COMMISSIONER OF INCOME TAX Vs. LILAVATI THAKORELAL PATEL

JUDGEMENT

(1.) A vexed question is again arising in this reference as to whether he lands in question which were purchased in two parts in November, 1937, and February, 1947, by the assessee, her sister -in -law and her two brothers -in -law were agricultural lands or not ? In order to appreciate the question which has been referred to us by the Income -tax Appellate Tribunal, Ahmedabad (hereafter referred to as 'the Tribunal'), we may set out a few facts from the statement of the case referred to us by the Tribunal. The assessee together with her sister -in -law, Smt. Shardaben Dhirajlal, and two brothers of her husband, Shri Ratilal Khushaldas and Shri Kantilal Khushaldas, jointly owned certain lands in village Shekhpur Khanpur, which is now known as Navrangpura. The lands are totally admeasuring 8,191 sq. yds. which is roughly equivalent to 1.28 gunthas. With effect from May, 1945, the said lands came within Town Planning Scheme No. 3 of Ellisbridge area in Ahmedabad City, with the result that they were given two final plots Nos. 280 and 281 by the Town Planning Authorities. Each of the four owners had 1/4th interest in the said lands. These lands were sold to one co -operative Housing Society under the name and style of Shriji Co -operative Housing Society on November 10, 1966, for Rs. 5,26,412; and the capital gains were worked out at Rs. 4,10.387 with the result that each joint owner including the present assessee was held to be taxable on capital gains of Rs. 1,02,597. It was claimed by the assessee that the lands were agricultural lands and they were sold as such. That claim did not find favour with the ITO; and he, therefore, treated the land as non -agricultural land and calculated capital gains accordingly. The assessee, therefore, carried the matter in appeal before the AAC, who accepted the appeal holding that the land was agricultural land and, therefore, there was no question of any taxable capital gains. The Department, therefore, carried the matter in appeal before the Tribunal in respect of three assessments, viz., that of the assessee, assessee's sister -in -law and one of the brothers of her husband. The Tribunal disposed of all these three appeals by a common order; and, relying upon the decisions of this court, held that on an overall consideration of the matter, these lands were agricultural land; and, therefore, dismissed the appeals of the Department including the one preferred in the case of the assessment of the present assessee for the assessment year 1967 -68 with which we are concerned in this reference. At the instance of the CIT, Ahmedabad, the following question is, therefore, referred to us :

(2.) SEVERAL principles have been laid down by this court as well as by the Supreme Court for determination of the question as to when a particular land can be considered to be an agricultural land. Before we advert to the decisions of this court, it would be profitable to remind ourselves as to what the Supreme Court has ruled on this point though in the context of the provisions of the W.T. Act. In CWT v. Officer -in -law Charge (Court of Wards) [1976] 105 ITR 13, the five judges' Bench was concerned with the question as to whether the property called 'Begumpet Palace' situated within the municipal limits of Hyderabad, consisting of vacant lands, admeasuring as much as 108 acres and also buildings, sheds and structures enclosed in compound walls of the said palace constituted agricultural land within the meaning of s. 2(e)(i) of the W.T. Act. The income -tax authorities as well as the Appellate Tribunal negatived the contention of the assessee that the land was agricultural land on the ground that it was neither ploughed nor tilled at the relevant time; nor had it been actually used for the said purpose; and, therefore, it was not intended to be used for agricultural purpose. On a reference to the High Court, it was held to be an agricultural land, because (i) the area was 108 acres abutting the Hussain Sagar tank; (ii) the land had two wells in it; (iii) it was capable of being used for agricultural purposes; (iv) it had not been put to any use which could change the character of the land by making it unfit for immediate cultivation; and (v) it was classified and assessed to land revenue as 'agricultural land' under the Andhra Pradesh Land Revenue Act. On appeal to the Supreme Court, it was held that the first four features set out above were inconclusive and the fifth feature alone provided some evidence of the character of the land from the point of view of its purpose; and that the property was classified in the revenue records as agricultural land, though not conclusive, would raise a rebuttable presumption; and, therefore, the Appellate Tribunal should determine afresh whether the lands were agricultural after giving an opportunity to both sides to lead further evidence. The Supreme Court further ruled that the determination of the character of the land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be investigated and established is the connection with an agricultural purpose and user and not mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. The Supreme Court emphasized that potentiality has bearing only as far as its valuation is concerned, but its actual condition and intended user which has to be seen for the purpose of exemption from wealth -tax. If, therefore, there is neither anything in its condition, nor anything in the evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be held to be an agricultural land for the purpose of claiming exemption under the W.T. Act. Entries in the revenue records are held to be good prima facie case.

(3.) NOW coming to the decisions of this court, it is not necessary to refer to them elaborately since a Division Bench of this court consisting of P. D. Desai J. (as he then was) and D. H. Shukla J. in CIT v. Siddarth J. Desai [1983] 139 ITR 628, has tabularised as many as 18 judgments - reported as well as unreported - wherein relevant test have been evolved and applied for determining the nature of the land. The Division Bench, speaking through Desai J., stated broadly that the question has arisen in the context of four facts -situation in connection with the user of the land on the date of sale. The first category of cases is where the land in question was not being put to any use whatsoever and was lying idle on the relevant date. The basic decision in respect of this category is Rasiklal Chimanlal Nagri v. CWT [1965] 56 ITR 608. The second category of these cases pertains to the land being actually put to agricultural use on the material date; and no other factors dislodging the presumption flowing from the agricultural use of the land was brought on record. The leading decision in this category is CWT v. Narandas Motilal : [1971]80ITR39(Guj) . The third category pertains to the land which ceased to be used for agricultural purpose on the relevant date and the cesser of agricultural purpose on the relevant date and the cesser of agricultural use was of a permanent nature. This category is represented by the decision in Ranchhodbhai Bhaijibhai Patel v. CIT : [1971]81ITR446(Guj) . The fourth category pertains to land which, though being used for agricultural purposes on the relevant date, was only by way of a stop -gap arrangement pending the availability of buyers for the demarcated plots in question. This category was represented by a decision in Himatlal Govindji v. CWT : [1977]106ITR658(Guj) . The Division Bench in Siddarth J. Desai's case [1983] 139 ITR 628, after tabularising different tests, summed up the position in the following terms (at p. 637 of 139 ITR) :