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1987 (4) TMI 92 - AT - Income Tax

Issues Involved:

1. Determination of compensation for acquired land.
2. Assessment of damages for severance of unacquired land.
3. Inclusion of damages in the computation of capital gains.
4. Valuation of the acquired land as on 1-1-1954.
5. Applicability of section 45 and section 48 of the Income-tax Act, 1961.
6. The impact of pending appeals on the computation of capital gains.
7. Legal interpretation of "full value of consideration" under section 48.

Detailed Analysis:

1. Determination of Compensation for Acquired Land:

The assessee and co-owners owned lands within the municipal limits of Lucknow. The northern portion of the land was acquired by the Bridge Construction Division of PWD Lucknow. The Special Land Acquisition Officer awarded compensation at Re. 1 per sq. ft., which was later increased to Rs. 3 per sq. ft. by the Civil Judge, resulting in Rs. 2,95,224 for the acquired land.

2. Assessment of Damages for Severance of Unacquired Land:

The Civil Judge awarded Rs. 3,75,045 as damages for the severance of the unacquired land measuring 1,25,015 sq. ft. The claim for solatium was rejected. The damages were awarded because the acquisition of the northern portion rendered the remaining land inaccessible.

3. Inclusion of Damages in the Computation of Capital Gains:

The Income-tax Officer included the damages of Rs. 3,75,045 in the computation of capital gains. The Appellate Assistant Commissioner upheld this inclusion, but the assessee contended that damages should not be considered as part of the consideration for the transfer. The Tribunal had differing opinions on this issue, leading to a reference to the Third Member.

4. Valuation of the Acquired Land as on 1-1-1954:

The assessee valued the land at Rs. 2.50 per sq. ft. as on 1-1-1954, while the Income-tax Officer estimated it at Re. 1 per sq. ft. The Appellate Assistant Commissioner confirmed the lower valuation. The Tribunal eventually estimated the value at Rs. 1.50 per sq. ft., considering the evidence and market trends.

5. Applicability of Section 45 and Section 48 of the Income-tax Act, 1961:

Section 45 of the Income-tax Act, 1961, deems the profits or gains arising from the transfer of a capital asset to be the income of the previous year in which the transfer took place. Section 48 provides the mode of computation and deductions for capital gains. The Tribunal debated whether the damages awarded should be included under the "full value of consideration" as per section 48.

6. The Impact of Pending Appeals on the Computation of Capital Gains:

The assessee argued that since the State had appealed against the Civil Judge's award, the amounts were in jeopardy and should not be included in the computation of capital gains. The Tribunal held that the capital gains should be modified if the High Court's decision alters the Civil Judge's decree.

7. Legal Interpretation of "Full Value of Consideration" Under Section 48:

The Tribunal examined whether the phrase "full value of consideration received or accruing as a result of the transfer of the capital asset" included damages for severance. The Accountant Member believed it did, while the Judicial Member disagreed, leading to a reference to the Third Member. The Third Member, following the Kerala High Court's decision in Smt. M. Subaida Beevi's case, held that damages for severance should not be included in the full value of consideration for computing capital gains.

Conclusion:

The Tribunal concluded that the capital gains should be computed excluding the damages for severance, resulting in a taxable income of Rs. 1,47,612 as per the Judicial Member's view, rather than Rs. 3,35,135 as per the Accountant Member's view. The case was referred back to the regular Bench for final disposal in accordance with the majority opinion.

 

 

 

 

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