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Issues Involved:
1. Whether the CIT(A) is justified in directing the AO to delete the requisition compensation by holding that the same does not have the character of income. 2. Whether the CIT(A) is justified in restricting the addition made towards the expenses claimed against the enhanced compensation. Issue No. 1: Deletion of Requisition Compensation The assessees were co-owners of commercial property in Kolkata, requisitioned by the Government of West Bengal under the West Bengal Land (Requisition and Acquisition) Act, 1948, on 23rd April 1976. Subsequently, the land was acquired on 7th April 1990. The assessees received requisition compensation for the period from 23rd April 1976 to 6th April 1990 and enhanced acquisition compensation on 20th April 2000, following a final order by the Calcutta High Court. The AO assessed the requisition and acquisition compensation under long-term capital gain as per sections 45(5)(a) and 45(5)(b) of the IT Act, 1961. However, the CIT(A) directed the AO to delete the requisition compensation, holding it as a capital receipt without the character of income. The Departmental Representative argued that the compensation received should be considered as part of the total consideration for computing capital gain, relying on section 48 of the IT Act. Conversely, the Authorized Representative contended that the requisition compensation is not taxable as it does not constitute a transfer of property but merely a deprivation of use and enjoyment of the land. The Tribunal analyzed the provisions of the West Bengal Land (Requisition and Acquisition) Act, 1948, and concluded that requisition does not amount to a transfer of property since ownership remains with the assessee. The compensation for requisition is neither rent nor income but a compensation for deprivation of property use. The Tribunal referred to the Supreme Court judgments in Senairam Doongarmall vs. CIT and CIT vs. D.P. Sandu Bros. Chembur (P) Ltd., which supported the view that such compensation does not constitute income. Therefore, the Tribunal held that the requisition compensation received by the assessees is not taxable under the IT Act, either as capital gain or under any other head of income. Issue No. 2: Restriction on Addition of Expenses Claimed Against Enhanced Compensation The assessees claimed expenses for legal, telephone, conveyance, vehicle, and office expenses incurred during litigation for enhanced compensation. The AO allowed only legal expenses and disallowed the rest. On appeal, the CIT(A) restricted the disallowance to 50% of the expenses due to lack of complete substantiation. The Tribunal found that the expenses were incurred during the litigation for both requisition and acquisition compensation. Since the requisition compensation is not considered income, the proportionate expenses related to it are not allowable. The Tribunal directed the AO to allow expenses proportionate to the income offered by the assessees and the amount received for requisition compensation, maintaining the percentage restriction by the CIT(A) for non-legal expenses. Conclusion: The Tribunal partly allowed the appeals of the Revenue, upholding the deletion of requisition compensation as non-taxable and modifying the allowance of expenses proportionately to the income offered by the assessees.
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