2016 (6) TMI 1251 - AT - Income Tax

Applicability of provisions of section 54B - Held that - The matter has come clear on remand to the A.O. by the ld. CIT(A). The land was no doubt self-cultivated by the assessee. However, this cultivation was through certain other persons, to whom the land was leased out for the purpose of cultivation. However, when the issue of sale of the land arose, these persons refused to budge and it was, accordingly, that the payment had to be made to them. This position was accepted by the AO in the remand report. AO was of the view that the provisions of section 54B of the Act were not attracted, since the land was not used by the assessee himself for agricultural purposes. Here, the ld. CIT(A) has correctly observed that the requirement under the law is that of the usage of the land, as to whether it is used for agricultural purposes or not. The reference, obviously, is to the land per se and not to the owner thereof. Regarding the objection with regard to the registration qua the purchase of agricultural land having been effected before the date of sale, it remains undisputed that, as per the remand report, that the payments were made out of advance received by the assessee against the sale of land. Such payments having been made directly by the persons who purchased the land from the assessee, to the person who sold it to the assessee. The CBDT Circular No.359 dated 10.05.1983, though applicable to section 54E, as correctly observed by the ld. CIT(A), it is applicable equally to section 54B. In view of the above, the assessee claimed deduction under section 54 of the Act was rightly allowed by the ld. CIT(A). - Decided in favour of assessee. Computation of capital gain - Held that - Capital gain, on the basis of fair market value of the property as on 14.1981, such value was adopted at ₹ 2923/- per marla. This was based on the report of the local revenue authority, which remained undisputed. Besides, the valuation adopted regarding similar land was also relied on by the assessee, wherein, the valuation of ₹ 5000/- per marla had been considered. CIT(A) was well justified in accepting the rate of ₹ 2923/- per marla as on 01.04.1981 concerning the assessee s land. It was due to these facts that the CIT(A) arrived at the conclusion and, in our considered opinion, correctly so, that the computation of capital gain came to Nil. Moreover, the issue stands directly covered in favour of the assessee by the decision of this Bench of the Tribunal in the cases of brother and sister of the assessee, for A.Y. 2009-2010, i.e., the same assessment year, as the one under consideration herein. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of capital gain.
2. Allowance of expenses under section 48(1) for eviction of land.
3. Allowance of deduction under section 54B for land purchased before the sale of the land.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Capital Gain:
The Assessing Officer (AO) added ?2,42,24,176/- to the assessee's income as capital gain, asserting that the assessee had not paid due tax on this amount. The CIT(A) deleted this addition, noting that the assessee had paid ?3,17,60,750/- to 11 persons for evicting them from the land before the sale. The AO verified these payments during remand proceedings. The CIT(A) concluded that this amount should be deducted from the gross sale consideration to compute the net sale consideration for capital gain purposes. The CIT(A) also accepted that the land sold and purchased was used for agricultural purposes, thus qualifying for the exemption under section 54B.

2. Allowance of Expenses Under Section 48(1) for Eviction of Land:
The CIT(A) allowed the deduction of ?79,70,797/- under section 48(1) for eviction expenses, despite the AO's contention that the land was Khud Kasht (self-cultivated). The CIT(A) reasoned that the requirement is the usage of the land for agricultural purposes, not who performed the agricultural operations. The land's character as agricultural land was maintained whether operated by the owner or a tenant.

3. Allowance of Deduction Under Section 54B for Land Purchased Before the Sale:
The AO objected to the deduction under section 54B, arguing that the land was purchased before the sale. The CIT(A) disagreed, noting that payments for the purchase were made from the advance received against the sale of the land. The CIT(A) cited CBDT Circular No. 359 dated 10.05.1983, which allows for such a scenario under section 54E, and applied the same principle to section 54B. Additionally, the CIT(A) referred to the Supreme Court judgment in 'Sanjeev Lal vs. CIT,' which held that an agreement to sell could amount to a transfer for the purposes of section 2(47)/54.

Final Judgment:
The Tribunal upheld the CIT(A)'s decision, confirming that the assessee's claim for deduction under section 54 was valid. It also agreed with the CIT(A)'s acceptance of the fair market value of ?2923/- per marla as of 01.04.1981, based on the local revenue authority's report and comparable cases. Consequently, the computation of capital gain resulted in NIL, and no taxable capital gain was leviable on the transaction. The appeal of the Department was dismissed, and the order of the CIT(A) was confirmed in its entirety.