Agricultural land character on sale depends on actual use and revenue records, not the buyer's future development plans.

Land retains its agricultural character on the date of sale where it is actually cultivated, recorded as agricultural in revenue records, and assessed to land revenue. A strong rebuttable presumption arises from actual user and consistent record-of-rights entries, and this is not displaced merely because the land may be suitable for future non-agricultural development or because the purchaser intends residential use. In the stated facts, no conversion for non-agricultural use had been obtained before sale, so the surplus on transfer was not chargeable to capital gains tax. The Tribunal was held to have erred in ignoring the presumption and treating the agricultural activity as a sham.

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Issues: Whether the lands sold by the assessee retained their agricultural character on the date of sale and whether the surplus arising from the transfer was chargeable to capital gains tax.

Analysis: The lands had originally been agricultural lands, were shown as such in the revenue records, were being actually cultivated at or about the date of sale, and were assessed to land revenue as agricultural lands. The assessee had never obtained conversion for non-agricultural use before the sale, and the draft town planning scheme, the acquisition history, and the subsequent intended residential use by the purchaser did not by themselves destroy the agricultural character of the land on the relevant date. The Court treated actual user and entries in the record of rights as raising a strong presumption of agricultural character, which had not been rebutted. The Tribunal erred in law in disregarding that presumption and in treating the agricultural operations as an eyewash on a new case not established before the lower authorities.

Conclusion: The lands were agricultural lands on the date of sale and the surplus was not taxable as capital gains; the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: For determining whether land is agricultural at the date of sale, actual agricultural user and consistent revenue entries raise a strong rebuttable presumption of agricultural character, and mere potential for non-agricultural use or purchaser's intended future use does not by itself attract capital gains tax.

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