1992 (2) TMI 178 - AT - Income Tax

Summary

Issues Involved:
1. Classification of capital gains as short term or long term.
2. Eligibility for relief u/s 54B of the Income-tax Act, 1961.

Summary:

Issue 1: Classification of Capital Gains
The Income Tax Officer (ITO) classified the capital gains from the sale of agricultural land at Anandwalli as short term capital gains, arguing that the land was held for less than 36 months. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this classification, relying on the judgment of the Bombay High Court in CIT v. Smt. R.R. Sood, which emphasized legal ownership as evidenced by the registration of the conveyance deed. The CIT(A) concluded that the land was a short term capital asset because the legal title was held for less than 36 months.

Issue 2: Eligibility for Relief u/s 54B
The CIT(A) denied relief u/s 54B, stating that the new agricultural lands were not purchased within two years after the date of sale, as required by the section. The CIT(A) noted that investments were made before the date of transfer and that the conveyance deeds for the new lands were not registered, thus failing to confer legal ownership.

Tribunal's Findings:
1. Capital Gains Classification: The Tribunal emphasized the significance of the term "held" in the definition of short term capital asset, which includes physical possession and control. It concluded that the land was a long term capital asset, as the assessee had possession for more than 36 months.

2. Relief u/s 54B: The Tribunal referred to the Board's Circular No. 359, which allows for the consideration of earnest money or advances as part of the sale consideration for the purpose of relief u/s 54E. Applying this logic to section 54B, the Tribunal held that investments made before the date of transfer should also qualify for relief. The Tribunal also cited the Andhra Pradesh High Court's decision in CIT v. Mrs. Shahzada Begum, which held that obtaining domain and control over the property within the specified period is material, and delay in registration is immaterial.

Conclusion:
The Tribunal reversed the CIT(A)'s order, directing the ITO to grant relief u/s 54B for the total investment of Rs. 8,21,471 made in new agricultural lands. The appeal was allowed.