Agricultural land exclusion under capital gains law applied where revenue records and location beyond municipal limits supported the land's character.

Land recorded as agricultural land and situated beyond 8 kilometres from municipal limits was excluded from the definition of capital asset under section 2(14)(iii)(b) of the Income-tax Act, 1961, so no capital gains tax arose on its transfer. Doubts about the extent of actual agricultural activity, or the absence of proof of agricultural income, did not alter the land's character where the revenue record and local enquiry supported its agricultural nature. Speculation about the purchaser's intended future use was irrelevant to the land's status in the assessee's hands. The addition towards capital gains was deleted.

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Issues: Whether the land sold by the assessee was excluded from the definition of capital asset under section 2(14)(iii)(b) of the Income-tax Act, 1961, and therefore not chargeable to capital gains tax.

Analysis: The land was found to be classified as agricultural land in the revenue record and situated beyond 8 kilometres from the municipal limits. The fact that the Assessing Officer doubted the extent of actual agricultural activity or absence of proof of agricultural income did not alter the character of the land when the record and local enquiry supported its agricultural nature. Speculation about the purchaser's future use of the land was also held to be irrelevant to the character of the land in the hands of the assessee.

Conclusion: The land fell within the exclusion for agricultural land under section 2(14)(iii)(b), was not a capital asset, and the addition made towards capital gains was deleted.

Final Conclusion: The transfer of the land did not give rise to taxable capital gains, and the assessee succeeded in the appeal.

Ratio Decidendi: Classification as agricultural land for section 2(14)(iii)(b) depends on the land's recorded agricultural character and its location beyond the prescribed municipal distance, and not on speculative future use or the absence of proved agricultural operations alone.

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