Citation Codes

Equivalent Citations

citation codes

Case Number

(I.T.R No. 478 of 1983)

Judges

S.B Sinha, C.J
A.K Sikri, J.

Acts

section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act),
Finance Act, 1989, and the Finance Act, 1970,
SECTION 4 LAND ACQUISITION ACT
provisions of section 52(2)
section 2(14)(iii)(a)

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Smart Summary

Structured Summary of the Opinion (S.B. Sinha, C.J.)

Factual and Procedural Background

The Income-tax Appellate Tribunal, Delhi Bench “A”, referred under section 256(1) of the Income-tax Act, 1961, the following question to this Court for opinion:

“Whether, on the facts and in the circumstances of the case, capital gains arising on transfer of agricultural lands in village Nangal Dewat, Delhi, is chargeable to tax?”

The basic facts (I.T.R. No. 478 of 1983) as stated in the opinion are:

The petitioner (assessee) owned 154 bighas of agricultural land in village Nangal Dewat near the Delhi‑Najafgarh Road adjoining Palam Airport.
The Government acquired the land for extension of Palam Airport by notification dated December 3, 1971 (purportedly under section 4 of the Land Acquisition Act). The Land Acquisition Officer awarded compensation of Rs. 8,55,450 by order dated July 20, 1973 and possession was taken by the Government.
The assessee did not declare any income under the head “Capital gains”, contending that the agricultural land was not a “capital asset” within the meaning of section 2(14) of the Income-tax Act.
The Income-tax Officer (ITO) considered the land to be within the jurisdiction of the Municipal Corporation of Delhi and, by reference to an amendment effective April 1, 1970, treated the land as a capital asset. The ITO also applied provisions of section 52(2) on the basis that the market value exceeded the declared consideration by more than 15% and, with approval of the Inspecting Assistant Commissioner (IAC), substituted consideration (fixed at Rs. 61,60,000).
Valuation disputes: the ITO estimated the value as on January 1, 1954 at Rs. 2,31,000; the assessee claimed a 1954 value based on Rs. 3,500 per bigha but could not substantiate it; the ITO adopted Rs. 1,500 per bigha as the 1954 market value for assessment purposes.
The assessee claimed Rs. 35,000 for improvements; the ITO reduced that claim on evidentiary grounds. The ITO determined capital gains at Rs. 36,05,117 (later, after directions from the IAC, recorded as Rs. 36,25,366).
The proposed assessment (variation > Rs. 1,00,000) was sent to the assessee for objections. The Assessing Officer forwarded the proposed order and objections to the IAC who issued directions; the final assessment followed. The assessee appealed to the Appellate Assistant Commissioner (AAC) — which was allowed in part — and subsequently to the Tribunal, which allowed the appeal. The Tribunal referred the stated question to this Court.

The opinion states that the facts in I.T.R. No. 479 of 1983 are almost identical; the Court did not go into detailed repetition of those facts.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, capital gains arising on transfer of agricultural lands in village Nangal Dewat, Delhi, is chargeable to tax?

Arguments of the Parties

Assessee's (Appellant's) Arguments

The agricultural land was not a “capital asset” within the meaning of section 2(14) of the Income-tax Act and therefore the transfer did not result in chargeable capital gains.
The assessee contested the award of the Land Acquisition Officer and filed appeals claiming a higher compensation (claiming Rs. 40,000 per bigha in the appeals against the award).
The assessee claimed the value as on January 1, 1954 should be worked out on a rate of Rs. 3,500 per bigha (but could not support this submission with evidence).
The assessee claimed expenditure of Rs. 35,000 on improvements to the land (contested and curtailed by the ITO on evidentiary grounds).

Revenue's (Respondent's / ITO's) Arguments

The land was situated within the jurisdiction of the Municipal Corporation of Delhi and, due to an amendment effective April 1, 1970, the land became a “capital asset” for the purposes of section 2(14) of the Income-tax Act.
The fair market value as on the date of transfer exceeded the declared consideration by more than 15%; therefore the provisions of section 52(2) applied and the ITO (with IAC approval) substituted the consideration for assessment purposes (fixed at Rs. 61,60,000).
The ITO estimated the value as on January 1, 1954 at Rs. 2,31,000 (ultimately adopting Rs. 1,500 per bigha as the 1954 market value) and curtailed the assessee’s claim for improvements for lack of adequate evidence.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Gurudevdatta VKSSS Maryadit v. State of Maharashtra [(2001) 4 SCC 534 : AIR 2001 SC 1980]	Cardinal principle: words of a statute must be understood in their natural, ordinary sense; when words are clear, courts must give effect to that meaning.	The Court relied on this authority to support a literal/plain meaning construction of section 2(14)(iii) and to emphasise that clear statutory language should be followed.
Harshad S. Mehta v. State of Maharashtra [2001] 107 Comp Cas 365 (SC)	Reiterates the principle of ordinary meaning and literal interpretation of statutory words.	Referred to as reinforcing the rule that clear words in a statute must be given effect.
Dental Council of India v. Hari Prakash [(2001) 8 SCC 61 : AIR 2001 SC 3303]	Reiteration of principles of statutory construction (ordinary meaning / literal interpretation).	Used to support the Court’s approach to construing section 2(14)(iii) on its plain language.
Dadi Jagannadham v. Jammulu Ramulu [(2001) 7 SCC 71 : AIR 2001 SC 2699]	Affirms that the Legislature's words are to be assumed intended and courts should not add words to a statute; authorities on construction cited.	Quoted to support the proposition that the Court cannot read additional language into section 2(14)(iii) where the literal reading yields an intelligible result.
P.K. Unni v. Nirmala Industries [1990 AIR 1990 SC 933 : (1990) 2 SCC 378]	Authority cited in the context of statutory construction and the presumption that the Legislature intended what it said.	Referred to through Dadi Jagannadham as part of the jurisprudence supporting literal construction and refusal to add omitted words.
Nalinakhya Bysack v. Shyam Sunder Haidar [1953 AIR 1953 SC 148]	Court must proceed on assumption that the Legislature intended to say what it said.	Cited as supporting the refusal to alter the statutory language by implication when the literal reading is intelligible.
Mercy Docks and Harbour Board v. Henderson Brothers [1888] 13 AC 595	Authority for the proposition that courts cannot add words to a statute to create a casus omissus.	Quoted to demonstrate historical authority that courts must not alter statutory language by adding words.
Crawford v. Spooner [1846] 6 Moore PC 1	Cited for the maxim that courts cannot mend or add to defective legislative phrasing by construction.	Used as part of the line of authorities cautioning against judicial supplementation of statutes.
Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155	Where language leads to manifest contradiction of apparent purpose, courts can adopt a construction to carry out obvious legislative intention (but must not alter the substance of the Act).	Cited to note the limited circumstances where deviation from literal meaning may be justified to avoid contradiction or absurdity.
M. Pentiah v. Muddala Veeramallappa [1961 AIR 1961 SC 1107]	Authority discussed in relation to permissible remedial construction to carry out legislative intent where necessary.	Referred to in the Court’s discussion of interpretative principles.
S. Hidhayathullah Sahib v. CIT [1986] 158 ITR 20 (Madras High Court)	Interpreted section 2(14)(iii): the section lays down two criteria (land in area within municipality; area having population not less than 10,000) and discussed which part of the wording the population qualification is intended to qualify; cautioned against an interpretation producing anomalies.	The opinion records and discusses this decision and its reasoning on how the statutory words should be read to avoid anomalies.
G.M. Omer Khan v. Addl. CIT [1992] 196 ITR 269 (Supreme Court)	Approved the Madras High Court interpretation and affirmed that interpretation as correct and rational.	The Court noted that G.M. Omer Khan affirmed the Madras High Court’s approach and applied that interpretation in answering the referred question.
CIT v. Pyare Lal [1998] 231 ITR 785 (Delhi High Court, Division Bench)	Considered the aspect of interpretation of section 2(14)(iii) (no detailed rule set out in the opinion excerpt).	Referred to as another decision where the aspect was considered by a Division Bench of this Court.
Unreported decision in I.T.R. Nos. 184 & 185 of 1982 (Lahoti J., judgment dated July 31, 1997)	Held that population of the municipality is to be taken into account for section 2(14)(iii)(a) and addressed related questions in light of Finance Act amendments.	Referred to by the Court; its conclusions (answering the instant questions in the negative, i.e., in favour of Revenue) were noted and used in the present answer.

Court's Reasoning and Analysis

The Court's analysis proceeds from the text of section 2(14)(iii) of the Income-tax Act. The Court set out the provision and observed that its language is "absolutely clear and unambiguous."

Textual construction: The Court read section 2(14)(iii) literally, emphasising that the words used must be given their ordinary, grammatical meaning. The provision excludes agricultural land from the definition of "capital asset" except where the land is "situate" in particular areas described in clauses (a) and (b) of that sub‑section.
Scope of the qualifying language: The Court reasoned that, in terms of the provision, the land must be situated in an area which is comprised within the jurisdiction of a municipality (or cantonment board) which has a population of not less than ten thousand according to the relevant census. The Court observed that if Parliament had intended a different reading — for example, that population of any area within a municipality (such as a village) would determine the status — it could have said so explicitly.
Interpretive principles and authorities: The Court relied on established principles that where statutory language is clear, courts must give effect to it (the "golden rule") and must not read in words to correct perceived drafting defects. The Court referred to several precedents that articulate these canons of construction and the limited circumstances in which departure from the literal meaning may be required to avoid absurdity.
Precedential application on the specific point: The Court noted that the question is not res integra in view of the Madras High Court decision in S. Hidhayathullah Sahib v. CIT and the subsequent approval of that approach by the Supreme Court in G.M. Omer Khan v. Addl. CIT. Those decisions (and related authorities cited) were treated as establishing that the population relevant for clause (a) is to be taken with reference to the municipality as a whole (and not to an undefined sub-area within the municipality), in order to avoid anomalous and inconsistent application.
Outcome on facts: Applying the textual construction and the cited authorities to the referred question, the Court answered the question in the negative (as stated, i.e., in favour of the Revenue and against the assessee). The Court did not expand into new factual findings beyond the issues already the subject of the Tribunal's reference.

The opinion emphasises literal interpretation and reliance on precedents rather than any interpretive expansion beyond the statute's clear terms.

Holding and Implications

Final Holding: The question referred is answered in the negative — in favour of the Revenue and against the assessee.

Consequences and implications (as stated in the opinion):

The direct effect is that, on the interpretation adopted by the Court, the agricultural land in question was treated such that the capital gains arising on its transfer are chargeable consistent with the Court's answer (the opinion frames the result as being in favour of the Revenue and against the assessee).
The Court recorded that, in the facts and circumstances of the case, there shall be no order as to costs.
The opinion relies on and follows prior authority (including the Supreme Court and High Court decisions cited) rather than purporting to lay down a novel principle; the opinion does not state that it creates a new precedent beyond applying and affirming the established interpretative approach and prior authorities to the question referred.

If any party‑specific numeric computation or taxation consequence beyond the textual answer was intended, that detail is not expanded upon in the provided opinion excerpt; the Court confined itself to answering the legal question referred and noted no order as to costs.

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Commissioner Of Income-Tax v. (1) Deep Chand

S.B Sinha, C.J:— These references at the instance of the Revenue have been made under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), by the Income-tax Appellate Tribunal, Delhi Bench “A”, Delhi (hereinafter referred to as “the Tribunal”), for the opinion of this court on the following question:

“Whether, on the facts and in the circumstances of the case, capital gains arising on transfer of agricultural lands in village Nangal Dewat, Delhi, is chargeable to tax?”

2. The basic fact of the matter is not in dispute.

Facts of I.T.R No. 478 of 1983:

3. The petitioner possessed 154 bighas of agricultural land in village Nangal Dewat, which is located near the Delhi-Najafgarh Road adjoining Palam Airport. The said land was acquired by the Government for extension of the Palam Airport vide notification dated December 3, 1971, purported to be issued under section 4 of the Land Acquisition Act. A sum of Rs. 8,55,450 by way of compensation was awarded to the petitioner by the Land Acquisition Officer vide his order dated July 20, 1973, whereafter possession of the said land was also taken over by the Government. However, the petitioner did not declare any income under the head “Capital gains” on the ground that the agricultural land owned by him was not a capital asset within the meaning of section 2(14) of the Act and, thus, the transfer did not result in capital gains. The Income-tax Officer (in short, “the ITO”), however, did not accept his submission and held that the said land was situated within the jurisdiction of the Municipal Corporation of Delhi and by virtue of an amendment made in the definition of “capital asset” with effect from April 1, 1970, the same became a capital asset, at the hands of the assessee. It was also noticed by the Income-tax Officer that the petitioner had not accepted the award of the Land Acquisition Officer and filed appeals thereagainst before the Additional District Sessions Judge claiming compensation at Rs. 40,000 per bigha. Therefore, he took the view that the fair market value of the said land transferred by the petitioner as on the date of transfer exceeded the full value of consideration declared by the petitioner in respect of the transfer by more than 15 per cent, to the value declared and, on the said basis held that the provisions of section 52(2) were applicable in the case of the petitioner. Thereafter, he sought for and obtained approval of the Inspecting Assistant Commissioner of Income-tax, Range-V(B), New Delhi (in short “the IAC”), for substituting the consideration for the transfer which was fixed by the Income-tax Officer at Rs. 61,60,000. The Income-tax Officer estimated the value of the land at Rs. 2,31,000 as on January 1, 1954, whereas the assessee claimed that the value of the said land as on January 1, 1954, was liable to be worked out by applying a rate of Rs. 3,500 per bigha, but could not support his submission in respect thereof. The Income-tax Officer rejected the assessee's plea on the ground that the value of agricultural land in 1954 in the villages of Delhi was very low and held that the market value of the property as on May 1, 1954, was Rs. 1,500 per bigha. It was also contended by the assessee before the Income-tax Officer that he had expended Rs. 35,000 on the improvement of land, whereas the Income-tax Officer curtailed the said claim on the ground that only a little evidence was led in support thereof and determined the capital gains arising to the petitioner at Rs. 36,05,117 as against “nil” as declared by him.

4. As the variation in the income was more than Rs. 1,00,000 the Income-tax Officer forwarded a draft of the proposed order of assessment to the assessee. Thereagainst several objections were made.

5. The proposed order along with the objections received was forwarded to the Inspecting Assistant Commissioner by the Assessing Officer, who after giving an opportunity to the assessee, issued directions to the Income-tax Officer. The Income-tax Officer thereafter incorporated the said directions and determined the income of the appellant at Rs. 36,25,366.

6. Aggrieved by and dissatisfied with the aforesaid order, the assessee preferred an appeal before the Appellate Assistant Commissioner (in short, “the AAC”), which was allowed in part.

7. The assessee again preferred an appeal before the Tribunal, which was allowed by the Tribunal.

8. On being moved for reference, the question, as set out above, has been referred for the opinion of this court.

9. We need not to go in great detail into the facts of I.T.R No. 479 of 1983, as the same are almost identical to I.T.R No. 478 of 1983.

10. Section 2(14)(iii) of the Act reads thus:

“(14) ‘capital asset’ means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include—.

(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 a 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 kilometres, 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, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;”

11. The aforesaid provision, in our opinion, is absolutely clear and unambiguous.

12. A bare perusal of the aforementioned provision would clearly go to show that “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; and personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him.

13. It may be true that the expression used therein is not very happy and could have been more explicit, but in terms thereof if the land is situated in an area, which is comprised within the jurisdiction of a municipality and has a popu- lation of not less than 10,000. The land must be situated in a municipality or a cantonment board. Had the intention of the law makers been that the land situated in a village of not less than 10,000 will come within the purview of section 2(14)(iii) of the Act, there was no reason as to why the same could not have been explicitly stated in the statute.

14. It is now a well settled principle of law that a literal meaning should be attributed to a statute. The golden rule of interpretation should ordinarily be adhered to.

15. In Gurudevdatta VKSSS Maryadit v. State of Maharashtra, (2001) 4 SCC 534 : [2001] AIR 2001 SC 1980, it has been held (headnote of (2001) 4 SCC 534 : AIR 2001 SC 1980):

“It is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the law-giver. The courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the Legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statute.”

16. The said principle was reiterated in Harshad S. Mehta v. State of Maharashtra, [2001] 107 Comp Cas 365 (SC) and Dental Council of India v. Hari Prakash, (2001) 8 SCC 61 : [2001] AIR 2001 SC 3303. Yet again in Dadi Jagannadham v. Jammulu Ramulu, (2001) 7 SCC 71 : [2001] AIR 2001 SC 2699, 2701 : [2001] AIR 2001 SCW 3051, the court referred to P.K Unni v. Nirmala Industries, [1990] AIR 1990 SC 933 : (1990) 2 SCC 378, in the following lines:

“15. The court must indeed proceed on the assumption that the Legislature did not make a mistake and that it intended to say what it said: see Nalinakhya Bysack v. Shyam Sunder Haidar, [1953] AIR 1953 SC 148 : [1953] SCR 533, 545 (page 152). Assuming there is a defect or an omission in the words used by the Legislature, the court would not go to its aid to correct or make up the deficiency. The court cannot add words to a statute or read words into it which are not there, especially when the literal reading produces an intelligible result. No case can be found to authorise any court to alter a word so as to produce a casus omissus: Per Lord Halsbury, Mercy Docks and Harbour Board v. Henderson Brothers, [1888] 13 AC 595, 602 (HL) : 4 TLR 703.

‘We cannot aid the Legislature's defective phrasing of an Act, we cannot add and mend, and, by construction, make up deficiencies which are left there’: Crawford v. Spooner, [1846] 6 Moore PC 1, 8 : 94 Moo Ind App 179.

16. Where the language of the statute leads to manifest contradiction of the apparent purpose of the enactment, the court can, of course, adopt a construction which will carry out the obvious intention of the Legislature. In doing so ‘a judge must not alter the material of which the Act is woven, but he can and should iron out the creases.’: Per Denning LJ. as he then was, Seaford Court Estates Ltd. v. Asher, [1949] 2 All ER 155, 164 (CA). See the observation of Sarkar J. in M. Pentiah v. Muddala Veeramallappa, [1961] 2 SCR 295, 314 : [1961] AIR 1961 SC 1107 (page 1115)

17. The question referred to this court for its opinion is no longer res integra in view of the decision of the Madras High Court in S. Hidhayathullah Sahib v. CIT, [1986] 158 ITR 20, wherein it was held (page 22):

“The section lays down two criteria: (1) that the agricultural land should be in an area within the municipality; and (2) that the area should have a population of more than 10,000. The expression ‘which has a population of not less than ten thousand according to the last preceding census’ is intended to qualify only the ‘area’ and not the ‘municipality’. However, it is not possible to go only by the language used in that provision without having regard to the object and intendment of the provision. If the Legislature meant to fix a minimum limit of population for any area within a municipality or cantonment Board, it would have specified a particular area such as village, ward, street, etc., and since the Legislature has left the area in a municipality undefined, it would not have prescribed a limit of population for such an unspecified or indefinite area within a municipality. It may be that a municipality may comprise of many villages, wards and streets and each assessee may claim that the limit of population is provided with reference to a village, ward or street. In such an event, the section will have no uniform application and will lead to many anomalies. Therefore, it is necessary to avoid such an interpretation of the section which leads to anomalies and which will make it invalid. We have to adopt such a construction which will make the section valid and certain.”

18. Approving the aforesaid decision of the Madras High Court, the apex court in G.M Omer Khan v. Addl. CIT, [1992] 196 ITR 269 held (page 273):

“This, in our view, is the correct position and has aptly and pithily been put. Nothing more is needed to be said on the subject. The interpretation put by the High Court on the provisions appears to us to be unexceptionable and rational. We affirm that interpretation.”

19. This aspect of the matter has also been considered by a Division Bench of this court in CIT v. Pyare Lal, [1998] 231 ITR 785.

20. The question involved herein is also covered by an unreported decision passed in I.T.R Nos. 184 and 185 of 1982, wherein Lahoti J., as his Lordship then was, by a judgment and order dated July 31, 1997, held:

“The first question is covered by the decision of the Supreme Court in G.M Omer Khan v. Addl. CIT, [1992] 196 ITR 269 approving the decision of the Madras High Court in S. Hidhayathullah Sahib v. CIT, [1986] 158 ITR 20 wherein it has been held that population of the municipality is to be taken into account for the purpose of section 2(14)(iii)(a) and not the population in any area within the jurisdiction of the municipality.

The second question has to be answered in the light of the amendments made in the definition of ‘agricultural income’ in clause (1a) of section 2 and the definition of ‘capital asset in clause (14) of section 2 incorporated respectively by the Finance Act, 1989, and the Finance Act, 1970, with retrospective effect from April 1, 1970.

Accordingly, both the questions are answered in the negative, i.e, in favour of the Revenue and against the assessee.”

21. In this view of the matter, the question is answered in the negative, i.e, in favour of the Revenue and against the assessee. However, in the facts and circumstances of the case, there shall be no order as to costs.

Commissioner Of Income-Tax v. (1) Deep Chand

Structured Summary of the Opinion (S.B. Sinha, C.J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's (Appellant's) Arguments

Revenue's (Respondent's / ITO's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax v. (1) Deep Chand

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