2007 (5) TMI 148 - HC - Income Tax

Capital gains - Revenue contended that assessee was not entitle for the benefit of section 54E read with section 54H of the Act during the AY 1977-78 on the ground that section 54E of the Act was brought on the statue book w.e.f April 1,1978 - Held that revenue stands not valid and allowed benefit to assessee

Summary

Issues:
1. Whether the Tribunal was justified in allowing the assessee deduction under section 54E read with section 54H for the purchase of capital gains units?
2. Whether the Tribunal was justified in upholding the order of the Commissioner of Income-tax directing the Assessing Officer to allow the assessee deduction under section 54B read with section 54H for the agricultural land purchased?

Analysis:

Issue 1:
The appeal pertains to the assessment year 1977-78, where the respondent-assessee's agricultural land was acquired by the U. P. Government for a housing scheme. The compensation awarded was enhanced under the Land Acquisition Act, and the Income-tax Officer assessed the capital gains and imposed tax. The Tribunal allowed the appeal and granted the benefit of section 54E read with section 54H of the Income-tax Act. The Revenue contended that the benefit of section 54E, introduced in 1977, could not be extended to capital gains arising in 1977-78. However, the respondent argued that as the compensation was received in 1984, the capital gains arose in the relevant year for the assessment year 1985-86. The High Court, after considering the provisions of section 45 and relevant case laws, held that the retrospective effect of sub-section (5) of section 45 applied, and since the respondent invested within the stipulated period, the benefit of section 54E was rightly allowed by the Tribunal.

Issue 2:
The second issue involved the deduction under section 54B read with section 54H for the agricultural land purchased by the respondent. The Revenue argued that the Assessing Officer had erroneously allowed the deduction under section 54B in a prior assessment order, and the Commissioner of Income-tax (Appeals) had not directed such allowance. The High Court, after analyzing the relevant provisions and case laws, upheld the Tribunal's decision, stating that the retrospective effect of certain provisions applied. The Court agreed with the Tribunal's decision based on the timing of the capital gains and the investment made by the respondent, in line with the decision of the Andhra Pradesh High Court. Consequently, the High Court found no legal infirmity in the Tribunal's order and dismissed the appeal, with each party bearing its costs.