1983 (3) TMI 80 - AT - Income Tax

Summary

Issues Involved:

1. Validity of rectification under section 154 of the Income-tax Act, 1961.
2. Applicability of section 155(7A) to the assessment year 1972-73.
3. Period of limitation for rectification.

Detailed Analysis:

1. Validity of Rectification under Section 154 of the Income-tax Act, 1961:

The original assessment was made on 1-3-1975, where the compensation determined by the Land Acquisition Officer was taken into account for computing the capital gain. The District Judge, by his order dated 22-6-1976, enhanced the compensation by Rs. 2,30,738. The Income Tax Officer (ITO) rectified the original assessment order under section 154 on 27-2-1979, taking into consideration the additional compensation. The Commissioner (Appeals) held that section 155(7A) came into effect only from 1-4-1974 and thus deleted the sum of Rs. 2,30,738 from the computation of capital gain. The Tribunal considered whether the ITO could rectify the original assessment order under section 154 by including the enhanced compensation of Rs. 2,30,738.

2. Applicability of Section 155(7A) to the Assessment Year 1972-73:

Section 155(7A), inserted by the Finance Act, 1978, with retrospective effect from 1-4-1974, states that if the compensation is enhanced, the earlier computation shall be deemed to have been wrongly made, and the ITO shall recompute the capital gain by taking the enhanced compensation as the full value of the consideration received. The Tribunal noted that the provision was intended to rectify the original assessment by including the enhanced compensation if it was determined after 1-4-1974. Despite the memorandum explaining the provisions in the Finance Bill, 1978, indicating that the amendment would apply from the assessment year 1974-75 onwards, the Tribunal found that the language of section 155(7A) did not restrict its applicability only to the assessment year 1974-75 onwards. Since the enhanced compensation was awarded after 1-4-1974, the provision applied even to the assessment year 1972-73.

3. Period of Limitation for Rectification:

The Tribunal examined whether the rectification order dated 27-2-1979 was within the permissible period. Section 155(7A) allows rectification within four years from the end of the previous year in which the additional compensation was received. The ITO's order was within four years from the District Judge's order dated 22-6-1976. The Tribunal referred to the Supreme Court's decision in T.S. Devinatha Nadar's case, where the Court upheld the rectification of an individual partner's assessment based on the reassessment of the firm, even though the relevant provision came into effect retrospectively. The Tribunal concluded that the rectification order dated 27-2-1979 was valid as it was made within the four-year period from the date of the District Judge's order enhancing the compensation.

Conclusion:

The Tribunal held that the ITO was justified in invoking the provisions of section 154 read with section 155(7A) to rectify the original assessment order and include the enhanced compensation of Rs. 2,30,738 for computing the capital gain. The order of the Commissioner (Appeals) was reversed, and the ITO's order was restored. The appeal was allowed.