2016 (11) TMI 1373 - SC - Income Tax

Income-tax on capital gains accruing from land acquisition compensation and sale of land - how the cost of acquisition is to be worked out for the purposes of deduction of such cost from the receipts so as to arrive at the correct quantum of capital gains exigible to tax? - tribunal thought it proper to determine the cost of acquisition at ₹ 50/- per square yard reversed by HC - Held that - A declaration in the return filed by the Assessee under the Wealth Tax Act would certainly be a relevant fact for determination of the cost of acquisition which under Section 55(2) of the Act to be determined by a determination of fair market value. Equally relevant for the purposes of aforesaid determination would be the comparable sales though slightly subsequent in point of time for which appropriate adjustments can be made as had been made by the learned Tribunal (from ₹ 70/- per square yard to ₹ 50/- per square yard). Comparable sales, if otherwise genuine and proved, cannot be shunted out from the process of consideration of relevant materials. The same had been taken into account by the learned Tribunal which is the last fact finding authority under the Act. Unless such cognizance was palpably incorrect and, therefore, perverse, the High Court should not have interfered with the order of the Tribunal. The order of the High Court overlooks the aforesaid severe limitation on the exercise of jurisdiction under Section 260A of the Act. That apart, it appears that there was an on-going process under the Land Acquisition Act, 1894 for determination of compensation for a part of the land belonging to the Assessee which was acquired 39 acres (approx.) . The Reference Court enhanced the compensation to ₹ 40/- per square yard. The above fact, though subsequent, would not again be altogether irrelevant for the purposes of consideration of the entitlement of the Assessee. However, as the determination of the cost of acquisition by the learned Tribunal was on the basis of the comparable sales and not the compensation awarded under the Land Acquisition Act, 1894 (the order awarding higher compensation was subsequent to the order of the learned Tribunal) and the basis adopted was open for the learned Tribunal to consider, we take the view that in the facts of the present case the High Court ought not to have interfered with the order of the learned Tribunal. Thus we are of the view that this appeal should be allowed which we hereby do. The order of the High Court is set aside and that of the learned Tribunal is restored.

Summary

Issues:
1. Determination of cost of acquisition for calculating capital gains under the Income-Tax Act, 1961.

Analysis:
The case involved a dispute regarding the Assessment Year 1989-1990 where the Assessee was required to pay income tax on capital gains from land acquisition compensation and land sale. The main issue was how to calculate the cost of acquisition to determine the correct quantum of capital gains taxable under the Income-Tax Act, 1961.

The Assessing Officer and the First Appellate Authority considered the Assessee's declaration under the Wealth Tax Act as the cost of acquisition, while the Assessee presented comparable sales data at a higher value. However, the authorities rejected the higher value sales as they occurred after the crucial date for determining the cost of acquisition under Section 55(2) of the Act.

The matter proceeded to the Income Tax Appellate Tribunal, which acknowledged the relevance of comparable sales in determining the cost of acquisition. The Tribunal decided to set the cost at a value lower than the comparable sales. Subsequently, the High Court, in a Second Appeal under Section 260A of the Act, overturned the Tribunal's decision, leading to the present appeal before the Supreme Court.

Upon hearing both parties, the Supreme Court emphasized the importance of considering both the Assessee's declaration under the Wealth Tax Act and the comparable sales data for determining the cost of acquisition. The Court highlighted that genuine and proven comparable sales should not be disregarded, as they provide essential information for fair market value determination.

Additionally, the Court noted an ongoing process under the Land Acquisition Act, 1894, where compensation for part of the Assessee's land was enhanced. Although this was a subsequent event, the Court deemed it relevant for assessing the Assessee's entitlement. However, since the Tribunal based its decision on comparable sales rather than the enhanced compensation, the Supreme Court concluded that the High Court erred in interfering with the Tribunal's order.

Consequently, considering all the reasons presented, the Supreme Court allowed the appeal, setting aside the High Court's order and reinstating the decision of the Income Tax Appellate Tribunal.