2003 (2) TMI 16 - HC - Income Tax

Advance compensation received for the land acquired by the State Government - assessment year with respect to which the compensation can be brought to capital gains tax - sections 11(3) and 12 of the Land Acquisition Act 1894, makes it clear that the transfer is effective only on the passing of the award and on surrendering the documents of title and on getting the award amount pursuant thereto - the compensation received by the assessee as per the award dated December 18,1992, is the crucial date for determining the assessment year - entire award amount has to be assessed only during the assessment year 1993-94, as held by the first appellate authority

Issues Involved:
1. Interpretation of section 45(5)(a) of the Income-tax Act, 1961.
2. Assessability of the entire compensation amount in the assessment year 1992-93.
3. Interpretation and understanding of the circular relied upon by the Tribunal.

Issue-wise Detailed Analysis:

1. Interpretation of section 45(5)(a) of the Income-tax Act, 1961:

The central issue revolves around the interpretation of section 45(5)(a) of the Income-tax Act. The appellant argued that section 45(5)(a), introduced by the Finance Act, 1987, mandates that when compensation is received in parts, the entire amount should be assessed in the year when the first part is received. The Tribunal had held that the advance payment of Rs. 27,08,000 should be assessed in the year of receipt (1992-93), and the balance amount of Rs. 9,73,219 should be assessed in the year it was received (1993-94).

The court, however, emphasized that section 45(1) is the charging provision, which states that capital gains arise from the transfer of a capital asset in the previous year in which the transfer took place. The court clarified that in cases of compulsory acquisition, the transfer is complete only by the passing of the award, payment of the award amount, and dispossession of the owner. Therefore, the date of the award is crucial for determining the assessment year.

2. Assessability of the entire compensation amount in the assessment year 1992-93:

The Assessing Officer had included the entire compensation amount of Rs. 38,11,604 in the assessment year 1992-93, based on the initial receipt of Rs. 27,08,000 in August 1991. The court disagreed with this approach, stating that the entire compensation should be assessed with reference to the date of the award by the Collector, which was December 18, 1992. Consequently, the compensation should be assessed in the assessment year 1993-94.

The court further noted that section 45(5) applies only when the compensation is enhanced or further enhanced by a court, Tribunal, or other authority. Since there was no case of enhanced compensation in this instance, section 45(5) was deemed inapplicable. The court concluded that the compensation received as per the award should be assessed in the year following the award date.

3. Interpretation and understanding of the circular relied upon by the Tribunal:

The Tribunal's interpretation of the circular and section 45(5)(a) was contested. The Tribunal had taken the view that the advance payment should be assessed in the year of receipt and the balance in the subsequent year. The court found this interpretation flawed, as it did not align with the statutory provisions of section 45(1) and the Land Acquisition Act.

The court explained that the compensation awarded in the first instance refers to the compensation determined by the Collector's award, and the amounts received pursuant to the award should be assessed in the year of the award. The advance payment received prior to the award does not constitute the compensation awarded in the first instance under section 45(5)(a).

Conclusion:

The court ultimately held that the entire compensation amount should be assessed in the assessment year 1993-94, based on the award date of December 18, 1992. The Tribunal's decision to assess the advance payment in the year of receipt was not interfered with, as the assessee did not appeal against it. However, the court vacated the Tribunal's finding regarding the assessability of the balance amount of Rs. 9,73,219 in the assessment year 1993-94. The appeal was disposed of accordingly.

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