Section 54B of the income tax Act, 1961 — Exemption — After acquiring the new agricultural land (rural or urban), if the new agricultural land is transferred within a period of three years from the date of the purchase, then the tax exemption allowed earlier (i.e. with respect to the first transaction of sale of urban agricultural land) would be withdrawn. In such a case, the assessee would be required to pay tax on the exemption claimed earlier.[2020] 53 ITCD 42 (GUJ)
Facts: The asssessee is an individual being regularly assessed to tax by the income tax office at Rajkot. The assessee is having income from business of petrol pump and income from other sources for the year under consideration.Assessee 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 assessee on 15.09.2009 during the course of which certain material was found and impounded. The statements of the assessee 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 10.06.2010 was issued on the assessee requiring him to file return of income. The assessee 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 assessee at
' 22,50,445/- and agricultural income (for rate purpose) at Rs. 1,82,370/-. The Assessing Officer has made addition of Rs. 14,78,092/- on account of long term capital gain on sale of agriculture land by withdrawing exemption u/s 54B. During the year under consideration, the assessee sold his agriculture land (being a capital asset) situated at Raiya Survey No. 312 on 01.12.2003 for a consideration of Rs. 20,00,000/- and accordingly, long term capital gain arising on sale thereof was chargeable to tax. The assessee however, claimed exemption u/s 54B from the Long Term Capital Gain arising on sale of aforesaid capital asset as he purchased a new agriculture land (not being a capital asset) situated at Survey No. 412, Khirsara on 04.10.2004 for a consideration of Rs. 15,00,000/-. During the course of assessment proceedings, the Assessing Officer observed that the assessee has subsequently sold the new asset vis. agriculture land at Khisara on 27.05.2005 i.e. within the period of three years from its purchase and accordingly, he asked the assessee to show cause as to why the exemption on capital gain should not be disallowed as per provisions of section 54B(ii). In response, the assessee vide letter dated 06.10.2010 filed his reply to the above show cause notice. However, the Assessing Officer was not satisfied with the reply furnished by the assessee and therefore, he made an addition of Rs. 14,78,092/- disallowing the exemption u/s 54B of the Income Tax Act, 1961 claimed by the assessee as long term capital gain to the income of the assessee for the year under consideration.”The assessee, being dissatisfied with the order passed by the Assessing Officer, preferred an appeal before the CIT(A). The CIT(A) dismissed the appeal and thereby affirmed the order passed by the Assessing Officer. The assessee, being dissatisfied with the order passed by the CIT(A), preferred further appeal before the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot.
The Appellate Tribunal, by the impugned order, dismissed the appeal and thereby affirmed the order passed by the CIT(A).
Being dissatisfied with the order passed by the Appellate Tribunal, the assessee is here before this Court with the present Tax Appeal.
Held, that the Assessing officer and the appellate authorities have properly analyzed the provisions of Section 54B as also the factual aspects. In the event, the assessee seeks the benefit of Section 54B, the requirement is that the assessee, upon the sale of agricultural land is required to purchase within a period of two years therefrom, any other land for being used for agricultural purposes (be it rural or urban agricultural land). If these conditions are complied with, the capital gain is required to be dealt with in accordance with clause (i) or (ii) of Section 54B(1) as the case may be. As per Clause (i), if the capital gain is more than the cost of the new asset, the difference between these two is to be charged under Section 45 as the income. This completes the first part of computation. After the words “.....income of the previous year”, the significant words are “and for the purpose of computing in respect of the new asset. ...”. The second part of the computation is when the new asset is transferred within a period of 3 years of its purchase. In this eventuality, as per the section 48 of the Act, the cost of acquisition is to be treated as NIL and the entire sale consideration will be taken for the purpose of computing the capital gain. Thus, the word 'and' postulates the computation of capital gain if the new asset is sold within a period of three years. This does not alter the computation in the first part. Similarly, as per clause (ii), the computation has to take place if the amount of capital gain is equal to or less than the cost of the new asset, in that case the capital gain is not required to be charged under Section 45. Even in this clause after the first part, 'and' postulates the above referred situation of the new asset being sold within 3 years of its purchase. The legislative intent as can be gathered from Sections 54 to 54GB is that upon a capital gain arising and in the event the consideration/gain 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. 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 gain at the time of transfer of new agricultural land, the amount of capital gain which had been claimed as exemption under section 54B would be deducted from the cost of acquisition of new agricultural land and the new capital gain would be computed accordingly. We fail to understand why lot of emphasis has been put on the fact that as the rural agricultural land does not constitute a capital asset, the capital gain tax is not levied on the sale of such rural agricultural land. There need not be any debate on this issue. No capital gains will arise on the sale of the agricultural land situated in a rural area as it is specifically excluded from the definition of the term 'capital asset'. However, the capital gains will arise on the sale of the agricultural land situated in a non-rural area. In the case on hand, we are concerned with the capital gains with respect to the first transaction, i.e. the sale of urban agricultural land. We are not concerned with the second transaction of the sale of the rural agricultural land. In such circumstances, after acquiring the new agricultural land (rural or urban), if the new agricultural land is transferred within a period of three years from the date of the purchase, then the tax exemption allowed earlier (i.e. with respect to the first transaction of sale or urban agricultural land) would be withdrawn. In such a case, the assessee would be required to pay tax on the exemption claimed earlier. The other contention of the assessee that the capital gain is required to be taxed in A.Y. 2006-07 is also wholly untenable. The charge of capital asset is on the transfer effected on 01.12.2003 for which the relevant year is A.Y. 2004-05. The charge is not in respect of the transfer of the new asset.
In view of the aforesaid discussion, we have reached to the conclusion that no error, not to speak of any error of law, could be said to have been committed by the Appellate Tribunal in passing the impugned order.