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Issues Involved:
1. Whether the lands sold by the assessee were agricultural lands. 2. Whether the profits arising from the sale of these lands are liable to be taxed as capital gains. Issue-wise Detailed Analysis: 1. Whether the lands sold by the assessee were agricultural lands: The assessee sold lands situated in the Vastrapur-Paldi area of Ahmedabad, and claimed these were agricultural lands, hence not liable to capital gains tax. The Revenue contended otherwise, arguing that the lands were non-agricultural at the time of sale. - Facts and Evidence: - The lands in question were initially acquired as agricultural lands in 1943. - Land acquisition proceedings were initiated in 1959 by the State of Gujarat for the Gujarat Housing Board, but a compromise was reached in 1963, allowing the assessee to retain portions of the land. - The record of rights for the lands showed continuous agricultural use up to the date of sale, with crops like grass, juwer, bajri, mag, and tuwer being cultivated. - The lands were assessed to land revenue as agricultural lands and had never been converted to non-agricultural use under Section 65 of the Land Revenue Code. - The lands were covered by a draft town planning scheme, but the final scheme was approved only in 1970, two years after the sale. - The assessee obtained permission under Section 63 of the Tenancy Act to sell the lands, indicating their agricultural status. - Tribunal's Findings: - The Tribunal observed that the lands were earmarked for residential purposes and considered the agricultural operations near the time of sale as an eye-wash to avoid taxation. - The Tribunal held that the lands were non-agricultural at the time of sale, thus liable to capital gains tax. - Court's Analysis: - The Court noted that the Tribunal's finding of agricultural operations being an eye-wash was unjustified and unsupported by the record. - The Court emphasized that the lands were used for agricultural purposes at the time of sale, and the presumption arising from the record of rights and actual use was not rebutted by the Revenue. - The Court referred to several precedents, including CIT v. Manilal Somnath and CIT v. Vajulal Chunilal (HUF), which established that the actual use of land and entries in the record of rights are strong indicators of the land's character as agricultural. 2. Whether the profits arising from the sale of these lands are liable to be taxed as capital gains: Based on the determination of the lands' character as agricultural, the next issue was whether the profits from their sale could be taxed as capital gains. - Legal Provisions: - Sections 45(1) and 2(14) of the Income-tax Act, 1961, define capital gains and agricultural land, respectively. - Agricultural land is excluded from the definition of a capital asset, and hence, gains from its sale are not taxable as capital gains. - Court's Conclusion: - The Court concluded that the lands sold by the assessee were agricultural lands at the time of sale. - Consequently, the gains arising from the sale were not liable to be taxed as capital gains under the Income-tax Act. Judgment: The High Court answered the referred question in the negative, holding that the lands sold by the assessee were agricultural in character, and the capital gains tax was not justly levied by the Income-tax Officer. The Revenue was directed to pay the costs of the reference to the assessee.
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