Agricultural land character remains unchanged on sale to a non-agriculturist for industrial use, defeating capital gains treatment.

Agricultural land sold to a non-agriculturist for intended industrial use did not cease to be agricultural land merely because the purchaser obtained permission for such use. The Tribunal applied the principle that the seller's land character is not altered by the buyer's status or proposed non-agricultural use, and that a transfer contrary to State restrictions or a later change in use does not by itself convert agricultural land into a capital asset. On the recorded facts, the land was described in the sale deed and revenue records as agricultural land and was situated beyond the prescribed municipal limits, so the capital gains addition was held unsustainable.

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Issues: Whether land sold as agricultural land to a non-agriculturist for bona fide industrial use ceased to be agricultural land and therefore became a capital asset liable to capital gains tax under section 2(14)(iii) of the Income-tax Act, 1961.

Analysis: The sale deed and supporting revenue/commissioner records showed that the land was sold and described as agricultural land and that the purchaser had obtained permission for bona fide industrial use under the relevant State land laws. The governing principle applied was that the character of agricultural land in the hands of the seller is not altered merely because the purchaser is a non-agriculturist or intends to use the land for industrial purposes. Reliance was placed on binding precedent holding that a transfer in breach of State restrictions, or a subsequent non-agricultural use by the purchaser, does not by itself convert agricultural land into a capital asset. The Tribunal also noted that the land satisfied the statutory conditions for being treated as agricultural land and was situated beyond the prescribed municipal limits.

Conclusion: The land did not lose its character as agricultural land on sale to a non-agriculturist for industrial purposes, and the capital gains addition was unsustainable.

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