Capital gains on prior transfer accrue when rights vest, not when compensation is later quantified or received.

Capital gains on transfer of an undertaking do not arise in the later year merely because compensation is quantified or received then, where the Government had already exercised its option, taken over possession, and extinguished the assessee's rights earlier. The Delhi HC applied the settled distinction between a disputed right to receive income and a case where only valuation remains, holding that income accrues when the right to receive becomes vested and enforceable. As the transfer had occurred before the assessment year in question and only the compensation amount remained to be determined, the later receipt did not create a fresh taxable transfer in that year.

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Issues: Whether capital gains arising from the transfer of the assessee's undertaking were taxable in the assessment year in question, or whether the transfer had taken place earlier when the undertaking vested in the Government and only the compensation amount remained to be quantified.

Analysis: The transfer of the undertaking had occurred when the Government exercised its option under the licence and took over possession. The dispute thereafter was not about the existence of the right to receive compensation, but only about the valuation of the undertaking. Applying the settled distinction between a disputed right to receive income and a case where only quantification remains, the Court held that income accrues when the right to receive becomes vested and enforceable. Since the assessee's rights in the capital asset had already been extinguished earlier and the later proceedings merely determined the amount payable, the receipt in the assessment year did not create a fresh transfer attracting capital gains in that year.

Conclusion: The question was answered in the affirmative, in favour of the assessee and against the Revenue; the capital gains were not taxable in the assessment year under reference.

Ratio Decidendi: Where the transfer of a capital asset has already taken place and only the amount of compensation remains to be quantified, capital gains do not arise in the year when the compensation is subsequently determined or received.

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