1985 (7) TMI 179 - AT - Income Tax

Summary

Issues Involved:

1. Whether the land sold by the appellant can be construed as agricultural land.
2. Determination of the cost of acquisition for computing capital gains.
3. Applicability of the CBDT circulars regarding the computation of capital gains.

Issue-Wise Detailed Analysis:

1. Whether the land sold by the appellant can be construed as agricultural land:

The appellant claimed that the land sold was agricultural, thus exempt from capital gains tax. The ITO and AAC rejected this claim based on several factors:
- The land was purchased for business purposes, not agricultural use.
- There was no mention of agricultural use in the sale deed.
- The extent of agricultural expenses claimed was minimal.
- No kist (land revenue) was paid.
- The alleged lease to the watchman was unsupported by evidence.
- The sale price indicated non-agricultural use.

The Tribunal applied the tests from Rasiklal Chimanlal Nagri v. CWT, considering the situation, physical characteristics, and the owner's intention. The land's location, previous and present use, and the appellant's intention at purchase indicated non-agricultural use. The Tribunal concluded that the land was never held or intended to be held as agricultural land by the appellant.

2. Determination of the cost of acquisition for computing capital gains:

The appellant argued that the cost of acquisition should be the market value on the date the land became non-agricultural. The Tribunal referenced the Gujarat High Court decision in Ranchhodbhai Bhaijibhai Patel's case, which held that the cost of acquisition is the original cost, not the market value at conversion. The Tribunal upheld this view, rejecting the appellant's contention.

3. Applicability of the CBDT circulars regarding the computation of capital gains:

The appellant cited a CBDT circular dated 1-8-1969, which suggested using the market value at the date of conversion for computing capital gains. However, this circular was withdrawn on 23-9-1971. The Tribunal considered the Kerala High Court's decisions, which held that a circular in effect during the relevant period should apply. However, since the circular was not in effect during the assessment year 1968-69 and was withdrawn before the assessment was completed, the Tribunal ruled that the circular did not apply.

Conclusion:

The Tribunal concluded that the land was non-agricultural at the time of sale, and the cost of acquisition for capital gains computation should be the original cost, not the market value at conversion. The appeal was dismissed, and the capital gains were computed at Rs. 2,28,902.