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Commissioner of Income-tax, Gujarat-iii Vs. Manilal Somnath - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberI.T.R. No. 180 of 1974
Judge
Reported in[1977]106ITR917(Guj)
ActsBombay Tenancy and Agricultural Lands Act - Sections 63; Income Tax Act, 1922 - Sections 2(4A); Income-tax Act, 1961 - Sections 2(14), 45, 53 and 54; Wealth Tax Act, 1957 - Sections 2(1)
AppellantCommissioner of Income-tax, Gujarat-iii
RespondentManilal Somnath
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.P. Shah, Adv.
Cases ReferredHimmatlal Govindji v. Commissioner of Wealth
Excerpt:
direct taxation - assessment of land - section 63 of bombay tenancy and agricultural lands act, section 2 (4a) of income tax act, 1922, sections 2 (14), 45,53 and 54 of income tax act, 1961 and section 2 (1) of wealth tax act, 1957 - whether land in dispute an agricultural land - land under agricultural use since long period - no approach road to land at relevant time - paying high value for agricultural land to bring it under category of non-agricultural land does not bring it under non-agricultural land - tribunal justified in declaring land as agricultural land. - - if on the other hand the land is being used for non-agricultural purpose, it would be a strong circumstance to indicate that the land is not agricultural land. in the first place, the permission for non-agricultural.....b.j. divan, c.j.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.....
Judgment:

B.J. Divan, C.J.

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. 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 land is agricultural land or not. The purpose for which the land is purchased by the purchaser under permission granted under section 63 of the Bombay Tenancy and Agricultural Lands Act has also to be borne in mind, whether land revenue assessment is being paid on basis of the land being agricultural land or whether non-agricultural assessment is being paid after permission for non-agricultural use has been obtained from revenue authorities is also to be seen. In this case he also urged that the factor that the Government acted under section 88(1)(b) of the Bombay Tenancy and Agricultural Lands Act by reserving the land for non-agricultural and industrial development was a factor which should be borne in mind.

4. 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 -

'property of any kind held by an assessee, whether or not connected with his business or profession, but does not include -...

(iii) agricultural land in India...'

5. It may be pointed out that the provisions as to capital gains under the Indian Income-tax Act, 1922, were to be found in section 12B. Under section 12B(1), the tax was to be payable by an assessee under the head 'capital gains' in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of March, 1956, and such profits and gains were to be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place. Section 2, sub-section (4A), of the Act of 1922, defined 'capital asset' to mean :

'property of any kind held by an assessee, whether or not connected with his business, profession or vocation, but does not include - ...

(iii) any land from which the income derived is agricultural income.'

Thus, under the Act of 1961 a departure is made regarding the exclusion from the definition of 'capital asset' under clause (iii). Under the Act of 1922, 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.

6. 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 land or not has a great deal of bearing because wealth-tax is payable on the net assets held by a particular assessee.

7. The decision in Rasiklal Chimanlal Nagri v. Commissioner of Wealth-tax [1965] 56 ITR 608 was delivered in the context of the Wealth-tax Act. Bhagwati C.J., as he then was, delivering the judgment of the Division Bench of this High Court has pointed out in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 that the expression 'agricultural land' has nowhere been defined in the Constitution and has, therefore, to be understood in the plain, ordinary meaning of the expression according to English language bearing in mind the fundamental principle of construction that the expression occurs in a head of legislative power under which the Wealth-tax Act has been enacted and it should, therefore, receive the widest and most liberal meaning. He further observed that whether a land is agricultural land or not, cannot depend on the fluctuating or ambulatory intention of the owner of the land. The criterion must be something more definite and more objective, something related to the nature or character of the land and not varying with the intention of the owner as to the use to which he wants to put the land at a particular point of time. He also pointed out that the intention as to user is, however, not altogether an irrelevant consideration and is a factor which would bear on the nature or character of the land, but it does not afford a sole or exclusive criterion for determining whether a land is agricultural land or not. At page 615 of the report he observed :

'Where the land is actually put to 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 land is agricultural land and vice versa. But even this test may not always furnish a correct answer, for there may be cases where land admittedly non-agricultural (such as a building site) may be used temporarily for agricultural purposes. In such cases it would not be correct to say that merely because the land is in fact being used for agricultural purposes, it is agricultural land. But as a general proposition it may be stated without any fear of contradiction the ordinarily the actual user to which the land is being put would furnish prima facie evidence 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.'

8. In the case before the Division Bench in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 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 and 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 factor which would have a bearing on the question whether the land is agricultural land or not. This factor may affect the land and its capacity of being used for agriculture and would also indicate the purpose for which the land would ordinarily be likely to be used. The physical characteristics of the land would be another factor to be taken into account. The physical characteristics may show the general nature or character of the land particularly in regard to its adaptability for being used for agricultural purpose. Then the intention of the owner as gathered from all the relevant circumstances would also have a bearing on the general nature or character of the land. Of course, as we pointed out above, the intention of the owner of the land to put it to a particular use at any given point of time cannot be the determining factor. But the intention of the owner in regard to the user of the land would certainly be a relevant factor which would have to be taken into account. Where, for example, as in the present case, the land has not been used for agricultural purposes for over a number of years without any particular reason, it would certainly indicate that the land is no longer meant for agricultural purposes, but is meant for being used for non-agricultural purposes and cannot, therefore, be regarded as agricultural land. The fact that the land is assessed for agricultural purposes would also be a relevant consideration and due effect would have to be given to this factor in arriving at the conclusion whether the land is agricultural land or not. But we cannot agree that the capacity of the land for being put to agricultural use is a determinative factor in deciding whether the land is agricultural land or not. It that were the correct test, ever building sites assessed for non-agricultural purpose would be agricultural lands so long as they are not actually put to non-agricultural use, since it would always be possible to say of them that they are capable of being used for agricultural purposes. As a matter of fact all land which has not actually been put to non-agricultural use would be liable to be regarded as agricultural land if this test were the correct test.'

9. After considering several decisions on the point, Bhagwati J. observed at page 619 :

It is, therefore, clear that the true test to be applied for the purpose of determining whether a particular 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.

10. In Commissioner of Wealth-tax v. Narandas Motilal : [1971]80ITR39(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 Wealth-tax Act. The decision in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 was referred to and relied upon. In that case it was found on the facts that though the land was within municipal limits, there was no approach road to this land, there was no development round about, the land was within a draft town planning scheme and the land which had been inherited by the assessee was being consistently used for agricultural purposes throughout the relevant period. At page 47, after citing the passage at page 615 of the report in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 , which we have cited above, T. U. Mehta J. observed :

'These observations show that if once the assessee becomes successful in showing that the land is consistently used for agricultural purpose throughout the relevant period, then that fact can be taken as furnishing some prima facie evidence to determine the character of the land in question. However, this may not be considered as sufficient looking to other facts and circumstances of the case. For instance, if building site which is situated in the midst of a fully developed residential locality is subjected to agricultural use then the prima facie presumption about the agricultural character of the land would at once be displaced. It is, therefore, necessary to see whether there are any other circumstances in this case going to suggest that the prima facie presumption which would arise from the fact that this land has been put to agricultural use consistently from the year 1952 is in any manner displaced.'

11. The Division Bench in Narandas Motilal's case : [1971]80ITR39(Guj) pointed out that throughout the relevant period the lands had been so situated that they could not have been put to any other use except for agriculture. It was an admitted position that in the area round about, there was no building activity. The land was not approachable by any road to the residential locality of Navrangpura and other societies to which reference was made by the Appellate Assistant Commissioner in his order in that case. It was further in evidence that neither the assessee nor the person to whom the assessee had sold different plots of land had, at any time, made any attempt to put the land to non-agricultural use. There was absolutely no evidence on the record going to show that even the purchasers had made any attempt to carry on any non-agricultural activities on any of those plots of land. On these facts 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 no disputed.

12. In Ranchhodbhai Bhaijibhai Patel v. Commissioner of Income-tax : [1971]81ITR446(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 being used for agricultural purposes by the assessee and it was, therefore, apparent that by reason of section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, referred to in the judgment as 'the Tenancy Act', the assessee would not be able to sell any portion of the land to Ajay Construction Company or Bapunagar Co-operative Society Ltd., pursuant to the agreements of sale unless the land ceased to fall within the definition of 'land' in section 2(8) of the Tenancy Act. The assessee applied to the Collector of Baroda under section 65 of the Bombay Land Revenue Code, 1879, for permission to make non-agricultural use of the land and such permission was granted on January 23, 1963. The assessee admittedly ceased to carry on agricultural operations on the land from January 23, 1963, and completed the sale in favour of Ajay Construction Company and Bapunagar Co-operative Housing Society Ltd. on April 29, 1963, and July 15, 1963, respectively, for the sums of Rs. 30,000 and Rs. 50,000. On these facts Bhagwati C.J. observed at page 453 after quoting extensively from the decision in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 :

'It will be clear from these observations that the true test to be applied for the purpose of determining whether a particular land is agricultural land or not is first to ascertain what is the use to which the land is being actually put. If it is being used for agricultural purpose or ever if the agricultural use has ceased but it is apparent that the land is meant to be used for agricultural purpose, it would be agricultural land. If on the other hand the land is being used for non-agricultural purpose, it would be a strong circumstance to indicate that the land is not agricultural land. Where, however, the land is not being actually put to any use, the test would be not whether the land is not being used for agricultural purpose but whether, having regard to the various factors referred to in the above-quoted passages from the judgment in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 , the general nature or character of the land is such that it can be regarded as agricultural land. If we examine the question from this point of view, the conclusion is inescapable that the land sold by the assessee in the present case was not agricultural land at any time when one or the other portion of it was sold. 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 agricultural land, it became non-agricultural land. There is also one other circumstance which strongly reinforces this conclusion. If the land continued to be agricultural land, the assessee could not have sold it to Ajay Construction Company, Baroda, and Bapunagar Co-operative Housing Society Ltd., in view of the provisions of section 63 of the Tenancy Act and the assessee, therefore, with a view to escaping from the mischief of section 63 of the Tenancy Act obtained permission of the Collector for non-agricultural use under section 65 of the Bombay Land Revenue Code, 1879. The object of the assessee was that the land should cease to fall within the definition of 'land' in section 2(8) of the Tenancy Act and, if that was the object, it must follow necessarily that the general nature or character of the land was converted from agricultural into non-agricultural. It may also be noted that the price at which the land was sold by the assessee was fixed not by acre, bigha or guntha but by square foot. It is common knowledge that when agricultural land is sold, the price is almost always fixed with reference to acre, guntha or bigha. The fixation of price with reference to square foot is generally a characteristic of non-agricultural land. These circumstances clearly establish that, though originally the land sold by the assessee was agricultural land, it ceased to be agricultural land and became non-agricultural land from January 23, 1963, and, therefore, at the time of sale, it was not agricultural land within the meaning of section 2(14) of the Act.'

13. This decision makes it clear that the material date with reference to which the question whether a particular plot of land which has been sold is agricultural land or not is to be decided, is the date of sale. If at the date of the sale it is agricultural land, then it would not be a capital asset within the meaning of section 2(14). Question of capital gains in connection with the sale of that land would not arise. It must be emphasized that on the facts of Ranchhodbhai Patel's case : [1971]81ITR446(Guj) the sale of land took place on April 29, 1963, to Ajay Construction Company and July 15, 1963, to Bapunagar Co-operative Housing Society Ltd., but after January 23, 1963, the land was not put to any agricultural use and hence in the absence of use of land as of the date of the sale, the question had 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 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]81ITR446(Guj) since, at the date of the sale, the land was not being used for agricultural purposes.

14. Our attention has been drawn by Mr. Kaji to the decision of this High Court in Himmatlal Govindji v. Commissioner of Wealth-tax : [1977]106ITR658(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 2, 1959. The Collector of Rajkot granted the necessary permission by his order dated November 11, 1959, subject to certain conditions. The relevant conditions were that the land should be used only for the purpose of erection of residential buildings, that such buildings should be constructed only on one-third portion of the land and that one-third portion of the land should be set apart for laying out public roads, etc. The assessee accepted these conditions and the acceptance was recorded in an agreement executed on January 13, 1960. The plot of land admeasured 1,58,752 sq. yards and out of that total area an area of about 53,955 sq. yds. were set apart for laying out roads, parks and other projects of public utility. The remaining portion of the land was then parcelled out into 108 plots and those plots were sold by the assessee at different times. The assessee claimed in proceedings for the assessment to wealth-tax that the plots of land which had not been sold till the relevant assessment years were agricultural land within the meaning of section 2(e)(i) of the Wealth-tax Act and as such they were exempt from assessment to wealth-tax. The Division Bench after referring to Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 observed that on the relevant valuation dates, the remaining portion of the land which had not been sold was used by the assessee for agricultural purposes and was assessed to land revenue. The Tribunal had found, however, that the use of the land for agricultural purposes was by way of a stop-gap arrangement till the assessee found ready and willing buyers for the plots laid out in the land. Such agricultural use would necessarily be for a temporary period or short duration and would in the very nature of things be decisive. The Division Bench, therefore, applied other tests regarding development in the vicinity, the sale price of plots being fixed on yardage instead of acreage or bigha or guntha, application for non-agricultural use of the land having been made and on these facts held that the land was not agricultural within the meaning of section 2(e)(i) of the Wealth-tax Act at the relevant valuation dates. It must be noticed that in that particular case in Himatlal Govindji : [1977]106ITR658(Guj) though the land was being put to agricultural use, the finding of fact was that it was by way of a stop-gap arrangement and 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 were applied by the Division Bench.

15. 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 specific purpose of sale by the assessee to Tarakkunj Co-operative Housing Society Ltd. for the purpose of constructing residential buildings thereon and that application under section 63 of the Tenancy Act was applied for and was ultimately granted. Mr. Kaji urged before us that though this land was ancestral land which was received by the assessee on a partition in 1939 and though agricultural activity was being carried on in the land till the date of the sale, yet after the granting of the permission on March 24, 1967, it ceased to be agricultural land and he very strongly relied upon the decision of this High Court in Ranchhodbhai Bhaijibhai Patel's case : [1971]81ITR446(Guj) . He contended that the facts of the present case are very similar to the facts which were before the Division Bench in Ranchhodbhai Patel's case : [1971]81ITR446(Guj) .

16. We are unable to accept this contention of Mr. Kaji. Under section 63 of the Tenancy Act, no sale of any land or interest therein shall be valid in favour of a person who is not an agriculturist unless the Collector or an officer authorized by the State Government in this behalf grants permission for such sale on such conditions as may be prescribed. Under section 2, sub-section (8) of the Tenancy Act, 'land' means land which is used for agricultural purposes and it is, therefore, obvious that it was for the sale of land used for agricultural purpose for which the City Deputy Collector acting under section 63 of the Bombay Tenancy and Agricultural Lands Act granted permission. There is nothing to show that between the date of the permission, namely, March 24, 1967, and April 7, 1967, that is, the execution of the sale deed by the assessee in favour of Tarakkunj Co-operative Housing Society Ltd., agricultural operations which were being carried on were by way of stop-gap arrangement. We are not, in the present case, concerned with the question whether agricultural operations were such as a prudent agriculturist would carry out. The sole question that we have to decide is whether on the date of the sale by the assessee-Hindu undivided family to Tarakkunj Co-operative Housing Society Ltd. on April 7, 1967, the land was agricultural land or not. As T. U. Mehta J. has pointed out in Narandas Motilal's case : [1971]80ITR39(Guj) , the fact that the land was being used for agricultural purposes till the 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 608l: 56 ITR 608 , 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 land is agricultural land and vice versa. This is not a case where, for example, some land otherwise non-agricultural, is being used temporarily for agricultural purposes. The fact that the permission is obtained under section 63 of the Bombay Tenancy and Agricultural Lands Act would not displace the prima facie presumption which arises from the fact that this ancestral land received on partition was consistently being put to agricultural use and continued to be put to agricultural use till the date of the sale. In our opinion, the correct approach has been rightly indicated in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608. First, find out whether the land in question is being put to any use or not. If it is being put to agricultural use, ordinarily it would be agricultural land unless there are factors which dislodge that presumption. Similarly, if the land is being put to non-agricultural use, it would be non-agricultural land. The different tests which are mentioned in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 and other factors which require to be taken into consideration have applicability when the land is not being used for any purpose and is lying idle. In Himatlal Govindji's case : [1977]106ITR658(Guj) , though the land was being put to agricultural use, since it was found that it was only by way of a stop-gap arrangement till a purchaser of the plot which was already laid out came forward to purchase it, it was held that the land was not agricultural land. In each case, therefore, in the light of the facts and circumstances of the particular case, the question will have to be asked, whether the presumption from the use of the land arises or not and, secondly, whether such presumption flowing from the actual use of the land is dislodged by the presence of other factors in the case.

17. So far as the cases decided by this High Court are concerned, in Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 the question had to be decided in the light of the fact that the land in question was not being put to any use whatsoever and was lying idle at the relevant date. In the case of Narandas Motilal : [1971]80ITR39(Guj) the land was being put to agricultural use and it was found that there were no other factors in the case which would dislodge the presumption flowing from the agricultural use of the land. In Ranchhodbhai Bhaijibhai Patel's case : [1971]81ITR446(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]106ITR658(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.

18. 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 that the presumption raised from actual user cannot be dislodged. This was not a case of a mere purchaser going in for agricultural activity pending the disposal of the land. This was the ancestral land of the assessee-Hindu undivided family and right from 1939 when the land was received by it on partition, this assessee-Hindu undivided family was carrying on agricultural operations on the land till the date of the sale. Nothing had happened till the date of the sale to show that the character of the land has ceased to be that of agricultural land. What we have to consider is not what the purchaser did with the land or what the purchaser was supposed to do with land, but what was the character of the land at the time when the sale took place. It is true that permission to sell the land to Tarakkunj Co-operative Housing Society Ltd. was granted on condition that the land would be used for residential purposes and the application for permission under section 63 of the Bombay Tenancy and Agricultural Lands Act was applied for on the footing that, after the sale, the land would be used for residential purposes. But that only goes to show that, after the date of the sale, this land was to cease to be agricultural land. The permission granted by the City Deputy Collector under section 63 of the Bombay Tenancy and Agricultural Lands Act clearly goes to show that in case the land did not cease to be agricultural land, the permission would be treated as cancelled and, therefore, the sale in favour of Tarakkunj Co-operative Housing Society Ltd. would be infructuous and the land would revert back to the assessee. In such an eventuality, the land would still continue to be agricultural land because the permission to sell to a non-agriculturist would be treated as cancelled. That eventuality has not happened and as pointed out it was some time in February, 1969, that the permission for non-agricultural use was granted to the purchaser, that is, Tarakkunj Co-operative Housing Society Ltd. The fact that a particular plot of agricultural land has potential non-agricultural value for which a purchaser is prepared to pay a high price does not mean that it is not an agricultural land at the relevant date and the factor which has been emphasized by Mr. Kaji about the price realised being out of all proportion to the value of the land as agricultural land is not a factor which would dislodge the presumption flowing from the actual user of this land as agricultural land. The land had undoubtedly potential non-agricultural value and for that potential non-agricultural value, the purchaser was prepared to pay a large price but such potential non-agricultural value does not detract from the character of the land as agricultural land at the date of the sale.

19. Under these circumstances, in our opinion, the Tribunal was right in holding that the land in question was agricultural land. We, therefore, answer the question referred to us in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.


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