1986 (2) TMI 34 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the following issues:
1. Determination of the cost of acquisition of compulsorily acquired lands.
2. Inclusion of solatium in the consideration for the transfer of acquired lands.
3. Allowability of expenses incurred for enhanced compensation in computing capital gains.
4. Treatment of severance compensation as part of consideration for the transfer involved in compulsory acquisition.

Issue 1: Cost of Acquisition of Lands:
The case involved the acquisition of agricultural lands by the Government under the Kerala Land Acquisition Act, 1961. The dispute centered around whether the cost of acquisition should be based on the market value as of April 1, 1970, as claimed by the assessee, or as of April 1, 1954, as contended by the Department. The Tribunal held that the cost of acquisition should be reckoned with reference to the market value of the land as on January 1, 1954.

Issue 2: Inclusion of Solatium in Consideration:
The solatium received by the assessee as part of the compensation for the acquired lands was a key point of contention. The Tribunal determined that the solatium forms part of the consideration received for the transfer of the capital asset and is exigible to tax under section 45 of the Income-tax Act.

Issue 3: Allowability of Expenses for Enhanced Compensation:
The question arose regarding the deductibility of expenses incurred by the assessee for getting enhanced compensation in computing capital gains. Citing a previous decision, it was held that such expenses are allowable deductions under section 48(i) of the Income-tax Act.

Issue 4: Treatment of Severance Compensation:
The compensation awarded for severance due to the depletion in value of the remaining property was disputed. It was concluded that such severance compensation cannot be considered as part of the consideration received or accrued from the transfer of the capital asset, as it is unrelated to the transfer itself.

The judgment clarified the legal provisions under the Income-tax Act regarding the computation of capital gains, emphasizing the definition of "transfer" to include compulsory acquisition of capital assets. It referenced relevant sections and case law to support the conclusions reached on each issue. Ultimately, questions 1 and 2 were decided in favor of the Revenue, while questions 3 and 4 were resolved in favor of the assessee.