9911796707
TMI Blog2019 (12) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... t is an individual being regularly assessed to tax by the income tax office at Rajkot. The appellant is having income from business of petrol pump and income from other sources for the year under consideration. The appellant filed its original return of income u/s 139(1) on 29.10.2004 declaring total income at Rs. 3,96,470/- and agricultural income (for rate purpose) of Rs. 1,82,370/-. There was a search action u/s 132 of the Income Tax Act, 1961 at the premises of the appellant on 15.9.2009 during the course of which certain material was found and impounded. The statements of the appellant were also recorded u/s 132(4) during the course of search action as well as u/s 131(1A) during post search. A notice u/s 153A dated 10.6.2010 was issued on the appellant requiring him to file return of income. The appellant filed his return of income in response to notice u/s 153A on 16.7.2010 declaring total income of Rs. 7,72,353/- and agricultural income (for rate purpose) of Rs. 1,82,370/-. The Assessing Officer has finalized the assessment u/s 153A(a) on 28.12.2011 determining total income of the appellant at Rs. 22,50,445/- and agricultural income (for rate purpose) at Rs. 1,82,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Section 54B : 1. The Appellant respectfully submits that the Departmental Authorities have made a gross error in misinterpreting the provisions of Section 54B, thereby denying the exemption claimed by the Appellant. 2. The Appellant respectfully submits that section 54B of the Income-tax Act, 1961 is divided into 2 parts. First part deals with the exemption of capital gains from transfer of Agricultural Land (Original Asset) and conditions thereto and Second part deals with the computation of gain from transfer of Agricultural Land purchased to claim exemption u/s. 54B of the act (New Asset). Thus the First part deals with transfer of the Original Asset and the second part deals with transfer of the New Asset. 3. The Appellant respectfully states that w.r.t the First Part i.e. Exemption of capital gain from transfer of agricultural land (Original Asset), there are several conditions, the conditions are as under: a. The Original Asset must be capital asset. If it is not the capital asset there is no question of charging tax thereon as no capital gain is attracted on non-capital asset. b. The Original Asset must be used for agricultural purpose by the assessee or his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the finding of the Assessing Officer that the New Asset sold has to be a Capital Asset (para 3 of the Assessment order @ pg. 20) is contrary to the scheme of the Act because as per Section 54B of the Act, the Assessee is required to purchase a New Agricultural Land. The Section does not state that the New Land has to be a Capital Asset. 7. The Appellant respectfully submits that in view of the provisions of section 54B of the act, the working of the gain would be as under: Sl. Particulars AY 2004-05 AY 2006-07 A. Capital Gains for Original Asset: 1. Sale Price of Original Asset Less : Cost of acquisition of Original Asset 20,00,000/- 5,21,908/- 2. Capital Gain 14,78,092/- 3. Exemption u/s.54B to the extent Cost of New Asset 15,00,000/- 4. Capital gain chargeable to tax Nil B. Capital Gains for New Asset : 5. Sale Price of New Asset Less: Cost of acquisition of New Asset Add: Exemption claimed on transfer of Original Asset 15,00,000/- 15,00,000/- 14,78,092/- 6. Gain 14,78,092/- 8. Thus, the Capital Gains is worked out at Rs. 14,78,092/- for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish Ahuja and Dr.Ravi Gupta, it has been observed that if the agricultural land acquired by the assessee is a rural agricultural land, there will be no capital gain even if it is sold within a period of 3 years because rural agricultural land is not a 'Capital Asset'. (@ pg 282). In Sampath Iyengar's Law Of Income Tax, 12th Edition, 2016, it is stated that where the land is situated outside the notified periphery of 8 kms, capital gains thereon would not be assessable at all, so that the question of applicability of Section 54B should not arise. (@ pg 6073). 4. The Appellant therefore submits that since the land in the present case does not fall within the definition of Section 2(14), capital gains cannot be charged on the same. 5. The Appellant further relies on Section 2(47), where in 'transfer' has been defined under the Act. The Appellant submits that transfer is always in relation to a capital asset, and when the asset is a non-capital asset, capital gains cannot be charged on the transfer of a non-capital asset. 6. The Appellant respectfully states that even as per Section 45 of the Act, any profits or gains arising from the transfer of a capital asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, according to Mr.Bhatt, the entire object of exemption as provided under Section 54B of the Act would get frustrated. Mr.Bhatt laid much stress on the fact that one of the objects of the exemption under Section 54B of the Act was stated to be to encourage cultivation or actual utilization of land for the agricultural purposes. According to Mr.Bhatt, an assessee would sell his urban agricultural land, and then, for the purpose of capital gains, would invest in a new asset which may not be a capital asset being agricultural land in rural area, and immediately thereafter sells the new asset, then the very intent and purpose of the beneficial provision would be lost. 9. In such circumstances referred to above, Mr.Bhatt prays that there being no merit in the submissions canvassed on behalf of the assessee, the Appeals may be dismissed and the question of law as formulated may be answered in favour of the Revenue and against the assessee. ANALYSIS : 10. Before adverting to the rival submissions canvassed on either side, we may look into few relevant provisions of the Income Tax Act, 1961. Section 2(14)(iii) of the Act reads as follows : "2. In this Act, unless the context otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whether or not connected with his business or profession, but does not include various types of properties. Till the amendment by Act 19 of 1970, that is, till April 1, 1970, the agricultural land in India was not included within the definition of 'capital assets' and, therefore, any capital gains arising from the transfer of the agricultural land was not capital gains for the purposes of Section 45 and could not be deemed to be the income of the previous year. It may be noticed that at the time when the proposed amendment was introduced by the Finance Bill, 1970, it was pointed out that it was proposed to extend the levy of the income-tax to the capital gains arising from the transfer of the agricultural lands situated in the urban areas. The Memorandum explaining the provisions of the Finance Bill, 1970, pointed out in paragraph 24 : "Presently, capital gains arising from the transfer of a capital asset are chargeable to income-tax. The definition of 'capital asset' excludes from its scope, inter alia, agricultural land in India. Accordingly, no liability to tax arises on gains derived from transfer of agricultural land in India. This exemption of agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 1970, is not a transfer of a capital asset for the purposes of capital gains. Analysis of Section 54B of the Income Tax Act, 1961. 15. Section 54B of the Act reads as follows : "54B. Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases.- (1) [Subject to the provisions of sub-section (2), where the capital gain arises] from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee being an individual or his parent, or a Hindu undivided family for agricultural purposes (hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,- (i) if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scheme of Section 54B 17. Section 54B provides for the exemption in respect of the capital gains arising to an assessee on the transfer of the land used for the agricultural purposes. The exemption is subject to certain conditions as to use of land and acquisition of land. Further, the amount of exemption depends upon the fact, whether the cost of new land is greater or less than the amount of capital gains. The assessee is also provided with an option to deposit the amount of gain remaining unutilised in capital gains account scheme before the due date for furnishing return of income to be utilised from acquisition of new asset within the specified period. Conditions precedent for exemption. 18. With a view to availing of the benefits of this section the following conditions are required to be fulfilled : (i) The gain should arise from transfer of a capital asset being land. (ii) The land transferred should have been used by the assessee or his parents for at least two years immediately before the transfer for agricultural purposes. (iii) The assessee should purchase, within a period of two years after the date of transfer, other land for being used for agricultural pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further stipulates that there should be a capital gain on transfer of such land. Hence the assessee has invested in a land which will not be further taxable to capital gain as the land is rural agricultural land, which is not a capital asset. (iii) It is important to mention that the assessee has merely made a literal interpretation of the provisions of section 54B, ignoring the rules of interpretation prescribed by Hon'ble Courts. The section provides for investment in new asset and holding it for three years by the assessee. It further provides that for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain. This, apparently, implies that the new asset has to be an eligible asset transfer of which could be subjected to charging of capital gain. This is not possible if the new asset is an asset transfer of which is exempt from charging of capital gain. In other words, even if the new asset is sold within a period less than the stipulated period there would not arise any capital gain because of it being exempt from such taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. Normally, the assessee is required to pay capital gain tax on such capital gains earned on sale of capital assets used for agricultural purpose. However, with an intention to encourage investment in land being used for agricultural purposes, the legislature has provided this exemption u/s 54B of the Act. (iii) The AO has rightly noted that if the assessee has sold the "new asset" within three years of the date of purchase then he is required to pay the taxes on the gains arising from transfer thereof. (iv) If the assessee's are given liberty to invest in agricultural land, which is not capital asset, the gains arising from transfer of chargeable capital asset then, if the contention of the appellant is accepted, this would make the provisions redundant as all the assessee's would convert their taxable gain into non-taxable capital gain by misusing the provisions of section 54B of the Act. Clearly this interpretation is against the legislative intent. As per the provisions, if the new asset is transferred within three years of its purchase then the assessee is supposed to disclose capital gain on this transaction by taking cost of new asset at 'NIL'. (v) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not a capital asset. We also find that the basic condition to avail the exemption has not been fulfilled by the assessee, therefore there is no relevance of the fact that new asset was capital asset or non-capital asset. Further, there is no specific provision in section 54B of the Act as mentioned in section 54F(3) of the Act. Therefore, the withdrawal of exemption would be made in respect of long term capital gain chargeable on old assets sold during the relevant assessment year. The decision in the case of DCIT vs. Kaushalya Devi (supra) has already been distinguished by the CIT(A) as in that case the AO sought to tax the capital gain arising on transfer of new asset in the year in which the new asset was transferred. Therefore, the Tribunal has come to a finding that new asset so transferred is not a capital asset, hence no capital gain chargeable on the same. In view of these facts, we are of the considered opinion that the Lower Authorities have justified in withdrawing the exemption claim u/s.54B of the Act as basic conditions stipulated u/s.54B(1)(2) has not been satisfied. Therefore, this grounds of appeal of the assessee are dismissed." 24. Our final conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain is invested and kept in for a lock-in period, the assessee would get the benefit and not otherwise. The lock-in period is different in these sections. In the event the assessee's contention is accepted, the very intent and purpose of these beneficial provisions will be defeated. An assessee would sell an agricultural land, invest in a new asset which is not a capital asset (in the instant case agricultural land in rural area which is not exigible to capital gain tax) and sell the new asset immediately thereafter, and in such process, would render Section 54B of the Act otiose. The entire object of asking the assessee to hold the land for a particular period would be frustrated. 7. 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. The consequences on transfer of the newly acquired agricultural land (be it urban or rural) within a period of three years is that, while computing capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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