(1.) THE familiar but vexed question raises its head again in this reference : Was a piece or parcel of land held by the assessee 'agricultural land' so that the surplus realised on the sale thereof was not chargeable to income -tax under the head 'Capital gains' ? The question arose in the course of the proceedings for the assessee's assessment to income -tax for the assessment year 1969 -70, the previous year being the financial year ended March 31, 1968. The question is required to be answered in the light of the facts set out hereunder.
(2.) THE assessee, who ordinarily resides at Ahmedabad had purchased along with another person a piece or parcel of agricultural land admeasuring 15, 054 sq. yards (approximately 3 acres 4 gunthas) situate in village Bilimora for a total consideration of Rs. 43,989. The conveyance was executed on August 18, 1965. The assessee had an undivided one -third share in the said piece or parcel of land and he contributed a sum of Rs. 15,400 towards the consideration. The land is situate in an area which was not included in the municipal limits and there is no evidence or material on the record to show that there was any development in the surrounding area indicating any potentiality for the development of the land. After the purchase, the land was put to agricultural use for a period of three years. According to the revenue record, the crop of pulse (Tuver) was realised for two years and, for one year, the land yielded green grass. The yield, however, was of a very low order quantitatively and, therefore, there was no sale of the produce. It is not in dispute that at or about the time of its subsequent sale, the land was not actually put to agricultural use. All the while. However, the land continued to be listed in the revenue record and it was assessed to land revenue.
(3.) THE assessee, who had received a sum of Rs. 67,928 as his one -third share in the total amount of consideration. Claimed in Pt. IV of the return of income that since the land in question was agricultural, the surplus realised by him on the sale thereof was not liable to be taxed as capital gains. The ITO was of the view that since no agricultural operations were carried on immediately before the sale of the land in question. The land could not be treated as agricultural on the date of its sale and, that, therefore, the surplus realised by the assessee was liable to be taxed as capital gains. On appeal, the AAC reversed the decision of the ITO. Having considered the entire evidence on record, the AAC held that the land in question was agricultural and. That, therefore, the levy of capital gains tax was not justified. On further appeal, the Income -tax Appellate Tribunal affirmed the decision of the AAC. At the instance of the Revenue, however, the Tribunal has referred the following questions of law for the opinion of this court :