Agricultural land sale and s.54B capital gains exemption: evidence of farm use upheld; revenue challenge dismissed on appeal.

The dominant issue was entitlement to exemption under s.54B for capital gains on sale of land, specifically whether the statutory condition requiring use of the land for agricultural purposes was satisfied. The HC held that s.54B relief is available on transfer of a capital asset being land, and the Department could not, without evidence, dispute agricultural use after assessing income; in any event, the Tribunal's finding that the land was used for agricultural purposes was supported by cogent material and revenue records. Consequently, objections that the land lay in a commercial area, was partly put to non-agricultural use, or was purchased for non-agricultural purposes were irrelevant. The appeal was dismissed in limine as raising no substantial question of law.

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Issues: Whether the assessee is entitled to exemption under section 54B of the Income-tax Act, 1961 in respect of capital gain arising from sale of land, having regard to whether the land was used for agricultural purposes in the two years immediately preceding the transfer and whether the purchase of other agricultural land within two years satisfies section 54B.

Analysis: Section 54B requires (i) that the capital gain arises from transfer of land which, in the two years immediately preceding the date of transfer, was being used by the assessee or a parent for agricultural purposes; and (ii) that the assessee has purchased other land within two years after the transfer for being used for agricultural purposes. The factual materials include registered deeds, khasra/girdawari records, declared agricultural income in returns for the relevant preceding years, and departmental records showing agricultural operations (poplar plantation, kharif crops). These materials constitute cogent and relevant evidence that agricultural operations were carried out on the land in the two years preceding the sale. Factors such as the land's location within municipal/commercial limits, past partial non-agricultural use by co-owners, or subsequent non-agricultural use by vendees do not negate compliance with the statutory conditions of section 54B once the two statutory conditions are factually satisfied.

Conclusion: The conditions of section 54B are fulfilled and the assessee is entitled to exemption under section 54B; the Revenue's appeal is dismissed and the Tribunal's acceptance of the section 54B claim is upheld.

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