Section 54B allowed only if consideration invested by the assessee and not by relative

 

Where assessee sold a land and purchased another agricultural land from the consideration received from sale of old land, exemption under section 54B shall be availed to the extent the consideration was invested by the assessee himself. Thus, purchase of agricultural land in name of wife of the assessee won’t allow section 54B relief. Section 54B allowed only if consideration invested by the assessee and not by relative.

Case: Commissioner of Income Tax vs. Dinesh Verma

 

Facts:

The assessee sold the land by an agreement dated 26-9-2005. The consideration received for the same was Rs. 60 Lakhs.

He purchased another immovable agricultural property within two years. For purchasing the agricultural land, assessee utilized Rs. 44,76,000 out of the sale proceeds of Rs.60 lakhs. The balance consideration of Rs.16,84,000 was paid by his wife.

 

The AO, during the assessment proceedings, held the gain to be a short-term capital gain. On this, appeal was made to the CIT (A) and thereafter the Tribunal. Both held in the favour of the assessee.

Higher appeal was made to the High Court.

 

Held:

Provision of Section 54B was highlighted:

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 new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under Section 45 as the income of the previous year; and 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 nil; or

 

ii)         If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under Section 45; and 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.

 

It was noted that in Section 54B does not refer to a short-term capital asset or a long-term capital asset. It merely refers to a capital asset.

 

When the present case in hand was put in the provision of section 54B, it was found that:

• the land sold by the assessee was a capital asset
• the capital asset was land
• during the two years immediately preceding the date on which the transfer took place, the land was being used by the assessee for agricultural purposes
• the assessee had within a period of two years after the sale, purchased another land for being used for agricultural purposes.

Out of the sale proceeds assessee invested only certain amount and the balance amount was paid by the assessee’s wife.

 

Section 54B requires the assessee to purchase the property from out of the sale consideration of the capital asset. It does not entitle the assessee to the benefit conferred therein if the subsequent property was purchased by a person other than the assessee.

 

Thus, it was concluded that assessee shall be entitled to the benefit of Section 54B on the basis that he invested only a sum of Rs.44,76,000 in the agricultural property purchased by him after the sale of the agricultural property earlier owned by him.

 

Hence, Section 54B allowed only if consideration invested by the assessee and not by relative.

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