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TMI Blog2015 (12) TMI 464X X X X Extracts X X X X X X X X Extracts X X X X ..... gs emanating from the order of the ADJ in the proceedings under Section 31 (2) LA Act. Turning to the wealth tax appeals, it is seen that as held by the ITAT in the present case, amount of compensation received by the Assessee in the nature of ‘trust money’ which may be required to be returned by the Assessee in case she does not succeed in the appeal emanating from the order in the proceedings under Section 31 (2) of the LA Act. For an Assessee to be brought to tax within the ambit of the wealth tax provisions, it should be shown, as on the valuation date, to be belonging to the Assessee. In the facts of the case, the ITAT was justified in holding that the provision of WT Act did not stand attracted yet. That too will have to await the final decision in the appellate proceedings emanating from the order of the ADJ in the proceedings under Section 31 (2) LA Act. - ITA 20/2003, ITA 21/2003, ITA 24/2003, WTA 3 to 6/2003 - - - Dated:- 8-12-2015 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr. Rohit Madan, Senior Standing counsel with Mr. Zoheb Hossain, Advocate For the Respondent : Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dhamija, purchased 1/16th share of the bhumidari rights in respect of the said land from one Mr. Rampal Malhotra and fifteen others on 1st June, 1965. A sale deed for a sum of ₹ 4,000/- was engrossed on a stamp paper and the sale deed was duly registered. It was noted in the sale deed that Mr. Rampal Malhotra, the vendor, had agreed to sell his share in the said land, which he had purchased by way of a deed dated 14th April, 1960. In the sale deed Mr. Rampal Malhotra was described as holding 1/16th share of the bhumidari rights regarding land measuring 4200 bighas situated in Village Masoodpur. The sale deed stated that from that date, i.e. 1st June, 1965, the vendee, i.e. Mr. J.N. Dhamija shall become a shareholder of 1/16th share and shall be bound to pay or to receive, whatever is written in the purchase deed mentioned above. 6. Mr. J.N. Dhamija was, therefore, not the owner of the land himself but had purchased 1/16th of the bhumidari rights therein from Mr. Rampal Malhotra under the aforementioned sale deed. Mr. Malhotra was one of the transferees, who had acquired the bhumidari rights from Smt. Gulab Sundri on 14th April, 1960 and she too was not the owner of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence was made by the LAC under Section 31(2) of the LA Act to the Additional District Judge (ADJ), Delhi. By a judgement dated 20th April 1980, the learned ADJ decided the claims made by the following three sets of claimants (i) Gaon Sabha of Village Masoodpur, (ii) Proprietors from owners of the land acquired under the awards and (iii) Smt. Gulab Sundri, proprietor of M/s. Dewan Bahadur Seth Kesari Singh Budh Singh, Kesari Pottery Works her transferees and bhumidars. While deciding the reference under Section 31(2), the learned ADJ framed the following issues on 20th November, 1969: (i) Whether the claim of Gaon Sabha Masoodpur is not barred by res judicata? (ii) If issue No.1 is not proved, whether Gaon Sabha has any right or interest in the land in dispute. If so, to what extent? (iii) Whether the declaration of the bhumidari rights and the issuance of the bhumidari certificate in favour of Gulab Sundri was illegal, void and without jurisdiction? (iv) Whether the alleged owners/bhumidars are legally barred from challenging and disputing the validity of the declaration of bhumidari certificates? (v) Whether the provisions of the DLRA were not applicable to the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Against the aforementioned judgement dated 20th May, 1980, passed by the learned ADJ, RFA Nos.309, 310, 356, 357, 340 and 341 of 1980 were filed in this Court. Reference under Section 18 LA Act for enhanced compensation 15. Meanwhile at the instance of Mr. J.N. Dhamija a reference was made under Section 18 of the LA Act by way of LAC No.201/80 before the learned ADJ, Mr. S.R. Goel, seeking enhancement of compensation. By the judgement dated 7th July 1987, this reference was decided in favour of Mr. J.N. Dhamija holding that he was entitled to compensation of ₹ 18,000/- per bigha and ₹ 10,000/- per bigha for the minerals in respect of his 1/16th share of the rights in the land acquired in terms of the Award. 16. Against the aforementioned judgement of Mr. S.R. Goel, the learned ADJ, the Union of India filed RFA No.768/87 in this Court. While the said appeal was pending an order was passed on 29th October, 1987 by a Division Bench of this Court directing the Union of India to deposit the enhanced amount of compensation together with interest in the trial court with the direction that it will not be disbursed till further orders of this Court. Thereafter on 9th M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed by the Supreme Court by judgement dated 7th September, 2005 in Union of India v. Pramod Gupta (2005) 12 SCC 1. The Supreme Court set aside the judgement of the High Court and remitted the appeals to this Court for a fresh decision. 22. As a result the appeals arising both from the proceedings under Section 31 of the LA Act and the proceedings for enhancement of the compensation under Section 18 of the LA Act are pending before this Court. Proceedings under the Income Tax Act 23. Mr. J.N. Dhamija filed his return of income for AY 1989-90 on 26th August 1989 declaring an income of ₹ 15,61,044 of which ₹ 14,44,39 was shown as interest from M/s. Kashmir Holdings. During the course of the assessment proceedings, Mr. Dhamija's auditors submitted a letter dated 19th August 1990 to the Assessing Officer (AO) explaining that Mr. Dhamija had received additional compensation of ₹ 3,64,03,764/- and ₹ 6,02,3301- in the previous year relevant to AY 1989-90 for his share in land measuring 3224 bighas situated in village Masoodpur, Delhi pursuant to an order passed by the ADJ in LAC No. 201/80 on 7th July 1987. It was explained in the said letter that whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed u/s 143 (1) of the Act by the AO's order dated 24th November 1988. However, consequent upon the developments in relation to the assessment proceedings for AY 1989-90, the assessment for AY 1988-89 was reopened under Section 147 by issue of notice under Section 148 on 22nd March 1991. In response thereto, Mr. Dhamija filed a return declaring the same income on 19th October 1992. 26. As regards AY 1985-86, Mr. Dhamija had originally filed a return disclosing an income of ₹ 49,540. In relation to the said AY too notice under Section 148 was issued. Mr. Dhamija filed a return in response to the said notice on 10th June 1992 declaring an income of ₹ 49,540. The AO held that the interest to the tune of ₹ 2,67,75,950 paid to Mr. Dhamija was also embedded in the additional compensation. He noted that out of the said sum, ₹ 14,63,028 was liable to be included in the total income of Mr. Dhamija in relation to AYs 1981-82 to 1987-88 and accordingly added the said sum to the income of Mr. Dhamija for AY 1985-86. 27. The AO, by order dated 18th March 1993, held that under Section 45(5) the entire amount of compensation is to be taxed in the year of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd could not be brought to tax in these AYs. In support of the last submission the Assessee relied upon the ITAT's orders in respect of the co-owners in respect of the same land, i.e. Mr. KK Kochar and Mrs. Sharda Kochar. 31. As far as the Wealth Tax Act (WT Act) proceedings are concerned, the Assessee while computing net wealth for AY 1988-89 claimed that the compensation received under bank guarantee was not includable in the net wealth as it was only an advance towards compensation for the compulsory acquisition of the land. While the AO did not accept this claim, the CIT(A) accepted it for AY 1988-89. A similar exercise took place at the hands of the CIT(A) for AY 1990-91 as well to 1991-92 with only the amount being different. The Revenue was aggrieved by these orders and therefore appealed to the ITAT. 32. A common order dated 31st December, 2002 was passed by the ITAT disposing of all of the aforementioned appeals. The Assessee's appeals were dismissed by holding that the reopening of the assessments for AYs 1981-82 to 1987-88 by invoking Section 147 of the Act was valid. It was held that the AO's action for reopening assessments for all the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st money and, therefore, not includable in the net wealth of the assessee? Submissions of counsel 36. On behalf of the Revenue, it was submitted by Mr. Zoheb Hossain, Advocate as under: (i) The order of ITAT in the cases of Mr. K.K. Kochar and Mrs. Sharda Kochar was reversed by this Court by the decision dated 18th July 2014 of this Court in ITA No. 171 of 2001 (Commissioner of Income Tax v. Sharda Kochar). The order of the ITAT in Gulab Sundri Bapna (supra) was reversed by this Court in CIT v. Gulab Sundri Bapna (2014) 367 ITR 498. Consequently, these appeals of the Revenue ought to succeed on that short ground. (ii) After the decision of the Supreme Court in CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC), the earlier decision in CIT v. Hindustan Housing and Land Development Trust Limited (supra) was no longer good law as far as receipt of enhanced compensation, solatium, additional amount and interest in the financial year ending 31st March 2008 (relevant to AY 1988-89) was concerned. It made no difference whether the proceedings concerning enhancement of compensation were pending in appeal in the High Court. Section 155(16) read with Section 45(5)(c) of the Act would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined. The dispute was only in respect of their inchoate right in the amount of compensation. (iv) Mere receipt of an amount of compensation could not be held to be income. Reliance is placed on the decision in Parimisetti Seetharamamma v. CIT 57 ITR 532 (SC). A receipt can be brought to tax only if it falls under any tax provisions of the Act and the burden is on the Revenue to establish the same. Section 155(16) of the Act cannot also be invoked to contend that in case the assessee loses its right, the order could be amended so as to refund the amount. (v) Alternatively, and without prejudice, it is contended that if the amount is held to be includible in the total income then only the amount as computed by the AO for AY 1989-90 i.e. ₹ 26,41,232/- could be assessed to tax and the addition made of ₹ 2,70,64,077/- should be held untenable in law. Without prejudice thereto, if it is held that the amount is to be added while computing capital gain then the AO be directed to compute the capital gain as per the statutory provisions contained in that AY i.e. 1989-90. As regards the interest amount, if at all it has to be added to the compensation received then only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration. Explanation For the purposes of this sub-Section- (i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil; (ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April 1988; (iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head Capital gains of such other person. 39. In order to understand the rationale behind the insertion of sub-section (5) to Section 45 of the Act with effect from 1st April 1988, the law that was in force prior to its insertion requires to be noted. 40. To begin with, prior to introduction of sub-section (5) in Section 45, the compensation initially awarded an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 24,97,249 as compensation. 43.2 Not satisfied with the compensation, the Assessee preferred an appeal before the Arbitrator who made an award enhancing the compensation to ₹ 30,10,873 with interest at 5% and a further recurring compensation at ₹ 6,272-10-4 per month. The State Government appealed to the High Court and during the pendency of the appeal, it deposited ₹ 7,36,691, which the Assessee was permitted to withdraw on furnishing security. On receipt of the amount, the assessee credited it in its suspense account on the same date. 43.3 During the assessment proceedings for the AY 1956-57, relevant to the accounting period ending 31st March 1956, the AO brought to tax a sum of ₹ 7,24,914 as the Assessee's business income. This represented the difference between the sum of ₹ 7,37,190 payable to the assessee in terms of the award dated 29th July, 1955, of the arbitrator and a sum of ₹ 12,276 out of that amount which had already been assessed to tax. The Income-tax Officer treated the sum as liable to income-tax during that year on the basis that the income accrued to the assessee on the date of the award. The assessment was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as the High Court affirmed the said order. 44.3 The Supreme Court reversed the above appellate orders and affirmed the order of the AO. It held that: (i) The following conditions need to be satisfied for taxing a transaction as capital gains, viz., the subject-matter must be a capital asset, the transaction must fall in the definition of transfer , there must be profit or loss called Capital Gains and that the taxpayer has claimed exemption in whole or in part by complying with legal provisions. (ii) Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under Section 34. (iii) Section 45 (5) of the Act refers to compensation. Interest under Section 28 of the LA Act unlike interest under Section 34 of the LA Act is an accretion to the value and hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the LA Act. The additional amount under Section 23 (1A) and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question in favour of the Assessee, the question whether the Assessee is entitled to receive compensation for the extinguishment of such right on its vesting in the State is still uncertain or inchoate. That will also depend on the answer to the question whether the transfer of the bhumidari right by way of sale can be construed as transfer of an asset for the purposes of Section 45 (5) of the Act. 49. The second strand of litigation pertains to the enhancement of compensation in the reference under Section 18 of the LA Act. The appeals in those proceedings have also been remanded to this Court and are pending. During the pendency of the appeals, the Assessee has been permitted to withdraw the undisputed and disputed sums of compensation deposited in the Court. She has withdrawn the disputed (enhanced) sum by furnishing a bank guarantee. 50. As far as the second strand of litigation is concerned, in view of the decision of the Supreme Court in CIT v. Ghanshyam (HUF) (supra) the legal position is clear that notwithstanding the pendency of appeals regarding enhancement of compensation, the amount of enhanced compensation is taxable in the year of receipt. Also, the said dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensated pursuant to the land acquisition award against the bank guarantee. The AO rejected the Assessee s contention that the enhanced amounts were not taxable since the question of enhancement was under challenge in the Supreme Court. The AO applied newly enacted Section 45 (5) itself with effect from 1st April 1988 and brought to the enhanced compensation of the tax. The ITAT further accepted the contention of the Assessee following the decision of this Court of CIT v. Harish Chander 154 ITR 473 and CIT v. Devki Nand 138 ITR 225 and held that Section 45 (5) would not applicable as the money had been paid on furnishing of bank guarantee. This Court applied the decision of the Supreme Court in Commissioner of Income Tax v. Ghanshyam (HUF) (supra) and reversed the decision of the ITAT. 55. There are two distinct features as far as the above case is concerned. One is there was no issue regarding right to receive the compensation itself being inchoate. In other words there was no ground urged in that case that the Assessee was not entitled to receive compensation. Secondly, the decision was rendered in the absence of the Assessee and perhaps for that reason, the above issue was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Logically, therefore, it followed that the compensation received in this year by the Assessee has to be taxed. Each AY was separate and distinct and enhanced compensation received was to be taxed in the year of receipt, i.e., the year in question. Accordingly, the question was answered in favour of the Revenue and against the Assessee. 59. What is significant is that there was no question in the said case of the entitlement of the Assessee to receive compensation in the first place. This is what distinguishes the said decision in its applicability to the facts at hand. 60. In Commissioner of Wealth Tax, Calcutta v. U.C. Mehatab (supra) it was held following the decision in Commissioner of Wealth Tax, Kolkatta v. Smt. Anjamli Khan (supra) that the moment an Assessee s land is acquired or otherwise vested in the State, he becomes entitled to compensation and merely because the amount of compensation is not determined immediately, it cannot be said that there is no right to compensation in the erstwhile holder. Again this decision did not involve the question concerning the entitlement of the Assessee to be considered as a holder of any rights in land and therefore, entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awarded in several stages by different appellate authorities and necessitates rectification of the original assessment at each stage. This causes great difficulty in carrying out the required rectification and in effecting the recovery of additional demand. Another difficulty which arises is in cases where the original transferor dies and the additional compensation is received by his legal heirs. In the latter type of cases, proceedings have to be initiated against the legal heirs. Repeated rectification of assessment on account of enhancement of compensation by different Courts often results in mistakes of computation of tax. 24.6 With a view to removing these difficulties, the Finance Act, 1987 has inserted a new sub-Section (5) in Section 45 to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. The additional compensation will be deemed to be income in the hands of the recipient happens to be a person different from the original transferor by reason of death, etc. For this purpose, the cost of acquisition in the hands of the receiver of the additional compensation will be deemed to be nil. The com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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