Agricultural land classification and acquisition compensation determine capital gains treatment, while section 52(2) cannot apply without statutory conditions.

Land is not treated as agricultural land merely because of revenue entries; its actual condition, surrounding development, intended user, and the assessee's conduct control the character of the asset. On those facts, the land had ceased to be agricultural and was within the capital asset/wealth-tax net. Section 52(2) of the Income-tax Act could not be invoked where the statutory conditions were not satisfied, so notional substitution of value was impermissible. For capital gains and wealth-tax valuation, compensation finally fixed in land acquisition proceedings is the relevant figure because later judicial determination relates back to the date of acquisition.

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Issues: (i) Whether the land acquired from the assessee was agricultural land and therefore excluded from the definition of capital asset and taxable assets; (ii) Whether section 52(2) of the Income-tax Act, 1961 could be invoked in computing capital gains on the acquisition; (iii) Whether the compensation fixed by the court in the land acquisition proceedings was to be taken into account for the computation of capital gains and wealth-tax valuation.

Issue (i): Whether the land acquired from the assessee was agricultural land and therefore excluded from the definition of capital asset and taxable assets.

Analysis: The character of land has to be determined with reference to its actual condition, intended use, and the surrounding facts at or about the relevant year. Mere revenue entries or the mere possibility of agricultural use are not decisive. The land had ceased to be cultivated for many years, the surrounding area was being developed for residences, and the assessee's own conduct showed no intention to retain it for agricultural use. The entry in the revenue records created only a rebuttable presumption.

Conclusion: The land was not agricultural land. The issue was decided against the assessee and in favour of the revenue.

Issue (ii): Whether section 52(2) of the Income-tax Act, 1961 could be invoked in computing capital gains on the acquisition.

Analysis: The question stood covered by prior decisions of the same court holding that the statutory conditions for invoking the provision were not satisfied on the facts. The provision was therefore not available to the revenue for substituting a notional value in place of the actual consideration in the manner adopted by the assessing authority.

Conclusion: Section 52(2) could not be invoked. The issue was decided in favour of the assessee and against the revenue.

Issue (iii): Whether the compensation fixed by the court in the land acquisition proceedings was to be taken into account for the computation of capital gains and wealth-tax valuation.

Analysis: Compensation determined in land acquisition proceedings represents the market value as on the date of acquisition, and later judicial determination relates back to that date. The correct compensation figure, as finally determined in acquisition litigation, therefore governs the relevant assessment. The same principle applies to valuation in wealth-tax proceedings.

Conclusion: The later court-determined compensation had to be taken into account, and the matter was to be adjusted accordingly. The issue was decided in favour of the revenue on the question of inclusion and valuation.

Final Conclusion: The references were answered by holding that the land was not agricultural land, section 52(2) could not be applied, and the final acquisition compensation had to guide the assessments.

Ratio Decidendi: The agricultural or non-agricultural character of land depends on its actual condition, intended user, and surrounding facts at the relevant time, and later compensation fixed in acquisition proceedings relates back to the date of acquisition for tax valuation purposes.

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