Section 54B

Section 54B — the law in short

What the courts have decided on section 54B, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Mahadev Balai v ITO High CourtHelps taxpayer
  The new agricultural land is registered in my wife's name. Can the AO deny 54B?
  No, on this view. The statute contains no requirement that the new agricultural land be registered in the assessee's own name; what controls is that the funds applied to the purchase belonged to the assessee.
• CIT, Faridabad v Dinesh Verma High CourtCuts both waysHigh Courts differ
  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.
• CIT v K. Ramachandra Rao High CourtHelps taxpayer
  I put the whole sale consideration into building a house within the section 54F time limit but never opened a Capital Gains Account. Can the officer deny me the exemption on that ground alone?
  No. The Karnataka High Court held that section 54F(4) is attracted only where the net consideration is not used to purchase or construct the house. If the assessee actually invests within the periods in section 54F(1), the deposit requirement never comes into play and exemption cannot be refused for want of a Capital Gains Account Scheme deposit. The Court also held there is no bar on constructing the new house on a site the assessee already owns; investments in that construction within one year before and three years after the transfer qualify. All four Revenue appeals were dismissed.
• Shri Kalya v CIT-III, Jaipur High CourtHelps departmentValidity unconfirmed
  I sold my agricultural land and put the replacement land in my son's and daughter-in-law's names. The Assessing Officer says s.54B is gone. Is he right?
  On this Rajasthan High Court decision, yes. Where the land sold stood in the assessee's name and the replacement land was bought in the names of his son and daughter-in-law, s.54B was refused: the word 'assessee' must be given a legal, not a liberal, interpretation, and a bare reading of s.54B does not extend the exemption to land purchased in another's name.
• CIT v Smt. Savita Rani High CourtHelps taxpayerValidity unconfirmed
  The Assessing Officer says my land was not agricultural land at all — it is inside municipal limits, next to a commercial area, and the buyer bought it to build on. Does that defeat s.54B?
  No. Section 54B gives relief on the transfer of 'a capital asset being land'; it does not confine the benefit to agricultural land as a category. The only question is whether the assessee or his parent actually used that land for agricultural purposes in the two years immediately preceding the sale, and where khasra girdawari, the Patwari's record and agricultural income declared in the returns of the two preceding years all show that use, the land's location and the buyer's intended use are irrelevant.
• Vishnubhai Mafatbhai Desai v ITO — section 49(4) is the Revenue's answer to the double-taxation objection against section 56(2)(vii)(b), and the clause applies to FY 2013-14 ITATHelps departmentValidity unconfirmed
  I am arguing that a section 56(2)(vii)(b) addition on land my client bought below circle rate produces double taxation. How is the department going to answer that?
  With section 49(4). The Ahmedabad Bench dismissed the assessee's appeal, holding that section 49(4) clearly provides that the benefit of the inflated cost of acquisition arising from the deeming provision in section 56(2)(vii)(b)(ii) will be available at the time of sale of the asset, so the capital gain will be reduced to that extent. The Bench also held that section 56(2)(vii)(b)(ii) applies from AY 2014-15 and therefore governs transactions of FY 2013-14.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.