Commissioner of Income Tax vs Prakash Industries

Divan, C.J.—In this reference at the instance of the revenue the following question has been referred to us for our opinion :

Whether, on the facts and in the circumstances of the case, the decision reached by the Tribunal that the land in question was agricultural land and

such not liable to capital gains was correct in law ?

2.The facts leading to this reference are as follows. We are concerned with the assessment year 1964-65. The assessee in this case is an individual

carrying on business in the name of Prakash Industries, he being the sole proprietor thereof. Formerly, the assessee was a member of a joint and

undivided Hindu family consisting of his father who was the karta, the assessee''s brother, the assessee himself and his mother. This family owned

immovable property including the lands in dispute. A partial partition has taken place between the coparceners of the Hindu undivided family on

October 7, 1959. At the time that partial partition, three plots of land, bearing Survey Nos. 66/1, 120/1 and 120/2 of Navrangpura, Sheikhpura

and Khanpur areas came to the share of the assessee. The assessee entered into an agreement to sell these plots of land to a proposed co-

operative housing society on July 20, 1962, and the sale deed was executed on February 16, 1963. The land was sold on yardage basis for a sum

of Rs. 3,42,069. The Income Tax Officer treating the land as capital asset worked out capital gains thereon at Rs. 2,40,193 and brought that

amount to tax under the provision of the section 45 of the Income Tax Act, 1961, on the footing of capital gains. Against the decision of the

Income Tax Officer, the assessee carried the matter in appeal and the Appellate Assistant Commissioner found that the land was under agricultural

use continuously, both during the time that it was owned by the Hindu undivided family and after it came into the possession of the assessee after

the partial partition. The Appellate Assistant Commissioner found that in the year 1959-60, because of the scarcity of rainfall, the land had

remained fallow, but otherwise it had been put to continuous use and, relying upon the decision of this High Court in Commissioner of Wealth Tax,

Gujarat Vs. Narandas Motilal, , he held that the nature of the land which was agricultural had not changed merely because it was surrounded by

developed or developing area and hence it was not capital asset within the meaning of the Income Tax Act, 1961. He, therefore, allowed the

appeal and set aside the order of the Income Tax Officer regarding capital gains. Against the decision of the Appellate Assistant Commissioner, the

revenue carried the matter in appeal to the Tribunal and the Tribunal found that the land had been put to agricultural use right from the year 1936.

No evidence had been led by the Income Tax department to prove that the land had been put to non-agricultural use till the date of its sale. The

Tribunal, following the decision in Rasiklal Chimanlal Nagri''s case [1965] 56 ITR 608 and the decision in Commissioner of Wealth Tax, Gujarat

Vs. Narandas Motilal, , held that the land was agricultural land and, therefore, the Tribunal confirmed the order of the Appellate Assistant

Commissioner. Thereafter, at the instance of the revenue, the question hereinabove set out has been referred to us for our opinion.

We had occasion to refer to all the judgments bearing on the point in the case of Manilal Somnath, Income Tax Reference No. 180 of 1974,

decided on March 26, 1976 (since reported in Commissioner of Income Tax, Gujarat-III Vs. Manilal Somnath, . We have there pointed out that if

at the date of the sale of the land is actually put to agricultural use and there are no circumstances detracting from the inference which would follow

from the actual agricultural use of the land, the land should held to be agricultural land even though the land under consideration may be in the

vicinity of developed or developing area. If the land is not actually a building site at the date of the sale, the inference flowing from the continuous

agricultural use of the land will not be dislodged by sale by yardage or any other similar footing. Under these circumstances, following the reasoning

of our decision in Commissioner of Income Tax, Gujarat-III Vs. Manilal Somnath, we hold in the instant case that the presumption flowing from

the continuous agricultural user of the land for a number of years prior to the sale is not dislodged by the evidence on record and hence the land

must be held to be agricultural land.

Under these circumstances, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the revenue.

The Commissioner will pay the costs of this reference to the assessee.