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Agricultural Land purchased in Son’s name– Exemption u/s 54B allowed or not?
Government provides various tax reliefs to the agricultural sector. In case of transfer of agricultural land, exemption is available under section 54B of Income Tax, towards capital gain arising on account of transfer of urban agricultural land, if the proceeds are re-invested in acquiring the new agricultural land.
Looking into the direct tax relief, the rural agricultural land is excluded from the definition of capital asset as contained in section 2(14) of the Income Tax Act, 1961. Since the rural agricultural land is not covered within the scope of ‘capital asset’ no capital gain is payable at the time of transfer of rural agricultural land.
On the other hand,the urban agricultural land being covered within the scope of ‘capital assets’ attracts capital gain. To counter the levy of capital gain arising on sale of urban agricultural land, exemption has been provided under section 54B of the Income Tax Act, 1961 against the same.
Exemption under Section 54B can be availed if following conditions are satisfied
- Exemption under section 54B is available only to an individual or a HUF;
- Exemption under section 54B is available only on sale of urban agricultural land;
- Exemption is available on both long term capital assets and / or short term capital assets;
- In order to claim exemption under section 54B, the urban agricultural land must have been used by the individual or by the parents of the individual for agricultural purpose for the period of at least 2 years prior to the date of transfer. It must be noted that in case of transfer of land by a HUF, land should have been used by any of the member of the HUF;
- Exemption under section 54B is available only if the taxpayer acquires another agricultural land within a period of two years from the date of transfer. It must be noted that the taxpayer has an option to re-invest in both urban and rural agricultural land;
The question now arises, whether exemption under section 54B can be allowed even if agricultural land is purchased in the name of family members?
In the case of Commissioner of Income Tax Vs. Gurnam Singh, wherein the Punjab and Haryana High Court decided a similar issue in favour of the assessee.
The assessee sold an agricultural land and out of the sale proceeds, he purchased another land in name of his only son, the assessee claimed deduction under section 54B, but the same was disallowed by the A.O on the ground that exemption from capital gains was available in case the same was invested by assessee for the purpose of another agricultural land and not in respect of land purchased by any other person.
The Tribunal observed that “Out of sale proceeds of the said sale, the assessee has purchased other piece of land in his name and in the name of his only son who was bachelor and was dependent upon him, for being used for agricultural purposes within the stipulated time. Further it was not the case of the Revenue that from the sale proceeds of the agricultural land earlier owned by the assessee, the land in question was purchased for any other purpose than the agricultural purpose. The purchased land was undisputedly being used by the assessee for agricultural purpose and merely because in the sale deed his only son was also shown as co-owner. The Tribunal came to the conclusion that,” it does not make any difference because the purchased land is being used by the assessee for agricultural purposes.”
Considering the facts from above judgment, The Pune bench of Income Tax Appellate Tribunal (ITAT) has held that capital gain exemption can be allowed under section 54B of the Income Tax Act for the purchase of agricultural land in name of son.