Raj Pal Singh vs. CIT (Supreme Court)

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2416 OF 2010
RAJ PAL SINGH …..APPELLANT
Vs.
COMMISSIONER OF INCOME-TAX, ….RESPONDENT
HARYANA, ROHTAK
JUDGMENT
Dinesh Maheshwari, J.
PRELIMINARY AND BRIEF OUTLINE
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
1 For short, ‘the High Court’.
2 For short, ‘the Act of 1961’ or ‘the Act’.
3 For short, ‘ITAT’.
1
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?
2
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
5. 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.
6. 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;
4 Hindu Undivided Family.
5 For short, ‘the subject land’ or ‘the land in question’.
6 For short, ‘the College’.
3
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.
7. 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
7 For short, ‘the Act of 1894’.
4
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
8. 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
8 Hereinafter referred to as ‘the AO’ or ‘the ITO’.
5
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
9. Being aggrieved by the order so passed by the Assessing Officer,
the assessee preferred an appeal before the Appellate Assistant
Commissioner of Income Tax, Ambala9 in 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 Rs.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
9 For short, ‘the CIT(A)’.
6
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.
10. 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
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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
10. 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 No.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.
11. 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
8
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 City. 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
9
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.”
12. 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 No.634/Chandi/84 pertaining to the present case reads
as under:-
10
“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.
6. 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
11
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.
14. 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.
15. In compliance of the directions of ITAT in the aforesaid order dated
19.12.1985 in ITA No.634/Chandi/84, the AO took up the matter in GIR No.
920A and, on 17.07.1987, served specific question to the assessee-
10 As per the material on record, the High Court allowed interest @12% p.a. on the market value
of the land from the date of notification under Section 4 of the Act of 1894 until the date of taking
possession; 9% p.a. after the date of possession for one year; and 15% p.a. thereafter.
12
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 reassessment
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
13
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’.
15.4. 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
14
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
16. 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 ITAT.
The contention on the frame of the order was, therefore, rejected.
15
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
16
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.
10. 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/-
17
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
17. Being aggrieved by the order so passed by the CIT(A), the appellant
preferred an appeal before the ITAT, being ITA No. 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 recomputing
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
18
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 redundant. The
11 Reproduced in paragraph 7.1 hereinbefore.
19
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.
15. 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)
18. 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 1961. The ITAT, in its order
20
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 i.e., 15.05.1968 and hence, in view of the provisions
21
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 determination. The High Court, therefore, held that the capital gains
22
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.
14. 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)
23
20. 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
21. 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.
24
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
25
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 v.
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
No. 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
26
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
22. 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
27
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
28
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
23. 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: –
1. 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., 29.09.1970?
29
2. 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?
24. 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
25. 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 follows.12:-
12 In the re-assessment order dated 25.01.1988, the AO had included the amount of enhanced
compensation for computing the quantum of capital gains and this inclusion was questioned before
the CIT(A) but, it was held that as regards enhanced compensation, the AO could have passed the
30
“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;”
26. 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
order by virtue of his powers under sub-section (7A) of Section 155 of the Act of 1961. Though, this
aspect is not directly involved in the present appeal but, for the sake of reference, we may indicate
that Section 155 of the Act deals with the power of amendments of assessment; and sub-section
(7A) thereto was inserted by Finance Act, 1978 with retrospective effect from 01.04.1974 and was
omitted by Act No. 4 of 1988 with effect from 01.04.1992. This sub-section (7A) of Section 155, as
existing at the relevant time of passing the order by the AO, had been as under:-
“(7A) Where in the assessment for any year, the capital gain arising from the
transfer of a capital asset, being a transfer by way of compulsory acquisition
under any law, or a transfer the consideration for which was determined or
approved by the Central Government or the Reserve Bank of India, is computed
under section 48 and the compensation for such acquisition or the consideration
for such transfer is enhanced or further enhanced by any court, tribunal or other
authority, the computation or, as the case may be, computations made earlier
shall be deemed to have been wrongly made and the Assessing Officer shall,
notwithstanding anything contained in this Act, recompute in accordance with
section 48 the capital gain arising from such transfer by taking the
compensation or the consideration as enhanced or further enhanced, as the
case may be, to be the full value of the consideration received or accruing as a
result of such transfer and shall make the necessary amendment; and the
provisions of section 154 shall, so far as may be, apply thereto, the period of
four years specified in sub-section (7) of that section being reckoned from the
end of the previous year in which the additional compensation or consideration
was received by the assessee.”
31
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, subsection
(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.
32
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 Act.”
“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).
*** *** ***
(3) The said declaration shall be conclusive evidence that the land
is needed for a public purpose or for a company, as the case may
be; and, after making such declaration the appropriate
Government, may acquire the land in manner hereinafter
appearing.”
“9. Notice to persons interested.- (1) The Collector shall then
cause public notice to be given at convenient places on or near
the land to be taken, stating that the Government intends to take
possession of the land, and that claims to compensation for all
interests in such land may be made to him.
(2) Such notice shall state the particulars of the land so needed,
and shall require all persons interested in the land to appear
personally or by agent before the Collector at a time and place
therein mentioned (such time not being earlier than fifteen days
after the date of publication of the notice), and to state the nature
of their respective interests in the land and the amount and
particulars of their claims to compensation for such interests, and
their objections (if any) to the measurements made under Section
8. The Collector may in any case require such statement to be
made in writing and signed by the party or his agent.
(3) The Collector shall also serve notice to the same effect on the
occupier (if any) of such land and on all such persons known or
believed to be interested therein, or to be entitled to act for
persons so interested, as reside or have agents authorised to
receive service on their behalf, within the revenue district in which
the land is situate.
*** *** ***”
“11. Enquiry and award by Collector.- On the day so fixed, or
any other day to which the enquiry has been adjourned, the
33
Collector shall proceed to enquire into the objections (if any),
which any person interested has stated pursuant to a notice given
under Section 9 to the measurements made under Section 8, and
into the value of the land and at the date of the publication of the
notification under Section 4, sub-section (1), and into the
respective interests of the persons claiming the compensation,
and shall make an award under his hand of–
(i) the true area of the land;
(ii) the compensation which in his opinion should be allowed for
the land; and
(iii) the apportionment of the said compensation among all the
persons known or believed to be interested in the land, of
whom, or of whose claims, he has information, whether or not
they have respectively appeared before him.”
“16. Power to take possession.- When the Collector has made
an award under Section 11, he may take possession of the land,
which shall thereupon vest absolutely in the Government, free
from all encumbrances.”
26.2. A different process was, however, envisaged by Section 17 of the
Act of 1894 for taking possession in cases of urgency even before making
of award but upon the directions of the appropriate Government. The
relevant part of that provision had been as under:-
“17. Special powers in cases of urgency.- (1) In cases of
urgency, whenever the appropriate Government so directs, the
Collector, though no such award has been made, may, on the
expiration of fifteen days from the publication of the notice
mentioned in Section 9, sub-section (1), take possession of any
waste or arable land needed for public purposes or for a company.
Such land shall thereupon vest absolutely in the Government free
from all encumbrances.
*** *** ***”13
13 We have not extracted the other sub-sections of Section 17 of the Act of 1894, for being not
relevant in the present case but, for completing the reference to the broad features of process
contemplated by Section 17, we may also indicate that sub-section (4) thereof, as existing at the
relevant time had been as under: –
“(4) In the case of any land to which in the opinion of the appropriate
Government, the provisions of sub-section (1) or sub-section (2) are applicable,
the appropriate Government may direct that the provisions of Section 5A shall
not apply, and, if it does so direct, a declaration may be made under Section 6
in respect of the land at any time after the publication of the notification under
Section 4, sub-section (1).”
34
26.3. One peripheral aspect relating to the treatment of interest on
enhanced compensation has also occurred in the present case for which,
the CIT(A) in his order dated 31.03.1989, has referred to Section 28 of the
Act of 1894. This provision, as existing at the relevant time, had been as
under:-
“28. Collector may be directed to pay interest on excess
compensation.- If the sum which, in the opinion of the Court, the
Collector ought to have awarded as compensation is in excess of
the sum which the Collector did award as compensation, the
award of the Court may direct that the Collector shall pay interest
on such excess at the rate of six per centum per annum from the
date on which he took possession of the land to the date of
payment of such excess into Court.”14
27. Having regard to the relevant provisions of the Act of 1961 whereby
and whereunder, “capital gains” essentially relate to the transfer of capital
asset by the assessee; and the background aspects of the present case,
where the capital asset of the assessee-appellant (land in question) was in
possession of the beneficiary College even after expiry of the lease on
31.08.1967, it shall also be apposite to take note of a few provisions of the
Transfer of Property Act, 188215 concerning the general connotation of
“transfer of property” as also those relating to the transaction of lease of
immovable property.
27.1. In Section 5, occurring in Chapter II of the Act of 1882, the phrase
“transfer of property” is defined as under:-
14 Note: We may again observe that the extractions in paragraph 25 are of the provisions of the
Act of 1961 as applicable for the assessment year 1971-1972. Similarly, the extractions in
paragraphs 26.1, 26.2 and 26.3 are of the provisions of the Act of 1894 as applicable in the year
1968 when the notification under Section 4 pertaining to the subject land was issued.
15 For short, ‘the Act of 1882’
35
“5. “Transfer of property” defined.- In the following sections
“transfer of property” means an act by which a living person
conveys property, in present or in future, to one or more other
living persons, or to himself, or to himself and one or more other
living persons; and “to transfer property” is to perform such act.
In this section “living person” includes a company or association
or body of individuals, whether incorporated or not, but nothing
herein contained shall affect any law for the time being in force
relating to transfer of property to or by companies, associations or
bodies of individuals.”
27.2. The rights and liabilities of lessor and lessee of immovable property
are delineated in Section 108 of the Act of 1882 and its clause (q)
postulates an implied obligation of the lessee to put the lessor into
possession of the property on determination of the lease in the following
words:-
“108. Rights and liabilities of lessor and lessee. – In the
absence of a contract or local usage to the contrary, the lessor and
the lessee of immovable property, as against one another,
respectively, possess the rights and are subject to the liabilities
mentioned in the rules next following, or such of them as are
applicable to the property leased:-
*** *** ***
(q) on the determination of the lease, the lessee is bound to put
the lessor into possession of the property.”
27.2.1. Determination of lease by efflux of time is envisaged in clause (a) of
Section 111 of the Act of 1882 as follows:
“111. Determination of lease.- A lease of immovable property
determines-
(a) by efflux of the time limited thereby;
*** *** ***”
27.2.2. One of the features of the transaction of lease, in the case where
lessee remains in possession after determination thereof and the lessor
assents to his possession, is dealt with by Section 116 of the Act of 1882
that reads as under:-
36
“116. Effect of holding over.- If a lessee or under-lessee of
property remains in possession thereof after the determination of
the lease granted to the lessee, and the lessor or his legal
representative accepts rent from the lessee or under-lessee, or
otherwise assents to his continuing in possession, the lease is, in
the absence of an agreement to the contrary, renewed from year
to year, or from month to month, according to the purpose for
which the property is leased, as specified in section 106.”
Point No. 1.
28. As noticed, the first point for determination revolves around the
basic questions as to when did the transfer of the land in question, by way
of compulsory acquisition, take place and when did the capital gains accrue
to the assessee-appellant? The assessee maintains that this transfer,
leading to capital gains, took place on the very date of preliminary
notification (15.05.1968) because, possession of the land in question was
already with the beneficiary College. The revenue, however, asserts that
such transfer reached its completion, resulting in capital gains, only on the
date of award (29.09.1970).
29. For effectual determination of the questions involved, we may take
into comprehension the basic features of the head of income described as
“capital gains”.
29.1. As noticed, capital gains are those profits or gains which arise out of
the transfer of capital asset. The expression “capital asset” is defined in
Section 2(14) of the Act of 1961. In the present case, much dilation on this
definition is not required because the subject land had indisputably been a
“capital asset” of the assessee-appellant. We may, however, observe that
such definition of ‘capital asset’ is of wide amplitude, taking in its fold the
37
property of any kind held by an assessee, except what has been
expressively excluded therein, like stock-in-trade, consumables stores,
personal effects, etc.
29.2. The expression “transfer” in relation to a capital asset has been
defined in Section 2(47) of the Act of 1961. The said definition has also
been of substantially wide amplitude so as to include sale, exchange or
relinquishment of a capital asset; or extinguishment of any rights therein; or
compulsory acquisition thereof. It is also noteworthy that as per the
fundamentals in the Act of 1882, “transfer of property” means an act by
which a living person conveys property, in present or in future, to one or
more other living persons, or to himself, or to himself and one or more other
living persons.
29.3. Thus, the contents of the then existing Section 45 of the Act of 1961
read with the relevant definitions would make it clear that such profits or
gains are chargeable to income-tax as “capital gains” that arise out of the
transfer of a capital asset by any of the recognized modes, including sale,
exchange, relinquishment and even compulsory acquisition; and, by fiction,
it has been provided that such profits or gains shall be deemed to be the
income of the previous year in which transfer took place. Differently put,
capital gains of an assessee, arising from transfer of capital asset, are
chargeable to tax as income of the previous year in which transfer had
taken place.
38
30. Applying the aforesaid concepts of “transfer” and “transfer of
property” to the facts of the present case, it could be readily found that
when the subject land has been compulsorily acquired, its transfer from the
assessee-appellant to the Government is directly covered by Section 2(47)
of the Act of 1961.
30.1. Thus, the basic elements for chargeability of the gains, arising from
compulsory acquisition of the subject land, to income-tax under the head
“capital gains”, do exist in the present case. However, the gains so arising
would be deemed to be the income of the previous year in which transfer
took place.
31. Entering into the enquiry as to when had the transfer, of subject land
from the assessee-appellant to the Government, taken place, we need to
take into account the principles governing completion of transfer of land
from the owner to the Government in the matters of compulsory acquisition.
Ordinarily, in such matters of compulsory acquisition, there is a structured
process prescribed by law, which is required to be complied with for a
lawful acquisition and which has the legal effect of transfer of ownership of
the property in question to the acquiring body, usually the appropriate
Government. The controversy in the present matter has its genesis in the
compulsory acquisition of the land of assessee-appellant under the Act of
1894 and hence, pertinent it would be to look at the processes
contemplated by the said enactment.
39
31.1. A brief overview of the scheme of the Act of 1894, as existing at the
relevant point of time, makes it clear that publication of preliminary
notification under Section 4 by itself did not vest the property in the
Government; it only informed about the intention of the Government to
acquire the land for a public purpose. After this notification, in the ordinary
course, under Section 5A, the Land Acquisition Collector was required to
examine the objection, if any, to the proposed acquisition; and after
examining his report, if so made, the Government was to issue declaration
under Section 6, signifying its satisfaction that the land was indeed required
for public purpose. These steps were to be followed by notice under
Section 9, stating that the Government intended to take possession of the
land and inviting claims for compensation. Thereafter, the Collector was to
make his award under Section 11. As noticed hereinbefore, as per Section
16 of the Act of 1894, the Land Acquisition Collector, after making the
award, could have taken possession of the land under acquisition and
thereupon, the land vested in the Government free from all encumbrances.
31.2. A deviation from the process above-noted and a somewhat different
process was permissible in Section 17 of the Act of 1894 whereunder, in
cases of urgency and if the Government had so directed, the Collector
could have taken possession of any waste or arable land after fifteen days
from the publication of the notice mentioned in Section 9(1), even though
the award had not been made; and thereupon, the land was to vest in the
Government free from all encumbrances.
40
31.3. In the case of Special Land Acquisition Officer, Bombay and
Ors. v. Godrej and Boyce: (1988) 1 SCC 50, while dealing with the power
of the Government to withdraw from the acquisition under Section 48 of the
Act of 1894, this Court exposited on the gamut of the ordinary process of
taking possession of the land under acquisition and legal requirements as
also implications thereof, in the following words:-
“5……Under the scheme of the Act, neither the notification
under Section 4 nor the declaration under Section 6 nor the
notice under Section 9 is sufficient to divest the original
owner of, or other person interested in, the land of his rights
therein. Section 16 makes it clear beyond doubt that the title
to the land vests in the government only when possession is
taken by the government. Till that point of time, the land
continues to be with the original owner and he is also free
(except where there is specific legislation to the contrary) to deal
with the land just as he likes, although it may be that on account of
the pendency of proceedings for acquisition intending purchasers
may be chary of coming near the land. So long as possession is
not taken over, the mere fact of a notification under Section 4
or declaration under Section 6 having been made does not
divest the owner of his rights in respect of the land or relieve
him of the duty to take care of the land and protect it against
encroachments. Again, such a notification does not either confer
on the State Government any right to interfere with the ownership
or other rights in the land or impose on it any duty to remove
encroachments therefrom or in any other way safeguard the
interests of the original owner of the land. It is in view of this
position, that the owner’s interests remain unaffected until
possession is taken, that Section 48 gives a liberty to the State
Government to withdraw from the acquisition at any stage before
possession is taken…….”
(emphasis in bold supplied)
31.4. In the case of Fruit & Vegetable Merchants Union v. Delhi
Improvement Trust: AIR 1957 SC 344, this Court expounded on
variegated features of the term “vesting” as follows:-
“As will presently appear, the term “vesting” has a variety of
meaning which has to be gathered from the context in which It has
been used. It may mean full ownership, or only possession for a
41
particular purpose, or clothing the authority with power to deal with
the property as the agent of another person or authority……. That
the word “vest” is a word of variable import is shown by provisions
of Indian statutes also. For example, S. 56 of the Provincial
Insolvency Act (5 of 1920) empowers the Court at the time of the
making of the order of adjudication or thereafter to appoint a
receiver for the property of the insolvent and further provides that
“such property shall thereupon vest in such receiver.” The property
vests in the receiver for the purpose of administering the estate of
the insolvent for the payment of his debts after realising his assets.
The property of the insolvent vests in the receiver not for all
purposes but only for the purpose of the Insolvency Act and the
receiver has no interest of his own in the property. On the other
hand, Ss. 16 and 17 of the Land Acquisition Act (Act 1 of
1894), provide that the property so acquired, upon the
happening of certain events, shall “vest absolutely in the
Government free from all encumbrances”. In the cases
contemplated by Ss. 16 and 17 the property acquired
becomes the property of Government without any conditions
or limitations either as to title or possessions. The legislature
has made it clear that the vesting of the property is not for
any limited purpose or limited duration. It would thus appear
that the word “vest” has not got a fixed connotation, meaning in all
cases that the property is owned by the person or the authority in
whom it vests. It may vest in title, or it may vest in possession, or it
may vest in a limited sense, as indicated in the context in which it
may have been used in a particular piece of legislation…..”
(emphasis in bold supplied)
31.5. The expositions aforesaid leave nothing for debate that in the matter
of compulsory acquisition of land under the Act of 1894 for public purpose,
the property was to vest absolutely in the Government (thereby divesting
the owner of all his rights therein) only after taking of possession in either of
the methods i.e., after making of award, as provided in Section 16; or
earlier than making of award, as provided in Section 17. In other words, the
owner was divested of the property and same vested in the Government in
absolute terms only if, and after, the possession was taken by either of the
processes envisaged in Sections 16 and 17. However, so long as
possession was not taken, the mere fact of issuance of notification under
42
Section 4 of the Act of 1894 or declaration under Section 6 thereof, did not
divest the owner of his right in respect of the property in question.
32. Having thus taken note of the general principles governing “capital
gains” and “transfer of capital asset in compulsory acquisition”, we may
now examine as to when capital gains accrue on transfer of a capital asset
in compulsory acquisition.
32.1. The features above-noticed, relating to completion of transfer by
way of compulsory acquisition under the Act of 1894 upon taking of
possession by the Government; and such event of taking possession being
the relevant happening for the purpose of Section 45 of the Act of 1961,
were duly applied by the Courts in various decisions related with taxing of
capital gains. As an example, we may usefully refer to a decision of
Karnataka High Court in the case of Buddaiah v. Commissioner of
Income-Tax, Karnataka-2: (1985) 155 ITR 277 wherein, the High Court
referred to the aforesaid decision of this Court in Fruit & Vegetable
Merchants Union and held that since title of land passes to the
Government on possession being taken by the Deputy Commissioner
under Section 16 of the Act of 1894, such date of taking possession
becomes relevant for the purposes of Section 45 of the Act of 1961. The
High Court said (at p. 281 of ITR),-
“The assessee’s contention, therefore, is contrary to the provisions
of s. 16 of the Land Acquisition Act. Since the title of the owner of
the lands acquired under the Land Acquisition Act passes to the
Government on possession being taken by the Deputy
Commissioner under s. 16 of the Act, the date of taking
possession becomes relevant for purposes of s. 45 of the I.T.
Act, so far as transfer of title is concerned.”
43
(emphasis in bold supplied) TT
33. However, the propositions aforesaid do not directly apply to a case
where, for any reason, possession of the land had already been taken by
the Government or delivered by the owner before completion of process
envisaged by Section 16 or Section 17 of the Act of 1894. In such a case,
the question, obviously, would be as to when has capital gain accrued? And
this is the core of the present matter.
33.1. Taking up the core question, as to when capital gains would accrue
in a case of compulsory acquisition of land where possession had already
been taken before reaching of the relevant stage for taking over possession
in the structured process contemplated by the statute, we may usefully
refer to the decision of Andhra Pradesh High Court in the case of S.
Appala Narasamma v. Commissioner of Income-Tax: (1987) 168 ITR
17. Therein, the land of the assessee was acquired for the Town Planning
Trust but, during the course of land acquisition proceedings, possession of
the land was delivered voluntarily by the assessee to the Town Planning
Trust on 25.03.1970. The award of compensation was made on
22.03.1971. In the assessment proceedings, the question arose, as to in
which year did the capital gain arise? Thus, similar question was involved
therein, i.e., as to whether the land must be deemed to have vested in the
State on the date when the possession was taken with the consent of the
landlord or on the date of award? The Tribunal took the view that the land
vested in the Government on the date of making of the award and this
44
conclusion was affirmed by the High Court. While dealing with the principles
relating to vesting of title and examining the fact situation where possession
was taken before making of award, the High Court held that vesting of title
to the land was a matter of law and not a matter of inference; and in the
given situation, the moment the award was made, possession from that
moment onwards should be related to the award; and on that date, the land
vested in the Government. The High Court said (at pp. 20 and 21 of ITR),-
“Vesting of title to the land is a matter of law, not a matter of
inference. This is a case of transfer of property by operation of
law and the relevant statute clearly provides the situations in which
the land vests, viz., section 16, section 17(1) and section 17(2).
According to these provisions, the taking of possession per se
does not bring about vesting; the taking of possession must be
consequent upon passing of an award (section 16) or an order
contemplated by section 17(1), or in a situation contemplated by
section 17(2). The Act does not provide for taking of possession
before the passing of the award, except in situations contemplated
by section 17 (1) and (2). The question is what is the reasonable
view to take in such a situation? Should we relate back the award
to the date of taking possession or should we relate the
possession already taken to the date of the award? We think it
more reasonable, and consistent with the provisions of the Act, to
adopt the latter view. Since possession taken before the award
continues to be with the Government, we must say that the
moment the award is passed, possession from that moment
onwards should be related to the award. It is on that date that
the land vests in the Government.”
(emphasis in bold supplied)
33.1.1.While affirming that in the given set of facts, the liability to tax for
capital gains arose on the date of award, the High Court referred to various
decisions on relating back, of the possession previously taken, to the date
envisaged by the Act of 1894; and took guidance, inter alia, from the
following enunciation by this Court in the case of Lt. Governor of
Himachal Pradesh v. Avinash Sharma: (1971) 1 SCR 413:-
45
“In the present case a notification under s. 17 (1) and (4) was
issued by the State Government and possession which had
previously been taken must, from the date of expiry of fifteen days
from the publication of the notice under s. 9(1), be deemed to be
the possession of the Government. We are unable to agree that
where the Government has obtained possession illegally or under
some unlawful transaction and a notification under s. 17(1) is
issued the land does not vest in the Government free from all
encumbrances. We are of the view that when a notification
under s. 17(1) is issued, on the expiration of fifteen days from
the publication of the notice mentioned in s. 9(1), the
possession previously obtained will be deemed to be the
possession of the Government under s. 17(1) of the Act and
the land will vest in the Government free from all
encumbrances.”
(emphasis in bold supplied)
33.2. The said decision in S. Appala Narasamma was followed by the
same High Court in the case of Commissioner of Income-Tax v. Pandari
Laxmaiah: (1997) 223 ITR 671 where, possession of the subject land was
taken on 03.08.1977 whereas the preliminary notification for acquisition
was published on 01.09.1977 while notice under Section 9(1) was issued
on 20.05.1980 and award was passed on 25.03.1981. The High Court held
that the relevant date for vesting of the land in the Government would be
the date of making the award.
34. Before dilating on the principles aforesaid, we may refer to the
decisions cited by the learned counsel for the parties but, while pointing out
at once that the said decisions are not of direct application to the present
case for, they essentially relate to the right to receive compensation and not
about the date of vesting of the land, with which we are concerned in the
present matter.
46
34.1. Learned counsel for the appellant has laid emphasis on the decision
of the Full Bench of Kerala High Court in the case of Peter John (supra). In
that case, the High Court essentially dealt with the questions as to when, in
the matters of acquisition of land, the right to receive compensation arises
and as to when interest accrues, as would be evident from the question of
law referred, which had been as under (at p.713 of ITR) :-
” Whether, on the facts and in the circumstances of the case, as
per the ratio of the Supreme Court decisions in Shamlal Narula v.
CIT [1964] 53 ITR 151 (SC) and Ramanathan Chettiar v. CIT
[1967] 63 ITR 458 (SC), the land acquisition interest of Rs. 80,253
included by the Income Tax Officer under section 5(1)(b) of the
Income-tax Act, 1961, in the total income for 1968-69 assessment,
accrued de die in diem from the date of taking possession of the
lands during the years 1961 and 1962 up to March 31, 1968,
inclusive and, therefore, only Rs. 12,626 which accrued de die in
diem during the concerned previous year of 366 calendar dates
from April 1, 1967, to March 31, 1968, inclusive should have been
included in the total income for 1968-69 assessment and the
balance interest of Rs. 67,627 should be similarly included on
accrual basis under section 5(1)(b) of the I.T. Act, 1961, in the
income for the six assessment years from 1962-63 to 1967-68
inclusive, as had already been done by the Income Tax Officer by
his orders dated June 6, 1972, for the 1967-68 and 1969-70
assessments? ”
34.1.1. In relation to the question as to when does the compensation accrue
or when it is deemed to accrue, the High Court referred to the enunciation
by this Court in the case of Joginder Singh (supra) and held that such right
arises immediately on dispossession and does not await quantification of
compensation. The High Court said (at p.716 of ITR), –
“When does the compensation accrue or when is it deemed to
accrue? It is well settled that the owner of the property is entitled
to compensation from the date on which he is dispossessed of the
property on acquisition. This is because what the Land Acquisition
Officer does is to offer to purchase the property for the market
value and when in the process he takes possession of the
property at whatever stage it might be, the owner of the property is
deprived of the income and enjoyment of the property from that
47
time. Whether the offer in regard to the quantum of compensation
is accepted by the land owner straightaway or finally settled by the
court is a different question touching on the quantum of
compensation, not of the right to receive compensation. We are
here on the question as to from which date the land owner is
entitled to receive it. There could be absolutely no doubt that both
statutorily and in equity, the land owner has a right to receive
compensation on the day on which he is dispossessed of the
property. That right arises immediately on dispossession and does
not await quantification of the compensation by the Land
Acquisition Officer or by the court…..”
34.1.2. Further, in relation to the question as to when does the right to
receive interest accrue or when it is deemed to accrue, the High Court again
referred to the enunciation in Joginder Singh (supra) and held that it would
not be at a point of time other than the date when the right to receive
compensation accrues. The High Court again said (at pp.717-718 and 722 of
ITR), –
“Now, the question is, when does the right to receive interest
accrue or is deemed to accrue; could it be at a point of time other
than the date on which the right to receive compensation accrues?
It could not be, as we have already noticed that the right to receive
compensation accrues on dispossession of the land owner from
the property on acquisition. He has a right in praesenti to receive
compensation, though it might actually be quantified or paid at a
later stage. If the entire compensation or true compensation as the
Supreme Court would have it in Joginder Singh’s case, AIR 1985
SC 382: [1985] 1 SCWR 110, to which the land owner was
entitled, on a correct evaluation on the basis of the standards and
guidance under sections 23 and 24, was paid the moment he was
dispossessed of the property, no question of right to interest would
survive. It is only where the compensation payable is not paid on
the date when it was actually due, in order to compensate the loss
arising out of the deprival of the use of the amount, that interest is
paid till the date of actual payment. That the right to receive
interest arises on the date of dispossession on which date the land
owner is entitled to receive compensation, admits of no doubt….
*** *** ***
In the light of the foregoing discussions, our conclusion is that
interest on compensation awarded with respect to the land
acquired under the Land Acquisition Act runs from day to day,
48
accruing from the date on which the Government took possession
of the land, that being the date on which the land owner’s right to
receive the entire compensation arises, though determined and
paid later….”
34.1.3. The principles aforesaid, that the right to receive compensation
comes into being the moment Government takes possession of the
property acquired; and the right to receive interest also accrues at the point
of time when the right to receive compensation accrues and runs day to
day, do not correspondingly result in completion of transfer of the property
under acquisition and accrual of such a gain that may classify as “capital
gain”. As noticed, in the matters of compulsory acquisition, accrual of
capital gain depends upon completion of transfer of property from the
owner to the Government and not upon accrual of right to receive
compensation. Therefore, reference to the decision in Peter John (supra)
is entirely inapt in the present case.
34.2. In the case of Rama Bai (supra), this Court dealt with a batch of
appeals and references essentially involving the question regarding the
point of time at which the interest payable under Sections 28 and 34 of the
Act of 1894 accrues or arises, where such interest is paid on enhanced
compensation awarded on a reference under Section 18 or on further
appeal to the High Court and/or the Supreme Court. This Court found that
the issue stood concluded by the decision in Commissioner of Income-
Tax v. Govindrajulu Chetty (T.N.K.): [1987] 165 ITR 231; and it was held
that the interest cannot be taken to have accrued on the date of the order
granting enhanced compensation but has to be taken as having accrued
49
year after year from the date of delivery of possession. This Court said as
under:-
“……we are of the opinion that the appeals before us (Civil
Appeal No. 810 of 1974 and Civil Appeal No. 3027 of 1988) have
to be allowed and the references made under section 257 (Tax
reference Cases Nos. 3 of 1976 and 1 to 3 of 1978) have to be
answered by saying that the question of accrual of interest will
have to be determined in accordance with the above decision of
this court. The effect of the decision, we may clarify, is that the
interest cannot be taken to have accrued on the date of the order
of the court granting enhanced compensation but has to be taken
as having accrued year after year from the date of delivery of
possession of the lands till the date of such order.”
34.2.1. Obviously, the decision in Rama Bai (supra), does not relate to the
questions at hand as regards completion of transfer so as to result in capital
gains. In fact, the principles aforesaid are relevant only to the second part of
the re-assessment order dated 25.01.1988, whereby, as regards interest
income, the AO carried out protective assessment on accrual basis at the
rate of 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.
34.3. Again, the decision of this Court cited by learned counsel for the
revenue in the case of Joginder Singh (supra), which was followed by the
Kerala High Court in Peter John (supra), relates to the right to receive
compensation and the right to receive interest. In that case, the question
was about the date from which interest had to be granted and arose in the
circumstances that though the High Court enhanced the amount of
compensation for acquisition and awarded 6% per annum as the rate of
interest on the amount of compensation determined by the Land Acquisition
Officer and the District Judge but, restricted such rate of interest on the
50
amount of compensation enhanced by it at 4% per annum from the date of
possession and 6% per annum from the date of its judgement. In that
context, this Court held that the High Court erred in restricting the rate of
interest on the enhanced amount of compensation because owner of the
land was entitled to be paid the true value of land on the date of taking over
of possession; and merely because the amount was determined later did
not mean that the right to amount came into existence at a later date. This
Court also observed that when the High Court held that the rate of interest
at 6% per annum was applicable from the date of possession in relation to
the component of compensation determined by the District Judge, there
was no reason why the same rate should not be applied from the date of
taking over possession in relation to the component of enhancement
effected by the High Court. For the reasons already discussed, this
judgement also does not directly relate with the question of completion of
transfer for accrual of capital gain.
34.4. The case of Bombay Burmah Trading Corpn. Ltd. (supra), is
also inapplicable to the present case because therein, the questions
basically related to the amount of damages received by the assessee due to
the loss suffered during World War II. The observations therein, again, do
not have bearing on the question as to when the transfer of land, in the
matter of compulsory acquisition, be treated as complete so as to result in
capital gains.
51
35. Therefore, the aforesaid decisions cited by the learned counsel for
parties, even if of guidance on the question relating to the right to receive
compensation, do not directly assist us in determination of the core
question involved in this matter because, income-tax on capital gains is not
levied on the mere right to receive compensation. For chargeability of
income-tax, the income ought to have either arrived or accrued. In the
matter of acquisition of land under the Act of 1894, taking over of
possession before arrival of relevant stage for such taking over may give
rise to a potential right in the owner of the property to make a claim for
compensation but, looking to the scheme of enactment, it cannot be said
that transfer resulting in capital gains is complete with taking over of
possession, even if such taking over had happened earlier than the point of
time of vesting contemplated in the relevant provisions.
35.1. The decision of this Court in the case of Avinash Sharma (supra),
however, supports the view that in the case of urgency acquisition, even if
possession of the land under acquisition is taken earlier, it should be
related to the process contemplated by Section 17 (1) of the Act of 1894,
and deemed to be effective from the date on which the period prescribed by
Section 17 (1) would expire that is, fifteen days from the publication of the
notice under Section 9(1) of the Act of 1894. In S. Appala Narasamma and
Pandari Laxmaiah (supra), the Andhra Pradesh High Court applied these
principles to the cases pertaining to ordinary process of acquisition and
held that if possession had been taken earlier, it would relate to the award;
52
and the date of award would be the relevant date for vesting of the land in
the Government.
35.2. In an overall conspectus of the matter, we are clearly of the view that
the statements of law in the aforesaid decisions of Andhra Pradesh High
Court, based on the enunciations by this Court in the case of Avinash
Sharma (supra), are rather unquestionable and need to be given imprimatur
for application to the controversy like the present one.
36. For what has been discussed hereinabove, in our view, in the
matters relating to compulsory acquisition of land under the Act of 1894,
completion of transfer with vesting of land in the Government essentially
correlates with taking over of possession of the land under acquisition by
the Government. However, where possession is taken over before arriving
of the relevant stage for such taking over, capital gains shall be deemed to
have accrued upon arrival of the relevant stage and not before. To be more
specific, in such cases, capital gains shall be deemed to have accrued: (a)
upon making of the award, in the case of ordinary acquisition referable to
Section 16; and (b) after expiration of fifteen days from the publication of the
notice mentioned in Section 9 (1), in the case of urgency acquisition under
Section 17.
37. As per the facts-sheet noticed hereinbefore, in the present case, the
land in question was subjected to acquisition under the Act of 1894 by
adopting the ordinary process leading to award under Section 11.
Therefore, ordinarily, capital gains would have accrued upon taking over of
53
possession after making of the award. Consequently, capital gains to the
assessee-appellant for the acquisition in question could not have accrued
before the date of award i.e., 29.09.1970.
38. However, on the strength of the submissions that the land in
question had already been in possession of the beneficiary of acquisition, it
has been suggested on behalf of the assessee-appellant that the land
vested in the Government immediately upon issuance of notification under
Section 4 of the Act of 1894 i.e., 15.05.1968 and capital gain accrued on
that date. This suggestion and the contentions founded thereupon remain
totally meritless for a variety of factors as indicated infra.
38.1. Even if we keep all other aspects aside and assume that the land in
question was, or came, in possession of the Government before passing of
the award, the position of law stated in point (a) of paragraph 36
hereinabove would apply; and capital gains shall be deemed to have
accrued upon arrival of the relevant stage of taking possession i.e., making
of award and hence, capital gains cannot be taken to have accrued before
the date of award i.e., 29.09.1970.
38.2. In order to wriggle out of the above-mentioned plain operation of
law, it has been desperately suggested on behalf of the appellant that it had
been a case of urgency acquisition and hence, the process contemplated
by Section 17 of the Act of 1894 would apply. This suggestion is also
baseless and suffers from several infirmities.
54
38.2.1. In the first place, it is evident on the face of the record that it had
not been a matter of urgency acquisition and nowhere it appears that the
process contemplated by Section 17 of the Act of 1894 was resorted to.
Even the contents of the award dated 29.09.1970 make it clear that the
learned Land Acquisition Collector only awarded interest from the date of
initial notification for the reason that the land was in possession of the
College but, it was nowhere stated that he had received any directions from
the Government to take possession of the land before making of the award
while acting under Section 17.
38.2.2. Secondly, if at all the proceedings were taken under Section 17 of
the Act of 1894, the land could have vested in the Government only after
expiration of fifteen days from the date of publication of notice under
Section 9(1); and, in any case, could not have vested in the Government on
the date of publication of initial notification under Section 4 of the Act of
1894. Significantly, the assessee-appellant did not divulge the date of
publication of notice under Section 9(1) of the Act of 1894 despite the
queries of the Assessing Officer. The suggestion about application of the
process contemplated by Section 17 of the Act of 1894 remains totally
unfounded.
39. In view of the above, the only question that remains is as to what is
the effect of possession of College over a part of the subject land at the
time of issuance of initial notification for acquisition.
55
39.1. Going back to the facts-sheet, it is not in dispute that a large part of
the subject land was given on lease to the College16 and the said lease
expired on 31.08.1967 but, the land continued in possession of the College.
The legal effect of these facts could be gathered from the relevant
provisions of the Transfer of Property Act, 1882 and the enunciations by the
Courts.
39.2. As noticed, where the time period of any lease of immovable
property is limited, it determines by efflux of such time, as per Section
111(a) of the Act of 1882. Further, in terms of Section 108(q) of the Act of
1882, on determination of lease, the lessee is bound to put the lessor into
possession of the leased property. In case where lessee does not deliver
possession to the lessor after determination of the lease but the lessor
accepts rent or otherwise assents to his continuing in possession, in the
absence of an agreement to the contrary, the status of such lessee is that of
tenant holding over, in terms of Section 116 of the Act of 1882. But, in the
absence of acceptance of rent or otherwise assent by the lessor, the status
of lessee is that of tenant at sufferance.
39.3. The aforesaid aspects relating to the status of parties after expiry
of the period of lease remain well settled and do not require much
elaboration. However, for ready reference, we may point out that in the case
of Nand Ram (D) through LRs. and Ors. v. Jagdish Prasad (D) through
16 As noticed from the contents of the award, the land comprising Khasra Nos. 361 and 364
admeasuring 5 kanals and 7 marlas was not on lease with the College
56
LRs.: 2020 (5) SCALE 723, this Court has re-expounded the relevant
principles in sufficient details, albeit in a different context. The relevant
background of the said case had been that the land of plaintiff was taken on
lease by the defendant where it was agreed that the plaintiff-lessor will not
seek ejectment of defendant-lessee except in the case where the rent for
one year remained in arrears. The entire leased land was acquired under
the Act of 1894. The Land Acquisition Collector determined the amount of
compensation but then, dispute arose with regard to apportionment
between the plaintiff and the defendant for which, the matter went in
reference. The Reference Court held that lessee having not paid rent for
more than twelve months, the lease had come to end and, therefore, he
had no right to claim any share in the compensation. Later on, a part of the
land was de-notified from acquisition and that part remained in possession
of the defendant-lessee. Thereafter, the plaintiff-lessor took up action
claiming possession of the land by filing a suit against the defendantlessee.
The suit was decreed by the Trial Court and the decree was
affirmed by the First Appellate Court. However, the High Court allowed the
second appeal holding that the finding recorded in the award about the
lease coming to an end operated as res judicata and the suit was filed
beyond the period of limitation. In further appeal, this Court did not approve
the decision of High Court and, in the course of allowing the appeal,
exposited on the principles relating to the status of parties after expiry of the
57
lease but retention of possession by the lessee, inter alia, in the following
passage:-
“29. The Defendant was inducted as a lessee for a period of 20
years. The lease period expired on 23rd September, 1974. Even if
the lessee had not paid rent, the status of the lessee would not
change during the continuation of the period of lease. The lessor
had a right to seek possession in terms of Clause 9 of the lease
deed. The mere fact that the lessor had not chosen to exercise
that right will not foreclose the rights of the lessor as owner of the
property leased. After the expiry of lease period, and in the
absence of payment of rent by the lessee, the status of the
lessee will be that of tenant at sufferance and not a tenant
holding over. Section 116 of the TP Act confers the status of a
tenant holding over on a yearly or monthly basis keeping in view
the purpose of the lease, only if the lessor accepts the payment of
lease money. If the lessor does not accept the lease money, the
status of the lessee would be that of tenant at sufferance. This
Court in the judgments reported as Bhawanji Lakhamshi and Ors.
v. Himatlal Jamnadas Dani and Ors. (1972) 1 SCC 388, Badrilal v.
Municipal Corp. of Indore : (1973) 2 SCC 388 and R.V. Bhupal
Prasad v. State of A.P. and Ors.: (1995) 5 SCC 698 and also a
judgment in Sevoke Properties Ltd. v. West Bengal State
Electricity Distribution Co. Ltd. examined the scope of Section 116
of the TP Act and held that the lease would be renewed as a
tenant holding over only if the lessor accepts the pay-ment of rent
after the expiry of lease period. This Court in Bhawanji Lakhamshi
held as under:
“9. The act of holding over after the expiration of the
term does not create a tenancy of any kind. If a tenant
remains in possession after the determination of the
lease, the common law rule is that he is a tenant on
sufferance. A distinction should be drawn between a
tenant continuing in possession after the determination
of the term with the consent of the landlord and a tenant
doing so without his consent. The former is a tenant at
sufferance in English Law and the latter a tenant
holding over or a tenant at will. In view of the concluding
words of Section 116 of the Transfer of Property Act, a
lessee holding over is in a better position than a tenant
at will. The assent of the landlord to the continuance of
possession after the determination of the tenancy will
create a new tenancy. What the section contemplates is
that on one side there should be an offer of taking a
new lease evidenced by the lessee or sub-lessee
remaining in possession of the property after his term
was over and on the other side there must be a definite
consent to the continuance of possession by the
58
landlord expressed by acceptance of rent or otherwise.
……”
(emphasis in bold supplied)
39.3.1. Further, in Nand Ram (supra), this Court also quoted with
approval the principles stated by Delhi High Court in the case of MEC India
Pvt. Ltd. v. Lt. Col. Inder Maira & Ors.: 80 (1999) Delhi Law Times 679. A
relevant part of such quotation from the decision of Delhi High Court may
also be usefully noticed for the present purpose as under:-
“43. Thus, a tenant at sufferance is one who wrongfully continues
in possession after the extinction of a lawful title and that a
tenancy at sufferance is merely a legal fiction or device to avoid
continuance in possession from operating as a trespass. A tenant
remaining in possession of the property after determination of the
lease does not become a trespasser, but continues as a tenant at
sufferance till possession is restored to the landlord. The
possession of an erstwhile tenant is juridical and he is a protected
from dispossession otherwise than in due course of law. Although,
he is a tenant, but being one at sufferance as aforesaid, no rent
can be paid since, if rent is accepted by the landlord he will be
deemed to have consented and a tenancy from month-to-month
will come into existence. Instead of rent, the tenant at sufferance
and by his mere continuance in possession is deemed to
acknowledge both the landlord’s title and his (tenant’s) liability to
pay mesne profits for the use and occupation of the property.”
39.4. The said principles, when applied to the present case, leave nothing
to doubt that in relation to that part of the land in question which was given
on lease, possession of the College, after determination of the lease on
31.08.1967, was only that of a tenant at sufferance because it has not been
shown if the lessor i.e., the appellant accepted rent or otherwise assented to
the continuation of lease. 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. The same status of the parties
59
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.
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.
39.5. 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.
39.6. 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. In
other words, the transfer of land from the assessee-appellant to the
60
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.
40. An incidental aspect of the submissions on behalf of the appellant
that interest and solatium accrued on 15.05.1968 as per the award and that
being the income pertaining to the financial year 1968-1969 could not have
been taxed in the assessment year 1971-1972, also deserves to be
rejected for the reasons foregoing and for additionally the reason that in his
order dated 25.01.1988, the AO has consciously made protective
assessment on accrual basis on the interest component referable to the
previous year 1970-1971, relevant for the assessment year 1971-72.
40.1. We may also usefully observe that awarding of interest from
15.05.1968 in the award had only been just and equitable application of the
provisions of law, including Section 28 of the Act of 1894 but that did not
result in vesting of the land in Government on that date of notification.
41. 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
61
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.
Point No. 2
42. Though we have found that vesting of land in question for the
purpose of accrual of capital gains in this case was complete only on the
date of award that falls within the previous year relevant for the assessment
year 1971-72, the question still remains, in view of the submissions made
on behalf of the appellant, about the effect of the decision of ITAT in relation
to the other case of the assessee-appellant for the assessment year 1975-
1976 where the issue concerning date of accrual of capital gains was
decided against the revenue with reference to the date of taking
possession. Admittedly, the said decision for the assessment year 1975-
1976 was not appealed against and had attained finality. Hence, it has been
argued on behalf of the appellant that 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.
43. We may gainfully recapitulate that in the case 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 was
acquired for the purpose of construction of warehouse of Ambala City. The
62
notification under Section 4 of the Act of 1894 was issued on 26.06.1971
and the award of compensation was made on 27.06.1974 but, possession
of the said land was taken by the Government on 04.09.1972 i.e., before
making of the award. In the given set of facts and circumstances, in ITA
No.635/Chandi/84, 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 the title to the property, that vested in
the Government with effect from 04.09.1972, the date of taking over
possession. Hence, 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.
43.1. Learned counsel for the appellant has strenuously argued that the
revenue is not entitled to take a different stand in the present case
pertaining to the assessment year 1971–1972, after having accepted the
said decision pertaining to the assessment year 1975–1976 where it was
held that capital gains accrued on the date of taking over possession of the
land under acquisition by the Government. The learned counsel has relied
upon the following observations in Berger Paints India Ltd. (supra):-
“In view of the judgments of this court in Union of India v.
Kaumudini Narayan Dalal [2001] 249 ITR 219; CIT v. Narendra
Doshi [2002] 254 ITR 606 and CIT v. Shivsagar Estate [2002] 257
ITR 59, the principle established is that if the Revenue has not
challenged the correctness of the law laid down by the High Court
and has accepted it in the case of one assessee, then it is not
open to the Revenue to challenge its correctness in the case of
other assessees, without just cause.”
63
44. The question is whether the above-noted observations apply to the
present case? In our view, the answer to this question is clearly in the
negative for more than one reason.
44.1. In the first place, it is ex facie evident that the matter involved in the
said case pertaining to the assessment year 1975-1976 was taken to be an
acquisition under the urgency provision contained in Section 17 of the Act
of 1894 whereas, the acquisition proceedings in the present case had not
been of urgency acquisition but had been of ordinary process where
possession could have been taken only under Section 16 after making of
the award. As noticed, the very structure of the ordinary process leading to
possession under Section 16 of the Act of 1894 has been different than that
of the urgency process under Section 17; and the said decision pertaining
to the proceedings under Section 17 of the Act of 1894 cannot be directly
applied to the present case.
44.2. Secondly, the fact that the said case relating to the assessment year
1975-1976 was not akin to the present case was indicated by the ITAT
itself. As noticed, both the cases, i.e., the present one relating to the
assessment year 1971-1972 (in ITA No. 634/Chandi/84) and that relating to
the assessment year 1975-1976 (in ITA No. 635/Chandi/84) were decided
by ITAT on the same date i.e., 19.12.1985. While the answer in relation to
the assessment year 1975-1976 was given by the ITAT in favour of
assessee-appellant to the effect that possession having been taken on the
specified date i.e., 04.09.1972, capital gains were not assessable for the
64
assessment year 1975-1976 but, while deciding the appeal relating to the
present case for the assessment year 1971-1972, the ITAT found that the
date of taking over possession was not available and hence, the matter was
restored to the file of the ITO to find out the actual date of possession.17
44.3. Thirdly, even if we assume that the stand of revenue in the present
case is not in conformity with the decision of ITAT in relation to the
assessment year 1975-1976, it cannot be said that revenue has no just
cause to take such a stand. As noticed, while rendering the decision in
relation to the assessment year 1975-1976, the ITAT did not notice the
principles available in various decisions including that of this Court in
Avinash Sharma (supra) that even in the case of urgency acquisition under
Section 17 of the Act of 1894, land was to vest in Government not on the
date of taking over possession but, only on the expiration of fifteen days
from the publication of the notice mentioned in Section 9(1). Looking to the
facts of the present case and the law applicable, in our view, the revenue
had every reason to question the correctness of the later decision of ITAT
dated 29.06.1990 in the second round of proceedings pertaining to the
assessment year 1971-1972.
44.4. Fourthly, the ITAT itself on being satisfied about the question of law
involved in this case, made a reference by its order dated 15.07.1991 to the
High Court. The High Court having dealt with the matter in the reference
17 Of course, one observation was made by the ITAT in the order dated 19.12.1985 relating to the
present case that possession of the land in question was taken before making of the award.
However, this observation turns out to be incorrect on facts as also in law, for the reasons
mentioned hereinbefore in Point No. 1.
65
proceedings and having answered the reference in conformity with the
applicable principles, the assessee cannot be heard to question the stand
of the revenue with reference to the other order for the assessment year
1975-1976. In any case, it cannot be said that the decision in relation to the
assessment year 1975-1976 had been of any such nature which would
preclude the revenue from raising the issues which are germane to the
present case.
45. Hence, the answer to Point No. 2 is also clearly in the negative i.e.,
against the assessee-appellant and in favour of the revenue that the fact
situation of the present case relating to the assessment year 1971-1972 is
not similar to that of the other case of the appellant relating to the
assessment year 1975-1976 and the revenue is not precluded from taking
the stand that the transfer of capital asset in the present case was complete
only on the date of award i.e., on 29.09.1970.
Conclusion
46. For what has been discussed hereinabove, we have not an iota of
doubt that in the second round of proceeding, the AO had rightly assessed
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 accrued finally to the appellant; and as regards interest
income, had rightly made protective assessment on accrual basis.
66
47. In the result, this appeal fails and is, therefore, dismissed. No costs.
………………..………….J.
(A.M.KHANWILKAR)
………………..………….J.
(HEMANT GUPTA)
……..……………….…….J.
(DINESH MAHESHWARI)
New Delhi,
Dated: 25th August, 2020.
67