2016 (3) TMI 1266 - AT - Income Tax

Entitlement to exemption u/s 54B - purchase of some part of agricultural land before the date of sale - Held that - CIT(A) has made a clear finding of fact that payment for purchase of such land was made out of advances received by assessee against sale of land and in fact he has held that payments were directly made by buyer of agricultural land to the seller who had sold land to the appellant. The learned CIT(A) has further relied upon the CBDT circular No.359 dated 10.05.1983 which refers to section 54E of the Act. As per said circular the exemption u/s 54E of the Act is available to an assessee if part of sale consideration or earnest money or the advances received against sale of asset is invested in specified assets before the date of transfer of assets. CIT(A) has rightly held that by executing the agreement to sell by transferor a right is credited in favour of transferee. The transferor is restrained from selling the said property to someone else because the transferee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the transferor for some reasons do not execute the sale deed. Therefore, when the assessee purchased land by way of execution of an agreement by the transferor irrespective of the fact that sale deed could not be entered the assessee is eligible to enforce his right and therefore, he has rightly held that assessee is deemed to have purchased the land. In view of the above findings of learned CIT(A), he has rightly allowed the exemption u/s 54B of the Act. - Decided in favour of assessee. Deduction of eviction charges u/s 48(1) - payments for eviction of land was made as the Assessing Officer had verified the confirmation of payments received by eleven persons who were paid the amounts for eviction - Held that - CIT(A) has rightly allowed the deduction of such eviction charges u/s 48(1) of the Act. We further find that in the case of a joint owner Mr. Jit Singh who had also paid similar eviction charges and learned CIT(A) has deleted the addition made by Assessing Officer on account of eviction charges, and the Department has not filed any appeal for allowance of eviction charges by learned CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer on account of Capital Gain.
2. Allowance of expenses under Section 48(1) for payments made to third-party cultivators.
3. Allowance of deduction under Section 54B for the purchase of agricultural land before the sale of the original land.

Issue-Wise Analysis:

1. Deletion of Addition on Account of Capital Gain:
The Revenue challenged the decision of the CIT(A) in deleting the addition of Rs. 2,40,91,101/- made by the Assessing Officer on account of Capital Gain. The Assessing Officer had completed the assessment under Section 144 due to non-cooperation from the assessee and reopened the cases under Section 148 based on information about substantial capital gains from the sale of agricultural land. The CIT(A) allowed relief to the assessee by considering indexed cost and payments made for evicting occupants from the land. The CIT(A) relied on the Supreme Court's decision in Sanjeev Lal Vs. CIT, which held that an agreement to sell could amount to a transfer for the purposes of Section 2(47) and Section 54. The Tribunal upheld the CIT(A)'s decision, emphasizing the legislative intent to provide relief from capital gains tax if the proceeds are used to purchase agricultural land.

2. Allowance of Expenses under Section 48(1):
The Revenue also contested the CIT(A)'s allowance of expenses amounting to Rs. 78,48,358/- paid to third-party cultivators for evicting them from the land. The CIT(A) found that the payments were necessary to ensure the smooth sale of the property and were verified by the Assessing Officer during remand proceedings. The Tribunal agreed with the CIT(A), noting that similar expenses were allowed in the case of a co-owner, Mr. Jit Singh, without any appeal from the Revenue. Therefore, the deduction under Section 48(1) was rightly allowed.

3. Allowance of Deduction under Section 54B:
The third issue was the allowance of deduction under Section 54B for the purchase of agricultural land before the sale of the original land. The CIT(A) held that the payment for the new land was made from the advance received against the sale of the original land, supported by CBDT Circular No. 359, which allows such investments to qualify for exemption. The Tribunal upheld this view, stating that the essential purpose of Section 54B is to ensure that proceeds from the sale of agricultural land are used to purchase new agricultural land, irrespective of the timing of the transactions. The Tribunal also dismissed the Assessing Officer's objection that the land was not used by the assessee for agricultural purposes, emphasizing that the nature of the land remains agricultural as long as it is used for such purposes, regardless of who performs the agricultural operations.

Conclusion:
The Tribunal dismissed both appeals filed by the Revenue, upholding the CIT(A)'s decisions on all three issues. The orders were pronounced in the open Court on 11th March 2016.