I sold farmland to a housing society after taking permission to sell it for residential use. Was it still agricultural land, so that no capital gains arise?
Yes, on these facts. The Gujarat High Court held the land remained agricultural on the date of sale, so the surplus was not chargeable as capital gains. It set out thirteen factors that bear on the question and held that not all will appear in any case and the decision must be reached on a balanced consideration of the totality of circumstances. Here the land was in the revenue records and bore land revenue, had been cultivated for three of the years the assessee held it, lay outside municipal limits in an undeveloped area, and the assessee never obtained permission for non-agricultural use. Both questions were answered for the assessee.
Decided by the High Court (Gujarat High Court - Desai, J) on 1981-09-22. It bears on section 2(14), section 45 of the Income Tax Act 1961, in Capital Gains matters.
This is the judgment that gave practitioners the checklist. The thirteen factors it draws out of the earlier cases - classification in the revenue records, actual user and how long, whether the yield bore a rational proportion to the price paid, whether and by whom non-agricultural permission was taken, cesser of agricultural use and whether it was permanent, the situation and development of the area, plotting and roads, earlier sales for non-agricultural use, tenancy permission and the purpose of the intended sale, sale by yardage or acreage, and whether an agriculturist would have paid the price - are still the frame in which the dispute is argued. It is equally useful for what it says about the price test, which cannot be applied without findings on soil, fertility, crop suitability, irrigation and scarcity.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The assessee, who lived at Ahmedabad, had bought with another person agricultural land of 15,054 square yards, about 3 acres 4 gunthas, at village Bilimora for Rs 43,989 by a conveyance of 18 August 1965, holding a one-third undivided share and contributing Rs 15,400. The land was outside municipal limits, and there was no material to show development in the surrounding area or any potential for it. After purchase it was put to agricultural use for three years: the revenue record showed a crop of tuver for two years and green grass for one, though the yield was low and none was sold. At about the time of sale it was not actually cultivated, but it remained listed in the revenue record and assessed to land revenue. The assessee obtained permission under section 63 of the Bombay Tenancy and Agricultural Lands Act to sell to a co-operative housing society, granted on 16 and 22 November 1969 on conditions including residential use and obtaining non-agricultural permission within a year. The conveyance was executed on 1 February 1969, and the buyer obtained non-agricultural permission about four days later. The assessee received Rs 67,928 as his share and claimed the surplus was not taxable.
Both referred questions were answered against the Revenue and in favour of the assessee, with costs, and the land was held to have been agricultural at the date of sale. The Court set out thirteen factors distilled from the earlier decisions and held that not all of them will be present or absent in any case, that one or more may appear, and that the decision must be reached on a balanced consideration of the totality of circumstances. Applying them, the nature of the exploitation of the land for the major part of the period the assessee held it showed that both its physical characteristics and its user were agricultural, and it was not shown that the user was temporary or a stop-gap. Although it had not been cultivated for about a year before the sale, there was no evidence it had been converted to any other use. The permission under section 63 did not make the land non-agricultural: it was needed precisely because the land was agricultural, and permission for non-agricultural use under section 65 of the Bombay Land Revenue Code was never obtained by the assessee but by the buyer after the sale. There was no evidence of development in the area or of the land itself.
The Court's method was to gather from the decided cases the considerations that had actually weighed, rather than to look for a single test. Classification in the revenue records and liability to land revenue raise a rebuttable presumption and furnish good prima facie evidence, which the department must lead evidence to displace. Beyond that, actual and ordinary user at the relevant time, the length and character of that user, the relation between the agricultural income and the price paid, the taking of non-agricultural permission and by whom, any cesser of cultivation and whether it was permanent, the situation of the land and the character of the neighbourhood, development by plotting or roads, earlier sales for non-agricultural use, the purpose of the intended sale for which tenancy permission was sought, sale by yardage or acreage, and the price an agriculturist would pay, all bear on the answer, and they are to be weighed against each other. On the last of these the Court entered an important caution: valuing agricultural land is complex, turning on soil and fertility, the crops it suits, size and the practicability of mechanised working, proximity to a village and transport, irrigation and power, and above all the scarcity of land in the area, with social and economic considerations also at work; findings on those aspects must be recorded before any presumption is drawn from the price. Applying all this, the tenancy permission was treated as confirming the land's agricultural character rather than destroying it - it was required because the land was agricultural, and would have lapsed had the sale not gone through - and the sale deed itself described what was sold as agricultural land.
The ultimate decision will have to be reached on a balanced consideration of the totality of circumstances.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppYes, on these facts. The Gujarat High Court held the land remained agricultural on the date of sale, so the surplus was not chargeable as capital gains. It set out thirteen factors that bear on the question and held that not all will appear in any case and the decision must be reached on a balanced consideration of the totality of circumstances. Here the land was in the revenue records and bore land revenue, had been cultivated for three of the years the assessee held it, lay outside municipal limits in an undeveloped area, and the assessee never obtained permission for non-agricultural use. Both questions were answered for the assessee. This was decided by the High Court (Gujarat High Court - Desai, J) and bears on section 2(14), section 45 of the Income Tax Act 1961. This is the judgment that gave practitioners the checklist. The thirteen factors it draws out of the earlier cases - classification in the revenue records, actual user and how long, whether the yield bore a rational proportion to the price paid, whether and by whom non-agricultural permission was taken, cesser of agricultural use and whether it was permanent, the situation and development of the area, plotting and roads, earlier sales for non-agricultural use, tenancy permission and the purpose of the intended sale, sale by yardage or acreage, and whether an agriculturist would have paid the price - are still the frame in which the dispute is argued. It is equally useful for what it says about the price test, which cannot be applied without findings on soil, fertility, crop suitability, irrigation and scarcity. If it applies to you, the first step is this: Build the case factor by factor rather than on one point, and be ready for the department to do the same; the Court decides on the totality.
The assessee, who lived at Ahmedabad, had bought with another person agricultural land of 15,054 square yards, about 3 acres 4 gunthas, at village Bilimora for Rs 43,989 by a conveyance of 18 August 1965, holding a one-third undivided share and contributing Rs 15,400. The land was outside municipal limits, and there was no material to show development in the surrounding area or any potential for it. After purchase it was put to agricultural use for three years: the revenue record showed a crop of tuver for two years and green grass for one, though the yield was low and none was sold. At about the time of sale it was not actually cultivated, but it remained listed in the revenue record and assessed to land revenue. The assessee obtained permission under section 63 of the Bombay Tenancy and Agricultural Lands Act to sell to a co-operative housing society, granted on 16 and 22 November 1969 on conditions including residential use and obtaining non-agricultural permission within a year. The conveyance was executed on 1 February 1969, and the buyer obtained non-agricultural permission about four days later. The assessee received Rs 67,928 as his share and claimed the surplus was not taxable. The matter was decided on 1981-09-22 by the High Court (Gujarat High Court - Desai, J). On those facts the High Court held as follows. Both referred questions were answered against the Revenue and in favour of the assessee, with costs, and the land was held to have been agricultural at the date of sale. The Court set out thirteen factors distilled from the earlier decisions and held that not all of them will be present or absent in any case, that one or more may appear, and that the decision must be reached on a balanced consideration of the totality of circumstances. Applying them, the nature of the exploitation of the land for the major part of the period the assessee held it showed that both its physical characteristics and its user were agricultural, and it was not shown that the user was temporary or a stop-gap. Although it had not been cultivated for about a year before the sale, there was no evidence it had been converted to any other use. The permission under section 63 did not make the land non-agricultural: it was needed precisely because the land was agricultural, and permission for non-agricultural use under section 65 of the Bombay Land Revenue Code was never obtained by the assessee but by the buyer after the sale. There was no evidence of development in the area or of the land itself.
The Court's method was to gather from the decided cases the considerations that had actually weighed, rather than to look for a single test. Classification in the revenue records and liability to land revenue raise a rebuttable presumption and furnish good prima facie evidence, which the department must lead evidence to displace. Beyond that, actual and ordinary user at the relevant time, the length and character of that user, the relation between the agricultural income and the price paid, the taking of non-agricultural permission and by whom, any cesser of cultivation and whether it was permanent, the situation of the land and the character of the neighbourhood, development by plotting or roads, earlier sales for non-agricultural use, the purpose of the intended sale for which tenancy permission was sought, sale by yardage or acreage, and the price an agriculturist would pay, all bear on the answer, and they are to be weighed against each other. On the last of these the Court entered an important caution: valuing agricultural land is complex, turning on soil and fertility, the crops it suits, size and the practicability of mechanised working, proximity to a village and transport, irrigation and power, and above all the scarcity of land in the area, with social and economic considerations also at work; findings on those aspects must be recorded before any presumption is drawn from the price. Applying all this, the tenancy permission was treated as confirming the land's agricultural character rather than destroying it - it was required because the land was agricultural, and would have lapsed had the sale not gone through - and the sale deed itself described what was sold as agricultural land. In the words reproduced by the source cited on this page: "The ultimate decision will have to be reached on a balanced consideration of the totality of circumstances."
It was decided by the High Court on 1981-09-22. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 2(14), section 45, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Both referred questions were answered against the Revenue and in favour of the assessee, with costs, and the land was held to have been agricultural at the date of sale. The Court set out thirteen factors distilled from the earlier decisions and held that not all of them will be present or absent in any case, that one or more may appear, and that the decision must be reached on a balanced consideration of the totality of circumstances. Applying them, the nature of the exploitation of the land for the major part of the period the assessee held it showed that both its physical characteristics and its user were agricultural, and it was not shown that the user was temporary or a stop-gap. Although it had not been cultivated for about a year before the sale, there was no evidence it had been converted to any other use. The permission under section 63 did not make the land non-agricultural: it was needed precisely because the land was agricultural, and permission for non-agricultural use under section 65 of the Bombay Land Revenue Code was never obtained by the assessee but by the buyer after the sale. There was no evidence of development in the area or of the land itself. It arises in Capital Gains matters, on section 2(14), section 45 of the Income Tax Act 1961, and was decided by Gujarat High Court - Desai, J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Keep the revenue records and land revenue receipts current - they raise a rebuttable presumption and are good prima facie evidence which the department must displace. Do not take non-agricultural use permission yourself before the sale if you can avoid it; here the permission under the land revenue code was obtained by the buyer after conveyance, and that mattered. Resist the argument that the price alone shows the land was not agricultural unless the department has led evidence on soil, fertility, crop suitability, irrigation and scarcity in the area.
Still good law. A citedby search returns 101 later citing documents, 24 of them High Court or Supreme Court. Decisively, the Supreme Court adopted this judgment's tests in Sarifabibi Mohmed Ibrahim v CIT (14 September 1993): it set out the 13 factors from Siddharth J. Desai in full at para 16 and then, in its own voice, laid down how they are to be worked - 'not all of these factors would be present or absent in any case and... in each case one or more of those factors may make appearance and... the ultimate decision will have to be reached on a balanced consideration of the totality of circumstances' - applying them to hold the land non-agricultural. The framework is therefore Supreme Court approved, though a practitioner should note that applying it produced a Revenue result on those facts. The Gujarat High Court itself worked with it in CIT v Lilavati Thakorelal Patel (21 February 1984) and the tests have since been carried into wealth-tax and even DRT litigation (Easun Holdings v Standard Chartered Bank, Madras, 13 June 2019; Vivek Sehgal v UCO Bank, Telangana, 4 September 2018). Nothing overruling, doubting or confining it was found. The Allahabad High Court in Davendra Pal Singh v CWT (16 August 1999) set out the 13 factors but decided on Supreme Court authority, so it is not counted as an application. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The harvested page carries no citation list and no case number, so the reported field is empty. The dates in the harvested text do not reconcile: the assessment year is given as 1969-70 with a previous year ended 31 March 1968, the section 63 permission as November 1969 and the conveyance as 1 February 1969, so at least one year is mistranscribed. The transcription is poor in places, with words dropped from the passage on the price test. The judgment names one judge although it speaks in the plural, and it decides the character of this land without laying down any rule about the distance and population limits in the definition of agricultural land. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both referred questions were answered against the Revenue and in favour of the assessee, with costs, and the land was held to have been agricultural at the date of sale. The Court set out thirteen factors distilled from the earlier decisions and held that not all of them will be present or absent in any case, that one or more may appear, and that the decision must be reached on a balanced consideration of the totality of circumstances. Applying them, the nature of the exploitation of the land for the major part of the period the assessee held it showed that both its physical characteristics and its user were agricultural, and it was not shown that the user was temporary or a stop-gap. Although it had not been cultivated for about a year before the sale, there was no evidence it had been converted to any other use. The permission under section 63 did not make the land non-agricultural: it was needed precisely because the land was agricultural, and permission for non-agricultural use under section 65 of the Bombay Land Revenue Code was never obtained by the assessee but by the buyer after the sale. There was no evidence of development in the area or of the land itself.
TaxSphere, “CIT v Siddharth J. Desai”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-siddharth-j-desai/ (validity last checked 2026-08-29)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
We sold the goodwill our own firm built up over the years. It cost us nothing to acquire. Is the price taxable as a capital gain?
The landlord paid my company to give up its tenancy. Is that taxable, and if it cannot be computed as a capital gain can the officer tax it as a casual receipt instead?
We sold gold sovereigns and silver coins that the family used at puja. Were they personal effects, outside capital gains?
My client held shares of the amalgamating company as stock-in-trade and received shares of the amalgamated company under the court-sanctioned scheme. Is there business income at that point, or only when those shares are sold?
