Agricultural land classification prevails where records and surrounding evidence show agricultural use, despite limited cultivation or fallow portions.

Revenue records, 7/12 extracts, land revenue receipts, and evidence of agricultural activity established that the land retained its agricultural character, and the absence of any conversion to non-agricultural use supported that finding. Limited cultivation, fallow portions, or income not commensurate with the extent of land did not by themselves change the character of the property. The land was therefore outside the definition of capital asset under section 2(14)(iii), and the long-term capital gains addition could not be sustained.

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Issues: Whether the land sold by the assessee was agricultural land falling outside the definition of capital asset under section 2(14)(iii) of the Income-tax Act, 1961, so as to make the addition on account of long-term capital gains unsustainable.

Analysis: The land revenue records and 7/12 extracts showed that substantial portions of the land were classified as cultivable land and that some portions had crops recorded. The assessee also produced receipts of land revenue and agricultural cess, a nokarnama, and evidence of agricultural activity, while the Revenue's case rested largely on a later inspector's report and the inference that the land was barren and not actively cultivated. The Tribunal held that the revenue records, payment of land revenue, absence of any conversion to non-agricultural use, and the surrounding factual circumstances supported the agricultural character of the land. It further held that lack of proportionate agricultural income or the fact that some portion remained fallow did not by itself alter the character of the land where the evidence showed agricultural use and no non-agricultural conversion.

Conclusion: The land was held to be agricultural land and not a capital asset under section 2(14)(iii) of the Income-tax Act, 1961; the addition towards long-term capital gains was therefore not sustainable.

Ratio Decidendi: Where revenue records, land revenue payment, and surrounding evidence establish agricultural character and there is no conversion or intended non-agricultural use, the land does not cease to be agricultural merely because cultivation is limited or the agricultural yield is not commensurate with the extent of land.

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