Non-agricultural conversion and fresh section 54F claims shape capital gains treatment and appellate limits.

Land converted to non-agricultural use at the owner's instance may lose its character as agricultural land for capital gains purposes, even if agricultural activity continues and the property lies beyond municipal limits. In the facts noted, revenue records and the conversion order supported the conclusion that the asset was non-agricultural and therefore taxable. The text also notes that a fresh claim for exemption under section 54F, raised for the first time before the appellate authority, ordinarily requires factual verification by the Assessing Officer and should not be entertained where Rule 46A and the limits of appellate powers are not satisfied.

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Issues: (i) Whether the land sold by the assessee retained the character of agricultural land and was outside the ambit of capital gains; (ii) Whether the Commissioner of Income-tax (Appeals) was justified in entertaining and granting exemption under section 54F for the first time at the appellate stage.

Issue (i): Whether the land sold by the assessee retained the character of agricultural land and was outside the ambit of capital gains.

Analysis: The land had been converted for non-agricultural purpose by the competent authority at the instance of the assessee. The land was situated beyond the prescribed municipal limits, and the revenue records also reflected it as non-agricultural. On these facts, the conversion evidenced the assessee's intention to treat the property as non-agricultural, and the continued agricultural use did not preserve its original character.

Conclusion: The land had ceased to be agricultural land and the addition brought to tax was upheld; the assessee failed on this issue.

Issue (ii): Whether the Commissioner of Income-tax (Appeals) was justified in entertaining and granting exemption under section 54F for the first time at the appellate stage.

Analysis: The claim under section 54F was not made before the Assessing Officer and was raised for the first time before the appellate authority. Allowing such a fresh claim required verification of facts relating to investment and compliance with statutory conditions, which had not been examined by the Assessing Officer. Entertaining the claim in these circumstances offended Rule 46A and exceeded the proper appellate scope under section 250.

Conclusion: The direction to allow exemption under section 54F was unsustainable and was set aside; the Revenue succeeded on this issue.

Final Conclusion: The assessee's appeal was dismissed and the Revenue's appeal was allowed, resulting in a partial relief for the Revenue.

Ratio Decidendi: A land converted to non-agricultural use at the owner's instance ceases to be agricultural land for capital gains purposes, and a fresh exemption claim requiring factual verification cannot ordinarily be granted for the first time by the appellate authority without examination by the Assessing Officer.

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