COMMISSIONER OF INCOME TAX Vs. PRAKASH INDUSTRIES

JUDGEMENT

(1.) IN this reference at the instance of the Revenue the following question has been referred to us for our opinion :

(2.) THE facts leading to this reference are as follows. We are concerned with the asst. year 1964 65. The assessee in this case is an individual carrying on business in the name of Prakash Industries, he being the sole proprietor thereof. Formerly, the assessee was a member of a joint and HUF consisting of his father who was the Karta, the assessee's brother, the assessee himself and his mother. This family owned immovable property including the lands in dispute. A partial partition had taken place between the coparceners of the HUF on 7th Oct., 1959. At the time of that partial partition, three plots of land, bearing Survey Nos. 66/1, 120/1 and 120/2 of Navrangpura, Sheikhpura and Khanpur areas came to the share of the assessee. The assessee entered into an agreement to sell these plots of land to a proposed co operative housing society on 20th July, 1962, and the sale deed was executed on 16th Feb., 1963. The land was sold on yardage basis for a sum of Rs. 3,42,069. The ITO treating the land as a capital asset worked out capital gains thereon at Rs. 2,40,193 and brought that amount to tax under the provisions of S. 45 of the IT Act, 1961, on the footing of capital gains. Against the decision of the ITO, the assessee carried the matter in appeal and the AAC found that the land was under agricultural use continuously, both during the time that it was owned by the HUF and after it came into the possession of the assessee after the partial partition. The AAC found that in the year 1959 60, because of scarcity of rainfall, the land had remained fallow, but otherwise it had been put to continuous use and, relying upon the decision of this High Court in CWT vs. Narandas Motilal (1971) 80 ITR 39 (Guj), he held that the nature of the land which was agricultural had not changed merely because it was surrounded by developed or developing area and hence it was not a capital asset within the meaning of the IT Act, 1961. He, therefore, allowed the appeal and set aside the order of the ITO regarding capital gains. Against the decision of the AAC, the Revenue carried the matter in appeal to the Tribunal and the Tribunal found that the land had been put to agricultural use right from the year 1936. No evidence had been led by the IT Department to prove that the land had been put to non agricultural use till the date of its sale. The Tribunal, following the decision in Rasiklal Chimanlal Nagri's case (1965) 56 ITR 608 (Guj) and the decision in CWT vs. Narandas Motilal (supra), held that the land was agricultural land and, therefore, the Tribunal confirmed the order of the AAC. Thereafter, at the instance of the Revenue, the question hereinabove set out has been referred to us for our opinion.

(3.) UNDER these circumstances, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the revenue. The CIT will pay the costs of this reference to the assessee.