My land is still entered as agricultural in the revenue records and I have paid land revenue on it right up to the sale. The Assessing Officer says it stopped being agricultural land years ago. Can he do that?
Yes. Whether land is agricultural land is a question of fact to be decided on a cumulative consideration of all the circumstances, and the revenue entry is only one relevant fact, not a conclusive one. Where the land had not been cultivated for four years, was agreed to be sold to a housing society for building, and permission to sell it for a non-agricultural purpose had been applied for and obtained, the Supreme Court held it was not agricultural land on the date of sale even though it was still recorded as agricultural and land revenue was still being paid.
Decided by the Supreme Court (B.P. Jeevan Reddy J and S.P. Bharucha J) on 1993-09-14, reported as (1993) 204 ITR 631 (SC); AIR 1993 SC 2585; 1993 Supp (4) SCC 707; (1993) 70 Taxman 301. It bears on section 2(14), section 2(14)(iii), section 45, section 47(viii), section 256(1) of the Income Tax Act 1961, in Capital Gains, Evidence & Burden of Proof and How Tax Law Is Read matters.
This is the case the department will run at you when it wants to tax the gain on a sale of what you regard as farm land, and it is the reason a bundle of revenue records on its own does not win the point. The reverse is also true and is worth pressing: the Court set out both columns, the facts for and the facts against, and decided by weighing them. So the answer to a one-sided assessment order is a one-sided list of your own — continuous cultivation, no s.65 conversion, no development, an agriculturist buyer, a price on acreage rather than yardage. The thirteen indicators from Siddharth J. Desai reproduced at para 16 are the checklist actually used by benches deciding these appeals, and para 18 supplies the operative formulation: user for agricultural purposes for a reasonable span of time before the relevant date, and an intention to continue that user for a reasonable span of time after it. Note the statutory setting, which the Court sets out at para 11. This was a May 1969 sale. Clause (viii) of s.47 was inserted by the Finance Act 1970 with effect from 1 April 1970 and exempts "any transfer of agricultural land in India effected before the 1st day of March 1970" from capital gains tax; by the very same Finance Act, and also only from 1 April 1970, the municipal-limits and 8 km exclusions were written into sub-clauses (a) and (b) of clause (iii) of s.2(14). Because the land was sold in May 1969 the Court held it did not fall within the mischief of those sub-clauses at all, so if it was agricultural land the gain was outside capital gains altogether. The case therefore says nothing about the modern s.2(14)(iii) location and distance test — it is authority on character, not on situation.
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The appellants were co-owners of a plot of about 30,885 sq. yds. at Navagaon village, inside the municipal limits of Surat and about one kilometre from Surat railway station, bought by their ancestor in 1934. In 1958 a portion of 2,067 sq. yds. was converted to non-agricultural use under s.65 of the Bombay Land Revenue Code and a chawl was built on it; the balance continued to be entered as agricultural land in the revenue records and land revenue continued to be paid. The assessment year in issue was 1970-71. On 15 March 1967 the appellants agreed to sell the balance land to a housing co-operative society. They applied for permission under s.63 of the Bombay Tenancy and Agricultural Lands Act, 1948 — the permission needed where agricultural land is transferred for a non-agricultural purpose — and it was granted on 22 April 1969. Sale deeds were executed between 9 and 30 May 1969 at Rs 23 per sq. yd. The society applied for conversion under s.65 afterwards and began construction within three days of the sale deeds. Cultivation had ceased after the agricultural year 1964-65; the appellants claimed 'loni' grass had been raised in 1968-69. The Income-tax Officer, the Appellate Assistant Commissioner and the Gujarat High Court held the land non-agricultural; a third member of the Tribunal had held it agricultural. Because the sales were in May 1969, the s.2(14)(iii) municipal-limits and 8 km exclusions inserted by the Finance Act 1970 with effect from 1 April 1970 did not apply, so if the land was agricultural land the gain was outside capital gains altogether (paras 3 to 11).
The appeals were dismissed, with no order as to costs. The land was not agricultural land at the time of its sale and the surplus on the sale was not exempt from capital gains tax. Whether land is agricultural land is essentially a question of fact to be answered on a cumulative consideration of all the relevant facts, the tests evolved in the decisions being guidelines only (paras 12, 20 and 21).
The Court began from the Constitution Bench decision in C.W.T. v. Officer-in-charge (Court of Wards), Paigah, the Begumpet Palace case, which had held that the exemption for agricultural land must be given a restricted rather than the widest meaning, that what has to be shown is a connection with an agricultural purpose and user and not a mere potentiality of such user, and that assessment to land revenue as agricultural land is relevant but not conclusive (para 13). It set out the eight indicators of the Andhra Pradesh Full Bench and the thirteen factors evolved by the Gujarat High Court in CIT v. Siddharth J. Desai, adding that not all will be present in any case and that the decision must rest on a balanced consideration of the totality of the circumstances (paras 14 and 16). It adopted the formulation of the Bombay High Court in CIT v. V.A. Trivedi — that one must ask whether the land has been put to agricultural use for a reasonable span of time before the relevant date and whether on that date it was intended to be so used for a reasonable span of time in the future — and noted that in Trivedi the agreement to sell to a housing society was the crucial circumstance and any cultivation after it was a stop-gap arrangement (paras 17 and 18). On the facts, the Court held that the third member's own findings were mutually inconsistent and negatived cultivation even in 1968-69 (para 19). Weighing the facts in the appellants' favour — the revenue entry, payment of land revenue, no non-agricultural use by them, cultivation up to 1964-65, adjoining agricultural land, no other source of income — against those against them — situation within municipal limits one kilometre from the railway station, no cultivation from 1965-66, the agreement to sell to a housing society for building, the s.63 applications and permission, sale immediately afterwards at Rs 23 per sq. yd., and construction by the buyer within three days — the Court held the latter outweighed the former (para 20).
The aforesaid facts do establish that the land was not an agricultural land when it was sold.
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Handle my notice → Ask a CA on WhatsAppYes. Whether land is agricultural land is a question of fact to be decided on a cumulative consideration of all the circumstances, and the revenue entry is only one relevant fact, not a conclusive one. Where the land had not been cultivated for four years, was agreed to be sold to a housing society for building, and permission to sell it for a non-agricultural purpose had been applied for and obtained, the Supreme Court held it was not agricultural land on the date of sale even though it was still recorded as agricultural and land revenue was still being paid. This was decided by the Supreme Court (B.P. Jeevan Reddy J and S.P. Bharucha J) and bears on section 2(14), section 2(14)(iii), section 45, section 47(viii), section 256(1) of the Income Tax Act 1961. It is reported as (1993) 204 ITR 631 (SC); AIR 1993 SC 2585; 1993 Supp (4) SCC 707; (1993) 70 Taxman 301. This is the case the department will run at you when it wants to tax the gain on a sale of what you regard as farm land, and it is the reason a bundle of revenue records on its own does not win the point. The reverse is also true and is worth pressing: the Court set out both columns, the facts for and the facts against, and decided by weighing them. So the answer to a one-sided assessment order is a one-sided list of your own — continuous cultivation, no s.65 conversion, no development, an agriculturist buyer, a price on acreage rather than yardage. The thirteen indicators from Siddharth J. Desai reproduced at para 16 are the checklist actually used by benches deciding these appeals, and para 18 supplies the operative formulation: user for agricultural purposes for a reasonable span of time before the relevant date, and an intention to continue that user for a reasonable span of time after it. Note the statutory setting, which the Court sets out at para 11. This was a May 1969 sale. Clause (viii) of s.47 was inserted by the Finance Act 1970 with effect from 1 April 1970 and exempts "any transfer of agricultural land in India effected before the 1st day of March 1970" from capital gains tax; by the very same Finance Act, and also only from 1 April 1970, the municipal-limits and 8 km exclusions were written into sub-clauses (a) and (b) of clause (iii) of s.2(14). Because the land was sold in May 1969 the Court held it did not fall within the mischief of those sub-clauses at all, so if it was agricultural land the gain was outside capital gains altogether. The case therefore says nothing about the modern s.2(14)(iii) location and distance test — it is authority on character, not on situation. If it applies to you, the first step is this: Build the two columns the Court used: list every fact for agricultural character and every fact against, and argue the balance rather than any single document.
The appellants were co-owners of a plot of about 30,885 sq. yds. at Navagaon village, inside the municipal limits of Surat and about one kilometre from Surat railway station, bought by their ancestor in 1934. In 1958 a portion of 2,067 sq. yds. was converted to non-agricultural use under s.65 of the Bombay Land Revenue Code and a chawl was built on it; the balance continued to be entered as agricultural land in the revenue records and land revenue continued to be paid. The assessment year in issue was 1970-71. On 15 March 1967 the appellants agreed to sell the balance land to a housing co-operative society. They applied for permission under s.63 of the Bombay Tenancy and Agricultural Lands Act, 1948 — the permission needed where agricultural land is transferred for a non-agricultural purpose — and it was granted on 22 April 1969. Sale deeds were executed between 9 and 30 May 1969 at Rs 23 per sq. yd. The society applied for conversion under s.65 afterwards and began construction within three days of the sale deeds. Cultivation had ceased after the agricultural year 1964-65; the appellants claimed 'loni' grass had been raised in 1968-69. The Income-tax Officer, the Appellate Assistant Commissioner and the Gujarat High Court held the land non-agricultural; a third member of the Tribunal had held it agricultural. Because the sales were in May 1969, the s.2(14)(iii) municipal-limits and 8 km exclusions inserted by the Finance Act 1970 with effect from 1 April 1970 did not apply, so if the land was agricultural land the gain was outside capital gains altogether (paras 3 to 11). The matter was decided on 1993-09-14 by the Supreme Court (B.P. Jeevan Reddy J and S.P. Bharucha J). On those facts the Supreme Court held as follows. The appeals were dismissed, with no order as to costs. The land was not agricultural land at the time of its sale and the surplus on the sale was not exempt from capital gains tax. Whether land is agricultural land is essentially a question of fact to be answered on a cumulative consideration of all the relevant facts, the tests evolved in the decisions being guidelines only (paras 12, 20 and 21).
The Court began from the Constitution Bench decision in C.W.T. v. Officer-in-charge (Court of Wards), Paigah, the Begumpet Palace case, which had held that the exemption for agricultural land must be given a restricted rather than the widest meaning, that what has to be shown is a connection with an agricultural purpose and user and not a mere potentiality of such user, and that assessment to land revenue as agricultural land is relevant but not conclusive (para 13). It set out the eight indicators of the Andhra Pradesh Full Bench and the thirteen factors evolved by the Gujarat High Court in CIT v. Siddharth J. Desai, adding that not all will be present in any case and that the decision must rest on a balanced consideration of the totality of the circumstances (paras 14 and 16). It adopted the formulation of the Bombay High Court in CIT v. V.A. Trivedi — that one must ask whether the land has been put to agricultural use for a reasonable span of time before the relevant date and whether on that date it was intended to be so used for a reasonable span of time in the future — and noted that in Trivedi the agreement to sell to a housing society was the crucial circumstance and any cultivation after it was a stop-gap arrangement (paras 17 and 18). On the facts, the Court held that the third member's own findings were mutually inconsistent and negatived cultivation even in 1968-69 (para 19). Weighing the facts in the appellants' favour — the revenue entry, payment of land revenue, no non-agricultural use by them, cultivation up to 1964-65, adjoining agricultural land, no other source of income — against those against them — situation within municipal limits one kilometre from the railway station, no cultivation from 1965-66, the agreement to sell to a housing society for building, the s.63 applications and permission, sale immediately afterwards at Rs 23 per sq. yd., and construction by the buyer within three days — the Court held the latter outweighed the former (para 20). In the words reproduced by the source cited on this page: "The aforesaid facts do establish that the land was not an agricultural land when it was sold." The decision followed or applied C.W.T., Andhra Pradesh v. Officer-in-charge (Court of Wards), Paigah (105 ITR 133) (SC, Constitution Bench) — applied; CIT, Gujarat-II v. Siddharth J. Desai (139 ITR 628) (Guj.) — thirteen factors adopted as guidelines; CIT v. V.A. Trivedi (172 ITR 95) (Bom.) — approved and applied; CIT v. Raja Benoy Kumar Sahas Roy (32 ITR 466) (SC) — distinguished as concerning forest produce.
It was decided by the Supreme Court on 1993-09-14 and is reported as (1993) 204 ITR 631 (SC); AIR 1993 SC 2585; 1993 Supp (4) SCC 707; (1993) 70 Taxman 301. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 2(14), section 2(14)(iii), section 45, section 47(viii), section 256(1), 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 department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeals were dismissed, with no order as to costs. The land was not agricultural land at the time of its sale and the surplus on the sale was not exempt from capital gains tax. Whether land is agricultural land is essentially a question of fact to be answered on a cumulative consideration of all the relevant facts, the tests evolved in the decisions being guidelines only (paras 12, 20 and 21). It arises in Capital Gains, Evidence & Burden of Proof and How Tax Law Is Read matters, on section 2(14), section 2(14)(iii), section 45, section 47(viii), section 256(1) of the Income Tax Act 1961, and was decided by B.P. Jeevan Reddy J and S.P. Bharucha 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. Get evidence of actual cultivation for each of the years immediately preceding the sale — Pahani Patrak or equivalent, crop entries, purchase of inputs, sale of produce. A gap of four fallow years was decisive against the assessee here. Check what permission was applied for and when. An application under the State tenancy law to sell to a non-agriculturist for a non-agricultural purpose was treated as proof of intention even though no conversion order under the Land Revenue Code had been obtained. Look at what the buyer did and how fast. Construction three days after the sale deed was held against the seller. Do not rest on the revenue record or the payment of land revenue. Both were present here and both lost. Keep this case separate from the s.2(14)(iii) distance argument: character and situation are two different questions and must be pleaded as two grounds.
Still good law. A citator search returns 232 later decisions citing the judgment. The Bombay High Court applied it in Gopal C. Sharma v CIT (11 October 1993): 'Having regard to the ratio of the latest judgment of the Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT... this judgment is a complete answer to the controversy', and 'if the relevant tests laid down by the Supreme Court in Sarifabibi's case are to be applied to this case as they ought to be', holding the land not agricultural on the date of transfer. The two Madras decisions named earlier do not apply it: in M.S. Srinivasa Naicker v ITO (29 January 2007) counsel cited it to contrast the facts and the Bench held it favoured the assessee because agricultural operations had continued to the date of sale, and in Kausalya Maruthachalam v DCIT (30 November 2022) it appears as the ground on which the Assessing Officer proceeded, in proceedings the Court decided against the Revenue. Nothing overruling or doubting the judgment was found. 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.
Read from the indiankanoon print view of the report, which was returned twice; the second fetch produced the full numbered judgment and the first produced only a summary, so the full text was used. The report carries obvious transcription slips ('it dies not fall', 'asses-see', 'at the lime of its sale', 'Bequmpet Palace'); these are in the source and have not been silently corrected. The equivalent-citation block on the source page lists both (1993) 202 ITR 108 and (1993) 204 ITR 631 for the same judgment; 204 ITR 631 is the citation the profession uses. There is also an internal date conflict in the report: para 5 says permission under s.63 of the Bombay Tenancy Act was applied for on 12 June 1968 and 19 March 1969 and granted on 22 April 1969, while the High Court's list quoted in para 6 says the application was made in August 1968 and granted on 24 February 1969. Nothing in the reasoning turns on which is right. 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.
The appeals were dismissed, with no order as to costs. The land was not agricultural land at the time of its sale and the surplus on the sale was not exempt from capital gains tax. Whether land is agricultural land is essentially a question of fact to be answered on a cumulative consideration of all the relevant facts, the tests evolved in the decisions being guidelines only (paras 12, 20 and 21).
TaxSphere, “Smt. Sarifabibi Mohmed Ibrahim v CIT, Gujarat”, https://taxnotice.vittsphere.com/caselaw/case/sarifabibi-mohmed-ibrahim-v-cit-when-land-stops-being-agricultural/ (validity last checked 2026-09-08)
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