1983 (12) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Year of chargeability of capital gains in case of compulsory acquisition.
2. Consideration of enhanced compensation in the computation of capital gains.

Summary:

Issue 1: Year of Chargeability in Case of Compulsory Acquisition

The court examined the year of chargeability for capital gains arising from compulsory acquisition u/s 45 of the Income-tax Act, 1961. The relevant date for chargeability is when the transfer of the title takes place, as per the statutory provisions of the Land Acquisition Act, 1894. The court concluded that the transfer is effected when the possession of the land is taken by the Collector, which in this case occurred before March 31, 1966. Therefore, capital gains are assessable in the year in which the transfer took place, even if the compensation is determined or enhanced later by the court.

Issue 2: Consideration of Enhanced Compensation in the Computation of Capital Gains

The court addressed whether the enhanced compensation received by the assessees pursuant to the order of the District Judge should be included in the computation of capital gains. The court held that the right to receive enhanced compensation arises only when it is judicially determined and becomes payable. Since the enhanced compensation was still under appeal and not final, it could not be considered as accrued income. The court noted that the enhanced compensation would accrue only when the court's decision becomes final. The newly inserted s. 155(7A) of the Act allows for recomputation of capital gains when compensation is enhanced by the court, indicating that the enhanced amount accrues only upon final determination.

Conclusion:

The court answered the first question in the affirmative, holding that capital gains are assessable in the year of transfer. The second question was answered in the negative, stating that the enhanced compensation should not be included in the computation of capital gains until it is finally determined by the court. Each party was ordered to bear their own costs.