Agricultural land classification for capital gains depends on actual cultivation and revenue records, not nearby urban development.

Lands shown as agricultural in revenue records and actually used for cultivation up to shortly before sale retained their agricultural character, because no conversion permission under the Bombay Land Revenue Code had been obtained. Surrounding urban development, municipal inclusion, town planning measures, and the purchasers' intended residential use were insufficient to displace the presumption arising from actual user and revenue entries. On those facts, the surplus on transfer was not chargeable to capital gains, as the land was treated as agricultural on the dates of sale.

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Issues: Whether the lands sold on the relevant dates were agricultural lands and, if so, whether the surplus on their sale was chargeable to capital gains.

Analysis: The lands were shown in the revenue records as agricultural and were actually used for cultivation up to the period immediately preceding the sales. No permission for conversion to non-agricultural use had been obtained under the Bombay Land Revenue Code. The surrounding development, municipal limits, town planning scheme, and intended residential use by the purchasers were held insufficient to displace the presumption arising from actual user and revenue entries. The materials relied upon by the revenue did not rebut that presumption.

Conclusion: The lands were agricultural lands on the dates of sale, and the profit on their transfer was not chargeable as capital gains. The answer to the reference is in favour of the assessee and against the revenue.

Ratio Decidendi: Where land is actually and continuously used for agriculture and the revenue records support that user, it retains its agricultural character unless the contrary is affirmatively proved, and mere surrounding urban development or proposed non-agricultural use does not convert it into a non-agricultural asset for capital gains purposes.

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