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 holding that the land in question was non-agricultural in character ?"

2. The assessment year under consideration is assessment year 1970-71, the previous year being Samvat Year 2025. The assessee is an individual and by two sale deeds, one in August, 1954, and the other in August, 1955, the assessee purchased the area covered by survey Nos. 1586/1/2/3 of Anand Town admeasuring one acre twenty gunthas. This land was situated within the limits of Anand Municipality. The purchase price paid by the assessee for this land was Rs. 5,928. The assessee was a manufacturer of bricks. The entire land admeasuring one acre twenty gunthas was sold by the assessee to Vijay Corporation for Rs. 1,20,000 under a deed of sale dated January 30, 1969. The ITO sought to include the gains made by the assessee on the sale of the land as capital gains arising out of the transaction of sale. The assessee contended that since the land was agricultural land he was not liable to pay any capital gains in respect of this transaction. The ITO held that the land was non-agricultural in character and in coming to this conclusion he relied on the entries made in the record of rights which showed that except in the year 1964-65, bajri was grown in this land. According to the ITO the land was surrounded by factories and other buildings. The ITO also found that the assessee had a brick kiln on the land for two years and the land was at a lower level than the surrounding land. The ITO observed that since the land was not put to agricultural use for a number of years, it was evident that the land was meant for non-agricultural purposes. The ITO also took into consideration the fact that the assessee had obtained permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act for putting the land to non-agricultural use. The matter was carried in appeal by the assessee and before the AAC the assessee filed in the shape of additional evidence three affidavits of neighbours and one affidavit of Bai Chanchal, who, it was alleged, was staying on this land and was carrying on agricultural operations on this land. Apparently, the AAC took these affidavits into consideration but ultimately he confirmed the order of the ITO.

3. The assessee took the matter in further appeal before the Income-tax Appellate Tribunal and the Tribunal applied the test laid down by this High Court in Rasiklal Chimanlal Nagri v. CWT [1965] 56 ITR 608 and other decisions and held that the land was non- agricultural in character at the relevant time.

4. For the purposes of this judgment, in order to find out what are the facts found by the Tribunal and by the authorities below, we will not consider what has been stated in the three affidavits and in Bai Chanchal's affidavit filed at the stage when the proceedings were before the AAC. However, so far as the Tribunal was concerned, ultimately it has been found that for two years, namely, revenue years 1956-57 and 1957-58, temporary permission for making bricks was obtained from the revenue authorities and to that extent non-agricultural operations in the shape of brick-making was being carried on in this land, but as shown by the records for the subsequent years, that is, for revenue years 1958-59 onwards, the land was lying fallow and in 1964-65, it was used for raising bajri crop. In the land revenue record this land was shown as agricultural land right down to the date of sale. Barring those two years of 1956-57 and 1957-58 when on obtaining temporary permission for non-agricultural use bricks were manufactured in this land and a brick kiln was installed in this land, there is nothing to show that the land had ceased to be agricultural land. In para. 7 of its order the Tribunal found that the land was within the municipal limits of Anand. It was near Amul Dairy, Ganesh Dugghalaya and Charotar Tobacco Company. Charotar Iron Factory, Krishna Iron Factory and other industrial concerns were also in the vicinity of the land. Thus, according to the Tribunal, the land was in a fast developing locality. Permission had been obtained from the revenue authorities under s. 63 of the Bombay Tenancy and Agricultural Lands Act and a copy of that permission was filed before the Tribunal. The Tribunal held that the permission obtained under s. 63 of the Bombay Tenancy and Agricultural Lands Act proved that the intention of the assessee was to put the land to non-agricultural use. Permission was obtained to sell the land for the purpose of constructing buildings and it was, therefore, obvious that the land was sold for non-agricultural use.

5. It has been observed by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133 that if the law has not been correctly appreciated by the Tribunal, its appreciation of facts is bound to be affected by the wrong approach to evidence. Now, in the instant case, the Tribunal has held against the assessee because permission to sell the land for non-agricultural use was obtained. This court has pointed out in CIT v. Manilal Somnath [1977] 106 ITR 917 that the permission granted by the revenue authorities 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 particular purchaser would be infructuous and the land would revert to the assessee as agricultural land. 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. It has to be borne in mind that the correct test that has to be applied is whether on the date of the sale the land was agricultural land or not. Because after the sale the purchaser was going to put the land to non-agricultural use, it does not mean that the land had ceased to be agricultural land at the date of sale. The crucial date for the purpose of finding out the character of the land is the date of sale and the question that has to be asked is whether on the date of sale the land was agricultural land or not. However, we find that what has weighed with the Tribunal, inter alia, is the fact that after the sale the purchaser was going to use the land for non-agricultural purposes and it is in the light of what was going to happen in future that the Tribunal held that the land was non-agricultural in character at the relevant time. It must be borne in mind, as was held by this court in Chhotalal Prabhudas v. CIT [1979] 116 ITR 631, that if the land is actually used for agricultural purposes as indicated in Manilal Somnath's case [1977] 106 ITR 917 (Guj) or by the Supreme Court in Begumpet Palace's case [1976] 105 ITR 133, at least, prima facie it can 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, as for example, a building site being actually used as a stop-gap arrangement for agricultural purpose, it would be agricultural land. Potential use of the land as non-agricultural land is totally immaterial. Entries in the record of rights are good prima facie evidence regarding land being agricultural and if the presumption raised either from actual user of the land or from entries in revenue record is to be rebutted, there must be material on the record to rebut the 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 the 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.

6. In Chhotalal Prabhudas' case [1979] 116 ITR 631 (Guj), in 1952 non-agricultural use of the land was discontinued and permission was obtained for use of land for purely agricultural purposes and thereafter for some years after 1952 the land was allowed to lie fallow and thereafter agricultural operations were resumed on the land, and in the light of those facts, this court held that the land was agricultural land. In that case, the land was used for brick-making for nearly two decades before it was returned to agricultural operations in 1952. In the instant case, we have non-agricultural use for brick-making for a period of two years and thereafter the land was allowed to lie fallow and agricultural operations were started and bajri was grown in this land in the revenue year 1964-65. We may point out that under the Bombay Tenancy and Agricultural Lands Act, 1948, "land" has been defined in s. 2, sub-s. (8), to mean, inter alia, land which is used for agricultural purposes or which is sometimes used as agricultural land, but is allowed to lie fallow, is agricultural land for the purposes of the Tenancy Act, and it is that agricultural land for the sale of which to non-agriculturist permission under s. 63 is necessary and it is in the light of this definition which has obviously to be borne in mind when permission under s. 63 is obtained, that the question has to be approached. It must be pointed out that in CIT v. Manilal SOMNATH [1977] 106 ITR 917, this court has observed that merely because land is surrounded by development or that development has caught up with the land in question it should not be held that the land had ceased to agricultural land. It is nobody's case that permission for non-agricultural use under s. 63 of the Bombay Land Revenue Code had been obtained by the vendor, the assessee, before he sold the land on January 30, 1969, to the purchaser. The importance of the potential non- agricultural use of the land may be reflected in the price which the purchaser is prepared to pay for the agricultural land, but potential non-agricultural use does not alter the character of the land from agricultural land to non-agricultural land. In the instant case, it has been found that the assessment which was being paid was for agricultural use of the land and special rates which are fixed for non-agricultural use were not being paid by the assessee prior to the date of the sale. Under these circumstances, since the correct tests which are required by law to be applied for determining as to of what date the character of the land is to be found and, secondly, in the right of what tests the question has to be decided, have not been applied by the Tribunal, we are applying the correct tests to the facts found and, in our opinion, applying the principles laid down by this court in CWT v. Narandas Motilal [1971] 80 ITR 39, Manilal Somnath's case [1977] 106 ITR 917, Smt. Chandravati Atmaram Patel v. CIT [1978] 114 ITR 302 and Chhotalal Prabhudas v. CIT [1979] 116 ITR 631, read in the light of the observations of the Supreme Court in Begumpet Palace's case [1976] 105 ITR 133, it is clear that the Tribunal was in error when it held on the facts found that in law the land was not agricultural land. The conclusion that it was not agricultural land was a mixed question of law and fact and the approach of the Tribunal adopted in coming to this conclusion was not in strict accordance with law. Since the revenue records showed that this was agricultural land, the approach should have been whether the presumption that this was agricultural land was being rebutted by any evidence about user of the land or about the character of the land having been changed prior to the date of the sale. No such evidence has been pointed out from the records of this case or from the facts found by the Tribunal and considerations of other development in the locality or other locality in the vicinity of the land are not proper considerations to be applied, as was pointed out in Manilal Somnath's case [1977] 106 ITR 917 (Guj).

7. Under these circumstances, the Tribunal erred in holding that the land in question was non-agricultural in character at the date of the sale.

8. In the light of the discussion set out hereinabove, we hold that the land was agricultural land in character at the date of the sale and, therefore, the question referred to us must be answered 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.