Agricultural land character preserved despite developer sale, enabling exemption where statutory urban limits and investment intent requirements are met.

Agricultural land outside the areas and distances specified in Section 2(14)(iii), recorded as agricultural in revenue records, actually cultivated, and not converted to non-agricultural use is not a capital asset. Its character is not altered by sale to a real-estate developer, location in a developed area, sale price, or potential non-agricultural value. The notes state that gains from both paddy and non-paddy land were exempt. A short holding period does not alone establish an adventure in the nature of trade; recording land as investment may demonstrate investment intent, and a land dealer may hold separate investment and trading portfolios. No contrary material was identified to displace the investment character.

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Issues: (i) Whether gains from sale of the non-paddy lands constituted exempt gains from agricultural land outside the specified municipal limits; (ii) Whether the short holding period, sale to real-estate developers and the assessee's land-dealing business rendered the transactions an adventure in the nature of trade.

Issue (i): Whether gains from sale of the non-paddy lands constituted exempt gains from agricultural land outside the specified municipal limits.

Analysis: Agricultural land not falling within the areas and distances specified in Section 2(14)(iii) is not a capital asset. The lands were undisputedly outside the prescribed municipal limits, classified as agricultural land in State revenue records, and agricultural operations were evidenced by seasonal crops and vegetables found on them. Although revenue classification is not conclusive, it raised a presumption that the Department did not rebut. Neither the location in a developed area, the sale price, nor sale to a real-estate developer altered the agricultural character. The lands had not been converted to non-agricultural use, and no minimum period of agricultural use is required.

Conclusion: Gains from sale of both paddy and non-paddy lands were exempt from tax as gains from agricultural land, in favour of the assessee.

Issue (ii): Whether the short holding period, sale to real-estate developers and the assessee's land-dealing business rendered the transactions an adventure in the nature of trade.

Analysis: Sale within a short period does not by itself establish an adventure in the nature of trade. The assessee recorded the lands as investments and thereby discharged the burden of showing an investment intention at acquisition. A land dealer may maintain distinct investment and trading portfolios. The Revenue produced no material to displace the stated investment character.

Conclusion: The acquisitions and sales did not constitute an adventure in the nature of trade, in favour of the assessee.

Final Conclusion: The exemption was extended to the non-paddy lands, while the exemption already granted for paddy lands remained undisturbed.

Ratio Decidendi: Land recorded and actually used as agricultural land, situated outside the statutory urban limits and not converted to non-agricultural use, remains agricultural land notwithstanding its sale to a developer, location in a developed area, or potential non-agricultural value; a short holding period alone does not establish trading intent.

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