825/CBDT. - Income Tax - 825/CBDT

INSTRUCTION NO. 825/CBDT Dated : January 20, 1975 In cases where lands owned by an assessee are the subject matter of acquisition under the Land Acquisition Act and the compensation initially awarded for acquisition is enhanced by Court in reference proceedings, the following questions could arise in connection with Wealth-tax assessments of the assessee: (i) How have the lands to be valued prior to their acquisition?; (ii) Whether the final compensation awarded can be treated as an asset from the date the assessee is dispossessed of the land or whether the right to receive the additional compensation is created only when the Courts pronounce their orders. 2. The Board are advised that prior to the date of actual acquisition, the lands in question can be valued on the basis of the compensation ultimately awarded by the Court. This is because in awarding compensation under the Land Acquisition Act, the court has inter-alia to determine its market value as on the date of the issue of notification u/s 4(1) of the Land Acquisition Act, 1894 or the corresponding provision in the local Act. The determination of the court can, therefore, be regarded as good evidence of the market value of the land at about the relevant valuation date. Even after the preliminary notification u/s 4 of the Land Acquisition Act is published in respect of the particular piece of land, the land would continue to belong to the owner. The date of notification under the said Section is material only because compensation for the land, if it is acquired, has to be determined on the basis of its market value as on the date. Later, after an enquiry the Collector makes an award and takes possession of the land which then vests in the Government free from all encumbrances. Till such vesting the assessee is the owner of the land. Hence the Department would be justified in valuing the particular asset, namely, the land in question on the basis of its market value as ascertained by the court after a full and elaborate investigation. That would be good evidence as to the market value of the land. 3. The position however, changes, once possession of the land has been taken over by the Collector. Thereafter, the assessee ceases to own the land and the asset to be then included is the right to receive compensation. The amount of compensation awarded by the Collector would certainly be included in the net wealth of the party. If the party has claimed additional compensation and a reference has been made to the Court, the claim to the compensation may ultimately be awarded by the court is also an asset. Thus, what the Wealth-tax Officer has to assess is the right to receive full compensation for the land and not the smaller amount initially awarded by the Collector and which is the subject matter of reference. 4. The right to receive market value as compensation for the lands which were acquired, came into existance as soon as the lands were acquired. That right is property. Further, it is an indivisible right. There are no two rights, one to receive compensation and the other to receive extra compensation. The only, right is to receive compensation for the land acquired by the Government which is the fair market value on the date of acquisition. The final compensation awarded is, therefore, assessable from the date of vesting of lands in the Government. 5. If the quantum of compensation awarded by Collector is in dispute and if Wealth-tax assessments have to be made before the compensation matter is finally settled by courts in reference proceedings, the claim to compensation made by the assessee may be included in the net wealth without any deduction for uncertainties. The demand in respect of the difference between the Collector's award and the assessee's claim may be kept in abeyance with proper safeguards for recovery of disputed tax till the dispute is finally resolved in the courts.