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TMI Blog2023 (2) TMI 1374X X X X Extracts X X X X X X X X Extracts X X X X ..... (37) at all. The impugned order of the assessment passed by the AO u/s 143(3) of the Income tax Act, 1961 holding that the capital gain tax is chargeable on the compulsory acquisition of the urban land by resorting to the provisions of section 45(5) is unsustainable in view of the provisions of amended sub-section (37) of section 10 of the Income Tax Act, 1961. In the present case where assessee's agricultural land was compulsorily acquired by following entire procedure prescribed under Land Acquisition Act, and at the time of acquisition in 1948, the said land was under agriculture cultivation merely because compensation amount was awarded vide order of State Govt. determining final award (order dated 08.01.2014) and disbursed the said amount vide Government order dated 19.05.2014 which was after 01/01/2014 cannot change the status as not falling beyond municipality limits at the time of acquisition and as such would not change character of acquisition from that of compulsory acquisition to voluntary sale so as to deny exemption under section 10(37) to assessee. Decided in favour of assessee. - DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.08.2015. During the assessment proceedings, the counsel for the assessee stated that the compensation received from J K Govt. was in respect of the rural agricultural land situated at village Chinore, Jammu which was acquired by the Collector Land Acquisition Assistant Commissioner (Revenue), Jammu and that the said payment was received in the year 2014 after TDS of Rs. 85,46,350/-, which was claimed exempt u/s 10(37) of the Income Tax Act, 1961. In response to query raised by A.O. regarding nature of land, the appellant filed details in respect of the land and compensation amount received explaining that the land was agricultural in nature and is situated outside municipal limits. However, the Assessing Officer was not convinced and made independent enquiry from the office of Tehsildar (North), Jammu who categorically mentioned in his reply that the land under consideration is agricultural and unirrigated and is situated within the municipal limits. On receipt of this information and on the strength of the fact that the land was situated within the municipal limits, the Assessing Officer tax the receipts under the head Capital Gains ignoring the submission of the assesse that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Res-Chinore/2013-14/1296-97 dated 08.01.2014 which is to determine the amount of the compensation based on the nature of land, disputes involved and current ownership of various lands owned by the appellant, some of which were returned to him and in respect of 74 Kanal 08 Marla of the land which could not be returned to him, the impugned compensation was awarded by the Collector, Jammu vide order dated 19.05.2014. Vide Govt, order dated 08.01.2014, it is observed as under:- FINAL AWARD Government of Jammu and Kashmir, Civil Secretariat Revenue Department in exercise of the powers conferred under section 14-A of the J K State Evacuees (Administration of Property) Act Sambat 2006 decided to acquire land measuring 74 Kanal and 08 Marla particulars of which are given below of village Chinore Tehsil and District Jammu for rehabilitation of Displaced persons of 1947 vide Notification No. 02 of 2012 dated 17-12- 2012 and endorsement No. Rev/LB/20/2012 dated 17-12-2012. Khewat No. Khasra No. Area Kanal Marla 25 76 12 07 76 min 04 01 76 min 05 08 76 min 00 13 126 09 04 126 min 01 10 124 07 00 88 04 01 Total (Khewat .25) 44 04 26 79 min 04 13 79 min 05 05 79 04 14 86 min 00 18 86 min 02 00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e restoration order before the Custodian. But it could not succeed and was dismissed by the appellant authority on 04-03- 1965. In the process, mutation No. 408 relating to the inheritance of deceased owners was also formally attested in favour of Moh'd Aslam son of Baggar, the only surviving member on 11-06-1986. From the next para of the order dated 08.01.2014, it is clear that the impugned land of 74 Kanal 08 Marla was not returned to the appellant as these were allotted to the displaced persons of POK in 1947 and their possession could not, be legally disturbed. The relevant para is reproduced hereunder:- The matter was still taken up for further examination by the learned Custodian General in suo-moto revision proceedings. But these proceedings also could not succeed and were dropped by the Custodian General under his order dated 06- 02-1999. In the result restoration order continued to remain effective and operative. But as 74 Kanal 08 Marla of land was found to have been allotted to the displaced persons of 1947 from PoK, their possession could not, therefore, be legally disturbed. According to the letter of the Custodian dated 21-07-2011, no other Evacuee or State land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is situated was included in municipal limit as ward 62 of Jammu Municipal Corporation. It was further submitted before me that the appellant-assessee was originally entitled to restoration of entire land of 98 K 15 M, however, 74 K 08 M land belonging to Baggar family was already allotted to DPs of 1947 from POK whose possession could not be legally disturbed and no other Evacuee or State Land was available for being given to the appellant in exchange of the said land, therefore, the land was compulsorily acquired on payment of compensation to the appellant. The compensation was awarded to the appellant after a long drawn process and final award was made vide order dated 19.05.2014. The appellant claimed the compensation received in lieu of land as exempt under section 10(37) of the Income Tax Act, 1961. The Assessing Officer discussed relevant provisions of the Act before making additions to the returned income. He firstly discussed section 2(14)(iii) and held that since land under consideration falls with in the municipal limits, therefore, the same cannot be regarded as agricultural for the purposes of capital gains. The A.O. further discussed provisions of section 45(5) which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g one lakh; or (ii) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (iii) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) arid which has a population of more than ten lakh. Explanation - For the purposes of this sub-clause, population means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;) Section 10(37) was introduced by Finance (No. 2) Act, 2004 with, effect from 01.04.2005 to exempt capital gain on agricultural land situate in any area referred to in item (a) or item (b) of section 2(14)(iii), if such land is acquired through compulsory acquisition under any law. The conditions set out in the Section 10(37) are duly met by the appellant as discussed by the Authorized Representative in the written submissions filed on 26.02.2019 and these four conditions are again reproduced hereunder a) such land is situate in any area referred to in item (a) or item (b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in nature is not only evident from the assessment record where the Assessing Officer has himself referred to the report of the Tehsildar received on 30.10.2017 but also from the Final Award of the Govt, dated 08.01.2014. This fact has also been confirmed during the appellate proceedings by the Tehsildar of the area vide his report dated 26.08.2019. The Assessing Officer was also asked during remand proceedings to examine the applicability of section 10(37) of the Act in view of these undisputed findings. However, the Assessing Officer failed to comment on the same and reiterated his predecessor's stand that the compensation is taxable u/s 45(5) of the Act because the agricultural land falls within the Municipal Corporation. From the events mentioned in paras above, starting from 1947, it can be said that the compensation paid to the assessee is nothing but a relief and the same cannot be viewed as Capital Gain particularly when the mandate of law of providing alternate land could not be complied with by the Govt. I am in agreement with the Ld. Authorized Representative that the finding recorded by the A.O. is bad and untenable in law as the land being an agricultural land was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 45(5) of the Income-tax Act, 1961 without appreciating the fact that the assessee has claimed exemption under section 10(37) of the Income-tax Act, 1961. The provisions should be construed in such a manner to ensure that the object of the Act is fulfilled. Obviously, if the language of the Act is clear then the language has to be followed and if the language admits of two meanings then matter is to be considered with reference to the objects and reasons and find out the true meaning of the provisions as intended by the legislature. After going through the relevant provisions of the Act, it is observed that as per Finance Act, 2004 after clause 36 of the Finance Act, the clause 37 has been inserted in section 10 with effect from the 1st day of April, 2005 (assessment year 2005-06 and onwards) which provides that in the case of an individual or a HUF, any income chargeable under the head capital gains arising from the transfer of agricultural land situated in urban areas specified in section 2(14)(iii) shall be exempt, subject to conditions that (1) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the arbitration authority i.e, Collector Land Acquisition/it is mentioned that in exercise of the powers conferred under section 14-A of the J K State Evacuees (Administration of Property) Act, Sambat 2006 it was decided to acquire land measuring 74 Kanals 08 Marlas for rehabilitation of displaced persons of 1947 and it has further been clarified that Shri Mohd. Aslam was the only surviving heir of the deceased land owners whose land had been restored to him and after due diligence of the matter by different State Government authorities, the land compensation for compulsory acquisition of the land was sanctioned in favour of the assessee vide Government of J K order No. Rev (LB) 103 of 2014 dated 19.05.2014. Lastly, (4) under sub-clause (iv) of section 10(37) of the Income tax Act, 1961, it is mentioned that such income has arisen from the compensation or consideration for such transfer received by such assessee on or after 01.04.2004. There is no dispute as far as this condition is concerned as the disbursing authority has disbursed the said amount vide Government order dated 19.05.2014 which is the date after the prescribed date of 01.04.2004. 3.5. The provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The alternate argument of the assessee is that the lands were acquired way back in 1947 and even allotted to the displaced persons (DPs of 1947) from PoK and the Govt, could not restore the land even after deleting the records of these lands from custodian property. When Govt, also failed to allot alternate piece of land in near vicinity, the process of awarding compensation was started in 2013 and awarded during the year under consideration. Therefore, the Assessing Officer is not right in coming to the conclusion that if a land falls within the discretion of capital asset under section 2(14)(iii)(a), then it would be a transfer of land which is not agricultural and therefore, one should not look at the provisions of section 10(37) at all. It is clear from reading of clauses (i), (ii) and (iii) of section 10(37) that the character of the land in the past has to be seen. In view of the facts enumerated above, the impugned order of the assessment passed by the Assessing Officer u/s 143(3) of the Income tax Act, 1961 holding that the capital gain tax is chargeable on the compulsory acquisition of the urban land by resorting to the provisions of section 45(5) of the Income Tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2014. This fact has also been confirmed during the appellate proceedings by the Tehsildar of the area vide his report dated 26.08.2019. The Assessing Officer was also asked during remand proceedings to examine the applicability of section 10(37) of the Act. However, the Assessing Officer failed to comment on the same and reiterated his predecessor's stand that the compensation is taxable u/s 45(5) of the Act because the agricultural land falls within the Municipal Corporation. 6.1 Ld. AR has relied upon the decision Hon'ble Supreme Court of India in the case of Balakrishnan vs. Union of India Ors. in Civil Appeal No. 1607/2010 wherein it was held that on the transfer of agricultural land by way of compulsory acquisition under any law, no capital gains tax is payable. He argued that the Ld. CIT(A) has been justified in full agreement with AR that the Assessing Officer has made addition solely on the ground that the agricultural land is situated within municipal limits of Jammu. The Assessing Officer has ignored the fact that if such land had been situated beyond eight kilometers of municipal limits, then such land could not have been considered as capital asset chargeable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without consent of the appellant assessee. 9. Although, the AO noted that the land in question at the time of framing of assessment falls within the municipal limits of Jammu and is urban agricultural land which has duly been verified by him from the concerned revenue authorities and after satisfying himself about the nature of the said land, he has charged the same to capital gains tax by resorting to the provisions of section 45(5) of the Income-tax Act, 1961, but he has not appreciated the fact that the assessee has claimed exemption under section 10(37) of the Income-tax Act, 1961. The provisions should be construed in such a manner to ensure that the object of the Act is fulfilled. Obviously, if the language of the Act is clear then the language has to be followed and if the language admits of two meanings then matter is to be considered with reference to the objects and reasons and find out the true meaning of the provisions as intended by the legislature. After going through the relevant provisions of the Act, it is observed that as per Finance Act, 2004 after clause 36 of the Finance Act, the clause 37 has been inserted in section 10 with effect from the 1st day of April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice letter dated 12.09.2017, the Tehsildar has categorically mentioned that the land under consideration is agricultural and unirrigated and is situated within the Muncipal limits; (3) under sub-clause (iii) of section 10(37) of the Income tax Act, 1961, it has been mentioned that such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined, the facts brought on record through the finding of the arbitration authority i.e, Collector Land Acquisition/it is mentioned that in exercise of the powers conferred under section 14-A of the J K State Evacuees (Administration of Property) Act, Sambat 2006 it was decided to acquire land measuring 74 Kanals 08 Marlas for rehabilitation of displaced persons of 1947 and it has further been clarified that Shri Mohd. Aslam was the only surviving heir of the deceased land owners whose land had been restored to him and after due diligence of the matter by different State Government authorities, the land compensation for compulsory acquisition of the land was sanctioned in favour of the assessee vide Government of J K order No. Rev (LB) 103 of 2014 dated 19.05.2014. Lastly and that (4) under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as compulsorily acquired by following entire procedure prescribed under Land Acquisition Act, and at the time of acquisition in 1948, the said land was under agriculture cultivation merely because compensation amount was awarded vide order of State Govt. determining final award (order dated 08.01.2014) and disbursed the said amount vide Government order dated 19.05.2014 which was after 01/01/2014 cannot change the status as not falling beyond municipality limits at the time of acquisition and as such would not change character of acquisition from that of compulsory acquisition to voluntary sale so as to deny exemption under section 10(37) to assessee. Further, the Hon ble Apex Court in the case of Balakrishnan vs. Union of India , [2017] 80 taxmann.com 84 (SC) observed that merely because the compensation amount is agreed upon would not change the character of acquisition from that of compulsory acquisition to the voluntary sale of capital assets as under: 7. It is in the aforesaid factual backdrop, this Court is to determine as to whether it can be treated that the land of the appellant was compulsorily acquired. From the facts mentioned above, it becomes apparent that the acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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