Compulsory acquisition as transfer for capital gains, with later court-determined compensation taxable in the year of acquisition.

Compulsory acquisition of land was treated as a transfer under section 12B because divestiture by operation of law falls within the statutory meaning, so capital gains tax applied. Compensation later quantified by courts was still assessable in the year of acquisition, because the statute deems gains to arise in the previous year in which the transfer occurred. The Appellate Assistant Commissioner could also set aside the assessment and direct a fresh assessment, as the remand power under section 31(3)(b) operated harmoniously with the limitation exception for reassessment made pursuant to an appellate finding or direction.

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Issues: (i) Whether compulsory acquisition of land constitutes a transfer within section 12B of the Indian Income-tax Act, 1922 so as to attract capital gains tax; (ii) whether compensation awarded by courts after the previous year could be included in computing capital gains for the assessment year 1961-62; (iii) whether the Appellate Assistant Commissioner had power to set aside the assessment and direct a fresh assessment after final determination of compensation.

Issue (i): Whether compulsory acquisition of land constitutes a transfer within section 12B of the Indian Income-tax Act, 1922 so as to attract capital gains tax.

Analysis: The expression "transfer" in section 12B was construed broadly to include not only voluntary transfers but also divestiture by operation of law. Compulsory acquisition results in the owner being divested of title and therefore answers the description of a transfer for capital gains purposes. The statutory history did not compel a narrower view, and the earlier exemption for compulsory acquisition could not control the plain scope of the provision as it stood for the relevant year.

Conclusion: The compulsory acquisition constituted a transfer and capital gains tax was attracted.

Issue (ii): Whether compensation awarded by courts after the previous year could be included in computing capital gains for the assessment year 1961-62.

Analysis: Section 12B created a statutory fiction that profits or gains arising from the transfer are deemed to be income of the previous year in which the transfer took place. The amount later quantified by the courts represented only the ascertainment of the compensation already rooted in the acquisition transaction. Accordingly, the later awards related back to the year of transfer and were assessable in that year, notwithstanding that the quantification occurred later.

Conclusion: The subsequent court-awarded compensation was includible in the capital gains computation for the relevant assessment year.

Issue (iii): Whether the Appellate Assistant Commissioner had power to set aside the assessment and direct a fresh assessment after final determination of compensation.

Analysis: Section 31(3)(b) conferred power to set aside an assessment and direct a fresh assessment after further enquiry. That power had to be read with the second proviso to section 34(3), which excluded the ordinary limitation period where reassessment was made in consequence of a finding or direction under section 31. The provisions were construed harmoniously so that the appellate power of remand was not stultified by the limitation applicable to ordinary reassessment proceedings.

Conclusion: The Appellate Assistant Commissioner validly exercised power to set aside the assessment and direct a fresh assessment.

Final Conclusion: All three referred questions were answered against the assessee, and the capital gains assessment based on compulsory acquisition and later-determined compensation was upheld.

Ratio Decidendi: For capital gains under section 12B, compulsory acquisition is a transfer by operation of law, and compensation later quantified by court award is taxable in the year of acquisition because the statute deems the gain to arise in that year; the appellate power of remand under section 31(3)(b) is not controlled by the ordinary limitation period where the reassessment is made pursuant to the appellate direction.

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