Commissioner of Income Tax, Gujarat-II vs Purshottambhai Maganbhai Hatheesing (Huf)

Mehta, J.—The assessee is a HUF and their land bearing final Plot No. 105 situate within Sajpur in Khanpur area within the municipal limits

of the City of Ahmedabad was sought to be acquired for the public purpose of main office building of the Reserve Bank of India, vide order and

award of the Special Land Acquisition Officer made on February 3, 1971. Since long-term capital gains arose out of the compensation received in

respect of the acquisition of 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 December 29, 1970, it a 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 powers under s. 17 of the Land Acquisition Act. It is also an admitted position that the award

was made on February 3, 1971. The previous year corresponding the assessment year 1971-72 was calendar year 1970. The ITO brought the

capital gains tax in the course of 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 January 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 January 1, 1954, at the

rate of Rs. 10 instead of Rs. 8 per sq. yard.

On appeal by the assessee, the Tribunal held that as 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 under s. 11, the title would be complete only on February 3, 1971, when the award was made, in 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 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 Income Tax Reference No. 210 of 1976.

Whether, on facts and in the circumstances of the case, the capital gains arising from compulsory acquisition of the land arose 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 of Income Tax (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 out 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 total in the year in

which the transfer is effected as laid down under s. 45 of the I.T. 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 under s. 11, on an award being made, the property vests in the Government free

from all encumbrances (See Topandas Kundanmal Vs. Commissioner of Income Tax, Gujarat, Addl. Commissioner of Income Tax, Gujarat Vs.

New Jehangir Vakil Mills Co. Ltd., 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 February 3, 1971, and the possession, which though taken 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 reference as under :

ITR No. 210 of 1976 :

The question is answered in the negative, that is, in favour of the assessee and against the Revenue.

ITR 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.