1979 (2) TMI 45 - HC - Income Tax

Actual User, Agricultural Income Tax Act, Capital Asset, Capital Gains, Land Whether Agricultural, Set On

Summary

Issues Involved:
1. Whether the land sold to Kalpana Co-operative Housing Society was non-agricultural in character when it was sold.
2. Whether there was a valid partition of the land in question and whether the capital gains arising from the sale transaction were taxable in the hands of the assessee.
3. Whether the assessee was entitled to recognition of partial partition under section 171 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Character of the Land at Sale:
The primary question was whether the land sold to Kalpana Co-operative Housing Society was non-agricultural in character at the time of sale. The Tribunal had initially held that the land was non-agricultural at the date of sale. However, the High Court evaluated the legal position on when land can be considered agricultural, referencing several precedents including the Supreme Court decision in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133. The High Court emphasized that the actual use of the land for agricultural purposes and entries in the revenue records are prima facie evidence of its agricultural nature. The court found that the land had been used for agricultural purposes since its purchase in 1929 and continued to be so until the date of sale. The High Court concluded that the Tribunal erred in law by disregarding these presumptions and held that the land was agricultural at the time of sale. Therefore, the question was answered in favor of the assessee and against the revenue.

2. Validity of Partition and Taxability of Capital Gains:
The second issue was whether there was a valid partition of the land and whether the capital gains from the sale were taxable in the hands of the assessee. The Tribunal had held that the partition was valid and directed the ITO to recognize it under section 171 of the Act. The High Court upheld this finding, noting that the partition deed was genuine and that there was no evidence to suggest otherwise. The court explained that a partial partition could be valid even if the property was allotted to only one coparcener without physical division. The court agreed with the Tribunal that the partition was genuine and should be recognized under section 171. Consequently, the capital gains arising from the sale were not taxable in the hands of the assessee-HUF but in the hands of Devidas Sunderlal individually. The question was answered in favor of the assessee and against the revenue.

3. Recognition of Partial Partition under Section 171:
The final issue was whether the assessee was entitled to recognition of the partial partition under section 171 of the Income-tax Act, 1961. The High Court affirmed the Tribunal's decision that the partition was valid and should be recognized. The court emphasized that the partition deed was genuine and that there was no requirement for physical division of the property if it was allotted to one coparcener. The court concluded that the Tribunal's reasoning was correct in law and that the partition should be recognized under section 171. The question was answered in the affirmative, in favor of the assessee and against the revenue.

Conclusion:
The High Court concluded that the land sold was agricultural in nature at the time of sale, the partition was valid, and the partial partition should be recognized under section 171. All questions were answered in favor of the assessee and against the revenue, with the Commissioner ordered to pay the costs of the assessee in each reference.