1986 (7) TMI 166 - AT - Income Tax

Summary

Issues:
1. Taxability of additional compensation received by the assessee.
2. Validity of including enhanced compensation in the full value of consideration under section 155(7A).
3. Entitlement of the assessee to challenge taxability of capital gains in proceedings under section 155(7A).

Analysis:
The appeal before the Appellate Tribunal ITAT Cochin pertains to the taxability of additional compensation received by the assessee in relation to the transfer of agricultural land to the Greater Cochin Department Authority for the assessment year 1975-76. The original assessment included capital gains, which were subsequently revised after appeals to the CIT (A) and the Tribunal. The issue arose when the assessee received enhanced compensation, leading to a notice from the ITO under section 155(2A) to include this amount in the full value of consideration. The assessee objected, citing the Bombay High Court decision in Manubhai S. Sheth & Ors. vs. N.D. Nirgudkar, asserting that no capital gains should have been charged for the acquisition of agricultural land. The ITO, however, included the enhanced compensation in the consideration and recomputed capital gains under section 154 r/w section 155(7A).

The CIT (A) upheld the ITO's order under section 155(7A), prompting the assessee to appeal. During the hearing, the assessee's counsel focused on the taxability of the additional compensation and relied on the Bombay High Court decision. The departmental representative argued that the assessee could not dispute the taxability of capital gains as it had become final per the Tribunal's earlier order. The Tribunal considered the submissions and referred to relevant precedents to determine the assessee's right to challenge the taxability of capital gains on the enhanced compensation.

The Tribunal found that the assessee had the right to raise the issue of taxability of capital gains on the sale of agricultural land concerning the enhanced compensation. It noted that the decision of the Bombay High Court was rendered shortly before the Tribunal's order, and the assessee had no opportunity to raise the issue earlier. Relying on the Bombay High Court decision, the Tribunal held that the enhanced compensation could not be taxed as capital gains. Consequently, the appeal was partly allowed, favoring the assessee's position on the taxability of the additional compensation in question.