1. In this case, at the instance of the assessee, the following question has been referred to us for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the land under reference was not agricultural land within the meaning of the Income-tax Act, 1961 ?"

2. We are concerned in this case with the assessment assessment year 1967-68, the relevant previous year being the financial year 1966-67. The facts leading to this reference are that one Morarbhai Bhikhabhai Chauhan purchased six acres and fifteen gunthas of agricultural land as far back as 1921. These lands were situated at village Phoolpada of Surat District and it appears that this village is near Surat City. The lands consisted of four acres and twenty-three gunthas of survey No. 95 and one acre and thirty-two gunthas of survey No. 122/3. Morarbhai died in 1949. At that point of time, he was about 90 years of age. His son Maganlal Morarji, the assessee before us, inherited the lands and he used these lands for agricultural purposes. On July 10, 1965, the assessee entered into an agreement to sell four acres and thirty-two gunthas and forty-nine square years, that is, 23, 281 square yards, from the lands he owned. With reference to the survey numbers the entire land of survey No. 122/3 admeasuring one acre and thirty-two gunthas and three acres and forty-nine square yards out of survey No. 95, were agreed to be sold. The agreement to sell was in favour of Maheshwari Co-operative Housing Society. Price of the land was fixed at Rs. 6.95 per square yard and the total sale price came to Rs. 1,61,802. The land was agreed to be sole according to the areas mentioned in terms of acres and gunthas. On August 23, 1966, the assessee applied to the Collector of Surat for permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, since the sale of agricultural land was going to be in favour of a non-agriculturist. This permission under s. 63 was granted by the Assistant Collector, Surat, on the January 2, 1967. Thereafter, on January 12, 1967, the assessee executed the sale deed in respect of 23, 281 square yards, that is, four acres, thirty-two gunthas and forty-nine square yards, in favour of Maheshwari Co-operative Housing Society Ltd., Surat. After the sale was effected, the purchaser, that is, the co-operative society, applied under s. 65 of the Bombay Land Revenue Code to the revenue authorities for permission to use the lands which it had purchased for non-agricultural purposes and for this non-agricultural use permission was granted on May 11, 1967. It is the case of the assessee that, barring this money which he received from the sale price of the lands in question, his income from other sources was below the exemption limit. His contention was that in the previous year relevant to the assessment year 1967-68, his income from interest was Rs. 722 and income from self-occupied property and rent of immovable property came to Rs. 2,753. Thus, his entire income was Rs. 3,475. On October 15, 1969, the ITO issued a notice under ss. 147 and 148 of the I.T. Act, 1961, proceeding on the basis that the assessee had earned long-term capital gains which should have been included in his income-tax return so far as the assessment year 1967-68 was concerned. Ultimately, in the assessment proceedings, the ITO came to the conclusion that long-term capital gains, after making suitable adjustment, came to Rs. 1,33,521. Before the ITO, it was contended by the assessee that the lands were agricultural lands and, hence, because of the provisions of the I. T. Act, 1961, the sale of agricultural lands could not result in any capital gains. The ITO rejected the contention of the assessee holding that at the time when the land was sold on January 12, 1967, the land had lost its agricultural character and it had become non-agricultural land. Against the decision of the ITO, the assessee went in appeal and the AAC accepted the contention of the assessee and held, in view of the facts and circumstances of the case, that the sale of January 12, 1967, was not of non-agricultural land and he, therefore, allowed the appeal. The revenue took the matter in appeal before the Tribunal and the Tribunal came to the conclusion, looking to the totality of circumstances of this case, that, on the date on which the land was sold on January 12, 1967, the land was no longer agricultural land and hence it had ceased to be agricultural land on the date in question.

3. The law on the point has been considered in several decisions of this High Court an in one decision of the Supreme Court. The decision of this High Court are Rasiklal Chimanlal Nagri's case [1965] 56 ITR 608 (Guj), CWT v. Narandas Motilal [1971] 80 ITR 39 (Guj), Ranchhodbhai Bhaijibhai Patel's case [1971] 81 ITR 446 (Guj), Himatlal Govindji's case [1977] 106 ITR 658 (Guj), CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj), Chandravati Atmaram's case [1978] 114 ITR 302 (Guj), CIT v. Prakash Industries [1978] 114 ITR 316 (Guj), Yashwanti R. Bhatt's case [1978] 114 ITR 318 (Guj) and the decision of this Bench in Chhotalal Prabhudas (HUF)'s case, Income-tax Reference No. 105 of 1975 decided by this Bench on October 10, 1978 (since reported in [1979] 116 ITR 631). The decision of the Supreme Court is in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133. In CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj), the position of law was thus summarised after considering all the decisions available till the date of the decision (p. 930) :

"In our opinion, the correct approach has rightly been indicated in Rasiklal Chimanlal Nagri's case [ 1965] 56 ITR 608 (Guj). First, find out whether the land in question is being put to any use or not. If it is being put to agricultural use, ordinarily it would be agricultural land unless there are factors which dislodge that presumption. Similarly if the land is being put to non-agricultural use, it would be non-agricultural land. The different tests which are mentioned in Rasiklal Chimanlal Nagri's case [ 1965] 56 ITR 608 (Guj) and other factors which require to be taken into consideration have applicability when the land is not being used for any purpose and is lying idle. In Himatlal Govindji's case [ 1977] 106 ITR 658 (Guj), though the land was being put to agricultural use, since it was found that it was only by way of a stop-gap arrangement till a purchaser of the plot which was already laid out came forward to purchase it, it was held that the land was not agricultural land. In each case, therefore, in the light of the facts and circumstances of the particular case, the question will have to be asked, whether such presumption from the use of the land arises or not and, secondly, whether such presumption flowing from the actual use of the land is dislodged by the presence of other factors in the case."

4. In Smt. Chandravati Atmaram v. CIT [1978] 114 ITR 302 (Guj), this Bench considered all the cases up to the date of delivery of the judgment including the decision of the Supreme Court in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 and the following passage from the judgment of Beg J., as he then was, at page 136 of the report of the Supreme Court case was extracted :

"It is true that this case ( Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy [ 1957] 32 ITR 466 decided by the Supreme Court) is not a direct authority upon what is 'agricultural land'. Nevertheless, it goes a long way in helping us to decide what could be agricultural land. We think that this must be land which could be said to be either actually used or ordinarily used or meant to be used for agricultural purposes. In other words, 'agricultural land' must have a connection with an agricultural user or purpose. It is on the nature of the user that the very large number of definitions and authorities discussed by this court in Raja Benoy Kumar Sahas Roy's case [ 1957] 32 ITR 466 (SC) have a direct bearing. In that case, this court held that the wider meaning given to agricultural operations, such as breeding and rearing of live-stock, poultry farming or dairy farming will not be applicable. It held that the correct test to apply would be to find out whether human labour had been applied to the land itself, in order to extract from its natural powers, added to or aided by other natural or artificial sources of strength to the soil, a product which can yield an income"

The following passage from page 141 of the Supreme Court case was also extracted :

It is only 'agricultural land' which could be exempted. Therefore, it is imperative to give reasonable limits to the scope of the 'agricultural land', or, in the other words, this exemption had to be necessarily given a more restricted meaning than the very wide ambit given to it by the Full Bench of the Andhra Pradesh High Court (in this very case)".

It is further observed, at page 143 of the report, by Beg J. :

"Learned counsel for the assessee-respondents submitted that no evidence had been led on the question of intended user before the taxing authorities as the 'prima facie evidence', provided by the entries in the revenue records, was considered enough. It has, however, to be remembered that such entries could raise only a rebuttable presumption. It could therefore, be contended that some evidence should have been led before the taxing authorities of the purpose or intended user of the land under consideration before the presumption could be rebutted. If the 'prima facie' evidence of the entries was enough for the assessee to discharge his burden to establish an exemption, as it seemed to be, evidence to rebut it should have been led on behalf of the department.

We think that this aspect of the question was not examined by the Full Bench from a correct angle. Although it seems to have based its conclusion primarily on the 'prima facie' evidence provided by the entries under section 50 of the Andhra Pradesh Land Revenue Act, it had also used other indicia which were really not very helpful. They had a bearing on potentialities for agricultural user. The Full Bench had, however, not recorded a finding that the conclusion reached by the taxing authorities that the land was never even intended to be used for an agricultural purpose, rested on no evidence at all. It had not given its reason for rejecting this finding of the Tribunal".

The conclusions of the Supreme Court were set out at page 143 of the decision of the Supreme Court as follows :

"For the reasons already given, we do not think that the term 'agricultural land' had such a wide scope as the Full Bench appears to have given it for the purposes of the Act we have before us. We agree that the determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of 'assets', but its actual condition and intended user which has to be seen for the purposes of exemption from wealth-tax. One of the objects of the exemption seemed to be to encourage cultivation or actual utilisation of land for agricultural purposes. If there is neither anything in its condition, not anything in evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be 'agricultural land' for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence. We do not think that all these considerations were kept in view by the taxing authorities in deciding the question of fact which was really for the assessing authorities to determine having regard to all the relevant evidence and the law laid down by this court. The High Court should have sent back the case to the assessing authorities for deciding the question of fact after stating the law correctly"

The position of law in the light of the Supreme Court decision and in the light of the decision in Manilal Somnath's case [1977] 106 ITR 917 (Guj) was thus summed up at page 312 of the report in Chandravati Atmaram's case [1978] 114 ITR 302, 312 (Guj) :

"In this case, the law, therefore, is very clear. If the land is actually used for agricultural purpose as shown by Manilal Somnath's case [ 1977] 106 ITR 917 (Guj) and also by the Supreme Court in Commissioner of Wealth-tax v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133, it can be said to be agriculture land, at least, prima facie, as agricultural land could be said to be land which is either actually used or ordinarily used or meant to be used for agricultural purposes. If it is actually used at the relevant date for agricultural purposes and there are no special features, for example, building plot being actually used as a stop-gap arrangement for agricultural purposes or a building site being used for agricultural purposes, actual user or ordinary use or intention to use the land for agricultural purpose or land is meant to be used for agricultural purposes, it would be 'agricultural land'. Secondly, potential use of the land as agricultural land is totally immaterial. Thirdly, entries in the record of rights are good prima facie evidence regarding agricultural land and if the presumption raised either from actual user of the land or from agricultural use of the land is to be rebutted, there must be material on the record to rebut that presumption. The approach of the fact-finding authorities, namely, the income-tax authorities, and the Tribunal should be to consider the question from the point of view of presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by the presence of other factors in the case"

5. In Chhotalal Prabhudas (HUF) v. CIT [1979] 116 ITR 631 (Guj), all the decisions up to the date of the judgment including the decision in Manilal Somnath's case [1977] 106 ITR 917 (Guj) and the Supreme Court decision in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 were considered and the position of law as set out in Chandravati Atmaram's case [1978] 114 ITR 302 (Guj) was stated to be the correct legal position.

6. In the instant case, the Tribunal has stated in paragraph 5 while setting out the contentions of the learned representative for the assessee that it was urged that the assessee had sold the land as agricultural land and even the departmental representative had pointed out that the process of changing the character of the land started on July 10, 1965, when the agreement to sell was entered into by the assessee with the co-operative society. On August 23, 1966, permission to sell to a non-agriculturist was applied for and on January 2, 1967, permission was granted. The application was under s. 63 and on January 2, 1967, permission was granted to sell the land to a non-agriculturist for non-agricultural purposes. It was contended by the departmental representative before the Tribunal that on January 2, 1967, the land in question ceased to be agricultural land. The land was sold on January 12, 1967, and, therefore, according to be departmental representative before the Tribunal, the land was sold only as non-agricultural land an not as agricultural land. It may be pointed out that before the AAC, both the ITO and the income-tax practitioner on behalf of the assessee were present and in para. 2 of his order, which is annex."B" on the record of the case before us, the AAC stated that the admitted facts by the ITO and Shri B. G. Shah, learned counsel for the assessee, were as set out in paras. 2 and 3 of the order. In para. 3, it was pointed out that Shri Maganlal Morarbhai Chauhan (the assessee before us) used these lands for agricultural purposes till calendar year 1967. It is further pointed out by the AAC in para. 8 : "The remaining part of the land which was not sold was being used for agricultural purposes till the year 1967-68. In other words in the year in which the land was sold the remaining land was used for agricultural purposes". The AAC pointed out that the land was sold to a single buyer, that is, Maheshwari Co-operative Housing Society, and it was not plotted for its sale. It may be pointed out that till the date when the Tribunal delivered its judgment, the lands were not within the municipal limits of Surat Municipal Corporation or Surat Borough Municipality as it then was and there was consequently no town planning scheme in this particular area. It seems that the only ground on which the ITO in the first instance and ultimately the Tribunal decided against the assessee was that, after obtaining the permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, the land ceased to be agricultural land. The Tribunal has noted the contention of the departmental representative before it that barring Pani Patraks, that is, the entries from land revenue records, no other material was produced by the assessee for the purpose of showing that the lands were agricultural lands.

7. In view of the fact that according to the admitted position before the AAC, the assessee continued to cultivate the lands including the land sold to the co-operative society till the date of sale and continued to carry on agricultural operations in the remaining 7, 527 square yards which remained with him right down till 1972-73, as shown by Pani Patrak entries produced on the record of the case, prima facie, it would seem that the lands were agricultural lands. The presumption arising from the user of the land has not been rebutted in this case. Further, it may be pointed out that according to the land revenue entries in Pani Patraks, the assessee himself was cultivating the lands in question till the date of sale and the presumption which would also arise from the entries in the record of rights again has not been rebutted by the revenue by any evidence led on its behalf. The conversion from agricultural use to non-agricultural use took place after the date of sale, namely, after January 12, 1967, and that too on an application for non-agricultural user made on March 15, 1967, by the co-operative society, the purchaser, and the actual permission for non-agricultural use was granted on May 11, 1967.

8. One of the factors which seems to have weighed with the Tribunal in arriving at its conclusion in this case was condition No. 4 laid down by the Assistant Collector, Olpad Division of Surat District, at the time of granting permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, that land admeasuring 7, 527 sq. yds. i.e., other than the land in respect of which permission has been given for sale, should be used by the seller for non-agricultural purpose. It is clear from the materials on the record and what was admitted before the AAC by the ITO concerned that the remaining portion of the land admeasuring 7, 526 square yards was used for agricultural purposes by the assessee even after the date of sale to the co-operative society right till 1972-73 as shown by the Pani Patraks. Hence, it is clear that the assessee was actually cultivating the land and was carrying on agricultural operations on the land.

Yet, surprisingly enough, we find, in para. 8 of the order of Tribunal, the following passage :

"The land was a very small piece of land and it could not have possibly been made use of for agricultural purposes. For a number of years, the land was not used for agricultural purposes. Wherever the land was allegedly used for agricultural purposes, the assessee had not earned any income from the said land. Some expenses have been incurred and land revenue has also been paid but all these are not sufficient to hold that the lands were really agricultural lands. Even if the assessee had thrown some seeds on the land, the same cannot be considered as the use of the land for agricultural purposes. It is just like throwing some grains or seeds in a kitchen-garden. If the lands had been used for agricultural purposes, the assessee would have shown some income in any of the years. All these facts, therefore, clearly go to show that the lands were not used for agricultural purposes, even in earlier years. But, in our view, it is sufficient to hold that after January 2, 1967, lands were not used for agricultural purposes"

9. It must be emphasised once again while considering this position that January 2, 1967 was the date on which permission was granted under s. 63 of the Bombay Tenancy and Agricultural Lands Act to sell the land to a non-agriculturist. As was pointed out by this court in Manilal Somnath's case [1977] 106 ITR 917 (Guj), if the land was not agricultural land till the date of the granting of the permission, there was no purpose in obtaining permission, under s. 63 of the Tenancy Act, because it is only in respect of agricultural land that the permission under s. 63 is contemplated if agricultural land is proposed to be sole to a non-agriculturist. Moreover, as was pointed out in Manilal Somnath's case [1977] 106 ITR 917, 931 (Guj) :

"It is true that permission to sell the land to a non-agriculturist was granted on condition that the land would be used for residential purposes and the application for permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act was applied for on the footing that, after the sale, the land would be used for residential purposes. But that only goes to show that, after the date of the sale, this land was to cease to be agricultural land. The permission granted by the City Deputy Collector under s. 63 of the Bombay Tenancy and Agricultural Lands Act clearly goes to show that in case the land did not cease to be agricultural land, the permission would be treated as cancelled and, therefore, the sale in favour of the co-operative housing society would be infructuous and the land would revert back to the assessee. In such an eventuality, the land would still continue to be agricultural land because the permission to sell to a non-agriculturist would be treated as cancelled"

10. That eventuality has not taken place in the instant case and it was only in May, 1967, that permission was obtained by the purchaser from the authorities concerned to put the land to a non-agricultural use and the fact that the purchaser had agreed to pay a high price does not mean that it is not an agricultural land at the relevant date, namely, the date of sale.

11. In view of the legal position which we have set out hereinabove, it must be pointed out that, prima facie, the presumption from the actual user of the land, namely, agricultural user, would arise in the instant case. A further presumption would arise from the entries in the revenue records and neither of these presumptions is rebutted by the presence of any other factor in this case. No factor has been pointed out in this case which would go to show that either of these two presumptions is rebutted in the instant case. The Pani Patraks which were produced before the ITO and which were mentioned by the Tribunal in its order go to show that continuously, right down till the date of the sale, so far as the land sold to the co-operative society is concerned and the balance so far as the balance of the land is concerned even after the date of sale, it was being used continuously for agricultural purposes. Morarbhai, the original purchaser's father of the assessee, purchased the land as far back as 1921. Till his death, he used the land for agricultural purposes band till the date of the sale, the land was being used for agricultural purposes by Maganbhai, the assessee. Under these circumstances, in the absence of any other material on record, it cannot be said that the land had lost its agricultural character. As pointed out by this court in Manilal Somnath's case [1977] 106 ITR 917 (Guj), the land had undoubtedly potential non-agricultural value and for the potential non-agricultural value the purchaser was prepared to pay a high price, but such potential non-agricultural value does not detract from the character of the land as agricultural land at the date of the sale. It is true that agricultural land would not be sold by yardage at the rate of Rs. 6.95 per square yard, but this high price reflects potential non-agricultural value. It does not mean that the land had ceased to be agricultural land because of this price or because of the permission to sell the land to a non-agriculturist.

12. Before concluding our judgment, we may point out that in para. 8 of its order, the Tribunal has proceeded to set out the facts which were no one's case. For example, to say that an area of six acres and fifteen gunthas, with a well in it, a very small piece of land, is, to say the least, totally unjustified. To say that it could not have been possibly made use of for agricultural purpose and that for a number of years the land was not used for agricultural purposes, are statements which are not borne out by the earlier part of the Tribunal's own order and which are not borne out by the admissions made before the AAC, by the ITO himself and by Pani Patraks on the record. To say that the land was being used as a kitchen garden and to compare the use of growing juwar and tuver and other crops to kitchen garden purposes, is, to say the least, an erroneous statement of fact. The Tribunal, which is a final fact-finding body, should be very careful in making statements of facts of the type which have been made in para. 8 of its order in the instant case. In view of the record before us, we can disregard these statements as perverse and contrary to the record of the case, but it is possible that such unsubstantiated statement set out in its order may possibly harm an assessee in some other case. The Tribunal should, therefore, be very careful in setting out its conclusion on facts in its order.

13. In view of the above discussion, we hold that the Tribunal committed an error of mixed question of law and fact when it came to the conclusion that the land had ceased to be agricultural land on the date of the sale and that when it was sold it was not agricultural land. We, therefore, answer the question referred in the negative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.