9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (12) TMI 537 - HC - Income TaxLTCG - withdrawal of exemption u/s 54B - lock in period - sale of agriculture land - purchased a new agriculture land (not being a capital asset) - sale of new land within one year after purchase - Held that - After acquiring the new agricultural land (be it a rural agricultural land), if the new rural agricultural land is transferred within a period of three years from the date of purchase, then the tax exemption allowed earlier would be liable to be withdrawn. In such a case, the assessee is required to pay tax on the exemption claimed earlier. We fail to understand why lot of emphasis has been put on the fact that as the rural agricultural land does not constitute a capital asset, the capital gain tax is not levied on the sale of such rural agricultural land. There need not be any debate on this issue. No capital gains will arise on the sale of the agricultural land situated in a rural area as it is specifically excluded from the definition of the term 'capital asset'. However, the capital gains will arise on the sale of the agricultural land situated in a non-rural area. In the case on hand, we are concerned with the capital gains with respect to the first transaction, i.e. the sale of urban agricultural land. We are not concerned with the second transaction of the sale of the rural agricultural land. In such circumstances, after acquiring the new agricultural land (rural or urban), if the new agricultural land is transferred within a period of three years from the date of the purchase, then the tax exemption allowed earlier (i.e. with respect to the first transaction of sale or urban agricultural land) would be withdrawn. In such a case, the assessee would be required to pay tax on the exemption claimed earlier. Decided against the assessee.
Issues Involved
1. Interpretation and application of Section 54B of the Income Tax Act, 1961. 2. Conditions for claiming exemption under Section 54B. 3. Consequences of transferring the new asset within three years. 4. Taxability of capital gains on rural agricultural land. Detailed Analysis 1. Interpretation and Application of Section 54B of the Income Tax Act, 1961 The appellant contended that the Departmental Authorities misinterpreted Section 54B, which led to the denial of the exemption claimed. Section 54B is divided into two parts: the first part deals with the exemption of capital gains from the transfer of agricultural land (original asset), and the second part deals with the computation of gain from the transfer of agricultural land purchased to claim exemption (new asset). The relevant provisions of Section 54B were analyzed, including the conditions for exemption and the computation of capital gains if the new asset is transferred within three years. The court emphasized that the legislative intent behind Section 54B is to encourage the use of land for agricultural purposes and to provide tax benefits only if the new asset is held for a specified lock-in period. 2. Conditions for Claiming Exemption under Section 54B For claiming exemption under Section 54B, the following conditions must be met: - The original asset must be a capital asset used for agricultural purposes by the assessee or his parents for at least two years before its sale. - The capital gain must be invested in new agricultural land within two years from the date of sale of the original asset. - If the new asset is transferred within three years, the cost of acquisition for computing capital gains will be adjusted accordingly. The appellant argued that the new asset need not be a capital asset to claim exemption, which was contrary to the scheme of the Act. The court held that the new asset must be eligible for capital gains taxation to prevent misuse of the provisions. 3. Consequences of Transferring the New Asset within Three Years The court analyzed the consequences of transferring the new asset within three years of its purchase. If the new asset is transferred within three years, the cost of acquisition for computing capital gains is adjusted to nil or reduced by the amount of the capital gain, depending on whether the capital gain from the original asset was greater than or equal to the cost of the new asset. The court emphasized that the intent of Section 54B is to ensure that the new asset is held for a minimum period to avail the tax exemption. If the new asset is sold within three years, the tax exemption allowed earlier would be withdrawn, and the assessee would be required to pay tax on the exemption claimed earlier. 4. Taxability of Capital Gains on Rural Agricultural Land The appellant argued that since the new asset was rural agricultural land, it was not a capital asset, and no capital gains tax could be levied on its sale. The court clarified that while no capital gains arise on the sale of rural agricultural land, the issue at hand was the capital gains from the sale of the original urban agricultural land. The tax exemption on the original asset would be withdrawn if the new asset (rural or urban) is transferred within three years. The court concluded that the Assessing Officer and appellate authorities correctly interpreted Section 54B, and the appellant's interpretation would render the provisions redundant and contrary to legislative intent. Conclusion The court dismissed the appeal, holding that the appellant failed to meet the conditions for exemption under Section 54B. The question of law was answered in favor of the Revenue and against the assessee. The court emphasized the importance of adhering to the specified lock-in period for claiming tax exemptions under Section 54B.
|
