Agricultural land character depends on cumulative evidence; separate compromise-related receipts may still be taxable, with no MAT addition.
Agricultural land is excluded from the capital asset definition where revenue records, local certificates, location beyond municipal limits, continued agricultural use, and absence of conversion or change of user cumulatively show its agricultural character; a small old structure and lack of substantial agricultural income are not conclusive, and the purchaser's later intended use is irrelevant. On that basis, sale proceeds attributable to the land were not chargeable as capital gains. A separate amount received under a compromise, settlement, withdrawal of litigation, and assignment arrangement was treated as taxable because it was not consideration for transfer of the agricultural land itself. No addition under section 115JB was warranted on the facts.
Issues: (i) Whether the gain arising from sale of the land was exempt on the footing that the land was agricultural land and therefore outside the definition of capital asset; (ii) Whether the amount received towards compromise settlement and assignment deed was liable to be treated as taxable capital gain; (iii) Whether the gain could be brought to tax under section 115JB of the Income-tax Act, 1961.
Issue (i): Whether the gain arising from sale of the land was exempt on the footing that the land was agricultural land and therefore outside the definition of capital asset.
Analysis: The decisive factors were the revenue records, the certificates of local authorities, the location of the land beyond municipal limits, the absence of any conversion or change of user, and the evidence showing continued agricultural character at the time of sale. The existence of a small old structure did not alter the character of the land. The absence of substantial agricultural income was not treated as conclusive against agricultural user, and the purchaser's later intended use was held irrelevant where no non-agricultural conversion had taken place.
Conclusion: The land retained its agricultural character and the sale proceeds attributable to the land were not chargeable as capital gains; the issue is decided in favour of the assessee.
Issue (ii): Whether the amount received towards compromise settlement and assignment deed was liable to be treated as taxable capital gain.
Analysis: The sum in question was received not as consideration for transfer of agricultural land but pursuant to compromise, settlement, withdrawal of litigation, and assignment-related arrangements. Such receipt was distinct from the sale consideration for the agricultural land itself and could not be treated as exempt merely because it arose in the same transaction background.
Conclusion: The amount was rightly treated as taxable and the issue is against the assessee.
Issue (iii): Whether the gain could be brought to tax under section 115JB of the Income-tax Act, 1961.
Analysis: The question of book profit adjustment was not independently established on the record, and exempt agricultural income could not be added to book profits for the purpose of minimum alternate tax.
Conclusion: No addition under section 115JB was warranted on the facts, and the issue is in favour of the assessee.
Final Conclusion: The land-sale gain remained exempt as agricultural land, the compromise-related receipt was taxable, and no MAT adjustment was sustainable; the Revenue's appeal and the assessee's cross-objection both failed except to the extent indicated on the compromise receipt.
Ratio Decidendi: The agricultural character of land must be determined on a cumulative appraisal of revenue records, actual user, location, and absence of conversion, and mere non-declaration of agricultural income or an intended non-agricultural use by the purchaser does not by itself convert agricultural land into a capital asset.
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