Deduction under section 54B for purchase of agricultural land upheld where agreement to sell involved payment and possession

Clarifies that for claiming deduction on reinvestment in agricultural land, a transaction effected by an agreement to sell qualifies as a purchase where consideration is paid (cheques) and possession is obtained, because "purchase" must be read in conjunction with the statutory definition of "transfer"; consequently the purchaser acquires the consequential right to the deduction if otherwise eligible, and the revenue must allow the deduction in such circumstances.

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Issues:
Denial of deduction u/s 54B of the Income-tax Act in relation to the investment in agricultural land.

Analysis:
The appellant appealed against the order of the Commissioner of Income Tax (Appeals)-3, challenging the denial of deduction u/s 54B of the Act for investment in agricultural land. The appellant sold land during the relevant year and claimed deduction for the purchase of agricultural lands. The Assessing Officer allowed deduction for one land but questioned the deduction claimed for another land, as it was through an agreement to sell and not a registered deed. The appellant explained the circumstances, stating that full payment was made through cheques, possession was received, and legal obstacles prevented registration. The Assessing Officer rejected the explanation, emphasizing the need for a registered sale deed for property purchase.

The appellant's contention was that registration of the sale deed is not mandatory for claiming deduction u/s 54B. The appellant cited various court decisions supporting this argument. The Authorized Representative reiterated that the appellant was unaware of the Stay Order during the transaction, justifying the non-registration. The Departmental Representative, however, supported the lower authorities' findings.

After considering the arguments, the Tribunal analyzed the legal aspects. Referring to Supreme Court judgments, it highlighted that the transfer is complete upon executing an agreement to sell, entitling the appellant to claim deduction u/s 54. The Tribunal emphasized that the word 'purchase' should not be detached from the definition of 'transfer.' Therefore, if the transferor incurs tax liability, the transferee is eligible for deduction upon purchase. Consequently, the Tribunal directed the Assessing Officer to allow the deduction for the property in question.

In conclusion, the Tribunal allowed the appeal, directing the Assessing Officer to grant the deduction u/s 54B for the property purchase. The judgment was pronounced on 27.09.2017.

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