The definition of "capital asset" under Section 2(14) of the Income Tax Act, 1961, excludes all agricultural land in India, and the relevant factor in determining whether land is agricultural land is whether agricultural operations are carried out on the land, regardless of the purpose for which the operations are carried out.

SABYASACHI MUKHARJI, J.

( 1 ) IN this reference under Section 256 (2) of the I. T. Act, 1961, the following question has been referred to this court as directed by this court:"whether, on the facts and in the circumstances of the case, the land of the assessee at Tollygunj, which had been sold by the assessee, was agricultural land and fell outside the scope of the meaning of the words "capital asset" in Section 2 (14) of the I. T. Act, 1961, and the excess realisation on the sale of the said land was not chargeable to capital gain?"

( 2 ) THE assessment year involved is 1963-64 for which the relevant accounting year ended on 31st May, 1962. The assessee is a Sterling company incorporated in the United Kingdom and has branches in India. The business of the assessee is that of growing vegetables and flower seeds and selling the same. The assessee-company's head office in India is situated in Calcutta while it has farms and depots in Bangalore, Ranchi and Kashmir. The assessee owned a plot of land in Tollygunj in the suburbs of Calcutta measuring about 2. 83 acress. This plot of land was utilised as a trial ground where, according to the ITO, samples of seeds purchased by the assessee for re-sale were sown so that a record of the resultant crop could be maintained. This was done by the assessee-company with a view to keeping control over the quality of the seeds. During the year relevant for the present assessment year the said plot of land was sold by the assessee to Goenka Tea and Timber Pvt. Ltd. for a sum of Rs. 1,62,000. In the original return of income filed by the assessee, the assessee-company had shown the capital gain for Rs. 98,405 in respect of sale of the said plot of land. Subsequently, however, the assessee modified its stand and urged that there was no capital gain involved in the sale of the said plot of land because, according to the assessee, the land in question did not constitute any capital asset within the meaning of the definition of "capital asset" in Section 2 (14) of the I. T. Act, 1961. The ITO rejected the assessee's claim and assessed the capital gains as shown by the assessee at Rs. 98,405.

( 3 ) THE assessee being aggrieved by the order preferred an appeal before the AAC. The AAC was of the opinion that the said plot of land in Tolly gunj at Calcutta was an agricultural land and was, therefore, outside the purview of the definition of "capital asset" in Section 2 (14) of the I. T. Act, 1961. He, however, held that a portion of the gains made by the assessee-company should be attributed to such assets as office room, store room, mali's quarters, tubewells and boundry walls, etc. He, therefore, estimated the capital gains at Rs. 10,000, which amount alone, in is opinion, could be attributed to the asset in the shape of the said structures on the said plot of land.

( 4 ) THE revenue being aggrieved filed further appeal to the Tribunal. The Tribunal found that the assessee-company being a Sterling company was engaged in the business of purchase and sale of vegetables and flower seeds and in its gardens in Bangalore, Ranchi and Kashmir it had cultivated and grown, for the purpose of sale, vegetable and flower seeds. The assessee, however, owned a separate plot of land at Tollygunj in the suburbs of Calcutta which the assessee-company was using as an experimental ground for the purpose of testing the quality of the seeds and ascertaining if these Seeds conformed to the requisite standard. According to the Tribunal, the assessee used this plot of land for experimental or trial cultivation carrying out operations such as preparing the land, manuring, tilling and sowing vegetable and flower seeds, etc. The expenses incurred in this connection year after year were being claimed as an expenditure and allowed in the assessment of the company, it was stated by the departmental representative before the Tribunal, on the ground that such expenses were treated as testing laboratory charges in the course of the

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