1993 (9) TMI 10 - SC - Income Tax

Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the land in question admeasuring 30, 885 sq. yards excluding 2, 607 sq. yards which was admittedly non-agricultural land was an agricultural land within the meaning of section 2(14) of the Income-tax Act 1961 and therefore on the sale thereof tax on capital gains resulting therefrom was not leviable

Summary

Issues Involved:
1. Whether the land in question was agricultural land within the meaning of section 2(14) of the Income-tax Act, 1961.
2. Whether the tax on capital gains resulting from the sale of the land was leviable.

Issue 1: Whether the land in question was agricultural land within the meaning of section 2(14) of the Income-tax Act, 1961

The appellants, co-owners of a plot of land measuring 30,885 sq. yards, contended that the land was agricultural, thus exempt from capital gains tax. The land, situated within the municipal limits of Surat and one kilometer from the Surat railway station, had a portion converted to non-agricultural use in 1958. The remaining land continued to be registered as agricultural in revenue records, and land revenue was paid until the date of sale.

The appellants argued that the land was under actual cultivation until it was sold and that agricultural operations were carried out in the past. They also highlighted that the land was surrounded by agricultural lands and was never put to non-agricultural use, except for a portion converted in 1958.

The High Court, however, identified several factors against the appellants' claim:
1. Proximity to Surat railway station and within municipal limits.
2. Sale to a non-agriculturist for non-agricultural purposes.
3. Sale on a per sq. yard basis at Rs. 23 per sq. yard.
4. Absence of agricultural operations for the last four years before the sale.
5. Application for permission to sell for non-agricultural purposes made nine months before the sale.
6. Previous conversion of a portion of the land to non-agricultural use.
7. Commencement of construction by the purchaser immediately after the sale.
8. No agricultural operations since 1964-65.

The High Court concluded that the land was non-agricultural at the time of sale, despite being registered as agricultural in revenue records and the absence of formal conversion to non-agricultural use.

Issue 2: Whether the tax on capital gains resulting from the sale of the land was leviable

The appellants contended that the land was agricultural and thus exempt from capital gains tax. They argued that the land was registered as agricultural, land revenue was paid, and it was under cultivation until the sale. They also pointed out that the land was surrounded by agricultural lands and had no other income source except from this land.

The Revenue argued that the appellants had no intention of using the land for agricultural purposes after 1965-66, as evidenced by the agreement to sell the land for housing purposes, application for permission to sell for non-agricultural purposes, and the sale soon after obtaining permission. The land was not cultivated for four years prior to the sale, and the sale price and location indicated non-agricultural use.

The Supreme Court, after evaluating the facts and circumstances, concluded that the land was not agricultural at the time of sale. The court emphasized the importance of the intended use and actual condition of the land, rather than mere potentiality or registration in revenue records. The appellants' actions of entering into an agreement to sell for housing purposes, applying for permission to sell for non-agricultural purposes, and the absence of cultivation for four years prior to the sale, outweighed the factors in favor of the appellants' claim.

Conclusion:

The Supreme Court upheld the High Court's decision, concluding that the land was non-agricultural at the time of sale and thus subject to capital gains tax. The appeals were dismissed.