2019 (7) TMI 991 - HC - Income Tax

Deduction u/s 54F denied - premise that the land in question was not transferred within the stipulated period as provided u/s 54F - the agreement to sell would extinguish the rights in the property and fall under definition of the term 'transfer' u/s 2(47)(ii) - HELD THAT - The Income Tax Act gives a precise definition to the term 'transfer'. Section 2(47)(ii) talks about extinguishment of rights. The Supreme Court, in Sanjeev Lal's case 2014 (7) TMI 99 - SUPREME COURT , is very clear that an agreement to sell would extinguish the rights and the same would amount to transfer within the meaning of Section 2(47). We are of the opinion that the Appellate Tribunal was not right in law in confirming the order of the CIT(A) denying the deduction u/s 54F on the premise that the land in question was not transferred within the stipulated period as provided u/s 54F Section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in the form of a residential house. Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted. Deduction u/s 54B - land in question was non-agricultural and the exemption u/s 54B is available only to an agricultural land - HELD THAT - Agreement to sell was invalid on account of breach of Section 63 of the Bombay Tenancy Act, but it is a settled position of law that an invalid transaction would remain valid unless it is declared to be invalid by the competent authority under the provisions of the Bombay Tenancy Act. It is axiomatic under the Bombay Tenancy and Agricultural Lands Act that when permission is granted by the authorities concerned for sale of agricultural land to a non-agriculturist, the land does not cease to be an agricultural land merely because of such permission being granted. If the conditions of the permission are not complied with, the land in respect of which permission was granted u/s 63 would revert to its original character of agricultural land. On one hand, the Revenue authorities say that the agreement to sell was invalid as it was between an agriculturist and a non-agriculturist and such agreement could not have been executed in favour of the purchaser, being a non-agriculturist, without the permission of the competent authority. However, ultimately when the permission came to be granted by the authority despite such agreement to sell and when the assessee herein transferred the land, the Revenue authorities now say that the said land was non-agricultural and, therefore, the assessee is not entitled to claim exemption u/s 54B. As emphasized in the case of Manilal Somnath 1976 (3) TMI 41 - GUJARAT HIGH COURT mere granting of the permission u/s 63 does not alter the agricultural character of the land, and on that aspect of the matter, we are of the opinion that the Tribunal has obviously erred in law. We are of the view that the second question with respect to Section 54B should be re-looked by the Tribunal in light of what has been observed by us, more particularly, the decisions referred to by us of this Court. - Tax Appeal is partly allowed.

Summary

Issues Involved:
1. Deduction under Section 54F of the Income Tax Act, 1961.
2. Deduction under Section 54B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deduction under Section 54F of the Income Tax Act, 1961:

The primary issue was whether the assessee was entitled to a deduction of ?40,74,793 under Section 54F of the Act. The Assessing Officer disallowed the exemption on the grounds that the residential house was purchased beyond the stipulated time frame. The transfer of the land took place on 03/07/2012, but the house was purchased on 22/04/2010, which was beyond the one-year period before the transfer date as required by Section 54F. The CIT(A) and ITAT upheld this decision, emphasizing that the conditions of Section 54F were not met.

The assessee argued that the agreement to sell dated 13/08/2010 should be considered the transfer date, aligning with the Supreme Court's decision in Sanjeev Lal v. CIT, which held that an agreement to sell creates a right in personam and extinguishes the vendor's rights, thus constituting a transfer under Section 2(47) of the Act. The High Court agreed with this interpretation, stating that the Revenue authorities erred in distinguishing the Sanjeev Lal case on facts. The Court emphasized that Section 54F is a beneficial provision and should be liberally construed. Consequently, the High Court ruled in favor of the assessee, allowing the deduction under Section 54F.

2. Deduction under Section 54B of the Income Tax Act, 1961:

The second issue was whether the assessee was entitled to a deduction of ?26,74,283 under Section 54B of the Act. The Assessing Officer denied the exemption, stating that the land sold was non-agricultural at the time of transfer, and Section 54B applies only to agricultural land. The CIT(A) and ITAT upheld this decision, noting that the sale deed explicitly mentioned the land as non-agricultural.

The High Court noted that the legal position regarding when land can be considered agricultural land has been clarified in several judgments. The Court highlighted that the mere granting of permission to convert land for non-agricultural use does not alter its agricultural character. The Court found that the Revenue authorities confused the provisions of Section 43 and Section 63 of the Bombay Tenancy and Agricultural Lands Act. It emphasized that an invalid transaction remains valid unless declared invalid by a competent authority.

The High Court concluded that the issue regarding Section 54B was not properly considered and required a re-examination. The Court remitted the matter back to the Tribunal to reconsider the issue in light of the legal principles discussed.

Conclusion:

1. The High Court ruled in favor of the assessee regarding the deduction under Section 54F, allowing the exemption.
2. The matter regarding the deduction under Section 54B was remitted back to the Tribunal for reconsideration.