By TIOL News Service

PUNE, APRIL 04, 2017: THE ISSUE IS - Whether benefit u/s 54B can be denied on the investments made towards purchase of agricultural land, merely because purchases were made in the name of 'legal heirs'. NO is the answer.

Facts of the case:

The assessee, an agriculturalist, had sold his agricultural land at village Mohadi, Tal. and Distt.-Jalgaon in the year 2006 for a consideration of Rs.31,32,000/-. The said land was situated within 8 Kms. of Corporation limits of Jalgaon. The assessee however had not filed any return of income. In the financial year 2009-10, the ITO, Jalgaon had called information from the assessee regarding investment in RBI Bonds and notice u/s. 148 was issued to the assessee. Since, no return of income was filed by the assessee, the AO issued summons u/s. 131. Shri Puna Shiva Gavali, son of the assessee appeared before the AO and submitted that the assessee had sold two parcel of agricultural land and have invested the sale proceeds in purchase of agricultural land and construction of a new residential house. Thereafter, neither the assessee nor any of his authorized representative participated in the proceedings before the AO despite issuance of several notice u/s. 142(1). The AO was constrained to make assessment u/s. 144. The AO determined Long Term Capital Gain of Rs.30,07,296/- in respect of surplus arising from sale of agricultural land. On appeal, the CIT(A) partially accepted the submission of assessee by granting exemption u/s. 54 to the extent of 60% of the amount purportedly utilized by assessee for construction of new residential house. However, he rejected the claim of assessee in respect of expenditure claimed towards payment of commission and exemption claimed u/s. 54B.

On appeal, the ITAT held that,

++ the assessee has assailed the findings of CIT(A) in granting partial deduction (60%) u/s. 54F. The assessee had claimed exemption u/s. 54F on account of construction of residential house from the sale proceeds of agricultural land. The CIT(A) has observed that the assessee started construction of residential house on 22-07-2006 and the same was completed on 30-08-2008. The due date for filing of return was 31-07- 2007. Since, the assessee had not deposited the amount in bank, he is not entitled to full exemption. The CIT(A) further observed that no evidence of exact amount utilized upto 31-07-2007 was produced by the assessee. It is an undisputed fact that the assessee had invested the amount of sale proceeds towards the construction of a new residential house. As per the provisions of section 54F, the assessee is eligible to claim relief u/s. 54F, if the capital gain arising from the transfer of any Long Term Capital Asset not being a residential house is invested within the period of 1 year or two years after the date of transfer towards the purchase or within the period of three years after the date of transfer towards the construction of a residential house. The contention of the assessee is that the amount of Rs.23,07,000/- has been utilized towards the construction of a new house and the new house was completed on 30-08-2008. The land was sold in 2006. Therefore, we are of the considered view that the assessee is eligible to claim exemption u/s. 54F. Since, the assessee was not able to show from records the extent to investment made in new house, CIT(A) restricted the exemption to 60% of the amount claimed. Even before the Tribunal the assessee has not substantiated the investment made in the new house. We are of the considered view that disallowance of 40% of exemption claimed is on higher side. To meet the ends of justice, we restrict the disallowance to 15%. Thus, the assessee is allowed exemption u/s. 54F to the extent of 85% of Rs.23,07,000/- i.e. Rs.19,60,950/-;

++ the third ground raised in the appeal relates to the claim of assessee u/s. 54B in respect of the amount utilized from the sale of agricultural land towards the purchase of agricultural land. Ostensibly, the assessee has purchased agricultural land in the name of his sons. The authorities below have denied exemption u/s. 54B only on the ground that the agricultural land has not been purchased by assessee in his own name. The Delhi High Court in the case of CIT Vs. Ravinder Kumar Arora - 2011-TIOL-818-HC-DEL-IT has held that the provisions of section 54F are the beneficial provision which should be interpreted liberally in favour of the deduction to the taxpayer and deduction should not be denied on hyper technical ground. The word "assessee" must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word "assessee" as that would frustrate the object of granting exemption. The High Court after placing reliance on the decision of Hon'ble Madras High Court in the case of Commissioner of Income Tax Vs. V. Natarajan and the decision of Punjab & Haryana High Court in the case of CIT Vs. Gurnam Singh - 2008-TIOL-232-HC-P&H-IT allowed exemption u/s. 54F claimed by the assessee, where the assessee had purchased a residential house in the name of his wife. Respectfully following the decision of Delhi High Court we hold that the assessee is eligible to claim exemption u/s. 54B where the agricultural land has been purchased by the assessee in the name of his sons. After perusal of the impugned order it is not evident as to what amount was claimed by the assessee as exemption u/s. 54B. Accordingly, we deem it appropriate to remit this issue back to the file of AO to determine the exemption u/s. 54B after verifying the investment made by the assessee towards the purchase of agricultural land.

(See 2017-TIOL-413-ITAT-PUNE)