1. The Income-tax Appellate Tribunal, Ahmedabad Bench 'B' has referred a question of law for out opinion under s. 256(1) of the I.T. Act, 1961, at the instance of the assessee. The said question reads as unde :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the land under reference was not agricultural land within the meaning of the Income-tax Act, 1961 ?'
2. The fact leading to this reference are as unde :
The assessment year under reference is 1970-71. The assessee is an individual. He sold land bearing survey No. 419, opposite to Law Garden, Navrangpura, Ahmedabad. The total area of the said land was 1,876 sq. yds. Out of this land, a portion on the western side with the boundary shown in red line in the map annexed with the sale deed, admeasuring 938 sq. yds. was sold to a partnership firm of M/s B. K. Jadhav and Co., Ellisbridge, Ahmedabad, who were carrying on the business of purchase and sale of land and constructing building thereon. On the eastern side of the land, a bungalow was constructed which continued to be in the ownership of the assessee and his family members. From the land sold to the partnership concern mentioned above, the eastern side of the land of 20 it. Width east to west was to be kept as a road. Rest of the land, admeasuring 938 sq. yds., came to be sold for Rs. 1,41,638 on March 26, 1969, as per sale deed executed on that date. The agreement to sell was executed on January, 15, 1968. In both the sale deeds as well as in the agreement to sell, m the land had been described as agricultural land. The assessee, claimed before the ITO that the capital gain of Rs. 41,058 should be exempted from capital gains tax. The ITO, however, did not agree with the assessee on the ground that no evidence was furnished regarding the actual cultivation of the land and the agricultural operation carried out thereon. No expenses were shown for the purchase of seeds and other expenses of cultivation. The land was surrounded by building sites and was situated in the heart of constructions and in an area which was fast developing. The said land was also within the town planning scheme and the same was sold for non-agricultural purposes, namely, for the construction of houses and sales thereof. Since the sale took place through a commercial agency, there was no question of taking the same as agricultural land. It was further observed that the land was sold by yards and not by acres.
3. Aggrieved by the said order, the assessee preferred an appeal to the AAC contending therein that the Income-tax Appellate Tribunal, Bombay bench 'B', in their order dated January 29, 1963, in W.T.A. No. 202/1961-62 for the assessment year 1960-61 in the case of Shri R. C. Dalal, son and legal heir of Shri C. C. Dalal (deceased) held that the land was agricultural land. Similarly, the Income-tax Appellate Tribunal, Bombay 'B' in their order dated March 18, 1965, in W.T.A. Nos. 1065 and 1066 of 1963-64 (assessment years 1961-62 and 1962-63) in the case of the legal heirs of C. C. Dalal v. WTO held that the lands were agricultural lands. Since these lands were a part and parcel of the land in question which was sold by the assessee, the same had got to be taken as agricultural land. The AAC was impressed by these arguments on behalf of the assessee and accepted them and allowed the appeal and deleted the capital gains.
4. This brought the dissatisfied revenue to the Income-tax Appellate Tribunal by way of a further appeal. The revenue contended that the land was purchased not for agricultural purposes but for the purposes business by the vendee. All the requisite conditions necessary for holding the land to be an agricultural land were not complied with. The assessee's representative, on the other hand, placed his reliance on the order of the AAC.
5. The Appellate Tribunal found that the land was originally acquired by Shri C. C. Dalal, the father of the assessee. After his death, the land was inherited by his legal heirs. However, for the assessment years 1960-61, 1961-62 and 1962-63, the lands were held to be agricultural lands by the Income-tax Appellate Tribunal, Bombay Bench, Bombay. The ITO also considered those lands as agricultural lands in the assessment years 1965-66 to 1967-68. In the previous year relevant to the assessment year under reference, the land was sold to a partnership concern which was carrying on the business of purchases of land, constructing houses thereon and sale thereof. This clearly showed that the land in question was meant to be sold for commercial purposes and not for agricultural purposes. The Tribunal held that the Income-tax Tribunal, Bombay, might have held the said lands to be agricultural lands at the relevant time. But, thereafter, during the superventing period, Gujarat was carved out as a separate State and as a result thereof, there was a great spurt in the commercial and building activities. The result was that all the lands which were lying idle or unutilised or which were agricultural lands were sold to co-operative societies or other commercial agencies at huge profits. The assessee also made hay while the sum was shining. The Tribunal further held that the transaction in question pertained not to agricultural land but to a commercial plot and a commercial transaction took place between the assessee and M/s B. K. Jadav and Co., a firm carrying on real estate business. The Tribunal noted that the land in question was covered by a town planning scheme as far back as on March 15, 1945, and that the assessee had also not proved the factual cultivation was being carried on as held by the Supreme Court in CIT v. Raja Benoy Kumar Sahas Roy : 32ITR466(SC) . The Tribunal noted the fact that the area was surrounded by building sites and was situated within the municipal limits and that the land was sold for non-agricultural purpose and the land was sold in yardage and not in acreage. On these grounds, the Tribunal took the view that the land was not sold as agricultural land at the relevant time and hence it was a capital asset of the assessee with the consequently liability of being subjected to capital gains tax on the said transaction of sale.
6. The assessee, thereafter, requested the Tribunal to refer a question of law to this court for its opinion under the provision of s. 256(1) of the I.T. Act and that is how the earlier mentioned questions of law has come to be referred to this court.
7. In order to resolve the controversy between the parties, in the present case, it is necessary to keep in view certain admitted and well established facts on the record of this case and for which there is now no controversy between the parties before u :
1. The land in question was ancestral land in the hands of (the heirs of) Shri C. C. Dalal who died in 1962, intestate.
2. This land was purchased year back by Shri C. C. Dalal in 1933.
3. In the wealth-tax assessment proceedings, pertaining to the land in question, the department had treated this land as agricultural land year
4. For the assessment year 1957-58, 1958-59 and 1959-60 this land was exempted for wealth-tax, for the first year by the AAC in appeal, while for the 2 and third year, by the WTO. For the years 1960-61, 1961-62 and 1962-63, the Income-tax Tribunal, Bombay, held this land as exempted from the operation of the W.T. Act being agricultural land on which agricultural operations were carried on at the relevant time, For the assessment year 1963-64 and 1964-65. The land in question was held exempt from wealth-tax in the hands of the HUF of C. C. Dalal Thereafter, a partition took place between the heirs of late C. C. Dalal who expired on August 31, 1962, and even thereafter, for the assessment years 1965-66, 1966-67 and 1967-68, the land was held to be exempt from the operation of the W.T. Act as being agricultural land. It is thereafter that the ITO for the assessment year 1970-71 treated this land as non-agricultural land in the I.T. proceedings and that finding was reflected in his order of assessment in the W.T. proceedings for the assessment years 1968-69 and 1969-70 wherein, to be consistent with the finding as ITO in I.T. proceedings, he held the land in question to be non-agricultural land. But it is a well-abolished fact on the record of this case that for all pervious W.T. proceedings, right from 1957-58 to 1967-68, the land in question was held to be agricultural land exempt from the operation of the W.T. Act.
5. In the record of rights for the relevant years, the land in question was shown to be under cultivation.
6. The agreement to sell dated January 15, 1968, as well as the sale deed of March 26, 1969, clearly mentioned that the land which was sought to be conveyed was agricultural land.
7. The HUF of C. C. Dalal had maintained account books wherein accounts for cultivation were written so far as the land in question was concerned.
8. The land in question was never put to non-agricultural use till the late of the sale.
8. The aforesaid features which are well established on the record of the case raise a very strong presumption that the land in question was agricultural land at the relevant tried to press in service the following circumstances to rebut the strong presumption regarding the land being agricultural land as arising from the aforesaid features of the case which we have noted in the earlier part of this judgment. The feature relied upon by the revenue for rebutting the presumption that the land was agricultural
1. The land in question was surrounded by building sites and was situated in the heart of construction and in an area which was fast developing.
2. The land was covered by the town planning scheme sine 1945.
3. The sale was effected through a commercial agency and was sold to a non-agriculturist.
4. The sale was made with reference to yardage and not acreage.
5. The assessee is said to have made a huge profit by sell in 938 sq yds for an amount of Rs. 1,41,638.
6. The land was being sold to a purchaser who wanted to utilise the land for construction purposes and us the land was not to be used as agricultural land after the sale.
7. The land which was lying idle and which was being used as agricultural land was sought to be sold to be commercial agency at an huge profits. Thus, the land was being treated as a commercial plot.
8. The land was surrounded by big buildings and development roads; in fact on the eastern side of the land, there was the residential bungalow of the vendor himself.
9. The land was situated in the municipal limits of the Ahmedabad City.
10. The land was not being used as a viable unit for cultivation purpose as very small amounts were received as and by way of agricultural income from such operation on this land in past years.
9. The aforesaid factors on which the revenue relied on upset the aforesaid strong presumption regarding the character of the land being agricultural at the time of the sale, are not sufficient to legally displace and to effectively rebut the presumption which arises regarding the character of this land at the relevant time when it was subjected to sale. It is now well settled by a series of judgment of this court as well as the latest judgment of the Supreme court in CWT v. Officer-in-charge (Court of Wards), Paigah : 10ITR133(SC) , that the fact that the area of the land was large, that the land had two wells in it and it was capable of being used for agricultural purposes and that it had not been put to any use could change the character of the land by making it unfit for immediate cultivation and that it was classified and assessed to land revenue as agricultural land, were not conclusive features to find out whether the land was agricultural or non-agricultural, but the fact that the land was classified and assessed to land revenue as agricultural land under the Andhra Pradesh Land Revenue Act alone proved some evidence of the character of the land from the point of view of its purposes. The Supreme Court observed in that connection (headnote :
'That the property was classified in the revenue records as agricultural land was not conclusive and such entire could raise only a rebuttable presumption.
10. It was further observed (headnote :
'The determination of the character of the land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of loans, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of 'assets', but its actual condition and intended user which has to be seen for purpose of exemption from wealth-tax. One of the objects of the exemption is to encourage cultivation or actual utilisation of land for agricultural purposes. If there is neither anything in its condition, nor anything in the evidence to indicate the intention of its owners ore possessors so as to connect it with an agricultural purpose, the land could not be 'agricultural land' for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence.'
11. In CIT v. Manilal Somnath : 106ITR917(Guj) , this court laid down the correct leagtl test for determining whether the land in question when sold would attract the provisions of the capital gains tax or not. In this connection, it was observed by this court (headnote :
'What had to be considered is not what the purchaser did with the lands or the purchaser was supposed to do with the land, but what was the character of the land at the time when the sale took place, the fact that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purpose for a long time and nothing had happened till the date of the sale to change that character of the land. The potential non-agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was, therefore, agricultural land.'
12. Applying the aforesaid well-settled legal tests to the facts of the present case, the conclusion is inevitable that the land in question was agricultural land when it was subjected to sale on March 26, 1969. All through out, till that time, the land was being put to agricultural use as the record of rights for the relevant years showed. Whether the assessee could get good profits from agricultural operations in the past years is totally base the point. Whether the land was situated within the municipal limits was equally irrelevant for deciding the moot question whether the land when sold was agricultural land or not. Its actual user as agricultural land coupled with the record of rights entries showing the land to be agricultural land on which cultivation had taken place at the relevant time, would raise a strong presumption in favour of the assessee to the effect that the land conveyed was agricultural land at the relevant time. The circumstances relied upon by the revenue to rebut that presumption have failed to achieve that purpose and the legal presumption has remained unrebutted in any effective manner by the circumstances railed upon by the revenue. These circumstances are also innocuous and do not displace the legal presumption which arises from the two salient facts that at the relevant time the land was being utilised as agricultural land and the record of rights reflected the said fact consistently over the past number of years till the dated of the sale.
13. In Smt. Chandravati Atmaram Patel v. CIT : 114ITR302(Guj) , a Division Bench of this court was concerned with a question similar to that which has been posed for our consideration in the present proceedings. It was observed by this court (headnote :
'Prima facie land could be said to be agricultural which is either actually used, ordinarily used or is meant to be used, for agricultural purposes. If it is actually used at the relevant dated for agricultural purposes and there are no special feature, as for example, a building plot being used for agricultural purpose as a stop-gap arrangement, it would be agricultural land. Potential use of the lands as agricultural land is wholly immaterial. Entries in the record of rights are good prima facie evidence regarding agricultural land. The approach of the fact-finding authorities should be to consider the question from the point of view of presumption arising from entries in the record of rights or actual use of the land and then consider whether that presumption is dislodged by the presence of other factors in the case.'
14. In the aforesaid case, it was found that the Tribunal had not considered the question from the point of view of the presumption arising in favour of the assessee. In the present case also, we find that the Tribunal has failed to raise the proper legal presumption which arises from the well-established facts regarding the actual users of the land at the relevant time computed with the entries in the record of rights showing the land to be agricultural land. Thus, the Tribunal's order suffers from a patent error of law. The Tribunal has failed to apply the correct legal test to the proved and admitted facts on the record of this case and, hence, its judgment and order get vitiated in view.
15. In the light of this settled legal position and in the background of the well-established facts on the record of this case, it is found that the land in question had not ceased to be agricultural land when it was sold in March, 1969, by the assessee to M/s B. K. Jadav and Company. It may be that the assessee, out of that transaction, may have earned profits. But the question is whether such profits were liable to be brought to tax as capital gains. As the land was agricultural land, such a transaction was not covered by the provisions of capital gains tax as prevalent at that time. What the vendee intended to do with the land after he purchased it, was totally irrelevant. The Tribunal seems to have attached importance to irrelevant consideration and consequently its decision suffers from a legal flaw.
16. As a result of the aforesaid discussion, it emerges clear that the Tribunal was in error when it held that the land under reference was not agricultural land within the meaning of the I.T. Act, 1961. Accordingly, the question referred to us for out opinion will have to be decided in the negative, that is, in favour of the assessee and against the revenue. The Commissioner to pay the costs of this reference to the assessee. Orders accordingly.