Mere inclusion of the lands in a draft town planning scheme or their potential future non-agricultural use did not change their agricultural character at the time of sale.

Case Name:

Chandulal Lallubhai Vs Commissioner of Income tax (High Court of Gujarat)

Key Takeaways:

- The court emphasized the importance of determining the actual character and use of the land at the time of sale, rather than its potential future use.

- Strong presumptions arise from the actual agricultural use of the land and entries in revenue records, which must be effectively rebutted by the revenue authorities.

- Mere inclusion in a draft town planning scheme or the possibility of future non-agricultural use does not change the agricultural character of the land.

- The court criticized the Tribunal for entertaining new arguments from the revenue department at the appellate stage, which were not raised earlier.

Issue:

Whether the lands sold by the assessee, Chandulal Lallubhai (HUF), during the assessment year 1969-70 were agricultural lands, and if so, whether the profits arising from their sale were liable to be taxed as capital gains under Sections 45 and 2(14) of the Income Tax Act, 1961.

Facts:

- The assessee had purchased three parcels of land (Survey Nos. 71, 72/2/2, and 191) in Ahmedabad city in 1943, which were agricultural lands at the time of purchase.

- In 1959 and 1960, the State of Gujarat initiated land acquisition proceedings for Survey Nos. 71 and 191 for the Gujarat Housing Board.

- After a legal dispute and compromise, portions of Survey Nos. 71 and 191 remained with the assessee.

- In 1968, the assessee sold 6,200 sq. yds. of land from these three survey numbers to a housing society for Rs. 2,17,000.

- The Income Tax Officer (ITO) sought to tax the surplus from the sale as capital gains, but the assessee claimed the lands were agricultural.

- The Appellate Assistant Commissioner (AAC) allowed the assessee's claim, but the Tribunal held that the agricultural operations were an "eye-wash" to avoid tax.

Arguments:

- The assessee argued that the lands were agricultural at the time of sale, as evidenced by the revenue records, cultivation of crops, and payment of land revenue. The assessee obtained permission under Section 63 of the Tenancy Act to sell the agricultural lands.

- The revenue department contended that the lands were earmarked for residential construction, and the agricultural operations were a device to avoid tax. The Tribunal accepted this argument, stating that the cultivation was an "eye-wash" close to the time of sale.

Key Legal Precedents:

- State of Maharashtra vs. Dnyaneshwar Laxman Rao Wankhede:

Emphasized the importance of establishing demand, acceptance, and recovery for an offense under the Prevention of Corruption Act.

- CIT v. Vajulal Chuntilal (HUF):

The presumptions arising from actual agricultural use and revenue records were not rebutted, and the Tribunal erred in disregarding these presumptions.

- CIT v. Manilal Somnath:

The character of the land at the time of sale is crucial, not its potential future use. Inclusion in a draft town planning scheme does not rebut the presumption of agricultural land.

- CWT v. Officer-in-Charge (Court of Wards), Paigah:

Entries in revenue records raise a rebuttable presumption about the character of the land.

Judgement:

The Gujarat High Court allowed the assessee's appeal and ruled in their favor. The key findings were:

1. The Tribunal's observation that the agricultural operations were an "eye-wash" was unjustified and not permissible, as the revenue department did not raise this contention earlier.

2. Strong presumptions arose from the actual agricultural use of the lands, entries in revenue records showing cultivation, and payment of land revenue as agricultural lands.

3. These presumptions were not effectively rebutted by the revenue department.

4. The mere inclusion of the lands in a draft town planning scheme or their potential future non-agricultural use did not change their agricultural character at the time of sale.

5. The assessee had obtained permission under Section 63 of the Tenancy Act to sell the lands for non-agricultural purposes, indicating their agricultural nature.

6. The lands were sold as agricultural lands, and the profits arising from the sale could not be taxed as capital gains under Sections 45 and 2(14) of the Income Tax Act, 1961.

FAQs:

Q1. What was the significance of the assessee obtaining permission under Section 63 of the Tenancy Act?

A1. The fact that the assessee sought permission under Section 63 of the Tenancy Act to sell the lands for non-agricultural purposes indicated that the lands were agricultural in nature. Otherwise, such permission would not have been required or granted under this section.

Q2. Why did the court criticize the Tribunal's observation that the agricultural operations were an "eye-wash"?

A2. The court criticized the Tribunal for entertaining this new argument from the revenue department at the appellate stage, when it was not raised earlier before the lower authorities. The court held that the Tribunal should not have allowed such a new contention.

Q3. What was the significance of the entries in the revenue records?

A3. The entries in the revenue records, showing the lands as agricultural and the cultivation of crops, raised a strong presumption in favor of the assessee regarding the agricultural character of the lands. The court held that such presumptions must be effectively rebutted by the revenue authorities.

Q4. Can the potential future non-agricultural use of land change its character at the time of sale?

A4. No, the court emphasized that the potential future non-agricultural use or the possibility of such use by a future owner does not change the actual character of the land at the time of sale. The court focused on the actual condition and intended use of the land at the relevant time.

The Income-tax Appellate Tribunal, Ahmedabad Bench 'B' has referred a. question of law for our opinion at the instance of the assessee. The assessee consists of the HUF of Chandulal Lallubhai. The relevant assessment year was 1969-70, the accounting year being S.Y. 2024.

The assessee moved the Tribunal to refer a question of law arising from the Tribunal's order in I.T.A. No. 114I (And.) of 1972-73, which was part of the consolidated order in I.T.A. Nos. 1141 and 1478 (Ahd)/ 1972-73, decided on January, 25, 1974.

The assessee had sold 1,150 sq. yds. of land out of 7,744 sq. yds.-in survey No. 71, 3,719 sq. yds. out of 7,926 sq. yds. in survey No. 72/2/2, and 1,331 sq. yds. out of 3,420 sq. yds. in survey No. 191. All these lands Were situated in Vastrapur-Paldi area of Ahmedabad city and total consideration which the assessee received for sale of these lands to Saptkiran Co-opt.

Housing Society, amounted to Rs. 2,17,000. The question that arises for our consideration in the present reference is whether capital gains in respect of the surplus realised by the assessee in the aforesaid sale for Rs. 2,17,000 is taxable as capital gains.

In order to appreciate the nature of the controversy in the present proceedings, it is necessary to have a look at certain relevant facts leading to the present proceedings. During the accounting year, the assessee had sold the undermentioned lands situated in Vastrapur-Paldi area of Ahmedabad city for Rs.2.17,000 to Saptkiran Co-operative Housing Society:

The assessee's contention is that the lands sold by him during the accounting year, precisely on January 1, 1969, were agricultural lands and as such the profits made on their sale were not liable to be taxed as capital gains. The sale document which is on the record of this case recites that on January 1, 1968, the assessee had sold the lands in question to Saptkiran Co-op. Housing Society, referred to as the purchaser, and Kiran Corporation through its partners who were the confirming party. The document of sale further recites that originally the assessee had purchased survey Nos. 71 and 72/2/2 on January 9, 1973, from their respective owners. It is an admitted fact on the record of this case, that at the time when the two survey numbers were purchased by the assessee, they were agricultural lands. It appears that, subsequently, survey No. 71 situated at Vastrapur in Ahmedabad city taluka was sought to be acquired by the State of Gujarat, for the purpose of the Gujarat Housing Board. Land acquisition proceedings were initiated in 1959. They were challenged by the assessee by filing Civil Suit No. 1444 of 1959 in the civil court of Ahmedabad. In the said suit, the assessee had sought for a declaration that the acquisition notifications were invalid In the aforesaid suit, a compromise was reached between the plaintiff-assessee and the State Government on July 5,1963, and on that basis the suit was withdrawn on July 12, 1963. After the withdrawal of the aforesaid suit, the Additional Land Acquisition Officer declared his reward on November 29, 1963, for acquiring survey No. 71 under the Land Acquisition Act. In pursuance of the said award, actual possession of the land bearing survey No. 71 came to be handed over by the owners on August 6,1963, to the Gujarat Housing Board at the instance of the Gujarat Government. It is the case of the assessee that out of the acquired survey No. 71, a portion of land admeasuring 1,150 sq. yds. continued to be in the possession of the assessee as a result of the compromise between the parties.

So far as survey No. 72/2/2 situated adjoining to the aforesaid survey No. 71 of Vastrapur was concerned, that land continued to remain with the assessee all throughout from the date on which it was purchased by the assessee in 1943.

The document of sale further reveals that land bearing survey No. 191 situated at Paldi-sim, Ahmedabad city taluka and which did not belong to the assessee was also sought to be acquired for the purpose of the Gujarat Housing Board by the State Govt. and so far as the said survey No. 191 was concerned, the award was declared by the Additional Land Acquisition Officer on August 13, 1960, and in pursuance of the said award, the land bearing survey No. 191 was acquired and possession of the said land was given to the Housing Board by the owner thereof. Actual possession of the land bearing survey No. 191 has been handed over by its owner on July 14, 1959, to the Government even prior to the award dated August 13, 1960. Thus, the Govt.

of Gujarat had acquired survey No. 71 of village Vastrapur which belonged to the assessee and survey No. 191 of village Paldi for the purpose of the Gujarat Housing Board. It is pertinent to note that survev Nos. 71 and 72/2/2 both of village Vastrapur and survey No. 191 of the sim of village Paldi were situated adjoining one another.

The case of the assesse is, that as per the compromise in the civil suit, the Gujarat Housing Board agreed to give possession of 1,150 sq. yds. out of the acquired land in survey No. 71 in the sim of Vastrapur and 3,420 sq. yds. out of the acquired land in survey No, 191 in the sim of Paldi to the assessee and, accordingly, the assessee got possession of these lands on December 18, 1967, as mentioned in the sale deed. As per the town planning scheme No. II, final plots Nub, 39 and 40 were proposed to be allotted to the assessee. The final pints Nos. 39 and 40 comprised of land survey No. 72/2/2 and land admeasuring 1,150 sq. yds. out of land bearing survey No. 71 in the sim of Vastrapur and land admeasuring 3,420 sq. yds. of land survey No. 191 in the sim of Paldi. Thus, the assessee was continued to be the owner of 1,150 sq. yds. out of survey No. 71, entire survey No. 72/2/2

and became owner of 3,420 sq. yds. of survey No. 191. So far as survey No. 72/2/2 is concerned, the assessee had purchased the same in 1943, when it was agricultural land and it had remained with him all throughout while so far as other two survey numbers are concerned, a portion of survey No. 71, i.e., 1.150 sq. yds, and the entire 3,420 sq. yds. of survey No. 191 came to

the assessee in view of the compromise in the civil suit between the assessee and the State Govt. as detailed above.

Out of three survey numbers which thus belonged to the assessee, the assessee sought to sell 6,200 sq. yds. to Saptkriran Co-op. Housing Society by the sale deed dated January 1,1968. The total consideration for these lands of 6,200 sq. yds. was Rs.2,17,000. As stated above, the dispute between the parties centers round the liability of the assessee to pay capital gains tax on the aforesaid transaction. The ITO sought to include the surplus realised on the aforesaid sale for Rs.2,17,000 as capital gains

accruing to the assessee during the relevant. assessment year. The contention of the assessee before the ITO was that the lands were sold as agricultural lands and as such the profits made on that sale were not liable to be taxed as capital gains in the hands of the assessee. In support of his claim, the assessee relied upon the fact that the land revenue was being paid in respect of the lands sold and the extracts of pani patrak for the years 1961-62 to 1967-68 in respect of survey No. 71; 1961-62 to 1967-

68 in respect of survey No. 72/2/2 and 1961-62 to 1966-67 in respect of survey No. 191 showed that they were agricultural lands. The assessee . further relied upon the fact that the concerned lands were sold as agricultural lands and that they were not converted into non-agricultural lands prior to their sale. The assessee also addressed a letter to the ITO on March 14, 1972, which is on record of this case and pointed out that the lands, bearing survey Nos. 71 and 72/2/2 at Vastrapur and survey No. 191 of Paldi were covered by the town planning scheme since 1960; that these lands were cultivated. It was, further mentioned by the assessee in the aforesaid letter in respect of the lands at Vastrapur that they were under cultivation by Panjrapola for consumption by the cattle under their care. But since S.Y. 2021 the said lands were cultivated by the assessee. The ITO, however, by his order dated March 23, 1972, held that as these lands were covered by the town planning scheme, they were sold as non-agricultural lands and that cultivation on building sites temporarily cannot convert such lands into agricultural lands.

According to the ITO, .whether the land was agricultural land or not-almost depended on the fluctuating or ambulatory intention of the owner of the land. It was, further, observed by the ITO that even if the lands were agricultural lands as claimed by the assessee, the agricultural user had come to an end as soon as the lands were acquired by the Government for Gujarat Housing Board long back. Accordingly, the ITO held that the lands sold by the assessee during the relevant accounting year were non-agricultural lands and the profits arising, j out of their sale were liable to be assessed as capital gains. So far as survey No. 191 was concerned, the ITO took the view that the assessee had purchased it on July 15, 1967, and had sold the same as per the deed dated February 12, 1968, that is within a period of two years and, therefore, the profit arising on its sale was included in the income as short term capital gains.

The aforesaid order of the ITO resulted in an appeal on behalf of the assessee before the AAC. On the question, whether the, ITO was justified in treating the surplus realised on the sale of the lands as liable to capital gains tax, the AAC took the view that since 1960 only he draft town planning scheme was in operation in the area where the concerned lands were situated and that actually the final scheme was applied from October1, 1970. that the assessee had applied to the Collector and obtained permission under s. 63 of the Tenancy Act for effecting the sale in question which clearly showed that the lands were agricultural lands and that for real conversion to non-agricultural use, the application would be under s. 65 of the Land Revenue Code and, hence, it was held that the concerned lands continued to be agricultural lands up to the time of sale and, therefore, the surplus

realised by the assessee on the sale of these lands did not attract capital gains. The AAC also negatived the contention raised, on behalf of the Revenue, that it was necessary to place reliance on the fact that so far as lands S. Nos. 71 and 72/2/2 were concerned, they were the subject-matter of an appeal before the Income-tax Appellate Tribunal in the wealth-tax assessments for the year 1965-66 and were held to be non-agricultural lands. The AAC held that these lands were agricultural lands and the Tribunal in wealth-tax proceedings has held these lands to be non-agricultural only on the basis that the town planning scheme had come to be applied to the said lands! It was held that the said decision was based on a misconception of law and fact as the town planning scheme had applied only-from October 1, 1970, and earlier, there was in operation merely a draft scheme proposing these lands to be included in the final scheme subsequently. The AAC, therefore, held that the reasoning of the Tribunal in the wealth-tax case cannot squarely apply, in so far as the present case is concerned, as the concerned lands were sold prior to the coming into force of the actual town planning scheme and they -remained agricultural lands till they were subjected to the sale in question.

The Revenue carried the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal observed that at the time of the sale of the lands on January 1, 1968, they were actually not being put to non-agricultural use and that in the land revenue records, they were shown as agricultural lands. But, according to the Tribunal, the lands were clearly earmarked for residential construction purpose. As soon as the agreement of sale was executed by the assessee with Saptkiran Co. op. Housing Society Ltd. and which society became a confirming party when the actual sale took place on January 1, 1968, between the assesse and the Kiran Corporation, the intention of the owner to convert the land was clear. The Tribunal farther observed that even though land revenue was being paid in respect of Vastrapur lands of the assessee bearing S. Nos. 71 and 72/2/2, no agricultural operations were carried on from S.Y. 2012 to 2020. According to the Tribunal agricultural operations were planted close to the time of sale and that clearly showed that it was an eye-wash to get away from the taxing provisions of the Act . So far as the assessee's contention before the Tribunal that even during the relevant time the possession of S. Nos. 71 and 72/2/2 was with the Panjrapole, was concerned, it was held to have no relevance for the determination of the actual issue involved in this case

and, therefore, the Tribunal did not deal with that aspect. As per the aforesaid conclusions which the Tribunal reached, the Revenue appeal was allowed by the Tribunal.

As stated above, at the instance of the assessee, a question of law arising from the aforesaid decision of the Tribunal has been referred to us for our opinion. The said question reads as under:

"Whether, on the facts of the case ,the Tribunal was right in law in holding that the lands sold by the assessed during the assessment year under reference were non-agricultural in character and capital gains tax had been justly levied by the Income-tax Officer in respect of the surplus realised on its sale for Rs.2,17,000?"

In order to answer the aforesaid question, it is necessary to keep in view certain salient features of this case which clearly emerge from the record. The assesses during the relevant assessment year, sold in all 6,200 sq yds., out of the three survey Numbers (viz.) 71and 72/2/2 both of village Vastrapur in Ahmedabad City taluka, and a portion out of survey Number 191 which was adjoining these lands but which was actually within the limits of Paldi area of Ahmedabad city. So far as survey Numbers 71 and 72/2/2 as concerned, both of them were purchased by the assessee years back in 1943 as agricultural lands. Thereafter, they remained in the possession of the assessee as such. It is not the case of the Revenue that at any time these lands were attempted to be got converted into non-agricultural lands by the assessee by applying for permission under s. 65 of the Land Revenue Code, So far as survey Number 72/2/2 is concerned, the record of rights pertaining to the said, land which was produced by the assessee before the ITO shows that from, the years 1961-62 to 1964-65, grass was being cultivated therein

under method of cultivation No. 1, that is, the land was under the personal cultivation of the assesse. For the year 1965-66, cultivation column shows that Juwer was the crop which was cultivated. The same is the position, for the years 1966-67 and 1967-68. In the year 1967-68, out of 1 acre 25 gunthas, in 30 gunthas millet was cultivated, while in 5 gunthas each. Mag and Tuwer were cultivated. Thus, so far as survey Number 72/2/2 is concerned, the record of rights shows that at the time of sale of this land it-was-being cultivated as agricultural land. So far as survey Number 71 is concerned, in all it admeasures 1 acre 24 gunthas. The pant patrak for this land which was also produced before the ITO shows that it was under personal cultivation, that is, by method No. 1 from 1961-62 all throughout thereafter up to 1967-68. Up to 1964-65, the cultivation column shows that grass was grown on the said land: In 1966-67, along with grass, is shown Juwer; while for 1967-68, 6,544 sq. yds. are shown to be fallow; and 1,150 sq. yds. which came to be transferred and allotted to the assessee are shown to be utilised for cultivation of Mag, Juwer and Millet. Thus, so far as survey Number 71 is concerned, it is also shown by the record of rights to have been utilised for the purpose of agriculture at the relevant time. Part of it was sold in 1968. The record of rights of survey Number 191, which was also produced before the ITO, shows that it admeasured 2 acres 31 gunthas of cultivated land and it was assessed to land revenue and its assessment was Rs. 9.87. Thus, even this land was agricultural land at the relevant time as the record of rights shows.

The main contention on behalf of the Revenue as canvassed by its learned advocate Mr. Raval is that so far as survey Number 71 is concerned, it was sought to be acquired by the State Govt. years back in 19S9 for the purpose of the Gujarat Housing Board and after the suit was compromised in 1963, possession of the said land was given by the assessee to the Housing Board

on August 6, 1963. Mr. Raval submits that it is true that out of the three survey numbers, as per the compromise between the assessee and the State of Gujarat and the Gujarat Housing Board, 1,150 sq. yds. of land remained with the assessee. But the rest of survey Number 71 vested in the Housing Board and still the record of rights shows that on the entire land during the

relevant time, grass was being cultivated. So far as survey Number 72/2/2 is concerned, even though grass is shown to be cultivated in the said land for 1961-62 onwards, the contention of the Revenue is that grass must have naturally grown there and it would thus not amount to an agricultural operation and it is only during the relevant years nearing the date of sale that an attempt was made by the assessee to show that he was utilising the land in question for actual agricultural operations by showing crops therein. So far as record of rights pertaining to survey Number 191 is concerned, the contention of Mr. Raval for the Revenue is that this land never belonged to the assessee at any time prior to 1967. Thus land was under acquisition for the Housing Board and immediately after the compromise with the assessee, 3,420 sq. yds. out of survey Number 191 were parted

with by the Housing Board in favour of the assessee and they came in his possession in 1967. Consequently, submits Mr. Raval, it cannot be said that the said land was ever put to any agricultural use by the assessee at the relevant time when he decided to sell it to the Co-operative Housing Society in question. It is, therefore, submitted by Mr. Raval for the Revenue that the Tribunal was justified, in treating these lands as non-agricultural lands and in further holding that the capital gains which arose on the

transaction of sale of this land by the assessee were liable to be brought to tax.

In this connection, it is necessary to recall certain well established facts which clearly emerge from the record of this case. So far as survey Numbers 71 and 72/2/2 are concerned, originally they were agricultural lands and it is not the case of the Revenue that at any time they were actually put to non-agricultural use by the assessee after obtaining orders, of the Collector under s. 66 of the Land Revenue Code. These lands were also being assessed as agricultural lands and the land revenue was being paid accordingly. At the time when they were sold, they were being treated as agricultural lands. But the only ground on which the Tribunal has held against the assessee is that agricultural operations, appear to have been planted by the assessee by the time these lands came to be sold and it was merely an eye-wash to get away from the taxing provision. Thus, the main findings of the Tribunal are in favour of the assessee against the assessee only on the basis that agricultural operations to which the assessee had switched on by the time the lands in question were subjected to sale, were a device or an eye-wash to get out of the taxing provisions. So far as this finding is concerned. it appears to us to be completely unjustified. In this connection, it is necessary to note that the ITO had nowhere held in his order that the assessee had resorted to a subterfuge or a device to get out of the provisions of the Act by switching over to agricultural operations.

The ITO held that a temporary cultivation of building site lands cannot convert the lands into agricultural lands. He had thus wrongly assumed that there were building sites on the concerned lands and they were temporarily put to cultivation. But the fact remains that the ITO nowhere doubted the genuineness of cultivation. It is also interesting to note that when the assessee carried the matter to the AAC, no contention was raised was raised on behalf of the Revenue that cultivation of the lands in question, near about the time when they were made the subject-matter of sale, was in any way a device to get out of the provisions of the taxing statute and thus it appears clear that up to the stage of the AAC, no grievance was made nor any

contention raised by the revenue that agricultural operations on the lands in question were in any way an eye-wash. But it appears that at the stage of second appeal before the Tribunal, the Revenue raised a contention by way of an entirely new case which the Tribunal ought not to have entertained. Instead, the Tribunal accepted the contention for the first time in a second

appeal and held that agricultural operations were carried on by the assessee close to the time of the sale and this clearly showed that it was an eye-wash. In our view, the aforesaid, finding of the Tribunal was clearly unjustified on the record of this case and amounted to making out a totally impermissible new case on behalf of the Revenue In order to support his submission that the Tribunal ought not to have. allowed such a contention, the learned Advocate-General for the assesses has invited our attention to the judgment of this court in Maganlal Morarbhai v. CIT [1979] 118 ITR 224 . The Division Bench of this court in terms disapproved of such practice being adopted by the Tribunal to entertain new contentions for the first time in second appeal when such contentions were not urged before the lower authorities. It was observed in the penultimate para, of the said judgment as under (p. 234):

"Before concluding our judgment, we may point out that in para. 8 of its order, the Tribunal has proceeded to set out the facts which were no one's case. For example, to say that an area of six acres and fifteen gunthas, with a well in it, is a very small piece of land, is, to say the least, totally unjustified. To say that it could not have been possibly made use of for agricultural purposes and that for a number of years, the land was not used for agricultural purposes, are statements which are not borne out by the earlier part of the Tribunal's own order and which are not borne out by the admissions made before the AAC, by the ITO himself and by Pani Patraks on the record. To say that the land was being used as a kitchen garden and to compare the use of growing juwar and tuver and other crops to kitchen garden purposes, is, to say the least, an erroneous statement of fact. The Tribunal, which is a final fact-finding body, should be very careful in making statements of facts of the type which have been made in para. 8 of its order in the instant case. In view of the record before us, we can

disregard these statements as perverse and contrary to the record of the case, but it is possible that such unsubstantiated statements set out in its order may possibly harm an assessee in some other case. The Tribunal should, therefore, be very careful in setting out its conclusion on facts in its order."

Thus it is clear that the observations made by the Tribunal regarding the cultivation of the lands in question being an eyewash are not at all justified on, the record of the case and are not permissible and these observations have got to be ignored. Excepting the rest of the findings of the Tribunal are all in favour of the assessee The Tribunal has held that the lands were not put to non-agricultural use at the given time. But it has held against the assessee by permitting the Revenue to make out a new case before it that agricultural operations were a device. To recapitulate, the following facts clearly emerge on record and are not in serious dispute between the parties.

Firstly, two survey Numbers 71 and 72/2/2 were actually put to agricultural use at the time when they were subjected to sale in 1968, So far as these lands are concerned, it is further pertinent to note that Since 1943, when they were purchased by the assessee all throughout, they remained agricultural lands and it is not the case of the Revenue that at any time these lands were converted to non-agricultural use by the assessee by obtaining requisite permission of the Collector under s. 65 of the Land

Revenue Code, So far as survey No. 191, is concerned, it was originally agricultural land which was acquired for the purpose of the Housing Board and it did not belongt6 the assessee till it was released by the Housing Board under the compromise in the civil suit referred to above, and 3,430 sq. yds. of the said land were handed over to the assessee in 1967.

Secondly, the record of rights pertaining to the aforesaid three lands clearly show that they were agricultural lands. Formerly grass was being grown in survey Numbers 71 and 72/2/2 and from' 1966-67, juwer was grown in survey No. 71 and in 1967-68, in 1,150 sq. yds. which remained with the assessee, out of survey No. 71, several agricultural crops like bajri, juwer and turner were grown. So far as survey No. 72/2/2 is /concerned, formerly grass was grown but from 1965-66, for the rest of the years, till the date of sale, juwer was grown, and in the last year 1967-68, bajri, mag and tuwer were also grown. So far as survey No. 191 is concerned, it was shown as cultivable land admeasuring 2 acres 31 gunthas and was assessed to land revenue at Rs.9.87.

The aforesaid two features, viz., factual user of the land as agricultural lands at the relevant time and the record of right entries raise a strong presumption in favour of the assessee to the effect that the concerned lands at the time of the sale were agricultural lands. These presumptions which clearIy26Bron the record of the case have remained practically unrebutted by the Revenue. The Tribunal has; completely ignored this aspect and has not raised the necessary presumptions of law which clearly arise on the record of the case. When the Tribunal, as a final court of fact failed to raise legal submissions which arise on the record of the case, its order suffered from a patent illegality. The aforesaid position of law is well settled in CIT v. Vajulal Chuntilal (HUF) 11979J 120 ITR 21 (Guj). The Division Bench of this court therein has in terms held on the facts absolutely and practically parallel to the facts of the present case as under (head note):

"The presumptions arising from the actual user of the land for agricultural purposes and from the entries in-the records of rights had not been rebutted by any other factor or special circumstance of the case. The Tribunal had erred in law in disregarding these presumptions and in holding that the land bad lost its agricultural character on the date of sale because of the permission granted under the Bombay Tenancy and Agricultural Lands Act."

It, therefore, appears clear that the Tribunal's ultimate finding suffers from a patent error of law. The third feature which clearly emerges on the record of this case is that so far as survey Nos. 71 and 191 are concerned, originally they were sought to be acquired for the Housing Board and subsequently parts of them came to be released in favour of the assessee pursuant to the settlement and compromise arrived at between the parties in the civil suit. When lands are sought to be acquired for the Housing Board, as per the Government policy, undeveloped areas and where there is possibility at development are generally selected. Government policy in such acquisition proceedings has been noted by this court in Hitendrakumar Thakordas Raval v. State of Gujarat [1980] 21 GLR 83. In that case, the land acquisition notification under ss. 4 and 6 of the Act were challenged by the petitioners on the ground that their lands were sought to be acquired for the Housing Board contrary to the Government policy and that lands situated in well developed area could not be acquired for the Housing Board. The petitioners, in that case, contended that their lands were situated within the limits of the Surat Municipal Corporation and there was all round development in the area and several buildings had come up in the vicinity of the lands of the petitioners and several co-operative housing societies had sprung up. The petitioners, therefore, contended that the proposed acquisition of the lands situated in the developed area for the Housing Board was contrary to the well established policy of the Government of not acquiring lands in developed areas for the Housing Board. While upholding the said contention of the petitioners, this court in Hitendrakumar's case [1980] 21 GLR 83, placed reliance on the two letters written by the Government to the Housing Commissioner laying down this policy. It was observed with reference to these letters that the two letters particularly the letter of February 1, 1966, from the Government to the Housing Board showed that the Government was of the opinion that urban land situated in a locality where development activity had started should not be acquired for the purposes of the Gujarat Housing Board and the clarification by the circular of July 24, 1967, being annex. D to the petition in that case did not in any way alter the position so far as lands situated in developed area were concerned. The clear guideline laid down by the Government in the letter of February 1, 1966, was that the lands in developing area of lands in the vicinity of which development activity had started or development started should not be acquired for the purposes of the Housing Board. This court also placed reliance on the earlier judgment in the case of Maganbhai Vanarashibhai Patel v. State of Gujarat [1975] 16 GLR 839; [1976] AIR 1976 Guj 84 decided by a Division Bench consisting of Mehta and A. D. Desai JJ. In the said judgment, A.D. Desai J. speaking for the Division Bench, had observed that the Government had adopted the policy not to acquire land on which there were residential premises and further not to acquire lands surrounding such developing area. The aforesaid observations were made with

reference to the acquisition proceedings initiated by the State of Gujarat, for the purpose of the Gujarat Housing Board. The aforesaid decision of this court in Maganbhai's case, AIR 1976 Guj 84 makes it very clear that when the lands were sought to be acquired for the Housing Board, the areas selected for the purpose of such acquisition would be undeveloped areas. It may be

recalled, at this stage, that the acquisition proceedings were initiated in the year 1959, when survey No. 71 of the petitioner as well as survey No. 191 of the other owner were sought to be acquired for the Housing Board. The very fact that these lands were sought to be acquired for the Housing Board itself establishes the salient features of the lands proposed to be acquired

and shows that these lands could not be in a developed area. It is also necessary to recall, in this regard the clear recitals in the assessee's letter dated March 14, 1972, addressed to the ITO which is on the record of this case and to which we have made a reference in the earlier part of this judgment. In para. 6 of the said letter, it has been clearly stated that in the surrounding area, there is a bungalow of Shri Surendrabhai Mangaldas and the Gujarat Housing Board colony. The recitals in the said letter were not in any way controverted by the ITO and these recitals remain unchallenged on the record of this case. Thus, it is apparent that the concerned lands were at the relevant time lying in an undeveloped locality and the development had not reached these lands. In fact, that appears to be the reason why they were selected for the purpose of acquisition for the Gujarat Housing Board

by the State Govt.

The fourth feature which is well established on the record of this case ,is that the concerned lands were assessed to land revenue at ordinary rate and had never paid non-agricultural assessment at any time till the date of their sale.

The feature which to also well established on the record of this case is that the assessee had sought the permission of the Collector under s.63 of the Tenancy Act to sell these lands for non-agricultural purpose. The very fact that such permission was asked for under the Tenancy Act shows that these lands were agricultural lands, otherwise such permission could never have been asked for and such application could never have been entertained under s. 63 of the Tenancy Act.

The sixth feature of this case is that the land in question were covered ' only by the draft town planning scheme at the relevant time and the final scheme was approved only in 1970, that is, two years after the sale in question. Thus, at the relevant time, when the lands were subjected to sale, they were covered only by the proposed scheme.

The seventh feature of the case is that the order of the Tribunal in the wealth-tax case had no relevance for deciding the present controversy for the simple reason that the Tribunal in the wealth-tax proceedings had wrongly assumed that the final town planning scheme had come into force so far as the lands in question were concerned. That assumption was factually absolutely incorrect.

The eighth feature of the case is that the lands in question were sold by the assessee as agricultural lands. He had not done plotting of the lands. In fact, he had never applied for any permission under s. 65 of the Bombay Land Revenue Code for converting his lands to non-agricultural use before their sale. It is only the vendee-co-operative society which subsequently obtained permission under s. 65 of the Land Revenue Code.

The aforesaid features which are well established on the record of this case leave no room for doubt that the assessee sold the lands in 1968 as agricultural lands.

Mr. Raval appearing for the revenue contended that the record of rights during the years 1961-62 to 1964-65 showed that grass was grown in the lands. His contention was that this grass would have naturally grown on these lands and that would show that they were not put to any agricultural use, In fact, that was the main contention of the revenue in defence. Even this contention on behalf of the revenue cannot be entertained for the simple reason that the records of rights for the concerned lands to which we

have made reference earlier, show that under method of cultivation No. I, grass was being grown on the concerned lands. These entries are to be read in the light of the clear recitals found in the letter of the assessee to the ITO dated March 14, 1972, wherein it has been pointed out by the assesse for the information of the ITO even prior to the date on which the ITO passed the order of assessment that the lands at Vastrapur were under cultivation of Panjra-pole for consumption by the cattle under their

care. This recital was not controverted by the ITO. Consequently, the growing of grass on these lands was an agricultural operation as grass was to be utilised for feeding cattle. Whether cultivation of grass was with a view to earn profits or with a view to donate grass for charity, is not at all relevant for deciding the moot question as to whether the lands were thereby put to agricultural use.

The aforesaid well established facts on the record of this case may now be judged in the light of the settled legal position.

The learned Advocate-General for the assessee has invited our attention to various judgments of this court and one judgment of the Supreme Court in this connection. He first took us to the decision of this court in CWT v. Narandas Motilal [I971] 80 ITR 39 .

In the said case, the facts were that certain lands had been put to agricultural use only since they were acquired by the assessee in 1952 and they were so situated that they could not have been used for building or non-agricultural purpose at any time during the relevant period. The only contentions which the Revenue had pressed in service in that case were that the draft town planning scheme had been applied to the area; that the lands had been plotted out by the assessee and that the plots of land had been sold to different persons on the basis of yardage. The contention of the revenue was that these features clearly showed that the lands were non-agricultural and, consequently, they were liable to be included in the computation of net wealth of the assessee under the W.T. Act, 1957. Repelling this contention, on behalf of the revenue, this court held that such lands cannot be included in computing the net wealth under the aforesaid Act as they remained agricultural lands in spite of the aforesaid features. In this connection, it has been observed by this court in Narandas' case [1971] 80 ITR 39 (Guj), that 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 the land admittedly non-agricultural (such is 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 that 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.

The aforesaid observations were extracted in Narandas' case [1971] 80 ITR 39 (Guj), from an earlier case decided by this court in Rasiklal Chimanlal Nagri v. CWT [1965] 56 ITR 608. Proceeding further, this. court, in Narnadas’'.case, observed (at p. 47):

"...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. While considering this point we find that throughout the relevant period, the lands have been so situated that they could not have been put to any other use except that of agriculture. It is 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 is made by the Appellate Assistant Commissioner in his order. It is in evidence that neither the assessee nor the persons to whom the assessee has sold different plots of land have, at any time, made any attempt to put this land to non-agricultural use...It is under these circumstances that the fact that the lands have been subjected to agricultural use throughout the relevant period (sic). The fact that the land was never intended to be used during the relevant period as a building site or for any other non-agricultural purpose lends support to the contention that they did not cease to possess their original character, namely, agricultural. "

This court further observed that the aforesaid fact raised a prima fade presumption about the character of the lands being agricultural lands and this presumption was not displaced by the other side by leading cogent evidence. The only grounds put forward by the revenue for displacing the presumption were three, viz., (1) that the draft town planning scheme was applied to the area in which these lands were situated; (2) that the lands were plotted out by the assessee in the year 1959 and (3) that these plots of land were sold to different persons on the basis of yardage. This court held that the aforesaid features were not strong enough to displace the presumption which arose regarding the user of the lands as agricultural lands:

So far as the facts of the present case are concerned, we find that they are much stronger as compared to the facts in Narandas' case [1971] 80 ITR 39 (Guj). In the present case, the lands as such were never plotted by the assessee nor were :they got converted into non-agricultural land prior to their sale, nor were they sold on yardage basis, only a lump sum price was fixed. The only common feature is that the draft scheme had been applied to the area in which the lands in the present case were situated as was only

the situation in Narandas' case [1971] 80 ITR 39 (Guj). It is therefore, clear that the features which emerge on the record of this case not displace the presumption but on the contrary strengthen the presumption regarding the concerned lands being agricultural lands at the time of their sale.

The learned Advocate-General drew our attention to the Supreme Court judgment in CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133. The question before the Supreme Court was whether the property called "Begumpet Palace" within the municipal limits of Hyderabad, consisting of vacant lands of about 108 and also buildings enclosed in compound walls

constituted "agricultural land "within the meaning of cl. (i) of s. 2(e) of the W.T. Act, 1957. The income-tax authorities and the Appellate Tribunal held that the property in question could not be treated as agricultural land within the meaning of s. 2(3) as the land was never intended to be used for agriculture and was not plotted out. On a reference, the High Court held that the land was agricultural land because the area was 108 acres abutting the Hassain Sagar tank ; the land had two wells in it; that it was capable of being used for agricultural purposes; that it had not been put to any use which 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 had under the A.P. Land Revenue Act. On appeal to the Supreme Court, it was held that the first four features considered by. the High Court and based upon the absence of any user for non-agricultural purpose were inconclusive and the fifth feature alone provided some evidence of the character of the land from the point of view of its purpose. That the property was classified in the revenue records as agricultural land was not conclusive and such entries could raise only a rebuttable presumption. Therefore, the Appellate Tribunal was asked to determine afresh whether the lands were agriculture after giving an opportunity to both aides to tad further evidence. While considering the aforesaid question, the Supreme Court observed (p. 134);

"The determination of the character of the land, according to the purpose for which it ii meant or set apart and can be used, is a matter which ought to be determined on tin facts of each particular case. What is really required to be shows is the connection with an agricultural purpose and user and not the mare possibility of war of land, by same 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 purposes for of exemption from wealth-tax."

In the aforesaid decision, the Supreme Court noted the eight conclusions reached by the Fuji Bench of the Andhra Pradesh Court High Court. Out of these eight conclusions, according to the Supreme Court, conclusions Nos, 6 to 8 were correct and they read as under:

"(6) mere enclosure of the land does not by itself render it a non-agricultural land

(7) the character of the land it not determined by the nature of the products raised, so long as the land is used or can be used for raising valuable plants and crops or trees for any other purpose of husbandry;

(8) the situation of the land in a village or in an urban area is not by itself determinative of its character."

Thereafter, the Supreme Court noted, the 5th conclusion reached by the A.P. Full Bench and it ran a under:

"(5) if bad is assessed to land revenue as agricultural land under the State Revenue law, it is a strong piece of evidence of its character as agricultural land."

With reference to this conclusion, the Supreme Court held that the said conclusion seemed to show the real or positive test based on entries in the revenue records and raised a presumption in favour of the land being agricultural land. As we have already noted above, in the present case, the record of rights show the user of these lands as agricultural land and thus clearly raise a presumption in favour of the assessee in the light of the settled legal position as laid down by the Supreme Court in the aforesaid decision in the case of CWT v. Officer-in-Charge (Court of Wards). Paigah [1976] 105 ITR 133 (SC) and the said presumption has remained unrebutt-ed on the record of this case.

Thereafter, the learned Advocate-General took us to the decision of this court in CIT v. Manilal Somnath [1977] 106 ITR 917 . A question similar to that which has been posed for our consideration in the present case arose for decision in the aforesaid case. The facts in the said case, were that the assessee, HUF, had obtained some land on a partition in 1839. From that time, up to the time of its sale, agricultural operations were carried on in the land. There was no regular road to the land and it was with the aid of tractor that agricultural operations were being carried on. The land was included within a draft town planning scheme. The assessee got the permission of the Collector to sell the land for residential purposes and sold it. The Revenue contended that the profits arising out of this transaction were liable to be taxed. Repelling the said contention of the Revenue, this court held on the aforesaid facts that what has to be considered is not what the purchaser did with the land 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 purposes for a long time and nothing bad 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 sate. The land in question was, therefore, agricultural fend. This court relied upon various previous judgments of this court in support of the view taken by it. In Manilal Somnath's case [1977] 106 ITR 917 (Guj), it was further observed that the fact that the assesses had obtained permission of the Collector under s. 63 of the Tenancy Act showed that the land in question was agricultural land at the time of the sale. In that connection, it was noted that under s. 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 authorised by the State Govt. in this behalf grants permission for a sale on such conditions as may be prescribed. Under s. 2, sub-s. (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 s. 63 of the Tenancy Act granted permission.

It was further noted that there was 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 Coop. Housing Society Ltd., agricultural operations which were being carried on were by way of stop-gap arrangement. It was further noted in the aforesaid case, that some land otherwise non- agricultural, could be used temporarily for agricultural purpose. The fact, that the permission it obtained under s. 63 of the Tenancy Act would not displace the prima facie presumption which arises from the fact that this ancestral land received on partition was constantly being put to agricultural use and continued to be put to agricultural use till the date of the sale.

As we have already noted earlier, the facts of the present case are almost parallel to the facts in Manilal Somnatk's case [1977] 106 ITR 917 (Guj).

The learned Advocate-General then relied upon the decision in Smt. Chandravati Atmaram Patel v. CIT [1978] 114 ITR 302 (Guj). In the aforesaid case, a similar question was posed for consideration. The facts in that case were that the assessee had sold her half undivided share in a plot of land to a housing society in 1968. The land was treated as agricultural land for wealth-tax purposes for the assessment years 1964-65 to 1966-67. At the time of sale, the land had standing crops on it and tin the date of sale only land revenue payable for agricultural purposes was levied on it and permission for non-agricultural user was obtained by the housing society only after the date of sale. On the other hand, the land round about was fully developed and housing projects had come up to the land. Previous transactions regarding the land showed that as far back as 1942, the land

was being sold by the yardage and not by the bigha or acre. The Tribunal took the view that the land was non-agricultural land when it was sold. Disagreeing with the aforesaid conclusion of the Tribunal, this court, on reference, held that the order of the Tribunal, showed that it had not considered the question from the point of view of the presumption arising in favour of the assessee in the case from the actual user of the land and entries in revenue records and then finding out whether that presumption could be said to be rebutted or dislodged by other factors in the case. In that connection, it was observed (head note):

"Prima facie land could be said to be agricultural which is either actually used, ordinarily used or is meant to be used, for agricultural par-poses. If it is actually used at the relevant date for agricultural purposes and there are no special features, as for example, a building plot being used for agricultural purposes as a stop-gap arrangement, it would be agricultural land. Potential use of the land 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 user of the land and then consider whether that presumption it dislodged by the presence of other factors in the case."

We have already pointed out earlier that the strong presumption does arise on the facts of the case regarding agricultural nature of the lands in question at the time when they were subjected to sale, and then presumptions have not been effectively rebutted by the Revenue.

We were then taken to the decision of this court in Chhotalal Prabhudas v. CIT [1979] 116 ITR 631 . The question that arose for consideration in that case was, whether the sale of the land attracted the provisions of the capital gains tax and whether the lands were agricultural lands at the time of their sale. In Chhotalal's case, the assessee, an HUF, purchased lands in 1930 and 1933. Immediately after the lands were purchased, they were used for agricultural purposes. Thereafter, the lands were put to non-agricultural use for manufacturing of bricks. This continued up to 1952, the assessee obtained permission for reconversion of the land (or agricultural use. For some years after 1952, the lands were being utilised in part, for cultivation of juvar and from 1963-64, the lands were exclusively used for cultivation of juvar. From 1959-60, a portion of these lands was charged to land revenue on the footing that it was agricultural land. The lands were included in the town planning scheme in 1959. The lands were sold in 1968, to several co-operative housing societies and an individual. The purchasers applied for permission to convert the land to non-agricultural purposes. The ITO sought to charge the gains arising from the transfer as capital gains for the assessment year 1969-70. The AAC came to the conclusion that the lands were agricultural lands. On further appeal, the Tribunal held that in view of the fact that the lands had been sold for non-agricultural purposes, the ITO was justified in charging capital gains tax. On a reference, this court, disagreeing with the Tribunal, took the view that in 1932, when non-agricultural use of the lands was discontinued and permission was obtained for use of the lands for purely agricultural purposes there was no law taxing capital gains on the statute book. Hence, the idea of arranging 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 assesses. The lands lay fallow for a few years after 1952, but if land is to be used for agricultural purposes either by rotation or otherwise it has to be allowed to lie fallow. The lands were attempted to be used for agricultural purposes from 1959-60, and from 1962-63, were used exclusively for growing juvar.

The agreements for sales showed that crops were standing on the lands in question. The fact that for two decades, a large part of the lands was being used for non-agricultural purposes would not permanently condemn the lands as non-agricultural. What had to be seen was 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. Application to reconvert the lands was made in 1952, and the sale took place sixteen years later. There was nothing to show that in the intervening period these lands had lost their regained character of agricultural lands. The lands had been included in the town planning scheme only in 1959. Under these circumstances, it could not be said that agricultural use of the lands was a mere stop-gap arrangement until some purchaser came forward to purchase the lands at

prices at which the owners were willing to sell. The fact that the lands could be put to a particular use for which the purchaser has agreed to pay a high price does not mean that the land is not agricultural land at the relevant date.

The facts in Chhotalal's case [1979] 116 ITR 631 (Guj), are practically parallel to the facts of the present case. We need not dilate on them any further as we have made a detailed reference to them earlier.

The learned Advocate-General then drew our attention to the decision of this court in Maganlal Morarbhai's case [1979] 118 ITR 224. We have already referred to this judgment while referring to the contention on behalf of the revenue that user of the lands as agricultural lands was an eyewash. In the said judgment, it was also observed by this court on the merits of the case (head note):

"According to the admitted position before the AAC, the assesses continued to cultivate the lands including the land sold to the society till the date of sale and continued to carry on agricultural operations in the remaining 7,527 square yards Which remained with him, right down till 1972-73, as shown by Pani Patrak entries on the record of the case. Therefore, prima

facie, it would be seen that the lands were agricultural lands and the presumption arising iron the user of the land had not been rebutted. The conversion from agricultural as to non-agricultural use took place after the date of sale, namely, after January 12, 1967, and that too on an application for non-agricultural user made on March 11, 1967, by the purchaser society and the actual permission was granted on May 11, 1967. Further, the remaining portion of the land was used for agricultural purposes by the assessee even after the sale to the society. Permission to sell the land to a non-agriculturist 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. This only goes to show that it was only after the date of the sale, the land ceased to be agricultural land."

It was further observed (ibid):

"The land had undoubtedly potential non-agricultural value and for the potential non-agricultural value the purchaser was prepared to pay a high price, but such potential non-agricultural value does oat detract from the character of the land as agricultural land at the date of sale. It is true that agricultural land would not be sold by yardage at the rate of Rs. 6.95 per square yard, but this high price reflects potential non-agricultural value. It would not mean that the land has ceased to be agricultural because of this price.

It follows that the Tribunal committed an error of mixed question of fact and law when it came to the conclusion that the land had ceased to be agricultural land on the date of the sale and that when it was sold it was not agricultural land."

We have already noted that the facts of the present case clearly show that the Tribunal had committed a similar error of mixed question of law and fact when it held without drawing the necessary legal presumption that the lands in question were non-agricultural lands at the date of their sale It is necessary to note a further salient fact that in the present case, the price had been fixed in lump sum for 6,200 sq. yds. and not on the basis of yardage at some rate of per sq. yd. as were the facts in Maganlal Morarbhai's case [1979] 118 ITR 224 (Guj). Consequently, the ratio of the decision of this court in Maganlal Morarbhai’s case squarely applies and with great force to the facts of the present case.

The learned Advocate-General also drew our attention to the observations of this court in CIT v. Vajulal Chunilal (HUF) [1979] 120 ITR 21. We have already referred to the aforesaid decision while considering the question as to whether the High Court could interfere in reference when the Tribunal had not drawn the requisite legal presumptions which arise in the facts of the

case. In Vajulal's case the facts were that an HUF bought some lands in 1920 and was using it for agricultural purposes. In 1964, the joint family agreed to sell 43,985 sq. yds. of land to Skyline Land Corporation. On May 8, 1968, there was a partial partition in the family and in that partial partition an area covering 43,985 sq. yds. of land was given to D and D, who was entitled

to one-sixth share in the joint family properties, agreed with his five brothers to pay each of them a sum of Rs.1,00,795.83 as the share of each of them in the land given to D. On the very day on which the partition deed was executed, D executed a sale deed in respect of the land to Kalpana Co-operative Housing Society for a sum of Rs.7 lakhs. Prior to the deed of sale but after the agreement to sell with the Skyline Land Corporation, the HUF applied for permission under the Bombay Tenancy and Agricultural Lands Act to sell the land to a non-agriculturist. The land was not converted to non-agricultural use prior to the date of the sale but on an application made by the Chairman of the Kalpana Housing Society, permission for non-agricultural use was granted. The HUF applied to the ITO under s. 171 for a recognition of the partial partition regarding this particular asset, but the ITO rejected the application on the ground that the partition was not valid and genuine. He held that the capital gains on sale of land should be included in the assessable income of the HUF as the land was non-agricultural at the time of sale. On appeal, the Tribunal held that the partition was valid but the land was non-agricultural at the time, of sale. On reference, this court, disagreeing with the Tribunal took the view that the land had been purchased as far back as 1928 and since that date it was being used as agricultural land. The Tribunal had itself referred to the fact that the entries in the record of rights showed that over several years crops were being grown on the land. The presumptions arising from the actual user of the land for agricultural purposes and from the entries in the record of rights had not been rebutted by any other factor or special circumstances of the ease. The Tribunal had erred in law in disregarding these presumptions and in holding that the land had lost its agricultural character on the date of sale because of the permission granted under the Bombay Tenancy and Agricultural .Lands Act. It was, therefore, held that the land which D had told after getting it on partial partition was agricultural land on the date of its sate add profits arising therefrom were not liable to be taxed, as capital gains.

In the light of the aforesaid legal position and in view of the proved and admitted facts as emerging on the record of this case and to which we have made a detailed reference in the earlier part of this judgment, it appears clear to us that the assessee had sold agricultural lands on January 1,1968. The Tribunal’s finding to the contrary is unsustainable at law.

Once this conclusion is reached, it must necessarily follow that on a combined reading of ss. 45(1) and 2(14) of the I.T Act as is stood in 1968, gains arising to the assessee as a result of the sale transaction cannot be brought to tax as capital gains. In that view of the matter, the referred question has to be answered in the negative, that is, in favour of the assessee and against the Revenue. The Commissioner to pay costs of this Reference to the assessee. Order accordingly.