1987 (8) TMI 149 - AT - Income Tax

Invalid Reopening of Assessment for Land Acquisition Compensation: Tribunal Analysis

The Tribunal held that the reopening of assessment under section 147 for the assessment year 1966-67 to tax compensation received for land acquisition was ... Reassessment, Accrual Of, Capital Gains Issues:1. Validity of reopening assessment under section 147.2. Taxability of enhanced compensation and severance compensation.3. Treatment of interest on enhanced compensation and additional compensation.Analysis:Issue 1: Validity of reopening assessment under section 147:The case involved the reopening of assessment under section 147 for the assessment year 1966-67 to tax the compensation received by co-owners for land acquisition. The assessee contended that the reopening was invalid as the escaped income was below Rs. 50,000, and the Board had no power to sanction beyond 8 years. The Tribunal held that after allowing the deduction under section 80T, the capital gain was below Rs. 50,000, making the reopening invalid. The reassessment order dated 24-12-1983 was deemed invalid.Issue 2: Taxability of enhanced compensation and severance compensation:The Tribunal analyzed the taxability of enhanced compensation and severance compensation. It was noted that the enhanced compensation awarded in 1972 was assessable in the assessment year 1973-74, not in 1966-67. Citing legal precedents, the Tribunal held that the compensation accrued when accepted by the court, not when the land was acquired. The severance compensation was also deemed not assessable as capital gain but as damages for the injurious effect on the remaining land. The Tribunal relied on relevant case law to support its decision.Issue 3: Treatment of interest on enhanced compensation and additional compensation:Regarding the interest on enhanced compensation and additional compensation, the Tribunal referred to a High Court decision stating that the right to receive interest accrues when determined by designated authorities. The interest awarded by the District Judge in 1972 was held assessable in the assessment year 1973-74. Consequently, the interest for the period 3-9-1965 to 31-3-1966 was not taxable in the assessment year 1966-67. The assessee's appeal was allowed, and the departmental appeal was dismissed based on the above analysis.Overall, the Tribunal's decision clarified the tax treatment of various components related to land acquisition compensation, emphasizing the timing of accrual and taxability based on legal principles and precedents.