REPORTABLE
\nIN THE SUPREME COURT OF INDIA
\nCIVIL APPELLATE JURISDICTION
\nCIVIL APPEAL NO. 2416 OF 2010
\nRAJ PAL SINGH \u2026..APPELLANT
\nVs.
\nCOMMISSIONER OF INCOME-TAX, ….RESPONDENT
\nHARYANA, ROHTAK
\nJUDGMENT
\nDinesh Maheshwari, J.
\nPRELIMINARY AND BRIEF OUTLINE
\n1. This appeal takes exception to the judgment and order dated
\n23.04.2008 passed by the High Court of Punjab and Haryana at
\nChandigarh1 in Income Tax Reference No. 53-A of 1991 whereby the High
\nCourt, while answering the reference under the then existing Section 256(1)
\nof the Income-tax Act, 19612, disapproved the order dated 29.06.1990
\npassed by the Income Tax Appellate Tribunal, Chandigarh Bench3 in ITA No.
\n739\/Chandi\/89 for the assessment year 1971-1972; and held that the
\ncapital gains arising out of land acquisition compensation were chargeable
\nto income-tax under Section 45 of the Act of 1961 for the previous year
\n1 For short, \u2018the High Court\u2019.
\n2 For short, \u2018the Act of 1961\u2019 or \u2018the Act\u2019.
\n3 For short, \u2018ITAT\u2019.
\n1
\nreferable to the date of award of compensation i.e., 29.09.1970 and not the
\ndate of notification for acquisition.
\n2. In the present case, the question concerning date of accrual of
\ncapital gains arose in the backdrop that though the proceedings for
\nacquisition in question were taken up by way of notification dated
\n15.05.1968 and award of compensation was made on 29.09.1970 but, as a
\nmatter of fact, at the time of issuance of the initial notification for acquisition,
\nthe subject land was already in possession of the beneficiary under a lease,
\nthough the period of lease had expired on 31.08.1967. In the light of these
\nfacts, the ITAT did not approve of charging tax over capital gains with
\nreference to the date of award while observing that the date of notification
\n(i.e., 15.05.1968) would be treated as the date of taking over physical
\npossession and the transaction (leading to capital gains) would be
\nconsidered as having taken place on that date and not on the date of award
\n(i.e., 29.09.1970). The High Court, however, did not agree with this line of
\nreasoning and held that the amount of compensation was determined only
\non passing of the award dated 29.09.1970 and, therefore, if any capital gain
\nwas chargeable to tax, it would be chargeable for the previous year
\nreferable to the date of award.
\n3. Thus, the root question is as to whether, on the facts and in the
\ncircumstances of the present case, the High Court was right in taking the
\ndate of award as the date of accrual of capital gains for the purpose of
\nSection 45 of the Act of 1961?
\n2
\n4. Keeping the question aforesaid in view, we may briefly summarise
\nthe relevant factual and background aspects of this case while indicating at
\nthe outset that the matter relating to the assessment in question, before
\nreaching the High Court in the reference proceedings, had undergone two
\nrounds of proceedings up to the stage of appeal before ITAT.
\nTHE ASSESSEE; THE SUBJECT LAND; AND THE ACQUISITION
\n5. The assessment in question is for the assessment year 1971-1972
\nin relation to the assessee Amrik Singh HUF4. The appellant Raj Pal Singh
\nis son of late Shri Amrik Singh and is Karta of the assessee HUF. As
\nnoticed, the dispute essentially concerns the chargeability of tax for capital
\ngains arising out of the award of compensation towards acquisition of land
\nbelonging to the assessee-appellant.
\n6. It is noticed from the material placed on record and the observations
\nin the orders passed in this matter that the subject land, admeasuring 41
\nkanals and 14 marlas and comprising Khasra Nos. 361 to 369 and 372 to
\n375 at village Patti Jattan, Tehsil and District Ambala5, became an evacuee
\nproperty after its original owner migrated to Pakistan; and the same was, as
\nsuch, allotted to the said Shri Amrik Singh, who had migrated to India, in
\nlieu of his property left in Pakistan. However, a substantial part of the
\nsubject land, except that comprising Khasra Nos. 361 and 364 admeasuring
\n5 kanals and 7 marlas, had been given by the original owner on a lease for
\n20 years to a Government College, being S.A. Jain College, Ambala City6;
\n4 Hindu Undivided Family.
\n5 For short, \u2018the subject land\u2019 or \u2018the land in question\u2019.
\n6 For short, \u2018the College\u2019.
\n3
\nand the lease was to expire on 31.08.1967. Later on, the College moved
\nthe Government of Haryana for compulsory acquisition of the subject land.
\nWhile acting on this proposition, a notification under Section 4 of the Land
\nAcquisition Act, 18947 was issued by the Government of Haryana on
\n15.05.1968, seeking to acquire the subject land for public purpose, namely,
\nplayground for the College. This was followed by the declaration dated
\n13.08.1969 under Section 6 of the Act of 1894. Ultimately, after submission
\nof the claim for compensation, the Land Acquisition Collector, Ambala
\nproceeded to make the award on 29.09.1970.
\n7. The relevant features concerning possession of the land in question
\nand computation of the amount of compensation are duly recorded in the
\naward dated 29.09.1970 and for their relevance, the material parts of the
\naward need to be taken note of.
\n7.1. As regards possession of the land in question, the learned Collector
\nobserved as under:-
\n\u201cPossession of land:
\nThe land in question was on lease with the Jain College,
\nmanaging Society upto 31st August 1967. Thereafter the
\nacquisition proceedings were started and the society was in
\npossession of the same since then. Therefore the land owners are
\nentitled to the interest from the date of notification u\/s 4 which was
\nissued on the 15th May, 1968. The interest at the rate of 6% per
\nannum will be paid to the land owners in addition to the
\ncompensation and Solatium from 15th May,1968, to date.\u201d
\n7.2. As regards entitlement to compensation, the learned Collector
\nexamined the cross-claims made by the land owners and the Managing
\n7 For short, \u2018the Act of 1894\u2019.
\n4
\nSociety of the College; and found it justified to award compensation to the
\nland owners while observing as under:-
\n\u201cMode of Payment:
\nThe land owners have claimed that the compensation be paid
\nto them whereas the S.A. Jain College, trust and Management
\nSociety has applied that the Society be paid 2\/3rd of the
\ncompensation being the 99 years lease of the land or otherwise as
\ntenant under the East Punjab Urban Rent Restriction Act. The
\nsociety has neither produced any documentary record nor any to
\nestablish the claim. As per application of the Principal S.A. Jain
\nCollege, Ambala City, this fact as confirmed that the land in
\nquestion was on the lease with the College upto 31.8.67 only and
\nthe college wanted to acquire the same so that its possession
\nremains with the college. In addition to it, Shri Amar Chand
\nPresident S.A. Jain College, Management Committee stated on
\noath before the Revenue Assistant Ambala on 21.3.68 that the
\nManagement committee was prepared to pay the price of the land
\nfixed by the Collector to the land owners. From the copy of the
\njamabandi attached with this file, khasra Nos. 361 and 364
\nmeasuring 5 kanals and 7 marlas were not on the lease with the
\ncollege. But the Management is claiming compensation for this
\nland also. In these circumstances, the college management
\ncannot be awarded any amount from the compensation of this
\nland being tenant. I therefore, allow the compensation to the land
\nowners according to their share entered in the jamabandi\u2026.\u201d(sic)
\nFirst round of assessment proceedings
\nBy the Income Tax Officer, \u2018B\u2019 Ward, Ambala
\n8. For the assessment year 1971-1972, the assessee declared its
\nincome at Rs. 1,408\/- inclusive of Rs. 408\/- from the house property and
\nRs. 1,000\/- being the amount of interest earned. While not accepting the
\nincome so declared, the Assessing Officer8, in his assessment order dated
\n12.02.1982, enhanced the income from house property to Rs. 1,200\/- and
\nalso enhanced the interest income to Rs. 11,596\/- with reference to the
\ninterest received under the award in question. However, the AO observed
\n8 Hereinafter referred to as \u2018the AO\u2019 or \u2018the ITO\u2019.
\n5
\nthat capital gains were not relevant for the year under consideration for the
\nreason that the land in question had been acquired in the earlier years. The
\nrelevant part of the assessment order dated 12.02.1982 reads as under:-
\n\u201c\u2026\u2026..The assessee has shown intt. at Rs. 1000\/- only. The
\nassessee\u2019s lands were required by Haryana Govt. vide notification
\ndate 16.05.68, 11.06.69 and 13.08.69. Since the lands were
\nacquired in the earlier years and the capital gains are not relevant
\nfor the year under consideration. However, the assessee received
\ncompensation late vide award dated 29.07.70 by land Acquisition
\nController, the assessee received interest of Rs.10596\/- which the
\nassessee has not shown in the return. As such the intt. Income is
\ntaken at 11596 including 1000\/- so-moto shown by the
\nassessee\u2026.\u201d (sic)
\nBefore the Appellate Commissioner
\n9. Being aggrieved by the order so passed by the Assessing Officer,
\nthe assessee preferred an appeal before the Appellate Assistant
\nCommissioner of Income Tax, Ambala9 in B\/Amb\/82-83 on the grounds,
\ninter alia, that the AO was not justified in enhancing the annual letting value
\nof the house property and was also not justified in including the interest
\namount of Rs.11,596\/- received from Land Acquisition Collector on the
\ncompensation paid for acquisition of land for the reason that the said
\ninterest amount was required to be treated as part of compensation.
\n9.1. Though the ground of appeal concerning house property was
\naccepted and the addition made by AO in that regard was deleted but, on
\nexamination of the award dated 29.09.1970, the CIT(A) found that the
\nassessee was paid Rs.62,550\/- as compensation and Rs.9,532\/- as
\nsolatium and yet, capital gains on this account were not taxed by the
\n9 For short, \u2018the CIT(A)\u2019.
\n6
\nAssessing Officer. Accordingly, a show cause notice dated 18.11.1983 was
\nissued to the assessee as to why capital gains relating to the acquisition of
\nthis land be not charged to tax in the assessment year under consideration.
\nThe assessee filed a written reply dated 26.12.1983 to this notice and
\nstated, inter alia, that in the urgency acquisition under Section 17 of the Act,
\nthe transfer takes place immediately after the notification and the owner
\nceases to be in possession of the land in question.
\n9.2. The CIT(A), in his order dated 17.05.1984, rejected the submissions
\nmade on behalf of the assessee and held that the capital gains on the
\nacquisition of the land amounting to Rs. 23,146\/- were required to be added
\nto the income of the previous year relevant to the assessment year under
\nconsideration. The CIT(A) ordered such addition while observing and
\nholding as under:-
\n\u201c9\u2026. \u2026 ITO has not given any reason in the assessment order
\nwhy the capital gain on the acquisition of the land is not taxable.
\nMoreover, powers conferred on me under the Income-Tax Act
\ndoes not preclude me from considering this issue at the appellate
\nstage.
\n10. There is no doubt that the notifications were published much
\nearlier that the date of award and the possession of land was also
\ntaken earlier that the date of award but it does not mean that the
\ncapital gain is to be taxed in the earlier years on that basis. When
\nthe land is taken possession of by the Government, no
\ncompensation has, in fact been determined but it has become only
\npayable. The right of the owner is, therefore, an inchoate
\nright\u2026\u2026.. The deeming provisions can have no relevance unless
\nthe income is receivable can have it is receivable, then the
\ndetermination of the question whether it is actually received or is
\ndeemed to have been received depends upon the method of
\naccounting. If the actual amount of compensation has not
\nbeen fixed by the Land Acquisition Collector, no income
\ncould be said to have occurred to the appellant\u2026\u2026 Income
\nTax is not levied on a mere right to receive compensation,
\nthere must be something tangible, something in the nature of
\n7
\ndebt, something in nature of an obligation to pay an
\nascertained amount. Till such time, no income can be said to
\nhave accrued. On the date when the collector awarded the
\ncompensation, it is only that amount which had accrued
\nwhether in fact paid or not. Accordingly, in the present case,
\neven though the possession of land was taken in 1968, no amount
\ncan be said to accrued on the date of possession because the
\ncompensation at that point of time was not determined at all. This
\namount of compensation was determined only after the award
\ndated 29.9.70. Therefore, if any income on account of capital gain
\nis chargeable to tax, it will be chargeable on the date of award. It is
\nheld accordingly that the capital gain arising out of acquisition of
\nland is chargeable to tax in the previous year, relevant to
\nassessment year under consideration because the date of award
\ni.e. 29.9.70 is within the relevant previous year.\u201d
\n(emphasis in bold supplied)
\nBefore the Income Tax Appellate Tribunal, Chandigarh Bench
\n10. Against the order so passed by the CIT(A), the assessee-appellant
\npreferred an appeal before the Income Tax Appellate Tribunal, Chandigarh
\nBench, being ITA No.634\/Chandi\/84 and argued, inter alia, that it had been
\na matter of urgent acquisition under Section 17 of the Act of 1894 and
\npossession of the land in question was taken on 15.05.1968 when the
\nnotification under Section 4 of the said Act of 1894 was issued and hence,
\nthe CIT(A) exceeded his jurisdiction in taxing the capital gains for the year
\nunder reference on the basis of the date of award made by the Land
\nAcquisition Collector under Section 11 of the Act of 1894. It was also argued
\nthat the interest amount could not have been treated separately and was
\nrequired to be considered as a part of the compensation amount.
\n11. The appeal so filed, relating to the assessment year 1971-1972, was
\nconsidered and decided by ITAT by its order dated 19.12.1985.
\nInterestingly, on the same date, i.e., on 19.12.1985, the ITAT also
\n8
\nconsidered and decided another appeal of the appellant pertaining to the
\nassessment year 1975-1976, being ITA No.635\/Chandi\/84, wherein too,
\nsimilar question of capital gains arising out of another award of
\ncompensation for acquisition of another parcel of land was involved. Since
\nthe said decision pertaining to the assessment year 1975-1976 has formed
\na part of submissions in the present appeal, we may usefully take note of its
\nrelevant features before proceeding further.
\n11.1. It appears that in the said appeal pertaining to the assessment year
\n1975-1976, the question of capital gains arose in the backdrop of the facts
\nthat another parcel of land of the appellant, in village Rangrnan, Tehsil and
\nDistrict Ambala admeasuring 15 kanals and 10 marlas, was acquired for the
\npurpose of construction of warehouse of Ambala City. The notification under
\nSection 4 of the Act of 1894 for that acquisition was issued on 26.06.1971;
\npossession of the said land was taken on 04.09.1972; and award of
\ncompensation was made on 27.06.1974. In the given set of facts and
\ncircumstances, the ITAT accepted the contention that the case fell under the
\nurgency provision contained in Section 17 of the Act of 1894 where the
\nassessee was divested of title to the property, that vested in the
\nGovernment with effect from 04.09.1972, the date of taking possession.
\nThus, the ITAT held that the capital gains arising from the said acquisition
\nwere not assessable for the accounting period relevant for the assessment
\nyear 1975-1976. The material part of findings of ITAT in the said order dated
\n9
\n19.12.1985, in ITA No.635\/Chandi\/84 pertaining to the assessment year
\n1975-1976, reads as under:-
\n\u201c9\u2026The case, therefore, falls under the urgency provision
\ncontained in section 17 of the Land Acquisition Act, 1894. The
\ntransfer within the meaning of section 2(47) took place on the date
\nthe possession of land was taken by the Government. Section
\n2(47)(i) provides that the transfer in relation to a capital asset
\nincludes the extinguishment of any rights therein. Section 17 of
\nthe Act provides that after taking possession of the land in urgent
\ncases, such land shall thereupon vest absolutely in the
\nGovernment free from all encumbrances. The assessee was,
\ntherefore, divested of the title to the lands and the lands thereafter
\nvested in the Government w.e.f. 4-9-72 i.e. the date of possession
\nof the lands. In this view of the matter, we are of the opinion that
\nthe capital gains arising from the acquisition of the lands in
\nquestion were not assessable for the accounting period relevant to
\nthe assessment year 75-76. The income from capital gains
\nincluded in the total income by the ITO and confirmed by the AAC
\nand also further enhanced by Rs. 28,379\/- therefore, cannot be
\nsustained. The same is deleted.\u201d
\n12. Reverting to the assessment year 1971-1972, it is noticed that in the
\nappeal relating to this case, the ITAT referred to its aforesaid order of the
\neven date pertaining to the assessment year 1975-1976 but found that in
\nthe present case, actual date of taking possession by the Government was
\nnot forthcoming and hence, proceeded to restore the matter to the file of AO
\nto find out the date when the Government took over possession, while
\nobserving that if possession was taken before the award and before
\n01.04.1970, capital gains were not to be included in the income for the
\nassessment year 1971-1972 but, if possession was taken during the period
\n01.04.1970 to 31.03.1971, capital gains would be assessable for this
\nassessment year 1971-1972. The material part of the order dated
\n19.12.1985 in ITA No.634\/Chandi\/84 pertaining to the present case reads
\nas under:-
\n10
\n\u201c5. We have carefully considered the rival submission. The first
\nNotification for the acquisition of the lands in 15.5.68 as mentioned
\nin the order of the ITO. The date of award u\/s 11 of the Land
\nAcquisition Act is 29.9.70 which is also mentioned in the order of
\nthe ITO. The actual date of possession of the lands by the
\nGovernment is neither mentioned in the order of the ITO nor of the
\nAAC though the learned counsel for the assessee at the time of
\nhearing stated that it was on 15.5.68. The AAC has also stated in
\npara 10 of his order that the notifications were published much
\nearlier than the date of the award and the possession of the land
\nwas also taken earlier than the date of award but that did not
\nmean that the capital gains was to be taxed in the earlier years on
\nthat basis. He has, however, not specified the actual date of
\npossession of the lands by the Government. The date given by the
\nlearned counsel for the assessee also cannot be accepted firstly
\nbecause no evidence in relation there to has been furnished
\nbefore us. Secondly the date of notification is 16.5.68 and it was
\nnot elaborated as to how the possession of the land could be
\ntaken even prior to the date of notification. One thing, however, is
\ncertain that the possession of the lands was taken before the
\naward was made u\/s 11 of the Land Acquisition Act.
\n6. Similar issue came up for consideration before us in the case of
\nthe assessee itself for the assessment year 1975-76 and vide our
\norders of even date in I.T.A. No. 635\/Chandi we have held that it
\nwas a case which fell u\/s 17 of the Act and, therefore, capital gains
\nwere assessable on the basis that the transfer took place on the
\ndate of possession of lands by the Government. Since the actual
\ndate of possession of the land is not available, we are of the
\nopinion that the matter should be restored to the file of the ITO
\nwho should find out the actual date of possession of the lands by
\nthe Government. In case the possession of the lands was taken by
\nthe Government prior to the date of award and before Ist
\nApril,1970, the capital gains will not be included in the income for
\nthe assessment year 71-72. If the possession of the lands was
\nalso taken during the period 1-4-70 to 31-3-71, the capital gains
\nwill be assessable for the assessment year 71-72. After finding the
\nactual date of possession by Govt. the ITO, he shall recompute
\nthe income on the above basis.\u201d
\nSupplementary facts concerning enhancement of compensation
\n13. Before entering into the orders passed in second round of
\nproceedings after remand by the ITAT, apposite it would be to take note of a
\nset of supplementary facts relating to the enhancement of the amount of
\ncompensation. It is noticed that as against the aforesaid award dated
\n11
\n29.09.1970, the appellant took up the proceedings in LA Case Nos. 37 and
\n38 of 1971 before the Additional District Judge, Ambala who, by the order
\ndated 30.12.1984, allowed a marginal enhancement of the amount of
\ncompensation and corresponding solatium and interest. Not satisfied yet,
\nthe appellant preferred an appeal, being Regular First Appeal No. 390 of
\n1975 before the Punjab and Haryana High Court, seeking further
\nenhancement. The High Court allowed this appeal by its judgment dated
\n25.10.1985 and awarded compensation by applying the rate of Rs. 8\/- per
\nsq. yd. against Rs. 3.50 and Rs. 2.50 per sq. yd., as allowed by the
\nAdditional District Judge and the Land Acquisition Collector respectively.
\nThe High Court also allowed 30% solatium and corresponding interest10.
\nSecond Round of Proceedings for assessment
\nBy the Income Tax Officer, \u2018C\u2019 Ward, Ambala.
\n14. Having noticed the relevant facts concerning acquisition of the land
\nin question, the award of compensation for such acquisition and
\nenhancement of the amount of compensation as also the first round of
\nproceedings for assessment for the assessment year 1971-1972, we may
\nnow take note of the orders passed in the second round of proceedings for
\nthis assessment after the matter was remanded by the ITAT.
\n15. In compliance of the directions of ITAT in the aforesaid order dated
\n19.12.1985 in ITA No.634\/Chandi\/84, the AO took up the matter in GIR No.
\n920A and, on 17.07.1987, served specific question to the assessee-
\n10 As per the material on record, the High Court allowed interest @12% p.a. on the market value
\nof the land from the date of notification under Section 4 of the Act of 1894 until the date of taking
\npossession; 9% p.a. after the date of possession for one year; and 15% p.a. thereafter.
\n12
\nappellant about the date on which possession of the acquired land was
\ntaken by the Government of Haryana. In his reply dated 22.07.1987, the
\nappellant stated such date of possession as 15.05.1968, being the date of
\nnotification under Section 4 of the Act of 1894. Though no evidence in this
\nregard was adduced but, the appellant relied upon the decision of Kerala
\nHigh Court in the case of Peter John v. Commissioner of Income-Tax:
\n(1986) 157 ITR 711 to submit that capital gains, if any, arise at the point of
\ntime when the land vests in the Government and such a date in the present
\ncase was 15.05.1968. Further, by way of communications dated
\n28.09.1987 and 11.01.1988, the AO asked the assessee-appellant to give
\nthe exact date-wise calculation of interest in terms of the aforesaid
\njudgment of High Court dated 25.10.1985 but not much of assistance came
\nup from the appellant in that regard.
\n15.1. As the appellant was unable to bring forth the requisite information
\nwith evidence, the AO also made enquiries from the revenue authorities,
\nparticularly regarding the date of taking over possession. In response, the
\nAO received information that the land in question was on lease with the
\nCollege; and that as per the procedure adopted, the date of taking
\npossession by the Government was \u2018in consonance\u2019 with the date when the
\naward was announced.
\n15.2. The AO took note of all the facts and features of this case in his reassessment
\norder dated 25.01.1988 and observed that \u2018since in the instant
\ncase, the award was announced on 29.09.1970, the said date viz
\n13
\n29.09.1970 is deemed to be the date of taking possession by the
\nGovernment\u2019. In this view of the matter, the AO held that \u2018taxability of
\ncapital gains arose in the previous year relevant to the assessment year
\nunder consideration\u2019.
\n15.3. It was also suggested by the appellant before the AO that
\nacquisition was of urgent nature, as was the case in relation to the other
\nacquisition relevant for the assessment year 1975-1976. The AO found
\nsuch a suggestion incorrect because of different purposes of acquisition;
\nand specific date of taking over possession (04.09.1972) having been
\nmentioned in the said case pertaining to the assessment year 1975-1976.
\nThe AO also noticed that the appellant failed to place on record the date of
\npublication of notice under Section 9 of the Act of 1894 and observed that
\nthere was no reference to urgency acquisition in the present case nor any
\nsuch mention was found in the award dated 29.09.1970. In the given
\ncircumstances, the AO held that the acquisition in question was not a
\nmatter of urgency under Section 17 of the Act of 1894 and this acquisition
\nhad only been under the \u2018normal powers\u2019.
\n15.4. With the findings aforesaid, the AO proceeded to assess the tax
\nliability of the appellant, on long-term capital gains arising on account of
\nacquisition, on the basis of the amount of compensation allowed in the
\naward dated 29.09.1970 as also the enhanced amount of compensation
\naccruing finally as a result of the aforesaid order dated 30.12.1984 passed
\nby the Additional District Judge and the judgment dated 25.10.1985 passed
\n14
\nby the High Court. As regards interest income, the AO carried out protective
\nassessment on accrual basis @ 12% per annum for the previous year
\nrelevant to the assessment year in question i.e., for the period 01.04.1970
\nto 31.03.1971 while providing that such calculation would be subject to
\namendment, if necessary.
\nBefore the Commissioner of Income Tax (Appeals), Karnal
\n16. The aforesaid order of re-assessment dated 25.01.1988 was
\nchallenged by the appellant before the CIT(A) in Appeal No. 87\/87-88. This
\nappeal was considered and dismissed by the CIT(A) by way of his
\nelaborate order dated 31.03.1989.
\n16.1. It was argued in the first place before the CIT(A) that the ITAT, by its
\norder dated 19.12.1985, had only restored the issue as regards the date of
\npossession to the file of AO and therefore, the AO was not justified in
\nproceeding as if making a de-novo assessment; and was not justified in
\nbringing the enhanced amount of compensation to tax for which, he should
\nhave passed a separate order under Section 155(7A) of the Act of 1961. In
\nregard to this contention, the CIT(A) noted that indisputably, for
\ncomputation of capital gains, the ITO had the power to take into
\nconsideration the enhanced compensation received by the appellant for
\ncompulsory acquisition of the land; and when the ITO could have drawn up
\na separate order under Section 155(7A), he was well within the powers to
\ncombine such an order with his order for carrying out the directions of ITAT.
\nThe contention on the frame of the order was, therefore, rejected.
\n15
\n16.2. The CIT(A), thereafter, extensively dealt with the facts of the case
\non the issue as to whether the ITO had correctly held that possession of the
\nappellant\u2019s compulsorily acquired land was taken over by the Government
\nduring the previous year relevant to the assessment year in question. The
\nCIT(A) held that it had not been a case of compulsory acquisition under
\nSection 17 of the Act 1894; and that awarding of interest from 15.05.1968
\nwas of no effect on the date of accrual of capital gains, particularly when
\nsuch interest could have been awarded under Section 28 of the Act of
\n1894. The CIT(A) further observed that the College remained in
\nunauthorized possession of the land in question after the expiry of lease on
\n31.08.1967 but, it was only on the date of award i.e., 29.09.1970, that the
\npossession legally passed on to the College so as to vest it with the
\nownership through the Government. The relevant observations and findings
\nof the CIT(A) in the order dated 31.03.1989 could be usefully reproduced
\nas under:-
\n\u201c9\u2026It is an admitted fact that the special procedure
\nprescribed u\/s 17 of the Land Acquisition Act for exercising
\nof the emergency powers of the Govt. for taking possession
\nof lands to be compulsorily acquired, earlier than the date of
\naward u\/s 11 of Land Acquisition Act, was not followed in this
\ncase. Neither there is any direction of the Govt. to the
\nCollector to take over possession earlier then the date of
\naward u\/s 11 of Land Acquisition Act and nor the possession
\nwas so taken by the collector after 15 days of the
\npublication of notice u\/s 9(1) of the Land Acquisition Act.
\nThese two conditions are absolutely necessary if the
\npossession was to be taken u\/s 17 of the Land Acquisition
\nAct. The possession of the lands already with S.A. Jain
\nCollege Ambala was obviously regularized in the instant
\ncase u\/s 16 of the Land Acquisition Act which is the general
\n16
\nSection for taking the possession of lands acquired under
\nthe Land Acquisition Act. The possession of compulsorily
\nacquired land u\/s 16 of the Land Acquisition Act can be
\ntaken by the Govt. only after the date of award u\/s 11 of the
\nLand Acquisition Act which in the instant case was 29.9.70.
\nTherefore, it is only on 29.9.70 that the possession
\nlegally passed to S.A. Jain College, Ambala so as to vest
\nthe ownership in the property in S.A. Jain College City
\nthrough the Govt. \u2026\u2026 If the possession of the lands had
\nbeen taken u\/s 17 of the Land Acquisition Act, then interest
\nwould have been awarded to the appellant only from the
\ndate after 15 days of the publication of notice u\/s 9(1) of the
\nLand Acquisition Act, whereas in the instant case, the
\ninterest has been awarded from the date of notification u\/s 4
\nof the Land Acquisition Act i.e. 15.5.68. This goes to show
\nthat the interest was awarded to the appellant from a date
\nprior to the date of award u\/s 11 of the Land Acquisition Act
\nwhich is dated 29.9.70 not because the possession had
\nbeen taken u\/s 17 of the Land Acquisition Act but because of
\nvarious Court, rulings be holding, as mentioned above, that
\non equitable interpretation of Sec. 28 of the Land Acquisition
\nAct, interest should be awarded from the date of possession
\neven in cases where the possession had been taken before
\nthe date of award u\/s 11 of the Land Acquisition Act, even
\nthough the possession was unauthorized or taken with or
\nwithout the consent of the landlord.
\n10. In view of the above discussion, it is obvious that the
\npossession of the lands in the instant case legally
\npassed to S.A. Jain College, Ambala City through the
\nGovt. on the date of the award u\/s 11 of the Land
\nAcquisition Act and it is only on this date that the
\nownership in the lands got vested in the Govt\u2026\u2026. As
\ndiscussed above, the fact that S.A. Jain College, Ambala
\nwas already in unauthorized possession of the lands and
\nthat interest has been awarded to the appellant from part of
\nthe period during which S.A. Jain College, Ambala were in
\nunauthorized possession of the lands, would not effect the
\nabove mentioned legal position i.e. that the possession and
\nownership in the lands got transferred from the landlord to
\nthe Government on 29.9.70 i.e. the date of the award u\/s 11
\nof the Land Acquisition Act. Therefore, the capital gain on the
\ncompulsory acquisition of these lands is to be taxed in this
\nyear and has been rightly so taxed. The order of the learned
\nI.T.O. on this point also is upheld.
\n11\u2026..Since I have already held that the learned ITO was
\njustified in including the enhanced compensation in the total
\nconsideration received by the appellant for acquisition of his
\nlands, for computation of capital gains, I hold that appellant
\nhas no case in respect of the interest amount of Rs.27255\/-
\n17
\nas mentioned in ground of Appeal No.5 of the original
\ngrounds of appeal. No arguments having been advanced in
\nrespect of appeal No. 4,6,7 of the original grounds of appeal,
\nthese grounds of appeal are, therefore, rejected as, on the
\nface of it, there is nothing wrong in the order of the learned
\nITO in this respect.
\nIn the result, appeal is dismissed.\u201d
\n(emphasis in bold supplied)
\nBefore the Income Tax Appellate Tribunal, Chandigarh Bench
\n17. Being aggrieved by the order so passed by the CIT(A), the appellant
\npreferred an appeal before the ITAT, being ITA No. 739(Chandi)89, raising
\nessentially three issues for consideration namely, (i) about the date of
\ntaking over physical possession of the land in question by the Government;
\n(ii) about the ITO\u2019s power to frame the re-assessment instead of recomputing
\nthe income in terms of the ITAT\u2019s order of remand; and (iii)
\nagainst the inclusion of enhanced compensation and interest, etc., in the
\nre-assessment by the ITO. This appeal was considered and allowed by the
\nITAT by way of its order dated 29.06.1990.
\n17.1. The ITAT took up the first issue concerning the date of taking over
\nphysical possession of the land in question and, with reference to the
\nrelevant background aspects as noticed hereinabove, observed that though
\nit had earlier directed the ITO to ascertain the actual date of possession but
\nthe matter presented a complex scenario, where a clear finding about this
\ndate was difficult to emerge. The ITAT observed thus:-
\n\u201c12. The direction of the Bench earlier was for determination of
\nactual date of possession. The Ld. ITO in his own way came to
\nthe conclusion that the date of award was the date of possession
\nwhereas assessee\u2019s case depended on the date of notification.
\nBoth the dates appear to be misconceived as the actual physical
\npossession of the land was already with the college, under a
\n18
\nlease, since 1.1.47. Thus as a consequence of the acquisition
\nproceedings only some of symbolic or constructive possession
\nwas to be taken as the physical possession was already there. In
\nterms of the order under challenge and so also the assessment
\norder and the position of law also, the ownership exchanges
\nhands from the date of award which in the present case is 29.9.70,
\nbut before recording a firm finding in this respect, we have to keep
\nin mind the earlier finding of the Bench dated 19.12.85 wherein it
\nwas observed that the actual date of possession be ascertained
\nand capital gains assessed in the year in which the possession
\nwas taken. The determination of this aspect is slightly difficult in
\nview of the complex factual position existing on the record. We
\ncannot take 29.9.70 as on the date of doubt (sic) the award was
\ngiven but the possession was already with the college. We also
\ncannot take 15.5.68 because no doubt the notification was there
\nbut before that date the college was in possession of land under a
\nlease. Thus clear finding is difficult to emerge.\u201d
\n17.2. Having said that, the ITAT referred to the observations regarding
\n\u201cpossession of land\u201d, as occurring in the award dated 29.09.197011 and
\nobserved that as per those observations in the award, possession of the
\nland in question was supposed to have been taken on 15.05.1968. The
\nITAT further observed that to sort out the controversy, such stipulation in the
\naward was required to be depended upon; and the date of actual physical
\npossession was inferable from the intention of the parties and the language
\nof such stipulation in the award. On this reasoning, the ITAT held that since
\nthe actual physical possession exchanged hands on 15.05.1968, the
\ntransaction should be considered as having taken place on that date and
\nnot on the date of award i.e., 29.09.1970; and hence, capital gains were not
\nto be taxed for the year under consideration. Having reached this
\nconclusion, the ITAT held that the very basis of assessing capital gains
\nhaving been knocked out, the other issues were rendered redundant. The
\n11 Reproduced in paragraph 7.1 hereinbefore.
\n19
\nITAT, accordingly, allowed the appeal with the following observations and
\nfindings:-
\n\u201c14. According to the stipulation in the award, the possession of
\nland is supposed to have taken place on 15.5.68 as from that
\ndate, the assessee was entitled in interest at 6% per annum on
\nthe amount of compensation. This is infact the date i.e. 15.5.68,
\nfrom which date the assessee was supposed to have parted
\nwith the ownership of the land in lieu of the compensation. The
\nassessee was to have the compensation and the land was
\nsupposed to have parted company. Thus to sort out the
\ncontroversy we are required to heavily depend upon this
\nstipulation in the award. The date of actual physical
\npossession is inferable from the intention of parties and
\nthe language of the stipulation. The date of dispossession
\nis inferable to be 15.5.68. The issue is now required to be
\ndecided, in the light of the earlier observation of the Bench that
\nsince the physical possession(ownership) exchanged hands on
\n15.5.68, the transaction should be considered as having taken
\nplace on the date and not on the date of award on 29.9.70. For
\ncoming to this conclusion we are dependent upon the intention
\nof the parties and the mention in the award that the interest
\nbecame payable to the assessee from that date only and not
\nfrom any other date. In the light of the above discussion, we are
\ninclined to hold that the capital gains could not be assessed for
\nthe year under consideration as the transaction did take place
\non 15.5.68. The revenue authorities were thus not justified to
\ninclude the capital gains for the year under consideration and
\nthe Ld (CIT(A) was not justified to confirm such action. We
\nvacate the finding of this aspect. The Revenue authorities are
\nat liberty to look into the matter in respect of capital gains taking
\nthe date of possession as 15.5.1968. Dispossession or actual
\ndate of taking physical possession is to be understood in the
\ncontext of the facts to the present case as the change of the
\nownership as the possession was already with the college
\nunder the lease.
\n15. Since we have held that capital gains are not to be taxed for
\nthe year under consideration, other issues connected with this
\naspect and raised by the assessee not to be gone into as the
\nvery basis has knocked down.\u201d
\n(emphasis in bold supplied)
\n18. Taking exception against the order so passed in appeal, the
\nrevenue made an application before the ITAT seeking reference to the
\nHigh Court under Section 256(1) of the Act of 1961. The ITAT, in its order
\n20
\ndated 15.07.1991, took note of all the relevant facts; and, after finding it to
\nbe a fit case for making reference, drew up the statement of case and
\nreferred the matter to the High Court for determination of the following
\nquestion:-
\n\u201cWhether on the facts and in the circumstances of the case, the
\nTribunal was right in Law in holding that the capital gains are not
\nassessable in the year under consideration as the transaction did
\ntake place on the date of notification i.e. 15.05.1968 and not on
\nthe date of award on 29.09.1970?\u201d
\nThe reference proceedings in High Court
\n19. The High Court of Punjab and Haryana considered and answered
\nthe question aforesaid by its impugned judgment and order dated
\n23.04.2008 in Income Tax Reference No.53-A of 1991.
\n19.1. It was argued on behalf of the revenue before the High Court that
\nany profits or gains arising from the transfer of the capital asset effected in
\nthe previous year shall be deemed to be income of the previous year in
\nwhich the transfer took place and thus, would fall within the ambit of
\nSection 45(1) of the Act of 1961; and as such, the date of award
\n29.09.1970 ought to be considered for the purpose of calculating capital
\ngains and not the date of notification i.e., 15.05.1968. As against these
\nsubmissions, it was submitted on behalf of the assessee-appellant that the
\nreferred question was required to be decided in the light of the observations
\nmade by ITAT in its order dated 19.12.1985; and that it had been a matter
\nof urgency acquisition where the possession of land was taken on the date
\nof notification i.e., 15.05.1968 and hence, in view of the provisions
\n21
\ncontained in Section 17 of the Act of 1894, the transfer took place on that
\ndate (15.05.1968) and not on the date of award (29.09.1970).
\n19.2. After taking into consideration the rival submissions, the facts of this
\ncase and the scheme of the Act of 1894, particularly Sections 16 and 17
\nthereof, the High Court answered the reference in favour of the revenue
\nwhile holding that the Collector had not taken possession of the land under
\nSection 17 of the Act of 1894 and that the said provision was not invoked
\nby the State Government. The High Court further held that for the purpose
\nof assessment of capital gains, the date of award (i.e., 29.09.1970) was
\nrequired to be taken as the date of taking over possession because, on that
\ndate, the land in question vested in the Government under Section 16 of
\nthe Act of 1894.
\n19.3. The High Court further examined the ambit and scope of Section 45
\nof the Act of 1961 and on its conjoint reading with Section 16 of the Act of
\n1894, came to the conclusion that the transfer of capital asset (the land in
\nquestion) and its vesting in the Government took place on 29.09.1970, the
\ndate of award. The High Court further held that under the Income-tax Act,
\n1961, an income was chargeable to tax only when it had accrued or was
\ndeemed to have accrued in the year of assessment; and in the present
\ncase, if any income on account of capital gains was chargeable to tax, it
\nwould be chargeable on the date when the Collector determined the
\ncompensation because, the income accrued to the appellant only upon
\nsuch determination. The High Court, therefore, held that the capital gains
\n22
\narising out of acquisition of land were chargeable to tax in the previous year
\nrelevant to assessment year under consideration because the date of
\naward i.e., 29.09.1970 fell within the relevant previous year.
\n19.4. Accordingly, the High Court disapproved the ITAT\u2019s order dated
\n29.06.1990 and answered the reference in favour of the revenue while
\nholding, inter alia, as under:-
\n\u201c13\u2026..It is clear from Section 45(1) of the Income Tax Act that the
\ncapital gains are chargeable to income-tax arising from the
\ntransfer of capital assets effected in the previous year in which the
\ntransfer took place. On a conjoint reading of Section 16 of the
\nLand Acquisition Act and Section 45(1) of the Act, it is clear that
\nthe transfer of the capital asset (land of the assessee) has to be
\ntaken as 29.09.1970 i.e. the date of award on which date the land
\nvested in State.
\n14. Under the Income Tax Act, an income is chargeable to tax
\nonly when it accrues or is deemed to accrue or arise in the
\nyear of assessment. The deeming provision can have no
\nrelevance unless the income is receivable and if it is receivable,
\nthen the determination of the question whether it is actually
\nreceived or is deemed to have been receive depends upon the
\nmethod of accounting. If the actual amount of compensation
\nhas not been fixed by the Land Acquisition Collector, no
\nincome could be said to have accrued to the appellant. It
\ncannot be contended that the mere claim by the assessee
\nafter taking of possession by the Govt. at a particular rate is
\nthe compensation. It is the amount actually awarded by the
\nCollector accrues on the date on which the award is passed.
\nIncome tax is not levied on a mere right to receive
\ncompensation. There must be something tangible, something in
\nthe nature of debt, something in the nature of an obligation to pay
\nan ascertained amount. Till such time no income can be said to
\nhave accrued. On the date when the Collector awarded the
\ncompensation, it is only that amount which had accrued. This
\namount of compensation was determined only on passing of the
\naward date 29.09.70. Therefore, if any income on account of
\ncapital gain is chargeable to tax, it will be chargeable on the date
\nof award. It is held accordingly that the capital gain arising out of
\nacquisition of land is chargeable to tax in the previous year
\nrelevant to assessment year under consideration because the date
\nof award i.e. 29.09.70 is within the relevant previous year.\u201d
\n(emphasis in bold supplied)
\n23
\n20. Being aggrieved by the judgment and order dated 23.4.2008 so
\npassed by the High Court, holding that the capital gains arising out of the
\nacquisition in question were chargeable to tax in the assessment year 1971-
\n1972, the assessee-appellant has preferred this appeal by special leave.
\nRival Submissions
\nAppellant
\n21. Assailing the view taken by the High Court, learned counsel for the
\nappellant has essentially crusaded on two-fold arguments: One, that on the
\nfacts and in the circumstances of the present case, where the land in
\nquestion was already in possession of the beneficiary College, the
\nassessee-appellant was divested of its title and right to this property with
\nissuance of notification under Section 4 of the Act of 1894 when the State
\ntook up the acquisition in urgency; and the transfer for the purposes of
\nSection 2(47) of the Act of 1961 was complete on the date of that
\nnotification itself i.e., on 15.05.1968 and hence, capital gains arising out of
\nsuch acquisition and interest accrued could not have been charged to tax
\nwith reference to the date of award i.e., 29.09.1970. Secondly, it is not open
\nfor the revenue to question the decision of ITAT in the present case
\npertaining to the assessment year 1971-1972 because, the fact situation of
\nthe present case is similar to that of the other case of the appellant in
\nrelation to the assessment year 1975-1976, where the same issue was
\ndecided by the ITAT in favour of the appellant and the revenue accepted the
\nsaid decision by not challenging the same any further.
\n24
\n21.1. Elaborating on the first limb of arguments, learned counsel for the
\nappellant has contended that indisputably, the land in question was already
\nin possession of the beneficiary College when the State Government took
\nup the proceedings for its acquisition by issuing notification under Section 4
\nof the Act of 1894 on 15.05.1968; and the appellant was immediately
\ndivested of the rights in the land in question, as amply established by the
\nrecital about \u201cpossession of land\u201d in the award dated 29.09.1970, where the
\nappellant was allowed interest over the amount of compensation and
\nsolatium from 15.05.1968. Therefore, according to the learned counsel, the
\ntransfer, for the purposes of Section 2(47) of the Act of 1961, was complete
\non the date of notification i.e., on 15.05.1968 and capital gains, if any,
\ncould have only been charged for the previous year referable to that date of
\nnotification and not with reference to the date of award.
\n21.1.1. Taking this line of argument further, learned counsel has referred
\nto the Full Bench decision of Kerala High Court in the case of Peter John
\n(supra) to submit that in land acquisition proceedings, the owner of property
\nis entitled to compensation on the day on which he is dispossessed; and
\nthat such right does not await quantification of compensation by the Land
\nAcquisition Officer or the Court. On application of these principles to the
\ncase at hand, according to the learned counsel, the date of award i.e.,
\n29.09.1970 for quantification of compensation has no relevance for the
\npurpose of assessing capital gains; and the only relevant date is
\n25
\n15.05.1968, when the appellant was legally dispossessed of the land in
\nquestion and its rights therein stood extinguished.
\n21.1.2. Learned counsel for the appellant has further contended, with
\nreference to the decision of this Court in the case of Rama Bai v.
\nCommissioner of Income-Tax, Andhra Pradesh: (1990) 181 ITR 400,
\nthat the interest income in cases of land acquisition accrues from year to
\nyear and is taxable in the respective year of its accrual; and, in the present
\ncase, since the possession was taken on 15.05.1968, capital gains and
\ninterest accrued were taxable only in the assessment year 1969-1970 and
\nnot in the assessment year 1971-1972.
\n21.2. In the second limb of submissions, learned counsel for the appellant
\nhas referred to the order dated 19.12.1985, as passed by the ITAT in ITA
\nNo. 635\/CHD\/84 for the assessment year 1975-1976 (Annexure P-5) and
\nhas submitted that in the similar facts and circumstances, pertaining to the
\nacquisition of another land of the appellant, the ITAT specifically decided
\nthat capital gains were not relatable to the date of award but were relatable
\nto the date of dispossession; and the revenue indeed accepted the said
\ndecision by not challenging it any further. While strongly relying upon the
\ndecision of this Court in Berger Paints India Ltd. v. Commissioner of
\nIncome-Tax: (2004) 266 ITR 99, the learned counsel has contended that
\nwhere the order passed in favour of the very same assessee and against
\nthe revenue in a similar matter has attained finality, the revenue cannot
\nseek re-opening of the issue in relation to the other case without a just
\n26
\ncause. Thus, according to the learned counsel, the view as taken in relation
\nto the similar case for the assessment year 1975-1976 squarely covers the
\npresent case and the revenue cannot take a different stand in relation to the
\nassessment year 1971-1972.
\n21.3. Learned counsel for the appellant has also contended that the
\ninterest income and solatium accrued on 15.05.1968 as per the award itself
\nand hence, the income to be taxed pertains to the financial year 1968-1969,
\nrelevant to the assessment year 1969-1970 and the same cannot be taxed
\nin the assessment year 1971-1972. Therefore, according to the learned
\ncounsel, the ITAT had rightly taken the view against taxability of the income
\npertaining to the acquisition in question in the assessment year 1971-1972
\nand the High Court has committed manifest error in upturning the view of
\nITAT.
\nRespondent
\n22. Per contra, learned counsel for the revenue has supported the order
\npassed by the High Court, essentially with the submissions that in the
\npresent case, transfer of capital asset i.e., the land of assessee, took place
\nonly on the date of award falling within the previous year relevant for the
\nassessment year 1971-1972.
\n22.1. Learned counsel for the revenue has referred to the definitions of
\n\u201ccapital asset\u201d and \u201ctransfer\u201d in the Act of 1961 and has contended that
\nthough possession of the subject land was with the College in the year
\n1968 and continued as such but, no gain on account of transfer of land
\n27
\naccrued to the assessee on the date of notification i.e., 15.05.1968
\nbecause, at the relevant point of time, compensation had not been
\ndetermined; and the same was determined only in the award dated
\n29.09.1970. Therefore, according to the learned counsel, capital gains
\nchargeable to income-tax accrued only on the date of award and, in this
\nposition, the date of notification i.e., 15.05.1968 is not relevant for the
\npurpose of taxing the capital gains.
\n22.2. Learned counsel for the revenue has further elaborated on the
\nsubmissions that the acquisition in question had not been under the
\nurgency provisions contained in Section 17 of the Act of 1894 because
\nthereunder, the Government was to issue directions to the Collector to take
\npossession after the expiry of fifteen days from the date of publication of
\nnotice under Section 9(1) but, no such direction was issued by the
\nGovernment in the present case. According to the learned counsel, the only
\napplicable provision for taking possession in the present case had been
\nSection 16 of the Act of 1894 whereunder, possession could be taken by
\nCollector after making the award under Section 11 and only thereupon the
\nland under acquisition vests in the Government, free from all
\nencumbrances. The learned counsel would maintain that on the facts of the
\npresent case, the possession legally passed on to the College through the
\nGovernment only on 29.09.1970 i.e., the date of award; and this date of
\naward shall alone be relevant for chargeability of tax against capital gains of
\nthe assessee with transfer of capital asset. In support of his contentions, the
\n28
\nlearned counsel has referred to and relied upon various decisions including
\nthose in Joginder Singh and Ors. v. State of Punjab and Anr.: AIR 1985
\nSC 382 and Bombay Burmah Trading Corporation Ltd. v.
\nCommissioner of Income-Tax: (1988) 169 ITR 148.
\n22.3. Learned counsel for revenue has also submitted that reliance by the
\nappellant on the case of Berger Paints (supra) is entirely misplaced
\nbecause the said case relates to business expenditure under Section 34B
\nof the Act of 1961 and has no relevance to the present case.
\nPoints for determination
\n23. We have heard learned counsel for the parties at length and have
\nscanned through the material on record. Having regard to the submissions
\nmade and the contents of judgment\/orders under consideration, the
\nfollowing principal points arise for determination in this appeal: –
\n1. As to whether, on the facts and in the circumstances of the present
\ncase, transfer of the capital asset (land in question), resulting in
\ncapital gains for the purposes of Section 45 of the Act of 1961, was
\ncomplete on 15.05.1968, the date of notification for acquisition under
\nSection 4 of the Act of 1894; and hence, capital gains arising out of
\nsuch acquisition and interest accrued could not have been charged to
\ntax with reference to the date of award i.e., 29.09.1970?
\n29
\n2. As to whether the fact situation of the present case is similar to
\nthat of the other case of the appellant in relation to the assessment
\nyear 1975-1976 where the same issue relating to the date of accrual
\nof capital gains was decided by the ITAT in favour of the appellant
\nwith reference to the date of taking possession by the Government;
\nand having not challenged the same, it is not open for the revenue to
\nquestion the similar decision of ITAT in the present case pertaining to
\nthe assessment year 1971-1972?
\n24. For appropriate dealing with the controversy at hand, we may take
\nnote of the relevant statutory provisions in the Income-tax Act, 1961, as
\napplicable to the assessment year 1971-1972, as also in the Land
\nAcquisition Act, 1894, as existing at the relevant time.
\nStatutory Provisions
\n25. In the Income-tax Act, 1961, the heads of income for the purpose of
\ncomputation of total income are defined in Section 14 that carries, inter alia,
\nthe heading \u201cE. Capital gains\u201d. Part-E of Chapter IV carries the provisions
\nrelating to Capital gains arising from the transfer of a capital asset. For the
\npurpose of present appeal, the provision relating to chargeability of capital
\ngains to tax as contained in Section 45 and the definition of the expression
\n\u201ctransfer\u201d as occurring in clause (47) of Section 2 of the Act of 1961 are
\nrelevant and these provisions, as applicable to the assessment year 1971-
\n1972 had been as follows.12:-
\n12 In the re-assessment order dated 25.01.1988, the AO had included the amount of enhanced
\ncompensation for computing the quantum of capital gains and this inclusion was questioned before
\nthe CIT(A) but, it was held that as regards enhanced compensation, the AO could have passed the
\n30
\n\u201cSection 45. Capital gains.-Any profits or gains arising from the
\ntransfer of a capital asset effected in the previous year shall, save
\nas otherwise provided in sections 53, 54 and 54B be chargeable to
\nincome-tax under the head \u201cCapital gains\u201d, and shall be deemed
\nto be the income of the previous year in which the transfer took
\nplace.\u201d
\n\u201cSection 2(47) \u201ctransfer\u201d, in relation to a capital asset, includes
\nthe sale, exchange or relinquishment of the asset or the
\nextinguishment of any rights therein or the compulsory acquisition
\nthereof under any law;\u201d
\n26. For an overview of the processes envisaged by the Land
\nAcquisition Act, 1894 to bring about lawful acquisition of land, we may put
\na glance over the principal parts of relevant provisions therein, as existing
\nat the relevant point of time.
\n26.1. The process of acquisition, as contained in Part II of the Act of 1894
\ncould be reasonably taken into comprehension by reference to Sections 4,
\n5A, 6, 9, 11 and 16 therein, respectively occurring under the headings
\n\u2018Preliminary Investigation\u2019, \u2018Objections\u2019, \u2018Declaration of Intended
\nAcquisition\u2019, \u2018Enquiry into Measurements, Value and Claims, and Award by
\norder by virtue of his powers under sub-section (7A) of Section 155 of the Act of 1961. Though, this
\naspect is not directly involved in the present appeal but, for the sake of reference, we may indicate
\nthat Section 155 of the Act deals with the power of amendments of assessment; and sub-section
\n(7A) thereto was inserted by Finance Act, 1978 with retrospective effect from 01.04.1974 and was
\nomitted by Act No. 4 of 1988 with effect from 01.04.1992. This sub-section (7A) of Section 155, as
\nexisting at the relevant time of passing the order by the AO, had been as under:-
\n\u201c(7A) Where in the assessment for any year, the capital gain arising from the
\ntransfer of a capital asset, being a transfer by way of compulsory acquisition
\nunder any law, or a transfer the consideration for which was determined or
\napproved by the Central Government or the Reserve Bank of India, is computed
\nunder section 48 and the compensation for such acquisition or the consideration
\nfor such transfer is enhanced or further enhanced by any court, tribunal or other
\nauthority, the computation or, as the case may be, computations made earlier
\nshall be deemed to have been wrongly made and the Assessing Officer shall,
\nnotwithstanding anything contained in this Act, recompute in accordance with
\nsection 48 the capital gain arising from such transfer by taking the
\ncompensation or the consideration as enhanced or further enhanced, as the
\ncase may be, to be the full value of the consideration received or accruing as a
\nresult of such transfer and shall make the necessary amendment; and the
\nprovisions of section 154 shall, so far as may be, apply thereto, the period of
\nfour years specified in sub-section (7) of that section being reckoned from the
\nend of the previous year in which the additional compensation or consideration
\nwas received by the assessee.\u201d
\n31
\nthe Collector\u2019 and \u2018Taking Possession\u2019. These provisions or relevant parts
\nthereof, as applicable to the acquisition in question, had been as under:-
\n\u201c4. Publication of preliminary notification and powers of
\nofficers thereupon.- (1) Whenever it appears to the appropriate
\nGovernment that land in any locality is needed or is likely to be
\nneeded for any public purpose a notification to that effect shall be
\npublished in the Official Gazette, and the Collector shall cause
\npublic notice of the substance of such notification to be given at
\nconvenient places in the said locality.
\n(2) Thereupon it shall be lawful for any officer, either, generally or
\nspecially authorised by such Government in this behalf, and for his
\nservants and workmen, –
\nto enter upon and survey and take levels of any land in such
\nlocality;
\nto dig or bore into the sub-soil;
\nto do all other acts necessary to ascertain whether the land is
\nadapted for such purpose;
\nto set out the boundaries of the land proposed to be taken and
\nthe intended line of the work (if any) proposed to be made
\nthereon;
\nto mark such levels, boundaries and line by placing marks and
\ncutting trenches; and,
\nwhere otherwise the survey cannot be completed and the
\nlevels taken and the boundaries and line marked, to cut down
\nand clear away any part of any standing crop, fence or jungle:
\nProvided that no person shall enter into any building or upon any
\nenclosed court or garden attached to a dwelling house (unless
\nwith the consent of the occupier thereof) without previously giving
\nsuch occupier at least seven days’ notice in writing of his intention
\nto do so.\u201d
\n\u201c5A. Hearing of Objections.- (1) Any person interested in any
\nland which has been notified under section 4, sub-section (1), as
\nbeing needed or likely to be needed for a public purpose or for a
\ncompany may, within thirty days after the issue of the notification,
\nobject to the acquisition of the land or of any land in the locality, as
\nthe case may be.
\n(2) Every objection under sub-section (1) shall be made to the
\nCollector in writing, and the Collector shall give the objector an
\nopportunity of being heard either in person or by pleader and shall,
\nafter hearing all such objections and after making such further
\ninquiry, if any, as he thinks necessary, either make a report in
\nrespect of the land which has been notified under Section 4, subsection
\n(1), or make different reports in respect of different parcels
\nof such land to the appropriate Government, containing his
\nrecommendations on the objections, together with the record of
\nthe proceedings held by him, for the decision of that Government.
\n32
\nThe decision of the appropriate Government on the objections
\nshall be final.
\n(3) For the purposes of this section, a person shall be deemed to
\nbe interested in land who would be entitled to claim an interest in
\ncompensation if the land were acquired under this Act.\u201d
\n\u201c6. Declaration that land is required for a public purpose.- (1)
\nSubject to the provisions of Part VII of this Act, when the
\nappropriate Government is satisfied after considering the report, if
\nany, made under section 5A, sub-section (2), that any particular
\nland is needed for a public purpose, or for a company, a
\ndeclaration shall be made to that effect under the signature of a
\nSecretary to such Government or of some officer duly authorised
\nto certify its orders and different declarations may be made from
\ntime to time in respect of different parcels of any land covered by
\nthe same notification under Section 4, sub-section (1), irrespective
\nof whether one report or different reports has or have been made
\n(wherever required) under section 5-A, sub-section (2).
\n*** *** ***
\n(3) The said declaration shall be conclusive evidence that the land
\nis needed for a public purpose or for a company, as the case may
\nbe; and, after making such declaration the appropriate
\nGovernment, may acquire the land in manner hereinafter
\nappearing.\u201d
\n\u201c9. Notice to persons interested.- (1) The Collector shall then
\ncause public notice to be given at convenient places on or near
\nthe land to be taken, stating that the Government intends to take
\npossession of the land, and that claims to compensation for all
\ninterests in such land may be made to him.
\n(2) Such notice shall state the particulars of the land so needed,
\nand shall require all persons interested in the land to appear
\npersonally or by agent before the Collector at a time and place
\ntherein mentioned (such time not being earlier than fifteen days
\nafter the date of publication of the notice), and to state the nature
\nof their respective interests in the land and the amount and
\nparticulars of their claims to compensation for such interests, and
\ntheir objections (if any) to the measurements made under Section
\n8. The Collector may in any case require such statement to be
\nmade in writing and signed by the party or his agent.
\n(3) The Collector shall also serve notice to the same effect on the
\noccupier (if any) of such land and on all such persons known or
\nbelieved to be interested therein, or to be entitled to act for
\npersons so interested, as reside or have agents authorised to
\nreceive service on their behalf, within the revenue district in which
\nthe land is situate.
\n*** *** ***\u201d
\n\u201c11. Enquiry and award by Collector.- On the day so fixed, or
\nany other day to which the enquiry has been adjourned, the
\n33
\nCollector shall proceed to enquire into the objections (if any),
\nwhich any person interested has stated pursuant to a notice given
\nunder Section 9 to the measurements made under Section 8, and
\ninto the value of the land and at the date of the publication of the
\nnotification under Section 4, sub-section (1), and into the
\nrespective interests of the persons claiming the compensation,
\nand shall make an award under his hand of–
\n(i) the true area of the land;
\n(ii) the compensation which in his opinion should be allowed for
\nthe land; and
\n(iii) the apportionment of the said compensation among all the
\npersons known or believed to be interested in the land, of
\nwhom, or of whose claims, he has information, whether or not
\nthey have respectively appeared before him.\u201d
\n\u201c16. Power to take possession.- When the Collector has made
\nan award under Section 11, he may take possession of the land,
\nwhich shall thereupon vest absolutely in the Government, free
\nfrom all encumbrances.\u201d
\n26.2. A different process was, however, envisaged by Section 17 of the
\nAct of 1894 for taking possession in cases of urgency even before making
\nof award but upon the directions of the appropriate Government. The
\nrelevant part of that provision had been as under:-
\n\u201c17. Special powers in cases of urgency.- (1) In cases of
\nurgency, whenever the appropriate Government so directs, the
\nCollector, though no such award has been made, may, on the
\nexpiration of fifteen days from the publication of the notice
\nmentioned in Section 9, sub-section (1), take possession of any
\nwaste or arable land needed for public purposes or for a company.
\nSuch land shall thereupon vest absolutely in the Government free
\nfrom all encumbrances.
\n*** *** ***\u201d13
\n13 We have not extracted the other sub-sections of Section 17 of the Act of 1894, for being not
\nrelevant in the present case but, for completing the reference to the broad features of process
\ncontemplated by Section 17, we may also indicate that sub-section (4) thereof, as existing at the
\nrelevant time had been as under: \u2013
\n\u201c(4) In the case of any land to which in the opinion of the appropriate
\nGovernment, the provisions of sub-section (1) or sub-section (2) are applicable,
\nthe appropriate Government may direct that the provisions of Section 5A shall
\nnot apply, and, if it does so direct, a declaration may be made under Section 6
\nin respect of the land at any time after the publication of the notification under
\nSection 4, sub-section (1).\u201d
\n34
\n26.3. One peripheral aspect relating to the treatment of interest on
\nenhanced compensation has also occurred in the present case for which,
\nthe CIT(A) in his order dated 31.03.1989, has referred to Section 28 of the
\nAct of 1894. This provision, as existing at the relevant time, had been as
\nunder:-
\n\u201c28. Collector may be directed to pay interest on excess
\ncompensation.- If the sum which, in the opinion of the Court, the
\nCollector ought to have awarded as compensation is in excess of
\nthe sum which the Collector did award as compensation, the
\naward of the Court may direct that the Collector shall pay interest
\non such excess at the rate of six per centum per annum from the
\ndate on which he took possession of the land to the date of
\npayment of such excess into Court.\u201d14
\n27. Having regard to the relevant provisions of the Act of 1961 whereby
\nand whereunder, \u201ccapital gains\u201d essentially relate to the transfer of capital
\nasset by the assessee; and the background aspects of the present case,
\nwhere the capital asset of the assessee-appellant (land in question) was in
\npossession of the beneficiary College even after expiry of the lease on
\n31.08.1967, it shall also be apposite to take note of a few provisions of the
\nTransfer of Property Act, 188215 concerning the general connotation of
\n\u201ctransfer of property\u201d as also those relating to the transaction of lease of
\nimmovable property.
\n27.1. In Section 5, occurring in Chapter II of the Act of 1882, the phrase
\n\u201ctransfer of property\u201d is defined as under:-
\n14 Note: We may again observe that the extractions in paragraph 25 are of the provisions of the
\nAct of 1961 as applicable for the assessment year 1971-1972. Similarly, the extractions in
\nparagraphs 26.1, 26.2 and 26.3 are of the provisions of the Act of 1894 as applicable in the year
\n1968 when the notification under Section 4 pertaining to the subject land was issued.
\n15 For short, \u2018the Act of 1882\u2019
\n35
\n\u201c5. \u201cTransfer of property\u201d defined.- In the following sections
\n\u201ctransfer of property\u201d means an act by which a living person
\nconveys property, in present or in future, to one or more other
\nliving persons, or to himself, or to himself and one or more other
\nliving persons; and \u201cto transfer property\u201d is to perform such act.
\nIn this section \u201cliving person\u201d includes a company or association
\nor body of individuals, whether incorporated or not, but nothing
\nherein contained shall affect any law for the time being in force
\nrelating to transfer of property to or by companies, associations or
\nbodies of individuals.\u201d
\n27.2. The rights and liabilities of lessor and lessee of immovable property
\nare delineated in Section 108 of the Act of 1882 and its clause (q)
\npostulates an implied obligation of the lessee to put the lessor into
\npossession of the property on determination of the lease in the following
\nwords:-
\n\u201c108. Rights and liabilities of lessor and lessee. \u2013 In the
\nabsence of a contract or local usage to the contrary, the lessor and
\nthe lessee of immovable property, as against one another,
\nrespectively, possess the rights and are subject to the liabilities
\nmentioned in the rules next following, or such of them as are
\napplicable to the property leased:-
\n*** *** ***
\n(q) on the determination of the lease, the lessee is bound to put
\nthe lessor into possession of the property.\u201d
\n27.2.1. Determination of lease by efflux of time is envisaged in clause (a) of
\nSection 111 of the Act of 1882 as follows:
\n\u201c111. Determination of lease.- A lease of immovable property
\ndetermines-
\n(a) by efflux of the time limited thereby;
\n*** *** ***\u201d
\n27.2.2. One of the features of the transaction of lease, in the case where
\nlessee remains in possession after determination thereof and the lessor
\nassents to his possession, is dealt with by Section 116 of the Act of 1882
\nthat reads as under:-
\n36
\n\u201c116. Effect of holding over.- If a lessee or under-lessee of
\nproperty remains in possession thereof after the determination of
\nthe lease granted to the lessee, and the lessor or his legal
\nrepresentative accepts rent from the lessee or under-lessee, or
\notherwise assents to his continuing in possession, the lease is, in
\nthe absence of an agreement to the contrary, renewed from year
\nto year, or from month to month, according to the purpose for
\nwhich the property is leased, as specified in section 106.\u201d
\nPoint No. 1.
\n28. As noticed, the first point for determination revolves around the
\nbasic questions as to when did the transfer of the land in question, by way
\nof compulsory acquisition, take place and when did the capital gains accrue
\nto the assessee-appellant? The assessee maintains that this transfer,
\nleading to capital gains, took place on the very date of preliminary
\nnotification (15.05.1968) because, possession of the land in question was
\nalready with the beneficiary College. The revenue, however, asserts that
\nsuch transfer reached its completion, resulting in capital gains, only on the
\ndate of award (29.09.1970).
\n29. For effectual determination of the questions involved, we may take
\ninto comprehension the basic features of the head of income described as
\n\u201ccapital gains\u201d.
\n29.1. As noticed, capital gains are those profits or gains which arise out of
\nthe transfer of capital asset. The expression \u201ccapital asset\u201d is defined in
\nSection 2(14) of the Act of 1961. In the present case, much dilation on this
\ndefinition is not required because the subject land had indisputably been a
\n\u201ccapital asset\u201d of the assessee-appellant. We may, however, observe that
\nsuch definition of \u2018capital asset\u2019 is of wide amplitude, taking in its fold the
\n37
\nproperty of any kind held by an assessee, except what has been
\nexpressively excluded therein, like stock-in-trade, consumables stores,
\npersonal effects, etc.
\n29.2. The expression \u201ctransfer\u201d in relation to a capital asset has been
\ndefined in Section 2(47) of the Act of 1961. The said definition has also
\nbeen of substantially wide amplitude so as to include sale, exchange or
\nrelinquishment of a capital asset; or extinguishment of any rights therein; or
\ncompulsory acquisition thereof. It is also noteworthy that as per the
\nfundamentals in the Act of 1882, \u201ctransfer of property\u201d means an act by
\nwhich a living person conveys property, in present or in future, to one or
\nmore other living persons, or to himself, or to himself and one or more other
\nliving persons.
\n29.3. Thus, the contents of the then existing Section 45 of the Act of 1961
\nread with the relevant definitions would make it clear that such profits or
\ngains are chargeable to income-tax as \u201ccapital gains\u201d that arise out of the
\ntransfer of a capital asset by any of the recognized modes, including sale,
\nexchange, relinquishment and even compulsory acquisition; and, by fiction,
\nit has been provided that such profits or gains shall be deemed to be the
\nincome of the previous year in which transfer took place. Differently put,
\ncapital gains of an assessee, arising from transfer of capital asset, are
\nchargeable to tax as income of the previous year in which transfer had
\ntaken place.
\n38
\n30. Applying the aforesaid concepts of \u201ctransfer\u201d and \u201ctransfer of
\nproperty\u201d to the facts of the present case, it could be readily found that
\nwhen the subject land has been compulsorily acquired, its transfer from the
\nassessee-appellant to the Government is directly covered by Section 2(47)
\nof the Act of 1961.
\n30.1. Thus, the basic elements for chargeability of the gains, arising from
\ncompulsory acquisition of the subject land, to income-tax under the head
\n\u201ccapital gains\u201d, do exist in the present case. However, the gains so arising
\nwould be deemed to be the income of the previous year in which transfer
\ntook place.
\n31. Entering into the enquiry as to when had the transfer, of subject land
\nfrom the assessee-appellant to the Government, taken place, we need to
\ntake into account the principles governing completion of transfer of land
\nfrom the owner to the Government in the matters of compulsory acquisition.
\nOrdinarily, in such matters of compulsory acquisition, there is a structured
\nprocess prescribed by law, which is required to be complied with for a
\nlawful acquisition and which has the legal effect of transfer of ownership of
\nthe property in question to the acquiring body, usually the appropriate
\nGovernment. The controversy in the present matter has its genesis in the
\ncompulsory acquisition of the land of assessee-appellant under the Act of
\n1894 and hence, pertinent it would be to look at the processes
\ncontemplated by the said enactment.
\n39
\n31.1. A brief overview of the scheme of the Act of 1894, as existing at the
\nrelevant point of time, makes it clear that publication of preliminary
\nnotification under Section 4 by itself did not vest the property in the
\nGovernment; it only informed about the intention of the Government to
\nacquire the land for a public purpose. After this notification, in the ordinary
\ncourse, under Section 5A, the Land Acquisition Collector was required to
\nexamine the objection, if any, to the proposed acquisition; and after
\nexamining his report, if so made, the Government was to issue declaration
\nunder Section 6, signifying its satisfaction that the land was indeed required
\nfor public purpose. These steps were to be followed by notice under
\nSection 9, stating that the Government intended to take possession of the
\nland and inviting claims for compensation. Thereafter, the Collector was to
\nmake his award under Section 11. As noticed hereinbefore, as per Section
\n16 of the Act of 1894, the Land Acquisition Collector, after making the
\naward, could have taken possession of the land under acquisition and
\nthereupon, the land vested in the Government free from all encumbrances.
\n31.2. A deviation from the process above-noted and a somewhat different
\nprocess was permissible in Section 17 of the Act of 1894 whereunder, in
\ncases of urgency and if the Government had so directed, the Collector
\ncould have taken possession of any waste or arable land after fifteen days
\nfrom the publication of the notice mentioned in Section 9(1), even though
\nthe award had not been made; and thereupon, the land was to vest in the
\nGovernment free from all encumbrances.
\n40
\n31.3. In the case of Special Land Acquisition Officer, Bombay and
\nOrs. v. Godrej and Boyce: (1988) 1 SCC 50, while dealing with the power
\nof the Government to withdraw from the acquisition under Section 48 of the
\nAct of 1894, this Court exposited on the gamut of the ordinary process of
\ntaking possession of the land under acquisition and legal requirements as
\nalso implications thereof, in the following words:-
\n\u201c5\u2026\u2026Under the scheme of the Act, neither the notification
\nunder Section 4 nor the declaration under Section 6 nor the
\nnotice under Section 9 is sufficient to divest the original
\nowner of, or other person interested in, the land of his rights
\ntherein. Section 16 makes it clear beyond doubt that the title
\nto the land vests in the government only when possession is
\ntaken by the government. Till that point of time, the land
\ncontinues to be with the original owner and he is also free
\n(except where there is specific legislation to the contrary) to deal
\nwith the land just as he likes, although it may be that on account of
\nthe pendency of proceedings for acquisition intending purchasers
\nmay be chary of coming near the land. So long as possession is
\nnot taken over, the mere fact of a notification under Section 4
\nor declaration under Section 6 having been made does not
\ndivest the owner of his rights in respect of the land or relieve
\nhim of the duty to take care of the land and protect it against
\nencroachments. Again, such a notification does not either confer
\non the State Government any right to interfere with the ownership
\nor other rights in the land or impose on it any duty to remove
\nencroachments therefrom or in any other way safeguard the
\ninterests of the original owner of the land. It is in view of this
\nposition, that the owner’s interests remain unaffected until
\npossession is taken, that Section 48 gives a liberty to the State
\nGovernment to withdraw from the acquisition at any stage before
\npossession is taken\u2026\u2026.\u201d
\n(emphasis in bold supplied)
\n31.4. In the case of Fruit & Vegetable Merchants Union v. Delhi
\nImprovement Trust: AIR 1957 SC 344, this Court expounded on
\nvariegated features of the term \u201cvesting\u201d as follows:-
\n\u201cAs will presently appear, the term \u201cvesting\u201d has a variety of
\nmeaning which has to be gathered from the context in which It has
\nbeen used. It may mean full ownership, or only possession for a
\n41
\nparticular purpose, or clothing the authority with power to deal with
\nthe property as the agent of another person or authority\u2026\u2026. That
\nthe word “vest” is a word of variable import is shown by provisions
\nof Indian statutes also. For example, S. 56 of the Provincial
\nInsolvency Act (5 of 1920) empowers the Court at the time of the
\nmaking of the order of adjudication or thereafter to appoint a
\nreceiver for the property of the insolvent and further provides that
\n“such property shall thereupon vest in such receiver.” The property
\nvests in the receiver for the purpose of administering the estate of
\nthe insolvent for the payment of his debts after realising his assets.
\nThe property of the insolvent vests in the receiver not for all
\npurposes but only for the purpose of the Insolvency Act and the
\nreceiver has no interest of his own in the property. On the other
\nhand, Ss. 16 and 17 of the Land Acquisition Act (Act 1 of
\n1894), provide that the property so acquired, upon the
\nhappening of certain events, shall “vest absolutely in the
\nGovernment free from all encumbrances”. In the cases
\ncontemplated by Ss. 16 and 17 the property acquired
\nbecomes the property of Government without any conditions
\nor limitations either as to title or possessions. The legislature
\nhas made it clear that the vesting of the property is not for
\nany limited purpose or limited duration. It would thus appear
\nthat the word “vest” has not got a fixed connotation, meaning in all
\ncases that the property is owned by the person or the authority in
\nwhom it vests. It may vest in title, or it may vest in possession, or it
\nmay vest in a limited sense, as indicated in the context in which it
\nmay have been used in a particular piece of legislation\u2026..\u201d
\n(emphasis in bold supplied)
\n31.5. The expositions aforesaid leave nothing for debate that in the matter
\nof compulsory acquisition of land under the Act of 1894 for public purpose,
\nthe property was to vest absolutely in the Government (thereby divesting
\nthe owner of all his rights therein) only after taking of possession in either of
\nthe methods i.e., after making of award, as provided in Section 16; or
\nearlier than making of award, as provided in Section 17. In other words, the
\nowner was divested of the property and same vested in the Government in
\nabsolute terms only if, and after, the possession was taken by either of the
\nprocesses envisaged in Sections 16 and 17. However, so long as
\npossession was not taken, the mere fact of issuance of notification under
\n42
\nSection 4 of the Act of 1894 or declaration under Section 6 thereof, did not
\ndivest the owner of his right in respect of the property in question.
\n32. Having thus taken note of the general principles governing \u201ccapital
\ngains\u201d and \u201ctransfer of capital asset in compulsory acquisition\u201d, we may
\nnow examine as to when capital gains accrue on transfer of a capital asset
\nin compulsory acquisition.
\n32.1. The features above-noticed, relating to completion of transfer by
\nway of compulsory acquisition under the Act of 1894 upon taking of
\npossession by the Government; and such event of taking possession being
\nthe relevant happening for the purpose of Section 45 of the Act of 1961,
\nwere duly applied by the Courts in various decisions related with taxing of
\ncapital gains. As an example, we may usefully refer to a decision of
\nKarnataka High Court in the case of Buddaiah v. Commissioner of
\nIncome-Tax, Karnataka-2: (1985) 155 ITR 277 wherein, the High Court
\nreferred to the aforesaid decision of this Court in Fruit & Vegetable
\nMerchants Union and held that since title of land passes to the
\nGovernment on possession being taken by the Deputy Commissioner
\nunder Section 16 of the Act of 1894, such date of taking possession
\nbecomes relevant for the purposes of Section 45 of the Act of 1961. The
\nHigh Court said (at p. 281 of ITR),-
\n\u201cThe assessee\u2019s contention, therefore, is contrary to the provisions
\nof s. 16 of the Land Acquisition Act. Since the title of the owner of
\nthe lands acquired under the Land Acquisition Act passes to the
\nGovernment on possession being taken by the Deputy
\nCommissioner under s. 16 of the Act, the date of taking
\npossession becomes relevant for purposes of s. 45 of the I.T.
\nAct, so far as transfer of title is concerned.\u201d
\n43
\n(emphasis in bold supplied) TT
\n33. However, the propositions aforesaid do not directly apply to a case
\nwhere, for any reason, possession of the land had already been taken by
\nthe Government or delivered by the owner before completion of process
\nenvisaged by Section 16 or Section 17 of the Act of 1894. In such a case,
\nthe question, obviously, would be as to when has capital gain accrued? And
\nthis is the core of the present matter.
\n33.1. Taking up the core question, as to when capital gains would accrue
\nin a case of compulsory acquisition of land where possession had already
\nbeen taken before reaching of the relevant stage for taking over possession
\nin the structured process contemplated by the statute, we may usefully
\nrefer to the decision of Andhra Pradesh High Court in the case of S.
\nAppala Narasamma v. Commissioner of Income-Tax: (1987) 168 ITR
\n17. Therein, the land of the assessee was acquired for the Town Planning
\nTrust but, during the course of land acquisition proceedings, possession of
\nthe land was delivered voluntarily by the assessee to the Town Planning
\nTrust on 25.03.1970. The award of compensation was made on
\n22.03.1971. In the assessment proceedings, the question arose, as to in
\nwhich year did the capital gain arise? Thus, similar question was involved
\ntherein, i.e., as to whether the land must be deemed to have vested in the
\nState on the date when the possession was taken with the consent of the
\nlandlord or on the date of award? The Tribunal took the view that the land
\nvested in the Government on the date of making of the award and this
\n44
\nconclusion was affirmed by the High Court. While dealing with the principles
\nrelating to vesting of title and examining the fact situation where possession
\nwas taken before making of award, the High Court held that vesting of title
\nto the land was a matter of law and not a matter of inference; and in the
\ngiven situation, the moment the award was made, possession from that
\nmoment onwards should be related to the award; and on that date, the land
\nvested in the Government. The High Court said (at pp. 20 and 21 of ITR),-
\n\u201cVesting of title to the land is a matter of law, not a matter of
\ninference. This is a case of transfer of property by operation of
\nlaw and the relevant statute clearly provides the situations in which
\nthe land vests, viz., section 16, section 17(1) and section 17(2).
\nAccording to these provisions, the taking of possession per se
\ndoes not bring about vesting; the taking of possession must be
\nconsequent upon passing of an award (section 16) or an order
\ncontemplated by section 17(1), or in a situation contemplated by
\nsection 17(2). The Act does not provide for taking of possession
\nbefore the passing of the award, except in situations contemplated
\nby section 17 (1) and (2). The question is what is the reasonable
\nview to take in such a situation? Should we relate back the award
\nto the date of taking possession or should we relate the
\npossession already taken to the date of the award? We think it
\nmore reasonable, and consistent with the provisions of the Act, to
\nadopt the latter view. Since possession taken before the award
\ncontinues to be with the Government, we must say that the
\nmoment the award is passed, possession from that moment
\nonwards should be related to the award. It is on that date that
\nthe land vests in the Government.\u201d
\n(emphasis in bold supplied)
\n33.1.1.While affirming that in the given set of facts, the liability to tax for
\ncapital gains arose on the date of award, the High Court referred to various
\ndecisions on relating back, of the possession previously taken, to the date
\nenvisaged by the Act of 1894; and took guidance, inter alia, from the
\nfollowing enunciation by this Court in the case of Lt. Governor of
\nHimachal Pradesh v. Avinash Sharma: (1971) 1 SCR 413:-
\n45
\n“In the present case a notification under s. 17 (1) and (4) was
\nissued by the State Government and possession which had
\npreviously been taken must, from the date of expiry of fifteen days
\nfrom the publication of the notice under s. 9(1), be deemed to be
\nthe possession of the Government. We are unable to agree that
\nwhere the Government has obtained possession illegally or under
\nsome unlawful transaction and a notification under s. 17(1) is
\nissued the land does not vest in the Government free from all
\nencumbrances. We are of the view that when a notification
\nunder s. 17(1) is issued, on the expiration of fifteen days from
\nthe publication of the notice mentioned in s. 9(1), the
\npossession previously obtained will be deemed to be the
\npossession of the Government under s. 17(1) of the Act and
\nthe land will vest in the Government free from all
\nencumbrances.”
\n(emphasis in bold supplied)
\n33.2. The said decision in S. Appala Narasamma was followed by the
\nsame High Court in the case of Commissioner of Income-Tax v. Pandari
\nLaxmaiah: (1997) 223 ITR 671 where, possession of the subject land was
\ntaken on 03.08.1977 whereas the preliminary notification for acquisition
\nwas published on 01.09.1977 while notice under Section 9(1) was issued
\non 20.05.1980 and award was passed on 25.03.1981. The High Court held
\nthat the relevant date for vesting of the land in the Government would be
\nthe date of making the award.
\n34. Before dilating on the principles aforesaid, we may refer to the
\ndecisions cited by the learned counsel for the parties but, while pointing out
\nat once that the said decisions are not of direct application to the present
\ncase for, they essentially relate to the right to receive compensation and not
\nabout the date of vesting of the land, with which we are concerned in the
\npresent matter.
\n46
\n34.1. Learned counsel for the appellant has laid emphasis on the decision
\nof the Full Bench of Kerala High Court in the case of Peter John (supra). In
\nthat case, the High Court essentially dealt with the questions as to when, in
\nthe matters of acquisition of land, the right to receive compensation arises
\nand as to when interest accrues, as would be evident from the question of
\nlaw referred, which had been as under (at p.713 of ITR) :-
\n” Whether, on the facts and in the circumstances of the case, as
\nper the ratio of the Supreme Court decisions in Shamlal Narula v.
\nCIT [1964] 53 ITR 151 (SC) and Ramanathan Chettiar v. CIT
\n[1967] 63 ITR 458 (SC), the land acquisition interest of Rs. 80,253
\nincluded by the Income Tax Officer under section 5(1)(b) of the
\nIncome-tax Act, 1961, in the total income for 1968-69 assessment,
\naccrued de die in diem from the date of taking possession of the
\nlands during the years 1961 and 1962 up to March 31, 1968,
\ninclusive and, therefore, only Rs. 12,626 which accrued de die in
\ndiem during the concerned previous year of 366 calendar dates
\nfrom April 1, 1967, to March 31, 1968, inclusive should have been
\nincluded in the total income for 1968-69 assessment and the
\nbalance interest of Rs. 67,627 should be similarly included on
\naccrual basis under section 5(1)(b) of the I.T. Act, 1961, in the
\nincome for the six assessment years from 1962-63 to 1967-68
\ninclusive, as had already been done by the Income Tax Officer by
\nhis orders dated June 6, 1972, for the 1967-68 and 1969-70
\nassessments? ”
\n34.1.1. In relation to the question as to when does the compensation accrue
\nor when it is deemed to accrue, the High Court referred to the enunciation
\nby this Court in the case of Joginder Singh (supra) and held that such right
\narises immediately on dispossession and does not await quantification of
\ncompensation. The High Court said (at p.716 of ITR), \u2013
\n\u201cWhen does the compensation accrue or when is it deemed to
\naccrue? It is well settled that the owner of the property is entitled
\nto compensation from the date on which he is dispossessed of the
\nproperty on acquisition. This is because what the Land Acquisition
\nOfficer does is to offer to purchase the property for the market
\nvalue and when in the process he takes possession of the
\nproperty at whatever stage it might be, the owner of the property is
\ndeprived of the income and enjoyment of the property from that
\n47
\ntime. Whether the offer in regard to the quantum of compensation
\nis accepted by the land owner straightaway or finally settled by the
\ncourt is a different question touching on the quantum of
\ncompensation, not of the right to receive compensation. We are
\nhere on the question as to from which date the land owner is
\nentitled to receive it. There could be absolutely no doubt that both
\nstatutorily and in equity, the land owner has a right to receive
\ncompensation on the day on which he is dispossessed of the
\nproperty. That right arises immediately on dispossession and does
\nnot await quantification of the compensation by the Land
\nAcquisition Officer or by the court\u2026..\u201d
\n34.1.2. Further, in relation to the question as to when does the right to
\nreceive interest accrue or when it is deemed to accrue, the High Court again
\nreferred to the enunciation in Joginder Singh (supra) and held that it would
\nnot be at a point of time other than the date when the right to receive
\ncompensation accrues. The High Court again said (at pp.717-718 and 722 of
\nITR), \u2013
\n\u201cNow, the question is, when does the right to receive interest
\naccrue or is deemed to accrue; could it be at a point of time other
\nthan the date on which the right to receive compensation accrues?
\nIt could not be, as we have already noticed that the right to receive
\ncompensation accrues on dispossession of the land owner from
\nthe property on acquisition. He has a right in praesenti to receive
\ncompensation, though it might actually be quantified or paid at a
\nlater stage. If the entire compensation or true compensation as the
\nSupreme Court would have it in Joginder Singh’s case, AIR 1985
\nSC 382: [1985] 1 SCWR 110, to which the land owner was
\nentitled, on a correct evaluation on the basis of the standards and
\nguidance under sections 23 and 24, was paid the moment he was
\ndispossessed of the property, no question of right to interest would
\nsurvive. It is only where the compensation payable is not paid on
\nthe date when it was actually due, in order to compensate the loss
\narising out of the deprival of the use of the amount, that interest is
\npaid till the date of actual payment. That the right to receive
\ninterest arises on the date of dispossession on which date the land
\nowner is entitled to receive compensation, admits of no doubt\u2026.
\n*** *** ***
\nIn the light of the foregoing discussions, our conclusion is that
\ninterest on compensation awarded with respect to the land
\nacquired under the Land Acquisition Act runs from day to day,
\n48
\naccruing from the date on which the Government took possession
\nof the land, that being the date on which the land owner’s right to
\nreceive the entire compensation arises, though determined and
\npaid later\u2026.\u201d
\n34.1.3. The principles aforesaid, that the right to receive compensation
\ncomes into being the moment Government takes possession of the
\nproperty acquired; and the right to receive interest also accrues at the point
\nof time when the right to receive compensation accrues and runs day to
\nday, do not correspondingly result in completion of transfer of the property
\nunder acquisition and accrual of such a gain that may classify as \u201ccapital
\ngain\u201d. As noticed, in the matters of compulsory acquisition, accrual of
\ncapital gain depends upon completion of transfer of property from the
\nowner to the Government and not upon accrual of right to receive
\ncompensation. Therefore, reference to the decision in Peter John (supra)
\nis entirely inapt in the present case.
\n34.2. In the case of Rama Bai (supra), this Court dealt with a batch of
\nappeals and references essentially involving the question regarding the
\npoint of time at which the interest payable under Sections 28 and 34 of the
\nAct of 1894 accrues or arises, where such interest is paid on enhanced
\ncompensation awarded on a reference under Section 18 or on further
\nappeal to the High Court and\/or the Supreme Court. This Court found that
\nthe issue stood concluded by the decision in Commissioner of Income-
\nTax v. Govindrajulu Chetty (T.N.K.): [1987] 165 ITR 231; and it was held
\nthat the interest cannot be taken to have accrued on the date of the order
\ngranting enhanced compensation but has to be taken as having accrued
\n49
\nyear after year from the date of delivery of possession. This Court said as
\nunder:-
\n\u201c\u2026\u2026we are of the opinion that the appeals before us (Civil
\nAppeal No. 810 of 1974 and Civil Appeal No. 3027 of 1988) have
\nto be allowed and the references made under section 257 (Tax
\nreference Cases Nos. 3 of 1976 and 1 to 3 of 1978) have to be
\nanswered by saying that the question of accrual of interest will
\nhave to be determined in accordance with the above decision of
\nthis court. The effect of the decision, we may clarify, is that the
\ninterest cannot be taken to have accrued on the date of the order
\nof the court granting enhanced compensation but has to be taken
\nas having accrued year after year from the date of delivery of
\npossession of the lands till the date of such order.\u201d
\n34.2.1. Obviously, the decision in Rama Bai (supra), does not relate to the
\nquestions at hand as regards completion of transfer so as to result in capital
\ngains. In fact, the principles aforesaid are relevant only to the second part of
\nthe re-assessment order dated 25.01.1988, whereby, as regards interest
\nincome, the AO carried out protective assessment on accrual basis at the
\nrate of 12% per annum for the previous year relevant to the assessment
\nyear in question i.e., for the period 01.04.1970 to 31.03.1971.
\n34.3. Again, the decision of this Court cited by learned counsel for the
\nrevenue in the case of Joginder Singh (supra), which was followed by the
\nKerala High Court in Peter John (supra), relates to the right to receive
\ncompensation and the right to receive interest. In that case, the question
\nwas about the date from which interest had to be granted and arose in the
\ncircumstances that though the High Court enhanced the amount of
\ncompensation for acquisition and awarded 6% per annum as the rate of
\ninterest on the amount of compensation determined by the Land Acquisition
\nOfficer and the District Judge but, restricted such rate of interest on the
\n50
\namount of compensation enhanced by it at 4% per annum from the date of
\npossession and 6% per annum from the date of its judgement. In that
\ncontext, this Court held that the High Court erred in restricting the rate of
\ninterest on the enhanced amount of compensation because owner of the
\nland was entitled to be paid the true value of land on the date of taking over
\nof possession; and merely because the amount was determined later did
\nnot mean that the right to amount came into existence at a later date. This
\nCourt also observed that when the High Court held that the rate of interest
\nat 6% per annum was applicable from the date of possession in relation to
\nthe component of compensation determined by the District Judge, there
\nwas no reason why the same rate should not be applied from the date of
\ntaking over possession in relation to the component of enhancement
\neffected by the High Court. For the reasons already discussed, this
\njudgement also does not directly relate with the question of completion of
\ntransfer for accrual of capital gain.
\n34.4. The case of Bombay Burmah Trading Corpn. Ltd. (supra), is
\nalso inapplicable to the present case because therein, the questions
\nbasically related to the amount of damages received by the assessee due to
\nthe loss suffered during World War II. The observations therein, again, do
\nnot have bearing on the question as to when the transfer of land, in the
\nmatter of compulsory acquisition, be treated as complete so as to result in
\ncapital gains.
\n51
\n35. Therefore, the aforesaid decisions cited by the learned counsel for
\nparties, even if of guidance on the question relating to the right to receive
\ncompensation, do not directly assist us in determination of the core
\nquestion involved in this matter because, income-tax on capital gains is not
\nlevied on the mere right to receive compensation. For chargeability of
\nincome-tax, the income ought to have either arrived or accrued. In the
\nmatter of acquisition of land under the Act of 1894, taking over of
\npossession before arrival of relevant stage for such taking over may give
\nrise to a potential right in the owner of the property to make a claim for
\ncompensation but, looking to the scheme of enactment, it cannot be said
\nthat transfer resulting in capital gains is complete with taking over of
\npossession, even if such taking over had happened earlier than the point of
\ntime of vesting contemplated in the relevant provisions.
\n35.1. The decision of this Court in the case of Avinash Sharma (supra),
\nhowever, supports the view that in the case of urgency acquisition, even if
\npossession of the land under acquisition is taken earlier, it should be
\nrelated to the process contemplated by Section 17 (1) of the Act of 1894,
\nand deemed to be effective from the date on which the period prescribed by
\nSection 17 (1) would expire that is, fifteen days from the publication of the
\nnotice under Section 9(1) of the Act of 1894. In S. Appala Narasamma and
\nPandari Laxmaiah (supra), the Andhra Pradesh High Court applied these
\nprinciples to the cases pertaining to ordinary process of acquisition and
\nheld that if possession had been taken earlier, it would relate to the award;
\n52
\nand the date of award would be the relevant date for vesting of the land in
\nthe Government.
\n35.2. In an overall conspectus of the matter, we are clearly of the view that
\nthe statements of law in the aforesaid decisions of Andhra Pradesh High
\nCourt, based on the enunciations by this Court in the case of Avinash
\nSharma (supra), are rather unquestionable and need to be given imprimatur
\nfor application to the controversy like the present one.
\n36. For what has been discussed hereinabove, in our view, in the
\nmatters relating to compulsory acquisition of land under the Act of 1894,
\ncompletion of transfer with vesting of land in the Government essentially
\ncorrelates with taking over of possession of the land under acquisition by
\nthe Government. However, where possession is taken over before arriving
\nof the relevant stage for such taking over, capital gains shall be deemed to
\nhave accrued upon arrival of the relevant stage and not before. To be more
\nspecific, in such cases, capital gains shall be deemed to have accrued: (a)
\nupon making of the award, in the case of ordinary acquisition referable to
\nSection 16; and (b) after expiration of fifteen days from the publication of the
\nnotice mentioned in Section 9 (1), in the case of urgency acquisition under
\nSection 17.
\n37. As per the facts-sheet noticed hereinbefore, in the present case, the
\nland in question was subjected to acquisition under the Act of 1894 by
\nadopting the ordinary process leading to award under Section 11.
\nTherefore, ordinarily, capital gains would have accrued upon taking over of
\n53
\npossession after making of the award. Consequently, capital gains to the
\nassessee-appellant for the acquisition in question could not have accrued
\nbefore the date of award i.e., 29.09.1970.
\n38. However, on the strength of the submissions that the land in
\nquestion had already been in possession of the beneficiary of acquisition, it
\nhas been suggested on behalf of the assessee-appellant that the land
\nvested in the Government immediately upon issuance of notification under
\nSection 4 of the Act of 1894 i.e., 15.05.1968 and capital gain accrued on
\nthat date. This suggestion and the contentions founded thereupon remain
\ntotally meritless for a variety of factors as indicated infra.
\n38.1. Even if we keep all other aspects aside and assume that the land in
\nquestion was, or came, in possession of the Government before passing of
\nthe award, the position of law stated in point (a) of paragraph 36
\nhereinabove would apply; and capital gains shall be deemed to have
\naccrued upon arrival of the relevant stage of taking possession i.e., making
\nof award and hence, capital gains cannot be taken to have accrued before
\nthe date of award i.e., 29.09.1970.
\n38.2. In order to wriggle out of the above-mentioned plain operation of
\nlaw, it has been desperately suggested on behalf of the appellant that it had
\nbeen a case of urgency acquisition and hence, the process contemplated
\nby Section 17 of the Act of 1894 would apply. This suggestion is also
\nbaseless and suffers from several infirmities.
\n54
\n38.2.1. In the first place, it is evident on the face of the record that it had
\nnot been a matter of urgency acquisition and nowhere it appears that the
\nprocess contemplated by Section 17 of the Act of 1894 was resorted to.
\nEven the contents of the award dated 29.09.1970 make it clear that the
\nlearned Land Acquisition Collector only awarded interest from the date of
\ninitial notification for the reason that the land was in possession of the
\nCollege but, it was nowhere stated that he had received any directions from
\nthe Government to take possession of the land before making of the award
\nwhile acting under Section 17.
\n38.2.2. Secondly, if at all the proceedings were taken under Section 17 of
\nthe Act of 1894, the land could have vested in the Government only after
\nexpiration of fifteen days from the date of publication of notice under
\nSection 9(1); and, in any case, could not have vested in the Government on
\nthe date of publication of initial notification under Section 4 of the Act of
\n1894. Significantly, the assessee-appellant did not divulge the date of
\npublication of notice under Section 9(1) of the Act of 1894 despite the
\nqueries of the Assessing Officer. The suggestion about application of the
\nprocess contemplated by Section 17 of the Act of 1894 remains totally
\nunfounded.
\n39. In view of the above, the only question that remains is as to what is
\nthe effect of possession of College over a part of the subject land at the
\ntime of issuance of initial notification for acquisition.
\n55
\n39.1. Going back to the facts-sheet, it is not in dispute that a large part of
\nthe subject land was given on lease to the College16 and the said lease
\nexpired on 31.08.1967 but, the land continued in possession of the College.
\nThe legal effect of these facts could be gathered from the relevant
\nprovisions of the Transfer of Property Act, 1882 and the enunciations by the
\nCourts.
\n39.2. As noticed, where the time period of any lease of immovable
\nproperty is limited, it determines by efflux of such time, as per Section
\n111(a) of the Act of 1882. Further, in terms of Section 108(q) of the Act of
\n1882, on determination of lease, the lessee is bound to put the lessor into
\npossession of the leased property. In case where lessee does not deliver
\npossession to the lessor after determination of the lease but the lessor
\naccepts rent or otherwise assents to his continuing in possession, in the
\nabsence of an agreement to the contrary, the status of such lessee is that of
\ntenant holding over, in terms of Section 116 of the Act of 1882. But, in the
\nabsence of acceptance of rent or otherwise assent by the lessor, the status
\nof lessee is that of tenant at sufferance.
\n39.3. The aforesaid aspects relating to the status of parties after expiry
\nof the period of lease remain well settled and do not require much
\nelaboration. However, for ready reference, we may point out that in the case
\nof Nand Ram (D) through LRs. and Ors. v. Jagdish Prasad (D) through
\n16 As noticed from the contents of the award, the land comprising Khasra Nos. 361 and 364
\nadmeasuring 5 kanals and 7 marlas was not on lease with the College
\n56
\nLRs.: 2020 (5) SCALE 723, this Court has re-expounded the relevant
\nprinciples in sufficient details, albeit in a different context. The relevant
\nbackground of the said case had been that the land of plaintiff was taken on
\nlease by the defendant where it was agreed that the plaintiff-lessor will not
\nseek ejectment of defendant-lessee except in the case where the rent for
\none year remained in arrears. The entire leased land was acquired under
\nthe Act of 1894. The Land Acquisition Collector determined the amount of
\ncompensation but then, dispute arose with regard to apportionment
\nbetween the plaintiff and the defendant for which, the matter went in
\nreference. The Reference Court held that lessee having not paid rent for
\nmore than twelve months, the lease had come to end and, therefore, he
\nhad no right to claim any share in the compensation. Later on, a part of the
\nland was de-notified from acquisition and that part remained in possession
\nof the defendant-lessee. Thereafter, the plaintiff-lessor took up action
\nclaiming possession of the land by filing a suit against the defendantlessee.
\nThe suit was decreed by the Trial Court and the decree was
\naffirmed by the First Appellate Court. However, the High Court allowed the
\nsecond appeal holding that the finding recorded in the award about the
\nlease coming to an end operated as res judicata and the suit was filed
\nbeyond the period of limitation. In further appeal, this Court did not approve
\nthe decision of High Court and, in the course of allowing the appeal,
\nexposited on the principles relating to the status of parties after expiry of the
\n57
\nlease but retention of possession by the lessee, inter alia, in the following
\npassage:-
\n\u201c29. The Defendant was inducted as a lessee for a period of 20
\nyears. The lease period expired on 23rd September, 1974. Even if
\nthe lessee had not paid rent, the status of the lessee would not
\nchange during the continuation of the period of lease. The lessor
\nhad a right to seek possession in terms of Clause 9 of the lease
\ndeed. The mere fact that the lessor had not chosen to exercise
\nthat right will not foreclose the rights of the lessor as owner of the
\nproperty leased. After the expiry of lease period, and in the
\nabsence of payment of rent by the lessee, the status of the
\nlessee will be that of tenant at sufferance and not a tenant
\nholding over. Section 116 of the TP Act confers the status of a
\ntenant holding over on a yearly or monthly basis keeping in view
\nthe purpose of the lease, only if the lessor accepts the payment of
\nlease money. If the lessor does not accept the lease money, the
\nstatus of the lessee would be that of tenant at sufferance. This
\nCourt in the judgments reported as Bhawanji Lakhamshi and Ors.
\nv. Himatlal Jamnadas Dani and Ors. (1972) 1 SCC 388, Badrilal v.
\nMunicipal Corp. of Indore : (1973) 2 SCC 388 and R.V. Bhupal
\nPrasad v. State of A.P. and Ors.: (1995) 5 SCC 698 and also a
\njudgment in Sevoke Properties Ltd. v. West Bengal State
\nElectricity Distribution Co. Ltd. examined the scope of Section 116
\nof the TP Act and held that the lease would be renewed as a
\ntenant holding over only if the lessor accepts the pay-ment of rent
\nafter the expiry of lease period. This Court in Bhawanji Lakhamshi
\nheld as under:
\n\u201c9. The act of holding over after the expiration of the
\nterm does not create a tenancy of any kind. If a tenant
\nremains in possession after the determination of the
\nlease, the common law rule is that he is a tenant on
\nsufferance. A distinction should be drawn between a
\ntenant continuing in possession after the determination
\nof the term with the consent of the landlord and a tenant
\ndoing so without his consent. The former is a tenant at
\nsufferance in English Law and the latter a tenant
\nholding over or a tenant at will. In view of the concluding
\nwords of Section 116 of the Transfer of Property Act, a
\nlessee holding over is in a better position than a tenant
\nat will. The assent of the landlord to the continuance of
\npossession after the determination of the tenancy will
\ncreate a new tenancy. What the section contemplates is
\nthat on one side there should be an offer of taking a
\nnew lease evidenced by the lessee or sub-lessee
\nremaining in possession of the property after his term
\nwas over and on the other side there must be a definite
\nconsent to the continuance of possession by the
\n58
\nlandlord expressed by acceptance of rent or otherwise.
\n\u2026\u2026\u201d
\n(emphasis in bold supplied)
\n39.3.1. Further, in Nand Ram (supra), this Court also quoted with
\napproval the principles stated by Delhi High Court in the case of MEC India
\nPvt. Ltd. v. Lt. Col. Inder Maira & Ors.: 80 (1999) Delhi Law Times 679. A
\nrelevant part of such quotation from the decision of Delhi High Court may
\nalso be usefully noticed for the present purpose as under:-
\n\u201c43. Thus, a tenant at sufferance is one who wrongfully continues
\nin possession after the extinction of a lawful title and that a
\ntenancy at sufferance is merely a legal fiction or device to avoid
\ncontinuance in possession from operating as a trespass. A tenant
\nremaining in possession of the property after determination of the
\nlease does not become a trespasser, but continues as a tenant at
\nsufferance till possession is restored to the landlord. The
\npossession of an erstwhile tenant is juridical and he is a protected
\nfrom dispossession otherwise than in due course of law. Although,
\nhe is a tenant, but being one at sufferance as aforesaid, no rent
\ncan be paid since, if rent is accepted by the landlord he will be
\ndeemed to have consented and a tenancy from month-to-month
\nwill come into existence. Instead of rent, the tenant at sufferance
\nand by his mere continuance in possession is deemed to
\nacknowledge both the landlord’s title and his (tenant’s) liability to
\npay mesne profits for the use and occupation of the property.\u201d
\n39.4. The said principles, when applied to the present case, leave nothing
\nto doubt that in relation to that part of the land in question which was given
\non lease, possession of the College, after determination of the lease on
\n31.08.1967, was only that of a tenant at sufferance because it has not been
\nshown if the lessor i.e., the appellant accepted rent or otherwise assented to
\nthe continuation of lease. The possession of College over the part of land in
\nquestion being only that of tenant at sufferance, had the corresponding
\nacknowledgment of the title of the appellant and of the liability of the College
\nto pay mesne profits for use and occupation. The same status of the parties
\n59
\nqua the land under lease existed on the date of notification for acquisition
\ni.e., 15.05.1968 and continued even until the date of award i.e., 29.09.1970.
\nIn other words, even until the date of award, the appellant-assessee
\ncontinued to carry its status as owner of the land in question and that status
\nwas not lost only because a part of the land remained in possession of the
\nCollege. In this view of the matter, the suggestion that the land vested in the
\nGovernment on the date of initial notification remains totally baseless and
\ncould only be rejected.
\n39.5. Apart from the above, the significant factor for which the entire
\ncase of the assessee-appellant is knocked to the ground is that neither on
\nthe date of notification i.e., 15.05.1968 nor until the date of award, the
\nGovernment took over possession of the land in question. As noticed, the
\npossession had been of the erstwhile lessee, the College. Even if the said
\nCollege was going to be the ultimate beneficiary of the acquisition, it cannot
\nbe said that immediately upon issuance of notification under Section 4 of the
\nAct of 1894, its possession became the possession of the Government. Its
\npossession, as noticed, remained that of tenant at sufferance and not
\nbeyond.
\n39.6. Viewed from any angle, it is clear that accrual of capital gains in the
\npresent case had not taken place on 15.05.1968. If at all possession of the
\nCollege was to result in vesting of the land in the Government, such vesting
\nhappened only on the date of award i.e., 29.09.1970 and not before. In
\nother words, the transfer of land from the assessee-appellant to the
\n60
\nGovernment reached its completion not before 29.09.1970 and hence, the
\nearliest date for accrual of capital gains because of this acquisition was the
\ndate of award i.e., 29.09.1970. Therefore, the assessment of capital gains
\nas income of the appellant for the previous year relevant to the assessment
\nyear 1971-1972 does not suffer from any infirmity or error.
\n40. An incidental aspect of the submissions on behalf of the appellant
\nthat interest and solatium accrued on 15.05.1968 as per the award and that
\nbeing the income pertaining to the financial year 1968-1969 could not have
\nbeen taxed in the assessment year 1971-1972, also deserves to be
\nrejected for the reasons foregoing and for additionally the reason that in his
\norder dated 25.01.1988, the AO has consciously made protective
\nassessment on accrual basis on the interest component referable to the
\nprevious year 1970-1971, relevant for the assessment year 1971-72.
\n40.1. We may also usefully observe that awarding of interest from
\n15.05.1968 in the award had only been just and equitable application of the
\nprovisions of law, including Section 28 of the Act of 1894 but that did not
\nresult in vesting of the land in Government on that date of notification.
\n41. For what has been discussed hereinabove, the answer to Point No.
\n1 is clearly in the negative i.e., against the assessee-appellant and in favour
\nof the revenue that on the facts and in the circumstances of the present
\ncase, transfer of the capital asset (land in question), for the purposes of
\nSection 45 of the Act of 1961, was complete only on 29.09.1970, the date of
\naward and not on 15.05.1968, the date of notification for acquisition under
\n61
\nSection 4 of the Act of 1894; and hence, capital gains arising out of such
\nacquisition have rightly been charged to tax with reference to the date of
\naward i.e., 29.09.1970.
\nPoint No. 2
\n42. Though we have found that vesting of land in question for the
\npurpose of accrual of capital gains in this case was complete only on the
\ndate of award that falls within the previous year relevant for the assessment
\nyear 1971-72, the question still remains, in view of the submissions made
\non behalf of the appellant, about the effect of the decision of ITAT in relation
\nto the other case of the assessee-appellant for the assessment year 1975-
\n1976 where the issue concerning date of accrual of capital gains was
\ndecided against the revenue with reference to the date of taking
\npossession. Admittedly, the said decision for the assessment year 1975-
\n1976 was not appealed against and had attained finality. Hence, it has been
\nargued on behalf of the appellant that it is not open for the revenue to
\nquestion the similar decision of ITAT in the present case pertaining to the
\nassessment year 1971-1972.
\n43. We may gainfully recapitulate that in the case pertaining to the
\nassessment year 1975-1976, the question of capital gains arose in the
\nbackdrop of the facts that another parcel of land of the appellant was
\nacquired for the purpose of construction of warehouse of Ambala City. The
\n62
\nnotification under Section 4 of the Act of 1894 was issued on 26.06.1971
\nand the award of compensation was made on 27.06.1974 but, possession
\nof the said land was taken by the Government on 04.09.1972 i.e., before
\nmaking of the award. In the given set of facts and circumstances, in ITA
\nNo.635\/Chandi\/84, the ITAT accepted the contention that the case fell
\nunder the urgency provision contained in Section 17 of the Act of 1894
\nwhere the assessee was divested of the title to the property, that vested in
\nthe Government with effect from 04.09.1972, the date of taking over
\npossession. Hence, the ITAT held that the capital gains arising from the
\nsaid acquisition were not assessable for the accounting period relevant for
\nthe assessment year 1975-1976.
\n43.1. Learned counsel for the appellant has strenuously argued that the
\nrevenue is not entitled to take a different stand in the present case
\npertaining to the assessment year 1971\u20131972, after having accepted the
\nsaid decision pertaining to the assessment year 1975\u20131976 where it was
\nheld that capital gains accrued on the date of taking over possession of the
\nland under acquisition by the Government. The learned counsel has relied
\nupon the following observations in Berger Paints India Ltd. (supra):-
\n\u201cIn view of the judgments of this court in Union of India v.
\nKaumudini Narayan Dalal [2001] 249 ITR 219; CIT v. Narendra
\nDoshi [2002] 254 ITR 606 and CIT v. Shivsagar Estate [2002] 257
\nITR 59, the principle established is that if the Revenue has not
\nchallenged the correctness of the law laid down by the High Court
\nand has accepted it in the case of one assessee, then it is not
\nopen to the Revenue to challenge its correctness in the case of
\nother assessees, without just cause.\u201d
\n63
\n44. The question is whether the above-noted observations apply to the
\npresent case? In our view, the answer to this question is clearly in the
\nnegative for more than one reason.
\n44.1. In the first place, it is ex facie evident that the matter involved in the
\nsaid case pertaining to the assessment year 1975-1976 was taken to be an
\nacquisition under the urgency provision contained in Section 17 of the Act
\nof 1894 whereas, the acquisition proceedings in the present case had not
\nbeen of urgency acquisition but had been of ordinary process where
\npossession could have been taken only under Section 16 after making of
\nthe award. As noticed, the very structure of the ordinary process leading to
\npossession under Section 16 of the Act of 1894 has been different than that
\nof the urgency process under Section 17; and the said decision pertaining
\nto the proceedings under Section 17 of the Act of 1894 cannot be directly
\napplied to the present case.
\n44.2. Secondly, the fact that the said case relating to the assessment year
\n1975-1976 was not akin to the present case was indicated by the ITAT
\nitself. As noticed, both the cases, i.e., the present one relating to the
\nassessment year 1971-1972 (in ITA No. 634\/Chandi\/84) and that relating to
\nthe assessment year 1975-1976 (in ITA No. 635\/Chandi\/84) were decided
\nby ITAT on the same date i.e., 19.12.1985. While the answer in relation to
\nthe assessment year 1975-1976 was given by the ITAT in favour of
\nassessee-appellant to the effect that possession having been taken on the
\nspecified date i.e., 04.09.1972, capital gains were not assessable for the
\n64
\nassessment year 1975-1976 but, while deciding the appeal relating to the
\npresent case for the assessment year 1971-1972, the ITAT found that the
\ndate of taking over possession was not available and hence, the matter was
\nrestored to the file of the ITO to find out the actual date of possession.17
\n44.3. Thirdly, even if we assume that the stand of revenue in the present
\ncase is not in conformity with the decision of ITAT in relation to the
\nassessment year 1975-1976, it cannot be said that revenue has no just
\ncause to take such a stand. As noticed, while rendering the decision in
\nrelation to the assessment year 1975-1976, the ITAT did not notice the
\nprinciples available in various decisions including that of this Court in
\nAvinash Sharma (supra) that even in the case of urgency acquisition under
\nSection 17 of the Act of 1894, land was to vest in Government not on the
\ndate of taking over possession but, only on the expiration of fifteen days
\nfrom the publication of the notice mentioned in Section 9(1). Looking to the
\nfacts of the present case and the law applicable, in our view, the revenue
\nhad every reason to question the correctness of the later decision of ITAT
\ndated 29.06.1990 in the second round of proceedings pertaining to the
\nassessment year 1971-1972.
\n44.4. Fourthly, the ITAT itself on being satisfied about the question of law
\ninvolved in this case, made a reference by its order dated 15.07.1991 to the
\nHigh Court. The High Court having dealt with the matter in the reference
\n17 Of course, one observation was made by the ITAT in the order dated 19.12.1985 relating to the
\npresent case that possession of the land in question was taken before making of the award.
\nHowever, this observation turns out to be incorrect on facts as also in law, for the reasons
\nmentioned hereinbefore in Point No. 1.
\n65
\nproceedings and having answered the reference in conformity with the
\napplicable principles, the assessee cannot be heard to question the stand
\nof the revenue with reference to the other order for the assessment year
\n1975-1976. In any case, it cannot be said that the decision in relation to the
\nassessment year 1975-1976 had been of any such nature which would
\npreclude the revenue from raising the issues which are germane to the
\npresent case.
\n45. Hence, the answer to Point No. 2 is also clearly in the negative i.e.,
\nagainst the assessee-appellant and in favour of the revenue that the fact
\nsituation of the present case relating to the assessment year 1971-1972 is
\nnot similar to that of the other case of the appellant relating to the
\nassessment year 1975-1976 and the revenue is not precluded from taking
\nthe stand that the transfer of capital asset in the present case was complete
\nonly on the date of award i.e., on 29.09.1970.
\nConclusion
\n46. For what has been discussed hereinabove, we have not an iota of
\ndoubt that in the second round of proceeding, the AO had rightly assessed
\nthe tax liability of the appellant, on long-term capital gains arising on
\naccount of acquisition, on the basis of the amount of compensation allowed
\nin the award dated 29.09.1970 as also the enhanced amount of
\ncompensation accrued finally to the appellant; and as regards interest
\nincome, had rightly made protective assessment on accrual basis.
\n66
\n47. In the result, this appeal fails and is, therefore, dismissed. No costs.
\n\u2026\u2026\u2026\u2026\u2026\u2026..\u2026\u2026\u2026\u2026.J.
\n(A.M.KHANWILKAR)
\n\u2026\u2026\u2026\u2026\u2026\u2026..\u2026\u2026\u2026\u2026.J.
\n(HEMANT GUPTA)
\n\u2026\u2026..\u2026\u2026\u2026\u2026\u2026\u2026.\u2026\u2026.J.
\n(DINESH MAHESHWARI)
\nNew Delhi,
\nDated: 25th August, 2020.
\n67<\/p>\n","protected":false},"excerpt":{"rendered":"
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.<\/p>\n