33. The assessee is a salaried doctor and has a house loan of Rs. 8 lakhs. He has been paying EMI for the past 2 years. His father is a retired government servant and planning to sell his 2 acres land, the proceeds of which he will pay for the loan of the assessee. The assessee seeks your advice whether the assessee have to pay tax on the amount which his father is paying for his housing loan or is there an exemption on the amount earned by the fertile agricultural land? whether the assesse’s father is liable to pay tax on amount earned from agricultural land?

1. Facts of the Case

• The assessee is a salaried doctor and has taken a housing loan of ₹8,00,000, on which he has been paying EMIs for the last 2 years.
• His father, a retired government servant, owns 2 acres of agricultural land, which he now plans to sell.
• The sale proceeds from this agricultural land will be used by the father to repay the remaining housing loan of the assessee.
• The assessee wants to know:
  • Whether he has to pay tax on the amount of loan repaid by his father.
  • Whether his father is liable to pay tax on the sale of agricultural land.

2. Issues in the Case [Questions]

1. Is the repayment of the assessee’s home loan by his father taxable in the hands of the assessee?
2. Does such repayment amount to a gift under the Income Tax Act?
3. Is the sale of agricultural land by the father taxable under capital gains?
4. Under what conditions is agricultural land exempt from tax?

3. Legal Principles Covered

A. Taxability of Loan Repayment by a Relative

• As per Section 56(2)(x) of the Income Tax Act, any sum received by an individual from a relative is not taxable.
• “Relative” includes father, mother, spouse, brother, sister, etc.
• The loan repayment by father on behalf of the assessee is a gratuitous payment and can be classified as a gift or financial help from a relative.

Therefore, the amount paid by the father towards the assessee’s home loan is not taxable in the hands of the assessee.

B. Taxability on Sale of Agricultural Land (Father’s Income)

Under the Income Tax Act, 1961, the capital gain from sale of agricultural land depends on whether the land is rural or urban.

• Rural Agricultural Land [Section 2(14)(iii)]:
  • Not a “capital asset”, hence not subject to capital gains tax.
  • Conditions:
    • Land is not situated within limits of a municipality or cantonment board having population ≥ 10,000.
    • And not within 2–8 km from such area depending on population.

If the land sold by the father qualifies as rural agricultural land, no tax is payable on the sale.

• Urban Agricultural Land:
  • Treated as capital asset.
  • Sale is subject to capital gains tax, but exemptions under Section 54B may apply if the amount is reinvested in agricultural land.

C. Relevant Case Laws and CBDT Clarifications

1. CIT v. Dr. R. M. Lakhani (2014) – Held that monetary gifts from father to son are not taxable under Section 56.
2. CIT v. Smt. Anjana B. Shah (2011) – Agricultural land, if rural, not treated as a capital asset, and sale proceeds are exempt.
3. CBDT Circular No. 5/2014 – Reaffirms that gift from a relative is not chargeable to tax.

4. Possible Judgement / Advisory

Based on the above analysis:

1. For the Assessee (Son):
   • The housing loan repayment made by his father is not taxable under the Income Tax Act as it is a gift from a relative.
   • No income or benefit arises that qualifies as taxable under Section 56(2)(x).
2. For the Father:
   • If the agricultural land qualifies as rural agricultural land (as defined in Section 2(14)(iii)), then the entire sale proceeds are exempt from capital gains tax.
   • If the land is urban, capital gains tax may apply, but exemptions under Section 54B can be claimed if the proceeds are reinvested in agricultural land within 2 years.