1. This reference relates to the assessment year 1969-70 and the relevant previous year ended on 31st December, 1968. The business of the assessee is of cultivation, manufacture and sale of tea. The assessee had a tea estate near Borhat in Upper Assam. The area of the estate was about 4,000 acres out of which 1,075 acres were under cultivation. On 24th December, 1968, the assessee sold about 261 acres of land to M/s. Rukong Tea Estate for a sum of Rs. 97,640. The estate had been acquired before 1st January, 1954, and the market value of the area sold was a profit of Rs. 97,640. On being asked by the ITO why the profit should not be treated as a capital gain under Section 45(1) of the I.T. Act, 1961, the assessee's explanation was that the land sold was suitable for the cultivation and the purchasers were engaged in cultivation of tea in adjoining areas and that the land was agricultural land. The ITO took the view that the land sold was not agricultural land as no agricultural operation had taken place therein and that it was full of forest trees of spontaneous growth. He treated the profit from the sale of land as capital gains and brought the same to tax.

2. The assessee came up in appeal before the AAC and it was contended before him that the land sold was fit for being immediately brought under cultivation and it was purchased by the persons owning the adjoining tea estate. The assessee produced before him a certificate from the garden manager stating that the land was not forest land but it was land which could be put under tea cultivation immediately. The AAC held the view that the ITO failed to bring any material on record to prove that the land was overgrown with forest trees of spontaneous growth. He thus deleted the amount of Rs. 97,640 which had been added by the ITO as long-term capital gains.

3. Aggrieved by the order of the AAC, the Department came up in appeal before the Tribunal. It was submitted by the representative of the Department before the Tribunal that the entire area of the tea estate had been acquired long before and except the area brought under tea cultivation the rest was forest and was overgrown with trees of spontaneous growth. It was also urged that in order to prove the nature of the land sold as agricultural land it was necessary to show that the land was connected with the agricultural activity and that the assessee had failed to produce such evidence that any manual labour had been expended on the land. It was further contended that as the tea estate was a part of the forest and that the land sold had never been brought under cultivation it was not agricultural land. It was, on the other hand, contended on behalf of the assessee that the land sold had been developed and was fit for being immediately put to tea cultivation and that it was only on that account that it was purchased by the owners of the adjoining tea estate. He also referred to the certificate from the assessee's garden manager to the effect that the land sold was not forest and it was pointed out that the certificate of the manager was based on the details of the land as given in the government revenue records. It was also pointed out that it was for the assessee to show that the capital asset was agricultural land and hence did not constitute the capital asset as defined in Section 2(14) of the I.T. Act, 1961. It was further observed that the tea estate was acquired long ago when it was entirely forest area and that unless it was shown by the assessee that some development had been made on the land sold, it was to be presumed that it continued to be overgrown with forest trees.

4. The Tribunal observed that what was to be seen was whether the land sold was overgrown with forest trees of spontaneous growth or whether it had been made fit for being put to immediate cultivation by expending human labour and skill or not. The Tribunal after considering the certificate from the garden manager of the assessee, the description of the land sold in the sale deed, the fact of purchase by the owners of the adjoining tea estate and the extraordinary rise in price held that these facts supported the contention of the assessee that human labour and skill had been expended and the land had been made fit for immediate cultivation and that at the time of sale it was not overgrown with trees of spontaneous growth. So, the Tribunal held that the land sold was agricultural land and did not form a capital asset and that the profits from the sale did not constitute capital gains under Section 45(1) of the I.T. Act.

5. So, the Commissioner of I.T. West Bengal-III, Calcutta, by an application under Section 256(1) of the I.T. Act, 1961, required the Tribunal to refer certain questions but the Tribunal referred the question stated below to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the land sold by the assessee was agricultural land as referred to in Section 2(14)(iii) of the Income-tax Act, 1961 ?"

6. In order to appreciate the question referred to above, it is to be ascertained first, what is meant by agricultural land. Section 2(14)(iii) defines agricultural land as land constituted beyond the jurisdiction of a municipality or town, etc. The Gujarat High Court in the case of CIT v. Manilal Somnath [1977] 106 ITR 917, held that the land within the municipal area was not by itself sufficient to rebut the presumption arising from actual use of the land. It was held therein that the fact that the land was within the municipal limits or that it was included within the proposed town plan scheme was not by itself sufficient to rebut the presumption arising from the actual use of the land. The land had been used for agricultural purposes for a long time and nothing had happened till the date of the sale to change that character of the land. The potential non-agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question, therefore, was held to be an agricultural land. The Supreme Court had an occasion to express its view as to agricultural land in the case of CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC). There is no denying the fact that this case was not a direct authority upon the point what is "agricultural land", nevertheless it goes a long way to help us in deciding what could be the agricultural land. In this case the question was whether income from forest land derived from sal and piyasal trees not grown by human skill and labour would constitute agricultural income. It was held that "agriculture" in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term, meaning thereby tilling of the land, sowing of the seeds, planting, and similar operations on the land. These are basic operations and require the expenditure of human skill and labour upon the land itself. In the case of CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133, the Supreme Court at p. 137 of the report observed 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 of the soil, a product which can yield an income. In this case, at p. 143 of the report, the Supreme Court further observed that the determination of the character of the 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. But the Supreme Court in the case of Raja Benoy Kumar Sahas Roy's case [1957] 32 ITR 466 (SC), at pp. 507-508 of the report, observed that agriculture is the basic idea underlying the expressions "agricultural purposes" and "agricultural operations" and it is pertinent, therefore, to enquire what is the connotation of the term "agriculture". Mr. Moitra lays much stress on the fact that herein the Supreme Court was emphasising the basic operations that were needed for a land to be used for agricultural purpose and, according to him, there is no evidence of actual cultivation. According to him, in the absence of evidence of cultivation or basic operation, the Tribunal was not justified to hold that the land was agricultural land. But the Supreme Court, in this case, has not laid down any principle that in considering whether a land is agricultural land or not even in spite of the fact that agricultural operations are carried on the land, it was necessary further to examine for what purpose those operations were carried out.

7. Our attention is also drawn to the decision of this court in the case of Tea Estates India Pvt. Ltd. v. CWT [1966] 59 ITR 428. At pp. 438-439 of the report, their Lordships observed as follows :

"In our opinion, in solving such difficulties, we must find out whether the asset which is claimed to be exempted by the assessee as 'agricultural land' is essentially connected with or an integral part of the primary or basic agricultural operations. To say that any asset which is useful or beneficial to the agricultural operation should be treated as agricultural land or to conclude that any land which is capable of being used as an agricultural land would be too wide an extension of the term 'agricultural land' not warranted by the scope and language of the Wealth-tax Act."

8. In this case it is further held that where the land not under agricultural operation is claimed as agricultural land within the meaning of Section 2(e)(i) of the W.T. Act, 1957, there should be a clear finding that the land in question is vitally connected with the basic agricultural operations. In this connection we may refer to the decision of the Gujarat High Court in the case of Yaswanti R. Bhatt v. CWT [1978] 114 ITR 318. At p. 321 of the report reference is made to the case, CIT v. Manilal Somnath [1978] 106 ITR 917 (Guj). In that case the land had been used for agricultural purposes for a long time and nothing had happened till the date of the sale to change the character of the land. It was observed by the learned judges that the potential non-agricultural value of the land for which a purchaser might be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale.

9. Mr. Pranab Pal, learned counsel for the assessee, points out that it has been found by the Tribunal that human labour and skill had been expended and the land had been made fit for immediate cultivation and that at the time of sale it was not overgrown with trees of spontaneous growth. In the circumstances, the Tribunal as a matter of fact found that the land sold was agricultural land. He refers to the decision of this Bench in the case of CIT v. Sutton & Sons Ltd. [1981] 127 ITR 57. In this case, my Lord Mr. Justice Sabyasachi Mukharji, speaking for the court, observed that the question whether a land is agricultural land or not is a question of fact to be determined by the cumulative effect of all the relevant factors but the basic factor to be taken into consideration is whether the land is such where agricultural operations am carried on or are capable of being carried on. Where agricultural operations are carried on on the land, it is not necessary to examine further for what purpose the operations were carried out. At p. 65 of the report it is observed that the basic factor to be taken into consideration is whether the land is such where agricultural operations are carried on or are capable of being carried on. Thus, for the purpose of land being agricultural land, actual agricultural operations or cultivation or tilling of the land is not necessary. It is to be seen whether such land is capable of agricultural operations being carried on. Mr. Pal draws our attention to p. 8 of the paper book where the Tribunal observed as follows :

"The Tribunal after considering the certificate from the garden manager of the assessee, the description of land sold in the sale deed, the fact of purchase by the owners of the adjoining tea estate and the extraordinary rise in price held that these facts supported the contention of the assessee that human labour and skill had been expended and the land had been made fit for immediate cultivation and that at the time of sale it was not overgrown with trees of spontaneous growth,"

10. In the face of such a finding and in view of the decisions of the various High Courts including the Supreme Court discussed above, we answer the question in the affirmative and in favour of the assessee,

11. There will, however, be no order as to costs.

Sabyasachi Mukharji, J.

12. I agree.