Section 54D of the Income Tax Act provides the rules for Capital Gain calculation on Compulsory Acquisition of Land and Buildings. Section 54D lays down the provisions, when a Central Government or State Government takes away the land or building and pays certain compensation. In this Article we will discuss the Detailed provisions of Section 54D, Capital Gain Calculation under section 54D of the Income Tax Act, Case Laws relating to Section 54D.
Scope of Section Section 54D Income Tax Act
An assessee is entitled to exemption from tax in respect of capital gains arising from the transfer, by way of compulsory acquisition, of any land or building forming part of an industrial undertaking belonging to him provided the following conditions are satisfied:
- The land and buildings form part of an industrial undertaking of the assessee.
- It has been so used for at least two years preceding the date of compulsory acquisition.
- The assessee purchases any other land and building within a period of three years from the date of acquisition or constructed a building within such period.
- The newly acquired lands and buildings are used for the shifting or re-establishment of old industrial undertaking or for setting up new industrial unit.
- The new asset is not transferred by the assessee for a period of three years from the date of acquisition.
- The capital gains are not chargeable to tax to the extent they are utilised in purchasing the land and building.
Consequences if new land or building is transferred within 3 years – Section 54D Income Tax Act
If new land or building is transferred within a period of three years from the date of its purchase or construction, the amount of capital gains arising therefrom, together with the amount of capital gains exempted earlier, will be chargeable to tax in the year of sale of new land and building.
Scheme of deposit – Section 54D Income Tax Act
Where the amount of capital gain is not appropriated or utilised by the assessee for purchase of new asset before the date of furnishing the return of his income, it shall be deposited by him on or before the due date of furnishing the return of income, in an account with a bank or institutions specified in, and utilised in accordance with any scheme framed by the Central Government in this regard.
The amount already utilised for purchase or construction of the new asset, together with the amount so deposited, shall be deemed to be the amount utilised for the purchase of a new asset.
Amount not utilised fully – Section 54D Income Tax Act
If the amount deposited is not utilised fully for purchase or construction of a new asset within the stipulated period, then the amount not so utilised shall be treated as the capital gain of the previous year in which the period of three years from the date of transfer of original asset expires. In such case the assessee shall be entitled to withdraw such amount in accordance with the aforesaid scheme.
Case Law – Section 54D Income Tax Act
The words ‘industrial undertaking’ should be understood to have been used in Section 54D in a wide sense, taking in its fold any project or business a person may undertake. Thus, the ‘running of a lodge’ can also be said to be an ‘industrial undertaking’ within the meaning of Section 54D. [P. Alikunju M.A. Nazeer Cashew Industries v. CIT (1987) 166 ITR 804 (Ker)].
Whole Provisions – Section 54D Income Tax Act
Under Sections 54, 54B, 54D, 54EC, 54F, 54G and 54H of the Act, capital gains arising from the transfer of certain capital assets are exempt from tax under certain circumstances. These provisions are dealt with section wise below.