2000 (11) TMI 57 - HC - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 1,75,709 maintained by the Appellate Assistant Commissioner for the assessment year 1967-68.
2. Legality of the Tribunal entertaining the additional ground of the assessee regarding Rs. 1,868 and Rs. 19,157 representing profit under section 41(2) and capital gains, respectively.
3. Deletion of sums Rs. 1,868 and Rs. 19,157 from the assessment.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 1,75,709:
The Tribunal deleted the addition of Rs. 1,75,709 sustained by the Appellate Assistant Commissioner. The assessee's factory was requisitioned by the government, and the compensation for the requisitioned period was initially assessed as income for the assessment year 1963-64. However, the Appellate Assistant Commissioner held that the compensation was finally determined in 1965 and should be taxed in the assessment year 1967-68. The Tribunal categorized the compensation into two parts: rent for the use of the property (revenue nature) and compensation for damage and inconvenience (capital nature). The Tribunal held that the amount of Rs. 1,47,109 was of revenue nature and assessable to tax, while the remaining Rs. 80,972 was compensation for demolition and removal of articles, which was considered under section 41(2) of the Act. The Tribunal observed that the right to compensation accrued in December 1954, relevant to the assessment year 1956-57, and there was no accrual in the assessment year 1967-68.

2. Legality of Entertaining Additional Ground:
The Tribunal entertained the additional ground of the assessee regarding Rs. 1,868 and Rs. 19,157 representing profit under section 41(2) and capital gains, respectively. The Tribunal permitted the assessee to raise this additional ground, observing that the assessability of the entire amount of compensation was a question of law and had been an issue all along. The Tribunal deleted these amounts from the assessment for the relevant assessment year, holding that no part of the income had accrued in that year.

3. Deletion of Sums Rs. 1,868 and Rs. 19,157:
The Tribunal deleted the sums of Rs. 1,868 and Rs. 19,157 from the assessment, which were initially admitted by the assessee as taxable under section 41(2) and as capital gains, respectively. The Tribunal's decision was based on its earlier finding that no part of the compensation accrued in the assessment year 1967-68. The Tribunal noted that the right to receive compensation must be deemed to have accrued immediately on the requisition of the assessee's properties in 1954 and should be assessed on an accrual basis, not in the year when the High Court rendered its verdict.

Conclusion:
The High Court remitted the matter back to the Tribunal to reconsider the issue of the year of accrual of the compensation in light of the principle of law laid down by the Supreme Court in Hindustan Housing and Land Development Trust Ltd.'s case. The High Court did not answer the other two questions referred by the Tribunal, as the main issue was remitted back for reconsideration. The decision emphasized the importance of determining whether the right to receive compensation or merely the quantification of the amount was in dispute, affecting the year of taxability.