Capital gains from ancestral property cannot be counted as regular income for Rajasthan scholarship eligibility, rules High Court

The appellant applied for a scholarship under the Rajiv Gandhi Scholarship for Academic Excellence Scheme, 2021, claiming eligibility under Category E-1, applicable where gross family income is below ₹8 lakhs per annum.

Her father’s Income Tax Returns disclosed regular income below ₹8 lakhs, along with capital gains arising from the sale of ancestral properties.

The appellant relied on Clause 8(v) of the consolidated guidelines dated 16.06.2023, which excluded exceptional or non-recurring income, including capital gains, from the computation of gross annual family income.

After her name was omitted from the provisional E-1 list, she filed an earlier writ petition.

The Single Judge directed the authorities to reconsider her Income Tax Returns in light of Clause 8(v).

Upon reconsideration, the respondents included the capital gains reflected in two consecutive assessment years, assessed the family income at ₹38.58 lakhs, classified her under Category E-3, and rejected her candidature.

The subsequent writ petition challenging that order was dismissed on 17.11.2025, leading to the present appeal.

Whether capital gains arising from the sale of ancestral properties could be included in the computation of gross annual family income merely because they were reflected in two consecutive assessment years.

Whether the respondents’ classification of the appellant under Category E-3, instead of Category E-1, was contrary to Clause 8(v) of the consolidated guidelines.

Whether the learned Single Judge was justified in upholding the respondents’ decision by relying on the object and purpose of the Scheme despite the express exclusion contained in Clause 8(v).

The Court applied Clause 8(v) of the consolidated guidelines dated 16.06.2023, which expressly excludes exceptional or non-recurring income, including retirement benefits, gifts, and capital gains, from the computation of gross family income.

It held that the character of income is determined by its inherent nature and source, not merely by its appearance in successive years.

The Court further relied on K.H. Nazar v. Mathew K. Jacob, (2020) 14 SCC 126, for the principle that exclusionary provisions in beneficial legislation must be construed strictly and narrowly.

Relying on Jeewanlal Ltd. v. Appellate Authority, (1984) 4 SCC 356, it reiterated that where statutory or regulatory language is clear and unambiguous, courts must give effect to its plain meaning and cannot rewrite it in the name of advancing legislative purpose.

The Court also noted that capital gains constitute a distinct head of income under the applicable tax framework and do not ordinarily bear the character of regular or recurring income.

The Court found that Clause 8(v) expressly excluded capital gains from the income computation and contained no qualification that such gains would become recurring income if received in consecutive years.

The documents showed that the properties sold in 2021, 2022, and 2023 were ancestral properties, and there was no evidence that the appellant’s father was engaged in real-estate trading or property development.

His regular cement-trading and commission income remained below ₹8 lakhs in the relevant years.

Accordingly, the mere occurrence of separate capital-gains transactions in more than one year could not alter their non-recurring character.

The respondents’ inclusion of those gains was therefore unsupported by the guidelines and the factual record.

The Court rejected reliance on the Scheme’s broader objective to override an express exclusion, holding that administrative authorities cannot disregard clear eligibility conditions based on their own perception of policy purpose.

It quashed the Single Judge’s judgment dated 17.11.2025 and the respondents’ order dated 28.02.2025.

The respondents were directed to reconsider the appellant’s candidature by treating her under Category E-1 and, if found otherwise eligible, to extend all consequential benefits in accordance with law.