TMI Blog1976 (3) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 capital asset on the sale of which capita1 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue, the question set out hereinabove has been referred to us for our opinion. On behalf of the revenue Mr. Kaji urged before us the following contentions. He first contended that the nature and character of the land should be examined. Secondly, the extent of the development of surrounding area should be borne in mind. Thirdly, whether the land is within or outside municipal limits also has to be taken into consideration. Further, whether or not it is included in a town planning scheme proposed or finalised. Next consideration which he urged before us was, as to what is the actual use to which the land is being put. One of the factors which he urged for our consideration was whether the land was sold by yardage or acreage and whether the price realised on sale was out of all proportion to the value as agricultural land and, therefore, higher value was paid because it was more suitable for building residential or industrial structures. Mr. Kaji further submitted that the purpose for which the application under section 63 of the Bombay Tenancy and Agricultural Lands Act was made and was allowed subject to certain conditions must also be borne in mind in deciding whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any land from which the income derived was agricultural income was excluded whereas under the Act of 1961, agricultural land in India is excluded from the definition of " capital asset ". The main contention on behalf of the revenue has been that though agricultural operations were being carried on in the land under consideration till the date of the sale, that is, April 7, 1967, it was not agricultural land because development had come up to the area because it was included in the town planning scheme and principally because the price which was paid was so out of all proportion to the value of the land as agricultural land that nobody would have paid such a price for agricultural land and that itself showed that the land was not agricultural land at the date when it was sold. It may be pointed out that under the Wealth-tax Act, "assets" include property of every description, movable or immovable, but does not include,, in relation to the assessment year commencing on the 1st day of April, 1969, or any earlier assessment year, agricultural land and growing crops, grass or standing trees on such land. Thus, for wealth-tax purposes also, whether a particular land is agricultural la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of the true nature or character of the land and, therefore, whenever a question arises whether a particular land is agricultural land or not, primarily regard must be had to the purpose for which the land is being actually used at or about the relevant time and that would ordinarily provide a satisfactory answer to the problem." In the case before the Division Bench in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 (Guj) the land was not being used for any purpose whatsoever and was lying idle and the question of determining the true nature or character of the land presented some difficulty. The tests which were evolved by the Division Bench were so evolved to deal with a situation where the land is not being used for any purpose is lying idle. Bhagwati J. further observed at page 615 in the context of the tests to be applied when the land is not being put to any use : " Whether a particular land is agricultural land or not, must depend on the general nature or character of the land, and various factors would have to be taken into account. The development and use of the lands in the adjoining area and the surroundings and situation of the land would be an important fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular land is agricultural land or not, in a case where the land is not being actually put to any use, is not whether the land is capable of being used for agricultural purpose but whether having regard to the various factors to which we have referred earlier, the general nature or character of the land is such that it can be regarded as agricultural land." In this passage, at page 619, Bhagwati J. has made it clear that the tests which he was, evolving were applicable to a case where the land was not being actually put to any use. If the land was being put, say, to agricultural use, then ordinarily it would be correct to say that the land is agricultural land. If it was used for a non-agricultural purpose, it would be correct to say that the land was not agricultural land and the tests which are suggested are to be applied for deciding whether the land is agricultural land or not in cases where the land is not being put to any use whatsoever and is lying idle. In Commissioner of Wealth-tax v. Narandas Motilal [1971] 80 ITR 39 (Guj), the question before the Division Bench of this High Court of which Bhagwati C.J., as he then was, was a member, arose in the context of the Wealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry on any non-agricultural activities on any of those plots of land. On these facts the Division Bench held that the fact that the lands were plotted out and sold on yardage basis would not be sufficient for changing its character and the presumption about the agricultural character of the land was not disputed. In Ranchhodbhai Bhaijibhai Patel v. Commissioner of Income-tax [1971] 81 ITR 446 (Guj) the question before the Division Bench of this High Court consisting of Bhagwati C.J. and T. U. Mehta J. was of capital gains under section 45 of the Act of 1961. The facts in that particular case were that the assessee had a large area of ancestral agricultural land situated in village Savad at some distance from Baroda City. Two agreements of sale were entered into by the assessee in respect of different portions of this land, one on June 27, 1962, and the other on July 7, 1962. By the agreement of sale dated June 27, 1962, the assessee agreed to sell 2 acres 2 gunthas of land to the Ajay Construction Company of Baroda and the remaining 30 gunthas of land were agreed to be sold to Bapunagar Co-operative Housing Society Ltd. by the agreement of sale dated July 7, 1962. The land was bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. It is no doubt true that prior to January 23, 1963, the land was used for agricultural purpose by the assessee but the agricultural user came to an end on January 23, 1963, when permission for non-agricultural use was obtained from the Collector. This cesser of agricultural use was not of a temporary nature leaving the agricultural character of the land unaffected. There are various circumstances which indicate plainly and unmistakably that the land was at no time thereafter intended to be used for agricultural purpose. In the first place, the permission for non-agricultural use obtained from the Collector clearly evinced the intention of the assessee that the land would thereafter be used for non-agricultural purpose. Secondly, it was common ground that the land was agreed to be sold to Ajay Construction Company, Baroda, and Bapunagar Co-operative Housing Society Ltd. for construction of residential houses and the user of the land was, therefore, intended to be permanently changed ; the land was no longer to be used for agricultural purposes but it was to be used for construction of residential houses. The general nature and character of the land was thus altered and, from agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be considered by applying different tests and taking into consideration different factors and it had to be decided whether having regard to the various factors referred to in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 (Guj) it could be regarded as agricultural land. These different factors were taken into consideration and were required to be taken into consideration in Ranchhodbhai Bhaijibhai Patel's case [1971] 81 ITR 446, (Guj) since, at the date of the sale, the land was not being used for agricultural purposes. Our attention has been drawn by Mr. Kaji to the decision of this High Court in Himmatlal Govindji v. Commissioner of wealth-tax [1977] 106 ITR 658 (Guj). The facts of the case before the Division Bench consisting of Bhagwati C.J. (as he then was) and P. D. Desai J. were that the assessee and his brother had jointly purchased a plot of land situate on Jamnagar Road within the municipal limits of the City of Rajkot. The assessee had one-half share in the land. After the, plot was purchased, two applications were made to the Collector of Rajkot for permission to put the land to non-agricultural use. These applications were made on August 12, 1958, and September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not as a regular agricultural use and it was on the basis of this finding of fact that the other factors and tests mentioned in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 (Guj) were applied by the Division Bench. Mr. Kaji for the revenue has very strongly urged before us that when the City Deputy Collector granted permission to the assessee to sell this land, he imposed the following three conditions. The land must be used for residential purposes ; the construction must be carried out within one year from the date of the order ; and a regular registered document would have to be executed and permission for construction would have to be obtained from the appropriate officer under section 65 of the Land Revenue Code and the plan for the building must be got approved by the Ahmedabad Municipal Corporation. It was after this permission was granted by the City Deputy Collector on March 24, 1967, that the land came to be sold. Mr. Kaji urged before us that in the instant case with the granting of this permission by the City Deputy Collector the land ceased to be agricultural land. He contended that, as the permission granted by the City Deputy Collector showed, it was for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of the sale raises a prima facie presumption that it was agricultural land. It has been pointed out by Mr. J. P. Shah on behalf of the assessee that in this case there was no regular road to the land in dispute and it was with the aid of a tractor that the agricultural operations were being carried on. There was a well located in the land under consideration and agricultural operations were being carried on in the neighbouring land also. This is not a case like exceptional use of a building site in a well-developed-locality being put to agricultural use. Here ancestral land received by the assessee on partition was consistently put to agricultural use right till the date of the sale and though the land was included within the draft town planning scheme, the development does not appear to have caught up with this land at the date of the sale. As Bhagwati C.J., as he then was, pointed out in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 (Guj), where the land is actually put to agricultural use, there is usually not much difficulty in ascertaining the nature or character of the land. If the land is used for agricultural purposes, ordinarily it would be correct to say that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case [1971] 81 ITR 446 (Guj) at the relevant date, that is, at the date of the sale, the land was not being used for agricultural purposes and the cesser of agricultural user from, January 23, 1967, onwards was permanent and, therefore, the court held that the question had to be decided in the light of the fact that at the date of the sale the land was not being used for any purpose whatsoever. In Himmatlal Govindji's case [1977] 106 ITR 658 (Guj), though at the relevant date the land was being used for agricultural purposes, it was found as a matter of fact that though the land was being used for agricultural purpose, such use was a stop-gap arrangement pending availability of any buyer for the plots in question. So far as the special features of this case are concerned, in our opinion, the fact that the land was within the municipal limits or the fact that it was included within the proposed town planning scheme would not by themselves dislodge the presumption flowing from the actual user of the land. The fact, on the other hand, that there was no approach road at the relevant time and that agricultural operations were being carried on with the aid of tractor would go to show ..... X X X X Extracts X X X X X X X X Extracts X X X X
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