1981 (3) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Whether the land in question was agricultural land.
2. Whether the excess amount from the sale of the land was liable to be taxed as capital gains.

Summary:

Issue 1: Agricultural Land Determination
The primary issue was whether the land bearing final plot No. 522-C, sold by the assessee, was agricultural land. The court examined various precedents, including the Supreme Court's decisions in CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133, and Mst. Subhadra v. Narsaji Chenaji Marwadi, AIR 1966 SC 806. The court reiterated that if the land is shown in revenue records as agricultural land and no permission u/s 65 of the Bombay Land Revenue Code has been obtained to convert it to non-agricultural use, it must be treated as agricultural land. The court emphasized that the land's potential use for non-agricultural purposes or its high sale price does not alter its character as agricultural land.

Issue 2: Taxability as Capital Gains
The court addressed whether the excess amount of Rs. 10,65,243 from the sale was liable to be taxed as capital gains. The court held that since the land was agricultural at the time of sale, it was not liable to capital gains tax u/s of the I.T. Act, 1961. The court noted that the land had been shown in revenue records as agricultural land, and no permission for non-agricultural use had been obtained, thus maintaining its agricultural character.

Conclusion:
The court answered the referred question in the negative, favoring the assessee and against the revenue. The Commissioner was directed to pay the costs of the reference to the assessee.