The main legal point established in the judgment is that the sale proceeds from land acquisition constituted capital receipt and were chargeable under the Income-tax Act.

Kochu Thommen. J.

The following question has been, at the instance of the revenue, referred to us by the Income-tax Appellate Tribunal, Cochin Bench:

"Whether on the facts and in the circumstances of the case, the Tribunal Is right in law and has jurisdiction to hold that the land in question 'is not a capital asset within the meaning of the definition"?"

In the assessment year 1974-75, the Income-tax Officer added a sum of Rs. 1,31,525/- as capital gains, on account of acquisition of the assessee's property by proceedings, under the Kerala Land Acquisition Act, 1961 (the "K. L. A. act") which resulted in an award made during the relevant accounting year. The assesses appealed against that order on the ground that the property which was used for agricultural purposes had been notified under S.3 of the K. L. A. Act as early as 1964 when the legislature had not treated such property as capital asset within the meaning of S.2(14) of the Income-tax Act, 1961 (the "act"). This contention was rejected by the Appellate Assistant Commissioner. On further appeal by the assessee, the Tribunal rejected the assessee's contention that the land acquired was not a capital asset. The Tribunal stated that the land was not acquired in 1964, but in the relevant accounting year when the award was made. This finding has not been challenged by the assessee. The Tribunal, however, noticed that the Bombay High Court had in Manubhat A. Sheth v. N. D. Nirgudkar, I.T.O., (1981) 128 I.T.R.87 held:

"capital gains made on sale of land situate in India, which land is used for

agricultural purposes, would be revenue derived from such land and, therefore, agricultural income within the meaning of S.2(1) of (he I. T. Act, 1961, and Parliament would have no legislative competence to tax such agricultural income...."

The Tribunal accordingly allowed the appeal elating that the sale proceeds constituted income derived from land used for agricultural purposes and such income, being agricultural income, was not chargeable under the Act.

2. The reasoning of the Tribunal is that proceeds of sale of land constituted income derived from land. If that proposition was correct, the Tribunal would be justified in saying that proceeds of sale of land used for agricultural purposes were income derived from agricultural Sand within the meaning of S.2(1) and therefore not chargeable under the Act. But the fallacy of that assumption is that, when land is sold, the sale proceeds do not constitute revenue, but capital: See B. B. Iranee v. Commr. of Inc.-Tax, (1966) 60 I. T. R.43S (S. G.) and Vishnudatta Antharjanam v. Commr. of Agrl. I.T., (1970) 78 I.T.R.58. The profits or gains arising from the sale of land constitute income because S.2(24) Of the Act includes as "income" capital gains chargeable under S.45. Such gain is, nevertheless, not income derived from land; it is income derived by the sale of land. Al the ugh land is the source of the income, income is derived net by the use of the land, but by the tale of the land, that is, by conversion of the land in to cash. If income results from the sale of agricultural land, it is not "agricultural income" within the meaning of Sub-a.(1).

3. When capital asset is sold, what is realised is capital receipt and not revenue receipt. If profit or gain results from such a sale, it is chargeable, net because it is revenue, but because the statute specifically charges the capital gain by including it as income. With respect we do not agree with the reasoning of the Bombay High Court in Manubhai A. Sheth v. N. D. Nir-gudkar, I.T.O; (1981) 128 I.T.R.87 to the contrary. We are fortified in this conclusion by the decisions in Ambalal Maganlal v. Union of India, (1975) 98 I.T.R.237 (Guj.), Jayachandra v. I TO., (1986) 161 I.T.R.190 (Kar.) and C.I.T. v. Rajendrappa, (1986) 161 I.T.R.666 (Kar.).

4. in the circumstances, we have no doubt that the sale proceeds constituted capital receipt and not revenue receipt. The question referred is, in t