2008 (4) TMI 221 - HC - Income Tax

Capital gains - assessability - incidence of the transfer of assets - date of award i.e. 29.9.1970 was the actual date of taking possession of the land - award having been made on 29.9.1970 and the same date being the date of transfer of actual physical possession, the capital gains were rightly assessable for the year under consideration - Tribunal was not right in holding that the capital gains are not assessable in the year under consideration revenue s appeal allowed

Summary

Issues Involved:
1. Determination of the correct date for assessing capital gains for the acquired land.
2. Interpretation of Sections 16 and 17 of the Land Acquisition Act, 1894.
3. Application of Section 45(1) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Determination of the correct date for assessing capital gains for the acquired land:
The Tribunal initially held that the capital gains were not assessable in the year under consideration, asserting that the transaction took place on 15.5.1968, the date of notification under Section 4 of the Land Acquisition Act, not on 29.9.1970, the date of the award. The Tribunal remanded the matter to the Assessing Officer to determine the actual date of possession. The Assessing Officer concluded that the possession was taken on 29.9.1970, aligning the capital gains assessment with that date. The Commissioner of Income Tax (Appeals) upheld this view, confirming that the capital gains were taxable for the year under consideration. However, the Tribunal later vacated this finding, stating that the transaction occurred on 15.5.1968, and directed the revenue authorities to reconsider the matter based on this date.

2. Interpretation of Sections 16 and 17 of the Land Acquisition Act, 1894:
The court examined Sections 16 and 17 of the Land Acquisition Act, 1894, to determine the correct date of possession. Section 16 allows possession to be taken after the award is made, vesting the property absolutely in the Government. Section 17, a special provision for urgent cases, permits possession before the award under specific conditions. The court found no evidence that the Collector invoked Section 17 or took possession under its provisions. The notifications under Sections 4 and 6 did not mention Section 17, indicating that the general provisions of Section 16 applied. Therefore, the date of possession and transfer was determined to be 29.9.1970, the date of the award.

3. Application of Section 45(1) of the Income Tax Act, 1961:
Section 45(1) of the Income Tax Act, 1961, stipulates that capital gains are chargeable to tax in the year the transfer of the capital asset takes place. The court concluded that the transfer of the assessee's land occurred on 29.9.1970, the date of the award, when the land vested in the Government. The court emphasized that income is chargeable to tax only when it accrues or is deemed to accrue. The compensation amount, determined by the award, accrued on 29.9.1970. Thus, the capital gains were chargeable to tax in the previous year relevant to the assessment year under consideration.

Conclusion:
The court held that the capital gains arising from the land acquisition were chargeable to tax in the year the award was made, i.e., 29.9.1970. The Tribunal's order dated 29.6.1990 was deemed unsustainable. The question of law was answered in the negative, favoring the revenue and against the assessee. The reference was answered accordingly.