Commissioner of Income Tax vs Kohinoor Flour Mills (P) Ltd.

D.A. Mehta, J.—The Tribunal, Ahmedabad Bench "A", has referred the following question for the opinion of this Court u/s 256(1) of the IT Act, 1961 (the Act), at the instance of the CIT, Baroda :

"(1) Whether the Tribunal is right in law and on facts in deleting the additions made by the ITO in respect of the capital gains arising out of acquisition of land when the physical possession of the "land was given by the Baroda Municipal Corporation on 8th Feb., 1967 ?"

In the light of the fact that the aforesaid question contained typographical error, the question has been reframed as under to bring out the correct controversy :

"(1) Whether the Tribunal is right in law and on facts in deleting addition made by the ITO in respect of capital gains arising out of acquisition of land when physical possession of the land was given to the Baroda Municipal Corporation on 8th Feb., 1967?"

The assessment year is 1967-68 and the relevant accounting period is year ended on 31st March, 1967. It appears that the assessee-company was holding part of land comprised of one Bansidhar Mill''s estate. Out of the said parcel of land, the land bearing survey No. 682 of Baroda Kasba, was acquired by Baroda Municipal Corporation. According to the ITO, the assessee was liable to be taxed on capital gains arising on such acquisition in the assessment year under consideration and accordingly, he made an addition to the tune of Rs. 1,99,000 as capital gains after deducting the cost of land from the compensation received by the assessee.

The assessee carried the. matter in appeal before the CIT(A), who allowed the appeal vide order dt. 24th Dec., 1987. The case of the assessee was that possession was taken over by Baroda Municipal Corporation on 8th Feb., 1967, but notification u/s 4 of the Land Acquisition Act, 1894 was issued on 9th April, 1967 and published in the Government Gazette on 28th April, 1967, and hence, capital gains, if any, would arise only in the subsequent assessment year. The CIT(A) accepted this contention holding that the possession taken over by the Baroda Municipal Corporation of the land on 8th Feb., 1967 as per private negotiation, would not amount to a lawful transfer of land to the Corporation and hence, the compensation could not be brought to tax in the year under consideration. Accordingly, he deleted the addition made by the ITO. The Tribunal confirmed the order of CIT(A) vide its order dt. 1st Aug., 1991 and dismissed the appeal filed by the Revenue.

Mr. B.B. Naik, the learned standing counsel for the applicant-Revenue has been heard. Though served, there is no appearance on behalf of the assessee.

The facts, as found by the Tribunal, are not in dispute. Admittedly, Baroda Municipal Corporation took possession of the land on 8th Feb., 1967 after private negotiation, and before the notification u/s 4 of the Land Acquisition Act was issued on 9th April, 1967. In these circumstances, the question as to when the liability to capital gains tax would arise, is no longer res Integra. This Court in the case of Commissioner of Income Tax, Gujarat-II Vs. Purshottambhai Maganbhai Hatheesing (Huf), , while dealing with almost identical controversy, held that a transfer is effected when possession is taken over pursuant to an award under the provisions of the Land Acquisition Act, since u/s 11 of the Land Acquisition Act, on an award being made, the property vests in the Government, free from all encumbrances. It is equally well settled that a transaction is exigible to capital gains tax only in the year in which an asset is transferred as laid down in Section 45 of the Act.

Therefore, in the present case, the Tribunal and the CIT(A) were justified in holding that there was no effective transfer during the accounting period relevant to the assessment year under consideration and as a consequence, the assessee was not liable to capital gains tax. The question referred for opinion is, therefore, answered in favour of the assessee and against the Revenue.

The reference stands disposed of accordingly. There shall (sic)