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Issues involved: Determination of whether the land in question was agricultural or non-agricultural in character for the purpose of assessing capital gains.
Summary: The High Court of Gujarat considered the case where the assessee sold land and the tax authorities treated the gains as capital gains. The assessee contended that the land was agricultural and thus not liable for capital gains tax. The Income Tax Officer (ITO) based the non-agricultural classification on factors like lack of cultivation, presence of factories nearby, and obtaining permission for non-agricultural use. The Appellate Tribunal upheld the non-agricultural classification, considering the land's surroundings and the intention to use it for non-agricultural purposes post-sale. The High Court analyzed the facts found by the Tribunal and authorities, disregarding certain affidavits. It noted temporary non-agricultural use for brick-making for two years, followed by the land lying fallow and cultivation of bajri in 1964-65. The Tribunal considered the land's location in a developing area, permission obtained for non-agricultural use, and the intention to sell for non-agricultural purposes. The Court emphasized that the crucial date for determining land character is the date of sale, not potential future use. It highlighted the importance of actual agricultural use or intended use, as per revenue records or land use. Referring to previous cases, the Court clarified that potential non-agricultural use does not change land character, and revenue records showing agricultural use are significant. Ultimately, the Court held that the Tribunal erred in classifying the land as non-agricultural, ruling in favor of the assessee. It concluded that the land was agricultural at the date of sale, thus not subject to capital gains tax. The Commissioner was directed to bear the costs of the reference to the assessee.
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