Income Tax Act, 1961 – s. 45 – Land Acquisition Act, 1894 – A land was on lease with a college and the lease was to expire on 31.08.1967 – The college moved the State Government for compulsory acquisition of the subject land – While acting on this proposition, a notification u/s. 4 of the 1894 Act was issued by the State on 15.05.1968, seeking to acquire the subject land – This was followed by the declaration u/s. 6 of the 1894 Act – After submission of the claim for compensation, the Land Acquisition Collector proceeded to make the award on 29.09.1970 – Thereafter, a question concerning date of accrual of capital gains arose – Before reaching the High Court in the reference proceedings, the matter had undergone two rounds of proceedings up to the stage of appeal before ITAT – The High Court while answering the reference under the then existing s. 256 of the 1961 Act disapproved the order dated 29.06.1990 passed by the ITAT for the assessment year 1971-1972 and held that the capital gains arising out of land acquisition compensation were chargeable to income-tax u/s. 45 of the 1961 Act for the previous year referable to the date of award of compensation i.e. 29.09.1970 and not the date of notification for acquisition i.e. 15.05.1968 – The High Court also concluded that the land vested in the Government on the date of making of the award – The root question is whether the High Court was right in taking the date of award as the date of accrual of capital gains for the purpose of s. 45 of the 1961 Act – On appeal, held: The decisions cited by the parties are not of direct application to the instant case for, they essentially relate to the right to receive compensation and not about the date of vesting of the land, with which the instant matter is concerned – In the matters of compulsory acquisition, accrual of capital gain depends upon completion of transfer of property from the owner to the Government and not upon accrual of right to receive compensation – Further, the matters relating to compulsory acquisition of land under the 1894 Act, completion of transfer with vesting of land in the Government essentially correlates with taking over of possession of the land under acquisition by the Government – However, where possession is taken over before arriving of the relevant stage for such taking over, capital gains shall be deemed to have accrued upon arrival of the relevant stage and not before – To be more specific, capital gains shall be deemed to have accrued: a) upon making of the award, in the case of ordinary acquisition referable to s.16; and (b) after expiration of fifteen days from the publication of the notice mentioned in s.9(1), in the case of urgency acquisition u/s.17 – In the instant case, the land in question was subjected to acquisition under the 1894 Act by adopting the ordinary process leading to award u/s.11 – Therefore, capital gains would have accrued upon taking over of possession after making of the award – Consequently, capital gains to the assessee-Appellant for the acquisition in question could not have accrued before the date of award i.e. 29.09.1970 – The assessment of capital gains as income of the appellant for the previous year relevant to the assessment year 1971-1972 does not suffer from any infirmity or error – Thus, in facts and the circumstances of the present case, transfer of the capital asset (land in question), for the purposes of s.45 of the Act of 1961, was complete only on 29.09.1970, the date of award and not on 15.05.1968, the date of notification.
Dismissing the appeal, the Court
HELD: 1. The following principal points have arisen for determination: -
(i) As to whether, on the facts and in the circumstances of the present case, transfer of the capital asset (land in question), resulting in capital gains for the purposes of Section 45 of the Act of 1961, was complete on 15.05.1968, the date of notification for acquisition under Section 4 of the Act of 1894; and hence, capital gains arising out of such acquisition and interest accrued could not have been charged to tax with reference to the date of award i.e., 29.09.1970?[Para 23][215-A-B]
(ii) As to whether the fact situation of the present case is similar to that of the other case of the appellant in relation to the assessment year 1975-1976 where the same issue relating to the date of accrual of capital gains was decided by the ITAT in favour of the appellant with reference to the date of taking possession by the Government; and having not challenged the same, it is not open for the revenue to question the similar decision of ITAT in the present case pertaining to the assessment year 1971-1972?[Para 23][215-C]
Point (i)
2.1. The right to receive compensation comes into being the moment Government takes possession of the property acquired; and the right to receive interest also accrues at the point of time when the right to receive compensation accrues and runs day to day, do not correspondingly result in completion of transfer of the property under acquisition and accrual of such a gain that may classify as “capital gain”. As noticed, in the matters of compulsory acquisition, accrual of capital gain depends upon completion of transfer of property from the owner to the Government and not upon accrual of right to receive compensation. [Para 34.1.3][232-C-D]
2.2. The decisions cited by the counsel for parties, even if of guidance on the question relating to the right to receive compensation, do not directly assist this Court in determination of the core question involved in this matter because, income-tax on capital gains is not levied on the mere right to receive compensation. For chargeability of income-tax, the income ought to have either arrived or accrued. In the matter of acquisition of land under the Land Acquisition Act, 1894, taking over of possession before arrival of relevant stage for such taking over may give rise to a potential right in the owner of the property to make a claim for compensation but, looking to the scheme of enactment, it cannot be said that transfer resulting in capital gains is complete with taking over of possession, even if such taking over had happened earlier than the point of time of vesting contemplated in the relevant provisions. [Para 35][234-B-D]
2.3. The decision of this Court in the case of Avinash Sharma, however, supports the view that in the case of urgency acquisition, even if possession of the land under acquisition is taken earlier, it should be related to the process contemplated by Section 17 (1) of the Act of 1894, and deemed to be effective from the date on which the period prescribed by Section 17 (1) would expire that is, fifteen days from the publication of the notice under Section 9(1) of the Act of 1894. In S. Appala Narasamma and Pandari Laxmaiah, the Andhra Pradesh High Court applied these principles to the cases pertaining to ordinary process of acquisition and held that if possession had been taken earlier, it would relate to the award; and the date of award would be the relevant date for vesting of the land in the Government. [Para 35.1][234-E-F]
2.4. In an overall conspectus of the matter, this Court is clearly of the view that the statements of law in the aforesaid decisions of Andhra Pradesh High Court, based on the enunciations by this Court in the case of Avinash Sharma, are rather unquestionable and need to be given imprimatur for application to the controversy like the present one. [Para 35.2][234-G]
2.5. For what has been discussed hereinabove, in view of this Court, in the matters relating to compulsory acquisition of land under the Act of 1894, completion of transfer with vesting of land in the Government essentially correlates with taking over of possession of the land under acquisition by the Government. However, where possession is taken over before arriving of the relevant stage for such taking over, capital gains shall be deemed to have accrued upon arrival of the relevant stage and not before. To be more specific, in such cases, capital gains shall be deemed to have accrued: (a) upon making of the award, in the case of ordinary acquisition referable to Section 16; and (b) after expiration of fifteen days from the publication of the notice mentioned in Section 9 (1), in the case of urgency acquisition under Section 17. [Para 36][234-H; 235-A-B]
2.6. As per the facts-sheet noticed hereinbefore, in the present case, the land in question was subjected to acquisition under the Act of 1894 by adopting the ordinary process leading to award under Section 11. Therefore, ordinarily, capital gains would have accrued upon taking over of possession after making of the award. Consequently, capital gains to the assessee-appellant for the acquisition in question could not have accrued before the date of award i.e., 29.09.1970. [Para 37][235-C]
2.7. However, on the strength of the submissions that the land in question had already been in possession of the beneficiary of acquisition, it has been suggested on behalf of the assesseeappellant that the land vested in the Government immediately upon issuance of notification under Section 4 of the Act of 1894 i.e., 15.05.1968 and capital gain accrued on that date. This suggestion and the contentions founded thereupon remain totally meritless for a variety of factors as indicated infra. [Para 38] [235-D-E]
2.8. Even if all the other aspects are kept aside and it is assumed that the land in question was, or came, in possession of the Government before passing of the award, the position of law stated in point (a) i.e. upon making of the award, in the case of ordinary acquisition referable to Section 16, would apply; and capital gains shall be deemed to have accrued upon arrival of the relevant stage of taking possession i.e., making of award and hence, capital gains cannot be taken to have accrued before the date of award i.e., 29.09.1970. [Para 38.1][235-F]
2.9. In Nand Ram, this Court also quoted with approval the principles stated by Delhi High Court in the case of MEC India Pvt. Ltd. v. Lt. Col. Inder Maira & Ors.: 80 (1999) Delhi Law Times
679. The said principles, when applied to the present case, leave nothing to doubt that in relation to that part of the land in question which was given on lease, possession of the College, after determination of the lease on 31.08.1967, was only that of a tenant at sufferance because it has not been shown if the lessor i.e., the appellant accepted rent or otherwise assented to the continuation of lease. The possession of College over the part of land in question being only that of tenant at sufferance, had the corresponding acknowledgment of the title of the appellant and of the liability of the College to pay mesne profits for use and occupation. The same status of the parties qua the land under lease existed on the date of notification for acquisition i.e., 15.05.1968 and continued even until the date of award i.e., 29.09.1970. In other words, even until the date of award, the appellant-assessee continued to carry its status as owner of the land in question and that status was not lost only because a part of the land remained in possession of the College. In this view of the matter, the suggestion that the land vested in the Government on the date of initial notification remains totally baseless and could only be rejected. [Paras 39.3.1 and 39.4][239-A, E-H; 240-A]
2.10. Apart from the above, the significant factor for which the entire case of the assessee-appellant is knocked to the ground is that neither on the date of notification i.e., 15.05.1968 nor until the date of award, the Government took over possession of the land in question. As noticed, the possession had been of the erstwhile lessee, the College. Even if the said College was going to be the ultimate beneficiary of the acquisition, it cannot be said that immediately upon issuance of notification under Section 4 of the Act of 1894, its possession became the possession of the Government. Its possession, as noticed, remained that of tenant at sufferance and not beyond. [Para 39.5][240-B-C]
2.11. Viewed from any angle, it is clear that accrual of capital gains in the present case had not taken place on 15.05.1968. If at all possession of the College was to result in vesting of the land in the Government, such vesting happened only on the date of award i.e., 29.09.1970 and not before. In other words, the transfer of land from the assessee-appellant to the Government reached its completion not before 29.09.1970 and hence, the earliest date for accrual of capital gains because of this acquisition was the date of award i.e., 29.09.1970. Therefore, the assessment of capital gains as income of the appellant for the previous year relevant to the assessment year 1971-1972 does not suffer from any infirmity or error. [Para 39.6][240-D-E]
2.12. The answer to Point No. 1 is clearly in the negative i.e., against the assessee-appellant and in favour of the revenue that on the facts and in the circumstances of the present case, transfer of the capital asset (land in question), for the purposes of Section 45 of the Act of 1961, was complete only on 29.09.1970, the date of award and not on 15.05.1968, the date of notification for acquisition under Section 4 of the Act of 1894; and hence, capital gains arising out of such acquisition have rightly been charged to tax with reference to the date of award i.e., 29.09.1970. [Para 41][240-H; 241-A]
Point No. (ii)
3. The answer to Point No. 2 is also in the negative i.e., against the assessee-appellant and in favour of the revenue that the fact situation of the present case relating to the assessment year 1971-1972 is not similar to that of the other case of the appellant relating to the assessment year 1975-1976 and the revenue is not precluded from taking the stand that the transfer of capital asset in the present case was complete only on the date of award i.e., on 29.09.1970. [Para 45][243-G; 244-A] Special Land Acquisition Officer, Bombay and Ors. v. Godrej and Boyce (1988) 1 SCC 50 : [1988] 1 SCR 590; Fruit & Vegetable Merchants Union v. Delhi Improvement Trust: AIR 1957 SC 344 : [1957] SCR 1; Lt. Governor of Himachal Pradesh v. Avinash Sharma (1971) 1 SCR 413; Nand Ram (D) through LRs. and Ors. v. Jagdish Prasad (D) through LRs. 2020 (5) SCALE 723 – relied on.
Peter John v. Commissioner of Income-Tax (1986) 157 ITR 711; Bombay Burmah Trading Corporation Ltd. v. Commissioner of Income-Tax (1988) 169 ITR 148; Rama Bai v. Commissioner of Income-Tax, Andhra Pradesh (1990) 181 ITR 400; Joginder Singh and Ors. v. State of Punjab and Anr. AIR 1985 SC 382 : [1985]
1 SCR 682 – inapplicable.
S. Appala Narasamma v. Commissioner of Income-Tax (1987) 168 ITR 17; Commissioner of Income-Tax v. Pandari Laxmaiah (1997) 223 ITR 671 – approved.
Berger Paints India Ltd. v. Commissioner of IncomeTax (2004) 266 ITR 99; Buddaiah v. Commissioner of Income-Tax, Karnataka-2 (1985) 155 ITR 277;
Commissioner of Income-Tax v. Govindrajulu Chetty (T.N.K.) [1987] 165 ITR 231 – referred to.
MEC India Pvt. Ltd. v. Lt. Col. Inder Maira & Ors. 80 (1999) Delhi Law Times 679 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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