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Issues involved: Interpretation of u/s 256(1) of the Income-tax Act, 1961 regarding the classification of land as agricultural or non-agricultural for the purpose of capital gains tax assessment.
Summary: The High Court of Bombay addressed a reference related to the assessment year 1966-67 involving two brothers who sold a piece of land gifted to them by their father. The land was part agricultural and part non-agricultural. The Tribunal applied tests from a previous unreported judgment by the Bombay High Court to determine the classification of the land. It was found that except for the non-agricultural portion, the rest of the land was considered agricultural based on various factors such as descriptions in the sale deed, absence of evidence of non-agricultural use, and continued assessment as agricultural land under the Land Revenue Code. The Tribunal concluded that only the surplus from the non-agricultural portion should be subject to tax, in line with the exemption of agricultural lands from capital gains tax u/s 2(14)(iii) of the Income-tax Act. The Court noted that the Tribunal's considerations aligned with the tests established by the Supreme Court in previous cases, emphasizing the significance of revenue record entries as prima facie evidence. As the Tribunal was bound by the previous Bombay High Court decision, the question was answered in favor of the assessee. No costs were awarded in this matter.
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