1980 (4) TMI 193 - AT - Income Tax

Summary

Issues:
- Entitlement to relief under section 54B of the Income Tax Act, 1961.
- Interpretation of conditions under section 54B regarding the use of agricultural lands for agricultural purposes.
- Consideration of land ownership and possession in the context of claiming relief under section 54B.

Analysis:
The appeal before the Appellate Tribunal ITAT Madras-B involved the question of whether the assessee was entitled to relief under section 54B of the Income Tax Act, 1961. The assessee, an individual, had received agricultural lands on partition in May 1974, which were later acquired by the Government in February 1975. Subsequently, the assessee purchased other agricultural lands with the compensation received and claimed set off against the capital gains arising from the initial acquisition. The Income Tax Officer initially denied the relief, stating that the assessee did not hold the old lands for two years preceding the transfer or use them for agricultural purposes. However, the Appellate Assistant Commissioner (AAC) found that the lands acquired by the government had been used for agricultural purposes by the assessee and his father, thereby granting the relief.

The main objection raised by the Revenue was that since the lands were held by a Hindu Undivided Family (HUF) before the partition, they could not be considered or used by the assessee or his parent as required by section 54B. The Revenue relied on a previous decision in Shri Gopal Rameshwardas. On the contrary, the assessee argued that all conditions under section 54B had been fulfilled, entitling him to the relief claimed.

Upon careful consideration, the Tribunal found no merit in the Revenue's appeal. Section 54B allows for a reduction in capital gains if the land was used for agricultural purposes by the assessee or a parent in the two years preceding the transfer, and a new land was purchased for agricultural use within two years. The Tribunal emphasized that the key requirement was the actual use of the land for agricultural purposes, irrespective of ownership structures such as HUF. The Tribunal rejected the Revenue's contention that the joint ownership by the assessee and his father should be ignored, highlighting that the section only necessitates actual agricultural use by the assessee or parent.

The Tribunal concluded that the relief under section 54B was correctly granted by the AAC, as the assessee and his parent had actively cultivated the lands for the required period. Therefore, the Tribunal dismissed the appeal, affirming the AAC's order. This judgment clarifies that the focus under section 54B is on the actual agricultural use of the land by the assessee or parent, rather than technical ownership structures like HUF.