Section 54B Exemption Disallowed on Agricultural Land Purchased in Spouse’s Name: ITAT Delhi Ruling

In the realm of capital gains taxation, a common planning strategy involves reinvesting sale proceeds into new assets to claim exemptions. However, a recurring point of litigation arises when the new asset is not acquired in the name of the primary taxpayer but rather in the name of a close relative, such as a spouse. While some judicial forums have taken a liberal approach in the past, recent rulings have adhered strictly to the statutory language.

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, recently adjudicated on this precise issue in the case of Adel Saini Vs ITO. The Tribunal examined whether the benefit of Section 54B of the Income Tax Act 1961 is available when the sale consideration of agricultural land is utilized to purchase new agricultural land in the name of the assessee’s wife.

Section 54B provides relief to an assessee from capital gains tax arising from the transfer of land used for agricultural purposes. To qualify for this deduction, the following core conditions must generally be met:

  1. The assessee must be an individual or a HUF.
  2. The land transferred must have been used for agricultural purposes by the assessee or their parents for two years prior to the transfer.
  3. The assessee must purchase another land for agricultural purposes within two years from the date of transfer.

The crux of the dispute in the subject case was the interpretation of the term "assessee" regarding the purchase of the new asset.

Case Background: Adel Saini Vs ITO

The dispute pertains to the Assessment Years (AYs) 2012–13 and 2013–14. The facts, which are common across both years, involve an assessee who was a co-owner of agricultural land.

The Transaction

The assessee, along with his eight brothers, jointly sold agricultural land. The assessee held a 1/9th share in the property. The financial specifics of the assessee's share were as follows:

  • AY 2012-13: The assessee’s share of the consideration was ₹55,55,555 (out of a total sale value of ₹5 crore).
  • AY 2013-14: The assessee’s share was ₹6,66,667 (out of a total sale value of ₹60 lakh).