Denial of Section 54B Exemption for Land Purchased in Spouse’s Name

1. The Core Dispute: Investment in Spouse’s Name

The assessee sold agricultural land and reinvested the capital gains to purchase new agricultural land. To defer tax liability, the assessee claimed an exemption under Section 54B of the Income-tax Act, 1961.

The Conflict: The Assessing Officer (AO) discovered that the new land was registered solely in the name of the assessee’s wife, rather than the assessee himself.
Revenue’s Stand: The department contended that the statutory language of Section 54B requires the “assessee” to purchase the new asset. Since the assessee and his wife are distinct legal entities under tax law, the investment did not satisfy the “conditions precedent.”
Assessee’s Stand: The assessee argued for a “liberal interpretation,” claiming that since the funds were his and the family was using the land for agriculture, the purpose of the law was met.

2. Legal Analysis: Strict Interpretation of “Assessee”

The ruling hinged on whether the word “assessee” could be expanded to include family members. The court emphasized that while some sections (like Section 54) have seen more liberal interpretations in certain jurisdictions, Section 54B remains strictly tied to the individual who made the capital gain.

I. The “One and the Same” Principle

The court relied on the precedent set in cases like CIT v. Dinesh Verma and Jai Narayan v. ITO, which established that the person who sells the land and the person who repurchases the new land must be one and the same legal person.

II. Distinction from Section 54/54F

Unlike Section 54 (Residential House), where some courts have allowed investment in a spouse’s name for social/welfare reasons, the court held that Section 54B (Agricultural Land) is an incentive for the individual farmer. Registered ownership is the primary evidence of “purchase” by the assessee.

3. Final Ruling

The Tribunal and High Court upheld the denial of the exemption. It was held that:

Purchase in the name of a third party (including a spouse) does not satisfy the statutory requirement.
The Commissioner (Appeals) was justified in confirming the addition to the assessee’s income.

Key Takeaways for Taxpayers

Ownership Check: Always ensure the new agricultural land is registered in the name of the person who sold the original land to qualify for Section 54B.
Joint Ownership Risks: If purchasing in joint names (Self and Spouse), the exemption may only be allowed proportionately to the assessee’s share in the new property.
Strict Construction: Do not assume that “family utility” equates to “tax compliance.” The Income-tax Act treats individuals as separate units of assessment.

IN THE ITAT DELHI BENCH ‘A’

Adel Saini

Income-tax Officer^*

Mahavir Singh, Vice President
and Manish Agarwal, Accountant Member

IT Appeal Nos. 2371 & 2372 (Delhi) of 2025
[Assessment years 2012-13 and 2013-14]

JANUARY 21, 2026

Ms. Rajkumari, CA for the Appellant. Khitesh Gupta, Sr. DR for the Respondent.

ORDER

Manish Agarwal, Accountant Member.- Both the captioned appeals are filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC), Delhi (‘the CIT(A)’ in short) both dated 11/02/2025 and arising out of the order passed u/s 147/143(3) of the Income Tax Act, 1961 (‘the Act’ for short) for Assessment Years 2012-13 & 2013-14 respectively.

2. Since, both the appeals are having identical issues, therefore, they are adjudicated by a common order. First we take up the appeal for Assessment Year 2012-13 in ITA No.2371/Del/2025.

ITA No.2371/Del/2025 for AY 2012-13.

3. Briefly stated the facts are that assesse has filed his return of income on 29.03.2012 declaring total income of Rs.3,20,210/-. The Assessing Officer had information that assessee received consideration of Rs.5,00,00,000/- from sale of Urban Agricultural Land and no capital gain was declared and therefore, proceedings u/s 147 were initiated after recording the reasons for reopening and obtaining statutory approval from the competent authority. The AO observed that assessee along with its eight brothers had sold the land for Rs.5,00,00,000/- out of which assessee share was of Rs.55,55,555/- (1/9 share). The assessee claimed deduction u/s 54B of the Act out of the capital gains being invested in the acquisition of new agricultural land which was denied on the ground that the assessee had purchased new land in the name of his wife.

4. Against the said order, the assessee filed appeal before the Ld. CIT(A) who vide order dated 11.02.2025 has dismissed the appeal of the assessee, therefore, the assessee is in appeal before the Tribunal by taking following grounds of appeal:

“1. That on the facts and circumstances on the case, the Ld. Commissioner of Income Tax, NFAC had erred in law while dismissing the appeal filed by the appellant.

2. That on the facts and circumstances on the case, the Ld. Commissioner of Income Tax, NFAC has failed to appreciate the factual substratum of the case, statutory provisions of law and as such the order passed is highly misconceived, totally arbitrary, wholly unjustified and therefore, unsustainable.

3. That the order of the Ld. CIT (Appeals) is erroneous, unnecessary, and contrary to the facts and circumstances of the case and applicable legal pronouncement.

4. That the Ld. CIT(Appeals) erred in law while confirming the addition made by the assessing officer in the assessment order.

5. The appellant craves leave to add, delete and modify any ground of appeal at the time of/before the hearing of the appeal and all the grounds are mutually exclusive of each other.”

5. Heard both the parties and perused the materials available on record. The sole issue in this appeal is with respect to allowability of deduction u/s 54B of the Act where the assessee has invested sale consideration into acquisition of another agricultural land in the name of his wife. The lower authorities have denied the deduction to the assessee by placing reliance on the judgment of Hon’ble Jurisdictional High Court in the case of CIT, Faridabad v. Dinesh Verma (Punjab & Haryana). The Ld. CIT(A) further placed reliance on the judgment of Hon’ble Punjab & Haryana High Court in the case of Bahadur Singh v. CIT (Appeals) (Punjab & Haryana), wherein the Hon’ble Court has followed its judgment given in the case of Dinesh Verma (supra). It is also relevant to state that the said order of Hon’ble Punjab and Haryana High Court, of Bahadur Singh (supra) was challenged by the assessee in SLP before the hon’ble Apex court which was dismissed by the Hon’ble Court as Bahadur Singh v. CIT (Appeals) (SC).

6. In view of above, we find no error in the order of Ld. CIT(A) in confirming the denial of deduction u/s 54B as the assessee had purchased the new agricultural land in the name of his wife and not in his own name. Accordingly, all the grounds of the appeal of the assessee are dismissed.

7. Appeal of the assessee in ITA No.2371/Del/2025 is dismissed.

ITA No.2372/Del/2025 for Assessment Year 2023-14

8. The facts as existed in this year are identical to the facts in ITA No.2371/Del/2025 where the assessee has purchased new agricultural land in the name of his wife and claimed deduction u/s 54B of the Act out of the long terms capital gains in this assessment year also. The assesse has sold agricultural land along with his brothers for Rs. 60,00,000/- lacs out of which it was shares comes to Rs.6,66,667/- and Ld. CIT(A) had upheld the denial the deduction u/s 54B as new land was purchased in his name of the wife. However, Ld. CIT(A) directed the AO to re-compute the capital gain by taking his share only as sale consideration as against gross consideration taken by the AO and direct the AO to re-compute the capital gain after giving deduction on account of statutory expenses like indexed cost of acquisitions. We find no error in the order of the Ld. CIT(A) and, accordingly, the same is hereby upheld.

9. In the result, the appeal in ITA No.2372/Del/2025 for Assessment Year 201314 is also dismissed.