No exemption u/s 54B for agricultural land belonging to Scheduled Caste which cannot be transferred

No exemption u/s 54B for purchase of agricultural land belonging to Scheduled Caste which cannot be transferred unless converted to non-agricultural land.

ABCAUS Case Law Citation:
ABCAUS 3056 (2019) (07) ITAT

Important Case Laws Cited/relied upon by the parties:
Mysore Minerals Ltd. Vs CIT 239 ITR 775
CIT Vs. Podar Cement (P) Ltd. 226 ITR 625.
CIT Vs. Kwality Steel Suppliers Complex (2017) 395 ITR 1 (SC)
Torrent Pharmaceuticals Ltd. Vs DCIT (2018) 196 TTJ 318
Ambo Agro Products Ltd. Vs PCIT (2017) 160 DTR 25 (Kol. Trib).

This appeal by the assessee was directed against the revision order of Pr.CIT passed U/s 263 of the Income Tax Act, 1961 (the Act) in holding that deduction u/s 54B allowed by the Assessing Officer in respect of agricultural land was not allowable.

The assessee was an individual and filed return of income showing NIL capital gain for the year under consideration after claiming deduction U/s 54B of the Act. The assessee claimed that out of the sale consideration, he invested more than the capital gain and consequently no capital gain was taxable.

The AO accepted the claim of deduction U/s 54B while passing the assessment U/s 143(3) read with Section 147 of the Act.

Subsequently the PCIT found that the order passed by the AO was erroneous and prejudicial to the interest of revenue so far as the AO had allowed claim of deduction U/s 54B of the Act. Accordingly, the PCIT issued a show cause notice U/s 263 of the Act.

In response, the assessee explained that the assessee had purchased agricultural land through agreement to sell. Though, the sale deed was not executed due to the reason that the agricultural land of a Scheduled Caste person was not allowed to transferred to non- Scheduled Caste person in the State.

However, the assessee claimed that in view of the decision of the Hon’ble Supreme Court, once the assessee had taken possession of the land and paid the consideration then the assessee acquired the ownership over the land and entitled to hold the property to the exclusion of all others.

The PCIT did not accept this explanation of the assessee and held that once the land in question could not be transferred by the alleged seller in favour of the assessee due to prohibition of law then the assessee was not entitled for deduction U/s 54B of the Act.

Consequently, PCIT set aside the order passed by the A.O. with a direction to to pass fresh speaking order after making proper enquiries and affording adequate opportunities.

Before the Tribunal, the assessee inter alia contented that Section 2(47) of the Act defines ‘transfer’. Therefore, whether the land purchased by the assessee under consideration fall within the definition of transfer would be governed under the definition of transfer provided under the Income Tax Act and not the definition provided in the Transfer of Property Act.

It was contended that there is no requirement that under the Income Tax Act that the legal ownership of an immovable property should vest on the assessee to constitute a transfer as required under the Transfer of Property Act.

The Tribunal noted that the assessee had accepted the fact that after the said agreement, sale deed could not be executed due to the reason that the agricultural land could not be transferred by the seller in favour of the assessee as prohibited by the law. However, the assessee had claimed that once the assessee had paid the consideration and the possession was handed over to the assessee then it amounted to transfer in terms of Section 2(47)(v) & (vi) of the Act.

The Tribunal rejected the said contention and stated that the agricultural land could not be transferred to the assessee until and unless the same was converted to non-agricultural land. Even if the said agricultural land could be transferred in future after converting the same from agricultural to non-agricultural land, it would not be a case of purchase of agricultural land but it must be purchase of non-agricultural land.

The Tribunal opined that the moment, the agricultural land is converted to non-agricultural land, it loses the character of agricultural land and consequently the said investment would not be eligible for deduction U/s 54B of the Act.

The Tribunal opined that in the instant case, the transfer itself was prohibited then the alleged agreement would not bring the case in the category of transfer of ownership without any formal deed of title.

The Tribunal held that the order of the AO was erroneous so far as the crucial aspect and the very basis of allowability of deduction U/s 54B of the Act was not considered by the AO and hence PCIT had rightly invoked the provisions of Section 263 of the Act when the claim of the assessee was absolutely impermissible under law.

Accordingly, the appeal of the assessee was dismissed.

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