Calculation of Investment Period in Compulsory Acquisition Cases

The court held that in cases of compulsory acquisition, the six-month investment period under section 54E should be calculated from the date of receipt of compensation. Consequently, the assessee was deemed entitled to relief under section 54E of the Income-tax Act, 1961. The court ruled in favor of the assessee, rejecting the Revenue's arguments. No costs were awarded in this matter.

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Issues Involved:
1. Entitlement to relief u/s 54E of the Income-tax Act, 1961.
2. Interpretation of the period for investment under section 54E(1).
3. Applicability of the second proviso to section 54E(1).

Summary:

1. Entitlement to relief u/s 54E of the Income-tax Act, 1961:
The primary issue was whether the assessee was entitled to relief u/s 54E for a sum of Rs. 50,000 placed in a fixed deposit on February 7, 1981. The land owned by the assessee was acquired by the State of Andhra Pradesh, with possession taken on January 10, 1978, and compensation received on August 19, 1980. The assessee claimed that the deposit was within six months of receiving the compensation, thus qualifying for relief u/s 54E(1). However, the Income-tax Officer and appellate authorities rejected the claim, stating the deposit was not made within six months from the date of transfer (January 10, 1978).

2. Interpretation of the period for investment under section 54E(1):
Section 54E(1) stipulates that the capital gain from the transfer of a capital asset is not charged if the consideration is invested within six months of the transfer. The court noted that the law should be construed reasonably, avoiding absurdity. In this case, the assessee could not have deposited the consideration within six months of January 10, 1978, as the compensation was received much later, on August 19, 1980. The court emphasized that the intention of Parliament was to allow the investment of the consideration received, not any other amount.

3. Applicability of the second proviso to section 54E(1):
The second proviso to section 54E(1), inserted by the Taxation Laws (Amendment) Act, 1984, states that in cases of compulsory acquisition, if the full compensation is not received on the date of transfer, the six-month period should be reckoned from the date of receipt of compensation. The court held that this proviso is clarificatory and should be deemed to have been in effect even prior to April 1, 1984. The court rejected the Revenue's argument that the proviso applies only to enhanced compensation, stating it applies to original compensation as well if received on a different subsequent date.

Conclusion:
The court concluded that in cases of compulsory acquisition, the period of six months for investment should be reckoned from the date of receipt of compensation. Thus, the assessee was entitled to the relief u/s 54E. The question referred was answered in the affirmative, in favor of the assessee and against the Revenue. No costs were awarded.

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