1988 (5) TMI 56 - AT - Income Tax

Summary

Issues Involved:
1. Whether the land sold by the co-owner-assessees was agricultural land.
2. Whether the gain on sale of land is to be regarded as capital gain within the meaning of section 45 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the land sold by the co-owner-assessees was agricultural land:

The case revolves around the classification of the land as agricultural or non-agricultural at the time of its sale. The Income-tax Officer (ITO) argued that the land was not agricultural based on several findings:

- There was no cultivation on the land from 1958-59 to 1963-64, and only grass grew spontaneously.
- Fruit trees were planted only in 1964-65, likely to create evidence of agricultural use.
- The land was situated within municipal limits and in a developing residential area.
- The land was sold to a co-operative housing society, indicating non-agricultural use.

The Commissioner (Appeals) disagreed, citing:

- The land was recorded as agricultural in revenue records and subject to land revenue.
- There was evidence of agricultural activities, including planting fruit trees and selling grass.
- No application was made to convert the land to non-agricultural use.

The Tribunal's Accountant Member supported the Commissioner (Appeals), emphasizing:

- The land had been continuously shown as agricultural in the assessee's records and tax returns.
- A contemporaneous report by Income-tax Officer Shri Mandlik in 1966 confirmed signs of cultivation and the presence of a well.
- The land's classification as agricultural in revenue records and the absence of any non-agricultural use or conversion application.

Conversely, the Judicial Member disagreed, highlighting:

- The land's location in a developing residential area and within municipal limits.
- The lack of substantial agricultural operations from 1957 to the sale date.
- The planting of fruit trees and digging a well shortly before the sale as attempts to create evidence of agricultural use.

2. Whether the gain on sale of land is to be regarded as capital gain within the meaning of section 45 of the Income-tax Act, 1961:

The determination of whether the gain on the sale of land should be considered capital gain hinges on the land's classification. If the land is deemed agricultural, the gain would not be subject to capital gains tax under section 45 of the Income-tax Act, 1961.

The Accountant Member concluded that the land was agricultural based on:

- Continuous agricultural income reported by the assessees in their tax returns.
- The findings of Shri Mandlik's report confirming agricultural use.
- The land's classification in revenue records and the absence of non-agricultural use or conversion.

The Judicial Member, however, found that the land was non-agricultural, citing:

- The land's location in a residential area and within municipal limits.
- The lack of substantial agricultural operations over several years.
- The planting of fruit trees and digging a well shortly before the sale as attempts to create evidence.

Third Member's Conclusion:

The Third Member agreed with the Accountant Member, emphasizing:

- The land's continuous classification as agricultural in revenue records and tax returns.
- The contemporaneous report by Shri Mandlik confirming signs of cultivation.
- The absence of any non-agricultural use or conversion application.

The Third Member concluded that the land was agricultural at the time of sale, and therefore, the gain on its sale should not be regarded as capital gain under section 45 of the Income-tax Act, 1961.

Final Order:

The Tribunal, by majority view, upheld the decision of the Commissioner (Appeals) that the land was agricultural and the gain on its sale was not subject to capital gains tax. The appeals by the department were dismissed.