Income-tax---

---Capital gains--Compulsory acquisition of land--Additional compensation awarded subsequently--Assessable in year of transfer.

Where land is acquired compulsorily and compensation is given and additional compensation is awarded subsequently, the additional compensation awarded by the Court must relate to the transaction of acquisition. It does not independently accrue or arise. The circumstance that the higher amounts came to be awarded only subsequently would not affect the assess ability of the amount in the year in which it was liable to be assessed. Under section 45 of the Indian Income Tax Act, 1961, profits and gains arising from the transfer of a capital asset should be deemed to be the income of the previous year in which the transfer took place. Thus, a statutory fiction has been introduced. The profits and gains arising out of such transfer for the purpose of assessment must be considered in the year in which the transfer took place. The totality of the receipt of one ort more years has to be taken into account after allowing permissible deductions. The circumstance that the subsequent amounts were awarded only in later years does not, in any way, affect the assessment of the amount in the year of transfer The Indian Finance Act, 1978, has inserted a new subsection (7-A) in section 155 of the Act with retrospective effect from April 1, 1974, to enable re-computation of capital gains in cases where transfer of capital asset is by way of compulsory acquisition and the compensation for such transfer is enhanced or further enhanced by Court, Tribunal or other Authority. This confirms the intention of Parliament that it is immaterial when the additional compensation is awarded. Whenever it is awarded, it will relate back to the year of transfer. Even if the right to receive additional compensation does not accrue or arise until judicially determined, as soon as such determination is made, assessment has to be made of such additional compensation not in the year of such determination but in the year of transfer in view of the statutory fiction of section 45.

JUDGMENT

AJIT K. SENGUPTA, J----In this reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1971-72, the following question of law has been referred to the Court:

"Whether, on the facts and in the circumstances of the case, the full amount of the compensation of Rs.9,60,250 as determined by the Land Acquisition Act, 1894, should be taken into account in computing the capital gains resulting from the transfer of the immovable property at 13, Kapalitola Lane, in determining total income for the accounting period relevant to the assessment year 1971-72?"

The facts shortly stated are that, according to the Income-tax Officer, the assessee-firm was, at one time, the owner of the building at premises No.13, Kapalitola Lane, Calcutta, together with land admeasuring 15 Cottahs and 12 Chittaks. The said property was acquired by the Government of West Bengal for the accommodation of the Calcutta Police, vide notification under section 4 of the Land Acquisition Act of 1894 and notification under section 6 of the said Act dated June 6, 1970. The second Land Acquisition Collector, Calcutta, vide award, dated February 4, 1971, determined the compensation payable to the assessee at Rs.7,69,887.06.

Admittedly, the compensation awarded was not acceptable and, according to the Income-tax Officer, the assesses took the matter in appeal under section 18 of the aforesaid 1894 Act to the Special Land Acquisition Judge, First Court, Alipore. 24-Parganas, who, vide his judgment and decree, dated May 15, 1973, determined the compensation payable to the assessee at Rs.9,60,250 with interest at the rate of 6% per annum from the date of taking possession of the property in question up to the date of payment of the additional compensation of Rs.1,90,362 which consisted of the enhanced value of the land and the solatium payable on account of the enhancement of the. compensation. According to the Income-tax Officer, "though the assessee initially objected to the charging of capital gains tax, it later on admitted that the provisions of section 45 do apply and opted for the valuation as on January 1, 1954. The assessee failed to lead evidence as to the value of the said property as on January 1, 1954. The Income-tax Officer proceeded to estimate the same on the basis of the municipal valuation prevailing in the financial year 1950-51 at Rs.46,960. He then went on to compute the capital gains at Rs.4,99,560 in the following manner:

"The fair market value is taken at 16 times of the above maintainable rent of Rs.2,935, i.e. Rs.46,960. Therefore, capital gains work out at Rs.9,13,290 (Rs.9,60,250 less Rs.46,960).

Aggrieved by the said order of the Income-tax Officer, the assessee brought the matter by way of appeal before the Appellate Assistant Commissioner. As on the date fixed for hearing of the appeal none appeared for the assessee, the Appellate Assistant Commissioner upheld the order of the Income-tax Officer determining the taxable capital gain at Rs. 4,99,560 by observing as under:

"In the grounds of appeal, the appellant has challenged the very basis of assessment by stating that no compensation was paid to the appellant firm, no proceeding for acquisition of the said properties was conducted against the appellant-firm, no property belonged to the appellant. It is further stated that the compensation was received by the individual owners of the property. None of these contentions has been proved before me with reference to any relevant evidence. It would appear that the Income-tax Officer has computed the capital gains on a fair basis by adopting the municipal valuation of the relevant period as the basis."

One of the contentions raised before the Tribunal by the assessee is that the assessee could at best be taxed in the year under consideration by taking the consideration for the transfer at Rs. 7,69,888, as was declared by the Land Acquisition Collector on February 4, 1971 which fell in the year under consideration. The higher compensation, which was fixed at Rs. 9,60,250, did not accrue to the asses see in the year under consideration, because the judgment and the decree of the Land Acquisition Judge, first Court, Alipore, 24-Parganas, was not declared and made in the year under consideration, but in a subsequent year as the decree is dated May 15, 1973. Though the Revenue controverted this stand of the assessee, the Tribunal found sufficient force in the stand of the assessee. According to the Tribunal, what had accrued to the 'assessee in the year under consideration was the compensation awarded by the Land Acquisition Collector at Rs. 7,69,883 by virtue of his award dated February 4, 1971. Since the decision and the decree by the Land Acquisition Judge, First Court, Alipore, 24-Parganas, was not declared and made in the year under consideration, the higher compensation of Rs. 9,60,950 never accrued to the assessee in the year under consideration.

Under section 45, the capital gains arising from the transfer of a capital asset is charged to tax in the previous year in which the asset is transferred. In the case of compulsory acquisition, the crucial date for the purpose of ascertaining the year of chargeability is the date on which the relevant notification of acquisition is published. Where the transfer of a capital asset is by way of compulsory acquisition under any law, the capital gains have to be computed by taking the compensation awarded by the Government as the full value of consideration, even though the adequacy of the computation may be questioned by the assessee. The question is whether the additional compensation awarded by the appellate authority should be included in the assessment of the year of actual receipt or of the year in which the transaction took place. The additional compensation awarded by the Court must relate to the transaction of acquisition. It does not independently accrue or arise. The circumstance that the higher amounts came to be awarded only subsequently did not affect the assess ability of the amount in the year in which it was liable I to be assessed. Under section 45, profits and gains arising from the transfer of a capital asset should be deemed to be the income of the previous year in which the transfer took place. Thus, a statutory fiction has been introduced. The profits and gains arising out of such transfer for the purpose of assessment must be considered in the year in which the transfer took place. The totality of the receipt of one or more years has to be taken into account after allowing permissible deductions. The circumstance that the subsequent amounts were awarded only in later years does not in any way affect the assessment of the amount in the year of transfer. If the assessment for the year of transfer has already been made, the Assessing Officer has to reopen such assessment under section 147 within the time prescribed. This might not be feasible in most cases because the claim for additional compensation usually gets settled after many years when the statutory period of limitation for reopening the earlier computation of capital gains would have expired. With a view to removing this difficulty, the Finance Act, 1978, has inserted a new subsection (7-A) in section 155 of the Act with retrospective effect from April 1, 1974, to enable re-computation of capital gains in cases where transfer of the capital asset is by way of compulsory acquisition and the compensation for such transfer is enhanced or further enhanced by a Court, Tribunal or other authority. This confirms the intention of Parliament that it is immaterial when the additional compensation is awarded. Whenever it is awarded, it will relate back to the? year of transfer. Even if the right to receive additional compensation does not accrue or arise until judicially determined, as soon as such determination is made, assessment has to be made of such additional compensation not in the year of such determination but in the year of transfer in view of the statutory fiction in section 45.

In our view, the Tribunal was not right in holding that the enhanced compensation never accrued to the assessee in the year under consideration.

For the reasons aforesaid, we answer this question in the affirmative and in favour of the Revenue and against the assessee.

There will no order as to costs.

BHAGABATI PROSAD BANERJEE, J.--- I agree

M.BA./1578/T???????????????????????????????????????????????????????????????????????? ??????????? Reference answered