1983 (3) TMI 81 - AT - Income Tax

Summary

Issues Involved:
1. Validity of rectifying the original assessment under section 154 of the Income-tax Act, 1961.
2. Applicability of section 155(7A) of the Income-tax Act, 1961 to the assessment year 1972-73.

Detailed Analysis:

1. Validity of Rectifying the Original Assessment under Section 154:

The respondent-assessee's lands were acquired by the Government, and the compensation was initially determined by the Land Acquisition Officer. Upon the assessee's request, the compensation was enhanced by the District Judge. The ITO rectified the original assessment order dated 1-3-1975 by including the additional compensation of Rs. 2,30,738, invoking section 154 of the Income-tax Act, 1961. The Commissioner (Appeals) held that the additional compensation could not be brought to tax for the assessment year 1972-73 by an order under section 154, and thus deleted the sum of Rs. 2,30,738.

The Tribunal observed that section 155(7A) allows for the rectification of the original assessment order to include the enhanced compensation, provided the rectification is done within four years from the end of the previous year in which the additional compensation was received. The ITO's rectification order dated 27-2-1979 was within the four-year period from the District Judge's order dated 22-6-1976. Therefore, the Tribunal concluded that the ITO was justified in invoking section 154 read with section 155(7A) to rectify the original assessment order.

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

Section 155(7A) was inserted by the Finance Act, 1978, with retrospective effect from 1-4-1974. The provision states that if compensation is enhanced, the computation made earlier 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 intention of the Legislature was to amend the original assessment by taking into account the enhanced compensation if determined after 1-4-1974.

The Tribunal referred to the Supreme Court decision in T.S. Devinatha Nadar's case, which held that the power of rectification is to be exercised within four years from the date of the final order enhancing the compensation. The Tribunal found that the enhanced compensation in the present case was awarded after 1-4-1974, and thus, section 155(7A) applies even for the assessment year 1972-73. The rectification order dated 27-2-1979 was within the permissible period, making it valid.

Conclusion:

The Tribunal concluded that the ITO's order dated 27-2-1979, made under section 154, was valid. The Commissioner (Appeals) was wrong in holding that the additional compensation could not be brought to tax for the assessment year 1972-73 by an order under section 154. The Tribunal reversed the Commissioner (Appeals)'s order and restored the ITO's order, including the enhanced compensation of Rs. 2,30,738 for computing the capital gain. The appeal was allowed.