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CASE NO.: Appeal (civil) 15619-15620 1996

PETITIONER: SINGHAI RAKESH KUMAR

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT:       28/11/2000

BENCH: S.P.Bharucha, Doraswaimy Raju,, Ruma Pal

JUDGMENT:

Bharucha, J.

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     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 1983-84.

     In the 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.

     Article  366  defines,  in clause  (1),  agricultural income  to  mean  agricultural income as defined  for  the purposes  of the enactments relating to Indian  Income-tax.

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Entry  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 agricultural income.

     In  the 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 ... Section  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.

     It  was 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.

     In the 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. Second, 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. This  principle  of construction of a reference statute  has been neatly summed up by Sutherl nd, thus:

     A  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 .

     Corpus  Juris  Secundum  also   enunciates  the   same principle in these terms :

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     .Where  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.

     Under  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 Ltd., Kottayam & Anr.  Vs.  State of Kerala & Ors., [1963(1) agricultural income for the p urposes of the Constitution. upp.  SCR 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;

     It  appears  that  by reason of the  decision  of  the Bombay  High  Court in Manubhai A.  Sheth & Ors.  Vs.   N.D. Nirgudkar,  2nd Income-Tax Officer, A-II Ward, Bombay & Anr. [128  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;

     The 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

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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.

     Parliament  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.

     We are of the view, therefore, that the High Court was right  in the conclusions that it came to.  The appeals  are dismissed with costs.