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TMI Blog2000 (11) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year in which the transfer took place. Section 54E was introduced in the Act by the Finance (No. 2) Act, 1977, with effect from April 1, 1978, for the purpose of exempting capital gain from tax, if sale proceeds of the asset are invested within six months in shares, bank deposits, units of the Unit Trust or other "specified assets". Where the transfer of the capital asset is by way of compulsory acquisition under any law, in accordance with the normal procedure prescribed, capital gain is to be computed by taking the compensation awarded by the Government as the full value of consideration even though the adequacy of compensation is questioned by the assessee in a higher court or tribunal. On additional compensation being awarded to the assessee, the earlier computation of compensation is required to be revised. To enable the tax authorities to do the same, sub-section (7A) was added in section 155 with effect from April 1, 1974. Under the said pro vision, upon an award of additional compensation, the capital gains earlier computed on the basis of the award of original compensation, can be recomputed. This provision by insertion of sub-section (7A) to section 155 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1978. The Income-tax Officer refused to grant any benefit of exemption from capital gains tax to the assessee on the additional compensation received by her on the ground that section 54E(3) as inserted by the Finance (No. 2) Act, 1978. came into force with effect from April 1, 1978, and the said provision did not apply to the capital gains assessable for the assessment year 1974-75, The Income-tax Officer also rejected the claim of the assessee for exemption from tax by holding that the investment made did not fulfil the conditions of section 54E(3) of the Act. With this latter part of his order containing the ground of rejection of the assessee's claim of exemption from tax on capital gain, we are not concerned as it is not a question referred to us. The reasoning of the Income-tax Officer that the benefit of investment or deposit in accordance with section 155(10B) of the Act is not available on capital gains assessable for the assessment year 1974-75, was also confirmed by the Commissioner of Income-tax (Appeals). The Income-tax Appellate Tribunal rejected the appeal of the assessee. In the opinion of the Tribunal, by giving retrospective effect from April 1, 1974, only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasoning of the Tribunal is that additional compensation is part of the original compensation and was assessable for computation of tax on capital gain accruing in the assessment year 1974-75. The second part of the reasoning in rejecting the claim of exemption to the assessee is that only section 155(7A) which enables the tax authorities to recompute the capital gain in the event of award of enhanced compensation, has been given retrospective effect from April 1, 1974, but the beneficial provisions of exemption from capital gain tax on making deposits or investments in the specified assets contained in section 54E(3) and section 155(10B) of the Act have been given prospective effect from April 1, 1978. Capital gain is required to be recomputed in exercise of the power under section 155(7A) on the award of enhanced compensation but the assessee would not be entitled to claim benefit of exemption from tax on specified investments or deposits under section 155(10A) read with section 54E(3). Learned counsel Mr. R. K. Patel, appearing for the assessee, questioned the correctness of the reasoning and conclusion reached by the Tribunal. The argument on behalf of the assessee is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospective operation to the provisions of section 54E(3) and section 155(10B) when such is not the intention of the Legislature. After hearing learned counsel for the parties and carefully examining the reasoning and conclusions contained in the order of the Tribunal, in our opinion, the relevant provisions containing the power of redetermination of capital gains on the enhanced amount of compensation and granting benefit of exemption from tax on capital gain on such amount should be so harmoniously construed as to carry out the legislative intention in the best possible manner. Section 54E(3) and section 155(10B) were introduced to the Act because in common experience it was found that in acquisition proceedings of properties, original compensation is enhanced after much delay on decision of appeals by courts or Tribunals. Where original compensation is enhanced, the additional amount of compensation is required to be taken into consideration for recomputation of tax on capital gains. With a view to augment Government deposits and specified investments, the Legislature has thought it fit to enact the provisions which encourage assessees, who may be liable to pay tax on capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sited after April 1, 1978, in the "specified assets". The reasoning of the Tribunal does not appear to be sound and just that additional compensation is part and parcel of the original compensation and if the original compensation itself cannot get benefit of section 54E(3), such benefit cannot be allowed to additional/enhanced compensation. Such interpretation and reasoning of the Tribunal militates against the prospective operation of sections 54E(3) and 155(10B). The three sections under consideration have to be construed harmoniously to determine the scope and effect of their joint operation. The assessment of capital gains made on initial payment of compensation has been permitted to be revised by the enabling provisions contained in section 155(7A) and they have been brought into force retrospectively from April 1, 1974. In the course of making such recomputation or reassessment for capital gains, if the enhanced amount of compensation has been invested or deposited after April 1, 1978, i.e., the date from which sections 54E(3) and 155(10B) have been given prospective operation, the benefit of exemption from tax should flow to the assessee. By interpreting, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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