Court rules land sold for housing was agricultural at time of sale, exempting capital gains tax.

Case Name:

Chhotalal Prabhudas v. Commissioner of Income-tax

**Key Takeaways:** - The actual use of the land at the time of transfer, not intended future use, determines if it is agricultural land for tax purposes. - Entries in revenue records are good prima facie evidence of the nature of the land. - Potential for non-agricultural use does not negate the agricultural character if it was still being used for agriculture when sold. **Issue:** Whether the Tribunal was correct in holding that the land sold by the assessee was not agricultural land within the meaning of Section 2(e)(i) of the Wealth Tax Act, 1957, resulting in the capital gains being taxable? **Facts:** - The assessee HUF had purchased the land in 1930-33 for brick manufacturing. - From 1930 to 1952, the land was used for excavation and brick kilns (non-agricultural use). - In 1952, the assessee applied to discontinue non-agricultural use, and the land was treated as agricultural for revenue purposes from 1952 onwards. - From 1959-60, parts of the land were used for growing crops like jowar (agricultural use). - In 1968, the assessee sold portions of the land to housing societies after obtaining permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act. - The sale deeds mentioned the lands had standing crops at the time of sale agreements in 1966. **Arguments:** Assessee's Arguments: - The land was agricultural at the date of sale as land revenue was being paid as agricultural land. - Agricultural operations were carried out until the date of sale. - The land was not put to non-agricultural use at the time of sale. Revenue's Arguments: - The lands had been used for non-agricultural purposes like brick-making for 20 years, changing their character permanently. - Mere payment of land revenue as agricultural land does not determine the nature of the land. - The assessee created a facade of agricultural use to avoid capital gains tax. - The lands were situated within municipal limits and a town planning scheme area. **Key Legal Precedents:** - CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj) - CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133 (SC) - Smt. Chandravati Atmaram Patel v. CIT [1978] 114 ITR 302 (Guj) These cases established principles like: - Actual use of land at the time of transfer, not potential use, determines if it is agricultural land. - Entries in revenue records are good prima facie evidence of the nature of the land. - Inclusion in a town planning scheme does not automatically make agricultural land non-agricultural. **Judgement:** The High Court ruled in favor of the assessee, holding that the land retained its agricultural character at the time of sale in 1968 despite being later approved for non-agricultural use. The key reasons were: 1) The land was being actually used for agricultural purposes by growing crops like jowar from 1959-60 until the sale in 1968, as evidenced by revenue record entries. 2) The 1952 permission to discontinue non-agricultural use and subsequent treatment as agricultural land for revenue purposes showed the land had regained its agricultural character before the sale. 3) The sale deeds mentioned standing crops at the time of the 1966 sale agreements. 4) Potential for non-agricultural use due to the town planning scheme did not negate the agricultural character as the land was still being cultivated when sold. 5) The facade argument was rejected as the conversion to agricultural use happened in 1952, long before capital gains tax was introduced. Therefore, the capital gains of Rs. 8,13,363 were not taxable as the land retained its agricultural status at the time of sale in 1968. **FAQs:** Q: What is the significance of this case? A: This case clarified that the actual use of the land at the time of transfer, not its intended future use, determines whether it is agricultural land for tax purposes. It also established that potential for non-agricultural use does not negate agricultural character if it was still being cultivated when sold. Q: How did the court treat the entries in revenue records? A: The court held that entries in revenue records are good prima facie evidence of the nature of the land, creating a presumption that can only be rebutted by strong contradictory evidence. Q: Why did the court reject the "facade" argument? A: The court noted that the conversion to agricultural use happened in 1952, long before capital gains tax was introduced in 1956. Hence, there was no motive for the assessee to create a facade just to avoid capital gains tax. Q: What was the significance of the town planning scheme? A: The court held that the mere inclusion of land in a town planning scheme did not automatically make it non-agricultural, as agricultural use could continue until an actual change of use was required under the scheme. Q: What legal principles were reiterated in this case? A: The case reiterated principles established in earlier cases like CIT v. Manilal Somnath and Smt. Chandravati Atmaram Patel regarding the determination of agricultural land based on actual use at the time of transfer and the evidentiary value of revenue record entries.

In this case, at the instance of the assessee, the following question has been referred to this court for its opinion:

"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 s. 2(e)( i) of the W.T. Act, 1957?"

The assessment year with which we are concerned is the year 1969-70, the relevant previous year being samvat year 2024. The assessee is a HUF and the assessee seemed to be carrying on the business of brick-making, being potters by caste. The assessee purchased survey No. 41—two acres and twenty gunthas—and survey No. 51 admeasuring two acres and twenty-nine gunthas, by a sale deed dated 27th February, 1930. By another sale deed dated July 15, 1933, the assessee family purchased the adjoining survey No. 42 and all these three survey numbers seem to have been utilised for the purpose of excavation so that bricks might be made. Even brick-kilns were installed in one or the other of these three survey numbers. After the date of purchase by the HUF, survey No. 41 was sub-divided into two survey Nos. 41/1 admeasuring twenty-seven gunthas and No. 41/2 admeasuring two acres, two gunthas; survey No. 51 was already sub-divided into two survey numbers, survey No. 51/1 admeasuring one acre, nine gunthas and survey No. 51/2 admeasuring one acre, ten gunthas. In 1958, these survey Nos. of Usmanpura village in Daskroi Taluka of Ahmedabad District came within the municipal limits of the Ahmedabad Municipal Corporation and in 1959, town planning scheme, being Town Planning Scheme No. 19, was applied in this area. In the beginning, that is immediately after the lands were purchased in 1930 and 1933, they were used for agricultural purposes.

Thereafter, the land was put to non-agricultural use, that is, for manufacturing of bricks. This continued up to 1952. In 1952, the assessee applied to the Collector of Ahmedabad for discontinuance of non-agricultural use of the land, namely, of brick-making, and that permission for discontinuance of non-agricultural use was granted and from 1951-52 onwards, the lands were assessed to land revenue on the footing that they were agricultural lands. For some years after 1952, the lands were lying fallow and in later years, grass was found to be growing on these lands according to the entries in the panipatraks and in the records of rights. Thereafter, that is, some time in 1959-60 onwards, the lands were being utilised, at least in part, for cultivation of juvar and from 1963-64, the lands were exclusively used for cultivation of juvar. An agreement of sale of a portion of these lands was entered into on December 22, 1966, and in pursuance of this agreement of sale, the lands were sold by several documents in the year 1968. One plot of 603 square yards was sold to Shivlal Khetsibhai on April 23, 1968. Five plots of land aggregating 2,869 square yards were sold to Ilora Park Co-operative Housing Society by five deeds of sale dated June 1, 1969, five plots of land aggregating 2,655 square yards were sold to Ajanta Park Co-operative Housing Society by five sale deeds dated June 27, 1968. Five plots of land aggregating 3,961 square yards were sold to Harisiddh Co-operative Housing Society on June 27, 1968, and eight plots of land aggregating 5,021 square yards were sold to Elephanta Co-operative Housing Society by eight deeds of sale, all dated August 6,1968. Thus, by these transactions, the lands were sold and gross capital gains aggregating Rs. 8,13,353 seem to have been realised by the assessee after the sale of 15,109 square yards of lands. It may be pointed out that the total area of the land owned by the assessee came to seven acres and thirty-three gunthas, that is, more than thirty-five thousand square yards, and out of that large area, the assessee-family sold 15,109 square yards. Before the sales were effected, the assessee had applied for permission from the Collector of Ahmedabad under s. 63 of the Bombay Tenancy and Agricultural Lands Act, by making an application in that behalf on January 19, 1968, and the permission was granted for. effecting the sales in favour of non-agriculturists on certain terms and conditions. Permission was granted by the Collector on March 12, 1968. It was after the lands were transferred by the assessee-family that the respective purchasers obtained permission from the Collector for using the lands purchased by them for non-agricultural purposes under s. 65 of the Bombay Land Revenue Code. That permission was obtained on October 27, 1969. In the course of the assessment proceedings and, thereafter on the record of this case, entries from the revenue records of panipatraks were produced in connection with the lands belonging to the assessee-family, and entries in the revenue records of the years 1929-30 to 1966-67 have been produced on the record of the case.

In connection with the question of capital gains, the assessee contended that the lands in question were agricultural lands at the date of the sale because land revenue was being paid in respect of these lands on the footing that they were agricultural lands, secondly, because agricultural operations had been carried on from year to year, right down till the date of sale, and, thirdly, that the lands were not put to non-agricultural use. The ITO held that the lands were not agricultural lands and he, therefore, passed the appropriate order for levying assessment to income-tax so far as the amount of capital gains was concerned. Against the decision of the ITO, the assessee took the matter in appeal to the AAC who, after examining the facts of the case, came to the conclusion that the lands were agricultural lands. Against the decision of the AAC, the revenue took the matter in further appeal to the Tribunal, and the Tribunal held that, in view of the permission obtained under s. 63 of the Bombay Tenancy and Agricultural Lands Act and in view of the conditions attached to the permission granted by the Collector and in view of the other facts pertaining to this case, the land was not agricultural land at the date of sale and, therefore, the Tribunal allowed the appeal and reversed the decision of the AAC on this point. Thereafter, at the instance of the assessee, the question hereinabove set out has been referred to us for our opinion.

Entries from the revenue records and the panipatraks go to show that these lands, immediately after the purchase in 1930-33, were started to be used for excavation purposes and, in survey No. 41/1, a kiln for baking bricks was installed in 1940-41, this kiln for brick manufacturing seems to have been continued to be in use right down till 1952-53, and, thereafter, we find entries in respect of survey No. 41/1 showing that in 1952-53, this survey No. was used for growing juvar and bajri, and partly the land was lying fallow. For 1954-55, 1955-56 and 1956-57, the land was lying fallow and from 1957-58 to 1958-59, grass was found to be growing and from 1959-60 onwards, the land was used partly for growing grass and partly for growing juvar. This state of affairs, namely, partly growing of grass and partly growing of juvar, continued on this land till 1962-63 and from 1963-64 onwards, the land was entirely used for growing juvar. Survey No. 41/2, admeasuring two acres two gunthas, was used for excavation purposes from 1930-31 to 1936-37. For two years 1937-38 and 1938-39, it was fallow land and grass was also growing on that land. From 1939-40 till 1952-53, the land was used for a kiln for making bricks and for the years 1953-54 to 1956-57, the land was lying fallow. For the years 1957-58 and 1958-59, grass was found to be growing and from 1959-60 onwards, the land was partly used for growing grass and partly for growing juvar. This part utilisation for growing grass and part utilisation for growing juvar continued from 1959-60 to 1962-63 and from 1963-64 till 1966-67, the land was used only for growing juvar.

The same pattern of use of this land is found in respect of survey No. 51/1 admeasuring one acre nine gunthas, except that this survey No. was used for a kiln for making bricks only in the year 1939-40; otherwise it was used for excavation work for making bricks. From 1951-52 onwards, the land was lying fallow, with grass growing on it, and it was only in 1959-60 that juvar was grown on this land and thereafter it was used partly for grass, partly for juvar and from 1963-64 till 1966-67, it was wholly used for the purpose of growing juvar. Survey No. 51/2, admeasuring one acre, ten gunthas was also used for earth excavation for the purpose of making bricks and no kiln for manufacturing bricks appears to have been installed on this plot of land. From 1950-51 onwards, earth excavation work seems to have been stopped so far as this plot of land was concerned and it was kept fallow for grass. Thereafter, either grass was growing or it was fallow land until 1959-60, where we find that, along with grass, partially juvar was also grown in this land and for three years, 1959-60, 1960-61 and-1961-62, the land was used partly for growing grass and partly for growing juvar. From 1962-63 onwards till 1965-66, the land was used for growing juvar and, in one year, according to the entries, sugarcane and bajri were grown on this land. As regards survey No. 42 admeasuring two acres, twenty-five gunthas, from the year of purchase, namely, 1933-34, it was used for the first year for growing bajri and, thereafter, it was used for excavation of earth until 1939-40. In 1940-41, the land seems to have been let out to a tenant and maize and juvar were grown in this land. From 1941-42 to 1944-45, this land was used partly for growing juvar and partly it seems to have been kept fallow, but from 1945-46 to 1948-49, the land was lying fallow. In 1949-50, a pit for installing a kiln for making bricks was dug in this land and the rest of the land was lying fallow. The same state of affairs continued till 1951-52. In 1952-53, there was a kiln for baking bricks and the rest of the land was lying fallow. In 1954-55, the land was lying fallow. In 1956-57 and 1957-58, grass was growing and it was lying fallow. From 1959-60 onwards, the land was used partly for growing grass and partly for juvar and we find that from 1963-64 onwards, the land was used for either growing juvar or for growing bajri.

We have gone at length through these entries from the record of rights because it is in the light of these entries in the record of rights that the question as to what was the character of the land at the date of sale will have to be determined. It may be mentioned that, in 1952, the assessee, as an occupant of the land, seems to have applied to the Collector of Ahmedabad for permission to discontinue non-agricultural use of the lands in question, namely, of survey Nos. 41/1, 41/2, 51/1, 51/2 and 42, and application dated July 24, 1951, and another application dated November 25, 1952, seem to have been made to the Collector. Before the Collector, a panchatnama dated February 3, 1952, stating that no non-agricultural use was made of the survey Nos. and that the land was made fit for cultivation during the then current year was produced and the Collector passed the order on February 18, 1952, to the effect that the temporary non-agricultural use permission which was granted in the past was cancelled, and that no non-agricultural assessment should be levied for the year 1951-52 as the said survey No. was not to be put to non-agricultural use. The Tribunal in its order has proceeded on the footing that the assessee having applied for permission from the Collector under s. 63 of the Bombay Tenancy and Agricultural Lands Act and the land having been sold for non-agricultural purposes, it was not agricultural land and, therefore, capital gains should be assessed. The Tribunal, relying upon its earlier decisions, held that when land is sold for non-agricultural purposes after permission is obtained under s. 63 of the Bombay Tenancy and Agricultural Lands Act, it is a categorical proof of the fact that the land is not an agricultural land. The intention for using the land becomes clear when the agreement to sell the land is entered into and, therefore, when the land is sold, it is not agricultural land. The Tribunal further held, following its earlier decision, that when permission is obtained for non-agricultural use of the land, the land becomes non-agricultural land. The Tribunal further held that the payment of land revenue in respect of the land does not in any way suggest that the land is being used for agricultural purposes. The Tribunal further held that as soon as the land was agreed to be sold by the agreement, the characteristics of the land changed. According to the Tribunal, this conclusion was further reinforced by the fact that the land was situated within the municipal limits and surrounded by residential areas. In short, the land was sold as non-agricultural land and, in that view of the matter, according to the Tribunal, the ITO was justified in charging the capital gains.

The law on this point is now considered and set out in two decisions of this High Court. In CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj), all the decisions bearing on this point were considered by both of us and at page 930 of the report, the position was thus summarised:

"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 (Guj) 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] 106 ITR 658 (Guj), though the land was being put to agricultural use, since it was found that it was only by way of a stopgap arrangement till a purchaser of the plot which was already laid out came forward to purchase it, it was held that 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."

After the decision in CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj), which was delivered on March 25, 1976, the Supreme Court considered the same point in CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133, decided by the Supreme Court on August 6, 1976. The question before the Supreme Court was whether the property called "Begumpet Palace" situated within the municipal limits of Hyderabad City consisting of vacant lands of about 108 acres and also building enclosed in compound walls constituted "agricultural land" within the meaning of cl. ( i) of s. 2(e) of the W.T. Act, 1957. The Supreme Court there explained the meaning of what is meant by "agricultural land", and Beg J., as he then was, speaking for the Supreme Court, observed at page 136:

"We think that this must be land which could be said to be either actually used or ordinarily used or meant to be used for agricultural purposes. In other words, 'agricultural land' must have a connection with an agricultural user or purpose. It is on the nature of the user that the very large number of definitions and authorities discussed by this court in Raja Benoy Kumar Sahas Roy's case [1957] 32 ITR 466 (SC) have a direct bearing. In that case, this court held that the wider meaning given to agricultural operations, such as breeding and rearing of livestock, poultry farming or dairy farming will not be applicable. It held that the correct test to apply would be to find out whether human labour had been applied to the land itself, in order to extract from its natural powers, added to or aided by other natural or artificial sources of strength to the soil, a product which can yield an income."

At page 138, he further observed:

"...we cannot dispense with credible evidence of at least appropriation or setting apart of the land for a purpose which could be regarded as agricultural and for which the land under consideration could be reasonably used without an alteration of its character. This, we think, is the minimal test of 'agricultural land' which should be applied in such cases."

The Supreme Court in that case rejected the test of potential or possible use of the land for the purpose of determining whether the land was agricultural land or not. In that case, the Supreme Court also pointed out that entries in the revenue records are good prima facie evidence of the use of the land.

The decisions in CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj) and CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133 (SC) were considered by us in Smt. Chandravati Atmaram Patel v. CIT [1978] 114 ITR 302 (Guj). At page 312, the law on the point, after considering all the decisions including the decisions in Manilal's case and the Supreme Court decision in CWT v. Officer-in-Charge (Court of Wards), Paigah, was summarised as follows:

"In this case, the law, therefore, is very clear. If the land is actually used for agricultural purpose as shown by Manilal Somnath's case [1977] 106 ITR 917 (Guj) and also by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 , it can be said to be agricultural land, at least, prima facie, as agricultural land could be said to be land which is either actually used or ordinarily used or meant to be used for agricultural purposes. If it is actually used at the relevant date for agricultural purposes and there are no special features, for example, building plot being actually used as a stopgap arrangement for agricultural purposes or a building site being used for agricultural purposes, actual user or ordinary use or intention to use the land for agricultural purposes or land is meant to be used for agricultural purposes, it would be 'agricultural land'. Secondly, potential use of the land as agricultural land is totally immaterial. Thirdly, entries in the record of rights are good prima facie evidence regarding agricultural land and if the presumption raised either from actual user of the land or from agricultural use of the land is to be rebutted, there must be material on the record to rebut that presumption. The approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal, should be to consider the question from the point of view of presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by the presence of other factors in the case."

Mr. G.N. Desai, learned Government Pleader appearing for the revenue, urged the following submissions before us: (1) whether the land is agricultural land or not depends principally upon the character of the land; (2) for the purpose of ascertaining the character of the land, there are certain factors to be taken into consideration, for example, (a) the nature of the assessment, (b) situation of the land, that is, either within the town planning scheme or in the light of the surrounding locality and whether it is within municipal limits or not; (3) he further contended that actual use of the land might afford a guide to the determination of the question but is not conclusive; and, lastly, (4) ostensible intention of the assessee is only determinative of the nature of the land.

In this case, on the facts of the case, Mr. Desai contended, for twenty years or so, most of these lands had been converted to non-agricultural use, namely, of brick-making, either by excavation or keeping kilns for baking bricks in these lands and the land was put to non-agricultural use. It is, therefore, Mr. Desai's contention that, on such non-agricultural use being made, the land permanently changed its character from agricultural land to non-agricultural land and the mere fact that for the purpose of land revenue from 1952 onwards, the land was treated as agricultural land, does not show what the character of the land was at the date of the sale in 1958. Mr. Desai further contended that the onus was on the assessee to show that the land had become agricultural land after 1951-52. Mr. Desai emphasised that even though permission to discontinue non-agricultural user was given as far back as 1952 and ordinary land revenue as in the case of agricultural land was being levied in respect of these lands from 1952 onwards, yet it was only from 1962-63 that all the lands were used for growing juvar. Till that time from 1959-60 onwards, the lands were used partly for growing juvar and partly for growing grass. Mr. Desai thus emphasised that the character of the land could not be said to have changed back to agricultural land because of growing juvar for three years. He further submitted that since no figures of income and expenditure for agricultural purposes were produced, the assessee could not be said to have established that the land was agricultural land on the date of the sale. His submission was that a mere facade was put up by the assessee with a view to show that the land was agricultural land, so that, if and when the land was sold, capital gains might not be required to be paid.

To take up the contention regarding facade, it may be pointed out that, in 1952, when the non-agricultural use was discontinued and the Collector granted permission to use the land purely for agricultural purposes and directed that only ordinary land revenue as for agricultural use should be charged, there was no law taxing capital gains on the statute book. It is well known that the concept of capital gains as part of income-tax first came into force in India in 1946. This legal position remained in force till 1948 and between 1948 and 1956, there was no provision that capital gains should be part of income-tax so far as India was concerned. It was only in 1956 that, once again, Indian I.T. Act of 1922 was amended so as to introduce the concept of capital gains as a part of income of the year in which capital gain was earned. Mr. Kaji for the assessee is right when he contends that, at the time when the application was made to the Collector to discontinue the non-agricultural use of the land, there was no tax on capital gains and, therefore, the idea to arrange a facade of agricultural use with a view to avoid possible tax on capital gains could not have been present in the mind of the assessee. For some reason or the other, the assessee-HUF seems to have decided to discontinue making of bricks from all these five survey Nos. 41/1, 41/2, 51/1, 51/2 and 42 and seems to have decided to convert these lands back to agricultural use. For whatever it is worth, it may be pointed out that in the Collector's order, a specimen of which has been produced at page 92 of the paper book before us, a mention is made of "Panchatnama dt. 3-2-52 stating that no N.A. use is made in this S. No. and the land is made fit for cultivation during the current year". Therefore, long before capital gains was introduced in the statute book in 1956 and long before this land formed part of any town planning scheme, being Town Planning Scheme No. 19, attempts were made to convert the land back to agricultural use. Mr. Desai for the revenue urged before us very emphatically about the fact that for several years after 1952, the land was allowed to lie fallow and grass was allowed to grow on this land and it was only in 1959-60 that, partially at least, the land was used for growing juvar as a regular crop. Now, it is a well-known fact of which judicial notice can be taken that, if land is to be used for agricultural purposes either by rotation or even otherwise, the land has to be allowed to lie fallow and, to use the language of agricultural scientists, nitrogen has to be refixed in the soil so as to make it usable for agricultural purposes. The land was attempted to be used for agricultural purposes from 1959-60 onwards and it seems that, from 1962-63 onwards, the lands were exclusively used for growing juvar and as we have pointed out earlier, that is the position in respect of all these five survey numbers. The question, as pointed out in CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj) and Smt. Chandravati's case [1978] 114 ITR 302 (Guj), that the fact-finding body has to ask itself is, what was the use of the land at the date when the sale took place. We find in the agreements of sale in each case that, at the date when the agreement of sale was entered into on December 22, 1966, crops were standing in the land in question. It mentions that the lands were suitable for agriculture and at the date of the agreement of sale, that there were standing crops and that the lands were agreed to be sold as agricultural lands. Permission to convert the lands to non-agricultural use was to be obtained by the purchaser and not by the seller. There is also further reference in the agreement of sale to the effect that the lands were in actual possession of the vendors and if the sale deeds were executed within the period provided in the agreement of sale and standing crops were found on the date of the sale on the lands in question and the crops were not reaped, then Rs. 1,000 extra had to be paid by the vendees to the vendors at the time of execution of the memo of sale.

It seems to us that the contention of Mr. Kaji is correct that one standard form of sale deed which was cyclostyled was used for all the different sale deeds executed in respect of different plots of land and as many as twenty-five sale deeds were executed in order to sell these lands in the course of Samvat Year 2024. The reason why so many sale deeds were executed is to be found in the sale deed itself, namely, that under the law relating to stamp duty, co-operative housing societies were exempted from payment of stamp for the purchase of land where the price did not exceed Rs. 50,000 and in order to avoid payment of higher stamp duty, different sale deeds, each with price below Rs. 50,000 were executed by one and the same vendor to one and the same vendee.

As we have pointed out, the sale deeds were executed on different dates in 1968, the first one being on April 23, 1968, the second set on June 1, 1968, the third set of deeds on June 27, 1968, the next one on June 27, 1968, and the last one on August 6, 1968. Mr. Desai for the revenue contended that there could not be any growing crops on these lands in the month of April, 1968, or in the month of June, 1968, and, therefore, the recital in the sale deed that there were growing crops on these lands is a mere empty recital. However, the same cannot be said about the sale deeds executed on August 5, 1968, because, by that time, some crops might be growing on these lands if the lands were being used for agricultural purposes.

In this connection, we may point out that in the order of the AAC it has been mentioned "...the remaining unsold portion of the land is still being cultivated by the appellant (HUF-assessee) as borne out by the panipatrak entries". That was the contention urged before the AAC in the course of arguments before him, and it seems that the AAC accepted this to be a fact. Under these circumstances, the question that we have to ask ourselves is, whether the presumption arising from the actual user of the land, namely, that the lands were used for agricultural purposes till the date of the agreement of sale and, at least in the case of sale deeds of August 6, 1968, on the date of sale itself, and further in view of the fact that according to the entries in the revenue records these lands were agricultural lands, a presumption in favour of the assessee would arise and, prima facie, the lands would be agricultural lands. Mr. Desai urged before us that this was a stop-gap arrangement—a facade with a view to show that the lands were agricultural lands, so that capital gains might not have to be paid if and when the sale took place. Now, it has been pointed out earlier in the course of this judgment that the reconversion back from non-agricultural use for making bricks to agricultural use was made as far back as 1952, and for several years, that is, from 1959-60 onwards, at least a portion of these lands which were charged land revenue on the footing that it was agricultural land, was being utilised for the purpose of growing crops, namely, juvar. Therefore, there cannot be any doubt that from 1959-60 onwards, the lands were being used for agricultural purposes and this utilisation of the lands continued right down till the date of sale. The fact that, may be for two decades, a large part of these lands belonging to the assessee-HUF was being used for non-agricultural purposes of making bricks does not permanently condemn these lands as non-agricultural lands. What has to be seen is not the intermediate use but the actual user of the lands at the time of sale and the actual character of the lands at the date when the sale took place. On the date when the sale took place and for a number of years before that, without any anticipation that the sale may be effected, the lands were used for agricultural purposes. Application to reconvert back to agricultural use from the use of brick-making was made as far back as 1952, and the sale took place sixteen years later. Nothing has been shown that in the intervening period these lands lost their regained character of agricultural lands.

It may be pointed out that in the two cases which have been decided by this court regarding stop-gap arrangement, namely, Himatlal's case [1977] 106 ITR 658 (Guj) and Ranchhodbhai Bhaijibhai Patel v. CIT [1971] 81 ITR 446 (Guj) the lands in each of these two cases was already converted to non-agricultural use by the assessee concerned himself before the date of the sale and after getting N.A. permission from the Collector. In Himatlal's case, the lands were actually plotted out and some plots were sold and in the remaining plots, agricultural operations were carried out till such date as some purchaser might come forward to purchase those smaller plots as building sites. In Ranchhodbhai's case, the lands were converted to non-agricultural use and even after such non-agricultural use until the date of actual sale, the lands were put to agricultural use. In each of these cases, therefore, it was possible to say that the agricultural use of the lands on the actual date of the sale was a mere stop-gap arrangement, but that type of stop-gap arrangement does not seem to prevail in the present case. No one knew in 1959-60, when crops of juvar started to be grown on these lands, that the lands would be sold or that the lands would at some time fetch a fancy price. It was for the first time in 1958 that the land was included within the municipal limits and it was in 1959 that the land was included in the Town Planning Scheme No. 19, for which the intention to make the scheme was announced in 1959. Under these circumstances, it cannot be said that agricultural use of the lands was made by the owners of these lands for a number of years with an idea merely to build up a facade or with a view to have the stop-gap arrangement until some purchaser came forward to purchase the lands at a price at which the owners were willing to sell.

It is worth noting that the land which was sold in 1968 works out at a sale price of Rs. 57.25 per square yard, but as was pointed out by this court in CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj) at page 932:

"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 sale."

We may also point out that in CIT v. Manilal Somnath, it was held that the fact that the land was within municipal limits or the fact that it was included within the draft town planning scheme would not by themselves dislodge the presumption flowing from the actual user of the land. In the instant case the point to be emphasised is that after the reconversion back to agricultural use in 1952, nothing had happened till the date of sale to show that the character of the lands had ceased to be that of agricultural lands. What we have to consider is not what the purchaser did with the lands or what the purchaser was supposed to do with the land, but what was the character of the lands at the time when the sale took place. As in CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj), in the instant case also, it is true that the permission to sell the lands to Shivabhai Khetsibhai and the three co-operative housing societies was granted on condition that the land would be used for residential purposes and the application for permission under s. 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 sale, the land was to cease to be agricultural land. The permission granted by the City Deputy Collector under s. 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 the co-operative housing societies would be infructuous and the land would revert back to the assessee in such an eventuality because the permission to sell the agricultural land would be treated as cancelled. That eventuality has not happened and, as pointed out, it was only in October, 1969, that permission was obtained by the purchasers from the authorities concerned to put the land to non-agricultural use. The fact that a particular use for which the purchaser has agreed to pay a high price does not mean that it is not agricultural land at the relevant date.

Mr. Desai for the revenue lastly urged before us that in view of the fact that the aspect regarding the fact of preparation of the draft town planning scheme and the reservation and use to be made of this particular plot of land was not investigated into by the fact-finding authorities, we should send the matter back to the Tribunal for full consideration, utilising the procedure which was followed by the Supreme Court in CIT v. Indian Molasses Co. P. Ltd. [1970] 78 ITR 474 (SC). We ourselves followed that procedure in Smt. Chandravati Atmaram Patel v. CIT [1978] 114 ITR 302 (Guj). However, a glance at the provisions of the Bombay Town Planning Act goes to show that whatever was the use of the land made at the time when the declaration of intention to make the draft development plan was made or when the declaration of intention to make the draft scheme was made, would be allowed to be continued unless the use was what may be called obnoxious use. The use for agricultural purposes can, by no stretch of imagination, be said to be obnoxious use and, therefore, even if there was a declaration of intention to make a development plan or a declaration of intention to make a draft scheme, agricultural use of the land would not be required to be stopped by the occupant merely because a development plan was being prepared or a town planning scheme was being drafted. Under these circumstances, the question arising in the context of Town Planning Scheme No. 19 and the use to which this land was expected to be put under the town planning scheme would not make any difference since the occupant of the land in question would not be required to stop the agricultural use if, at the time when the declaration of making the development plan was announced or when the declaration of intention to make a draft scheme was announced, the land was being used for agricultural purposes. We find that in 1959-60, that is, from 1st July, 1959, onwards, juvar was, at least partially, being grown in this land and, therefore, the land was actually being used for agricultural purposes. Therefore, because of the town planning scheme, the lands would not be required to change their user from agricultural user to any other user because of the factum of development plan being made or under preparation or because of the town planning scheme being made or under preparation.

We, therefore, are not inclined to accept the submission of Mr. Desai that Indian Molasses case [1970] 78 ITR 474 (SC) formula which has been followed by this High Court in several other cases should be followed in this case. In our opinion, in view of the facts which are already before us and the facts which have been found on the record, no useful purpose would be served by sending the matter back to the Tribunal.

Under these circumstances, in the light of the decisions and in the light of the facts which we have discussed, the only possible conclusion in law is that the land was agricultural land at the date of the sale and, therefore, the amount of Rs. 8,13,363 said to be gross capital gains could not be assessed as capital gains. The Tribunal was, therefore, in error in law in deciding in favour of the revenue and against the assessee.

We, therefore, answer the question referred to us in the negative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.

Before leaving the matter, we may mention that we are fully conscious of the fact that the Tribunal is the final fact-finding body and the High Court has not to decide any question of fact. We have only to draw an inference in law on facts appearing on the record of the case and the facts found by the Tribunal. We have not found any facts for ourselves nor have we drawn any inference of law except from facts appearing on the record.