Agricultural land character on sale date governs capital gains; surrounding development alone does not change the tax position.

Land must be assessed by its character on the date of sale for capital gains purposes. Revenue records showing agricultural character create a presumption that is not displaced by nearby development, future non-agricultural potential, or temporary brick-making activity. That presumption is rebutted only by cogent evidence of an actual prior change in user or character, which was not shown here. Permission under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, does not by itself convert agricultural land into non-agricultural land. On that reasoning, the land remained agricultural on the sale date and was outside the capital gains charge.

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Issues: Whether the land sold by the assessee was agricultural land on the date of sale and therefore outside the charge of capital gains.

Analysis: The decisive test was the character of the land on the date of sale. The presence of nearby development, the possibility of future non-agricultural use, and temporary prior brick-making operations did not by themselves displace the presumption arising from revenue records showing agricultural character. The land had remained shown as agricultural in the records, agricultural use had been resumed, and no material was shown to establish that its character had changed before the sale. Permission under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, did not by itself convert agricultural land into non-agricultural land. The correct approach was to see whether the presumption of agricultural character had been rebutted by evidence of a prior change in user or character, which was not done.

Conclusion: The land was agricultural land on the date of sale and the Tribunal was wrong in holding otherwise; the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: For determining whether land is agricultural, the relevant inquiry is its character on the date of sale, and potential non-agricultural use or surrounding development does not alter that character unless the presumption from revenue records or actual user is rebutted by cogent evidence.

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