Agricultural land character and fixed-asset treatment excluded capital gains and business income on sale.

Agricultural land retained its character in the assessee's hands because the revenue records, contemporaneous evidence of agricultural use, rural location outside municipal limits, and the Tehsildar's report all supported that status, while no development or conversion activity was shown before sale. The purchaser's intended non-agricultural use was irrelevant to the land's character at the time of sale. The Tribunal also held that frequency of transactions and sale to industrial buyers, without more, did not establish an adventure in the nature of trade where the lands were held as fixed assets. The surplus was therefore not taxable as business income or capital gains.

---

---

Issues: Whether the surplus arising from sale of land was taxable as business income or capital gains, or whether the land retained its character as agricultural land outside the definition of capital asset under section 2(14)(iii) of the Income-tax Act, 1961.

Analysis: The decisive factors were the character of the land at the time of purchase and sale, the revenue record entries, the contemporaneous evidence showing agricultural use, the location of the land outside the municipal limits, the Tehsildar's report confirming agricultural use and rural character, and the absence of any development or conversion activity by the assessee before sale. The Tribunal found that the Revenue had not rebutted the documentary evidence and that the purchaser's proposed non-agricultural use was irrelevant to the land's character in the assessee's hands. On the business-income aspect, the Tribunal held that frequency of transactions and sale to industrial buyers, by themselves, did not establish an adventure in the nature of trade where the lands were held as fixed assets and there was no material showing trading operations.

Conclusion: The land was held to be agricultural land and not a capital asset, and the surplus on sale was not taxable as business income or capital gains; the issue was decided in favour of the assessee.

---