Agricultural land character on date of sale governs tax treatment; later purchaser conduct cannot make the surplus business income.

For taxing surplus on sale of land as business income, the decisive test is the character of the land on the date of transfer. Where revenue records, including 7/12 extracts, showed agricultural classification and use, and the assessee had also reflected agricultural income and long ownership, the land was treated as agricultural land. Later purchaser conduct, post-sale inspection, conversion permission, urban proximity, or the assessee's original purchase intention did not displace the contemporaneous evidence. The conversion of the asset in the books from stock-in-trade to investment, having been accepted earlier, further supported investment treatment. The surplus from sale was therefore outside business income, and the transaction was not an adventure in the nature of trade.

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Issues: Whether the profit arising from sale of the subject land was taxable as business income on the footing that the land was not agricultural land and was held as a business asset.

Analysis: The land stood classified in the revenue records as agricultural land and the entries in the 7/12 extracts showed agricultural use on the relevant date. The assessee had shown agricultural income in earlier years and the land had been held for a long period. Subsequent conduct of the purchaser, post-sale inspection, or later conversion permission did not determine the character of the land on the date of sale. The change in books from stock-in-trade to investment had been accepted by the Department in earlier years, supporting the holding that the asset was thereafter treated as investment. Mere proximity to urban development, meagre agricultural income, or the assessee's original intention at purchase did not displace the contemporaneous material showing agricultural user at the time of transfer.

Conclusion: The land was agricultural land at the time of sale, and the surplus from its transfer could not be assessed as business income.

Final Conclusion: The Revenue failed to establish that the transfer was an adventure in the nature of trade, and the assessee's claim that the sale proceeds were outside business income was accepted.

Ratio Decidendi: For taxing the surplus on sale of land as business income, the decisive inquiry is the character of the land on the date of transfer; where the land is shown by revenue records and surrounding evidence to be agricultural and to have been actually used for agriculture, later purchaser conduct or prior intention at purchase does not convert the receipt into business income.

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