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TMI Blog1985 (9) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... the additional amount of compensation received during the period relevant to the assessment year 1972-73 was assessable in the assessment year 1964-65 ?" The circumstances in which the aforesaid reference application arises are as under : The assessee, M/s Sardar Sajit Singh and Sons, had a plot of land at Delhi, which was purchased in the year 1948 for a sum of Rs. 25,000. This plot of land was acquired by the Government by notification dated November 13, 1959. It appears that the possession of the land in question was also taken by the Government at the same time. The Land Acquisition Collector in the year 1963 adjudged the amount of compensation payable to the assessee at Rs. 38,242 by an award passed under section I 1 of the Land Acquisition Act. The aforesaid amount of compensation was paid to the assessee during the assessment year 1964-65 and capital gains amounting to Rs. 13,242 were assessed by the Income-tax Officer while making the assessment of the income of the assessee in the assessment year 1964-65, taking the purchase price of the plot of land at Rs. 25,000. The assessee felt dissatisfied with the amount of compensation awarded by the Land Acquisition Collector a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed with the Income-tax Officer and held that the entire accumulated interest could not have been brought to tax only in one year, as according to him, the interest accrued each year and was payable to the assessee on accrual basis, year after year, and not on accumulated receipt basis. As such, the Appellate Assistant Commissioner directed the Income-tax Officer to bring to tax only that part of the interest which was payable in respect of the accounting period referable to the assessment year 1972-73. The assessee as well as the Income-tax Officer filed appeals against the order passed by the Appellate Assistant Commissioner before the Tribunal. After consideration of the facts of the case, the Tribunal came to the conclusion that as transfer of the plot of land which was compulsorily acquired by the Government under the provisions of the Land Acquisition Act took place in the previous year relevant to the assessment year 1964-65, the capital gains arising from such transfer of the plot of land could be assessed only in the assessment year 1964-65 and not in the assessment year 1972-73. It was pointed out that capital gain arose only when there was a legal transfer or sale by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the parties referred to the decisions of various High Courts on both the questions in respect of which reference is sought and we are of the view that there is a divergence of judicial opinion in the country on both the questions. In respect of the question of assessment of capital gains resulting from enhanced compensation made payable or paid to the assessee on account of the award passed by the District judge on reference made under section 18 of the Land Acquisition Act or on appeal by the High Court or the Supreme Court, although it has undoubtedly been held that the right to compensation in case of compulsory acquisition of land under the provisions of the Land Acquisition Act accrues to the assessee on the date of the transfer, yet in case of enhancement of compensation as a result of proceedings in a court on a reference made under section 18 of the Land Acquisition Act, it has been held by some High Courts that the right to enhanced compensation accrued only when the award was passed by the civil court. In Bhurangya Coal Company's case [1958] 34 ITR 802, their Lordships of the Supreme Court held that the title to immovable properties covered by the sale deed passed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n thereof. Thus, the capital gains should be deemed to have accrued to the assessee in the year in which the transaction of acquisition took place and the circumstances that the amount was subsequently awarded in later years or subsequently quantified did not affect the assessability of the amount in the assessment year under consideration. In that case, the Land Acquisition Collector awarded a sum of Rs. 1,17,715 by way of compensation. The City Civil Court on reference granted an additional compensation of Rs. 29,264. The high Court, on further appeal, granted further compensation of Rs. 1,17,458. Further appeal to the Supreme Court was dismissed. In these circumstances, the Madras High Court held that the entire amount of compensation whenever awarded either by the City Civil Court or by the High Court should have been brought to tax in the year in which the acquisition took place. However, this view was not accepted by the Gujarat High Court in Topandas Kundanmal v. CIT [1978] 114 ITR 237 and in Addl. CIT v. Newjehangir Vakil Mills Co. Ltd. [1979] 117 ITR 849, wherein although it was held that if the receipt of the compensation amount results in capital gains, then the right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly unsettled at that stage and could not become settled until the amount of enhanced compensation was determined on appeal by the High Court. The same view was also taken by the Delhi High Court in Harish Chandra .v. CIT [1985] 154 ITR 478. It was held in that case that compulsory acquisition of land amounted to transfer thereof and for determining the liability to tax, the relevant date for chargeability to tax on the amount of compensation payable under the Land Acquisition Act would be the effective date of transfer of the title. It was observed that the taking of the possession of the acquired land was the immediate consequence Of the award passed by the Land Acquisition Collector and it is only when the possession of the land is taken that the vesting thereof becomes effective and land becomes the property of the Government when the possession thereof is taken by the Collector in pursuance of the award. It was also, held that the enhanced compensation awarded by the civil court or by the High Court, on appeal, could only be subject-matter of tax under the Income-tax Act when the same becomes determinate or payable and until then the said amount could not be said to accrue or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the additional compensation or consideration was received by the assessee." Thus, after April 1, 1974, the Income-tax Officer would be entitled to recompute the capital gains arising from transfer by way of compulsory acquisition by taking the enhanced compensation accruing on determination by the court or on enhancement by the High Court or on further enhancement by the Supreme Court, as the case may be, as part of the capital gains arising from such transfer to the extent of the full value of consideration arising or received as a result thereof and shall make necessary amendment in the computation of tax upon the assessee under the provisions of section 154 of the Income-tax Act. But, as in the present case, the amount of enhanced compensation became payable to the assessee during the relevant period relating to the assessment year 1972-73, the provisions of section 155(7A) of the Income-tax Act would not be attracted. On the question of interest also, there is divergence of j ..... X X X X Extracts X X X X X X X X Extracts X X X X
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