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TMI Blog1997 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 3,353 received as solatium, did not form part of the consideration for the purpose of working out the capital gains under the Income-tax Act, 1961? 2. If the answer to question No. 1 is in the negative, whether the assessee is entitled to the deduction of the value of solatium as on January 1, 1964, in computing the capital gains?" Basically, the questions in both the assessment years (1977-78 and 1978-79) are identical. The assessee filed a return of income in the status of a Hindu undivided family for the assessment year 1977-78, declaring income of Rs. 18,440 and for the next assessment year, declaring income of Rs. 32,510. The assessee derived income from agriculture, house property and interest. The assessee had sold certain assets, including land measuring 77 kanals, in the previous year relevant to the assessment year 1977-78 and declared capital gains of Rs. 8,328. The Assessing Officer accepted it and, after allowing statutory exemption of Rs. 5,000 and further exemption at the rate of 25 per cent. under section 80-T of the Act, assessed capital gains at Rs. 2,496. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset". "Capital gain" is an artificial income created by the provisions of section 45 of the Act. Capital gain or capital loss is a gain realised or loss incurred and the loss or gain must be in the disposal of an asset in any one of the modes referred to in the definition of "transfer" in section 2(47) of the Act. That primary condition must be satisfied before a tax levy on a capital gain may occur. Capital asset has been defined in section 2(14) of the Act as property of any kind held by an assessee, whether or not connected with his business or profession, but does not include the stock-in-trade, consumable stores or raw materials held for the purposes of the business or profession and also personal effects, namely, movable property, wearing apparel and furniture held by the assessee or any member of his family dependent on him. Agricultural land, not being land situate in any area comprised within the jurisdiction of a municipality or a cantonment board with a population of not less than 10,000 has also been excluded. Gold bonds and special bearer bonds issued by the Central Government are also excluded from "capital asset". In order to subject any profit or gain, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing possession of the land. (1A) In addition to the market value of the land as above provided, the court shall in every case award an amount calculated at the rate of twelve per centum per annum on such market value for the period commencing on and from the date of the publication of the notification under section 4, sub-section (1), in respect of such land to the date of the award of the Collector or the date of taking possession of the land, whichever is earlier. Explanation.---In computing the period referred to in this sub-section, any period or periods during which the proceedings for the acquisition of the land were held up on account of any stay or injunction by the order of any court shall be excluded. (2) In addition to the market value of the land as above provided, the court shall in every case award a sum of fifteen per centum, on such market value, in consideration of the compulsory nature of the acquisition." It is apparent from a perusal of sub-section (2) that a sum equivalent to 15 per cent. of the market value of the land is to be awarded in addition to the market value, in consideration of the compulsory nature of the acquisition. The word "solatium" has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to 15 per cent. of the market value but this right to receive the additional solatium could not be regarded as a right to property. Shri Abrol has argued that, if the solatium was not relatable to right to property, it could not be assessed to tax, treating it to be part of the compensation awarded to the owner. The argument put forward by Shri Abrol does not lead us to a conclusion that the amount of solatium paid to the assessee under section 23(2) of the Land Acquisition Act was not part of the full consideration liable to tax under the head "Capital gains". The observation made by the Bombay High Court in Jamnadas Gokuldas Patel's case, AIR 1960 Bom 35, was against the background of the assessee's plea that the right to property stood violated when a land was acquired compulsorily on payment of market value as on the date on which notification under section 4 of the Land Acquisition Act was issued. Shri Abrol has next placed reliance on another decision of the Bombay High Court in Nagesh Waman Patil v. Special Land Acquisition Officer, AIR 1982 Bom 421. That was a case where the Land Acquisition Officer had determined the compensation on the basis of an agreement. The mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transmission, such as debts; and signifies a beneficial right to or a thing considered as having a money value, especially with reference to a transfer or succession, and to their capacity of being injured. The Gujarat High Court has also examined a question regarding the liability to capital gains tax on the transfer of the entire business, in Sarabhai M. Chemicals Private Limited v. P. N. Mittal, Competent Authority, IAC of I. T. [1980] 126 ITR 1. In that case, the entire business including land, building and assets at book value and goodwill at a given value had been transferred. That was a transfer of an industrial undertaking as a going concern together with goodwill and all other assets by a holding company to its wholly-owned subsidiary at a slump price. The valuation which had been mentioned was the book value (written down value). So far as the land, buildings, plant, machinery and other assets were concerned, the competent authority issued notices under section 269D(2) of the Act, initiating acquisition proceedings. Those proceedings were quashed by the High Court on the ground that there was no material to show that the consideration had not been truly stated in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evi [1986] 160 ITR 557 and in Karvalves Ltd. v. CIT [1992] 197 ITR 95, has examined specifically the question of the assessability of solatium and has held that solatium was part of sale consideration and is to be taken into account in computing capital gains. It was held that solatium represented consideration for the property acquired. The Bombay High Court has also in R. R. Todiwalla v. CIT [1994] 208 ITR 65, taken the view that solatium, received in consideration of compulsory acquisition of land, was part of compensation and was assessable under the head "Capital gains". This High Court had an occasion to examine a question about the additional amount of 20 per cent. paid to the assessee, in Sonepat Light, Power and General Mills Limited v. CIT [1966] 59 ITR 392. In that case, the assessee-company was carrying on the business of supplying electricity under a licence issued to it under the Indian Electricity Act, 1910. The Punjab Government exercised its option under the licence to purchase the undertaking and, as per section 7(1) of the said Act and under the provisions of paragraph 9 of the licence, paid, in addition to the fair market value of the assets, 20 per cent. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1954, should be deducted from the compensation while computing capital gains under section 48 of the Act. The Assessing Officer did not allow any such deduction in either of the two years. The Appellate Assistant Commissioner accepted the assessee's plea in appeal for the assessment year 1977-78 but, in further appeal by the Revenue, the Tribunal rejected the assessee's plea and accepted the Revenue's appeal. Thus, deduction of the value of solatium as on January 1, 1954, was not allowed to the assessee. In the next assessment year (1978-79), the assessee had claimed deduction of the value of solatium as on January 1, 1964. This was declined by the Assessing Officer. Neither the Appellate Assistant Commissioner nor the Tribunal discussed this question. However, the Tribunal referred the question while deciding the application under section 256(1) of the Act. As has been seen earlier, deduction under clause (a) of section 80T of the Act was allowed at Rs. 5,000 in each of the two assessment years, besides further deduction by way of exemption at the rate of 25 per cent. under clause (b) of that section. It is thus clear that deductions, admissible with regard to the exemption li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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