2018 (9) TMI 1841 - AT - Income Tax

Deduction u/s 54B - Denial on the ground that the new agricultural land was purchased by the assessee on 29/11/2012 which is prior to the sale of existing agricultural land vide sale deed dated 28/01/2013 - HELD THAT - Receipts of sale consideration and purchase consideration are through post dated cheques as evident from the record and none of the cheques was encashed on the date of execution of the sale deed but the receipt of sale consideration is after the agreement to sell dated 22/11/2012 and much prior to the sale deed dated 28/01/2013 whereas the entire purchase consideration was paid out from the bank account of the assessee only after the sale deed dated 29/11/2012. These facts clearly established that the receipt as well as payment are through post dated cheques and therefore, the assessee has established the existence of the agreement to sell dated 22/11/2012 under which the purchase consideration was received by the assessee. The subsequent documents consist of correction deed as well as the affidavit of the purchaser has supported the fact that the consideration for sale of the existing land was received at the time of the agreement to sell dated 22/11/2012 and possession was also handed over on the said date of agreement. Hence when the agreement was subsequently acted upon and in performance of the said agreement, the parties have finally executed the sale deed then the transaction will be considered as transferred as on the date of the agreement. The assessee has satisfied the conditions of acquiring new agricultural land against the sale of existing agricultural land and therefore, it is a case of substitution of existing agricultural land by new agricultural land and consequently the assessee is eligible for deduction u/s 54B in respect of the agricultural land purchased for total cost of ₹ 2,47,60,900/-. Accordingly, the orders of the authorities below are set aside qua this issue. - Decided in favour of assessee.

Issues Involved:

1. Eligibility of deduction under Section 54B of the Income Tax Act, 1961.
2. Validity of the agreement to sell dated 22/11/2012.
3. Timing of the purchase of new agricultural land relative to the sale of existing agricultural land.
4. Interpretation of "transfer" under Section 2(47) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Eligibility of Deduction under Section 54B:
The primary issue revolves around the eligibility of the assessee for claiming a deduction under Section 54B of the Income Tax Act, 1961. The Assessing Officer (AO) denied the deduction for the agricultural land purchased on 29/11/2012, arguing that the purchase occurred before the sale of the existing agricultural land on 28/01/2013. The CIT(A) upheld this decision, stating that the transaction of sale took place only when the sale deed was executed and registered on 28/01/2013. However, the assessee contended that the transfer of agricultural land occurred on 22/11/2012 when an agreement to sell was executed, possession was handed over, and consideration was received through post-dated cheques.

2. Validity of the Agreement to Sell dated 22/11/2012:
The assessee argued that the agreement to sell dated 22/11/2012 was valid and that the transfer of land occurred on this date. The assessee provided evidence such as post-dated cheques and an affidavit from the purchaser affirming possession was handed over on 22/11/2012. The CIT(A) and AO doubted the agreement's validity, noting it was neither registered nor notarized. However, the Tribunal found that the details of consideration in the agreement to sell matched those in the subsequent sale deed and correction deed, establishing the agreement's authenticity.

3. Timing of the Purchase of New Agricultural Land:
The Tribunal examined whether the purchase of new agricultural land on 29/11/2012 was eligible for deduction under Section 54B, given that the sale deed for the existing land was executed later on 28/01/2013. The Tribunal noted that the assessee received part of the sale consideration through post-dated cheques before the sale deed's execution. The Tribunal concluded that the assessee's actions, including receiving consideration and handing over possession, indicated the transaction's completion on 22/11/2012. Consequently, the purchase of new agricultural land on 29/11/2012 was considered subsequent to the transfer of the existing land.

4. Interpretation of "Transfer" under Section 2(47):
The Tribunal analyzed the definition of "transfer" under Section 2(47) of the Income Tax Act, which includes any transaction involving the allowing of possession of the property in part performance of a contract as per Section 53A of the Transfer of Property Act. The Tribunal referred to the Supreme Court's decision in Sanjay Lal vs. CIT, which held that an agreement to sell creates a right in personam, restraining the vendor from selling to another party and thus constituting a transfer. The Tribunal concluded that the transfer occurred on 22/11/2012, when the agreement to sell was executed, and possession was handed over.

Conclusion:
The Tribunal held that the assessee satisfied the conditions for deduction under Section 54B, as the purchase of new agricultural land was in substitution of the existing agricultural land. The Tribunal set aside the orders of the CIT(A) and AO, allowing the assessee's appeal and granting the deduction for the agricultural land purchased on 29/11/2012.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced in the open court on 18/09/2018.

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