Can any one clarify on the issue with case law if any, on the applicability of section u/s 54B to HUF.?
In one of the case the assessing officer is of the view that capital gain benefits are avaialble only to the individual, as the reading of the section says assessee or a parent of his is eligible for this section and here assessee or a parent of his according to the Assessing Officer means an individual. please clarify with some case law adverse to the opinion of the Assessing Officer.
Although section 54B uses the term assessee, it should be read as "an assessee who has (or a parent of his has) used the land for agricultural purposes in the two years immediately preceding the date of transfer".
Case Law in support of Assessing officer's view
The Madras High Court held in CIT Vs. G.K.Devarajulu (191 ITR 211) that the words the assessee or a parent of his occurring in section 54B of the Act, in the context in which the words assessee has been used and from the meaning of the words associated with it, would clearly indicate that only an Individual assessee has been contemplated and not any other entity of assessment.
This view is further strengthened by the fact that initially section 54 also restricted the benefits to Individuals only and by the Finance Act 1987, the words Hindu Undivided Family has been included in section 54. While a change has been brought about in section 54, section 54B has been left intact. This also shows that while the parliament was fully alive to the need for including a Hindu Undivided Family within the scope of section 54, for some reason it had not thought it fit to do so in a case falling under section 54B of the Act.
Case Law in favour of Assessee:
While this is the correct legal position there is however a decision of Delhi Tribunal in Shri Babu Ram vs ITO 90 TTJ Delhi 332 where the assessee reinvested the sale proceeds of agricultural lands in the name of members of family and claimed that as the lands were ancestral, the sons and grand sons had right in the land.
It was held as under: All the same, we are of the view that this matter relating to the claim of the assessee under section 54B of the Income Tax Act, is required to be re-examined by the assessing officer in accordance with law and in the light of directions given herein below.
It is evident that rebate as per section 54B is given to encourage investment in the agricultural land for being used for agricultural purposes. It is intended to safeguard the interest of the agriculturist. If capital gain arises on account of transfer or compulsory acquisition of agricultural land, then rebate is provided if the sale consideration/ compensation is used for the purchase of other agricultural land for the purposes of cultivation. Due to expansion of cities on account of commercialization and globalization, agriculturists are forced to shift their agricultural holdings from towns or places near to towns to places in the interior. This section enables them to carry on agricultural activities by providing relief against chargeability to capital gain. It is also well known that a holder of agricultural land in most cases, is not able to carry on the process of agriculture alone. He is helped by his sons, wife and other members of the family and in that sense holder alone is not taken to be the owner of the land. The land and agricultural income from such land is considered to belong to the entire family to be used for their benefit. Courts and Tribunals have to take judicial notice of the manner in which agriculturists are operating in village. We are therefore, of the view that provision of section 54B(1) cannot be construed in a narrow manner and in case the seller has purchased other land for being used for agricultural purposes, the benefit of the provision has to be allowed. The material thing to be established is whether sale proceeds or some part of it were utilized for purchase of land to be used for, agricultural purposes.
I am personally of the opinion that the Assessing Officer is correct in concluding that section 54B is not applicable to HUF and the reasoning of the Madras High Court in 191 ITR 211 will ultimately prevail over the decision of the Delhi Tribunal in 90 TTJ 332.Regards
M.Kuppuswamy PSG & Co