1997 (12) TMI 146 - AT - Income Tax

Tribunal confirms capital gains assessment for urgent land acquisition. Relief under

The Tribunal upheld the assessment of capital gains for the assessment year 1986-87, confirming the land was acquired under urgency provisions of the Land ... Transfer within the meaning of section 2(47) - vesting under section 17 of the Land Acquisition Act - capital gains assessable in the previous year in which transfer/vesting occurs - effect of supersession of a notification and retrospective operation - preservation of rights under earlier legislation on repeal/supersessionTransfer within the meaning of section 2(47) - vesting under section 17 of the Land Acquisition Act - capital gains assessable in the previous year in which transfer/vesting occurs - Date on which transfer for capital gains purposes occurred and the correct assessment year for taxability of compensation on compulsory acquisition - HELD THAT: - The Tribunal held that the acquisition invoked the urgency provisions of the Land Acquisition Act and that, under section 17, the land vests in Government on the expiration of fifteen days from publication of the declaration/notice. A Government notification sanctioned invocation of urgency and a notice under section 9(1) was published on 1-7-1985; possession could therefore vest after 15 days (by 17-7-1985) and the award note of 31-3-1986 records that the land 'will vest with Government free from all encumbrances.' The payment of a substantial advance to the assessee further indicated vesting and transfer in the previous year ending 31-3-1986. Applying the established principle that capital gains arise in the year when transfer/possession vests under the Land Acquisition Act, the Tribunal concluded that the capital gains were properly brought to tax for the assessment year 1986-87. [Paras 6, 7, 10]Capital gains arose on vesting under section 17 in the previous year ending 31-3-1986 and were correctly assessed in AY 1986-87; the assessee's contention for AY 1987-88 is rejected.Effect of supersession of a notification and retrospective operation - preservation of rights under earlier legislation on repeal/supersession - Whether the Central Government notification of 6-1-1994 (superseding the 6-2-1973 notification) operates retrospectively to invalidate assessment proceedings based on the earlier notification - HELD THAT: - The Tribunal found that at the time of transfer (previous year ending 31-3-1986) the 1973 notification was in force and made the land a capital asset. The 1994 notification was issued 'in supersession' and contained an express provision that it would have effect from the date of its publication in the Official Gazette; there was no indication of retrospective operation. The court distinguished between supersession and repeal and noted that even where repeal occurs, section 6 of the General Clauses Act preserves rights, privileges, obligations or liabilities already acquired under the earlier instrument. Authorities establish that a change in law does not affect pending actions unless a contrary intention is shown. Accordingly, the subsequent notification did not nullify or retrospectively deprive the revenue of the right to assess capital gains arising prior to 6-1-1994 in proceedings still pending. [Paras 13, 14, 15]The 1994 notification does not have retrospective effect to invalidate the assessment based on the 1973 notification; the assessment of capital gains for AY 1986-87 stands.Deduction under section 54F and section 54B - Validity of deductions allowed under section 54F and section 54B and correctness of cost of acquisition date considered - HELD THAT: - The assessee challenged the Assessing Officer's and CIT(A)'s treatment of deductions under section 54F and section 54B and sought fresh fixation of cost of acquisition as on 1-4-1974. No arguments were advanced before the Tribunal in support of these grounds. The record showed that cost as on 1-4-1974 had been considered in the assessment despite a computational misstatement of an earlier date. In the absence of submissions or error shown warranting interference, the Tribunal declined to disturb the appellate authority's findings and treated these grounds as dismissed. [Paras 16]No interference with the reliefs allowed under sections 54F and 54B or with the cost-of-acquisition treatment; these grounds are dismissed.Final Conclusion: The appeal is dismissed: the Tribunal upholds the assessment of capital gains in AY 1986-87 on the basis that vesting under section 17 occurred in the previous year ending 31-3-1986; the subsequent 1994 notification does not operate retrospectively to affect the validity of the assessment based on the 1973 notification; other grounds (54F/54B and cost date) are not pressed and are dismissed. Issues Involved:1. Assessment year for capital gains.2. Applicability of urgency provisions under Section 17 of the Land Acquisition Act.3. Nature of the acquired land as a 'capital asset' under Section 2(14) of the Income-tax Act.4. Validity of the assessment of capital gains in light of a subsequent notification.5. Relief under Sections 54F and 54B of the Income-tax Act.6. Cost of acquisition valuation.Issue-wise Detailed Analysis:1. Assessment Year for Capital Gains:The first ground raised by the assessee was that the CIT (Appeals) erred in holding that the capital gains arising on the acquisition of the property was rightly brought to tax for the assessment year 1986-87. The assessee contended that the transfer of the property within the meaning of section 2(47) of the Income-tax Act had taken place in the year ending 31-3-1987. The Tribunal found that the land vested with the Government on the expiry of 15 days after the issue of the notice under section 9(1) of the Land Acquisition Act, which was issued on 1-7-1985. Consequently, the land vested with the Government on 17-7-1985, making the capital gains assessable for the assessment year 1986-87.2. Applicability of Urgency Provisions under Section 17 of the Land Acquisition Act:The assessee argued that the acquisition was not made under the urgency provisions contained in section 17 of the Land Acquisition Act. However, the Tribunal noted that the Government had passed an order according sanction to invoke urgency provisions under the Land Acquisition Act. The notification under section 4(1) of the L.A. Act was published, and the declaration under section 6 was approved and published. The enquiry under section 9 was conducted, and the Deputy Collector passed an order stating that the land and improvements would vest with the Government free from all encumbrances. Therefore, the acquisition was indeed made under the urgency provisions.3. Nature of the Acquired Land as a 'Capital Asset' under Section 2(14) of the Income-tax Act:The assessee contended that the land was agricultural and thus not liable to capital gains tax. The Tribunal noted that the land was situated in Thrikkakara South Village, which was included in the notification issued by the Central Government on 6th February 1973. This notification classified the land as a 'capital asset' under section 2(14) of the Income-tax Act. Therefore, the capital gains arising on the transfer of the land were assessable to tax.4. Validity of the Assessment of Capital Gains in Light of a Subsequent Notification:The assessee argued that a subsequent notification issued on 6th January 1994 superseded the earlier notification and excluded Thrikkakara from the notified areas, thereby affecting the assessment of capital gains. The Tribunal held that the second notification did not have retrospective effect. It was effective from the date of its publication, and the earlier notification was applicable for the assessment year 1986-87. The Tribunal relied on various judicial decisions to support the view that a change in law does not affect pending proceedings unless an intention to the contrary is clearly shown.5. Relief under Sections 54F and 54B of the Income-tax Act:The assessee disputed the relief allowed under sections 54F and 54B of the Act. The Tribunal noted that the CIT (Appeals) found the deductions allowed by the Assessing Officer to be reasonable. No arguments were raised before the Tribunal in support of these grounds. Therefore, the Tribunal found no reason to interfere with the decision of the CIT (Appeals).6. Cost of Acquisition Valuation:The assessee also raised a ground regarding the value of land as on 1-4-1974 for fixing the cost of acquisition. The Tribunal observed that the cost of acquisition as on 1-4-1974 was considered by the Assessing Officer, even though there was a mistake in the computation showing the date as 1-1-1964. In the absence of any arguments raised by the assessee's counsel, the Tribunal found no reason to interfere with the decision of the CIT (Appeals).Conclusion:In conclusion, the Tribunal upheld the assessment of capital gains for the assessment year 1986-87, confirming that the land was acquired under the urgency provisions of the Land Acquisition Act and was a 'capital asset' under section 2(14) of the Income-tax Act. The subsequent notification issued on 6th January 1994 did not have retrospective effect, and the relief allowed under sections 54F and 54B was found to be reasonable. The appeal by the assessee was dismissed.