The amendment to Section 2(14)(iii) with effect from April 1, 1970, is not applicable to the assessment year in question.

Ajit K. Sengupta, J.

1. IN this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1972-73, the following questions of law have been referred to this court :

"1. Whether the finding of the Tribunal that the lands sold by the assessee during the relevant previous year were all agricultural lands was based on proper evidence and materials ? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that no capital gains arose on the transfer of plots of land, building and tubewells therein by the assessee 1 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) deleting the capital gains of Rs. 15,49,581 on the transfer of plots of land, building and tubewells therein included by the Income-tax Officer in the total income of the assessee-company"

2. WE reframe the second and third questions as follows :

"2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that no capital gains arose on the transfer of plots of land by the assessee ? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) deleting the capital gains of Rs. 15,49,581 on the transfer of plots of land, included by the Income-tax Officer in the total income of the assessee-company ?"

The facts leading to this reference are that the assessee, a limited company, during the previous year ending on June 3, 1971, sold certain lands and buildings, structures thereon and a tubewell for a total sum of Rs. 20,35,230. Those assets had a book value of Rs. 4,19,669. Accordingly, the assessee recovered a sum of Rs. 16,16,581 in excess of the book value. The Income tax Officer wanted to charge the above amount under the head "Capital gains". The assessee pleaded that no capital gains accrued to the assessee as the assets sold were agricultural lands and not 'capital asset'. The buildings and tubewells on the above land were also being used for agricultural operations. The Income-tax Officer did not accept the above contention as there was no evidence to support the claim of carrying on agricultural operations on the land sold. He, therefore, held that the lands and other assets sold were not agricultural assets. He allowed Rs. 72,000 towards expenses on account of legal fees, stamps, registration, etc., and brought the balance amount of Rs. 15,49,581 to tax as capital gains.

3. THE assessee challenged the above order in appeal before the Commissioner of Income-tax (Appeals) and contended that the lands sold were all along utilised for purposes of cultivation of sugarcane. It was pointed out that the land revenue had been debited in the respective accounts. Reliance was placed on the decision of the Calcutta High Court in the case of Sutton and Sons [1981] 127 ITR 57. It was further contended that the Income-tax Officer was wrong in coming to the conclusion that capital gains arose on the transfer of agricultural lands and structures thereon. A copy of the assessment order passed by the Agricultural Income-tax Officer, Champaran, Motihari, was produced before the Commissioner of Income-tax (Appeals). THE Commissioner of Income-tax (Appeals), after considering the submissions made before him, held that the Income-tax Officer was in error in computing the capital gains in respect of sale of the agricultural lands. Coming to the sale of building and tubewells, the Commissioner of Income-tax (Appeals) observed that there was no evidence to show that the building and tubewells were situated on the sole land. He, however, found that no depreciation had ever been allowed on the building and tubewells and that the Income-tax Officer had allowed deduction of Rs. 72,000 as expenses in connection with the sale of lands, building and tubewells. On a consideration o