Land character at transfer and capital asset treatment depend on facts, not labels or profit expectation, under income-tax principles.

For income-tax purposes, the character of land is determined by its factual nature and user on the date of transfer, including actual cultivation, surrounding circumstances, and whether non-agricultural use has already commenced; lease descriptions or land-revenue entries are not decisive. A transfer is not an adventure in the nature of trade merely because profit is expected; the key inquiry is whether the asset was dealt with as trading stock or as a capital asset. On the stated facts, the land was treated as non-agricultural, the transfer was not treated as trading activity, capital gains treatment followed, and the lease rent was assessed under Other sources.

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Issues: (i) Whether the reference lands were agricultural lands on the date of transfer and whether the finding on that question was supported by evidence; (ii) Whether the transfer of the reference lands constituted an adventure in the nature of trade or gave rise to capital gains; (iii) Whether the lease rent was assessable under the head 'Other sources'.

Issue (i): Whether the reference lands were agricultural lands on the date of transfer and whether the finding on that question was supported by evidence.

Analysis: The character of land for income-tax purposes depends on its nature at the date of transfer and is primarily a question of fact. Relevant considerations include actual user for agriculture for a reasonable span of time, the surrounding circumstances, the likelihood of non-agricultural use, and whether the land has in fact ceased to be used for cultivation. Mere description in lease documents or assessment to land revenue is not ative. On the facts, the lands were situated in a heavy industrial zone, were not being cultivated for years, and part of the land had been used for non-agricultural purposes long before transfer. The factual findings of the authorities were supported by evidence and were not perverse.

Conclusion: The reference lands were not agricultural lands on the date of transfer, and the finding was rightly upheld in favour of the Revenue.

Issue (ii): Whether the transfer of the reference lands constituted an adventure in the nature of trade or gave rise to capital gains.

Analysis: A transaction is not an adventure in the nature of trade merely because there was an expectation of profit. The decisive inquiry is whether the asset was acquired and dealt with as trading stock or as a capital asset. Here, the lands were purchased from the assessee's father, but one parcel was already under acquisition proceedings and the other was already committed under a prior agreement for sale. The assessee had no real commercial choice comparable to a trader in stock-in-trade, and the receipts arose from transfer of a capital asset rather than from trading operations.

Conclusion: The transfers did not amount to an adventure in the nature of trade, and the receipts were liable to capital gains treatment in favour of the Assessee.

Issue (iii): Whether the lease rent was assessable under the head 'Other sources'.

Analysis: This question was only consequential to the principal classification issues and followed from the character of the receipts determined on the facts found.

Conclusion: The lease rent was assessable under the head 'Other sources'.

Final Conclusion: The reference was answered by upholding the finding that the lands were not agricultural lands, rejecting the revenue-characterisation of the transfer as trading activity, and affirming capital gains treatment for the transfer receipts, with the lease rent falling under 'Other sources'.

Ratio Decidendi: For income-tax purposes, the character of land is determined by its factual state and user at the date of transfer, and a transfer is not an adventure in the nature of trade unless the surrounding circumstances show trading stock or trading dealings rather than mere realisation of a capital asset.

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