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Issues: Whether compensation awarded for injurious affection of the unacquired land under the fourth head of section 23(1) of the Land Acquisition Act, 1894 forms part of the full value of consideration for the acquired land under section 48 of the Income-tax Act, 1961, and whether such amount can be treated as a capital loss in relation to the unacquired land.
Analysis: The compensation under the fourth head of section 23(1) is part of the compensation payable for the land acquired, although it takes into account damage to the remaining property. The statutory scheme of compulsory acquisition treats the various heads under section 23(1) as components of the compensation for the transferred land, not as a separate receipt referable to the unacquired land. The depreciation in value of the remaining land is not a loss arising from a transfer or extinguishment of a capital asset in that remaining land. The analogy of a composite capital asset accepted in the right-shares case was inapplicable because the present case involved only severance of a larger holding and not transfer of an embedded right in the retained property.
Conclusion: The amount awarded for injurious affection is includible in the full value of the consideration for the acquired land and is not deductible as capital loss relating to the unacquired land.
Final Conclusion: The reference was answered against the assessee, and the revenue's position on includibility of the compensation was upheld, with the matter sent back for recomputation of capital gains in accordance with the ruling.
Ratio Decidendi: Compensation assessed under the statutory heads for compulsory acquisition, including damages for injurious affection, remains part of the consideration for the transferred property and cannot be excluded or recharacterised as a capital loss in respect of retained property absent a transfer of that retained asset.
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