1981 (2) TMI 63 - HC - Income Tax

Summary

Issues Involved:
1. Determination of whether the lands in question were agricultural lands.
2. Liability of the assessee to pay capital gains tax on the sale of the lands.

Summary:

Issue 1: Determination of Agricultural Lands
The primary issue was whether the lands sold by the assessee were agricultural lands. The assessee claimed exemption u/s 2(14)(iii) of the I.T. Act, asserting that the lands were agricultural. The ITO, however, concluded that the lands were not agricultural and thus liable for capital gains tax. The AAC reversed this decision, but the Tribunal reinstated the ITO's decision, prompting the assessee to appeal.

The Tribunal noted that the lands were sold to co-operative societies for residential purposes and were within the municipal limits of Ahmedabad, covered by a town planning scheme. Despite the assessee's evidence, including an affidavit from a lessee and a court fees inspector's report indicating agricultural use, the Tribunal found the lands to be non-agricultural.

Issue 2: Liability to Pay Capital Gains Tax
The Tribunal's decision was based on several factors, including the land's inclusion in a town planning scheme and its location within municipal limits. However, the High Court referenced multiple precedents, including the Supreme Court's decision in Mst. Subhadra v. Narsaji Chenaji Marwadi and various High Court decisions, which emphasized that the actual use of the land and entries in the revenue records are crucial in determining its nature.

The High Court found that the lands were used for agricultural purposes up to the date of sale, with no permission obtained for conversion to non-agricultural use u/s 65 of the Bombay Land Revenue Code. The revenue failed to rebut the presumption arising from the actual use and revenue records.

Conclusion:
The High Court concluded that the lands were agricultural at the time of sale, and thus, the profit from the sale could not be taxed as capital gains. The Tribunal's decision was reversed, and the question was answered in favor of the assessee, negating the liability for capital gains tax. The Commissioner was ordered to pay the costs of the reference to the assessee.