Agricultural land character turns on cumulative facts; compromise-linked receipts are not automatically exempt sale consideration.

Land shown in revenue records as agricultural or cultivable, remaining outside municipal limits and never converted for non-agricultural use, was treated as agricultural land on a cumulative appraisal of all relevant facts; the sale gain was therefore not chargeable as capital gains and, on those facts, was not includible in book profit under section 115JB. A small existing structure on a negligible portion did not alter the character of the whole property, and the absence of declared agricultural income was not conclusive. However, an amount received under a compromise, settlement and withdrawal of litigation was not treated as sale consideration for the agricultural land, so it did not qualify for exemption and was taxable.

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Issues: (i) Whether the land sold by the assessee was agricultural land so that the gain on its sale was not chargeable to capital gains tax and could not be added under the minimum alternate tax provisions; (ii) Whether the amount received under the compromise agreement and settlement was exempt as part of the consideration for sale of agricultural land.

Issue (i): Whether the land sold by the assessee was agricultural land so that the gain on its sale was not chargeable to capital gains tax and could not be added under the minimum alternate tax provisions.

Analysis: The land was shown in the revenue records as agricultural or cultivable land, certified by the local authorities, and no conversion for non-agricultural use was ever obtained. The land remained beyond the municipal limits, and the small old structure standing on a minuscule portion of the total area did not alter the character of the whole property. The absence of declared agricultural income was not treated as conclusive, since agricultural operations had been explained and supported by surrounding circumstances and records. Applying the settled test that the character of the land must be decided on a cumulative consideration of all relevant facts, the sale was held to be of agricultural land. On that basis, the gain could not be taxed as capital gains, and the exempt nature of the receipt also meant that it could not be included in book profit for section 115JB purposes on these facts.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether the amount received under the compromise agreement and settlement was exempt as part of the consideration for sale of agricultural land.

Analysis: The amount in question was received pursuant to a compromise agreement, settlement, withdrawal of litigation, and related assignment dealings. It was not received as consideration for transfer of the agricultural land itself. Since the character of the payment was linked to settlement and compromise, it did not partake of the nature of sale consideration for agricultural land and therefore could not be treated as exempt from capital gains tax.

Conclusion: The issue was decided against the assessee.

Final Conclusion: The appeal of the Revenue and the cross objection of the assessee were both dismissed, with the principal exemption claim accepted and the separate compromise-related receipt held taxable.

Ratio Decidendi: The character of land for capital gains purposes must be determined on a cumulative appraisal of the revenue record, actual use, surrounding circumstances, and absence of conversion for non-agricultural use, and a payment arising from compromise or settlement is not automatically part of the sale consideration for agricultural land.

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