2007 (10) TMI 172 - HC - Income Tax

Land owned by assessee was acquired by the Govt. - assessee received the compensation on 12th of July, 1977 & purchased the agricultural land on 15th of May, 1977 - as per Sec.54B I T Act, the assessee isn t liable to pay capital gains as he has purchased the land within within 2 years from the date of receipt of compensation - further held that the tube wells, trees were parts of the land purchased so their value couldn t be deducted from the total investment made in impugned purchase

Summary

Issues Involved:
1. Determination of the date of transfer of the agricultural land.
2. Calculation of the period for exemption under Section 54B of the Income Tax Act.
3. Inclusion of tube wells and standing trees in the agricultural land purchase value.

Issue-wise Detailed Analysis:

1. Determination of the date of transfer of the agricultural land:
The Tribunal determined the date of transfer as 26th June 1977, which was when the possession of the land was taken by the State Government. The department argued that the transfer date should be 6th June 1977, the date of the notification under Section 6 of the Land Acquisition Act. The court upheld the Tribunal's finding, stating that the learned standing counsel for the department could not provide any evidence to support a different date. The court found that the Tribunal's finding was a fact-based determination and was not shown to be legally flawed.

2. Calculation of the period for exemption under Section 54B of the Income Tax Act:
The main contention was whether the two-year period for purchasing new agricultural land (to claim exemption from capital gains) should start from the date of transfer or the date of receipt of compensation. The court examined Section 54B (2) and concluded that the period should commence from the date of receipt of compensation. This interpretation aligns with the legislative intent to provide relief to assessees who reinvest their compensation in agricultural land within two years. The court emphasized that a literal interpretation of the word "transfer" could lead to absurd results, depriving assessees of the benefit due to delays in compensation payment. The court cited several precedents, including K.P. Varghese v. I.T.O., to support a rational and workable interpretation of the statute. Consequently, the Tribunal's decision that the period of two years starts from the date of receipt of compensation was upheld.

3. Inclusion of tube wells and standing trees in the agricultural land purchase value:
The department contended that the value of tube wells and standing trees should be excluded from the total investment in the agricultural land for the purpose of Section 54B. However, the Commissioner of Income Tax (Appeals) and the Tribunal both held that tube wells and trees are integral parts of the agricultural land and their value cannot be deducted. The court agreed, noting that the learned standing counsel failed to provide any evidence or argument to the contrary. Therefore, the value of tube wells and trees was rightly included in the agricultural land purchase value.

Conclusion:
The court answered all three questions in favor of the assessee and against the department. The date of transfer was confirmed as 26th June 1977, the period for exemption under Section 54B starts from the date of receipt of compensation, and the value of tube wells and trees is included in the agricultural land purchase value. No order as to costs was made.