Commissioner of Income Tax vs T. Narayanaswamy

Ramanujam, J.—The assessee was a member of a HUF till May 1974, when a partition took place between him and the other members of

his family. In that partition, certain agricultural lands were allotted to the assessee. Subsequently, the lands were acquired by the Government in

February 1975. With the compensation received, the assessee purchased two other pieces of agricultural lands on February 9, 1977, and claimed

that a sum of Rs. 78,929 incurred for the purchase of the fresh agricultural lands should be set off against the capital gains arising out of the

acquisition of the agricultural lands received by him on partition. The ITO found that the assessee had satisfied the condition that fresh lands has

been purchased within two years from the sale of the other lands. But he was of the view that the assessee is not entitled to claim set off of the sum

of Rs. 78,929 from the capital gains as he has not held the lands for agricultural purposes for two years preceding the acquisition. Accordingly, he

rejected the relief claimed by the assessee.

On appeal by the assessee, the AAC held that the assessee is entitled to claim a set-off for the value of the fresh lands purchased from the

capital gains arising out of the sale of the lands by way of acquisition on the ground that the assessee had satisfied both the conditions, namely : (1)

that he has utilised the sale proceeds of the lands for purchasing fresh hands within a period of two years from the date of the acquisition; and (2)

that he has held the lands for agricultural purposes two years prior to the acquisition. The AAC had, in fact, found on the material that before the

acquisition, the assessee held the lands for agricultural purposes for a period of one year and before that he has possessed the lands for agricultural

purposes as a coparcener of the family for more than a year and, therefore, the assessee was entitled to the relief claimed. The Revenue took the

matter in appeal before the Tribunal and the only objection raised by the Revenue was that the lands having been held by his HUF prior to the

partition, the assessee cannot be taken to to have possessed the lands for agricultural purposes during the period when the HUF was in

possession. However, the Tribunal has agreed with the view of the AAC and held that the possession by the HUF of which the assessee was a

coparcener should be taken to be also the possession by the coparcener and, therefore session by the HUF of the properties for agricultural

purposes one year prior to the partition should be taken to be the possession by the assessee as a coparcener of the lands for agricultural purposes

and, therefore, the conditions laid down in s. 54B of the I.T. Act, 1961, should be taken to have been fulfilled in this case. In that view, the

Tribunal also rejected the appeal filed by the Revenue.

Before us, the Revenue contends that the view taken by the Tribunal that the possession by the HUF of lands prior to the partition cannot be

treated as possession by the coparcener and, therefore, s. 54B is not satisfied in this case. However, on the facts and in the circumstances of this

case, we are inclined to agree with the view taken by the AAC, which has also been accepted by the Tribunal in the case. Admittedly, the assessee

himself has been in possession of the acquired lands for a period of one year prior to the acquisition. Prior to that date, the joint family was in

possession of the property holding the same for agricultural purposes. It is not in dispute that the assessee was a member of the HUF, which was

found to have been in possession of the lands for agricultural purposes. In law, the possession by the HUF should be taken also to be the

possession by a coparcener. Therefore, the possession by the HUF, of which the assessee is a coparcener, for a period of one year has rightly

been taken as the session by the assessee, who was then a coparcener. It is not the case of the Revenue before us that the other conditions of the

said s. 54B are not satisfied. Since, we are inclined to agree with the Tribunal, no reference is called for in this case. This petition is, therefore,

dismissed.