TaxTMI 
TaxTMI 
1987 (4) TMI 92
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Compensation @ Rs. 4 Per sq. ft. of the acquired area. (b) Damage on account of severance of the rest of land @ Rs. 4 per sq. ft. as it was claimed by the assessee that after the acquisition of the northern portion there was no approach left for the remaining portion. (c) Interest on the compensation amount. 3. The Special Land Acquisition Officer vide his order dated 8-11-1966 awarded a sum of Rs. 98,408 only @ Re. 1 per sq. ft. of the land acquired. The claim for damage to the remaining portion of the land was rejected. Nothing was said about the claim for interest. 4. The award of the Land Acquisition Officer was not accepted and the assessee and Shri Raja Ram Kumar Bhargava moved an application under section 18 of the Land Acquisition Act before the said officer requesting that the matter may be referred to the Court. The matter was accordingly referred to the Civil Judge, Mohanlalganj at Lucknow. Before the Civil Judge, the claim that the compensation for the acquired land should be awarded @ Rs. 4 per sq. ft. was repeated. It was also claimed that the southern portion of the plot which had not been acquired had been adversely affected by the acquisition of the no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....------- Rs. 49,204 Assessee's share - he being 1/3rd owner of the land Rs. 16,402 Less: Exempt under section 114 of the Income-tax Act Rs. 5,000 ----------- &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s liable to be assessed in the year in which the transfer took place. As the transfer of the land had admittedly taken place in this year the capital gain arising from this transfer was liable to be assessed in this year irrespective of the date of the judgment of the Civil Judge. The claim of the assessee that the amount awarded as damages could not be considered for computing the capital gains arising on this transfer was also rejected holding that these damages were also received as a result of the transfer of the acquired lands in this year and the same were, therefore, covered by the language of section 48 of the Income-tax Act. Regarding the fair market value of the acquired land as on 1-1-1954 the Appellate Assistant Commissioner agreed with the estimate of Re. 1 per sq. ft. made by the Income-tax Officer and the claim of the assessee that this value was much higher was rejected. The contention of the assessee that the Income-tax Officer should not have included the amounts, claim for which was rejected by the Civil Judge and for which the assessee had filed appeal to the High Court, was accepted holding that the mere fact of the assessee's filing an appeal before the High C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red to the decision of the Supreme Court in CIT v. A. Gajapathy Naidu [1964] 53 ITR 114. Shri Relying on the decision of the Allahabad High Court in CIT v. Kalicharan Jagannath [1961] 41 ITR 40, Shanti Bhushan argued that if an amount is to be taxable as income of the relevant previous year the right to receive it must have come into existence in that year. Referring to the observations of the Bombay High Court in CIT v. Associated Commercial Corpn, [1963] 48 ITR 1, on pages 17 to 19 of the report, the learned advocate claimed that the extra amounts of compensation could not be deemed to arise or accrue to the assessee so long as the matter was pending before the appellate authorities. In that case their Lordships observed that until the claim which was set up by the assessee to the profit was adjudicated and determined in his favour, the profit could not be said to have accrued to him. Till then the right of the assessee to the profit was in jeopardy. Relying on this observation the learned advocate of the assessee claimed that the right of the assessee to the extra amounts awarded by the Civil Judge being in jeopardy, these amounts could not be considered for assessment. In suppo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s finally fixed and was assessable in the year in which this happened. The learned advocate also referred to the decision of the Allahabad High Court in CIT v. Mathulal Baldeo Prasad [1961] 42 ITR 517. In that case it was held that an enforceable liability would be deemed to have come into existence only when it was determined and fixed by the arbitrators. 10. On the basis of the above authorities Shri Shanti Bhushan claimed that the enhanced amount of compensation awarded by the Civil Judge could not be considered for determining the capital gains of the assessee taxable in the year under consideration. The judgment of the Civil Judge was delivered much after the close of the accounting year and, therefore, in view of the authorities mentioned above the amount awarded by the Civil Judge could not be deemed to have accrued or arisen to the assessee in this year. Moreover, the State having appealed against the judgment of the Civil Judge and the matter being still pending before the High Court the entire amount allowed by the Civil Judge was in jeopardy and the same could not, therefore, be deemed to have accrued or arisen to the assessee. On behalf of the department, Shri Ajit S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r shall be deemed to be the income of this year for purposes of assessment. This will be so even though the amount of consideration for the transfer (as has happened in the present case) may be determined after the end of the previous year in which the transfer took place. Irrespective of the date when the final amount of consideration is determined, the profit or gains arising as a result of the transfer will have to be related back to the year of transfer and the amount of capital gains will be assessable in that year. The various cases cited by the learned advocate (which have been discussed earlier) to show that income would be assessable in the year in which it really accrued to the assessee and not in any earlier year related to the assessment of business income of the assessee. None of these case related to capital gains. The contention of the learned advocate of the assessee that no income can be taxed unless it has accrued to the assessee cannot be disputed but in the case of the capital gains the entire amount of capital gains arising as a result of the transfer is, by virtue of section 45 of the Act deemed to accrue in the year of the transfer. But if for this deeming pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the unacquired land could not be considered as part of the consideration for computation of the capital gains. This amount was awarded by the Civil Judge for the severance of the status of the unacquired land over and above the compensation for the acquired land and so this amount could not be considered for finding out the profits arising from the transfer of the acquired land. In any case, if this amount was to be included, the fair market value of the unacquired land as on 1-1-1954 in respect of which this amount had been awarded was also liable to be deducted while computing the capital gains. On behalf of the department, Shri Sinha has supported the order of the authorities below by claiming that the entire amount received by the assessee as a result of the transfer was liable to be considered for computing the capital gains. 13. Section 48 of the Income-tax Act which prescribes the mode of computation and deductions for working out capital gains reads as under: "Mode of computation and deduction.--The income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ale and that the firm had fixed an inflated value for the shares as it parted with its managing agency also. The Court held that the consideration received by the firm was a composite consideration for transfer of the shares and the assignment of the managing agency, and only the amount received by the assessee for transfer of the shares could be considered while working out the capital gains on the sale of shares. In New Era Agencies (P.) Ltd. v. CIT [1968] 68 ITR 585, (SC) the assessee who had sold some shares held by it in a company claimed that part of the amount received as sale proceeds of the shares was for procuring the resignation of the directors of that company and the managing agents of the company in favour of the purchaser and the same could not be considered while working out the capital gains on the sale of the shares. The principle on which the claim was made was found acceptable but the claim was rejected as it was held that the assessee neither had controlling power over the company nor was it in a position to procure the resignation of the managing agents and the directors in favour of the purchaser. These authorities show that under the provision of the 1922 Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ving due compensation for the damage done to the unacquired land. To this extent, therefore, the value of the acquired land will have to be enhanced to find out its market value as on 1-1-1954. 15. Now we take up the valuation of the acquired land as on 1-1-1954. The assessee, as has been mentioned earlier, estimated the fair market value of this land on 1-1-1954 @ Rs. 250 per sq. ft. The Income-tax Officer estimated this value @ Re. 1 per sq. ft. The Income-tax Officer rejected the claim of the assessee and valued the land at Re. 1 per sq. ft. on the ground that the land of the assessee was not meant for building purposes in 1954, it was open to the river Gaumati which swallowed it during the rainy season, the High Court had awarded compensation for Dilkhusha Colony land which was acquired in 1947 @-/14/-annas per sq. ft. only, the assessee's land was only 1 1/2 furlonghs away from the cremation ground, and was inferior to the plot of land of Smt. Noor Jehan Begum which was sold in 1958 @ Rs. 2 per sq. ft., the area of the plot the assessee was very big and the same could not, therefore, fetch as much price as the small plots, the demand for land in the area where assessee's la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee's land across the river Gomti had started developing as far back as in 1946-47. Shri Shanti Bhushan, the learned advocate of the assessee, claimed that the authorities below were not justified in rejecting the claim of the assessee that the value of his land on 1-1-1954 was Rs. 2.50 per sq. ft. Besides referring to the affidavits filed before the Appellate Assistant Commissioner and before us he referred to the judgment of the Civil Judge in which the learned Judge had discussed the various facts regarding the value of the assessee's land while determining the compensation payable to him. The land of Smt. Noor Jehan Begum which was sold in 1958 @ Rs. 2 per sq. ft. was inferior to the land of the assessee. There had been no rise in prices of land in the period 1954 to 1958 in the city of Lucknow and, therefore, the fair market value of the assessee's land as on 1-1-1954 should be held to be more than Rs. 2 per sq. ft. at which rate the land of Smt. Noor Jehan Begum was sold in 1958. In support of his contention that the prices of land during 1954 to 1958 remained stationary in the city of Lucknow, the learned advocate referred to two transactions of land in Bhilawan (claimed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y be mentioned, outside the municipal limits of Lucknow whereas the lands under consideration are within the municipal limits and the valuation has to be done in 1954. The estimate of Re. 1 per sq. ft. made by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner, therefore, appears to be low. The contention of the assessee that there was no rise in the prices of land in the city of Lucknow during 1954 to 1958 and therefore, the value of the assessee's land in 1954 should be estimated on the basis of the sale of Smt. Noor Jehan Begum's land in 1958 @ Rs. 2 per sq. ft. also appears to be unacceptable. The claim is sought to the supported on the basis of two small transactions of land in Bhilawan. Apart from the fact that the evidence is very scanty we also find that the lands in those transaction were sold @ Rs. 250 per Biswa and the same could not be held as comparable with the land of the assessee nor could the transactions be indicative of the trend of prices of building plots during this period. On the other hand, the evidence considered by the Civil Judge while giving his award shows that the prices of land had been steadily increasing in Lucknow. Therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Member. I agree with him almost on all points except those dealt in paras 14 to 16 of his order. The facts have been beautifully summarized by him in pares 2 to 8 of the order. For the sake of brevity, I do not propose to repeat them here. The factual position in nutshell is that the assessee owned a big plot of open land in the city of Lucknow, a portion of which measuring 98,408 sq. ft. was acquired by the Project Construction Division of P. W. D., Lucknow, and the remains portion measuring 1,25,015 sq. ft. was badly damaged in the sense that it became inaccessible on account of the acquisition of the aforesaid land. In is common ground that in terms of the Hon'ble High Court's decision, the assessee received Rs. 2,95,224 as compensation for the acquired land measuring 98,408 sq. ft. at the rate of Rs. 3 per sq. ft. and Rs. 3,75,045 as damages for severance on unacquired land measuring Rs. 1,25,025 sq. ft. also at the rate of Rs. 3 per sq. ft. There being no dispute that the capital gains have to be computed in this case under section 48 of the Income-tax Act, the short question that arose for consideration and which has been dealt with by my learned brother in paras 14 to 16 of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation from the provisions of the old Act, which indicated the reasons and the effect of deviation. This is what "Notes on clauses" have to say with regards to clauses 45 to 55 of the Bill now embodied in section 45 to 55 of the Income-tax Act, 1961. "Clauses 45 to 55.--These embody the provisions of existing section 12B. The provisions have been spilt up, simplified and logically re-arranged. The following changes have been made:-- (1) any transfer by way of distribution of the capital assets by a company in liquidation is not regarded as a transfer for the purpose of changing capital gains in the case of the company but the shareholder receiving the capital assets from the company is chargeable on the difference between the market value of the asset on the date of distribution and the cost of acquisition of the share by him, subject to appropriate adjustment, if any, on the portion of the value of the capital asset which has been assessed as dividend under section 2(6A)(c) of the existing Act; (2) any distribution of capital on the dissolution of a firm and any transfer of a capital asset under an irrevocable trust, is not regarded as a transfer for the purpose of capital....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pital gains. It may be that unlike section 12B(2) of the old Act, where section 12B(1) made capital gains chargeable to tax and section 12B(2) provided the manner in which such capital gains were to be computed, the present scheme of the Act is that separate sections have been enacted for different purposes. It is, however, difficult to hold that the section providing the mode of computation and deductions will even enlarge the scope of capital gains. From this point of view also I hold that the full vale of consideration refers to the consideration for which the capital asset has been transferred. 4. Even the plain language of section 48, as I understand, does not justify the conclusion that every receipt occasioned on account of transfer of the capital asset, whether directly connected with it or not should be taken into account for the purposes of computing the capital gains under section 48. For this purpose, it is desirable to refer to the provisions of section 12B (2) of the old Act and section 48 of the new Act: "Section 12B (2) of the IT Act, 1922:-- The amount of a capital gain shall be computed after making the following deductions from the full value of the cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sideration of the capital asset transferred only. I have no difficulty in holding that it is at least not free from doubt that the interpretation placed on the phrase is not justified. In this connection, I may usefully refer to the Supreme Court's decision in the case of Kesholal Lallubhai Patel 55 ITR 637. The point in that case was very much different. I am only referring to the manner in which certain words occurring after certain other words were interpreted by their Lordships in that decision. It was a case where their Lordships were required to interpret the provisions of section 16(3)(iii) and (iv) of the Indian Income-tax Act, 1922. The word "transfer" in those clauses was followed by the words "directly or indirectly". The question arose what is the scope of the word "indirectly". It was held that the word "indirectly" did not destroy the significance of the word "transfer". According to me here also, the phrase "occurring as a result of the transfer of the capital asset" following the phrase "the full value of the consideration" does not destroy the significance of the phrase "the full value of the consideration". In any event, I consider that the damages award herein ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Third Member and by reason of succession in office, I came to be the Third Member to hear this matter. The point is : "Whether, on the facts and in the circumstances of the case, the assessee's income liable to tax under the head 'Capital gains' is Rs. 3,35,135 as per the Accountant Member or it is Rs. 1,47,612 as per the Judicial Member ?" 2. Now I shall briefly refer to the relevant facts that gave rise to the difference of opinion : The assessee along with two others owned lands bearing Municipal layout Nos. 61 and 62 within the Municipal limits of Lucknow. The total area of this plot laws 2,23,423 sq. ft. The northern portion of this land measuring 98,408 sq. ft. was acquired by the bridge Construction Division of PWD, Lucknow for planned development of the town of Lucknow and for the construction of a bund for protection from floods. On objections filed by the assessee along with the co-owners of this land, the Special Land Acquisition Officer vide his order dated 8-9-1966 awarded a sum of Rs. 98,408 as compensation, that is at the rate of Re. 1 per sq. ft. of the land acquired. It my be stated here that the claim made by the assessee and the co-w owners of this l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....made by the assessee were only claims and should not have been included but confirmed the inclusion of the damages. In his view the amount received by way of damages formed part of the full value of consideration received for the transfer of the land. 5. Against the order of the Appellate Assistant Commoner appeals were filed before the Tribunal both by the assessee and the department. In this Third Member reference I am only concerned with the assessee's appeal. In the assessee's appeal, the only point that was in dispute was whether the damages of Rs. 3,75,045 should or should not be included as forming part of the full value of the consideration. The learned Accountant Member held that the amount of damages could be included in computing the capital gains. He came to this conclusion on the basis of the difference in the language used in section 12B of the Indian Income-tax Act 1922 and the language used insurrection 48 of the Income-tax Act, 1961. In section 12B of the Indian Income-tax Act, 1922 the expression used was "that the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made" while the language used in se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....conveying the same idea in perhaps a little more altered language. Secondly, he was also of the opinion that section 45 of the Income-tax Act, 1961. was the charging section and it had a limited application in the sense of arriving at the full value of consideration and what was not specifically provided for in the charging section 45 could not be said to have been enlarged by section 48, which only provided the mode of computation of capital gains. From this his inference was that only the consideration relating to the transfer of capital asset should be included and not the damages warded for severance of the land relating to the unacquired portion. He was further of the opinion that since in a case where the unacquired land if belonged to a third party, the damages awarded by the Land Acquisition Officer would accrue to the third party and not to the assessee, on the same analogy the damages awarded for the unacquired land even if the land belonged to the assessee could not be included as consideration for the transfer of the land for the purpose of computing capital gains. His main emphasis was thus on the point that any amount received and having a relation to the transfer of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....language used in section 23 of the Land Acquisition Act that only certain amounts attributable to certain elements alone is compensation and not the amounts attributable to the other components, i.e., seggergation in the manner suggested is not permissible. Section 23 of the Land Acquisition Act provided : "First, the market value of the land at the date of the publication of the notification under section 4, sub-section (1); secondly, the damage sustained by the person interested, by reason of he taking of any standing crops of trees which may be on the land at the time of the Collector's taking possession thereof; thirdly, the damage (if any) sustained by the person interested, at the time of the Deputy Commissioner's taking possession of the land by reason of severing such land from his other land; fourthly, the damage (if any) sustained by the person interested, at the time of the Deputy Commissioner's taking possession of the land, by reason of the acquisition injuriously affecting his other property, movable or immovable, in any other manner, or his earnings; fifthly, if in consequence of the acquisition of the land by the Collector, the person interested is compe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning portion denuded of those advantages and amenities or imposing disadvantages in the enjoyment thereof, the fixation of the sale price, in the usual run of business and practical consideration is necessarily informed not only by the market value of the portion sold, but also by the consequent diminution of the value of, or loss of advantages and amenities respecting the remaining portions. The price stipulated in such a case would still be a price for the portion sold, though it takes into account loss of advantages, imposed as a result of the severance, on the remaining portion." He also relied upon the decision of the Supreme Court in the case of CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622. In this case the expression" full value of the consideration for which the sale, exchange or transfer of the capital asset is made" occurring in section 12B (2) of the Income-tax Act, 1922 came up for interpretation. The Supreme Court held that the consideration for the transfer of a capital asset is what the transferor receives in lieu of the assets he had parted with, i.e., money or moneys worth. Therefore, the full value of the thing received by the transferor in exchange ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Karnataka High Court after referring to section 23 of the Land Acquisition Act and the definition of the words "capital asset" used in section 2(14) and the definition of the term "transfer" as given in section 2(47) of the Income-tax Act and to section 48 of the Income-tax Act, came to the conclusion that the damages awarded form part of the full value of the consideration because section 23(1) of the Land Acquisition Act stipulated several criteria under the heads first to sixth for quantifying computation though however the exercise is one for determination of the compensation to be awarded for the land acquired. Almost an identical question was also referred to the Kerala High Court again at the instance of the Commissioner of Income-tax and in the case in Smt. M. Subaida Beevi the Kerala High Court pointed out at page 563 as under : "The compensation for severance for the reason that the acquisition has injuriously affected the property other than the property acquired cannot be treated as part of the consideration received or accrued as a result of the transfer of the capital asset. The compensation for severance is by way of damages for injurious effect of other land b....