Agricultural land characterization determines capital gains exposure when evidence shows actual farm use and rebuttal is lacking.

Documentary and circumstantial evidence showing actual agricultural use, including revenue records, land revenue receipts, affidavits, agricultural input bills and a site plan, established that the land was agricultural at the time of sale. The purchaser's later request for non-agricultural permission supported that inference, and the revenue authorities did not effectively rebut the evidence. On a totality of facts approach, the land was not a capital asset under section 2(14) of the Income-tax Act, 1961, so the capital gains addition was unsustainable.

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Issues: Whether the land sold by the assessees was agricultural land falling outside the definition of capital asset, so that the sale proceeds were not chargeable to capital gains tax.

Analysis: The assessees produced revenue record extracts, land revenue receipts, affidavits, bills for agricultural inputs, and a site plan to show actual agricultural use of the land. The material on record also indicated that the purchaser later sought permission for non-agricultural use, which supported the inference that the land was agricultural at the time of sale. The adverse findings recorded below were not supported by any effective rebuttal of the documentary and circumstantial evidence relied upon by the assessees. The issue whether land is agricultural land is essentially one of fact, to be decided on the totality of the evidence.

Conclusion: The land was agricultural land at the time of sale and not a capital asset within section 2(14) of the Income-tax Act, 1961; the capital gains addition was therefore unsustainable and the assessees succeeded on this issue.

Ratio Decidendi: Where documentary and circumstantial evidence establish agricultural use of land and the revenue authorities fail to rebut that evidence, the land cannot be treated as a capital asset for capital gains purposes merely on the basis of adverse assumptions or the purchaser's subsequent non-agricultural use.

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