Exemption u/s 54B-Use of land for agricultural purposes for full two years not necessary.

Exemption u/s 54B-Use of land for agricultural purposes for full two years not necessary. Even if only Kharif crop was cultivated between two years, condition of Section 54B complied with – ITAT

Exemption u/s 54B-Use of land for agricultural purposes

ABCAUS Case Law Citation:
ABCAUS 2036 (2017) (08) ITAT

Assessment Year :  2012-13

Important Case Laws Cited/relied upon by the parties:
Ramesh Narhari Jakhadi Vs. Income Tax Officer reported as 41 ITD 368
Commissioner of Income Tax Vs. Bolla Ramaiah reported as 174 ITR 154.

Brief Facts of the Case:

The assessee was a salaried employee. In the month of April, 2007, he jointly purchased a land within the Municipal limit of the city. Later, in January, 2012, the assessee sold the land. The assessee earned Capital Gain of Rs.72,88,087/-. The assessee deposited his entire share of Capital Gain in specified Capital Gains account with State Bank of India and claimed benefit of exemption u/s 54B of the Income Tax Act, 1961 (“the Act”) in his return of income.

During the course of scrutiny assessment proceedings, the Assessing Officer (AO) made enquiries to verify the genuineness of the transactions qua the sale of agricultural land and assessee’s claim of exemption u/s. 54B of the Act.

The Assessing Officer concluded that the agricultural land on which the assessee had claimed exemption u/s. 54B was not utilized for cultivation for the last 2 to 3 years as per the requirement of section 54B. The AO further held that since the land in question was urban land, therefore, the provisions of section 54B would not apply on the capital gains arising from sale of such land.

Therefore, the AO denied the benefit of exemption claimed by assessee and made addition of the entire Capital Gain amount i.e. Rs.72,88,087/-.

Aggrieved by the assessment order, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) rejected the contentions of the assessee and upheld the additions made by Assessing Officer.

Contention of the Appellant Assessee:

The assessee submitted that he purchased the land on 13/04/2007. The assessee carried out agricultural activity at the aforesaid land during the Financial Year 2007-08. During the Financial Year 2008-09 the land of the assessee along with various other agriculturists in the area were temporarily acquired by the District Administration. The land of the assessee was acquired up to 15-11-2008, yet it took almost one year for the assessee to restore the land to its original shape and making it fit for cultivation. Consequently, no crops could be grown during the Financial Years 2008-09 and 2009-10. The assessee again cultivated the land in Financial Years 2010-11 and 2011-12.

It was also submitted that since the only source of irrigation was rain, the land of the assessee was cultivable only during “Kharif” season. No crop was sown during  “Rabi”season.

It was thus contended that even if the land is used for cultivation for part of a year, it satisfies the condition laid down u/s. 54B for claiming exemption.

Contentions of the Respondent Revenue:

It was submitted that the assessee had himself admitted that there was no cultivation of crop on the land in question during the Financial Years 2008-09 and 2009-10. The assessee sold land on 03-01-2012 i.e. during the Financial Year 2011-12. To comply with the conditions set out in section 54B the assessee should have cultivated the land immediately two preceding years i.e. 2009-10 and 2010-11.

It was thus submitted that since the assessee had himself admitted that there was no cultivation in Financial Year 2009-10 the benefit of exemption u/s  54B cannot be allowed to the assessee.

Observations made by the Tribunal:

It was noted that the assessee’s claim of exemption u/s 54B had been denied primarily for the reason that the land in question was not used for agricultural purpose for two years immediately preceding the date on which the said agricultural land was sold by the assessee. In

It was also observed that it was explicitly clear from the documents on record that the agricultural land of the assessee was temporarily acquired from 01-03-2008 to 15-11-2008, therefore, no agricultural operations could be carried out by the assessee during that period.

The ITAT observed that The conditions necessary for claiming exemption u/s.54B are:

(i) The agricultural land is transferred by any individual or HUF.

(ii) The agricultural land has been used by the individual or his parents for agricultural purpose during two years immediately preceding the date of transfer.

(iii). The assessee had purchased another agricultural land (rural or urban) within a period of two years after the date of transfer of the original agricultural land to be used for agricultural purpose.

(iv) If the amount of Capital Gain is not utilized by the assessee for the purchase of another agricultural land before the date of furnishing return of income u/s. 139 of the Act, the same should have been deposited before furnishing such return in a notified Capital Scheme account with bank.

It was noted that in so far as conditions given in clause (i), (iii) and (iv) were concerned there was no dispute in the present case that the assessee had satisfied these conditions. The only dispute was whether the assessee had used the land for agricultural purpose during the period of 2 years immediately preceding the date of transfer.

It was observed that the land of the assessee was “Jirayat Land”. The assessee could cultivate Kharif crop only on the land during the period starting from April to September. The assessee had shown from the records that the land was under cultivation during the immediately two preceding years. The assessee had satisfied the conditions that the land is being used in two immediately preceding years for the purpose of agriculture before the date of sale.

The ITAT opined that  even if the assessee hasd cultivated only Kharif crop in the immediately preceding two years from the date of sale of land, the condition set out in Section 54B for claiming benefit of exemption was complied with.

Claim for exemption u/s 54B was allowed to the appellant assessee.

Exemption u/s 54B-Use of land for agricultural purposes

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