1988 (5) TMI 57 - AT - Income Tax

Summary

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

Detailed Analysis:

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

Facts and Arguments:
- The land in question, bearing Survey No. 57-3, was situated in Village Umra, District Surat, and was sold on 24th February 1965 to Sarangpur Co-operative Housing Society for Rs. 2,15,163.
- The assessee claimed that the land was agricultural, supported by entries in the Revenue records, Panipatrak for 1964-65, and a letter from the Chief Officer of Surat Municipality classifying the land as agricultural.
- The Income Tax Officer (ITO) rejected this claim, noting that no cultivation was done on the land from 1958-59 to 1963-64, and only grass, which was of spontaneous growth, was present. The ITO also noted that fruit trees were planted only in 1964, possibly to create evidence of agricultural use before the sale.

ITO's Findings:
- The land was situated within municipal limits and in a fast-developing residential area.
- The land was sold to a housing society, indicating its intended use for non-agricultural purposes.
- The agricultural income from the land was meager, and the land was not used for regular agricultural operations.

Commissioner(A)'s Findings:
- The land was classified as agricultural in Revenue records, and land revenue was paid accordingly.
- The assessee provided evidence of purchasing grass seeds and planting fruit trees.
- The land was not converted to non-agricultural use before the sale.
- The Commissioner(A) concluded that the land retained its agricultural character.

Tribunal's Findings:
- The learned Departmental Representative argued that the land could not be considered agricultural due to its location within municipal limits and the absence of substantial agricultural operations.
- The assessee's representative highlighted the report of ITO Mr. Mandlik, who inspected the land in 1966 and found signs of cultivation, supporting the claim of agricultural use.

Judicial Member's Opinion:
- The land was not cultivated from 1957 to 1963-64, and the planting of fruit trees in 1964-65 was likely an attempt to create evidence of agricultural use.
- The land was situated in a developing residential area, and its sale to a housing society indicated its non-agricultural potential.

Accountant Member's Opinion:
- The land had been shown as agricultural in the Revenue records for several years, and agricultural income was consistently reported by the assessee.
- The report of Mr. Mandlik, who found signs of cultivation in 1966, supported the claim of agricultural use.
- The land's potential for development did not change its character as agricultural land.

Third Member's Opinion:
- The land was used for growing grass and later for planting fruit trees, indicating agricultural use.
- The report of Mr. Mandlik and the consistent reporting of agricultural income supported the claim that the land was agricultural.
- The land's potential for development and its sale to a housing society did not change its character as agricultural land.

Conclusion:
- The majority view held that the land was agricultural, and the gain on its sale was not to be regarded as capital gain within the meaning of Section 45 of the IT Act, 1961.

2. Whether the gain on the sale of land is to be regarded as capital gain within the meaning of Section 45 of the IT Act, 1961:

Facts and Arguments:
- The ITO charged capital gains on the sale of the land, arguing that it was not agricultural land.
- The Commissioner(A) disagreed, holding that the land was agricultural and capital gains were not applicable.

Tribunal's Findings:
- The learned Departmental Representative argued that the land's sale to a housing society and its location within municipal limits indicated its non-agricultural nature, justifying the capital gains charge.
- The assessee's representative argued that the land's classification as agricultural in Revenue records and the consistent reporting of agricultural income supported the claim that it was agricultural land, exempting it from capital gains.

Judicial Member's Opinion:
- The land was not agricultural on the date of transfer, and the evidence of agricultural use was created shortly before the sale.
- The capital gains charge by the ITO was justified.

Accountant Member's Opinion:
- The land was agricultural, and the gain on its sale was not subject to capital gains tax.
- The consistent reporting of agricultural income and the report of Mr. Mandlik supported this conclusion.

Third Member's Opinion:
- The land was agricultural, and the gain on its sale was not to be regarded as capital gain.
- The consistent reporting of agricultural income and the report of Mr. Mandlik were significant factors.

Conclusion:
- The majority view held that the gain on the sale of the land was not to be regarded as capital gain within the meaning of Section 45 of the IT Act, 1961, as the land was agricultural.