TaxTMI 
TaxTMI 
2019 (12) TMI 537
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.... memo of the Appeal, are as follows : "The appellant 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 inco....
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....the appellant-assessee, has tendered his written submissions. The written submissions are as under : "A. Interpretation 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 chargi....
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....rder to claim the exemption u/s. 54B of the act, the New Asset must be a Capital Asset and since the Appellant sold the New Asset within 3 years from the date of purchase, exemption under Section 54B is to be withdrawn. The Appellant respectfully submits 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 ....
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....ithawala, reported at [2014] 50 taxmann.com 39 (Madhya Pradesh), the Hon'ble Madras High Court has also observed that the Land was situated outside 8 kms from municipal limit in terms of approach by road, the same would be entitled for deduction under section 54B. 3. The Appellant respectfully submits that in Bharat's Taxation on Capital Gains, 7th Edition 2010, written by Dr.Girish 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 ....
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..... Mr.Bhatt submitted that the principal argument canvassed on behalf of the assessee that if the agricultural land acquired by the assessee is rural agricultural land, there will be no capital gain even if it is sold within three years, because the rural agricultural land is not a 'capital asset', is without any merit. According to Mr.Bhatt, if such argument is accepted, it will render Section 54B practically otiose. To put it in other words, 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 ther....
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....would arise from the transfer of capital asset. 13. Section 45 of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 33, 54 and 54B, be chargeable to the income-tax under the head 'capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. Section 2(14)(iii) defines what is meant by 'capital assets' and it says that 'capital assets' means property of any kind held by an assessee 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 ....
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....al asset at the time of the compulsory acquisition, the amount thus received would be considered for ascertaining the profits or gains arising from the transfer of its capital asset and by virtue of Section 45 it would be deemed to be the income of the previous year in which the transfer took place. Under Section 47 of the Income-tax Act nothing contained in Section 45 applies to the various types of transfers mentioned in Section 47 and by clause (viii), which was introduced by Act 19 of 1970, any transfer of the agricultural land in India effected before the 1st day of 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....
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....amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of two years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid." 16. Section 54B provides for exemption in respect of capital gains accruing on transfer of land which was being used for the agricultural purposes by the assessee or his parents for a period of two years provided the assessee has purchased any other agricultural land within a period of two years from the date of such transfer. 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 dat....
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....he new asset for a period of 3 years and more than that. In the present case it is undisputed fact that the new asset was transferred before completion of 3 years from the date of its purchase. Thus the basic condition to avail the exemption has not been fulfilled by the assessee. There is no relevance of the fact that the new asset was capital asset or non-capital asset. The assessee was to hold the asset for more than 3 years to claim the exemption. (ii) The provision of section 54B(ii) clearly stipulates that if the new asset is transferred before 3 years of its purchase the capital gain is worked out after deducting the exemption out of such gain so benefited on the transfer of old asset. This 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 provi....
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....gain tax. The assessee's interpretation flouts the well accepted rule that the Act must be read as a whole to make a consistent enactment of the whole statute - not in parts." 22. The CIT(A) took the view as under : "(ii) From the reading of above provisions it is clear that if assessee has earned capital gain on sale of capital asset which was used for agricultural purpose in last two immediate preceding years, then assessee is entitled for claiming exemption from capital gain tax if the sale consideration is utilized for making investment in another land being used for agricultural purposes. agricultural purposes. Therefore, it is clear that the first capital gain arising to the appellant on account of sale of "original asset" constitute taxable income. 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 ....
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.... on account of purchase of new asset. However, the new asset being a non-capital asset has been transferred within the period of 3 years i.e. 25.07.2005. Therefore, the cost of new asset for computing the capital gain u/s.45 of the Act would be considered as nil as per provisions of section 54B(1)(2) of the Act. Since the assessee has not satisfied the basic condition to avail the exemption u/s.54B(1) of the Act as the new asset is transferred before 3 years of its purchase, the capital gain is worked out after deducting the exemption out of such gains so benefited on the transfer of old asset. This, further stipulates that there should be a capital gain of transfer of such land, hence the assessee has invested in his land it will not be further taxable to capital gain as the land is rural agricultural land, 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 exempt....
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.... 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. 5. 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. 6. 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 agr....