Agricultural land characterisation preserved where land was agricultural at sale, so sale proceeds not long term capital gains.

The analysis determines that the land was recorded and situated as agricultural land outside the non agricultural limits at the time of sale; therefore its character remained agricultural and it did not qualify as a capital asset under the statutory agricultural exclusion. The reasoning emphasises that post sale conversion or change of user by the purchaser does not retrospectively alter the land's character at sale. Operatively, the sale proceeds were held not to attract long term capital gains and the revenue's claim was rejected.

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Issues: Whether the land sold by the assessee was a capital asset liable to long term capital gains tax or was agricultural land outside the definition of capital asset under section 2(14)(iii)(b)(1) of the Income-tax Act, 1961.

Analysis: The Tribunal examined land revenue records and the location of the property, noting it was recorded as agricultural land and situated approximately 2-3 kilometres from the nearest municipality with population as per the cited census, placing it outside the non-agricultural limits specified in section 2(14)(iii)(b)(1) of the Income-tax Act, 1961. The Tribunal further observed that conversion or change of user effected by the purchaser several years after the date of sale does not alter the character of the land at the time of sale. The Tribunal relied on controlling judicial authority holding that sale to a non-agriculturist or subsequent conversion does not retrospectively convert agricultural land into a capital asset where no non-agricultural use or conversion had occurred prior to sale.

Conclusion: The sale proceeds do not attract long term capital gains; the land retained its character as agricultural land at the time of sale and is not a capital asset within section 2(14)(iii)(b)(1) of the Income-tax Act, 1961. The Revenue's appeal is dismissed and the deletion of the addition is upheld in favour of the assessee.

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