JUDGMENT

B.P. Jeevan Reddy, J.-These appeals arise from the judgment of the Madras High Court answering the two questions referred to it at the instance of the respondent-assessee in favour of the assessee and against the Revenue. The two questions are :

"(i) Whether, on the facts and in the circumstances of the case the lands sold during the year of account was not Agricultural land in India during the year of assessment and hence not liable to be excluded from the definition of the words capital Asset ?

(ii) Whether, the surplus realised on the sale of land in the year of account is not exempt from capital gains?"

2. The property known as Spencer s Hotel comprising 70 acres, 16 grounds* in 825 sq. ft. situated on Mount Road, Madras was purchased by one Gulab Bhai Mukund Rao Rane in 1944. Rane sold an extent of 79 grounds 242 sq. ft. (roughly 4 acres and odd) out of it to the assessee under a registered sale-deed dated October 27, 1950 for a consideration of Rs. 5,53,705/-. The extent purchased by the assessee comprised the hotel building as well. After purchasing the said extent, the assessee constructed two buildings over an extent of 20 grounds towards the north. A common road o