9911796707
TMI Blog1987 (4) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... Per sq. ft. of the acquired area. (b) Damage on account of severance of the rest of land @ Rs. 4 per sq. ft. as it was claimed by the assessee that after the acquisition of the northern portion there was no approach left for the remaining portion. (c) Interest on the compensation amount. 3. The Special Land Acquisition Officer vide his order dated 8-11-1966 awarded a sum of Rs. 98,408 only @ Re. 1 per sq. ft. of the land acquired. The claim for damage to the remaining portion of the land was rejected. Nothing was said about the claim for interest. 4. The award of the Land Acquisition Officer was not accepted and the assessee and Shri Raja Ram Kumar Bhargava moved an application under section 18 of the Land Acquisition Act before the said officer requesting that the matter may be referred to the Court. The matter was accordingly referred to the Civil Judge, Mohanlalganj at Lucknow. Before the Civil Judge, the claim that the compensation for the acquired land should be awarded @ Rs. 4 per sq. ft. was repeated. It was also claimed that the southern portion of the plot which had not been acquired had been adversely affected by the acquisition of the northern strip of this plot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 11,402 ----------- The Income-tax Officer however held that the amount of Rs. 3,75,045 awarded as damages was also liable to be considered for computing the capital gains. He further held that the amounts of extra compensation and solatium for which the assessee had appealed to the High Court should also be considered for assessment as otherwise these amounts if allowed by the High Court would escape assessment. On this basis he computed the full value of consideration at Rs. 8,04,952. The fair market value of the acquired land as on 1-1-1954 was estimated by him at Rs. 98,408 @ Re. 1 per sq. ft. The capital gains was thus worked out at Rs. 7,06,544 and assessee's 1/3rd share was computed at Rs. 2,35,515 which amount was added to assessee's income. The assessee appealed to the Appellate Assistant Commissioner claiming that: (i) The amounts awarded by the Civil Judge did not accrue and did not arise during the previous year under consideration and these are still in jeopardy due to the fact that the decision of the Civil Judge had not been accepted by the State and an appeal had been filed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain assessable in the hands of the assessee was reduced by Rs. 44,894. 8. Both, the assessee as well as the department, have appealed against the above order of the Appellate Assistant Commissioner. The assessee has appealed on the various points decided against him and the department against the relief of Rs. 44,894. 9. The assessee had claimed that only the amount awarded by the Land Acquisition Officer could be considered for determining the amount of capital gains and any enhancement is the amount of compensation made by the other authorities could not be held to be part of the consideration for the transfer. Shri Shanti Bhushan, the learned advocate of the assessee, claimed that unless it was so held the machinery provided in the Income-tax Act for computation of capital gains would become unworkable. Referring to section 4, 6, 11, 16, 18 and 26 of the Land Acquisition Act, 1894, the learned advocate explained the scheme of acquisition and determination of the compensation amount and claimed that the proceedings for the determination of the compensation amount could be a prolonged one in which the amounts awarded could kept on varying. The Income-tax Officer could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount could be said to accrue unless it was actually due. The very foundation of the claim was in jeopardy as the matter was pending in appeal and if the appeal went against the assessee then nothing would be due. Applying the observations to the present case, Shri Shanti Bhushan claimed that the entire amount awarded by the Civil Judge being in jeopardy the same could not be held to have arisen to the assessee. The learned advocated then referred to the decision of the Andhra Pradesh High Court in Khan Bahadur Ahmed Alladin Sons v. CIT [1969] 74 ITR 651. In that case some land of the assessee was acquired by the Government and it was held that the right of the owner to compensation was an inchoate right till the compensation was actually determined and became payable. It was further held that the enhanced compensation accrued to the assessee only when the Court accepted the claim and not when the land was taken over by the Government. We may, however, mention that in that case the land was held to be the stock-in-trade of the assessee's business and profit arising on the sale of the same was liable to be assessed as business profits and not as capital gains as in the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee related to the assessment of income other than capital gains. They were not applicable to the assessment of capital gains which was governed by section 45 of the Income-tax Act. In his connection Shri Sinha also pointed out that the assessee himself had shown the amount of the capital gains computed on the basis of the award given by the Civil Judge in the return for this year and, therefore, he could not claim that the amount of capital gains arising to the assessee as a result of the award given by the Civil Judge could not be considered in this year. On behalf of the assessee, Shri Shanti Bhushan replied that the full facts regarding the litigation had been mentioned by the assessee in the letter sent with the return and, therefore, the assessee was competent to raise this legal issue. Repeating his argument mentioned earlier Shri Shanti Bhushan claimed that the amount of capital gains had to accrue or arise to the assessee before the same could be taxed and as according to him the amount of gain sought to be assessed had not actually accrued to the assessee the same was not taxable and the provisions of section 45 had no application to that amount. 11. It would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the income of this year by section 45 of the Income-tax Act, the authorities below were justified in considering the award of the Civil Judge even though the award was given much after the close of the previous year. The contention of the assessee that the amount awarded by the Civil Judge being in jeopardy could not be considered for computation of the capital gain is also not acceptable. The Civil Judge has given the award. Not only this, the amount awarded has been paid to the assessee though after his furnishing security in the shape of bank guarantee for the due performance by him in case the decree awarded by the Civil Judge was modified or reversed by the High Court. Therefore, it cannot be held that the departmental authorities were not justified in computing the capital gains of the assessee with reference to the amounts awarded by the Civil Judge merely because there is a possibility of the amount awarded by the Civil Judge being varied in appeal pending before the High Court. As held by the Kerala High Court in Shah Vrajlal Madhaviji v. CIT [1974] 95 ITR 614, it was not necessary for the department in such cases either not to assess the income or keep the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Indian Income-tax Act, 1922, was section 12B (2) which read as under: "(2) The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made, namely: (i) expenditure incurred solely in connection with sale, exchange, relinquishment or transfer; (ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of section 8, 9, 10 and 12." 14. A comparison of the section in force now with the provisions under the old Act would show that whereas under the provisions of the old Act full value of the consideration for which the transfer of the capital asset was made was to be considered for working out the capital gains, under the provisions of the Act now in force full value of the consideration received or accruing as a result of the transfer of the capital asset has to be considered. Any amount received by an assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears to have been changed under the provisions of the Income-tax Act, 1961. In place of the words "from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made " appearing in section 12B(2) of the Indian Income-tax Act, 1922 section 48 of the Income-tax Act, 1961 contains the words "full value of the consideration received or accruing as a result of the transfer of the capital asset". Therefore, under the provisions of the Act now in force all amounts which are received or accrued as a result of the transfer of the capital asset will have to be considered for computation of the capital gains even though these amounts may not be the consideration for which the transfer of the capital asset is made. The amount of damages was received by the assessee as a result of the transfer of the acquired land and, therefore, even thought it may not be consideration for the transfer of the acquired land, it is well covered by the provisions of section 48 of the Income-tax Act and is liable to be considered for computation of the capital gains accruing to the assessee as a result of the transfer of the acquired land. 14A. The nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Officer had wrongly stated that the plots of the assessee were not meant for building purposes and that the land was open to the river Gomti. It was claimed that the plots were suitable for construction of the buildings and were not affected by floods. It was also stated that the cremation ground was about a mile away from the assessee's land and not only 11/2 furlongs away as mentioned by the Income-tax Officer. The claim that there was not much demand for lands in the area where the assessee's land was situated before 1961 was also disputed and it was claimed that there was always a great demand for building plots in the city of Lucknow. A report of a value was also filed estimating the fair market value of the land on 1-1-1954 at Rs. 2.25 per sq. ft. The Appellate Assistant Commissioner did not entertain the valuer's report on the ground that the see should have been filed before the Income-tax Officer. He also examined the assessee and found that though the assessee had claimed that his lands were not affected by floods, the same had been submerged by the floods of 1961 and 1971. The Appellate Assistant Commissioner agreed with the finding of Income-tax Officer that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g purposes in the city of Lucknow was about Rs. 2 per sq. ft. as long ago as 1947. On this basis the learned advocate claimed that the assessee's valuation of his land at Rs. 2.50 per sq. ft. was quite justified and should have been accepted. On behalf of the department, Shri Sinha supported the estimate of the authorities below by relying on the facts mentioned by them in their orders. He also disputed the proposition of the assessee that the prices of land in Lucknow city remained stationary during 1954 to 1958. Shri Sinha further claimed that the valuation report having not been produced before the Income-tax Officer was rightly not entertained by the AAC. 16. It appears that while estimating the value of the assessee's land on 1-1-1954 the Income-tax Officer was under the impression that the land was not suitable for construction of buildings because it was open to the river Gomti and further because it was only 1 1/2 furlongs away from the cremation ground. He also thought that there was not much demand for land in that area till 1954. While agreeing with the estimate of the Income-tax Officer the Appellate Assistant Commissioner had also observed that the city of Lucknow ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded compensation for the acquired land (at) Rs. 3 per sq. ft. and also the damages in respect of the unacquired land at the same rate. We have estimated the value of the acquired land as on 1-1-1954 at the rate of Rs. 1.50 per sq. ft. The reasonableness of the damages awardable by the Civil Judge has been questioned by the UP Government and the matter is now pending before the Hon'ble High Court. Therefore, instead of trying to determine the amount of damages which the assessee should be entitled to receive we would hold that 50% of the amount of damages awarded to the assessee should be added to the value of the acquired land computed at the rate of Rs. 1.50 per sq. ft. and this gross amount shall be liable to be deducted while computing the capital gain. The computation of capital gain shall be modified accordingly. This disposes of the assessee's appeal. 17. Coming to the department's appeal we find that the only objection is against the refection of Rs. 44,890 allowed by the Appellate Assistant Commissioner holding that the Income-tax Officer was not justified in including those amounts which had not been awarded to the assessee by the Civil Judge but for which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition under the old Act in this behalf was that the amount received for transfer of the capital asset alone could be considered while computing the capital gains and not the other receipts whether incidental or otherwise to the transfer. The learned Accountant Member has, however, felt that the phraseology used in section, 12B(2) of the old Act and section 48 of the new Act being different, the decisions on the provisions of section 12B of the old Act would not be relevant. According to him under the provisions of the Act now in force al amounts, which are received or accrued as a result of the transfer of the capital asset will have to be considered for computation of the capital gains even though those amounts may not be the consideration of which the capital asset has been transferred. Observing then that the amount of damages was received by the assessee as a result of the transfer of the acquired land, he held that even though it might not be a consideration for the transfer of the acquired land, it was well covered by the provisions of section 48 of the Income-tax Act, 1961 and was liable to be considered for computation of the capital gains. It may be stated that the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the market value on the date of acquisition or the market value on 1-1-1954, at the option of the assessee, is adopted, whatever be the mode of acquisition." I am aware that the notes on clauses of a Bill or debates in Parliament pertaining thereto are not conclusive of the intention of the Legislature and, in any event, the Courts have not to interpret the intention of the Legislature from such notes or the discussions in the Parliament, but have to interpret it as expressed through the language of the statues. All the same usefulness of such notes and debates has never been doubted. It is only for this limited purpose that I have made reference to the Notes, which clearly suggests that the relevant provisions have only been split up, simplified and logically rearranged expect for the changes referred to therein. The change considered to have been envisaged by the reference in the phraseology used herein at least does not seem to have been conceived by the Legislature. 3. I have tried to examine the question from another angle. Capital gains are made chargeable to income-tax under section 45 of the Income-tax Act, 1961. It is true that section 48 provides the mode of comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of sections 8, 9, 10 and 12." "Section 48 of the IT Act, 1961:-- Mode of computation and deductions.--The income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following 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." Before proceeding to consider the difference in the phraseology, it may not be out of place to take a hypothetical case. Suppose the acquired land herein did not belong to the assessee but to somebody else. The damage was caused to it because by acquiring the assessee's lands, the Government made that land inaccessible. In that case, the damages would have been naturally awarded to the persons, who owned those lands. I do not think that it can be even suggested that "the full value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compute the cost of the capital asset sold, depreciation in the value of the other assets as a result of acquisition and sale of the capital asset should be taken into account. In the premises, in case the damages awarded were to be taken into account for committing the capital gains under section 48, the amount by which the unacquired land depreciated in value on account of the land acquired by the Government will have to be taken into account in arriving at the capital gains. Since, in view the Civil Judge's decision, it cannot but be held that the unacquired land depreciated in its value by the amount of damages awarded, in either event the damages awarded cannot be taken into account for the proposes of competing capital gains herein. Assuming in spite of all this it comes to this that both views are possible, it is well settled that the view in favour of the subject must prevail. With respect, I do not agree that the depreciation to the unacquired land should be taken at 50% of the damages awarded. In my view the correct income liable to tax under the head "Capital gains" will be half of Rs. 2,95,224, i.e., Rs. 1,47.612 and not half of Rs. 6,70,269 (Rs. 2,95,224 compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no approach road for the remaining portion. The Special Land Acquisition Officer while rejecting the claim for damages in toto, granted only compensation at the rate of Re. 1 per sq. ft. there was then an appeal before the Civil Judge, Lucknow reiterating these claims and also claiming solatium at the rate of 15%. The learned Civil Judge by his order dated 15-7-1969 awarded compensation at the rate of Rs. 3 per sq. ft., i.e., Rs. 2,95,224. At the same rate of Rs. 3 per sq. ft. he also awarded damages for soverance of unacquired land measuring 1,25,015 sq. ft. which came to Rs. 3,75,045. He did not accept the claim for payment of solatium. There were then appeals filed both by the assessee and by the State to the High Court against these orders of the Civil Judge. 3. In the meantime, the Income-tax Officer held that in this acquisition proceedings there was a capital gain as capital asset of the assessee was transferred. The assessment was originally completed without including the capital gains and for including capital gains a notice under section 148 was issued, in response to which the assessee filed a return admitting a capital gain of only Rs. 11,402 in computing whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital asset, i.e., at which it was made and not any amount received over and above the price of the capital asset. He drew support for this view from the decision of the Bombay High Court in the case of Baijnath Chaturbhuj v. CIT [1957] 31 ITR 643 and New Era Agencies (P.) Ltd. v. CIT [1968] 68 ITR 585 (SC). But section 48 of the Income-tax Act, 1961, according to him, permitted not only the inclusion of the full value of the consideration but also the amount received over and above the consideration but relating to or occasioned by the transfer. He held that since the damages received by the assessee related to the transfer of the capital asset, that amount also became includible in the full value of the consideration. To quote his own words : "Therefore, under the provisions of to Act now in force all amounts which are received or accrued as a result of the transfer of the capital asset will have to be considered for computation of the capital gains even though these amount may not be the consideration for which the transfer of the capital set is made. The amount of damages received by the assessee was part of the consideration for the transfer and, therefore, even thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en and not the damages which related only to the unacquired land and also computed with reference to the unacquired land. He was of the firm opinion that the damages awarded had no nexus to the capital asset transferred. He also held relying upon a decision of the Supreme Court in Miss Dhun Dadabyoy Kapadia's case, when the Supreme Court held that in order to compute the cost of the capital asset sold any depreciation in the value of other asset as a result of acquisition or sale of a capital asset should also the taken into account, the depreciation for the unacquired land occasioned by the acquisition of the acquired land should also be taken into consideration, in which case the damages awarded for the unacquired land would be equal to the compensation received for the acquired land and therefore there would not be any capital gains. Eventually he held that in a case where two views are possible, the view that is in favour of the assessee must be adopted. He therefore held that the capital gains on the acquisition of 98,408 sq. ft. of land would work out to only Rs. 1,47,612 and not Rs. 3,35,135 as determined by the learned Accountant Member. Hence, the difference of opinion bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lector's taking possession of the land." Since the section lays done in clear terms that the Court awarding compensation shall take into consideration the market value of the land and the damages sustained by the person interested by reason of severing such land from his other land and also the damages sustained by the person interested by reason of the acquisition injuriously affecting his other property, how can it be said that the damages awarded did not form part of the compensation and when it formed part of the compensation, the argument that the damages related to the unacquired land and not to the acquired land and therefore should not be included, would have no place or legs to stand. It is by reason of the acquisition of the land that damages were caused to the unacquired land and damages caused to the unacquired land is only computed with reference to the unacquired land and was awarded as compensation for the acquisition of the land that amount could not therefore be looked at de hours the acquisition. In this connection he invited my attention to a judgment passed by the Karnataka High Court in the case of CIT v. Smt. P. Mahalakshmi [1982] 134 ITR 428. In this case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to say that certain portions alone are includable and not others. To show that even solatium was taxable as part of the compensation he relied upon a decision of the Income-tax Appellate Tribunal delivered by the Ahmedabad Bench in the case of Murubhai Ramji v. ITO (1986) 16 ITD 293. In this case the Bench held that the solatium received formed part of the consideration and should be so taxed. 8. The learned counsel for the assessee Shri Vikram Gulati contended in the first instance relying very heavily upon the points made out by the learned Judicial Member in his order that damages claimed over and above compensation by way of a suit could never constitute the consideration for the transfer. The consideration for the transfer was only the compensation and damages are awarded after the acquisition as a consequence of acquisition and did not therefore form part of the sale price. Then he pointed out that in a very recent case in the Kerala High Court in a direct reference of the same CIT v. Smt. M. Subaida Beevi (1986)160 ITR 557 question has held in favour of the assessee and against the revenue and that judgement being later in point of time should be followed and it should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also noteworthy that the Kerala High Court's attention does not appear to have been drawn to the Karnataka High Court decision in Smt. P. Mahalakshmi's case. However, the law relating to precedence clearly dictate that a decision given by a High Court of co-ordinate jurisdiction later in point of time on the same issue should normally be followed in preference to a decision given by another High Court earlier to it. If this principle of law of precedence is to be applied, I must follow the decision of the Kerala High Court and hold against the revenue and in favour of the assessee. I see no reason why this view should not be followed, because of another reason, namely, when two views are possible in fiscal statutes, the view in favour of the assessee must be preferred and should prevail. See Supreme Court decisions in the cases of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 and K. P. Varghese v. ITO (1981) 131 ITR 597. This is also the point made out by the learned Judicial Member in his order. Since now two views are clearly possible as interpreted by the two High Courts and in the absence of any direct decision by the Allahabad High Court, I prefer to follow the view expr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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