TaxTMI 
TaxTMI 
2003 (10) TMI 254
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....ssessing Officer without properly appreciating the facts of the case that additional compensation awarded by City Civil Court, Madras is challenged in further appeal by Government as well as Messrs Bharat Petroleum Corporation Ltd., for whose benefit the property was acquired in its entirety before High Court. 2. The Ld. CIT (Appeal) erred in concluding that 50 per cent of the additional compensation allowed to be withdrawn to the appellant by Hon'ble High Court is without any contingency, as the said amount has been received and enjoyed by the appellant, without properly appreciating the fact that the appellant was allowed to withdraw 50 per cent of the additional compensation on the conditions of restitution. 3. The Ld. CIT (Appeal) erred in upholding that all the case laws cited in the course of the proceedings are not applicable, as those cases are decided prior to introduction of section 45(5) of the Income-tax Act with effect from 1-4-1988 without appreciating the law in its proper perspective. The Ld. CIT (Appeal) should have appreciated that additional compensation allowed to be withdrawn is taxable within the provisions of section 45(1) and only the year of taxation ....
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....rporation (hereinafter referred as BPCL) by filing an appeal before the Hon'ble High Court of Madras. After filing an appeal before the Hon'ble High Court M/s. BPCL has also prayed to stay the operation of the order of City Civil Court, Madras. The Hon'ble High Court passed an interim order for stay of further proceedings but directed M/s. BPCL to deposit 50 per cent of the enhanced compensation within 8 weeks. The appellants/claimants have filed an application before Hon'ble High Court for withdrawal of 50 per cent of the enhanced compensation so deposited. The Hon'ble High Court has passed an order dated 30-1-1995, allowing the appellants to withdraw 50 per cent of the enhanced compensation as deposited by M/s. BPCL, which amounted at Rs. 4,79,92,495. This amount was equally divided among the five claimants. M/s. BPCL has objected the enhancement of compensation and through an affidavit challenged the rate adopted by the lower Court. The Hon'ble Madras High Court permitted the withdrawal of 50 per cent of the compensation as deposited by M/s. BPCL through an order dated 30-1-1995 with the following observations: "I have carefully considered the submission of the learned senior....
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....e taxed till finally resolved. It was expressed that if the enhanced compensation awarded got reduced then the said right would automatically fall substantially. It was urged before Assessing Officer that the disputed enhanced compensation should be taxed in the year in which dispute shall be resolved, thereupon the amount of compensation should be treated as determined finally. The authorized representative of the appellant M/s. Shankerlal Jain & Associates have also drawn attention of the Assessing Officer on the provisions of section 45(5) which was introduced with effect from 1-4-1988 by the Finance Act, 1987. The case laws cited before Assessing Officer were as follows: 1. CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 (SC) 2. Harish Chandra v. CIT [1985] 154 ITR 478 (Delhi) 3. CIT v. Abdul Mannan Shah Mohammed [2001] 248 ITR 614 (Bom.) 4. CIT v. Seksaria Bhiswan Sugar Factory (P.) Ltd. [1992] 195 ITR 778 (Bom.) 5. Topandas Kundanmal v. CIT [1978] 114 ITR 237 (Guj.) 6. CWT v. A.V. Krishnamurthy [2001] 249 ITR 239 (Mad.) However, the Assessing Officer was of the view that the receipt of additional compensation should be taxable in....
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.... was not a notional income but a real income. The next observation was that the appellants were allowed to withdraw 50 per cent of the compensation, therefore, the issue was covered by the provisions of section 45(5)(b). After narrating few more case laws he has dismissed the first appeal. Being aggrieved, now the appellants are further in appeal. 5. From the side of the appellants ld. Senior Counsel Shri Y.P. Trivedi was present, assisted by ld. A.R. Ms. Usha Dalai. In the beginning of his argument ld. counsel has narrated the facts of the case which have already been discussed in the above paras. It was referred by him that the issue was cropped up on account of interim order of Madras High Court according to which 50 per cent of the amount was allowed to be withdrawn. Undisputedly, according to him, it was an interim order and not a final order, therefore, taxing statute do not permit to impose tax at such point of time during the pendency of an issue unless and until it reaches to its finality. The amount was allowed to be withdrawn only after an affidavit was filed giving an undertaking to secure the amount if allowed to be withdrawn. This shows that there was a possibility....
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....ctifications were required at each stage. This time and again rectification has further created confusion. Though sub-section (7A) was later on omitted with effect from 1-4-1992 but one thing is clear that the Legislature always intended to simplify the procedure of taxing the capital gain in case of compulsory acquisition. He has submitted that now this issue has finally been resolved by various courts, therefore, the judicial discipline requires to follow those decisions. He has relied upon all those decisions cited before the lower authorities such as CIT v. Abdul Mannan Shah Mohammed [2001] 248 ITR 614 (Bom.), CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 (SC) and Harish Chandra v. CIT [1985] 154 ITR 478 (Delhi). He has further relied upon certain decisions of the Tribunal and insisted that a consistent view should be adopted, namely Smt. Gulab Sundari Bapna v. Dy. CIT [2001] 79 ITD 455 (Delhi) and Jehangir P. Vazifdar v. ITO [1992] 42 ITD 67 (Bom.). 6. On behalf of the revenue ld. D.R. Shri Sunil Agarwal has also vehemently argued in support of the orders of the authorities below. He has narrated the brief background of the intention of the Legis....
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....A.R. that the introduction of clause (c) in section 45(5) which is effective from assessment year 2003-2004 is an additional mechanism and further strengthen the already existing provisions of section 153(3)(ii). As section 45(5) clearly states to tax the enhanced compensation in the year of receipt, therefore, the same should not be construed that the amount to be taxed when it is ultimately or finally received by the assessee. He has argued that the language of the statute is clear and unambiguous, therefore, two interpretations are not possible. He has also tried to counter the assessees' reliance placed on the judgments of Hindustan Housing Development Trust, as cited by Mr. Trivedi Ld. D.R. has mentioned that since this judgment was delivered in July, 1986 the Parliament lost no time and brought into statute section 45(5)(b). An explanation was also introduced to tax the enhanced compensation with retrospective effect in respect of transfer took place before 1-4-1988 only with the intention to nullify the effect of this decision of Hon'ble Supreme Court. He has further argued that the right of receipt of compensation and enhanced compensation, both are in existence and these r....
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....8. Sub-section (5) of section 45 is a non obstante clause hence effect shall be given to the meaning so ascertained so as to override the provisions of the enactments mentioned in this clause. This clause reads that notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition, and the compensation for such transfer is enhanced or further enhanced by any Court, Tribunal etc. the capital gain shall be dealt with namely, (a) capital gain computed with reference to the compensation awarded in the first instance shall be chargeable as income under the head 'Capital gains' of the previous year in which such compensation or part thereof first received, and, (b) the amount by which the compensation is enhanced or further enhanced by the Court, Tribunal etc., shall be deemed to be income chargeable under the head 'Capital gains' of the previous year in which such amount is received by the assessee. Admittedly in the instant appeals the appellants were permitted to withdraw 50 per cent of the additional compensation by the order of the Hon'ble High Court already reproduced hereinab....
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....d' as against that, worth mentioning, the word used in clause (b) of this sub-section is 'received' alone. There must be a valid reason while enacting the law in the mind of the law makers for the use of two different words at two places for the same section. The Legislature was well aware that as far as the original compensation is concerned the same would certainly be received or become receivable by the affected party whose land was acquired. The compensation awarded by the Land Acquisition Officer can only be challenged by the affected party and there is no provisions of appeal by the State against said award. If the affected party prefers an appeal the amount of compensation can be enhanced, but under no circumstances the compensation once awarded at the first instance can be reduced. On the other hand, the additional compensation, now under adjudication, is awarded through an appeal by the order of a Court on a totally different footing. The reasonability of additional compensation is subject to dispute and both the affected party as well as the Government, in this appeal it is M/s. BPCL, have an equal right to agitate their respective claims. The High Court has absolute powe....
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....ward, if not accepted by the assessee, would not result automatically in liability to pay enhanced compensation. The claim made by the assessee is in respect of an inchoate right, unless the question of payment of enhanced compensation is decided and the amount of enhanced compensation becomes determinable as well as payable, until then the amount cannot be said to arise or accrue. With the filing of an appeal by challenging the enhancement of compensation the amount has become in jeopardy and unsettled. Though the amount was withdrawn in part whether on furnishing of security or without furnishing of security, the withdrawal is contingent in nature inasmuch as it is likely to be defeated in appeal. It is difficult to say that the right to receive has finally accrued at that point of time. At the cost of repetition a bare perusal of section 45(5) along with its clauses (a) and (b), brings to light the key words used in this section 'received'. There can be two situations, first, wherein no appeal is pending against the award of enhanced compensation and second, the enhanced compensation is agitated in appeal. First instance can definitely fall under the category of 'amount received....
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.....50 lakhs. The State Government filed an appeal before the High Court and the amount was deposited in the court. Pending the appeal, the assessee was permitted to withdraw the amount on giving security. The question before the Court were whether the additional compensation which was deposited in the court and permitted to be withdrawn was taxable at that stage and whether the said amount could be taxed when it was specifically deposited by the Government in appeal to the High Court. Held, that the additional compensation which was deposited in the court and permitted to be withdrawn on giving security was not taxable at that stage. No substantial question of law arose. CIT v. Hindustan Housing & Land Development Trust Ltd [1986] 161 ITR 524 (SC) followed." 11. From the side of the revenue a decision of Hon'ble Apex Court in the case of Smt. Rama Bai v. CIT [1990] 181 ITR 400 was strongly relied upon with this argument that if principle amount of enhanced compensation does not accrue in the year of transfer but in the year it reaches finality, then how the interest on enhanced compensation can accrue from the year of transfer of the assets to the year it reaches to finality....
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....Development Trust Ltd.'s case. In this decision it was held as under:- "Held dismissing the application for reference, that the Tribunal was correct in holding that the amounts received by the assessee by way of interest in respect of additional compensation under the Land Acquisition Act, 1894, were not taxable in view of the finding of the Tribunal that the grant of additional compensation and interest thereon had not become final due to appeal preferred by the Government to the High Court. No question of law arose from its order." On careful reading of this order we have also noticed that the Hon'ble Allahabad High Court has mentioned that the controversy in the case of Smt. Rama Bai was different on the ground that the enhanced compensation was finally settled and there was no dispute. Accordingly the quantification of interest on enhanced compensation had also become final and on that basis the Court was in a position to hold that the interest had in fact accrued year after year from the date of delivery of possession of the land till the date of such order. Following the decision of Hindustan Housing & Land Development Trust Ltd.'s case the Allahabad High Court has held....