Capital gains tax on registration of new agricultural land
As per section 54B of the Income-tax Act, 1961 Capital Gain arising on transfer of agricultural land which was used for agricultural purposes will not be charged to Capital Gain specially if the gain amount is invested in buying new agricultural land.
March 14, 2012 / 21:13 IST
Subhash Lakhotia
As per section 54B of the Income-tax Act, 1961 Capital Gain arising on transfer of agricultural land which was used for agricultural purposes will not be charged to Capital Gain specially if the gain amount is invested in buying new agricultural land. Taking advantage of this provision of the law a large number of tax payers who sell their agricultural land can take advantage of doing away of Capital Gains on selling such land more particularly if they make the investment in buying another agricultural land. An important matter on this aspect came up before the Punjab and Haryana High Court in the case of CIT v. Gurnam Singh 327 ITR 278. In this case the assessee was an illiterate agriculturist. During the search which was conducted in business premises of M/s S.S. Property Dealer on July 15, 1998, an agreement to sell dated March 26, 1997 was seized. The said agreement revealed that Gurnam Singh (respondent) sold 60 kanals of agricultural land situated in village Bhamia Kalan to one Sukhdev Singh. The amount of Rs.5,00,000 was obtained by him as earnest money. The Assessing Officer on the basis of said agreement initiated the proceedings under section 158BD of the Act by giving notice to show cause why the respondant had not paid the capital gains tax on the sale of the said agricultural land. The Assessing Offficer, vide order dated June 28, 2002 assessed the income at Rs.18,33,200. The claim made by the respondent for deduction Rs.16,33,200 under section 54B of the Act in respect of the agricultural land purchased by him along with his son was not allowed on the ground that exemption from capital gains was available in case the same was invested by the assessee for the purposes of purchasing another agricultural land and not in respect of the land purchased by any other person.When the matter came up before the Commissioner of Income-tax (Appeals), the said Commissioner of Appeals allowed the appeal and set aside the action of Assessing Officer in denying the deduction under section 54F to the assessee. Against said order the Income-tax Department filed an appeal to the Income Tax Appellate Tribunal. When the matter came up before the Income-tax Appellate Tribunal while disposing of the appeal, the Tribunal opined as under :-The issue before us revolves around allowability of deduction under sections 54B and 54F of the Act. The land in question was purchased by the assessee in name of his son. The learned Assessing Officer disallowed the deduction on the ground that the land is in the name of the son of the assessee, so the deduction cannot be allowed, specially which the land was purchased by Sh. Gurnam Singh out of the sale proceeds of agricultural land and since Palwinder Singh was bachelor and was not having any independent source of income was dependent upon his father even for livelihood. The conclusion of the learned Assessing Officer is available on page 4 of the assessment order. Before coming to a conclusion, we are supposed to analyse section 54B which is applicable where the capital gains arise from the transfer of capital asset and was being used for agricultural purposes which was invested in the purchase of any other land and again being used for agricultural purposes. There is no dispute to the fact that the assessee sold his agricultural land and then purchased other agricultural land out of the sale proceeds and got registered some portion of the land in the name of his only son who was a bachelor at the relevant time. If the
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