2002 (5) TMI 6 - HC - Income Tax

Caim for exemption from levy of capital gains u/s 54B on the ground that the land sold by her was agricultural land and the sale proceeds were invested in the purchase of agricultural land within two years - there is no merit in the contention of Revenue that no agricultural operations had been carried on in this land in the preceding two years and that the agricultural income shown in the returns by the assessee was not genuine. - Findings of the Tribunal that there was material on record to show that the land had been used for agricultural purposes is based on cogent and relevant material. The Revenue record supports the claim. Thus the Tribunal was justified in holding that the conditions laid down for claiming relief under section 54B stood satisfied. Once it is so the other contentions about the land being located in the commercial area or the land having been partially utilised for non-agricultural purposes or that the vendees have also purchased it for non-agricultural purposes are totally irrelevant considerations for the purposes of application of section 54B Exemption allowed

Summary

Issues:
1. Claim of exemption under section 54B of the Income-tax Act, 1961 for the sale of agricultural land.
2. Determination of whether the conditions for relief under section 54B were met.
3. Dispute regarding the agricultural nature of the land sold.

Analysis:

Issue 1: The assessee claimed exemption under section 54B of the Income-tax Act for the sale of agricultural land. The Assessing Officer rejected the claim, stating that the land sold was not agricultural land due to various factors, including its location in a commercial area and previous non-agricultural use. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal accepted the assessee's claim, stating that the transaction fulfilled the conditions specified for relief under section 54B.

Issue 2: The relevant provision of section 54B requires that the capital gain arises from the transfer of land used for agricultural purposes in the two years preceding the sale, and the assessee purchases other land for agricultural use within two years. The Tribunal found that the conditions were met based on evidence provided by the assessee, including khasra girdawari and income declarations. The Tribunal concluded that the land was indeed used for agricultural purposes, satisfying the requirements for relief under section 54B.

Issue 3: The Assessing Officer's argument that the land was not agricultural was based on factors such as its location in a commercial area and previous non-agricultural use. However, the Tribunal emphasized that the critical consideration for relief under section 54B is whether the land was used for agricultural purposes in the two years prior to the sale. The Tribunal found that the land had been used for agricultural activities, as evidenced by plantation and agricultural income declarations, supporting the assessee's claim for exemption.

In conclusion, the High Court dismissed the Revenue's appeal, affirming the Tribunal's decision in favor of the assessee. The Court emphasized that the critical factor for relief under section 54B is the agricultural use of the land in the two years preceding the sale, which was found to be fulfilled in this case. The Court held that the other considerations, such as the land's location or partial non-agricultural use, were irrelevant for the application of section 54B.