Agricultural land under section 2(14)(iii): rural character and revenue records kept the transfer outside capital gains tax.

Agricultural land remains outside the definition of "capital asset" under section 2(14)(iii) where the statutory geographical and municipal criteria show it to be rural agricultural land. Actual agricultural income or intensive personal cultivation is not a under that provision, and their absence does not by itself convert the land into a taxable capital asset. Revenue records, 7/12 extracts, non-conversion to non-agricultural use, location beyond municipal limits, and contemporaneous cultivation entries are relevant in determining character. On those principles, the transfer was treated as outside capital gains tax.

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Issues: Whether the land sold by the assessee retained its agricultural character and fell outside the ambit of capital asset under section 2(14)(iii) of the Income-tax Act, 1961, so that the transfer could not be brought to tax as capital gains merely because no substantial agricultural income or intensive cultivation was shown.

Analysis: The statutory scheme after the Finance Act, 1970 was held to rest on objective geographical and municipal criteria under section 2(14)(iii), while the requirement of actual agricultural use is expressly found in provisions such as section 54B and section 10(37). The absence of those words in section 2(14)(iii) was treated as deliberate. The Court further held that agricultural character must be determined on a cumulative consideration of the surrounding circumstances, with revenue records, 7/12 extracts, absence of non-agricultural conversion, location beyond municipal limits, and contemporaneous cultivation entries carrying significant weight. The mere absence of reflected agricultural income or personal cultivation was held insufficient to convert rural agricultural land into a capital asset.

Conclusion: The land was held to be agricultural land outside section 2(14)(iii), and the capital gains addition was unsustainable.

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