[Section 54D] : Exemption of Capital Gains on Compulsory Acquisition Of Land And Buildings forming part of Industrial Undertaking

1. The Provisions of Section 54D towards Exemption of Capital Gains on Compulsory Acquisition Of Land And Buildings forming part of Industrial Undertaking are given below –

1. Who can claim exemption :

Any Taxpayer

2.Which specific asset is eligible for exemption :

Land or building (short-term or long-term) forming part of an industrial undertaking which is compulsorily acquired by the Government and which is used 2 years for industrial purposes prior to its acquisition

3. Which asset the taxpayer should acquire to get the benefit of exemption :

Land or Building for industrial purposes.

4. What is time-limit for acquiring the new asset :

Within 3 years from the date of receipt of compensation.

5. How much is Exempt (Quantum of Deduction):

Investment in the New Asset or Capital Gain, Whichever is Lower.

In other words, capital gain shall be exempt to the extent it is invested in the purchase/construction of new land/building for the industrial undertaking.

The new asset should not be transferred within 3 years from the date of acquisition of the new asset.

6. Is it possible to Revoke the Exemption in a Subsequent Year :

If the new asset is transferred within 3 years of its acquisition, exemption will be taken back.

For calculating capital gain on transfer of new asset, cost of acquisition will be calculated as (original Cost of Acquisition – Exemption availed under Section 54D).

2. Scheme of Deposit in Capital Gains Accounts Scheme, 1988:

The scheme of deposit is applicable in this case also. In other words, the assessee should either purchase or the construction land / building for the industrial undertaking and/or deposit the amount under the Capital Gains Accounts Scheme on or before the due date of furnishing the return of income. The amount so spent/deposited, by the due date of furnishing the return, shall be treated as if it was used for the said purpose.

The proof of such a deposit shall be attached with the return. In this case, the amount already utilised by the assessee for the purchase or the construction of land/building for the industrial undertaking, along with the amount so deposited, shall be deemed to the cost of the agricultural land and shall be eligible for exemption.

(A) Consequences where the amount deposited in the Capital Gains Accounts Scheme is not utilised for the purchase or the construction of land/building for the industrial undertaking within the specified period:

The amount not so utilised shall be charged as capital gains of the previous year in which the period of 3 years from the date of transfer of the original asset expires and it will be shortterm or long-term capital gain, depending upon the fact whether the capital gain at the time of the original transfer was a short-term or long-term capital gain. In this case, the assessee shall be eligible to withdraw the amount from the scheme.

  1. It may be observed that exemption u/s 54D is available to all assessees including companies, which own industrial undertakings.

  2. The unutilised deposit amount in the Capital Gains Accounts Scheme, 1988 in the case of an individual, who dies before the expiry of the two/three years stipulated period under section 54, 54B, 54D, 54F and 54G, cannot be taxed in the hands of the deceased. This amount is not taxable in the hands of legal heirs also as the unutilised portion of the deposit does not partake the character of income in their hands but is only a part of the estate devolving upon them.

  3. In the case of transfer by way of compulsory acquisition by the government, the period of 3 years for acquiring the new asset shall commence from the date of receipt of the compensation and not from the date of acquisition. Similarly, deposit under the Capital Gains Accounts Scheme may be made in the previous year in which the compensation is received or till the due date of filing of the return of income of the previous year, in which the compensation is received.

(B) Consequences where the new asset is transferred within a period of 3 years of its purchase or construction:

In this case, the capital gain which was exempt under this section earlier, shall be reduced from the cost of the new asset for the purpose of computation of capital gain in respect of the transfer of the new asset.

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