1981 (4) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Whether the land in question is "agricultural land" within the meaning of section 2(14) of the Income-tax Act, 1961.
2. Whether the profits from the sale of the land are subject to capital gains tax.

Summary:

Issue 1: Whether the land in question is "agricultural land" within the meaning of section 2(14) of the Income-tax Act, 1961.
The High Court of Gujarat examined whether the land situated one kilometer from Surat Railway Station qualifies as "agricultural land" u/s 2(14) of the Income-tax Act, 1961. The Tribunal had reversed the findings of the ITO and AAC, which stated that the land was not agricultural. The Tribunal's decision was based on the majority opinion following a disagreement among its members. The land was initially purchased as agricultural land, and a portion was converted to non-agricultural use. The remaining land was sold to a housing society for non-agricultural purposes. The court considered various factors, including the land's proximity to urban development, its sale for non-agricultural purposes, and the lack of recent agricultural operations. The court concluded that the land was not agricultural land, emphasizing that no reasonable agriculturist would purchase such land for agricultural purposes at the prevailing price, and the owner would not sell it based on its agricultural yield.

Issue 2: Whether the profits from the sale of the land are subject to capital gains tax.
The court held that since the land in question is not agricultural land, the profits from its sale are subject to capital gains tax. The Tribunal's decision to treat the land as agricultural and exempt from capital gains tax was overturned. The court applied various tests and principles from previous judgments, including the intention of the owner, actual use, and the nature of the surrounding area. The court emphasized that the mere entry of the land as agricultural in revenue records does not determine its true character. The court concluded that the ITO and AAC were correct in their assessment, and the Tribunal's decision was erroneous.

Conclusion:
The High Court answered the question in the negative, holding that the land in question was not agricultural land within the meaning of section 2(14) of the Income-tax Act, 1961, and therefore, the profits from its sale are subject to capital gains tax. The references were answered accordingly, with no order as to costs.