COMMISSIONER OF INCOME-TAX VS PANDARI LAXMAIAH, 1998 PTD-ANDHRA-PRADESH-HIGH-COURT-INDIA 3269 (1996)

(a) Income-tax ---

----Capital gains---When accrues---Acquisition of land ---Possession taken by Government even before initiation of acquisition proceedings---Vesting of land in Government takes place on date of award---Not on date of taking possession---Capital gains accrue on date of award---Indian Income Tax Act, 1961, Ss.45 & 47.

(b) Income-tax---

----Reference---Capital gains---Acquisition of land---Whether land is agricultural--- Question of fact---Indian Income Tax Act, 1961, S.256.

Under the Land Acquisition Act, 1894, the land vests in the Government: (I) when possession of the land is taken consequent upon the passing of the award; (2) when possession is taken consequent upon the Erection made under section 17(l) of the Land Acquisition Act; and (3) when possession is taken as contemplated under subsection (2) of section 17 of the Land Acquisition Act.

Where possession was taken either before the initiation of the acquisition proceedings or during the course of acquisition proceedings otherwise than by invoking subsection (1) or subsection (2) of section 17 of the Land Acquisition Act, if the award is passed later on, the vesting of the land takes place on the date of the award. Where possession was taken in the first instance and later the provisions of section 17(1) or 17(2) of the Land Acquisition Act were invoked, vesting would take place after the expiry of the time specified in the appropriate subsection.

The land of the respondent-assessee was acquired under the Land Acquisition Act. The draft notification under section 4(1) of the Land Acquisition Act was issued on September 1, 1977. However, possession of the land was taken on August 3, 1977, even before the draft notification was published in the Gazette. Notice under section 9(1) of the Land Acquisition Act was issued on May 20, 1980, and the award was passed on March 25, 1981. On the question whether the capital gains were taxable in the assessment year 1978-79:

Held accordingly, that though possession of the land was taken by the Government even before the initiation of the acquisition proceedings under the Land Acquisition Act, yet for the purpose of vesting of the land in the Government, the relevant date would be the date when the award was passed, that is, on March 25, 1981; the acquisition of the land and consequent accrual of capital gains would be in the assessment year 1981-82. In the previous year relevant to the Assessment year 1978-79, no capital gain arose as there had been no transfer of land within the meaning of section 2(14) read with sections 45 and 47 of the Income Tax Act, 1961.

Appala Narasamma (S.) v. CIT (1987) 168 ITR 17 (AP) applied.

CIT v. Nawab Mahmood Jung Bahadur (1988) 172 ITR 592 (AP) distinguished.

Held also, that whether the land in question was agricultural land was purely a question of fact.

S.R. Ashok for Appellant.

Y. Ratnakar for Respondent.

JUDGMENT

SYED SHAH MOHAMMED QUADRI, J.---In this application, filed under section 256(2) of the Income Tax Act, 1961, the Commissioner of Income-tax, Guntur, seeks a direction to the Income-tax Appellate Tribunal to state the case and refer the following question of law for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case the Appellate Tribunal was correct in law in holding that the lands in question are agricultural lands and capital gains tax is not attracted?"

It is useful to notice the facts giving rise to the present application. The land of the respondent-assessee was acquired under the Land Acquisition Act (for short, the L.A.Act"). The draft notification under section 4(1) of the Land Acquisition Act was issued on September 1, 1977. However, it appears the possession of the land was taken on August 3, 1977, even before the draft notification was published in the Gazette. Notice under section 9(1) of the Land Acquisition Act was issued on. May 20, 1980, and the award was passed on March 25, 1981. The compensation amount was assessed to tax in the assessment year 1978-79. On appeal the Commissioner of Income-tax found that the lands were not agricultural lands in nature and that they were acquired on August 3, 1977, the date of taking possession. On further appeal by the assessee, the Tribunal held; (a) that the land was an agricultural land; and (b) that the gains from the land did not accrue in the previous year relevant to the assessment year 1978-79. The Commissioner of Income-tax, Guntur had filed the application under section 256(1) of the Income-tax Act, but that application was dismissed. Hence, he filed the present application.

The proposed question is in two parts---the first part is whether the land in question was an agricultural land; this is purely a question of fact the second part of the question is: whether the capital gain on agricultural land is taxable under the Income-tax Act, which obviousily means in the assessment year 1978-79. It is clear that there is a controversy as to when the land would be deemed to have been acquired. As the possession of the land was taken on August 3, 1977. Sri S.R. Ashok, learned counsel appearing for the Department, relying on the judgment of this Court in CIT v. Nawab Mahmood Jung Bahadur (1988) 172 ITR 592, submits that the land was acquired when the possession of the land was taken. In that case the possession of the land was taken on January 12, 1967 by invoking the urgency clause under section 17 of the Land Acquisition Act, as such capital gains had been assessed in the assessment year 1967-68. In our view that judgment has no application to the, facts of the present case inasmuch as in the present case possession was not taken by invoking the urgency clause under section 17 of the Land Acquisition Act. Therefore, the ratio laid down in that case is not helpful to the Revenue.

In S. Appala Narasamma v. CIT (1987) 168 ITR 17 the question before the Division Bench of our High Court was when the liability to pay tax on the capital gain arose in case of acquisition of lands under the Land Acquisition Act. There the possession of the land was delivered voluntarily by the assessee on March 25, 1970 and the award was passed on March 22. 1971. The Division Bench held that under the Land Acquisition Act the leand vests in the Government: (1) when the possession of the land was taken consequent upon the passing of the award; (2) when possession was taken consequent upon the direction made under section 17(1) of the Land Acquisition Act; and (3) when possession was taken as contemplated under subsection (2) of section 17 of the Land Acquisition Act. It was contended that mere taking of possession by itself did not bring about th6 vesting. However, where possession was taken either before the initiation of the acquisition proceedings or during the course of acquisition proceedings otherwise than by invoking subsection (1) or subsection (2) of section 17 of the Land Acquisition Act, if the award is passed later on, the vesting of the land takes place on the date of the award. It was also pointed out that where possession was taken in the first instance and later the provisions of section 17(1) or 17(2) of the Land Acquisition Act were invoked, vesting would take place after the expiry of the time specified in the appropriate subsection. The ratio laid down in that case squarely applies to the facts of the present case. Though possession of the land was taken by the Government even before the initiation of the acquisition proceedings under the Land Acquisition Act, yet for the purpose of vesting of the land in the Government the relevant date would be the date when the award was passed, that is on March 25, 1981; the acquisition of the land and consequent accrual of capital gains would be in the assessment years 1980-81 (1981-82). In this view of the matter, the Tribunal is right in holding that there could be no doubt that in the previous year, relevant to the assessment year 1978-79, on capital gain had arisen as there had been no transfer of land within the meaning of section 2(14) read with sections 45 and 47 of the Income-tax Act. Thus, the Tribunal is right in coming to the conclusion that no referable question of law' arose. We find no illegality in the order of the Tribunal.

The income-tax case is, therefore, dismissed at the stage of admission itself.

M.B.A./1633/FC???????????????????????????????????????????????????????????????????????????????? Petition dismissed.