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TMI Blog2014 (7) TMI 1002X X X X Extracts X X X X X X X X Extracts X X X X ..... Kochhar. The said B.K. Kochhar had filed original return on 27th July, 1988 declaring business income of Rs. 17,693.60. Subsequently, two notices, under Section 148 dated 8th March, 1991 and 20th March, 1991, were issued and served on 17th March, 1991 and 27th March, 1991, respectively. These notices were, however, challenged on the ground of legality. The Assessing Officer thereafter issued another notice dated 26th March, 1993, under Section 148, after recording reasons in the order sheet dated 15th December, 1992. The assessee filed a return revising/enhancing his income to Rs. 23,750/-. The return mentioned that the assessee had received compensation of Rs. 72,80,752/- against a bank guarantee and Rs. 1,20,466/- as initial compensation with interest. It was claimed that these amounts were not taxable as the question of enhancement was pending challenge before the Supreme Court. The Assessing Officer rejected the said submission and brought to tax Rs. 72,80,752/- and Rs. 1,20,466/- observing that the assessee's father late H.R. Kochhar had Bhumidari rights in agricultural land at village Masudpur, Delhi, which was acquired by the Government under Section 4 of the Land Acquisitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is created by the 1961 Act. Profit(s) arising from transfer of capital asset is made chargeable to income tax under Section 45(1) of the 1961 Act. From the scheme of Section 45, it is clear that capital gains is not an income which accrues from day-to-day during a specific period but it arises at a fixed point of time, namely, on the date of the transfer. In short, Section 45 defines "capital gains", it makes them chargeable to tax and it allots the appropriate year for such charge. It also enacts a deeming provision. Section 48 lays down the mode of computation of capital gains and deductions therefrom. The question which arises for determination is-why was Section 45(5) inserted by the Finance Act, 1987, w.e.f. 1-4-1988? Under Section 45(1), profits or gains arising from the transfer of a capital asset effected in the previous year is taken to be the income of the previous year in which the transfer took place and such profits are chargeable to tax under the head "capital gains". However, it was noticed that in cases where capital gains accrued or arose by way of compulsory acquisition, the additional compensation stood awarded in several stages by different appellate author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to tax only in the year in which it is received. It has been brought to the notice of the Government that in case of compulsory acquisition of assets, at times there is a considerable gap between the dates of acquisition and payment of compensation. The result is that the existing provisions of capital gains' taxation operate harshly inasmuch as the affected persons are unable to avail of the exemption for roll over of capital gains, within the specified time period through investment in specified assets. Section 45 of the Income Tax Act has, therefore, been amended to provide that capital gains arising from the transfer of the capital asset by way of compulsory acquisition under any law shall be charged to tax in the previous year in which the compensation is first received." 5. Reference was made to Section 54H, which was enacted retrospectively with effect from 1st April, 1988 to provide relief to assessees in cases where they had utilised the compensation for purchase of another specified asset to save capital gains tax. Provisions of the Land Acquisition Act, 1894 were explained and the earlier decision of the Supreme Court in the case of Hindustan Housing and L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision and took care of the situation where the capital gains arose from transfer of a capital asset being a transfer by way of compulsory acquisition and the compensation for such transfer was enhanced in stages by a court, tribunal or authority. In such situation, the capital gains so arising with effect from assessment year 1988-89 has to be dealt with as under:- "(i) the capital gains computed with respect to the compensation awarded in the first instance would be chargeable as income under the head "capital gains" of the previous year in which such compensation or part thereof was first received; and (ii) amount by which compensation or consideration is enhanced or further enhanced by the court, tribunal or authority is to be deemed income chargeable under the head "capital gains" of the previous year in which such amount is received by the assessee. For the said purpose, the cost of acquisition is to be taken as nil [see Explanation (i)]. Also, where the enhanced compensation is received by any person, other than the transferor by reason of the death of the transferor or for any reason, the amount of such additional compensation or additional consideration is to be deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 of the 1894 Act. So also additional amount under section 23(1A) and solatium under section 23(2) of the 1894 Act forms part of enhanced compensation under section 45(5)(b) of the 1961 Act. In fact, what we have stated hereinabove is reinforced by the newly inserted clause (c) in section 45(5) by the Finance Act, 2003, with effect from April 1, 2004. This newly added clause envisages a situation where in the assessment for any year, -the capital gain arising from the transfer of a capital asset is computed by taking the -compensation or consideration referred to in clause (a) of section 45(5) or, as the case may be, enhanced compensation or consideration referred to in clause (b) of section 45(5), and subsequently such compensation or consideration is reduced by any court, tribunal or other authority." 10. In view of the aforesaid legal position, question no (A) above is answered in affirmative and in favour of revenue and against the assessee. Addition made by assessing officer was in accordance with law i.e. Section 45(5) of the Act. Question (B) is answered in favour of revenue and against the assessee. Decision in Hindustan Housing and Land Development Trust Ltd. (supra) was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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