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Issues Involved:
1. Whether compensation for injurious affection of the remaining land can be considered as part of the full value of the consideration for the land acquired for the purpose of computation of capital gains under section 48 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Compensation for Injurious Affection and Capital Gains Computation: The primary issue is whether compensation awarded for injurious affection of the unacquired land can be considered part of the full value of the consideration for the land acquired, under section 48 of the Income-tax Act, 1961. The Tribunal initially held that compensation for injurious affection of the remaining land cannot be regarded as forming part of the full value of the consideration for the land acquired for purposes of capital gains computation. The Tribunal reasoned that injurious affection merely means depreciation in the value of the remaining land and thus should not be included in the consideration for the land acquired. However, this observation contradicts statutory provisions in section 23(1) of the Land Acquisition Act and judicial understanding of the right to compensation for severance and injurious affection. Legal texts such as Cripps on Compulsory Acquisition of Land and Halsbury's Laws of England describe compensation for severance and injurious affection as part of the value of the land to the owner and thus part of the purchase money. Therefore, the court concluded that the amount awarded as compensation qualifies for being considered as "full value of the consideration received or accruing as a result of the transfer of the capital asset" within the meaning of section 48 of the Income-tax Act. 2. Commercial Considerations in Capital Gains Computation: The Tribunal also considered ordinary business or commercial considerations, suggesting that a man of business would view compensation for injurious affection separately from compensation for the land transferred. However, the court noted that in practical terms, the price for a portion of land sold often includes considerations for the loss of advantages or imposition of disadvantages on the remaining portion. Thus, the price paid cannot be said to involve two sets of prices. 3. Treatment of Compensation as Capital Loss: The Tribunal suggested treating the amount for injurious affection as a capital loss and deducting it from the compensation amount. This approach was based on the Supreme Court's decision in Miss Dhun Dadabhai Kapadia v. CIT, where depreciation in the value of shares was set off against capital gains. However, the court found it difficult to apply this principle to the present case, as the incidents of a composite capital asset qualitatively diminishing after a transfer do not apply here. The court emphasized that compensation under the fourth head of section 23(1) of the Land Acquisition Act is for the property acquired, not for the unacquired land. Conclusion and Directions: The court concluded that the view taken by the Tribunal is not supportable in law. The compensation for injurious affection should be considered part of the full value of the consideration for the land acquired. Additionally, the cost of acquisition of the acquired portion should be reassessed by placing a corresponding premium on the acquired portion due to its higher value and the disadvantages imposed on the remaining portion. The Tribunal is directed to recompute the capital gains after determining the cost of acquisition of the acquired portion in light of this order, after hearing the parties. The question referred for the opinion of the court is answered in the negative and in favor of the revenue.
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