2018 (12) TMI 1745 - AT - Income Tax

Exemption u/s.54B withdrawn - new asset so transferred is not a capital asset - assessee has subsequently sold the new asset on 27.05.2005 i.e. within the period of 3 years from this purchase - HELD THAT - It is seen that the assessee has transferred agricultural land and resultant capital gain thereon has been claimed exemption on account of purchase of new asset. However, the new asset being a non-capital asset has been transferred within the period of 3 years i.e. 25.07.2005. Therefore, the cost of new asset for computing the capital gain u/s.45 of the Act would be considered as nil as per provisions of section 54B(1)(2) of the Act. Since the assessee has not satisfied the basic condition to avail the exemption u/s.54B(1) of the Act as the new asset is transferred before 3 years of its purchase, the capital gain is worked out after deducting the exemption out of such gains so benefited on the transfer of old asset. This, further stipulates that there should be a capital gain of transfer of such land, hence the assessee has invested in his land it will not be further taxable to capital gain as the land is rural agricultural land, it is not a capital asset. Basic condition to avail the exemption has not been fulfilled by the assessee, therefore there is no relevance of the fact that new asset was capital asset or non-capital asset. Further, there is no specific provision in section 54B of the Act as mentioned in section 54F(3) of the Act. Therefore, the withdrawal of exemption would be made in respect of long term capital gain chargeable on old assets sold during the relevant assessment year. As new asset so transferred is not a capital asset, hence no capital gain chargeable on the same. In view of these facts, we are of the considered opinion that the Lower Authorities have justified in withdrawing the exemption claim u/s.54B of the Act as basic conditions stipulated u/s.54B(1)(2) has not been satisfied. Therefore, this grounds of appeal of the assessee are dismissed.

Summary

Issues:
Withdrawal of exemption u/s.54B of the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) pertaining to the Assessment Year 2004-05, arising from the order passed by the Assistant Commissioner of Income Tax under section 153A(a) of the Income Tax Act, 1961. The grounds raised by the assessee challenged the order of the CIT (A) regarding the withdrawal of exemption u/s.54B amounting to ?14,78,092. The brief facts revealed that the assessee sold agricultural land and claimed exemption u/s.54B as he purchased new agricultural land. However, the AO disallowed the exemption as the new asset was sold within 3 years of purchase, not fulfilling the basic condition. The CIT (A) upheld the AO's decision, emphasizing that the gain from the sale of the original asset is taxable income. The Tribunal noted that the new asset being a non-capital asset was transferred within 3 years, leading to the consideration of its cost as nil for computing capital gain. The Tribunal justified the withdrawal of exemption as the basic conditions under section 54B were not met, irrespective of the nature of the new asset.

The assessee argued that the new asset being rural agricultural land, not a capital asset, should not affect the exemption claim under section 54B. However, the Tribunal held that the exemption withdrawal was justified as the new asset was sold within 3 years, rendering the cost as nil for capital gain computation. The Tribunal distinguished a previous case and emphasized that the nature of the new asset did not impact the withdrawal of exemption. The Tribunal concluded that the Lower Authorities were correct in withdrawing the exemption claim under section 54B due to the failure to satisfy the basic conditions stipulated. Consequently, the appeal of the assessee was dismissed, affirming the withdrawal of the exemption u/s.54B of the Income Tax Act, 1961.