TMI Blog2019 (12) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... n the sale of the agricultural land situated in a non-rural area. In the case on hand, we are concerned with the capital gains with respect to the first transaction, i.e. the sale of urban agricultural land. We are not concerned with the second transaction of the sale of the rural agricultural land. In such circumstances, after acquiring the new agricultural land (rural or urban), if the new agricultural land is transferred within a period of three years from the date of the purchase, then the tax exemption allowed earlier (i.e. with respect to the first transaction of sale or urban agricultural land) would be withdrawn. In such a case, the assessee would be required to pay tax on the exemption claimed earlier. Decided against the assessee. - R/Tax Appeal No. 210 of 2019 - - - Dated:- 23-7-2019 - Mr. Justice J.B. Pardiwala And Mr. Justice A.C. Rao For the Appellant(s) : Mr Darshan R. Patel For the Opponent(s) : Mr M.R. Bhatt, Sr. Advocate With Mrs. Mauna M. Bhatt ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. This Tax Appeal under Section 260A of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, long term capital gain arising on sale thereof was chargeable to tax. The appellant however, claimed exemption u/s54B from the Long Term Capital Gain arising on sale of aforesaid capital asset as he purchased a new agriculture land (not being a capital asset) situated at Survey No.412, Khirsara on 4.10.2004 for a consideration of ₹ 15,00,000/-. During the course of assessment proceedings, the Assessing Officer observed that the appellant has subsequently sold the new asset vis. agriculture land at Khisara on 27.5.2005 i.e. within the period of three years from its purchase and accordingly, he asked the appellant to show cause as to why the exemption on capital gain should not be disallowed as per provisions of section 54B(ii). In response, the appellant vide letter dated 6.10.2010 filed his reply to the above show cause notice. However, the Assessing Officer was not satisfied with the reply furnished by the appellant and therefore, he made an addition of ₹ 14,78,092/- disallowing the exemption u/s 54B of the Income Tax Act, 1961 claimed by the appellant as long term capital gain to the income of the appellant for the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Asset within 2 years from the date of sale of Original Asset. d. If the amount of Capital Gain is equal to or less than the cost of the New Asset then, as per Section 548 (ii), the Capital Gain shall not be charged under Section 45. 4. The Appellant respectfully submits that w.r.t the Second Part i.e. Computation of gain from the transfer of New Asset, the conditions are as under: a. This part is operational only if the New Asset is transferred within a period of 3 years from the date of its purchase. If the transfer of New Asset takes place after 3 years from the date of its purchase, then section 54(1)(i) and 54(1)(ii) of the act will have no application. b. This part is applicable for the relevant year in which the New Asset has been transferred. It has nothing to do with the Original Asset and gain arising on Original Asset. c. If the New Asset is transferred within a period of 3 years then the gain would be worked out as under: Sale price of New Asset : XXXX Less :Cost of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 New Asset : 5. Sale Price of New Asset Less: Cost of acquisition of New Asset Add: Exemption claimed on transfer of Original Asset 15,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax v. Shabbir Hussain Pithawala, 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 can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting capital gains will be the amount arrived after deducting capital gain from transfer of original asset from the cost incurred for acquiring the asset. 8. 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 im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cludes - (i) profits and gains; (ii) to (ve) xxx xxx xxx (vi) any capital gains chargeable under section 45; 12. Section 45 of the Act is with regard to the capital gains. Section 45 states that the income, profits or gains arising from the transfer of a capital asset....be chargeable to income tax under the head 'capital gains'...Capital gains 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 agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the scope of the provisions regarding the tax on capital gains and hence no liability to tax would arise in respect of the gains derived from the transfer of the agricultural land in the rural areas. Under Section 2, sub-section (47) of the Income-tax Act, 1961, the term 'transfer', in relation to a capital asset, includes the compulsory acquisition of the capital asset under any law. Therefore, whenever compensation is received in respect of any capital 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase of the new asset within the period specified in sub-section (1), then,- (i) the 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amount of capital gains arose on transfer of original asset was greater than the cost of new asset, then cost of new asset for computing capital gains will be nil. (ii) If the amount of capital gain arose on transfer of original asset was equal to or less than the cost of new asset, then cost of new asset for computing capital gains will be the amount arrived after deducting capital gain from transfer of original asset from the cost incurred for acquiring the asset. FINDINGS OF THE AUTHORITIES : 21. The Assessing Officer took the view as under : (i) The basic intention of the statute is to make it mandatory to hold the new asset for a period exceeding 3 years. Thus the prime condition to avail the exemption is holding of the 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the cost shall be reduced, by the amount of the capital gain. It would have been sufficient to say that the consideration/capital gain arising from transfer be used in the manner prescribed without prescribing for any period of holding for the same. (v) Rules of interpretation require that meaning should be given to each and every word used in the statute as the Legislature is deemed not to waste its words and say anything in vain. Assessee's interpretation makes the condition in respect of period of holding redundant in this section. (vi) Further, assessee's interpretation would lead to misuse of Section 54B, which provides that the benefit of this section would be available if the assessee holds the new asset for a period of three years. This requirement can be by-passed when the new asset is an asset not chargeable to capital 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using this method the appellant has disposed his capital asset and as earned profit on sale thereof without paying a single paisa of tax. (vi) Reliance of the appellant on the decision of Hon'ble Chandigarh Bench of ITAT in the case of Kaushlya Dev Patiala ITA N0.1300/CHD/2010 is not correct as in that case agricultural land was sold by the assessee in AY.2004- 05 and then another agricultural land was purchased and subsequently sold in AY.2006-07. In the case of the appellant, the appellant has not sold any agricultural land and the original asset in the case of the appellant was a capital asset, therefore, the facts of the case are distinguishable. 23. The Appellate Tribunal, in its impugned order, observed as under : We have heard the rival submissions and perused the material on record. It is seen that the assessee has transferred agricultural land and resultant capital gain thereon has been claimed exemption 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new asset (rural agricultural land) 2. In our opinion, the Assessing officer and the appellate authorities have properly analyzed the provisions of Section 54B of the Act, as also the factual aspects 3. In the event, the assessee seeks the benefit of Section 54B, the requirement is that the assessee, upon the sale of agricultural land is required to purchase within a period of two years therefrom, any other land for being used for agricultural purposes (be it rural or urban agricultural land). If these conditions are complied with, the capital gain is required to be dealt with in accordance with clause (i) or (ii) of Section 54B(1) of the Act, as the case may be. 4. As per Clause (i), if the capital gain is more than the cost of the new asset, the difference between these two is to be charged under Section 45 as the income. This completes the first part of computation. After the words .....income of the previous year , the significant words are and for the purpose of computing in respect of the new asset. ... . The second part of the computation is when the new asset is transferred within a period of 3 years of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gain would be computed accordingly. We may give one simple illustration : Suppose Mr.A has transferred his urban agricultural land in May, 2017. The urban agricultural land has been transferred for an amount of say ₹ 50,00,000/-. The capital gain arising on the transfer of the said urban agricultural land is say ₹ 10,00,000/-. Mr.A, in order to claim exemption under Section 54B of the Income Tax Act, purchases another rural agricultural land by investing ₹ 35,00,000/- in December, 2017. Since the entire amount is re-invested, the capital gain of ₹ 10,00,000/- is claimed as exemption as per the provisions of Section 54B of the Income Tax Act. In March, 2018, Mr.A transfers the newly acquired rural agricultural land for an amount of say ₹ 80,00,000/-. In the above example, since the newly acquired rural agricultural land has been transferred before the expiry of the lock-in period of three years, the capital gain will be ₹ 50,00,000/- (minus) Zero, since in that eventuality, the cost of acquisition of the first asset will be treated as Nil. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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