Commissioner of Income Tax, Faridabad v. Shri Bhim Singh

PRESENT: Ms. Urvashi Dhugga, Standing Counsel for the appellant. Mr. Avneesh Jhingan, Advocate for the respondent. AJAY KUMAR MITTAL, J.

1. This appeal is filed by the revenue against the order dated

28.02.2005, passed by the Income Tax Appellate Tribunal, Delhi Bench, 'G', New Delhi (in short 'the Tribunal') arising out of order passed in ITA No. 1739/Del./2003 for assessment year 1996-97, claiming following substantial question of law:- “Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in holding that the provisions of section 54B is applicable to the cases other than the individuals?”

2. Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee filed his return for the ITA No. 354 of 2005 -2- assessment year 1996-97 declaring an income of Rs.63,240/- for bank interest only. The case of the assessee was processed and on coming to know that the assessee had wrongly computed the capital gains on the sale of the agricultural land, the Assessing Officer issued notice under Section 148 of the Income Tax Act, 1961 (in short “the Act”) on

1.12.2000. The assessee had acquired agricultural land about 30 years back out of the sale proceeds of ancestral agricultural land which was sold for a consideration of Rs.62,50,000/- during the year in question. In the original return, the assessee, in the status of individual, adopted market value of the land at Rs.5 lacs as on 1.4.1981 and after applying indexed cost of acquisition and claiming deduction under Section 54B for purchase of new agricultural land and under Section 54F in respect of investment in the construction of new residential house and cost of boring, fencing etc., had shown income from capital gains at “nil”. The Assessing Officer completed the assessment on 19.3.2002 and taking the status of the assessee as Hindu Undivided Family (HUF), disallowed the deduction under Section 54B of the Act at Rs.38,27,195/- as claimed by the assessee. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 4.2.2003 allowed the appeal and directed the Assessing Officer to recompute the income under the head “capital gains”. Against the order of the CIT(A), the revenue filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as “the Tribunal). The Tribunal vide order dated 28.2.2005 affirmed the order of the CIT(A) and dismissed the appeal holding the assessee entitled to deduction under Section 54B of the Act. Hence, the present ITA No. 354 of 2005 appeal by the revenue. -3-

4. We have heard learned counsel for the parties. Learned counsel for the revenue argued that the assessee is a HUF and, therefore, the exemption as claimed by it under Section 54B(1) of the Act was not admissible. She submitted that wherever the legislature intended to grant benefit to Hindu Undivided Families, it had specifically provided for the same in the provision. She drew attention of the Court to Section 54 (1) of the Act where the same has been specifically provided. On the strength of the aforesaid submission, it was contended that the Tribunal was in error in granting the benefit of exemption under Section 54B (1) of the Act to the assessee. She placed reliance on the judgments of the Madras High Court in Commissioner of Income Tax v. GK Devarajulu, [1991] 191 ITR 211, Commissioner of Income Tax v. R. Vijayakumar, [1995] 214 ITR 483 and of this Court in ITR No.58 of 1991 (The Commissioner of Income Tax, Rohtak v. Shri Virender Natha Kataria) decided on 30.10.2006 in support of her submissions.

5. On the other hand, learned counsel for the assessee submitted that the Tribunal had rightly granted exemption under Section 54B(1) of the Act to the assessee and supported the judgment passed by the Tribunal.

6. We have given our thoughtful consideration to the respective submissions made by learned counsel for the parties and find weight in the submissions made by the learned counsel for the revenue.

7. In order to adjudicate the controversy effectively, it would ITA No. 354 of 2005 -4- be advantageous to reproduce Section 54B(1) of the Act, which reads thus:- “54B. (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 or a parent of his for agricultural purposes (hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,- (i) if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain.”

8. A bare perusal of the aforesaid provision shows that it ITA No. 354 of 2005 -5- refers to the use of the capital asset being land by the assessee or his parent for carrying on agricultural activity. The connotation of parent referred therein would mean that the assessee would be an individual who derives benefit under the aforesaid provision.

9. However, Section 54 (1) of the Act specifically provides that the assessee who is an individual or HUF would be entitled to benefit of the said provision in case the amount is invested in the asset specified therein. Thus, it is held that an assessee who is a HUF would not be entitled to benefit under Section 54B(1) of the Act.

10. Considering similar issue, the Madras High Court in GK Devarajulu, R. Vijayakumar's cases (supra) and this Court in Shri Virender Natha Kataria's case (supra) had held that the benefit of Section 54B(1) of the Act were inadmissible in the case of a HUF.

11. In view of the above, the substantial question of law is answered in favour of the revenue and against the assessee. The appeal stands allowed. (AJAY KUMAR MITTAL) JUDGE November 23, 2010 (ADARSH KUMAR GOEL) JUDGE