2010 (11) TMI 669 - HC - Income Tax

Sale of Agriculture Land and claim exemption u/s 54B in AY 91-92 but assessees did not purchase agricultural land within 2 yrs utilising the capital gain.Therefore they became liable to pay tax on such CG u/s 54B(2)(i) for AY 93-94. This position was conceded by all assessees in the returns filed by each of them for AY 93-94. However for payment of tax on CG for AY 93-94 the assessees computed CG on same transaction by applying amended provisions of section 48 which provides for deduction of the indexed COA & indexed COI in the computation of LTCG. This method of computation of CG came into force only from April 1 1993 and onwards. Held that - recomputation of capital gain based on the amended provisions does not arise at all. Since computation or recomputation of capital gain was not required and the capital gain deposited by the assessees was not utilised by them for purchase of agricultural land. decided against Assessee.

Summary

Issues:
1. Maintainability of appeals by Revenue due to tax effect below required threshold.
2. Assessment of tax on capital gains under section 54B(2) for the assessment year 1993-94.
3. Legality of prima facie adjustments under section 143(1)(a) and rectification under section 154.
4. Applicability of amended provisions of section 48 in the computation of capital gains.

Issue 1: The High Court dismissed the appeals filed by the Revenue in 2004 as not maintainable due to the tax effect being below the required threshold of Rs. 2 lakhs. However, the Revenue sought a decision on the questions raised in the appeals, which were considered substantial questions of law.

Issue 2: The case involved assessees who sold agricultural land within municipal limits and claimed exemption under section 54B(2) of the Income-tax Act for the assessment year 1991-92. The assessees did not utilize the capital gains for purchasing new agricultural land within two years, leading to tax liability for the assessment year 1993-94. The High Court held that the unutilized capital gain was chargeable under section 45 as income of the previous year, rejecting the contention for recomputation based on amended provisions of section 48.

Issue 3: The assessees raised two issues before the Commissioner of Income-tax (Appeals) regarding the legality of prima facie adjustments under section 143(1)(a) and rectification under section 154. The High Court upheld the competence of the Assessing Officer to demand tax on capital gains through prima facie adjustments and rectification under section 154, as per the specific provision of clause (i) of the proviso to section 54B(2).

Issue 4: The legal heirs of the deceased assessees contended that the assessees were entitled to recomputation of capital gains based on the amended provisions of section 48, effective from April 1, 1993. However, the High Court held that no recomputation was necessary as the capital gain retained in deposit, in respect of which exemption was claimed, was chargeable under section 45 by virtue of the proviso to section 54B(2). The court declared that the Assessing Officer was competent to demand tax on capital gains under section 143(1)(a) and rectify any errors under section 154.

In conclusion, the High Court ruled in favor of the Revenue and against the assessees on both questions raised, affirming the competence of the Assessing Officer to demand tax on capital gains and rejecting the need for recomputation based on amended provisions.