COMMISSIONER OF INCOME TAX Vs. MANILAL SOMNATH

JUDGEMENT

(1.) IN this case, at the instance of the revenue, the following question has been referred to us for our opinion by the Tribunal : 'Whether, on the facts and in the circumstances of the case, the decision reached by the Tribunal that the land in question was agricultural land was correct in law ?'

(2.) THE facts leading to this reference are as follows. The assessee is a Hindu undivided family. We are concerned with assessment year 1968 -69, the relevant previous year being Samvat year 2023. The assessee owned 2 acres and odd gunthas of land at Wadaj, the exact measurement being 10,164 square yards. This land was situated within the Ahmedabad Municipal limits. It bore Survey No. 312/A/1 of Wadaj village. It was included within the proposed Town Planning Scheme No. 28. By an agreement to sell dated May 15, 1966, the assessee agreed to sell this land to Patel Land Corporation. On November 17, 1966, Patel Land Corporation sold their rights under the agreement to sell to Tarakkunj Co -operative Housing Society Ltd. On March 24, 1967, the City Deputy Collector, Ahmedabad, granted permission under section 63 of the Bombay Tenancy and Agricultural Lands Act to sell the land to Tarakkunj Co -operative Housing Society Ltd. On April 7, 1967, the sale deed was executed by the assessee -family in favour of Tarakkunj Co -operative Housing Society Ltd. and Patel Land Corporation acted as the confirming party. On February 21, 1969, permission for non -agricultural use of this land was granted to Tarakkunj Co -operative Housing Society Ltd. The consideration for the sale was Rs. 2,23,608. The assessee contended that the land was agricultural land and hence it was not a capital asset on the sale of which capital gains could become payable under the scheme of the Income -tax Act, 1961. It is common ground that agricultural operations were being carried on in the land till the date of the sale, that is, till April 7, 1967. The assessee -family was deriving very meagre income from agriculture and it was incurring negligible expenses in connection with these agricultural activities. The area surrounding the particular plot of land was fully developed and co -operative housing societies had come up in the surrounding area. The land had been brought within municipal limits in 1956 and it was exempted from the operation of the Bombay Tenancy and Agricultural Lands Act by virtue of a notification which had been issued by the Government reserving all lands within the limits of the Ahmedabad Municipal Corporation for non -agricultural and industrial development. The notification was issued under section 88(1)(b) of the Bombay Tenancy and Agricultural Lands Act. Such a notification had been in existence right from 1956 onwards. The Income -tax Officer rejected the assessee's contention that the land was agricultural land on the ground that the agricultural operations were carried on. He held that these operations were not such as could have been carried on by a prudent agriculturist and also on the ground that the land was situated in a fully developed locality. The assessee carried the matter in appeal to the Appellate Assistant Commissioner who reversed the decision of the Income -tax Officer. The Appellate Assistant Commissioner held that since the land was used for agriculture up to the date of the sale, its character did not change merely because it was within the limits of the municipal corporation or within the proposed town planning scheme. The Appellate Assistant Commissioner came to the conclusion that the land was agricultural land. Against the decision of the Appellate Assistant Commissioner the matter was taken is second appeal before the Triobunal by the revenue and it was contended that since the price obtained was abnormally high, it was an indication that the land had lost its original character of agricultural land on the date of the sale. The Tribunal held that the instructions issued by the Central Board of Direct Taxes on March 16, 1968, in its Circular No. 2(WT) of 1968 applied to this case and all the three conditions of that circular applied. Even otherwise the Tribunal found that since the land was used for agricultural purposes, ordinarily it would be correct to say that the land was agricultural land and in a case, however, where the land is not being put to any use, different tests have to be applied for determining whether it is agricultural land or not. Thereafter, at the instance of the revenue, the question set out hereinabove has been referred to us for our opinion.

(3.) BEFORE we go to decided cases, it is important to bear in mind that under section 45 of the Income -tax Act, 1961, any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53 and 54, be chargeable to income -tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. 'Capital asset' has been defined by section 2, sub -section (14) of the Act of 1961 to mean -