Section 10(37A) - Exemption on transfer of asset for development of city of Amravati

• Section 10(37A) of the Income Tax Act 1961, prescribes exemption from Capital Gains, on transfer of specified capital asset, arising to an assessee, being an individual or an HUF who was the owner of such specified capital asset as on 2nd June, 2014 and transfers such specified capital asset under the Land Pooling Scheme. 

• After the split of the state of Andhra Pradesh into Andhra Pradesh and Telangana, the Government of Andhra Pradesh formulated the Land Pooling Scheme within which the government acquired plots of land from people for development of their new capital Amravati.

• The compensation was provided to the people on compulsory acquisition by the Government in form of Land Pooling Ownership Certificates or reconstituted plot/land. These Land Pooling Ownership Certificates were given to the people on compulsory acquisition which were transferrable from one person to another.

• Specified capital asset for the purposes of this section included the following:

• Land or building or both owned by the assessee on 2nd June, 2014.

• Land Pooling Ownership Certificates issued to the assessee in lieu of land or building or both.

• The reconstituted plot/land received by the assessee in lieu of original land or building which is transferred by the assessee within 2 years from the end of the financial year in which possession of such reconstituted plot or land is handed over to the assessee.

• This means that capital gains arising on transfer of such Land Pooling Ownership Certificates shall be exempt from tax under this section.

• Further, if the reconstituted plot/land is transferred by the assessee within 2 years from the end of the financial year in which possession of such plot/land is handed over to the assessee, then capital gains arising on transfer of such reconstituted plot or land shall be exempt from tax under this section.

• Now, what would happen if the plot/land is transferred after the expiry of 2 years? In such a case, capital gains shall arise to the assessee.

• However, section 49(6) of the Act provides that the cost of acquisition of such reconstituted plot or land shall be the stamp duty value of such asset as on the last day of the second financial year after the end of the financial year in which the possession of the such plot or land was handed over to the assessee.

• It is important to note here that only Capital Gains income arising to Individual or HUF shall be exempt from tax. If the assessee held that asset as a stock in trade, then business income arising on transfer of such asset under the Land Pooling Scheme shall not be exempt from tax.