2004 (2) TMI 45 - HC - Income Tax

Capital gain - Sum received by the assessee not as enhanced compensation but as payments in pursuance of the interim orders of this court and the Supreme Court by furnishing security to the satisfaction of the court pending determination of the additional compensation - the mere fact that some amounts have been received by furnishing security in pursuance of the interim orders pending final determination will not make the amounts received by the respondent compensation or consideration that can be subjected to tax u/s 45(5)(b) - Tribunal was correct in holding that the amount received by the assessee does not fall within the ambit of section 45(5)(b) - Tribunal was correct in holding that the words received and deemed used in section 45(5)(b) will not apply to receipt of amounts in pursuance of the interim orders

Issues Involved:
1. Whether the amount received by the assessee falls within the ambit of section 45(5)(b) of the Income-tax Act.
2. Whether the Tribunal correctly applied the principle laid down in CIT v. A.B.V. Gowda [1986] 157 ITR 697 (Karn) despite the provisions of section 45(5)(b).
3. Whether the words 'received' and 'deemed' in section 45(5)(b) apply to amounts received under interim orders.

Issue-wise Detailed Analysis:

1. Ambit of Section 45(5)(b):
The Tribunal held that the amount received by the respondent does not fall within the ambit of section 45(5)(b) of the Act. The Supreme Court had set aside the award and remanded the matter for fresh determination. Therefore, the Rs. 8 lakhs received by the assessee were not enhanced compensation but interim payments subject to final determination. Only when the reference court's determination becomes final, the amount received will be appropriated against the compensation finally determined and become chargeable under "Capital gains." If the final compensation is less than Rs. 8 lakhs, the excess will need to be refunded. Thus, the interim amounts received cannot be subjected to tax under section 45(5)(b).

2. Application of CIT v. A.B.V. Gowda:
The Tribunal applied the principle from CIT v. A.B.V. Gowda, which states that a mere claim to income without an enforceable right cannot be regarded as accrued income. The Tribunal concluded that the word "received" in section 45(5)(b) refers to receipts from a vested right or enforceable decree/award. Since the Rs. 8 lakhs were conditional receipts subject to the final decision, they could not be considered as received by the assessee in her own right. The Tribunal also considered the deeming provision and held that it could not extend to conditional interim payments.

3. Interpretation of 'Received' and 'Deemed':
The Tribunal clarified that section 45(5)(b) applies only to final, enforceable enhanced compensation. Interim payments received under security, pending final determination, do not qualify as "enhanced compensation." The Tribunal illustrated this with two scenarios:
- In the first, an interim payment becomes enhanced compensation only when the final decision is rendered.
- In the second, an undisputed part of compensation received without further appeal is considered enhanced compensation immediately.

The Tribunal's interpretation aligns with the Supreme Court's decision in CIT v. Hindustan Housing and Land Development Trust Ltd., which held that without an absolute right to receive the amount, it could not be considered accrued income.

Conclusion:
The High Court upheld the Tribunal's findings, answering all three questions against the Revenue. The court confirmed that section 45(5)(b) applies only to final, enforceable enhanced compensation and not to interim payments received under security. The appeal was dismissed as having no merit.

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