1992 (1) TMI 199 - AT - Income Tax

High Court Income From Business Interest On Excess Collection Mercantile System Sugar Manufacturing Company Supreme Court Writ Petition

Summary

Issues:
- Capital gains tax on transfer of agricultural lands
- Exemption under section 54E of the Income-Tax Act, 1961

Analysis:

Capital Gains Tax on Transfer of Agricultural Lands:
The appeals by the revenue and the cross objections by the assessee were consolidated and disposed of as they involved common issues related to the assessment year 1979-80. The CIT(Appeals) held that capital gains tax is not leviable on the transfer of agricultural lands. The original assessment treated the lands as non-agricultural, denying exemption under section 54E. The Tribunal, in a previous appeal, highlighted the importance of ascertaining the character of the land, referencing the case of Manubhai A. Sheth. The fresh assessment by the ITO reiterated that the land was not agricultural, thus taxable for capital gains on sale.

Exemption under Section 54E:
Regarding exemption under section 54E claimed by the assessee, the ITO held that the fixed deposit should have been made within six months from the date of transfer, a condition not met by the assessee. The CIT(Appeals) maintained that the land sold was agricultural, citing the judgment in the case of Manubhai A. Sheth. The CIT(Appeals) concluded that no capital gains on the transfer of agricultural lands were leviable, exempting the surplus from capital gains. However, the revenue disputed this finding, citing a different judgment and amendments in the statute law, arguing that the land was not used for agricultural purposes for a reasonable span of time.

Conclusion:
The Tribunal, after considering the rival submissions and the judgments of the Andhra Pradesh and Kerala High Courts, held that the assessee was entitled to exemption under section 54E(1) of the Income-tax Act, 1961. The investment in specified assets was made within six months from the date of compensation receipt, making the assessee eligible for the exemption. The appeals of the revenue were allowed, while the cross objections by the assessees succeeded, granting them exemption under section 54E(1) of the Income-tax Act, 1961 for investments made within the specified period from the date of compensation receipt.