COMMISSIONER OF INCOME TAX, MADRAS versus GEMINI PICTURES CIRCUIT PVT. LTD.

Citation: [1996] 3 S.C.R. 1008 · Decided: 27-03-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
COMMISSIONER OF INCOME TAX, MADRAS 
v. 
GEMINI PICTURES CIRCUIT PVT. LTD. 
MARCH 27, 1996 
(B.P. JEEVAN REDDY ANDS. SAGHIR AHMAD, JJ.] 
Income Tax Act, I961 : 
Sections 2 (14)(iii), 45 and 47(viii)-!ncome Tax liability as capital 
C gain from ''Agiicultural Land in India "which is purchased and subsequently 
sold, will be alloweJ,--Mere fact that a p01tion of the said land· in heart of 
city being used for raising bananas and vegetables as stop gap activity will not 
make the land "Agiiculture Land'c._J'Agiicultural Land in India" whether a 
capital asset-Factors Relevant for the purpose-Nature and character of 
D land, environment and situation--lntention of the assesses at the time of 
purc!zase--Previous, present and future use of land-Pote_ntial value, Revenue 
Records of land-Cun1ulative consideration of all the relevant facts tobe taken 
into account. 
E 
A property comprising of 70 acres, 16 grounds 825 sq. ft situated in 
the heart of Madras city, was purchased by one R in 1944. He sold the land 
to an extent of 79 ground 242 sq. ft, roughly four acres out of it to the 
respondent-assessee under a registered sale-deed dated 27.10.1950 for a 
consideration of Rs. 5,53,705. The land comprised of a hotel building as 
well. After 1mrchasing the said property, the assessee constructed two 
F 
buildings over an extent of 20 grounds towards north. A common road of 
a width of 25ft was also formed at the western extremity of the property; 
the road took away 7.6. grounds. An extent of 9.8. grounds was kept as 
frontage for the building. Excluding the area covered by three buildings, 
their frontage and the road, an extent of 39.1 grounds was still left vacant 
and the assessee was raising bananas and growing vegetables thereon. 
G 
In the years 1966-67, the asscssee executed three sale deeds. 19.74 
grounds was sold to India Cements Limited. 10.05 grounds was sold to 
Imperial Tobacco Company of India Limited and 3.85 grounds was sold 
· to Handicrafts Emporium. All these sale deeds were in respect of the 
H vacant land comprised in 39.1 grounds. 
1008 
CJ.T. MADRAS v. GEMINI PICTURES CIRCUfT PVT. 
1009 
In the proceedings relating to assessment year 1967-68, the assessee A 
contented that the land sold under the aforesaid saledeeds, being an 
agricultural land, does not constitute "capital asset
11 and therefore the 
profits arising from its sale is not exigible to tax under Sec. 45 of the 
Income Tax Act, 1961. The Income Tax oflicer rejected the contention. On 
appeal, the appellate Assistant Commissioner aflirmed the view taken by B 
the Income Tax Oflicer. On further appeal to the Tribunal, there was a 
difference of opinion between the Accountant Member and the Judicial 
Member. The Accountant Member attached great importance to the fact 
that the land in question was under cultivation on the date of sale and 
other circumstances do not detract from the sale position. In view of the 
j 
difference of opinion, the matter was referred to the Vice-President of C 
Tribnnal. The Vice President agreed with Judicial member. The Vice 
President observed that the actual user is not conclusive and held that an 
urban land does not become an agricultural land because some cultivation 
. ' 
is done thereon. He referred to relevant circumstances, viz., (a) the en-
vironment and situation (b) the intention of the asses see at the time of D 
purchase (c) the nature and character of the land (d) the previous and 
present and future use to which land is put (e) its potential value. (I) the 
fact that it was registered as municipal land in municipal record and not 
recorded as agricultural land; and hence held that it can not be treated as 
an agricultural land. 
On reference U/s 256(1) of the Act, the two questions which were 
referred to the High Court at the instance of the respondent assessee; were 
as under; 
"(i) Whether, on facts and in the circumstances of the case the land 
sold during the year of account was not Agricultural land in India during 
the year of assessment and hence not liable to be excluded from the 
definition of the words 'Capital Asset''! 
(ii) Whether, the surplus realised on the sale of land is not exempt 
from Capital Gains'!" 
The said questions were answered by the High Court in favour of the 
assessee and again.st the Revenue; and held that actual user of the land in 
the main would be basis for the test for determination. 
E 
F 
G 
The Revenue has preferred the present appeal against High 

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