G.G. Sohani, J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the profit derived by the assessee on the sale of agricultural land is agricultural income within the meaning of Section 2(1) of the Income-tax Act and is not liable to tax as capital gains under the provisions of the Income-tax Act, 1961 ?'
2. The material facts giving rise to this reference, briefly, are as follows :
The assessee is a registered partnership firm. The assessment year in question is 1977-78 for which the accounting year ended on October 31, 1976. During the relevant accounting year, the assessee made a profit of Rs. 97,988 by selling a parcel of agricultural land situated within the limits of the Indore Municipal Corporation. That land was purchased by the assessee in the year 1964 with a view to develop it but the assessee had neither developed it nor carried on any agricultural operations on the land. The Income-tax Officer held that the assessee had purchased the land with a profit motive and the profit was, therefore, income from business and taxable as such. The appeal preferred by the assessee before the Appellate Assistant Commissioner was dismissed. On further appeal before the Tribunal, the assessee contended that the land in question being agricultural land, profit earned by its sale was not taxable under the Act. This contention was upheld by the Tribunal and it was held that the income derived by the assessee by the sale of agricultural land was agricultural income and was not liable to tax under the Act. Aggrieved by the order passed by the Tribunal, the Revenue sought a reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.
3. The answer to the question referred to us turns on the meaning of the expression 'agricultural income' as defined by Section 2(1) of the Act. That definition is as follows :
'2(1) 'agricultural income' means-
(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes ;
(b) any income derived from such land by-
(i) agriculture; or
(ii) 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 market; or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause ;
(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of Sub-clause (b) is carried on :
Provided that-
(i) the building is on or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and
(ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated-
(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 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.'
4. From a perusal of the aforesaid provision, it is clear that when exemption as agricultural income is sought under Sub-clause (a) or (b) or (c) of Section 2(1) of the Act, the primary condition that must be satisfied is that the land in question must be actually used for agricultural purposes in the accounting year. On the question as to whether capital gains arising from the sale of land situated in India and used for agricultural purposes, can or cannot be held to be agricultural income within the meaning of Section 2(1) of the Act, there are conflicting decisions. In . v. CIT : [1983]141ITR806(Delhi) , the Delhi High Court has, however, taken the view that if the corpus itself is disposed of by way of sale, it cannot be held by any stretch of reasoning that the sale proceeds would be 'income'. It is, however, not necessary in the instant case to go into that question in detail because so far as the present case is concerned, it has been found that the land in question was not used by the assessee for agricultural purposes in the accounting year in question. In view of this finding, income derived by sale of that land could not be held to be agricultural income within the meaning of Section 2(1) of the Act. As the land sold by the assessee was situated within the limits of the Indore Municipal Corporation, it would be a 'capital asset' as denned by Section 2(14) of the Act. The profit derived by the assessee by the sale of land was, therefore, liable to be taxed as capital gains. The Tribunal, in our opinion, erred in holding that the profit earned by the assessee by sale of that land was agricultural income not liable to be taxed.
5. For all these reasons, our answer to the question referred to this court is in the negative and against the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.