1. The question for our decision in this tax case is :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the lands sold by the assessee are not entitled to exemption under section 2(14)(iii) of the Income-tax Act, 1961, as agricultural lands ?'
2. The assessee owned a parcel of land of the extent of 42.5 acres in Madras city. He sold the land in September, 1968, or a consideration of Rs. 4,18,200. The Income-tax Officer regarded this item of land as a 'capital asset' of the assessee and brought to tax the gains resulting from it sale. This assessment was confirmed in appeal first by the Appellate Assistant Commissioner and later by the Madras Tribunal. The objection of the assessee to the assessment was that the land sold by him was agricultural land and, hence, it stood excluded from 'capital assets' chargeable to tax under the Act. He relied on the definition of the expression 'capital asset' in section 2(14)(iii) of the Income-tax Act, 1961 ('the Act'), under which agricultural land stood specifically excluded from the purview of 'capital assets'.
3. In proof of his claim that the land was agricultural land, the assessee produced evidence of his having installed a 7.5 H.P. motor and pump set in the land for the purpose of pumping water. He urged that this was positive proof of his intention to make use of the land as agricultural land. He also produced some electricity bills in an effort to show that the pump set had been used for assisting agricultural operation in the land.
4. From these materials, the assessee apparently wished that an inference should be drawn that the land was agricultural land. The Income-tax Officer and the appellate authorities, however, did not see their way to draw any such inference. They found that the consumption of electricity evidenced by the electricity bills was on an average of units per month during the rainy season and 40 units per month during the summer season. For such a large extent of land measuring 42.5 acre the electricity consumption was found to be too poor to enable an inference to be drawn that agricultural operations were, in fact, being carried on in the said land to say noticeable extent, so as to mark out the land as agricultural land. Apart from these slender materials relied on by the assessee, there was no other evidence whatever to show that the land was being actually tilled or cultivated for raising agricultural produce. Under these circumstances, the uniform finding of the Income-tax Officer as well as the appellate authorities material for the assessment in question and the assessee's claim for exemption from capital gains tax was, therefore, untenable.
5. In this reference which comes to us at the instance of the assessee, his learned counsel, Mr. K. C. Rajappa, urged that the crucial inquiry in cases of this kind is to find out what was the owner's intention as to the user to which the land was to be put. Approaching the assessee's case from this view-point, the learned counsel submitted that there can be no mistaking of the assessee's intended user of the land when he set up a 7.5 H.P. motor and pump set. The suggestion of the learned counsel was that a pump set of this horse power could hardly have been installed in the land for any purpose other than for irrigation as agricultural land.
6. We do not accept the contention of the learned counsel that a mere intention as to the user of any given land could alone be the criterion for determining the true character of that land. It is, however, unnecessary to rest out decision in the present case by merely rejecting the learned counsel's argument bases on the aspect of intention. For, both before the Income-tax Officer and before the appellate authorities, the assessee did not stop short with adducing evidence as to his intention. He, in fact, proceeded further and produced what he considered to be adequate materials to show that he had actually put to use the 7.5 H.P. motor and pump set and had carried out his avowed intention of making use of the land as agricultural land. If the latter part of the assessee's evidence had been accepted by the Tribunal, the position would have been wholly different. As it happened, however, both the Tribunal and the authorities below, after having tested the assessee's evidence, found that it fell far short of satisfactory proof to show that some sort of agriculture was being carried out on the land to any extent. We are bound to accept this finding of the Tribunal as final not only because it has not been canvassed in the question of law before us as framed, but also because that finding is based on sound reasoning supported by the very materials relied on by the assessee himself. The Tribunal, for instance, remarked very pertinently that for such a large area of 42.5 acres, no agricultural activities of any kind could possibly have been carried out on a consumption of 20 to 40 units of electricity per month. The electricity consumption was so minimal as to discredit the very intention alleged by the assessee for the installation of the pump set.
7. Whether any given land is or is not agricultural and is a mixed question of law and fact. More so, because the expression 'agricultural land' has not been defined anywhere in the Act. This means that one has to have a clear conception of what distinguishes agricultural land from other species of land and then determine to which category one should assign the particular land under consideration. This determination, however, cannot be arrived at in any given case, unless one has got a very clear impression of all the relevant facts relating to the land in question. The ultimate determination, therefore, involves two processes of judicial reasoning, one the ascertainment of relevant facts on an evaluation of the evidence on record, and two the application of the relevant law or legal principles to the facts so ascertained. In the present case, as we have pointed out earlier, the Tribunal had arrived at a clear finding that the land was not being put to agricultural use of any sort at any time material for purposes of the present case. They had arrived at this finding on an evaluation of the evidence on record. This part of their conclusion, therefore, is unchallengeable in this reference under section 256 of the Act. Even as to the other part of the Tribunal's legal reasoning, we are satisfied that they were justified in placing reliance on the evidence as to the actual user to which the land was put rather than on the aspect of the assessee's intention. We believe that where, over a long period of time, the land in question was not shown to have been tilled and put to use for purposes of agriculture, the mere harbouring of an agricultural intention in the mind of its owner cannot have the overriding effect of effacing the hard realities to the contrary concerning the real character of the land. We are, therefore, satisfied that the Tribunal was quite justified in law in its determination that the assessee's land, on the sale of which accrued a surplus over cost, was not agricultural land exempt from capital gains tax.
8. The learned counsel, however, took the Tribunal to task for basing their determination on two other grounds which, according to him, were altogether far-fetched for purposes of the present inquiry. The Tribunal in their order had observed that the land sold by the assessee was situated in the centre of Madras City, in the thick of a residential locality, surrounded everywhere by buildings. The Tribunal apparently entertained the notion that there can be no agriculture land within the confines of urban area. This line of reasoning, according to the learned counsel, was signally at fault.
9. We realise there is force in the learned counsel's contention. We cannot assert that all urban land is non-agricultural land, any more than we can assert that all rural land is agricultural land. Just as there can be house site in villages which are non-agriculture in character, even so it is not impossible to have agricultural land even within the confines of a modern city. The character of land has, therefore, to be judged on its own and not by reference to other lands amidst which the land in question is situated. This is because we cannot decide the nature of any particular land by looking into the nature of other lands. We must, however, hasten to add that the location or situs of a land is not an entirely irrelevant consideration for judging its character. The only consideration is, as to what weight is to be attached to this factor of location in the context of other relevant facts. It may be observed, although not in a doctrinaire fashion, that it would take a lot more to convince us that lands in a city are agriculture lands than would be the case in regard to lands in village parts. The question would really bear on the state of evidence in any given case both qualitatively and quantitatively.
10. The other criticism made by Mr. Rajappa of the Tribunal's order relates to the particular which the Tribunal laid on the high price for which the assessee had sold the land in question. The Tribunal seemed to imagine that if the land was agricultural land, it would not have gone for such a high valuation. It seems to us that the price element does not always offer a dependable test for ascertaining the nature and character of the subject-matter of the bargain. The consideration paid to any given land, or for that matter any commodity, is a determinant of market forces, as well as felt urgency of the vendor or the purchaser at the given amount. We do not, therefore, set much store on the circumstance that the land which figures in this case realised a price which an equal extent of agricultural land might not have fetched.
11. Although we are not agreed fully with two of the grounds on which the Tribunal had founded its determination, we are satisfied that the Tribunal's conclusion can very well stand on the basis of their principal finding as to the total absence of any agriculture operations carried on the land. The learned counsel relied on a very recent judgment of a Division Bench of this court to which one of us was a party, in Tax Case No. 695 of 1976. [Gemini Pictures Circuit v. CIT - : 130ITR686(Mad) ]. He pointed out that in that case too the land in question was situate in the heart of Madras City, but did not prevent this court from holding that the land was agriculture land. We do not think this case really helps the discussion in the present reference, despite the similarity in fact that in both cases the gains had arisen from the sale of land situated within the city limits. For, in that case, there was clear evidence on record to show that the land was being utilised to grow plantation and other vegetables for a long number of years. This evidence, however, was not given due importance by the Tribunal when it held, by majority, that the land was not agricultural land. When the matter came before this court, it was pointed out that the Tribunal should not have determined the character of the land by overlooking the actual tillings and cultivation which had been carried on therein over a period of time recently. In the present case, the factual position was wholly different as we have earlier pointed out. There is no similarity between the two cases on the aspect of actual user of the land for agricultural purposes.
12. For all the above reasons, we answer the question of law referred to us in the affirmative and against the assessee. There will, however, be no order as to costs.