The Assessing Officer says s.54B is only for long-term assets, that I cannot show two full years of agricultural use, and that part of the new land is in my wife's name. Where do I actually stand?
On this Punjab and Haryana decision you win the first point and lose the third. Section 54B speaks of 'a capital asset being land', not of a long-term capital asset, so the exemption is available even where the land was held for less than three years; but the two-year agricultural use must cover the whole of the two years immediately preceding the transfer, and the exemption is confined to what the assessee himself paid — the part of the price paid by his wife gets no relief.
Decided by the High Court (S.J. Vazifdar ACJ and G.S. Sandhawalia J) on 2015-07-06, reported as ITA No. 381 of 2014 (O&M), High Court of Punjab and Haryana at Chandigarh. No law-report citation appears in the text retrieved.. It bears on section 54B, section 2(14)(iii), section 2(42A), section 260A of the Income Tax Act 1961, in Capital Gains, Capital Gains Exemptions and Evidence & Burden of Proof matters.
Three separate fights are settled in one judgment, and the first of them is worth real money and is routinely conceded by advisers who assume every capital-gains exemption needs a long-term asset. It does not: s.54B is drafted differently from s.54 and s.54F. The second holding is the one that cuts against taxpayers — the Court expressly refused the Tribunal's softer reading that use for the whole of the preceding year plus a few days of the year before that will do. And the third puts the P&H court squarely on the strict side of the relative's-name divide, with Jai Narain reproduced at length, so anyone in that jurisdiction relying on the s.54 spouse-name cases is arguing against a decision that considered and declined to follow the leading one (V. Natarajan).
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2006-07 the assessee sold land by an agreement dated 26 September 2005 for Rs 60,00,000, that date being taken by the Assessing Officer and by the Court as the date of sale. He bought another agricultural property within two years. Of the purchase price, he paid Rs 44,76,000 out of the sale proceeds; the balance of Rs 16,84,000 (elsewhere Rs 16,84,700) was paid by his wife. The Assessing Officer held the gain to be short-term. The CIT(A) and the Tribunal found for the assessee, the Tribunal holding both that land need not have been used for agriculture for the full two years and that an assessee may purchase the new asset in his wife's name. The Revenue appealed on six questions and the High Court added a seventh of its own on 2 March 2015, directed to the property purchased in the wife's name. The land sold was admittedly a capital asset within s.2(14)(iii) because it lay within municipal limits.
The appeal was disposed of, partly each way. (1) Section 54B is not confined to a long-term capital asset: it refers merely to 'a capital asset', and where its ingredients are satisfied the computation follows the section (paras 8 and 9); questions 1 and 5 answered for the assessee. (2) The land must have been used for agricultural purposes for the whole of the two years immediately preceding the date of transfer; the Tribunal's contrary view that use for the whole of the preceding year and a few days of the year before suffices was rejected (para 12), though on the facts the assessee established the full two years by a Patwari's record (para 11). (3) Section 54B does not extend to property purchased by a person other than the assessee, including a wife or children; the Tribunal's order to that extent was overruled and question 7 answered for the Revenue (paras 18 to 20). The assessee was declared entitled to relief on the Rs 44,76,000 he himself invested.
On the long-term point the Court read s.54B against s.2(42A) and s.2(14)(iii) and found the section silent as to the character of the asset — it 'does not refer to a short-term capital asset or a long-term capital asset. It merely refers to a capital asset' (para 9). It then set out the five ingredients of the section and worked through them (para 10). On the two-year requirement it declined to read any bifurcation into the words: 'There is nothing in this section that bifurcates the period of the use during these two years' (para 12), while expressly leaving open what constitutes 'use' in any given case (para 13). It found the third ingredient made out on the Patwari's record at page 44 of the assessee's compilation, which covered 3 July 2003 to 27 January 2006, with nothing on record to the contrary (para 11), reinforced by declared agricultural income of Rs 10,000 (para 15). On the wife's name it reasoned from the drafting: 'If the legislature intended conferring such a benefit, it would have provided for the same expressly' (para 18); it noted that no benami case had been pleaded; and it set out paras 10 to 12 of Jai Narain v ITO, 306 ITR 335 (P&H) in full, including that court's refusal to accept V. Natarajan [2006] 287 ITR 271 (Mad) decided under s.54 (para 19).
Section 54B requires the assessee to purchase the property from out of the sale consideration of the capital asset. It does not entitle the assessee to the benefit conferred therein if the subsequent property is purchased by a person other than the assessee including a close relative even such as his wife or children.
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Handle my notice → Ask a CA on WhatsAppOn this Punjab and Haryana decision you win the first point and lose the third. Section 54B speaks of 'a capital asset being land', not of a long-term capital asset, so the exemption is available even where the land was held for less than three years; but the two-year agricultural use must cover the whole of the two years immediately preceding the transfer, and the exemption is confined to what the assessee himself paid — the part of the price paid by his wife gets no relief. This was decided by the High Court (S.J. Vazifdar ACJ and G.S. Sandhawalia J) and bears on section 54B, section 2(14)(iii), section 2(42A), section 260A of the Income Tax Act 1961. It is reported as ITA No. 381 of 2014 (O&M), High Court of Punjab and Haryana at Chandigarh. No law-report citation appears in the text retrieved.. Three separate fights are settled in one judgment, and the first of them is worth real money and is routinely conceded by advisers who assume every capital-gains exemption needs a long-term asset. It does not: s.54B is drafted differently from s.54 and s.54F. The second holding is the one that cuts against taxpayers — the Court expressly refused the Tribunal's softer reading that use for the whole of the preceding year plus a few days of the year before that will do. And the third puts the P&H court squarely on the strict side of the relative's-name divide, with Jai Narain reproduced at length, so anyone in that jurisdiction relying on the s.54 spouse-name cases is arguing against a decision that considered and declined to follow the leading one (V. Natarajan). If it applies to you, the first step is this: Check the holding period before conceding: if the land was held under three years the department will call the gain short-term, but s.54B is still available — s.54B does not use the words 'long-term capital asset'.
For assessment year 2006-07 the assessee sold land by an agreement dated 26 September 2005 for Rs 60,00,000, that date being taken by the Assessing Officer and by the Court as the date of sale. He bought another agricultural property within two years. Of the purchase price, he paid Rs 44,76,000 out of the sale proceeds; the balance of Rs 16,84,000 (elsewhere Rs 16,84,700) was paid by his wife. The Assessing Officer held the gain to be short-term. The CIT(A) and the Tribunal found for the assessee, the Tribunal holding both that land need not have been used for agriculture for the full two years and that an assessee may purchase the new asset in his wife's name. The Revenue appealed on six questions and the High Court added a seventh of its own on 2 March 2015, directed to the property purchased in the wife's name. The land sold was admittedly a capital asset within s.2(14)(iii) because it lay within municipal limits. The matter was decided on 2015-07-06 by the High Court (S.J. Vazifdar ACJ and G.S. Sandhawalia J). On those facts the High Court held as follows. The appeal was disposed of, partly each way. (1) Section 54B is not confined to a long-term capital asset: it refers merely to 'a capital asset', and where its ingredients are satisfied the computation follows the section (paras 8 and 9); questions 1 and 5 answered for the assessee. (2) The land must have been used for agricultural purposes for the whole of the two years immediately preceding the date of transfer; the Tribunal's contrary view that use for the whole of the preceding year and a few days of the year before suffices was rejected (para 12), though on the facts the assessee established the full two years by a Patwari's record (para 11). (3) Section 54B does not extend to property purchased by a person other than the assessee, including a wife or children; the Tribunal's order to that extent was overruled and question 7 answered for the Revenue (paras 18 to 20). The assessee was declared entitled to relief on the Rs 44,76,000 he himself invested.
On the long-term point the Court read s.54B against s.2(42A) and s.2(14)(iii) and found the section silent as to the character of the asset — it 'does not refer to a short-term capital asset or a long-term capital asset. It merely refers to a capital asset' (para 9). It then set out the five ingredients of the section and worked through them (para 10). On the two-year requirement it declined to read any bifurcation into the words: 'There is nothing in this section that bifurcates the period of the use during these two years' (para 12), while expressly leaving open what constitutes 'use' in any given case (para 13). It found the third ingredient made out on the Patwari's record at page 44 of the assessee's compilation, which covered 3 July 2003 to 27 January 2006, with nothing on record to the contrary (para 11), reinforced by declared agricultural income of Rs 10,000 (para 15). On the wife's name it reasoned from the drafting: 'If the legislature intended conferring such a benefit, it would have provided for the same expressly' (para 18); it noted that no benami case had been pleaded; and it set out paras 10 to 12 of Jai Narain v ITO, 306 ITR 335 (P&H) in full, including that court's refusal to accept V. Natarajan [2006] 287 ITR 271 (Mad) decided under s.54 (para 19). In the words reproduced by the source cited on this page: "Section 54B requires the assessee to purchase the property from out of the sale consideration of the capital asset. It does not entitle the assessee to the benefit conferred therein if the subsequent property is purchased by a person other than the assessee including a close relative even such as his wife or children." The decision followed or applied Jai Narain v. ITO, [2008] 306 ITR 335 (P&H) — followed, paras 10 to 12 reproduced; V. Natarajan v. CIT, [2006] 287 ITR 271 (Mad) — not followed (through the passage quoted from Jai Narain).
It was decided by the High Court on 2015-07-06 and is reported as ITA No. 381 of 2014 (O&M), High Court of Punjab and Haryana at Chandigarh. No law-report citation appears in the text retrieved.. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 54B, section 2(14)(iii), section 2(42A), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeal was disposed of, partly each way. (1) Section 54B is not confined to a long-term capital asset: it refers merely to 'a capital asset', and where its ingredients are satisfied the computation follows the section (paras 8 and 9); questions 1 and 5 answered for the assessee. (2) The land must have been used for agricultural purposes for the whole of the two years immediately preceding the date of transfer; the Tribunal's contrary view that use for the whole of the preceding year and a few days of the year before suffices was rejected (para 12), though on the facts the assessee established the full two years by a Patwari's record (para 11). (3) Section 54B does not extend to property purchased by a person other than the assessee, including a wife or children; the Tribunal's order to that extent was overruled and question 7 answered for the Revenue (paras 18 to 20). The assessee was declared entitled to relief on the Rs 44,76,000 he himself invested. It arises in Capital Gains, Capital Gains Exemptions and Evidence & Burden of Proof matters, on section 54B, section 2(14)(iii), section 2(42A), section 260A of the Income Tax Act 1961, and was decided by S.J. Vazifdar ACJ and G.S. Sandhawalia J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Build the two-year record before the assessment closes. The evidence that carried the day here was a Patwari's record/statement covering a continuous span (3 July 2003 to 27 January 2006) that straddled the whole of the two years before the 26 September 2005 sale, supported by declared agricultural income. Count backwards from the exact date of transfer and confirm the record covers every part of both years. Do not rely on the Tribunal's more forgiving 'whole of the preceding year plus some days' formulation — para 12 rejects it. Where the wife or another relative has funded part of the purchase price, claim only the assessee's own contribution; here Rs 44,76,000 of a Rs 60,00,000 gain was allowed and the Rs 16,84,000 paid by the wife was not. If the assessee in fact paid the whole price and the relative's name is nominal, plead benami expressly and prove the money trail — para 18 records that no such case was made, and the Court decided on the footing that the wife invested her own money. Note the section as reproduced here (a 2015 judgment) already reads 'the assessee being an individual or his parent, or a Hindu Undivided Family', i.e. the post-Finance Act 2012 text. For an assessment year before AY 2013-14 an HUF is outside the section.
High Courts differ on this point. On the relative's-name limb this decision joins Jai Narain (P&H) and Kalya (Rajasthan) against Mahadev Balai (Rajasthan, 2017, already in the library) and against the s.54/s.54F line represented by V. Natarajan (Madras), which the P&H court expressly declined to follow. Kalya and Mahadev Balai are both decisions of the Rajasthan High Court and not of two different High Courts: Mahadev Balai (7 November 2017) is the later, and it reversed a Tribunal order founded on Kalya (19 May 2012), so within Rajasthan the later view governs. The difference that supports this label is therefore between Punjab and Haryana on one side and Rajasthan and Madras on the other. On the 'capital asset need not be long-term' limb and on the requirement of full two years' use I located no contrary authority, but I did not search for one and I did not check whether this judgment has been appealed or considered by any later court. Validity check not completed. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment's numbering runs '2' twice: the paragraph setting out the proposed questions is numbered 2 and the first proposed question is also numbered 2 inside it. The Revenue's question 4 as framed refers to Rs 34,32,575 with a parenthetical note in the text that the figure was corrected during assessment to Rs 44,76,000. The wife's contribution appears as Rs 16,84,000 in para 5 and as Rs 16,84,700 in paras 16 and 18 — the report itself is inconsistent by Rs 700. Questions 2, 3 and 6 were dismissed as not raising a substantial question of law, so the two-year-use discussion in paras 11 to 13 is reasoning on an admitted question (question 1) rather than an answer to question 2. The retrieved text is marked 'Whether reportable: YES'. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was disposed of, partly each way. (1) Section 54B is not confined to a long-term capital asset: it refers merely to 'a capital asset', and where its ingredients are satisfied the computation follows the section (paras 8 and 9); questions 1 and 5 answered for the assessee. (2) The land must have been used for agricultural purposes for the whole of the two years immediately preceding the date of transfer; the Tribunal's contrary view that use for the whole of the preceding year and a few days of the year before suffices was rejected (para 12), though on the facts the assessee established the full two years by a Patwari's record (para 11). (3) Section 54B does not extend to property purchased by a person other than the assessee, including a wife or children; the Tribunal's order to that extent was overruled and question 7 answered for the Revenue (paras 18 to 20). The assessee was declared entitled to relief on the Rs 44,76,000 he himself invested.
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