Agricultural land exemption under capital gains law turns on cumulative facts showing continued agricultural character at transfer.

Agricultural land remains outside the definition of "capital asset" where the cumulative facts show continued agricultural character on the date of transfer. Revenue records, actual cultivation, returned agricultural income, absence of conversion for non-agricultural use, and no development activity supported that conclusion; mere location within the Hyderabad Airport Development Authority area or the possibility of future non-agricultural use did not, by itself, alter the land's status. The area authority was not a municipality for section 2(14)(iii), and the statutory exceptions did not apply. On that basis, the capital gains addition was unsustainable.

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Issues: Whether the land sold by the assessee was agricultural land excluded from the definition of capital asset and, therefore, not exigible to capital gains tax.

Analysis: The character of land is to be determined on a cumulative consideration of all relevant facts and circumstances, including revenue entries, actual user, surrounding development, conversion permissions, and the intention evidenced by the conduct of the parties. The land in question was shown in revenue records as agricultural land, agricultural operations were carried on up to the date of sale, agricultural income had been returned, no conversion for non-agricultural use was obtained, and no development activity had been undertaken by the assessee. Mere inclusion of the village in the Hyderabad Airport Development Authority area or the possibility of future non-agricultural use did not by itself convert the land into a capital asset. The Authority was not a municipality within the meaning of section 2(14)(iii) of the Income-tax Act, 1961, and the land did not fall within the statutory exceptions.

Conclusion: The land retained its agricultural character on the date of transfer and was not a capital asset; the capital gains addition was not sustainable.

Final Conclusion: The assessee succeeded on the principal taxability issue, and the alternative claims became infructuous in view of that finding.

Ratio Decidendi: Agricultural land retains its exclusion from capital asset status unless the Revenue establishes, on a cumulative appraisal of relevant factors, that it had ceased to be agricultural land or had fallen within the statutory municipal or notified-area exceptions on the date of transfer.

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