Commissioner of Income Tax vs Purshottambhai Maganbhai Hatheesing (HUF)

B.K. Mehta, J.—The assessee is the HUF and their land bearing final plot No. 105 situate within Sojpur in Khanpur area within the municipal limits of the city of Ahmedabad was sought to be acquired for the public purpose of the main office building of the Reserve Bank of India vide order and award of the Special Land Acquisition Officer made on 3-2-1977. Since the long-term capital gain arose out of the compensation received in respect of the acquisition of the assessee''s land, a question arose for the first time in the course of the assessment for the assessment year 1972-73 as to whether it was liable to be brought to tax in the said assessment year. It should be noted that though the possession of the land was taken over on 29-12-1970, it appears to be by private negotiations since it is common ground that the Special Land Acquisition Officer had not acquired the possession in exercise of his urgency power u/s 17 of the Land Acquisition Act, 1894. It is also admitted position that the award was made on 3-2-1971. The previous year corresponding to the assessment year 1971-72 was the calendar year 1970. The ITO brought the capital gains to tax in the course of the said assessment year and determined the capital gains arising from the amount of compensation awarded at Rs. 3,94,450 after deducting the valuation of the land as on 1-1-1954 estimated at Rs. 8 per square yard for the reasons stated in the order. The assessee, being aggrieved by the order of the ITO, carried the matter in appeal before the AAC who held that it was rightly brought to tax in the assessment year 1971-72. He, however, reduced the amount of capital gains by estimating the value of the land as on 1-1-1954 at the rate of Rs. 10 instead of Rs. 8 per square yard. On appeal by the assessee, the Tribunal held that the title to the land would vest in the Government when the possession is taken over by the Collector in accordance with the provisions of the Land Acquisition Act and the Collector could have taken possession only on the award being made fact by the Special Land Acquisition Officer, and it was, therefore, beyond the previous year relatable to the assessment year 1971-72. The Tribunal, therefore, allowed the appeal and held that the charge of the capital gains for the year in question was not justified.

At the instance of the revenue, therefore, the following question has been referred to us in IT Reference No. 210 of 1976:

Whether, on the facts and in the circumstances of the case, the capital gains arising from compulsory acquisition of the land arise in the previous year corresponding to the assessment year 1971-72 and became taxable in that assessment year?

It appears that the ITO concerned has also made a protective assessment by bringing to tax the long-term capital gains arising out of the compensation received for the acquisition of the said land in the assessment year 1972-73. In appeal at the instance of the assessee, the Commissioner (Appeals) had confirmed the protective assessment. The assessee carried the matter in further appeal to the Tribunal. Unfortunately, however, the Tribunal, following the decision of this Court in Addl. Commissioner of Income Tax, Gujarat Vs. New Jehangir Vakil Mills Co. Ltd., deleted the capital gains amount from the assessment year 1972-73. The revenue, therefore, sought the reference which was granted and the following question has been set down for our opinion: Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,89,453 as long-term capital gains is not liable to be assessed in the hands of the assessee-HUF for the assessment year 1972-73 in question?

It is trite position in law that capital gains arising out of the receipt of the compensation for the acquired land can be brought to tax in the year in which the transfer is effected as laid down u/s 45 of the income tax Act, 1961. The transfer is effected when the possession is taken over pursuant to the 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 of all encumbrances - Topandas Kundanmal Vs. Commissioner of Income Tax, Gujarat, , New Jehangir Vakil Mills'' case (supra) and Jethmull Bhojraj Vs. State of Bihar and Others, . In that view of the matter, capital gains could have been brought to tax in the year 1972-73 since the award was made on 3-2-1971 and the possession which was though taken earlier in December 1970 would not vest the title to the property in the Government till the award is made. We may remind ourselves that it was common ground that for taking over the possession of the land, no urgency powers were exercised by the Collector. We have, therefore, to answer the questions in both the references as under: IT Reference no. 210 of 1976: The question is answered in the negative, that is, in favour of the assessee and against the revenue.

IT Reference no. 51 of 1982: The question is answered in favour of the revenue and against the assessee by holding that it is liable to tax in the assessment year 1972-73.

Having regard to the facts of these two cases, there should be no order as to costs in these two references.