Decided on October 18,1979



- (1.)ON being directed by this court under Section 256(2) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal, Patna Bench, has made statement of the case on the undermentioned question of law :
" Whether, on the facts and in the circumstances of this case, the exclusion of sum of Rs. 18,542 taxed under the head ' Capital gains', from the total income of the assessee by the Tribunal is legal and proper within the meaning of Section 45 of the Income-tax Act, 1961 ? "

(2.)IN terms of Section 45 of the Act any profits and gains arising from the transfer of " Capital asset" is chargeable to income-tax under the head " Capital gains " and is treated to be the income of the previous year in which the transfer took place. " Capital asset " has been defined in Sub-section (14) of Section 2 of the Act as not including, inter alia, agricultural land in INdia. Subsequently, however, by an amendment made in the year 1970, " agricultural land " which is not to be included in the " capital asset" has been restricted. Since, however, the restriction does not affect the assessment in question, it is not necessary to mention it. All that is necessary to be stated is that " capital asset" did not include agricultural land in INdia.
The question involved arises out of sale of land and that is why I have mentioned the relevant provisions of the Act before stating the facts of the case.

The facts relevant, as stated by the Tribunal, are that the assessee is an HUF, which sold during the relevant previous year for the assessment year 1967-68, seven kathas six chhatak and thirty square feet of land situated at Hazaribagh Road. Ranchi, in village Konka, out of holding Nos. 45, 46, 47 and 48 to one Mrs. Ela Mukherjee for a consideration of Rs. 22,250. The ITO charged the transaction to capital gains tax, on the ground that in the last 2-3 years no agricultural operation had been carried on on the land. According to him, although the land was agricultural in the past, yet because of the development of the town, it had acquired the character of urban properties. On one side of the land there was Lalpur Police out-post and some land had also been purchased by the income-tax department for construction of staff quarters. He also stated that the land had been sold for the purpose of construction of building. On these facts, he held that the character of the land did not retain agricultural character and, therefore, it was transfer of capital asset within the meaning of Section 45 of the Act, to which income-tax was attracted.

The AAC confirmed the action of the ITO of charging the capital gains on the sale of land to tax. The assessee (opposite party) then appealed to the Income-tax Appellate Tribunal which found, on the basis of an enquiry, which was made at its instance, by an inspector of income-tax, fhe following facts:

(i) the Malguzari receipts granted by the State Government indicated the character of the land as Hakast Kheti ;

(ii) The entry in the record of rights showed the land as Raiyati Kriski;

(iii) It was a low land and from local enquiry it was found that it was being used for agricultural purposes previously, but for last 2-3 years it was not being so used;

(iv) The land adjoining on the southern side was being used for growing vegetables, fruits and other crops. Only on its western side some land had been purchased by the income-tax department and on which side also lay the Lalpur police out-post.

On the basis of these factual materials, the Tribunal came to the con clusion that the land in question was agricultural land, the transfer of which could not be subjected to tax on capital gains.

(3.)THE department being aggrieved by this decision has got the matter referred for opinion of this court.
Mr. Rajgarhia appearing for the department, urged that the Tribunal went wrong in its conclusion, because it had left out of consideration two of the basic facts, namely, (1) the land had been sold for the purpose of construction of building ; and (2) had it not obtained urban character, it could not have fetched a sum of Rs. 22.000 odd for sale of just a small piece of 7 kathas odd of laud. According to Mr. Rajgarhia, even if the land had been agricultural in nature, admittedly, it had ceased to have that character at the time when it was sold. He, therefore, submitted that the question must be answered in favour of the department and against the assessee.

It cannot be gainsaid that if the seller sells parcels of land for the purpose of constructing house thereon, that fact can be one of the criteria for determining the character of the land; so also the location of the land. If the land is situated in the heart of the town surrounded by residential houses, the normal presumption would be that the land is not an agricultural land, although the presumption could be rebutted. All that we mean to say is that the facts stated by Mr. Rajgarhia could also be some of the criteria for determining the character of the piece of land, but by themselves they would not be sufficient for the purpose. It would all depend upon the facts and circumstances of each case and it is only on an overall view of all the situation pertaining to the land, that the character of the land can be properly determined.

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