Landmark Judgment by Supreme Court on Compulsory Acquisition of Land: Date of Award is Date of Accrual of Capital Gain u/s 45

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Landmark Judgment by Supreme Court on Compulsory Acquisition of Land: Date of Award is Date of Accrual of Capital Gain u/s 45

Supreme Court in the case of Raj Pal Singh Vs CIT has made key observation as to the point of taxation of capital gain income in case of compulsory acquisition of land. The issue involved was whether the High Court was right in taking the date of award as the date of accrual of capital gains for the purpose of Section 45 of the Act of 1961?

  1. It was observed that, the possession of College over the part of land in question being only that of tenant at sufferance, had the corresponding acknowledgment of the title of the appellant and of the liability of the College to pay mesne profits for use and occupation.
  2. The same status of the parties qua the land under lease existed on the date of notification for acquisition i.e., 15.05.1968 and continued even until the date of award i.e., 29.09.1970.
  3.  In other words, even until the date of award, the appellant-assessee continued to carry its status as owner of the land in question and that status was not lost only because a part of the land remained in possession of the College. In this view of the matter, the suggestion that the land vested in the Government on the date of initial notification remains totally baseless and could only be rejected.
  4. Apart from the above, the significant factor for which the entire case of the assessee-appellant is knocked to the ground is that neither on the date of notification i.e., 15.05.1968 nor until the date of award, the Government took over possession of the land in question. As noticed, the possession had been of the erstwhile lessee, the College. Even if the said College was going to be the ultimate beneficiary of the acquisition, it cannot be said that immediately upon issuance of notification under Section 4 of the Act of 1894, its possession became the possession of the Government. Its possession, as noticed, remained that of tenant at sufferance and not beyond.
  5. Further, they state that, viewed from any angle, it is clear that accrual of capital gains in the present case had not taken place on 15.05.1968. If at all possession of the College was to result in vesting of the land in the Government, such vesting happened only on the date of award i.e., 29.09.1970 and not before.
  6. In other words, the transfer of land from the assessee-appellant to the Government reached its completion not before 29.09.1970 and hence, the earliest date for accrual of capital gains because of this acquisition was the date of award i.e., 29.09.1970. Therefore, the assessment of capital gains as income of the appellant for the previous year relevant to the assessment year 1971-1972 does not suffer from any infirmity or error. For what has been discussed hereinabove, the answer to Point No. 1 is clearly in the negative i.e., against the assessee-appellant and in favour of the revenue that on the facts and in the circumstances of the present case, transfer of the capital asset (land in question), for the purposes of Section 45 of the Act of 1961, was complete only on 29.09.1970, the date of award and not on 15.05.1968, the date of notification for acquisition under Section 4 of the Act of 1894; and hence, capital gains arising out of such acquisition have rightly been charged to tax with reference to the date of award i.e., 29.09.1970.

COMPLETE ORDER

 

Raj Pal Singh Vs CIT (Supreme Court of India)

Civil Appeal No. 2416 of 2010

Order Dated 25/08/2020

  1. This appeal takes exception to the judgment and order dated 23.04.2008 passed by the High Court of Punjab and Haryana at Chandigarh1 in Income Tax Reference No. 53-A of 1991 whereby the High Court, while answering the reference under the then existing Section 256(1) of the Income-tax Act, 19612, disapproved the order dated 29.06.1990 passed by the Income Tax Appellate Tribunal, Chandigarh Bench3 in ITA No. 739/Chandi/89 for the assessment year 1971-1972; and held that the capital gains arising out of land acquisition compensation were chargeable to income-tax under Section 45 of the Act of 1961 for the previous year referable to the date of award of compensation i.e., 29.09.1970 and not the date of notification for acquisition.
  2. In the present case, the question concerning date of accrual of capital gains arose in the backdrop that though the proceedings for acquisition in question were taken up by way of notification dated 15.05.1968 and award of compensation was made on 29.09.1970 but, as a matter of fact, at the time of issuance of the initial notification for acquisition, the subject land was already in possession of the beneficiary under a lease, though the period of lease had expired on 31.08.1967. In the light of these facts, the ITAT did not approve of charging tax over capital gains with reference to the date of award while observing that the date of notification (i.e., 15.05.1968) would be treated as the date of taking over physical possession and the transaction (leading to capital gains) would be considered as having taken place on that date and not on the date of award (i.e., 29.09.1970). The High Court, however, did not agree with this line of reasoning and held that the amount of compensation was determined only on passing of the award dated 29.09.1970 and, therefore, if any capital gain was chargeable to tax, it would be chargeable for the previous year referable to the date of award.
  3. Thus, the root question is as to whether, on the facts and in the circumstances of the present case, the High Court was right in taking the date of award as the date of accrual of capital gains for the purpose of Section 45 of the Act of 1961?
  4. Keeping the question aforesaid in view, we may briefly summarise the relevant factual and background aspects of this case while indicating at the outset that the matter relating to the assessment in question, before reaching the High Court in the reference proceedings, had undergone two rounds of proceedings up to the stage of appeal before ITAT.

THE ASSESSEE; THE SUBJECT LAND; AND THE ACQUISITION

  1. The assessment in question is for the assessment year 1971-1972 in relation to the assessee Amrik Singh HUF4. The appellant Raj Pal Singh is son of late Shri Amrik Singh and is Karta of the assessee HUF. As noticed, the dispute essentially concerns the chargeability of tax for capital gains arising out of the award of compensation towards acquisition of land belonging to the assessee-appellant.
  2. It is noticed from the material placed on record and the observations in the orders passed in this matter that the subject land, admeasuring 41 kanals and 14 marlas and comprising Khasra Nos. 361 to 369 and 372 to 375 at village Patti Jattan, Tehsil and District Ambala5, became an evacuee property after its original owner migrated to Pakistan; and the same was, as such, allotted to the said Shri Amrik Singh, who had migrated to India, in lieu of his property left in Pakistan. However, a substantial part of the subject land, except that comprising Khasra Nos. 361 and 364 admeasuring 5 kanals and 7 marlas, had been given by the original owner on a lease for 20 years to a Government College, being S.A. Jain College, Ambala City6; and the lease was to expire on 31.08.1967. Later on, the College moved the Government of Haryana for compulsory acquisition of the subject land. While acting on this proposition, a notification under Section 4 of the Land Acquisition Act, 18947 was issued by the Government of Haryana on 15.05.1968, seeking to acquire the subject land for public purpose, namely, playground for the College. This was followed by the declaration dated 13.08.1969 under Section 6 of the Act of 1894. Ultimately, after submission of the claim for compensation, the Land Acquisition Collector, Ambala
    proceeded to make the award on 29.09.1970.
  3. The relevant features concerning possession of the land in question and computation of the amount of compensation are duly recorded in the award dated 29.09.1970 and for their relevance, the material parts of the award need to be taken note of.

7.1. As regards possession of the land in question, the learned Collector observed as under:-

“Possession of land:

The land in question was on lease with the Jain College, managing Society upto 31st August 1967. Thereafter the acquisition proceedings were started and the society was in possession of the same since then. Therefore the land owners are entitled to the interest from the date of notification u/s 4 which was issued on the 15th May, 1968. The interest at the rate of 6% per annum will be paid to the land owners in addition to the compensation and Solatium from 15th May,1968, to date.”

7.2. As regards entitlement to compensation, the learned Collector examined the cross-claims made by the land owners and the Managing Society of the College; and found it justified to award compensation to the land owners while observing as under:-

“Mode of Payment:

The land owners have claimed that the compensation be paid to them whereas the S.A. Jain College, trust and Management Society has applied that the Society be paid 2/3rd of the compensation being the 99 years lease of the land or otherwise as tenant under the East Punjab Urban Rent Restriction Act. The society has neither produced any documentary record nor any to establish the claim. As per application of the Principal S.A. Jain College, Ambala City, this fact as confirmed that the land in question was on the lease with the College upto 31.8.67 only and the college wanted to acquire the same so that its possession remains with the college. In addition to it, Shri Amar Chand President S.A. Jain College, Management Committee stated on oath before the Revenue Assistant Ambala on 21.3.68 that the Management committee was prepared to pay the price of the land  fixed by the Collector to the land owners. From the copy of the jamabandi attached with this file, khasra Nos. 361 and 364 measuring 5 kanals and 7 marlas were not on the lease with the college. But the Management is claiming compensation for this land also. In these circumstances, the college management cannot be awarded any amount from the compensation of this land being tenant. I therefore, allow the compensation to the land owners according to their share entered in the jamabandi….”(sic)

First round of assessment proceedings

By the Income Tax Officer, ‘B’ Ward, Ambala

  1. For the assessment year 1971-1972, the assessee declared its income at Rs. 1,408/- inclusive of Rs. 408/- from the house property and Rs. 1,000/- being the amount of interest earned. While not accepting the income so declared, the Assessing Officer8, in his assessment order dated 12.02.1982, enhanced the income from house property to Rs. 1,200/- and also enhanced the interest income to Rs. 11,596/- with reference to the interest received under the award in question. However, the AO observed that capital gains were not relevant for the year under consideration for the reason that the land in question had been acquired in the earlier years. The relevant part of the assessment order dated 12.02.1982 reads as under:-

“……..The assessee has shown intt. at Rs. 1000/- only. The assessee’s lands were required by Haryana Govt. vide notification date 16.05.68, 11.06.69 and 13.08.69. Since the lands were acquired in the earlier years and the capital gains are not relevant for the year under consideration. However, the assessee received compensation late vide award dated 29.07.70 by land Acquisition Controller, the assessee received interest of Rs.10596/- which the assessee has not shown in the return. As such the intt. Income is taken at 11596 including 1000/- so-moto shown by the assessee….” (sic)

Before the Appellate Commissioner

  1. Being aggrieved by the order so passed by the Assessing Officer, the assessee preferred an appeal before the Appellate Assistant Commissioner of Income Tax, Ambala9in B/Amb/82-83 on the grounds, inter alia, that the AO was not justified in enhancing the annual letting value of the house property and was also not justified in including the interest amount of 11,596/- received from Land Acquisition Collector on the compensation paid for acquisition of land for the reason that the said interest amount was required to be treated as part of compensation.

9.1 Though the ground of appeal concerning house property was accepted and the addition made by AO in that regard was deleted but, on examination of the award dated 29.09.1970, the CIT(A) found that the assessee was paid Rs.62,550/- as compensation and Rs.9,532/- as solatium and yet, capital gains on this account were not taxed by the Assessing Officer. Accordingly, a show cause notice dated 18.11.1983 was issued to the assessee as to why capital gains relating to the acquisition of this land be not charged to tax in the assessment year under consideration. The assessee filed a written reply dated 26.12.1983 to this notice and stated, inter alia, that in the urgency acquisition under Section 17 of the Act, the transfer takes place immediately after the notification and the owner ceases to be in possession of the land in question.

9.2 The CIT(A), in his order dated 17.05.1984, rejected the submissions made on behalf of the assessee and held that the capital gains on the acquisition of the land amounting to Rs. 23,146/- were required to be added to the income of the previous year relevant to the assessment year under consideration. The CIT(A) ordered such addition while observing and holding as under:-

“9…. … ITO has not given any reason in the assessment order why the capital gain on the acquisition of the land is not taxable. Moreover, powers conferred on me under the Income-Tax Act does not preclude me from considering this issue at the appellate stage.

  1. There is no doubt that the notifications were published much earlier that the date of award and the possession of land was also taken earlier that the date of award but it does not mean that the capital gain is to be taxed in the earlier years on that basis. When the land is taken possession of by the Government, no compensation has, in fact been determined but it has become only payable. The right of the owner is, therefore, an inchoate right…….. The deeming provisions can have no relevance unless the income is receivable can have it is receivable, then the determination of the question whether it is actually received or is deemed to have been received depends upon the method of accounting. If the actual amount of compensation has not been fixed by the Land Acquisition Collector, no income could be said to have occurred to the appellant…… Income Tax is not levied on a mere right to receive compensation, there must be something tangible, something in the nature of debt, something in nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued. On the date when the collector awarded the compensation, it is only that amount which had accrued whether in fact paid or not. Accordingly, in the present case, even though the possession of land was taken in 1968, no amount can be said to accrued on the date of possession because the compensation at that point of time was not determined at all. This amount of compensation was determined only after the award dated 29.9.70. Therefore, if any income on account of capital gain is chargeable to tax, it will be chargeable on the date of award. It is held accordingly that the capital gain arising out of acquisition of land is chargeable to tax in the previous year, relevant to assessment year under consideration because the date of award i.e. 29.9.70 is within the relevant previous year.”

(emphasis in bold supplied)

Before the Income Tax Appellate Tribunal, Chandigarh Bench

  1. Against the order so passed by the CIT(A), the assessee-appellant preferred an appeal before the Income Tax Appellate Tribunal, Chandigarh Bench, being ITA 634/Chandi/84 and argued, inter alia, that it had been a matter of urgent acquisition under Section 17 of the Act of 1894 and possession of the land in question was taken on 15.05.1968 when the notification under Section 4 of the said Act of 1894 was issued and hence, the CIT(A) exceeded his jurisdiction in taxing the capital gains for the year under reference on the basis of the date of award made by the Land Acquisition Collector under Section 11 of the Act of 1894. It was also argued that the interest amount could not have been treated separately and was required to be considered as a part of the compensation amount.
  2. The appeal so filed, relating to the assessment year 1971-1972, was considered and decided by ITAT by its order dated 19.12.1985. Interestingly, on the same date, i.e., on 19.12.1985, the ITAT also considered and decided another appeal of the appellant pertaining to the assessment year 1975-1976, being ITA No.635/Chandi/84, wherein too, similar question of capital gains arising out of another award of compensation for acquisition of another parcel of land was involved. Since the said decision pertaining to the assessment year 1975-1976 has formed a part of submissions in the present appeal, we may usefully take note of its relevant features before proceeding further.

11.1 It appears that in the said appeal pertaining to the assessment year 1975-1976, the question of capital gains arose in the backdrop of the facts that another parcel of land of the appellant, in village Rangrnan, Tehsil and District Ambala admeasuring 15 kanals and 10 marlas, was acquired for the purpose of construction of warehouse of Ambala The notification under Section 4 of the Act of 1894 for that acquisition was issued on 26.06.1971; possession of the said land was taken on 04.09.1972; and award of compensation was made on 27.06.1974. In the given set of facts and circumstances, the ITAT accepted the contention that the case fell under the urgency provision contained in Section 17 of the Act of 1894 where the assessee was divested of title to the property, that vested in the Government with effect from 04.09.1972, the date of taking possession. Thus, the ITAT held that the capital gains arising from the said acquisition were not assessable for the accounting period relevant for the assessment year 1975-1976. The material part of findings of ITAT in the said order dated 19.12.1985, in ITA No.635/Chandi/84 pertaining to the assessment year 1975-1976, reads as under:-

“9…The case, therefore, falls under the urgency provision contained in section 17 of the Land Acquisition Act, 1894. The transfer within the meaning of section 2(47) took place on the date the possession of land was taken by the Government. Section 2(47)(i) provides that the transfer in relation to a capital asset includes the extinguishment of any rights therein. Section 17  of the Act provides that after taking possession of the land in urgent cases, such land shall thereupon vest absolutely in the Government free from all encumbrances. The assessee was, therefore, divested of the title to the lands and the lands thereafter vested in the Government w.e.f. 4-9-72 i.e. the date of possession of the lands. In this view of the matter, we are of the opinion that the capital gains arising from the acquisition of the lands in question were not assessable for the accounting period relevant to the assessment year 75-76. The income from capital gains included in the total income by the ITO and confirmed by the AAC and also further enhanced by Rs. 28,379/- therefore, cannot be sustained. The same is deleted.”

  1. Reverting to the assessment year 1971-1972, it is noticed that in the appeal relating to this case, the ITAT referred to its aforesaid order of the even date pertaining to the assessment year 1975-1976 but found that in the present case, actual date of taking possession by the Government was not forthcoming and hence, proceeded to restore the matter to the file of AO to find out the date when the Government took over possession, while observing that if possession was taken before the award and before 01.04.1970, capital gains were not to be included in the income for the assessment year 1971-1972 but, if possession was taken during the period 01.04.1970 to 31.03.1971, capital gains would be assessable for this assessment year 1971-1972. The material part of the order dated 19.12.1985 in ITA 634/Chandi/84 pertaining to the present case reads as under:-

“5. We have carefully considered the rival submission. The first Notification for the acquisition of the lands in 15.5.68 as mentioned in the order of the ITO. The date of award u/s 11 of the Land Acquisition Act is 29.9.70 which is also mentioned in the order of the ITO. The actual date of possession of the lands by the Government is neither mentioned in the order of the ITO nor of the AAC though the learned counsel for the assessee at the time of hearing stated that it was on 15.5.68. The AAC has also stated in para 10 of his order that the notifications were published much earlier than the date of the award and the possession of the land was also taken earlier than the date of award but that did not mean that the capital gains was to be taxed in the earlier years on that basis. He has, however, not specified the actual date of possession of the lands by the Government. The date given by the learned counsel for the assessee also cannot be accepted firstly because no evidence in relation there to has been furnished before us. Secondly the date of notification is 16.5.68 and it was not elaborated as to how the possession of the land could be taken even prior to the date of notification. One thing, however, is certain that the possession of the lands was taken before the award was made u/s 11 of the Land Acquisition Act.

  1. Similar issue came up for consideration before us in the case of the assessee itself for the assessment year 1975-76 and vide our orders of even date in I.T.A. No. 635/Chandi we have held that it was a case which fell u/s 17 of the Act and, therefore, capital gains were assessable on the basis that the transfer took place on the date of possession of lands by the Government. Since the actual date of possession of the land is not available, we are of the opinion that the matter should be restored to the file of the ITO who should find out the actual date of possession of the lands by the Government. In case the possession of the lands was taken by the Government prior to the date of award and before Ist April,1970, the capital gains will not be included in the income for the assessment year 71-72. If the possession of the lands was also taken during the period 1-4-70 to 31-3-71, the capital gains will be assessable for the assessment year 71-72. After finding the actual date of possession by Govt. the ITO, he shall recompute the income on the above basis.”

Supplementary facts concerning enhancement of compensation

13.Before entering into the orders passed in second round of proceedings after remand by the ITAT, apposite it would be to take note of a set of supplementary facts relating to the enhancement of the amount of compensation. It is noticed that as against the aforesaid award dated 29.09.1970, the appellant took up the proceedings in LA Case Nos. 37 and 38 of 1971 before the Additional District Judge, Ambala who, by the order dated 30.12.1984, allowed a marginal enhancement of the amount of compensation and corresponding solatium and interest. Not satisfied yet, the appellant preferred an appeal, being Regular First Appeal No. 390 of 1975 before the Punjab and Haryana High Court, seeking further enhancement. The High Court allowed this appeal by its judgment dated 25.10.1985 and awarded compensation by applying the rate of Rs. 8/- per sq. yd. against Rs. 3.50 and Rs. 2.50 per sq. yd., as allowed by the Additional District Judge and the Land Acquisition Collector respectively. The High Court also allowed 30% solatium and corresponding interest10.

Second Round of Proceedings for assessment

By the Income Tax Officer, ‘C’ Ward, Ambala.

  1. Having noticed the relevant facts concerning acquisition of the land in question, the award of compensation for such acquisition and enhancement of the amount of compensation as also the first round of proceedings for assessment for the assessment year 1971-1972, we may now take note of the orders passed in the second round of proceedings for this assessment after the matter was remanded by the ITAT.
  2. In compliance of the directions of ITAT in the aforesaid order dated 19.12.1985 in ITA 634/Chandi/84, the AO took up the matter in GIR No. 920A  and,  on  17.07.1987,  served  specific  question  to  the  assessee-appellant about the date on which possession of the acquired land was taken by the Government of Haryana. In his reply dated 22.07.1987, the appellant stated such date of possession as 15.05.1968, being the date of notification under Section 4 of the Act of 1894. Though no evidence in this regard was adduced but, the appellant relied upon the decision of Kerala High Court in the case of Peter John v. Commissioner of Income-Tax: (1986) 157 ITR 711 to submit that capital gains, if any, arise at the point of time when the land vests in the Government and such a date in the present case was 15.05.1968. Further, by way of communications dated 28.09.1987 and 11.01.1988, the AO asked the assessee-appellant to give the exact date-wise calculation of interest in terms of the aforesaid judgment of High Court dated 25.10.1985 but not much of assistance came up from the appellant in that regard.

15.1 As the appellant was unable to bring forth the requisite information with evidence, the AO also made enquiries from the revenue authorities, particularly regarding the date of taking over possession. In response, the AO received information that the land in question was on lease with the College; and that as per the procedure adopted, the date of taking possession by the Government was ‘in consonance’ with the date when the award was announced.

15.2 The AO took note of all the facts and features of this case in his re- assessment order dated 25.01.1988 and observed that ‘since in the instant case, the award was announced on 29.09.1970, the said date viz 29.09.1970 is deemed to be the date of taking possession by the Government’. In this view of the matter, the AO held that ‘taxability of capital gains arose in the previous year relevant to the assessment year under consideration’.

15.3 It was also suggested by the appellant before the AO that acquisition was of urgent nature, as was the case in relation to the other acquisition relevant for the assessment year 1975-1976. The AO found such a suggestion incorrect because of different purposes of acquisition; and specific date of taking over possession (04.09.1972) having been mentioned in the said case pertaining to the assessment year 1975-1976. The AO also noticed that the appellant failed to place on record the date of publication of notice under Section 9 of the Act of 1894 and observed that there was no reference to urgency acquisition in the present case nor any such mention was found in the award dated 29.09.1970. In the given circumstances, the AO held that the acquisition in question was not a matter of urgency under Section 17 of the Act of 1894 and this acquisition had only been under the ‘normal powers’.

15.3 With the findings aforesaid, the AO proceeded to assess the tax liability of the appellant, on long-term capital gains arising on account of acquisition, on the basis of the amount of compensation allowed in the award dated 29.09.1970 as also the enhanced amount of compensation accruing finally as a result of the aforesaid order dated 30.12.1984 passed by the Additional District Judge and the judgment dated 25.10.1985 passed by the High Court. As regards interest income, the AO carried out protective assessment on accrual basis @ 12% per annum for the previous year relevant to the assessment year in question i.e., for the period 01.04.1970 to 31.03.1971 while providing that such calculation would be subject to amendment, if necessary.

Before the Commissioner of Income Tax (Appeals), Karnal

  1. The aforesaid order of re-assessment dated 25.01.1988 was challenged by the appellant before the CIT(A) in Appeal No. 87/87-88. This appeal was considered and dismissed by the CIT(A) by way of his elaborate order dated 31.03.1989.

16.1 It was argued in the first place before the CIT(A) that the ITAT, by its order dated 19.12.1985, had only restored the issue as regards the date of possession to the file of AO and therefore, the AO was not justified in proceeding as if making a de-novo assessment; and was not justified in bringing the enhanced amount of compensation to tax for which, he should have passed a separate order under Section 155(7A) of the Act of 1961. In regard to this contention, the CIT(A) noted that indisputably, for computation of capital gains, the ITO had the power to take into consideration the enhanced compensation received by the appellant for compulsory acquisition of the land; and when the ITO could have drawn up a separate order under Section 155(7A), he was well within the powers to combine such an order with his order for carrying out the directions of The contention on the frame of the order was, therefore, rejected.

16.2 The CIT(A), thereafter, extensively dealt with the facts of the case on the issue as to whether the ITO had correctly held that possession of the appellant’s compulsorily acquired land was taken over by the Government during the previous year relevant to the assessment year in question. The CIT(A) held that it had not been a case of compulsory acquisition under Section 17 of the Act 1894; and that awarding of interest from 15.05.1968 was of no effect on the date of accrual of capital gains, particularly when such interest could have been awarded under Section 28 of the Act of 1894. The CIT(A) further observed that the College remained in unauthorized possession of the land in question after the expiry of lease on 31.08.1967 but, it was only on the date of award i.e., 29.09.1970, that the possession legally passed on to the College so as to vest it with the ownership through the Government. The relevant observations and findings of the CIT(A) in the order dated 31.03.1989 could be usefully reproduced as under:-

“9…It is an admitted fact that the special procedure prescribed u/s 17 of the Land Acquisition Act for exercising of the emergency powers of the Govt. for taking possession of lands to be compulsorily acquired, earlier than the date of award u/s 11 of Land Acquisition Act, was not followed in this case. Neither there is any direction of the Govt. to the Collector to take over possession earlier then the date of award u/s 11 of Land Acquisition Act and nor the possession was so taken by the collector after 15 days of the  publication of notice u/s 9(1) of the Land Acquisition Act. These two conditions are absolutely necessary if the possession was to be taken u/s 17 of the Land Acquisition Act. The possession of the lands already with S.A. Jain College Ambala was obviously regularized in the instant case u/s 16 of the Land Acquisition Act which is the general Section for taking the possession of lands acquired under the Land Acquisition Act. The possession of compulsorily acquired land u/s 16 of the Land Acquisition Act can be taken by the Govt. only after the date of award u/s 11 of the Land Acquisition Act which in the instant case was 29.9.70. Therefore, it is only on 29.9.70 that the possession legally passed to S.A. Jain College, Ambala so as to vest the ownership in the property in S.A. Jain College City through the Govt. …… If the possession of the lands had been taken u/s 17 of the Land Acquisition Act, then interest would have been awarded to the appellant only from the date after 15 days of the publication of notice u/s 9(1) of the Land Acquisition Act, whereas in the instant case, the interest has been awarded from the date of notification u/s 4 of the Land Acquisition Act i.e. 15.5.68. This goes to show that the interest was awarded to the appellant from a date prior to the date of award u/s 11 of the Land Acquisition Act which is dated 29.9.70 not because the possession had been taken u/s 17 of the Land Acquisition Act but because of various Court, rulings be holding, as mentioned above, that on equitable interpretation of Sec. 28 of the Land Acquisition Act, interest should be awarded from the date of possession even in cases where the possession had been taken before the date of award u/s 11 of the Land Acquisition Act, even though the possession was unauthorized or taken with or without the consent of the landlord.

  1. In view of the above discussion, it is obvious that the possession of the lands in the instant case legally passed to S.A. Jain College, Ambala City through the Govt. on the date of the award u/s 11 of the Land Acquisition Act and it is only on this date that the ownership in the lands got vested in the Govt……. As discussed above, the fact that S.A. Jain College, Ambala was already in unauthorized possession of the lands and that interest has been awarded to the appellant from part of the period during which S.A. Jain College, Ambala were in unauthorized possession of the lands, would not effect the above mentioned legal position i.e. that the possession and ownership in the lands got transferred from the landlord to the Government on 29.9.70 i.e. the date of the award u/s 11 of the Land Acquisition Act. Therefore, the capital gain on the compulsory acquisition of these lands is to be taxed in this year and has been rightly so taxed. The order of the learned I.T.O. on this point also is upheld.

11…..Since I have already held that the learned ITO was justified in including the enhanced compensation in the total consideration received by the appellant for acquisition of his lands, for computation of capital gains, I hold that appellant has no case in respect of the interest amount of Rs.27255/- as mentioned in ground of Appeal No.5 of the original grounds of appeal. No arguments having been advanced in respect of appeal No. 4,6,7 of the original grounds of appeal, these grounds of appeal are, therefore, rejected as, on the face of it, there is nothing wrong in the order of the learned ITO in this respect.

In the result, appeal is dismissed.”

(emphasis in bold supplied)

Before the Income Tax Appellate Tribunal, Chandigarh Bench

  1. Being aggrieved by the order so passed by the CIT(A), the appellant preferred an appeal before the ITAT, being ITA 739(Chandi)89, raising essentially three issues for consideration namely, (i) about the date of taking over physical possession of the land in question by the Government; (ii) about the ITO’s power to frame the re-assessment instead of re- computing the income in terms of the ITAT’s order of remand; and (iii) against the inclusion of enhanced compensation and interest, etc., in the re-assessment by the ITO. This appeal was considered and allowed by the ITAT by way of its order dated 29.06.1990.

17.1 The ITAT took up the first issue concerning the date of taking over physical possession of the land in question and, with reference to the relevant background aspects as noticed hereinabove, observed that though it had earlier directed the ITO to ascertain the actual date of possession but the matter presented a complex scenario, where a clear finding about this date was difficult to emerge. The ITAT observed thus:-

“12. The direction of the Bench earlier was for determination of actual date of possession. The Ld. ITO in his own way came to  the conclusion that the date of award was the date of possession whereas assessee’s case depended on the date of notification. Both the dates appear to be misconceived as the actual physical possession of the land was already with the college, under a lease, since 1.1.47. Thus as a consequence of the acquisition proceedings only some of symbolic or constructive possession was to be taken as the physical possession was already there. In terms of the order under challenge and so also the assessment order and the position of law also, the ownership exchanges hands from the date of award which in the present case is 29.9.70, but before recording a firm finding in this respect, we have to keep in mind the earlier finding of the Bench dated 19.12.85 wherein it was observed that the actual date of possession be ascertained and capital gains assessed in the year in which the possession was taken. The determination of this aspect is slightly difficult in view of the complex factual position existing on the record. We cannot take 29.9.70 as on the date of doubt (sic) the award was given but the possession was already with the college. We also cannot take 15.5.68 because no doubt the notification was there but before that date the college was in possession of land under a lease. Thus clear finding is difficult to emerge.”

17.2 Having said that, the ITAT referred to the observations regarding “possession of land”, as occurring in the award dated 29.09.197011 and observed that as per those observations in the award, possession of the land in question was supposed to have been taken on 15.05.1968. The ITAT further observed that to sort out the controversy, such stipulation in the award was required to be depended upon; and the date of actual physical possession was inferable from the intention of the parties and the language of such stipulation in the award. On this reasoning, the ITAT held that since the actual physical possession exchanged hands on 15.05.1968, the transaction should be considered as having taken place on that date and not on the date of award i.e., 29.09.1970; and hence, capital gains were not to be taxed for the year under consideration. Having reached this conclusion, the ITAT held that the very basis of assessing capital gains having been knocked out, the other issues were rendered The ITAT, accordingly, allowed the appeal with the following observations and findings:-

“14. According to the stipulation in the award, the possession of land is supposed to have taken place on 15.5.68 as from that date, the assessee was entitled in interest at 6% per annum on the amount of compensation. This is infact the date i.e. 15.5.68, from which date the assessee was supposed to have parted with the ownership of the land in lieu of the compensation. The assessee was to have the compensation and the land was supposed to have parted company. Thus to sort out the controversy we are required to heavily depend upon this stipulation in the award. The date of actual physical possession is inferable from the intention of parties and the language of the stipulation. The date of dispossession is inferable to be 15.5.68. The issue is now required to be decided, in the light of the earlier observation of the Bench that since the physical possession(ownership) exchanged hands on 15.5.68, the transaction should be considered as having taken place on the date and not on the date of award on 29.9.70. For coming to this conclusion we are dependent upon the intention of the parties and the mention in the award that the interest became payable to the assessee from that date only and not from any other date. In the light of the above discussion, we are inclined to hold that the capital gains could not be assessed for the year under consideration as the transaction did take place on 15.5.68. The revenue authorities were thus not justified to include the capital gains for the year under consideration and the Ld (CIT(A) was not justified to confirm such action. We vacate the finding of this aspect. The Revenue authorities are at liberty to look into the matter in respect of capital gains taking the date of possession as 15.5.1968. Dispossession or actual date of taking physical possession is to be understood in the context of the facts to the present case as the change of the ownership as the possession was already with the college under the lease.

  1. Since we have held that capital gains are not to be taxed for the year under consideration, other issues connected with this aspect and raised by the assessee not to be gone into as the very basis has knocked down.”

(emphasis in bold supplied)

  1. Taking exception against the order so passed in appeal, the revenue made an application before the ITAT seeking reference to the High Court under Section 256(1) of the Act of The ITAT, in its order dated 15.07.1991, took note of all the relevant facts; and, after finding it to be a fit case for making reference, drew up the statement of case and referred the matter to the High Court for determination of the following question:-

“Whether on the facts and in the circumstances of the case, the Tribunal was right in Law in holding that the capital gains are not assessable in the year under consideration as the transaction did take place on the date of notification i.e. 15.05.1968 and not on the date of award on 29.09.1970?”

The reference proceedings in High Court

19.The High Court of Punjab and Haryana considered and answered the question aforesaid by its impugned judgment and order dated 23.04.2008 in Income Tax Reference No.53-A of 1991.

19.1 It was argued on behalf of the revenue before the High Court that any profits or gains arising from the transfer of the capital asset effected in the previous year shall be deemed to be income of the previous year in which the transfer took place and thus, would fall within the ambit of Section 45(1) of the Act of 1961; and as such, the date of award 29.09.1970 ought to be considered for the purpose of calculating capital gains and not the date of notification i.e., 15.05.1968. As against these submissions, it was submitted on behalf of the assessee-appellant that the referred question was required to be decided in the light of the observations made by ITAT in its order dated 19.12.1985; and that it had been a matter of urgency acquisition where the possession of land was taken on the date of notification e., 15.05.1968 and hence, in view of the provisions contained in Section 17 of the Act of 1894, the transfer took place on that date (15.05.1968) and not on the date of award (29.09.1970).

19.2 After taking into consideration the rival submissions, the facts of this case and the scheme of the Act of 1894, particularly Sections 16 and 17 thereof, the High Court answered the reference in favour of the revenue while holding that the Collector had not taken possession of the land under Section 17 of the Act of 1894 and that the said provision was not invoked by the State Government. The High Court further held that for the purpose of assessment of capital gains, the date of award (i.e., 29.09.1970) was required to be taken as the date of taking over possession because, on that date, the land in question vested in the Government under Section 16 of the Act of 1894.

19.3 The High Court further examined the ambit and scope of Section 45 of the Act of 1961 and on its conjoint reading with Section 16 of the Act of 1894, came to the conclusion that the transfer of capital asset (the land in question) and its vesting in the Government took place on 29.09.1970, the date of award. The High Court further held that under the Income-tax Act, 1961, an income was chargeable to tax only when it had accrued or was deemed to have accrued in the year of assessment; and in the present case, if any income on account of capital gains was chargeable to tax, it would be chargeable on the date when the Collector determined the compensation because, the income accrued to the appellant only upon such The High Court, therefore, held that the capital gains arising out of acquisition of land were chargeable to tax in the previous year relevant to assessment year under consideration because the date of award i.e., 29.09.1970 fell within the relevant previous year.

19.4 Accordingly, the High Court disapproved the ITAT’s order dated 29.06.1990 and answered the reference in favour of the revenue while holding, inter alia, as under:-

“13…..It is clear from Section 45(1) of the Income Tax Act that the capital gains are chargeable to income-tax arising from the transfer of capital assets effected in the previous year in which the transfer took place. On a conjoint reading of Section 16 of the Land Acquisition Act and Section 45(1) of the Act, it is clear that the transfer of the capital asset (land of the assessee) has to be taken as 29.09.1970 i.e. the date of award on which date the land vested in State.

  1. Under the Income Tax Act, an income is chargeable to tax only when it accrues or is deemed to accrue or arise in the year of assessment. The deeming provision can have no relevance unless the income is receivable and if it is receivable, then the determination of the question whether it is actually received or is deemed to have been receive depends upon the method of accounting. If the actual amount of compensation has not been fixed by the Land Acquisition Collector, no income could be said to have accrued to the appellant. It cannot be contended that the mere claim by the assessee after taking of possession by the Govt. at a particular rate is the compensation. It is the amount actually awarded by the Collector accrues on the date on which the award is passed. Income tax is not levied on a mere right to receive compensation. There must be something tangible, something in the nature of debt, something in the nature of an obligation to pay an ascertained amount. Till such time no income can be said to have accrued. On the date when the Collector awarded the compensation, it is only that amount which had accrued. This amount of compensation was determined only on passing of the award date 29.09.70. Therefore, if any income on account of capital gain is chargeable to tax, it will be chargeable on the date of award. It is held accordingly that the capital gain arising out of acquisition of land is chargeable to tax in the previous year relevant to assessment year under consideration because the date of award i.e. 29.09.70 is within the relevant previous year.”

(emphasis in bold supplied)

  1. Being aggrieved by the judgment and order dated 23.4.2008 so passed by the High Court, holding that the capital gains arising out of the acquisition in question were chargeable to tax in the assessment year 1971- 1972, the assessee-appellant has preferred this appeal by special leave.

Rival Submissions

Appellant

  1. Assailing the view taken by the High Court, learned counsel for the appellant has essentially crusaded on two-fold arguments: One, that on the facts and in the circumstances of the present case, where the land in question was already in possession of the beneficiary College, the assessee-appellant was divested of its title and right to this property with issuance of notification under Section 4 of the Act of 1894 when the State took up the acquisition in urgency; and the transfer for the purposes of Section 2(47) of the Act of 1961 was complete on the date of that notification itself i.e., on 15.05.1968 and hence, capital gains arising out of such acquisition and interest accrued could not have been charged to tax with reference to the date of award i.e., 29.09.1970. Secondly, it is not open for the revenue to question the decision of ITAT in the present case pertaining to the assessment year 1971-1972 because, the fact situation of the present case is similar to that of the other case of the appellant in relation to the assessment year 1975-1976, where the same issue was decided by the ITAT in favour of the appellant and the revenue accepted the said decision by not challenging the same any further.

21.1 Elaborating on the first limb of arguments, learned counsel for the appellant has contended that indisputably, the land in question was already in possession of the beneficiary College when the State Government took up the proceedings for its acquisition by issuing notification under Section 4 of the Act of 1894 on 15.05.1968; and the appellant was immediately divested of the rights in the land in question, as amply established by the recital about “possession of land” in the award dated 29.09.1970, where the appellant was allowed interest over the amount of compensation and solatium from 15.05.1968. Therefore, according to the learned counsel, the transfer, for the purposes of Section 2(47) of the Act of 1961, was complete on the date of notification i.e., on 15.05.1968 and capital gains, if any, could have only been charged for the previous year referable to that date of notification and not with reference to the date of award.

21.1.1 Taking this line of argument further, learned counsel has referred to the Full Bench decision of Kerala High Court in the case of Peter John (supra) to submit that in land acquisition proceedings, the owner of property is entitled to compensation on the day on which he is dispossessed; and that such right does not await quantification of compensation by the Land Acquisition Officer or the Court. On application of these principles to the case at hand, according to the learned counsel, the date of award i.e., 29.09.1970 for quantification of compensation has no relevance for the purpose of assessing capital gains; and the only relevant date is 15.05.1968, when the appellant was legally dispossessed of the land in question and its rights therein stood extinguished.

21.1.2 Learned counsel for the appellant has further contended, with reference to the decision of this Court in the case of Rama Bai Commissioner of Income-Tax, Andhra Pradesh: (1990) 181 ITR 400, that the interest income in cases of land acquisition accrues from year to year and is taxable in the respective year of its accrual; and, in the present case, since the possession was taken on 15.05.1968, capital gains and interest accrued were taxable only in the assessment year 1969-1970 and not in the assessment year 1971-1972.

21.2 In the second limb of submissions, learned counsel for the appellant has referred to the order dated 19.12.1985, as passed by the ITAT in ITA 635/CHD/84 for the assessment year 1975-1976 (Annexure P-5) and has submitted that in the similar facts and circumstances, pertaining to the acquisition of another land of the appellant, the ITAT specifically decided that capital gains were not relatable to the date of award but were relatable to the date of dispossession; and the revenue indeed accepted the said decision by not challenging it any further. While strongly relying upon the decision of this Court in Berger Paints India Ltd. v. Commissioner of Income-Tax: (2004) 266 ITR 99, the learned counsel has contended that where the order passed in favour of the very same assessee and against the revenue in a similar matter has attained finality, the revenue cannot seek re-opening of the issue in relation to the other case without a just cause. Thus, according to the learned counsel, the view as taken in relation to the similar case for the assessment year 1975-1976 squarely covers the present case and the revenue cannot take a different stand in relation to the assessment year 1971-1972.

21.3 Learned counsel for the appellant has also contended that the interest income and solatium accrued on 15.05.1968 as per the award itself and hence, the income to be taxed pertains to the financial year 1968-1969, relevant to the assessment year 1969-1970 and the same cannot be taxed in the assessment year 1971-1972. Therefore, according to the learned counsel, the ITAT had rightly taken the view against taxability of the income pertaining to the acquisition in question in the assessment year 1971-1972 and the High Court has committed manifest error in upturning the view of ITAT.

Respondent

  1. Per contra, learned counsel for the revenue has supported the order passed by the High Court, essentially with the submissions that in the present case, transfer of capital asset i.e., the land of assessee, took place only on the date of award falling within the previous year relevant for the assessment year 1971-1972.

22.1 Learned counsel for the revenue has referred to the definitions of “capital asset” and “transfer” in the Act of 1961 and has contended that though possession of the subject land was with the College in the year 1968 and continued as such but, no gain on account of transfer of land accrued to the assessee on the date of notification i.e., 15.05.1968 because, at the relevant point of time, compensation had not been determined; and the same was determined only in the award dated 29.09.1970. Therefore, according to the learned counsel, capital gains chargeable to income-tax accrued only on the date of award and, in this position, the date of notification i.e., 15.05.1968 is not relevant for the purpose of taxing the capital gains.

22.2 Learned counsel for the revenue has further elaborated on the submissions that the acquisition in question had not been under the urgency provisions contained in Section 17 of the Act of 1894 because thereunder, the Government was to issue directions to the Collector to take possession after the expiry of fifteen days from the date of publication of notice under Section 9(1) but, no such direction was issued by the Government in the present case. According to the learned counsel, the only applicable provision for taking possession in the present case had been Section 16 of the Act of 1894 whereunder, possession could be taken by Collector after making the award under Section 11 and only thereupon the land under acquisition vests in the Government, free from all encumbrances. The learned counsel would maintain that on the facts of the present case, the possession legally passed on to the College through the Government only on 29.09.1970 i.e., the date of award; and this date of award shall alone be relevant for chargeability of tax against capital gains of the assessee with transfer of capital asset. In support of his contentions, the learned counsel has referred to and relied upon various decisions including those in Joginder Singh and Ors. v. State of Punjab and Anr.: AIR 1985 SC 382 and Bombay Burmah Trading Corporation Ltd. v. Commissioner of Income-Tax: (1988) 169 ITR 148.

22.3 Learned counsel for revenue has also submitted that reliance by the appellant on the case of Berger Paints (supra) is entirely misplaced because the said case relates to business expenditure under Section 34B of the Act of 1961 and has no relevance to the present case.

Points for determination

  1. We have heard learned counsel for the parties at length and have scanned through the material on record. Having regard to the submissions made and the contents of judgment/orders under consideration, the following principal points arise for determination in this appeal: –
  2. As to whether, on the facts and in the circumstances of the present case, transfer of the capital asset (land in question), resulting in capital gains for the purposes of Section 45 of the Act of 1961, was complete on 15.05.1968, the date of notification for acquisition under Section 4 of the Act of 1894; and hence, capital gains arising out of such acquisition and interest accrued could not have been charged to tax with reference to the date of award i.e., 09.1970?
  3. As to whether the fact situation of the present case is similar to that of the other case of the appellant in relation to the assessment year 1975-1976 where the same issue relating to the date of accrual of capital gains was decided by the ITAT in favour of the appellant with reference to the date of taking possession by the Government; and having not challenged the same, it is not open for the revenue to question the similar decision of ITAT in the present case pertaining to the assessment year 1971-1972?
  4. For appropriate dealing with the controversy at hand, we may take note of the relevant statutory provisions in the Income-tax Act, 1961, as applicable to the assessment year 1971-1972, as also in the Land Acquisition Act, 1894, as existing at the relevant time.

Statutory Provisions

  1. In the Income-tax Act, 1961, the heads of income for the purpose of computation of total income are defined in Section 14 that carries, inter alia, the heading “E. Capital gains”. Part-E of Chapter IV carries the provisions relating to Capital gains arising from the transfer of a capital asset. For the purpose of present appeal, the provision relating to chargeability of capital gains to tax as contained in Section 45 and the definition of the expression “transfer” as occurring in clause (47) of Section 2 of the Act of 1961 are relevant and these provisions, as applicable to the assessment year 1971- 1972 had been as 12:-

“Section 45. Capital gains.-Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54 and 54B be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.”

“Section 2(47) “transfer”, in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law;”

  1. For an overview of the processes envisaged by the Land Acquisition Act, 1894 to bring about lawful acquisition of land, we may put a glance over the principal parts of relevant provisions therein, as existing at the relevant point of time.

26.1 The process of acquisition, as contained in Part II of the Act of 1894 could be reasonably taken into comprehension by reference to Sections 4, 5A, 6, 9, 11 and 16 therein, respectively occurring under the headings ‘Preliminary Investigation’, ‘Objections’, ‘Declaration of Intended Acquisition’, ‘Enquiry into Measurements, Value and Claims, and Award by the Collector’ and ‘Taking Possession’. These provisions or relevant parts thereof, as applicable to the acquisition in question, had been as under:-

4. Publication of preliminary notification and powers of officers thereupon.- (1) Whenever it appears to the appropriate Government that land in any locality is needed or is likely to be needed for any public purpose a notification to that effect shall be published in the Official Gazette, and the Collector shall cause public notice of the substance of such notification to be given at convenient places in the said locality.

(2) Thereupon it shall be lawful for any officer, either, generally or specially authorised by such Government in this behalf, and for his servants and workmen, –

to enter upon and survey and take levels of any land in such locality;

to dig or bore into the sub-soil;

to do all other acts necessary to ascertain whether the land is adapted for such purpose;

to set out the boundaries of the land proposed to be taken and the intended line of the work (if any) proposed to be made thereon;

to mark such levels, boundaries and line by placing marks and cutting trenches; and,

where otherwise the survey cannot be completed and the levels taken and the boundaries and line marked, to cut down and clear away any part of any standing crop, fence or jungle:

Provided that no person shall enter into any building or upon any enclosed court or garden attached to a dwelling house (unless with the consent of the occupier thereof) without previously giving such occupier at least seven days’ notice in writing of his intention to do so.”

5A. Hearing of Objections.- (1) Any person interested in any land which has been notified under section 4, sub-section (1), as being needed or likely to be needed for a public purpose or for a company may, within thirty days after the issue of the notification, object to the acquisition of the land or of any land in the locality, as the case may be.

(2) Every objection under sub-section (1) shall be made to the Collector in writing, and the Collector shall give the objector an opportunity of being heard either in person or by pleader and shall, after hearing all such objections and after making such further inquiry, if any, as he thinks necessary, either make a report in respect of the land which has been notified under Section 4, sub- section (1), or make different reports in respect of different parcels of such land to the appropriate Government, containing his recommendations on the objections, together with the record of the proceedings held by him, for the decision of that Government.

The decision of the appropriate Government on the objections shall be final.

(3) For the purposes of this section, a person shall be deemed to be interested in land who would be entitled to claim an interest in compensation if the land were acquired under this ”

“6. Declaration that land is required for a public purpose.- (1) Subject to the provisions of Part VII of this Act, when the appropriate Government is satisfied after considering the report, if any, made under section 5A, sub-section (2), that any particular land is needed for a public purpose, or for a company, a declaration shall be made to that effect under the signature of a Secretary to such Government or of some officer duly authorised to certify its orders and different declarations may be made from time to time in respect of different parcels of any land covered by the same notification under Section 4, sub-section (1), irrespective of whether one report or different reports has or have been made (wherever required) under section 5-A, sub-section (2).

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