The main legal point established in the judgment is the competence of the Union Parliament to define the terms 'agricultural income', 'agricultural land', and 'capital asset', and bring to tax capital gains arising from agricultural lands situated within municipal limits and eight kilometers of notified municipal areas, which had ceased to be agricultural lands.

K.S. Puttaswamy, J.

1. On a reference made by Chandrakantaraj Urs. J., this case was posted before us for disposal.

2. Among others, the petitioner was the owner of land bearing Survey No. 61 measuring about 4 acres 22 guntas in Doddakallasandra village, Uttarahalli Hobli, Bangalore South Taluk, classified as agricultural land and the same was situated within 8 kms. of the Municipal Corporation of the City of Bangalore. On December 18, 1972, the petitioner sold the said land to Khandhand Agarwal and others, partners of M/s. Gupta Wires and Products, Bangalore, for a consideration of Rs. 86,450. For the assessment year 1973-74 relevant to the accounting year ending on March 31, 1973, the petitioner did not file his return under the Income-tax Act of 1961 (Act No. 43 of 1961) ("the Act"), disclosing the receipt of the said sum and its chargeability to capital gains tax under the Act. But, some time, in 1976, the petitioner filed his return under the Act before the Income-tax Officer (Assessment 4A), Circle-II, Bangalore, inter alia, returning a net capital gain of Rs. 17,893 from the said sale transaction valuing the land at Rs. 9,000 per acre as on January 1, 1954. On June 23, 1976, the Income-tax Officer completed the assessment (annexure-A) fixing the net capital gain at Rs. 47,028 and brought the said amount to tax under the Act. Aggrieved by the said order of the Income-tax Officer, the petitioner filed an appeal before the Appellate Assistant Commissioner of Income-tax, Bangalore Range, who by his order dated November 11, 1976 (annexure-B), disposed of the same affirming the order of the Income-tax Officer on the determination of capital gains, however, granting him relief on interest imposed by the Income-tax Officer. Aggrieved by the said order of the Appellate Assistant Commissioner and the Income-tax Officer, the petitioner and the Income-tax Department filed second appeals before the Income-tax Appellate Tribunal, Bangalore ("the Tribunal"). On July 19, 1978, the Tribunal disposed of the said appeals by a common order granting some relief to the Department. On those matters decided by the Tribunal, certain references under the Act are pending before this court.

3. Before this court could furnish its opinion on those references, the petitioner has moved this court on March 12, 1981, under article 226 of the Constitution challenging the validity of section 2(14)(iii) of the Act inserted by section 3 of the Finance Act of 1970 (Central Act No. 19 of 1970) (the Finance Act), on the sole ground that the same was beyond the legislative competence of the Union Parliament.

4. The respondents have resisted the writ petition. Sri K.B. Basavarajan, learned counsel for the petitioner, has urged that section 2(14)(iii) of the Act dealing with income "arising from sale of lands used for agricultural purposes "is outside the legislative competence of the centre as the subject is exclusively assigned to states either under Entry No. 18 or 46 of List II, State List of the 7th Schedule to the Constitution. In support of his contention, Sri Basavarajan has strongly relied on a Division Bench ruling of the Bombay High Court in Manubhai A. Sheth v. N.D. Nirgudkar, 2nd ITO [1981] 128 ITR 87.

5. Sri K. Srinivasan, learned senior standing counsel for the Income-tax Department, appearing for the respondents, has urged that on a true construction of the term "agricultural income" occurring in article 366(1) of the Constitution and entry No. 82 of List I, Union List, of the 7th schedule to the Constitution, the income was neither agricultural income nor revenue income but income and the Union Parliament was competent to enact section 2(14)(iii) of the Act, which was valid, as ruled by the High Court of Gujarat in Ambalal Maganlal v Union of India [1975] 98 ITR 237.

6. In Navichandra Mafatlal v. CIT decided as early as on November 1, 1954, an unanimous Constitution Bench of the Supreme Court, speaking through S.R. Das J. (as his Lordship