2014 (11) TMI 937 - HC - Income Tax

Land of assessee acquired under Land Acquisition Act Fixation of market value by the Land Acquisition Officer Claim of benefit u/s 54H - Extension of time for acquiring new asset - Whether the word compensation as referred to in Section 45(5)/54H includes the additional compensation or not - Held that - The compensation received by the owner of the property whenever it is acquired under the Act is treated as capital gains and it is made subject to levy of capital gains tax - the determination of the compensation for the land acquired from the assessee occurred at three stages viz., Land Acquisition Officer, Civil Court and the High Court - Naturally the payment of compensation was also made in a staggered manner depending on the nature of adjudication - the assessing authority took the view that it is only amount which is determined by the Land Acquisition Officer, that can be the subject matter of the exemption u/s 54 - it is a misnomer to call the enhanced amount as additional compensation thus, the order of the Tribunal is set aside and the benefit u/s 54-H of the I.T. Act shall be extended to the entire amount of compensation Decided in favour of assessee.

Summary

Issues:
1. Interpretation of the term "compensation" under Section 54-H of the Income Tax Act.
2. Whether the enhanced compensation determined by the High Court is eligible for exemption under Section 54-H of the Income Tax Act.

Analysis:
1. The appellant's land was acquired by the Government under the Land Acquisition Act, and the market value was initially fixed at &8377; 6.50 per square yard. Subsequently, the trial Court and the High Court enhanced the market value to &8377; 20 and &8377; 70 per square yard, respectively. The appellant claimed the benefit under Section 54-H of the Income Tax Act, which provides exemption from capital gains tax if the compensation is reinvested. However, the Assessing Officer restricted the benefit to the amount awarded by the Land Acquisition Officer, not considering the enhancements by the courts.

2. The main question raised was whether the term "compensation" under Section 54-H of the Income Tax Act includes additional compensation determined by the courts. The assessing authority, appellate authority, and Tribunal all held that only the amount determined by the Land Acquisition Officer is eligible for exemption. However, the High Court clarified that the final compensation includes not only the market value but also components like solatium and additional market value. The Court emphasized that there is no concept of "additional compensation" separate from the final compensation amount determined by the courts.

3. The Court highlighted that the determination of compensation may go through various stages and levels of adjudication, ultimately reaching a final figure that represents the complete compensation. The Court rejected the notion of additional compensation and ruled that the benefit under Section 54-H of the Income Tax Act should be extended to the entire amount of compensation as enhanced by the High Court. Consequently, the Court allowed the appeal, setting aside the previous orders and directing the extension of the tax exemption to the enhanced compensation amount determined by the High Court.