Agricultural land test for capital gains turns on actual use and surrounding facts, with taxability left for fresh examination.

For capital gains purposes, the character of land must be determined on the relevant date by assessing the totality of circumstances, including revenue records, actual agricultural use, surrounding features, and whether any presumption of agricultural character is rebutted by material evidence. Mere development notification, future non-agricultural potential, or the acquiring authority's intended use is not decisive. On the available record, the factual material had not been properly examined, so the matter was remanded to the Assessing Officer for de novo verification of the assessee's documents and the land's true agricultural nature before deciding taxability and exemption under section 10(37).

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Issues: Whether the land acquired by the Government was an agricultural land outside the definition of capital asset, whether the transfer was taxable in the relevant assessment year, and whether exemption under section 10(37) was available.

Analysis: The character of land for capital gains purposes must be determined on the basis of the relevant date and on a balanced consideration of the totality of circumstances, including revenue records, actual agricultural user, surrounding features, and whether the presumption of agricultural character is rebutted by material evidence. Mere notification for development, future non-agricultural potential, or the fact that the acquiring authority intended a different use is not by itself decisive. The authorities below had not properly examined the factual factors laid down by the jurisdictional High Court and had proceeded mainly on the notified area aspect. The record therefore required fresh verification of the assessee's documents and the true agricultural nature of the land before deciding taxability and exemption.

Conclusion: The matter was set aside and remanded to the Assessing Officer for de novo examination.

Final Conclusion: The assessee obtained a remand on the substantive controversy, with the addition not sustained at this stage and the issue left for fresh adjudication by the Assessing Officer.

Ratio Decidendi: For determining whether land is agricultural or a capital asset, the controlling test is the character of the land on the relevant date judged from actual user and surrounding circumstances, and not merely its potential future use or a development notification.

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