Land Sale Ruled as Agricultural, Exempt from Capital Gains Tax Despite Permission Application.

The HC determined that the land sold by the assessee was agricultural and thus exempt from capital gains tax. The land retained its agricultural status despite the application for permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act. The court ruled in favor of the assessee, ordering the Commissioner to cover the reference costs.

---

---

Issues Involved:
1. Whether the land sold by the assessee was "agricultural land" and thus not liable to be assessed to capital gains.
2. Whether the land ceased to be "agricultural land" upon the application for permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948.

Issue-wise Detailed Analysis:

Issue 1: Whether the land sold by the assessee was "agricultural land" and thus not liable to be assessed to capital gains.

The primary question was whether the land sold by the assessee was "agricultural land" so that the surplus realized on the sale thereof was not chargeable to Income Tax under the head "Capital gains." The court examined the facts that the land was purchased as agricultural land, listed in revenue records as agricultural, and assessed to land revenue. Agricultural activities were carried out on the land for three years, yielding crops like pulse and green grass, although the yield was low and not sold for profit. The land was not put to agricultural use immediately before the sale but continued to be listed as agricultural land in revenue records.

The court also considered the necessity of obtaining permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act for selling the land to a non-agriculturist and the subsequent requirement for permission for non-agricultural use under Section 65 of the Bombay Land Revenue Code. The court noted that the permission under Section 63 was obtained just two and a half months prior to the sale, and the land was still classified as agricultural at the time of sale.

The court emphasized that the land's classification in revenue records as agricultural and its continued assessment to land revenue raised a "rebuttable presumption" that it was agricultural land. There was no evidence to show that the land was developed or that the surrounding area indicated any potential for development. The court concluded that the land retained its agricultural character up to the date of sale.

Thus, the court held that the land sold by the assessee was agricultural land, and the surplus realized on the sale was not liable to be assessed to capital gains.

Issue 2: Whether the land ceased to be "agricultural land" upon the application for permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948.

The court examined whether the land ceased to be agricultural upon the assessee's application for permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act. The permission was necessary because the land was agricultural and governed by the provisions of the Act. The court noted that obtaining permission under Section 63 did not change the land's character, as permission for non-agricultural use under Section 65 of the Bombay Land Revenue Code was still required and was obtained by the vendee after the sale.

The court found that the land's character as agricultural land was not altered by the mere application for permission under Section 63. The land continued to be listed as agricultural in revenue records, and there was no evidence of its conversion to any other use before the sale.

Therefore, the court held that the land did not cease to be agricultural land upon the application for permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act.

Conclusion:

Question 1:
Answer: In the affirmative, i.e., against the Revenue and in favour of the assessee.

Question 2:
Answer: In the negative, i.e., against the Revenue and in favour of the assessee.

The court concluded that the land sold by the assessee was agricultural land, and the surplus realized on the sale was not liable to be assessed to capital gains. The land did not cease to be agricultural upon the application for permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act. The Commissioner was ordered to pay the costs of this reference to the assessee.

---