Agricultural land character for capital gains depends on actual use and revenue records, not buyer intent or preliminary conversion permission.

Land recorded in revenue records as agricultural, supported by RTC extracts, encumbrance records, revenue certificates and evidence of cultivation, retained its agricultural character at the date of sale. A preliminary conversion permission did not by itself establish non-agricultural use, especially where its conditions were not fulfilled and final conversion was not shown. The purchaser's intended use and subsequent steps were not determinative of the land's character in the sellers' hands. On these facts, the land was not a capital asset and the sale proceeds were not chargeable to capital gains tax.

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Issues: Whether the land sold by the assessees retained its character as agricultural land on the date of sale and, consequently, whether the sale proceeds were not chargeable to capital gains tax under the Income-tax Act, 1961.

Analysis: The land stood recorded in the revenue records as agricultural land. The assessees produced RTC extracts, encumbrance records, certificates from revenue officials and other material showing agricultural use, including cultivation of crops. The preliminary conversion permission relied upon by the Revenue was not shown to have culminated in final non-agricultural use, and the conditions attached to the permission had not been fulfilled. The purchaser's intended use and subsequent steps taken by the purchaser were held not to be decisive of the character of the land in the hands of the assessees. On the facts, the Revenue did not rebut the presumption arising from the revenue records and surrounding evidence that the land was agricultural at the time of transfer.

Conclusion: The land was held to be agricultural land on the date of sale and was not a capital asset exigible to capital gains tax. The Revenue's appeals failed.

Ratio Decidendi: The character of land for capital gains purposes is determined by its condition and actual user at the time of sale, read with revenue records and surrounding evidence, and not merely by a preliminary conversion permission or the buyer's intended use.

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