Agricultural land character for capital gains depends on total circumstances, and sale permission alone does not change it.

Land must be judged on the totality of circumstances to determine whether it is agricultural for capital gains purposes, including revenue records, actual agricultural use, continuity of use, surrounding development, and the nature of the sale. Here, the land remained agricultural because it was recorded as such, assessed to land revenue, and actually used for agriculture for a substantial period, with no prior conversion or development destroying that character; the surplus was therefore not chargeable as capital gains. Permission sought under section 63 of the Bombay Tenancy and Agricultural Lands Act for sale to a housing society did not by itself alter the land's character, and non-agricultural permission under the land revenue law was not obtained before sale.

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Issues: (i) Whether the land sold by the assessee was agricultural land so that the surplus on its sale was not chargeable as capital gains under the Income-tax Act, 1961. (ii) Whether the land ceased to be agricultural land merely because permission was sought under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, for sale to a housing society.

Issue (i): Whether the land sold by the assessee was agricultural land so that the surplus on its sale was not chargeable as capital gains under the Income-tax Act, 1961.

Analysis: The character of land has to be determined from the totality of circumstances, including its classification in revenue records, actual or ordinary agricultural use, continuity of such use, surrounding situation, development in the vicinity, and the nature of the sale. The land was recorded as agricultural, assessed to land revenue, and was actually put to agricultural use for a substantial period after purchase. There was no material showing conversion to a non-agricultural use before sale or any development destroying its agricultural character. Mere realization of a high price or intended non-agricultural use by the purchaser was not decisive.

Conclusion: The land retained its agricultural character and the surplus on sale was not chargeable as capital gains; the issue is answered in favour of the assessee.

Issue (ii): Whether the land ceased to be agricultural land merely because permission was sought under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, for sale to a housing society.

Analysis: Permission under section 63 was necessary because the land was agricultural and the proposed transferee was a non-agriculturist. That permission, by itself, did not alter the character of the land. Non-agricultural permission under section 65 of the Bombay Land Revenue Code, 1869, had not been obtained by the assessee before sale, and the vendee obtained it only after the transfer. The application for and grant of permission to sell therefore did not prove cessation of agricultural character on the material date.

Conclusion: The land did not cease to be agricultural merely because permission under section 63 was sought and obtained; the issue is answered in favour of the assessee.

Final Conclusion: On a balanced appraisal of the evidence and the relevant legal tests, the reference was answered against the Revenue and the assessee's claim that the land was agricultural was upheld.

Ratio Decidendi: The character of land for capital gains purposes depends on its actual and intended agricultural connection on the relevant date, assessed from the totality of circumstances, and not on revenue entries alone or on a proposed transfer for non-agricultural use.

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