Sudhindra Mohan Guha, J. - (1.) This reference relates to the assessment year 1969-70 and the relevant previous year ended on 31st December, 1968. The business of the assessee is of cultivation, manufacture and sale of tea. The assessee had a tea estate near Borhat in Upper Assam. The area of the estate was about 4,000 acres out of which 1,075 acres were under cultivation. On 24th December, 1968, the assessee sold about 261 acres of land to M/s. Rukong Tea Estate for a sum of Rs. 97,640. The estate had been acquired before 1st January, 1954, and the market value of the area sold was a profit of Rs. 97,640. On being asked by the ITO why the profit should not be treated as a capital gain under Section 45(1) of the I.T. Act, 1961, the assessee's explanation was that the land sold was suitable for the cultivation and the purchasers were engaged in cultivation of tea in adjoining areas and that the land was agricultural land. The ITO took the view that the land sold was not agricultural land as no agricultural operation had taken place therein and that it was full of forest trees of spontaneous growth. He treated the profit from the sale of land as capital gains and brought the same to tax.
(2.) The assessee came up in appeal before the AAC and it was contended before him that the land sold was fit for being immediately brought under cultivation and it was purchased by the persons owning the adjoining tea estate. The assessee produced before him a certificate from the garden manager stating that the land was not forest land but it was land which could be put under tea cultivation immediately. The AAC held the view that the ITO failed to bring any material on record to prove that the land was overgrown with forest trees of spontaneous growth. He thus deleted the amount of Rs. 97,640 which had been added by the ITO as long-term capital gains.
(3.) Aggrieved by the order of the AAC, the Department came up in appeal before the Tribunal. It was submitted by the representative of the Department before the Tribunal that the entire area of the tea estate had been acquired long before and except the area brought under tea cultivation the rest was forest and was overgrown with trees of spontaneous growth. It was also urged that in order to prove the nature of the land sold as agricultural land it was necessary to show that the land was connected with the agricultural activity and that the assessee had failed to produce such evidence that any manual labour had been expended on the land. It was further contended that as the tea estate was a part of the forest and that the land sold had never been brought under cultivation it was not agricultural land. It was, on the other hand, contended on behalf of the assessee that the land sold had been developed and was fit for being immediately put to tea cultivation and that it was only on that account that it was purchased by the owners of the adjoining tea estate. He also referred to the certificate from the assessee's garden manager to the effect that the land sold was not forest and it was pointed out that the certificate of the manager was based on the details of the land as given in the government revenue records. It was also pointed out that it was for the assessee to show that the capital asset was agricultural land and hence did not constitute the capital asset as defined in Section 2(14) of the I.T. Act, 1961. It was further observed that the tea estate was acquired long ago when it was entirely forest area and that unless it was shown by the assessee that some development had been made on the land sold, it was to be presumed that it continued to be overgrown with forest trees.;