The presumption of correctness attached to the record of rights entry is rebuttable, and evidence can be adduced to show that the character of the land has changed and it has become agricultural land.

Nagendra Prasad Singh, J.

1. The Income-tax Appellate Tribunal under Sec.256(1) of the I.T. Act, 1961 (hereinafter to be referred to as "the Act"), has submitted the statement of the case for opinion of this court on the following question of law :

"Whether, on the facts and in the circumstances of the case, the Tribunal have correctly held that the capital gains tax was not chargeable on the sale of land bearing plot Nos. 679 and 680 and in giving a finding that the land in question was agricultural land ?"

2. In view of Sec. 45 of the Act any profit and gain arising from the transfer of capital asset is chargeable to income-tax under the heading "Capital gains" and is treated to be an income of the previous year in which the transfer took place. "Capital assets" has been defined in Sub-section (14) of Sec.2 of the Act. The definition of "Capital asset" has been amended by the Finance Act, 1970, which came into force with effect from April 1, 1970. In this reference we are concerned with the definition of "Capital asset" as it stood prior to April 1, 1970. During the relevant period an agricultural land could not have been included in the definition of "capital asset". As such, the answer to the question referred depends on the fact whether the lands in question have been rightly held as agricultural lands on the date of their sale.

3. The relevant facts are that the assessee-company has been doing the cold storage business and it was owning certain lands which it had purchased from M/s. Dumraon Industries Ltd. in 1963. M/s. Dumraon Industries Ltd. had purchased the aforesaid lands along with others from Maharani Kanak Kumari Sahiba, wife of Maharaja of Dumraon. The lands purchased by the company also included plots Nos. 679 and 680 having an area of 47.25 acres, and 1.27 acres out of plot No. 680 to M/s. Dumaraon Textiles Ltd. In the sale deed it was stated that the entire piece of agricultural land was being sold for a consideration of rupees four lakhs for purpose of setting up a textile mill by the purchasing company. By the sale the aforesaid company gained Rs. 3,98,400.

4. The ITO held that the sale proceeds of the aforesaid land was a capital gain within the meaning of the Act on the grounds (i) the land was shown in the record of rights as a race course and pokhar land, (ii) the land was within the municipal area, (iii) at the time of the sale two important industrial concerns had sprung up adjacent to the land in question. The AAC upheld the order of the ITO. He, while endorsing the reasons given by the ITO, further pointed out that even if the land was agricultural before the transfer, it had ceased to be so, because the assessee-company had sold it for the purpose of industrial use. The AAC also pointed out that the price received for the land was a clear indication of the fact that the land was no more an agricultural land. When the matter went to the Tribunal, the Tribunal found from a perusal of the orders of the Agrl. ITO that after the acquisition of this land in 1953, the assessee-company had been carrying on agricultural operations in partnership with some other sister concerns. The Tribunal also looked into the balance-sheet and profit and loss account of the company for different years and it was found that in each year, income from agriculture (zirat) was being shown by the assessee in its accounts, and on the records there were materials to show that tractors and tubewells were being maintained by the assessee-company which suggested extensive farming. Reference was also made to the assessment orders of the Agrl. ITO from which it appeared that there was a specific mention of plot Nos. 679 and 680 as being cultivated as agricultural lands. Regarding the entry in the record of rights as racecourse land, the Tribunal pointed out that the said entry had been made as early as in the year 1912 and, thereafter, the lands might have been used for agricultural purposes. On the basis of the aforesaid mate