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TMI Blog1986 (2) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... as contended by the Department ? 2. Whether, on the facts and circumstances of the case, Rs. 25,240 being solatium awarded for the compulsory acquisition of the lands should also be taken as forming part of the consideration for the transfer involved in the compulsory acquisition thereof ? 3. Whether, on the facts and circumstances of the case, the expenditure incurred by the assessee for getting enhanced compensation should be considered as expenditure incurred wholly and exclusively in connection with the transfer involved in the compulsory acquisition of the lands ? 4. Whether, on the facts and circumstances of the case, Rs. 7,500 being the severance compensation awarded to the assessee for the depletion in value of the property sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty as on January 1, 1954, as the cost of acquisition of the capital asset by the assessee. In the appeal at the instance of the assessee, the Appellate Assistant Commissioner directed deletion of the compensation for injurious effect in computing the capital gains. In all other respects, the assessment order was confirmed. The question raised by the assessee in the memorandum of appeal that the expenses incurred in connection with the reference for enhanced compensation should be deducted in computing the capital gains was not considered by the Appellate Assistant Commissioner. Both the assessee and the Revenue appealed to the Income-tax Appellate Tribunal. The Tribunal held that the cost of acquisition of the capital asset is to be recko ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. " (Emphasis supplied) As per sub-section (2) of section 55 as it stood at the relevant time, "cost of acquisition " where the capital asset became the property of the assessee before the 1st day of January, 1954, is to be reckoned as the actual cost of acquisition or the fair market value of the asset on the 1 st day of January 1954, at the option of the assessee. Agricultural lands within municipal areas were brought under the definition of " Capital assets " by section 3 of the Finance Act, 1970, with effect from April 1, 1970, and capital gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhagwati C.J., as he then was, stated on behalf of the Bench, consisting of himself and Mehta J., at page 456: " The only condition for attracting the charge to tax which is laid down in section 45 is that the property transferred must be a capital asset at the date of transfer. How the profits or gains arising from the transfer of such property are to be computed is laid down in section 48. Section 48 is not intended to lay down any further condition for attracting the charge to tax. It would not, therefore, be right to construe section 48, clause (ii), as providing that the property, besides being capital asset at the date of transfer as required by section 45, must also satisfy the definition of 'Capital asset' at the date of acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 48 of the Act. The solatium received by the assessee as a result of the transfer of the capital asset and forming part of the profits or gains arising therefrom is exigible to tax under section 45 of the Act. A Division Bench of the Gujarat High Court in the decision in Vadilal Soda Ice Factory v. CIT [1971] 80 ITR 711, stated at page 720 : " The amount of solatium provided under section 23(2) of the Land Acquisition Act, 1894, is undoubtedly given in consideration of the compulsory nature of the acquisition but it still represents consideration for the property acquired. It is because the transfer of the property is involuntary, i.e., against the will of the owner, that section 23(2) says that in addition to the market value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act. The Tribunal was, therefore, right in directing such expenses to be deducted in the matter of computation of capital gains. The compensation for severance for the reason that the acquisition has injuriously affected the property other than the property acquired cannot be treated as part of the consideration received or accrued as result of the transfer of the capital asset. The compensation for severance is by way of damages for injurious effect of other land belonging to the assessee and is not related to the transfer of the capital asset. We, therefore, answer questions Nos. 1 and 2 in favour of the Revenue and against the assessee. We answer questions Nos. 3 and 4 in favour of the assessee and against the Revenue. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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