relating to Indian Income-tax.
46 of List II of the Seventh Schedule of the Constitution speaks of Taxes on agr
cultural income; in other words, it is for the States to legislate on the
subject of taxes on agricultural income. Entry 82 of List I of the Seventh
Schedule reads Taxes on income other than agricultural income; in other words,
it is for the Union t legislate on the subject of taxes on income other than
Income Tax Act, 1922 agricultural income was defined in clause (1) of Section
2. Sub-clause (a) thereof alone is relevant for our purpose. Thereunder,
agricultural income meant any rent or revenue derived from land which is used
for agricult ral purposes ...
2 (4A) defined capital asset to mean property of any kind held by an assessee
but not any land from which the income derived is agricultural income.
submitted by learned counsel for the assessee that agricultural income in
clause (1) of Article 366 must be read only as it was defined in 1950 when the
Constitution came into force; that is to say, in the manner indicated in
Section 2(1)(A) and 2(4)(A)(iii) of the 1922 Act. To decide the correctness of
the submission, it is necessary to give true meaning to clause (1) of Article
366. Agricultural income thereunder means agricultural income as defined for
the purposes of the enactments rel ting to Indian Income-tax. The definition
does not say that agricultural income means agricultural income as defined in
the 1922 Act. It does not even say that it means agricultural income as defined
for the purposes of the enactment relating to I dian Income-tax. It says that
it means agricultural income as defined for the purposes of the enactments
relating to Indian Income-tax. The use of the plural enactments is very
relevant. It means that agricultural income for the purposes of the onstitution
means agricultural income as it is defined at the relevant time in the
enactment that then relates to Income-tax.
judgment of this Court in Bajaya vs. Gopikabai & Anr. [1978(2) SCC 542] the
position in law, as applicable here, is stated thus: Broadly speaking,
legislation by referential incorporation falls in two categories: First, where
a statute by specific reference incorporates the provisions of another statute
as of the time of adoption.
where a statute incorporates by general eference the law concerning a
particular subject, as a genus. In the case of the former, the subsequent
amendments made in the referred statute cannot automatically be read into the adopting
statute. In the case of latter category, it may be presumed t at the
legislative intent was to include all the subsequent amendments also made from
time to time in the generic law on the subject adopted by general reference.
principle of construction of a reference statute has been neatly summed up by Sutherl
statute which refers to the law of a subject generally adopts the law on the
subject as of the time the law is invoked. This will include all the amendments
and modifications of the law subsequent to the time the reference statute was enacte
Juris Secundum also enunciates the same principle in these terms :
the reference in an adopting statute is to the law generally which governs the
particular subject, and not to any specific statute or part thereof, .. the
reference will be held to include the law as it stands at the time it is sought
to be app ied, with all the changes made from time to time, at least as far as
the changes are consistent with the purpose of the adopting statute.
the terms of the Constitution, Parliament is empowered to legislate to say what
agricultural income means. What Parliament says in this regard in the statute
then current relating to income tax is the definition of In regard to such
agricultural income the States may legislate. In regard to all other income it
is for Parliament to legislate. (See The Karimtharuvi Tea Estates agricultural
income for the p urposes of the Constitution.
823].) It is in this background that the impugned amendments in the 1961 Act
may be seen. Clause (1A) of Section 2 defined agricultural income to mean,
inter alia, any rent or revenue derived from land which is situated in India and is used for agricultural
purposes. Clause (14) of Section 2 defined capital asset to mean property of
any kind held by an assessee in India .. but does not include agricultural land in India.. The words agricultural land in
India were substituted by the Finance Ac , 1970 with effect from 1st April,
1970 to read thus : (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 board and which has 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 kilometers, 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 o
that area and other relevant considerations, specify in this behalf by
notification in the Official Gazette;
appears that by reason of the decision of the Nirgudkar, 2nd Income-Tax
Officer, A-II Ward, Bombay & Anr.
I.T.R. 87], an Explanation was added by the Finance Act, 1989, with effect from
1st A ril, 1970, to clause (1A) of Section 2 which read thus : Explanation -
For the removal of doubts, it is hereby declared that revenue derived from land
shall not include and shall be deemed never to have included any income arising
from the transfer of any land referred to in item (a) or item (b) of sub-clause
(iii) of clause (14) of this Section;
position, as a result, is that income arising from the transfer of agricultural
land that falls within the terms of items (a) and (b) of sub-clause (iii) of
clause (14) of Section 2 falls outside the ambit of revenue derived from land
and therefore, utside the ambit of agricultural income. Such income, therefore,
is liable to capital gains tax chargeable under Section 45 of the 1961 Act.
has, as aforestated, the power to define what agricultural income is in the
1961 Act; the amendment of sub-sections (2) and (14) of Section 2 thereof in
the manner aforestated are, therefore, good in law. The effect is that the assessee
is li able to pay capital gains tax on the sales of his lands within the
municipal limits of Bina.
of the view, therefore, that the High Court was right in the conclusions that
it came to. The appeals are dismissed with costs.