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Section 54B exemption

21 January 2023

An assessee has transferred urban agricultural land during the year and claimed an exemption u/s 54B by investing in rural agricultural land.
Now there is a clause in 54B that the new asset shall not be transferred within a period of 3 years. Now if the assessee transfers rural agricultural land, will the capital gain arise since the rural agricultural land is not a capital asset within the meaning of Section 2(14) of the Income Tax Act, 1961.

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8 Replies

Prashant Daga (194 Points)
Replied 21 January 2023

No capital gain arise on transfer of rural agriculture land....it's best way to save tax

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Aman Sachdeva (12 Points)
Replied 21 January 2023

But wouldn't it violate the conditions of section 54B that it shall not be transferred within 3 years.
It would be great if you can give a reference to any judgement regarding this case.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177937 Points)
Replied 21 January 2023

The capital gains saved on sale of urban agricultural land will be taxable on sale of rural agricultural land, as sec. 54B exemption will be reversed.

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shivam bhatia (231 Points)
Replied 21 January 2023

This is the violation of section 54B.
The thought of the land not considered as transfer is void.

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Prashant Daga (194 Points)
Replied 21 January 2023

Actually plain reading of sec 54b say new assets transfer within 3yr from the date of purchase then COA of new assets reduced by exempted capital gain....I.e if assesse transfer rural agricultural land within 3yr then COA minus exempted capital gain....lekin agar rural agricultural land ki cost nil bhi ho jati h too bhi india me koi tax nhi lagega...so it is a best way to save tax...exemption withdraw not applicable under 54b

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177937 Points)
Replied 22 January 2023

Any case law in Favour of assesses supporting the view?

Prashant Daga (194 Points)
Replied 22 January 2023

Sry no case law remember right now...but this Funda under law not against the law

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177937 Points)
Replied 23 January 2023

Originally posted by : Prashant Daga
	Sry no case law remember right now...but this Funda under law not against the law

GREAT...

Recently one of our clients sold a Urban agricultural land resulting in about Rs. 50 lakhs LTCG. We advised him to purchase sec. 54 capital gains bonds to save about Rs. 10 lakhs capital gains tax. He is reluctant to invest in it due to 5 years lock in period.

So, as per your advice, we can ask him to purchase any rural agricultural land in Feb 2023 and sell it in March 2023. We will file his return before July, 2023 with exemption u/s. 54B and exempt income on sell of rural agricultural land.

Now, the problem is, when the case is opened in scrutiny, Income tax officer may ask us, "why the section 54B has been inserted into the IT act, if it has such a back door alternative?

We have no authentic argument to reply. And as such if he disallows the exemption u/s. 54b, can you or any person known to you appeal to it? (Without any case law or supporting material!!!)