section 54 B

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Querist : Anonymous

Querist : Anonymous (Querist)

25 October 2010 if an individual who has capital gain on sale of agriculture land, purchases a rural agri.land to take the benefit under section 54 B of the Income tax Act.and if he transfers the same within a period of 3 years, then whether the benefit which was taken will be withdrawn??

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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25 October 2010 Yes will be withdrwan.

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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25 October 2010 As the new asset is not a capital asset-
there will be no Capital Gains on its transfer.

For calculating Capital gains on transfer of new asset within 3 years , withdrawal of exemption earlier enjoyed, is indirectly made by reducing the new asset's cost of acquisition.

let's take an example- which is applicable to transfer of a capital asset-

Capital Gains 2
New Asset purchased 5
exempted LT capital gain 2
New asset sold within 3 yrs for 10
Capital gains= 10-(5-2)=7

So if Gain is 7 but it's not a Capital Gain if the asset is not a capital asset.

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Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2010 as there are 2 different opinions, please guide which opinion is to be considered??

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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11 November 2010 1. Capital Gains arises only on transfer of Capital Assets. If the asset transferred is not a Capital Asset (as defined U/s 2(47)
let's take the same example, assuming that the assset transferred is a rural agriculture land.
Capital Gains on sale of old Urban Agri land 2
New Asset purchased-Rural Agriculture Land
of Rs. 5
LT capital gain exempted earlier 2
New asset sold within 3 yrs for 10
Capital gains ? = 10-(5-2)=Rs. 7

But 7 is not treated as a capital gain because the asset transferred is not a capital asset. As such, practically, there is no withdrawal of capital gain claimed earlier.

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