JUDGMENT M.C. Agarwal, J.
1. The Income-tax Appellate Tribunal, Delhi Bench "D", has referred the following question for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the inclusion of capital gains of Rs. 56,287 in the income of the assessee under Section 45 of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the receipt of compensation of Rs. 87,887 by the assessee was a capital receipt ?
3. Whether, on the facts and in the circumstances of the case; the receipt of compensation of Rs. 87,887 by the assessee was a casual receipt ?
4. Whether, on the facts and in the circumstances of the case, the sale proceeds of leechee fruits was the agricultural income of the assessee within the meaning of Section 2(1) of the Income-tax Act, 1961, and was exempt from tax ?"
2. We have heard learned counsel for the assessee, Sri R.S. Agarwal, and learned counsel for the Revenue, Sri R.R. Agarwal.
3. The first three questions are inter-connected. The necessary facts are that the assessee had taken plot No. 16, Young Road, Dehradun, on lease from the Defence Department of the Government of India. The assessee was permitted to put up constructions thereon and the assessee did raise some constructions on the said land somewhere in or about the year, 1950. In February, 1971, the Defence Department wanted to resume the said land and served a notice dated February 22, 1971, resuming the land and offering a sum of Rs. 87,887 as the value of the building belonging to the assessee and existing on the said land. The assessee accepted the offer and received from the Defence Department compensation for the building amounting to Rs. 87,887. The Income-tax Officer took the view that capital gain had arisen to the assessee from the transfer of the building to the Defence Department. The capital gain was calculated at Rs. 56,267 and the Tribunal, vide order dated July 27, 1977, held that there was a transfer of the building resulting in capital gain.
4. It was contended on behalf of the assessee that the transactions by which the building was surrendered by the assessee to the Defence Department was not a sale and did not amount to transfer. The term "transfer" has been defined in Section 2(47) and includes the sale, exchange or relinquishment of the asset ; or the extinguishment of any rights therein ; or the compulsory acquisition thereof under law. The fact that the buildings that were the subject-matter of the transfer in question stood at plot No. 16, Young Road, Dehradun, constituted a capital asset is not disputed. By virtue of the acceptance of the offer made by the Government of India (Defence Department) and acceptance of compensation in lieu thereof, the assessee's right in the said building stood relinquished in favour of the Government of India who became the owner of the said building on taking over possession and payment of compensation. There was thus a transfer of the said building within the meaning of Section 2(47) of the Income-tax Act and the profit arising therefrom was a capital gain taxable under the Act. The receipt of compensation was certainly a capital receipt, but it is only out of a capital receipt that a capital gain arises. The receipt of compensation was not of the nature of ordinary income and, therefore, the question of treating the same as a casual receipt for the purposes of income-tax did not arise. We, therefore, answer questions Nos. 1 and 2 in the affirmative holding that the gain of Rs. 56,287 was taxable as capital gain under Section 45 of the Income-tax Act, 1961, and the receipt of Rs. 87,887 was a capital receipt out of which the capital gain of Rs. 56,287 arose, and we further hold that the said sum of Rs. 87,887 was not a casual receipt and question No. 3 is answered in the negative.
5. The last question relates to the nature of income arising from the sale of the crop of leechee fruits. The assessee had certain land situate within the jurisdiction of Dehradun Municipality and which contained certain leechee trees. During the year under consideration, the assessee earned a sum of Rs. 925 by selling fruit crop of those trees and the question was whether the income in question was agricultural income. The Income-tax Tribunal has held that since the land in question was situate within the limits of a municipality and was not assessed to land revenue, the income arising from the trees situate thereon could not be treated as agricultural income. Agricultural income has been defined in Section 2(1A) of the Income-tax Act which includes income derived from land by agriculture ; or the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to the market ; or the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him. The proviso to Sub-section (1A) of Section 2, however, requires that the land from which the income is derived must be assessed to land revenue in India or is subject to a local rate assessed and collected by the officers of the Government or where the land is not so assessed to land revenue or subject to a local rate, it is not situated in any area which is comprised within the jurisdiction of a municipality. Admittedly, the land in question is not assessed to land revenue or a local rate and it was situate within the jurisdiction of the municipality of Dehradun. The result, therefore, is that by virtue of the proviso, the income derived from the said land cannot be treated as agricultural income. The Tribunal was, therefore, right in holding that the income in question was not agricultural income. We, therefore, hold that the sale proceeds of the leechee fruits was not agricultural income and was not exempt from tax. We answer the said question accordingly. The respondent-Revenue shall get its costs of this reference from the assessee which we assess at Rs. 1,000.
6. A certified copy of this judgment be sent to the Registrar of the Appellate Tribunal in terms of Section 260 of the Income-tax Act, 1961.