2013 (1) TMI 545 - HC - Income Tax

Entitlement to exemption u/s 54B - Appellant had 1/4th share in 1.10 acres of land in Ayyanthole Village sold for Rs.44 lakhs on 14.11.2004 - Whether the subsequent purchase of land (at Koothattukulam) in which a farm house is situated satisfied the requirements of Section 54F and/or Section 54B and thus there was no liability to pay any long term capital gains tax on the sale of land at Ayyanthole, in the AY 2005-06 ? - Held that - Section 54F is intended to encourage construction of or acquisition of residential house with the aid of the proceeds from the transfer of any long term capital asset, which is not a residencial house. The provision contemplates computing the cost of the residential building, but the value of the plot on which the farm house stands and the land appurtenant could also be considered. The tribunal has categorically found that the appellant has not produced material to show that the entire area of 1.92 acres should be considered as land appurtenant to it. It is in such circumstances, the tribunal made an estimation and directed that the value of the plot on which the farm house is located and the land appurtenant be fixed as Rs. 2 lakhs. Thus unable to accept the contention of the appellant that the value of the entire land must be considered in arriving at the value of the residential building. No illegality committed by the tribunal. It is not open to the appellant to invoke Section 54B of the Act in regard to the rest of the land at Koothattukulam. This is for the reason that the appellant has not been able to satisfy the requirements of Section 54B with regard to the land at Ayyanthole as the appellant s late father had applied for sanction for construction of a compound wall before the Thrissur Urban Development Authority. The appellant had claimed in the return, exemption on the basis of Section 54F of the Act. But, during the assessment proceedings, the appellant relied on Section 54B of the Act. In other words, initially the appellant even did not have a case that the land at Ayyanthole was used for agricultural purposes. Therefore, at any rate, there can be no basis for invoking Section 54B for deducting the value of the land purchased at Koothattukulam - against assessee.

Summary

Issues Involved:
1. Applicability of Section 54B of the Income Tax Act to the sale proceeds of the land at Ayyanthole.
2. Determination of the cost of improvement of the land sold.
3. Compliance with the requirements of Section 54F and/or Section 54B concerning the subsequent purchase of land at Koothattukulam.

Issue-wise Detailed Analysis:

1. Applicability of Section 54B of the Income Tax Act:
The appellant claimed exemption under Section 54B, asserting that the land at Ayyanthole was used for agricultural purposes for two years prior to the sale. The tribunal and authorities found that the land was not used for agricultural purposes as required under Section 54B. The appellant presented photographs, water cess receipts, and a certificate from the village officer to support her claim. However, it was noted that these documents were either not produced at the appropriate time or were insufficient. The tribunal emphasized that the nature of the land's use, not its classification, was crucial. Despite the appellant's argument that irrelevant facts were considered, the court found no substantial evidence to overturn the tribunal's findings.

2. Determination of the Cost of Improvement:
The appellant contended that the cost of improvement should be determined at Rs. 3,50,000. However, no specific arguments were addressed regarding this issue during the proceedings. The tribunal's decision to limit the cost of acquisition to Rs. 2 lakhs, in addition to Rs. 1 lakh for the value of the super-structure, was upheld by the court.

3. Compliance with Section 54F and/or Section 54B for the Subsequent Purchase:
The appellant claimed exemption under Section 54F for the purchase of a farm house with 1.92 acres of land at Koothattukulam. The tribunal found that the appellant did not provide sufficient evidence to consider the entire area as land appurtenant to the residential house. Consequently, the tribunal estimated the value of the plot and land appurtenant at Rs. 2 lakhs. The court upheld this estimation, rejecting the appellant's contention that the entire value should be considered. Additionally, since the appellant failed to satisfy the requirements of Section 54B for the land at Ayyanthole, the court ruled that Section 54B could not be invoked for the land at Koothattukulam.

Conclusion:
The court dismissed the appeal, affirming the tribunal's findings and rejecting the appellant's claims under Sections 54B and 54F. The substantial questions of law raised by the appellant were answered against her, and no merit was found in the appeal.