2010 (7) TMI 630 - HC - Income Tax

Capital gain - Assessing Officer taxed the amount of capital gain by taking the transfer of property on 27-8-1979 on which date the award of compensation was given. The assessee challenged this by submitting that date of transfer of property should be when possession was taken, i.e. on 21-4-1971 and, therefore, in the assessment year 1980-81, no tax could be assessed as capital gain - there is no doubt that the property in dispute was transferred to the Improvement Trust and absolutely vested in it on delivery of possession which took place on 21-4-1971 and not on 27-8-1979 when compensation was paid to the assessee - Decided in the favour of assessee

Summary

Issues:
1. Determination of the date of transfer of property for tax assessment purposes.

Analysis:
The High Court was tasked with determining the date for assessing capital gains tax on a property acquired under the Punjab Development of Damaged Areas Act, 1951. The primary issue revolved around whether the transfer of property occurred on the date of compensation award or upon delivery of possession to the acquiring entity. The Tribunal had ruled in favor of the assessee, asserting that the transfer took place when possession was delivered, not when compensation was awarded or paid.

The Assessing Officer had initially taxed the capital gain based on the date of the compensation award, but the Tribunal disagreed, emphasizing that under the Punjab Act, possession divested the owner of rights, and the property vested in the acquiring entity upon possession delivery. The High Court analyzed the relevant provisions of the Punjab Act, particularly Section 6(2), which unequivocally stated that on delivery of possession, the property vested absolutely in the acquiring entity, subject to compensation payment.

The Court highlighted that the transfer of property occurred on the date of possession delivery, i.e., 21-4-1971, not on the date of compensation award or payment. The revenue's reliance on judgments from other High Courts was dismissed as those cases involved different statutory provisions. The Court reiterated that the specific provision of the Punjab Act governed the case at hand, leading to the conclusion that the capital gain was exigible to income tax in the assessment year relevant to possession delivery, not the compensation award date.

In conclusion, the High Court ruled against the revenue's contention, affirming that the transfer of the property, for tax assessment purposes, took place on the date of possession delivery as per the provisions of the Punjab Act. The judgment clarified the critical role of possession delivery in determining the taxability of capital gains arising from property transfers under specific statutory enactments.