Judgement

B. P. JEEVAN REDDY, J.:- Assessees are the appellants in these appeals preferred against the judgment of the Gujarat High Court, answering the question referred to it in favour of the Revenue and against the assessees. The question referred under S. 256(l) of the Income-tax Act is to the following effect:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the land in question admeasuring 3085 (or 30,885 -Ed.) sq. yds. excluding 2607 (or 2067 -Ed.) sq. yds. which was admittedly non-agricultural land, was an agricultural land within the meaning of S. 2(14) of the Income-tax Act, 1961 and therefore on sale thereof tax on capital gains resulting therefrom was not leviable?"

2. The assessment year concerned herein is 1970-71.

3. The appellants in these four appeals are co-owners of a plot of land admeasuring in all 30,885 sq. yds., situated within the revenue limits of Navagaon village. It is situated within the revenue municipal limits of Surat Municipality and is situated at the distance of one Km. from the Surat railway station. This plot of land was purchased on 1st February, 1934 by the ancestor of the appellants for a consideration of Rs. 5,425 /-. After the death of the said ancestor, the land was inherited by the father of the assessees, who died on 10th February, 1966.

4. On 28th March, 1958, a portion of the said plot to an extent of 2067 sq. yds. was converted to non-agricultural purposes after obtaining requisite permission under S. 65 of the Bombay Land Revenue Code. A chawl was built thereon. The remaining extent continued to be registered as agricultural land in the revenue records and land revenue was also being paid by the assessees father. In these appeals, we are concerned only with the said balance extent.

5. On 15th March, 1967, the assessees agreed to sell the said land to a Housing Cooperative Society. To enable them to complete the transaction, they applied, on 12th June, 1968 and 19th March, 1969, for per mission under S. 63 of the Bombay Tenancy and Agricultural Lands Act, 1948. Such a permission is required where agricultural land is sought to be transferred for a non-agricultural purpose. The permission was granted on 22nd April, 1969. A number of sale-deeds were executed in respect of the said land between 9th and 30th of May, 1969. The purchaser (Housing Co-operative Society) applied thereafter under S. 65 of the Bombay Land Revenue Code for converting the said land to non-agricultural purposes i.e., for construction of buildings. Indeed, it appears that it started the construction activity within three days of the execution of the sale-deeds in its favour.

6. The Income-tax Authorities sought to levy capital gains tax on the consideration received by the appellants treating to the said land as non-agricultural land. The appellants contested the same contending that the land sold is an agricultural land. The Income-tax Officer rejected the assessees claim whereupon they approached the Appellate Assistant Commissioner by way of appeals but without success. The appellants then approached the Tribunal. Their appeals were heard by a Bench of two members who differed among themselves whereupon the matter was referred to a third member who held that the said extent of land is agricultural land and, therefore, no capital gains tax is leviable thereon. The Revenue then obtained a reference under S. 256(l) of the Act which was answered in its favour by a Bench of Gujarat High Court. The High Court set out the following facts militating against the appellants plea that the said land was an agricultural land on the date of sale:

"(1) The land is situated a distance of I km. from Surat Railway Station.

(2) It is within municipal limits and within a Town Planning Scheme.

(3) It has been sold to a non-agriculturist for a non-agricultural purpose. It is sold to a co-operative housing society for constructing houses and buildings.

(4) It is sold at a per sq.y.basis at Rs