Capital gain/agricultural income: A.Y. 1991-1992: Sale of land shown in Revenue records as agricultural: No agricultural income shown in return: Gain is agricultural income not chargeable to tax.

[CIT v. Smt. Debbie Alemao, 331 ITR 59 (Bom.)]

On 28-2-1988 the assesses had purchased an agricultural land
(shown in Revenue records as agricultural) at the cost of Rs.8,00,000. They sold
the said land to a company on 3-9-1990 for a consideration of Rs.73,00,000. In
the returns of income the assesses claimed that the gain is exempt as
agricultural income. The Assessing Officer rejected the claim on the ground that
the land had non-agricultural potential and the fact that it was sold at nearly
10 times the purchase price within two years from its purchase and it was
purchased by the purchaser for the purpose of a beach resort showed that the
land was not agricultural land. The Tribunal allowed the assessee’s claim.

On appeal by the Revenue, the Bombay High Court upheld the
decision of the Tribunal and held as under:

“(i) The Department’s observation that the land was not
actually used for agricultural purposes inasmuch as no agricultural income was
derived from this land and was not shown by the assessees in their income-tax
returns was explained saying that there were coconut trees in the land but the
agricultural income derived by sale of the coconuts was just enough to
maintain the land and there was no actual surplus.

(ii) If an agricultural operation does not result in
generation of surplus that cannot be a ground to say that the land was not
used for agricultural purposes. Admittedly the land was shown in the Revenue
records as used for agricultural purposes and no permission was ever obtained
for non-agricultural use by the assessee. Permission for non-agricultural use
was obtained for the first time by the purchaser after it had purchased the
land.

(iii) Thus the finding that the land was used for the
purposes of agriculture was based on appreciation of evidence and by
application of correct principles of law.”