Agricultural land status lost on land-use conversion and registered sale deed, so capital gains treatment was upheld.

Land sold through a registered sale deed after land-use conversion ceased to retain agricultural character, so it fell within the definition of capital asset under section 2(14) of the Income-tax Act, 1961. Earlier revenue records and an uncompleted agreement to sell were insufficient to override the later legal position reflected in the registered conveyance and conversion order. The land was therefore assessable as a capital asset, and the long-term capital gain addition was sustained.

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Issues: Whether the land sold by the assessee retained the character of agricultural land so as to fall outside the definition of capital asset, and consequently whether the addition on account of long-term capital gain was liable to be deleted.

Analysis: The land was sold through a registered sale deed after the competent authority had changed its land use and declared it non-agricultural. Possession had not been transferred under the earlier agreement to sell, and the transaction was completed only on execution of the sale deed. In view of the contents of the registered deed and the land use conversion, the land had ceased to be agricultural land on the date of transfer and was assessable as a capital asset. The claim based on earlier revenue records was not sufficient to displace the effect of the later legal and factual position reflected in the sale deed.

Conclusion: The land was rightly treated as a capital asset under section 2(14) of the Income-tax Act, 1961, and the long-term capital gain addition was sustained.

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