Agricultural land character prevails absent statutory municipal limits or conversion to non-agricultural use, defeating capital gains and other-source treatment.

Agricultural land retained its character where revenue records described it as agricultural, the land was actually used for agriculture, and agricultural income had been disclosed in earlier years. Mere inclusion within HADA or HMDA limits, proximity to the airport, the purchaser's intention, or a high sale value did not by themselves convert it into a capital asset under section 2(14). Since the land had not been converted to non-agricultural use and did not fall within the specified municipal or notified limits, capital gains could not be charged. On the same reasoning, the receipt shown as agricultural income could not be treated as income from other sources.

---

---

Issues: (i) Whether the land sold by the assessee was agricultural land and therefore outside the definition of capital asset under section 2(14) of the Income-tax Act, 1961, so that no capital gains could be charged; (ii) whether the amount shown by the assessee as agricultural income could be assessed as income from other sources.

Issue (i): Whether the land sold by the assessee was agricultural land and therefore outside the definition of capital asset under section 2(14) of the Income-tax Act, 1961, so that no capital gains could be charged.

Analysis: The land was recorded in the revenue records as agricultural land, and the material on record showed actual agricultural use and disclosure of agricultural income in earlier years. Mere inclusion of the land within HADA or HMDA limits, its location near the airport, the purchaser's intention, or its high sale value did not by themselves alter its character. The statutory test under section 2(14)(iii) required the land to fall within the specified municipal or notified limits to become a capital asset, and the Authority found that HADA was not a municipality for this purpose. On the facts, the land had not been converted into non-agricultural land and continued to retain its agricultural character at the time of transfer.

Conclusion: The land was agricultural land and not a capital asset, so the capital-gains addition was not sustainable and the finding is in favour of the assessee.

Issue (ii): Whether the amount shown by the assessee as agricultural income could be assessed as income from other sources.

Analysis: The adverse treatment of the receipt as income from other sources rested only on the view that the land was not agricultural land. Once the land was held to be agricultural in nature, and in view of the past history of agricultural income from the same land, there was no basis to change the character of the income.

Conclusion: The amount was agricultural income and not income from other sources, so this issue is also decided in favour of the assessee.

Final Conclusion: The assessee succeeded on both substantive issues, the capital-gains addition was deleted, and the agricultural receipt was restored to its proper character.

Ratio Decidendi: Agricultural land retains its character unless the Revenue shows that it falls within the statutory municipal or notified limits or that it has been converted to non-agricultural use; revenue records and actual agricultural user are strong indicators, while location, market value, or the purchaser's purpose are not ative by themselves.

---