First of all the agricultural land as per the defintion of the income tax act has a different character and you must be aware of it.
If it's an agricultural land covered under the definition under the income tax act, then the question of taxing it does not arise.
If it's not covered under the definition then the sale would be chargeable to tax.
In order to avail the benefits U/s. 54F you shall have to invest the sales consideration less the selling expenses i.e. brokerage or other sales exp. for buying the residential house. Do remember, AS PER THE PROVISIONS OF SECTION 54F IS CONCERNED YOUR CLIENT MUST OWN ONLY ONE HOUSE PROPERTY PRIOR TO THE PURCHASE OF THIS NEW HOUSE PROPERTY, taking the total to two houses including the new house property.
However the following case laws may help you to provide a clarity with respect to purchase a HP in joint name with your wife but not in wife's name individually.
Here are a few case laws for your reference
The Punjab & Haryana High Court in the case of CIT v. Gurnam Singh, 327 ITR 278.
In the following decisions also, exemption has been allowed to the assessee for investment in the sole/joint name with wife :
(1) CIT v. V. Natrajan, 287 ITR 271 (Mad.)
(2) ITO v. Smt. Saraswati Ramanathan, 116 ITD 234 (Del.)
(3) JCIT v. Smt. Armeda K. Bhaya, 95 ITD 313 (Mum.)
4) HIGH COURT OF DELHI, ITA No.1106 of 2011, Decision Delivered On: 27th September, 2011,Commissioner Of Income Tax Versus Ravinder Kumar Arora
5) CIT Vs. Podar Cements (P) Ltd. & Ors., (1997) 226 ITR 625 (SC), the Supreme Court has also accepted the theory of constructive ownership. Moreover, Section 54F mandates that the house should be purchased by the assessee and it does not stipulate that the house should be purchased in the name of the assessee only. Here is a case where the house was purchased by the assessee and that too in his name and wife‟s name was also included additionally. Such inclusion of the name of the wife for the above-stated peculiar factual reason should not stand in the way of the deduction legitimately accruing to the assessee. Objective of Section 54F and the like provision such as Section 54 is to provide impetus to the house construction and so long as the purpose of house construction is achieved, such hyper technicality should not impede the way of deduction which the legislature has allowed. Purposive construction is to be preferred as against the literal construction, more so when even literal construction also does not say that the house should be purchased in the name of the assessee only. Section 54F of the Act is the beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on hyper technical ground. Andhra Pradesh High Court in the case of Late Mir Gulam Ali Khan Vs. CIT, (1987) 165 ITR 228 (AP) has held that the object of granting exemption under Section 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given exemption so far as capital gains are concerned. The word “assessee” must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word “assessee” as that would frustrate the object of granting exemption.
We also find judgments of other High Courts giving benefit of Section 54F(1) of the Act when the house of the assessee is purchased jointly with his wife. In the case of CIT Vs. Natrajan, (2007) 287 ITR 271 (Mad), though this case was decided in relation to Section 54 of the Act, the said Section is pari materia of Section 54F(1) of the Act. Likewise, the Punjab & Haryana High Court in the case of CIT Vs. Gurnam Singh, (2010) 327 ITR 278 took the same view while discussing the provisions of Section 54 of the Act which is again pari materia of Section 54F(1) of the Act.
BUT THE SALES CONSIDERATION MUST FLOW FROM THE ACCOUNT OF YOUR CLIENT AND THE CLUBBING PROVISION WOULD ALSO BE ATTRACTED OVER HERE. DO REMEMBER TO CONSIDER THE RENTAL INCOME IN THE SOLE NAME OF YOUR CLIENT AND NOT HIS WIFE AND INTEREST DEDUCTION UNDER HOUSE PROPERTY, IF ANY, SHOULD BE RESTRICTED TO YOUR CLIENT'S ACCOUNT.
BUT STILL, THERE ARE MANY COMPLEXITIES SORROUNDING THIS ISSUE. HOPE THIS WOULD HELP YOU A LITTLE. DO LOOK FOR MORE DECISIONS BEFORE ADIVICING.