1993 (7) TMI 28 - HC - Income Tax

Land sold as agricultural not taxable as capital gains; Tribunal decision upheld.

The Tribunal determined that the land sold was agricultural, based on factors like revenue records and actual use. The surplus from the sale was held not ... Accounting Year, Assessment Year, Capital Gains Issues Involved:1. Whether the land in question was agricultural in character.2. Whether the assessee was liable to be taxed on the surplus arising from the sale of the land as capital gains.Summary:Issue 1: Agricultural Character of the LandThe Tribunal had to determine if the land sold by the assessee was agricultural in nature. The assessee argued that the land was agricultural, supported by documents like the Pahani-Patrak and the Additional Mamlatdar's order. The Income-tax Officer (ITO) contended that the land's character had changed due to its sale to a co-operative society and the permission obtained u/s 63 of the Bombay Tenancy and Agricultural Lands Act, indicating an intention for non-agricultural use. The Tribunal, after considering various factors such as the land's classification in revenue records, its actual use, and the absence of steps taken by the assessee to convert it for non-agricultural purposes, concluded that the land was indeed agricultural.Issue 2: Taxability of Surplus as Capital GainsThe ITO argued that the sale of the land was an adventure in the nature of trade, thus making the surplus taxable as capital gains. The Appellate Assistant Commissioner (AAC) initially ruled in favor of the assessee, stating the land was agricultural and the sale was not an adventure in the nature of trade. The Tribunal, upon appeal by the Revenue, remanded the case back to the AAC for reconsideration. The AAC reaffirmed its decision, and the Tribunal upheld this view, agreeing that the land was agricultural and the sale did not constitute an adventure in the nature of trade.Legal Precedents and ConsiderationsThe court referred to previous decisions, including Arundhati Balkrishna v. CIT and CIT v. Siddharth J. Desai, which outlined criteria for determining whether land is agricultural. These criteria include the land's classification in revenue records, actual use, the intention of the owner, and the land's situation and development. The court emphasized that if land is recorded as agricultural and used as such till the sale, it should be treated as agricultural unless there is strong evidence to the contrary.ConclusionThe court concluded that the Tribunal did not err in its judgment. The land was agricultural at the time of sale, and the assessee's intention was to sell it as agricultural land. Thus, the surplus from the sale was not taxable as capital gains. The question was answered in the affirmative, against the Revenue and in favor of the assessee. No order as to costs.