Krishna Prasad Bagaria vs Commissioner of Income Tax - XIX

Pinaki Chandra Ghose, J.—This appeal u/s 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") is directed against an order dated November, 18, 2003 passed by the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") for the Assessment Year 1996-97, the relevant previous year being the financial year 1995-96.

The substantial questions of law on which the appeal has been admitted are:

(a) Whether the Tribunal was justified in law in holding that the sum of Rs. 1 Crore withdrawn by the Appellant out of the deposit made by the Delhi Administration pursuant to the interim order of the Court as a condition for grant of stay during the pendency of the appeal of the Delhi Administration for upholding the acquisition of the Appellant''s property was eligible to tax and its purported findings in that behalf are arbitrary, unreasonable and perverse?

(b) Whether the purported findings of the Tribunal that:

(i) the said amount was quantified and offered by the Delhi Administration as compensation for use of the Appellant''s property and there was no appeal against the same;

(ii) the Appellant had the absolute right to receive amount and the same accrued as income;

(iii) there was no chance of the property being acquired by the Delhi Administration or of the amount withdrawn by the Appellant being adjusted against the cost of the land;

and upholding the inclusion of the same as income in the assessment for the Assessment Year 1996-97 are arbitrary, unreasonable and ''perverse?

The brief facts are as follows:

The Appellant is the joint owner of a House property situated at No. 3, Tilak Marg, New Delhi (hereinafter referred to as "the said property") and having an undivided one-fourth share. Delhi Administration occupied the said property since 1972 under an Order of requisition made under the provisions of Requisition and Acquisition of Immovable Property Act, 1952 (hereinafter referred to as "1952 Act"). The 1952 Act lapsed on March 10, 1987. By a notification dated March 6, 1987 under Sections 4 and 17 of the Land Acquisition Act, 1894 (hereinafter referred to as "the 1894 Act") was issued for acquisition of the said property u/s 6 of the said 1894 Act, a declaration was made on March 10, 1987.

The Appellant challenged the said acquisition proceedings before the Delhi High Court and on May 27, 1994, the said acquisition proceedings was quashed and it was held by the Hon''ble Court that the Appellant was entitled to damages, quantum whereof was to be decided by Justice Ms. Leila Seth, who was appointed learned Arbitrator by the Hon''ble Delhi High Court. The appeal was preferred from the said order before the Hon''ble Division Bench.

The Delhi Administration before the Hon''ble Division Bench expressed their willingness to deposit 80 percent of the compensation for the acquisition of the said property that may become payable u/s 17(3) and Section 17(3A) of the 1894 Act, which was about Rs. 4 crores.

The Hon''ble Division Bench of Hon''ble Delhi High Court stayed the order so passed by the Hon''ble First Court on condition that the Delhi Administration should deposit the said sum of Rs. 4 crores and the Hon''ble Division Bench also permitted the owner of the said property to withdraw the said sum towards the damages that may be payable as per the award so to be made by the Learned Arbitrator.

During the Financial year 1995-96, the Appellant withdrew his share of Rs. 1 Crore. On March 22, 2002, the appeal was dismissed by the Hon''ble Division Bench of Delhi High Court. Against the said order and the judgment SLP was filed before the Hon''ble Supreme Court on January 2, 2003 by Delhi Administration and on April 28, 2004, the appeal filed by the Delhi Administration against the judgment of the Division Bench of Delhi High Court was dismissed by the Hon''ble Supreme Court.

The award has not yet been published by the learned Arbitrator.

On June 30, 2000, the proceedings u/s 147 of the Income Tax Act was initiated to reopen the assessment of the Appellant for the said Assessment Year 1996-97. On March 26, 2002, an order was passed by the Department u/s 143(3) / 147 of the said Act, assessing under the head "other sources", and included the said sum of Rs. 1 Crore received by the Appellant during the Financial Year 1995-96 in terms of the interim order dated March 13, 1995 of the Hon''ble Delhi High Court. The Appellant filed an appeal from the said order before the Commissioner of Income Tax (Appeals).

On August 6, 2002, the Commissioner of Income Tax (appeals) held that the said sum of Rs. 1 Crore could not be assessed to tax as it was received under the interim order and the proceedings had not attained its finality.

The Department preferred an appeal before the learned Tribunal which was allowed by an order dated November 18, 2003. The Appellant filed an application before the learned Tribunal on January 12, 2004 pointing out that there is several factual inaccuracies in its order dated November 18, 2003 and on July 30, 2004 the learned Tribunal dismissed the said application considering the said application would amount to review of its order dated November 18, 2003.

Mr. Bajoria, learned Senior Counsel appearing on behalf of the Appellant contended that the crucial issue involved in this appeal that whether the sum of Rs. 1 Crore received by the Appellant pursuant to the said interim order passed by the Division Bench of the Hon''ble Delhi High Court (on March 13, 1995) could be assessed in the Assessment Year 1996-97 when the appeal against the judgment of the learned Single Judge filed by the Delhi Administration was pending for consideration and awaiting for final decision.

It is submitted that the said sum of Rs. 1 Crore which was received by the Appellant was an ad hoc amount during the pendency of the appeal. Therefore, there was no determination finally made by the court at that point of time.

The question was before the Hon''ble Delhi High Court that whether the dispute between the Delhi Administration and the Appellant was with regard to the legality and validity of the acquisition proceedings which had been initiated under the 1894 Act. The Appellant contended that such acquisition proceedings were illegal and Delhi Administration was bound to restore back the possession of the said property and further to pay damages for its wrongful occupation.

The contention of Delhi Administration was that such acquisition proceedings were valid and the Appellant was only entitled to compensation of the acquisition the said property.

Therefore, Mr. Bajoria, learned Senior Advocate appearing on behalf of the Appellant submitted that in case the acquisition proceedings were held to be valid that the other sum would be on account of consideration for the land liable to be assessed under the head "capital gains" and in case the acquisition proceedings would be unlawful then the same would be appropriated towards the damages that would be awarded by the Arbitrator appointed by the Hon''ble Delhi High Court. Thus, the quantity and the nature of the said receipt were in controversy during the relevant previous year and were pending for final adjudication. Therefore, the said amount could not be brought to tax.

He further contended that the liability for capital gains u/s 45 of the Act arises in the year in which the transfer of property takes place. Income by way of capital gains cannot be assessed in any year other than the year in which the transfer of property takes place.

His further contention was that the damages for wrongful occupation only can be assessed in which the amount of mesne profits or damages is computed by the Arbitrator, prior to such determination there would be no accrual of income which can be brought to tax. Therefore, he submitted during the relevant previous year since there was no determination of rights of the parties, there could not be any accrual of income.

He also pointed out that an appeal is a continuation of the original proceedings and till the proceedings reach finality, there could be no accrual of income in respect of subject matter of such proceedings and he relied upon the decision of this High Court reported in Commissioner of Income Tax Vs. Hindusthan Housing and Land Development Trust Ltd., He further contended that the said decision of this High Court was affirmed by the Hon''ble Supreme court reported in Commissioner of Income Tax, West Bengal-II, Calcutta Vs. Hindustan Housing and Land Development Trust Ltd., Hence, he contended that the Learned Tribunal did not follow the said decisions and refused to rectify such errors and avoided the said question stating that it would amount to review of its order.

Mr. Bajoria, learned Senior Advocate further submitted that the Tribunal proceeded on the assumption as if the interim order of the Hon''ble Delhi High Court finally decided that the said sum was to be paid to the Appellant on account of damages and he submitted that the conclusion of the Tribunal is based on incorrect assumption of facts.

He further submitted at that point of time that Delhi Administration offered to pay 80 percent of the compensation for acquisition of the property payable under Sections 17(3) and 17(3)(A) of the 1894 Act and the Learned tribunal completely ignored the subsequent fact that after the disposal of the appeal by the Hon''ble Division Bench, Delhi Administration had filed SLP before the Hon''ble Supreme Court.

Therefore, he submitted on the assumption of wrong facts, the Learned Tribunal came to such a conclusion.

He further pointed out that the Learned Tribunal referred to the decision of the Hon''ble Supreme Court reported in The K.C.P. Limited Vs. Commissioner of Income Tax, Bangalore, and submitted that the said decision is not at all applicable in the facts and circumstances of this case. In the said decision the excess amount realized on account of price of sugar in terms of the interim order of the High Court was sought to be assessed after the litigation relating to realization of such excess amount had been finally decided. It would also be specially noted that on April 1, 1976, a new legislation, namely, the Levy Sugar Price Equalization Fund Act, 1976 came into force which obliged the Assesses to deposit such excess collection in terms of the interim order in a fund set up under the said Act. and the Assesses was required to deposit the amount in the said fund.

He further submitted that there was no controversy as to the nature of the receipt in KCP''s case (supra) which was on trading account for sale of sugar. In the instant case the issue in dispute was as to whether the amount received was to be appropriated towards the price of the property or as damages for its wrongful occupation.

He further submitted that it is well settled that in case of damages of wrongful occupation of property the right accrues only on determination of such amount. He further relied on the decision reported in P. Mariappa Gounder (Dead) by Lrs. Vs. Commissioner of Income Tax, Madras, where the Hon''ble Supreme Court held in respect of the mesne profits for wrongful occupation of an immovable property that it is only when the Trial Court determine the amount of mesne profits that the right to receive the same, accrued in favour of the Appellant. In other words, after the liability became ascertained (3) 245 ITR 421 then only the mesne profits should be taken into account and in the said Assessment Year had to be assessed when the amount was awarded, in fact realized by the Assesses.

In the instant case he submitted that the award had not been published by the Arbitrator so far and the question of accrual of any damages does not arise.

He further submitted that in the instant case the Arbitrator has already been appointed and the final determination has not yet been made by the learned Arbitrator. Therefore, it cannot be said that there is any accrual of any income and the right of Assesses is merely an inchoate right.

He further contended that in any event the said sum could not be assessed at all since it was a capital receipt and not a revenue account. This Hon''ble Court in the decision reported in Commissioner of Income Tax Vs. Smt. Lila Ghosh, held that the mesne profits for wrongful occupation were capital receipt not liable to tax.

In the said decision this Court dissented from the view of the Hon''ble Madras High Court in Commissioner of Income Tax, Tamil Nadu-V Vs. P. Mariappa Gounder, that on the facts of the case, the Tribunal was justified in holding that the mesne profits received by the Assesses in this case were in the nature of damages and, therefore, a capital receipt. The said decision of the Madras High Court however was affirmed in P. Mariappa Gounder (Dead) by Lrs. Vs. Commissioner of Income Tax, Madras,

However, the issue as to whether the mesne profits were revenue receipt or capital receipt was not raised before the Hon''ble Supreme Court. The issue raised before the Hon''ble Supreme Court related only to the year of assess-ability i.e. whether the amount could be assessed in the year in which the decree was passed or in the year of receipt or in the year in which the court determined the amount of mesne profits. It may be stated that before the Hon''ble Madras High Court, against the order of the Learned Tribunal, reference was sought both by the Assesses and the revenue. The question of law raised at the instance of the Assesses has been set out in the judgment of the Hon''ble Madras High Court at page 679 of the reports Commissioner of Income Tax, Tamil Nadu-V Vs. P. Mariappa Gounder, as under:

�At the Assessor�s instance, the following question of law has been referred to us by the Learned Tribunal.

Whether the mesne profits decreed by the Supreme Court is of an income nature?

The questions of law at the instance of the department are set out at page 687 of the Reports Commissioner of Income Tax, Tamil Nadu-V Vs. P. Mariappa Gounder, as under:

...Our observations last mentioned provide the answer to the following two questions of law referred to this Court by the Learned Tribunal at the instance of the Department on the issue as to the year of accrual of the mesne profits:

Whether the mesne profits decreed by the Hon''ble Supreme Court accrued to the Assesses earlier to the accounting year relevant to the Assessment Year 1963-64?

Whether, on the facts and in the circumstances of the case, the mesne profits received by the Assesses is liable to be taxed in the Assessment Year 1964-65?

The Assesses appealed to the Hon''ble Supreme Court only on the issue raised in the reference at the instance of the department as would appear from the questions set out by the Hon''ble Supreme Court in the case reported in P. Mariappa Gounder (Dead) by Lrs. Vs. Commissioner of Income Tax, Madras,

It is also submitted that the decision of this Hon''ble Court in Smt. Lila Ghosh''s case which was rendered after considering the decision of the Hon''ble Madras High Court should be followed. The Learned Tribunal erroneously proceeded on the assumption as if the issue as to the nature of the mesne profits was also decided by the Hon''ble Supreme Court. It is submitted that the Learned Tribunal''s view to the contrary is clearly unsustainable.

He further submitted that the Tribunal erroneously proceeded on the assumption as if the issue of the nature of the mesne profits was also decided by the Hon''ble Supreme Court.

He further submitted that the other owners (who are holding 3/4th share in the said property) of the said property, similarly, received the amount pursuant to the same interim order and in their cases the revenue accepted that such amounts were not taxable in the year of receipt. It is submitted that no different view could be taken in the Appellant''s case and his assessment could not be reopened for subjecting the said amount of tax.

Hence, he submitted that the appeal should be allowed.

Mr. P. K. Mallick, learned Senior Advocate appearing with Mr. M.P. Agarwal, learned Advocate, on behalf of the Respondent contended that by a Notification dated 6th March, 1987 the Delhi Administration acquired the property at 3, Tilak Marg, New Delhi (hereinafter referred to as "the said property'') wherein the Appellant had one-forth share of the property. On 27th May, 1994, the acquisition proceedings were quashed by the Hon''ble Delhi High Court and the Delhi Administration was asked to pay damages from 10th March, 1957 till the date of payment, to be decided by a learned Arbitrator.

It is also admitted that the appeal was filed before the Hon''ble Division bench on 13th March, 1995 and an interim order was passed granting a stay and Rs. 4 crores were offered to pay as 80 percent of the compensation payable for acquisition of the said property in the damages payable for occupation. The owners including the Appellant were allowed to withdraw the said amount. The Appellant withdrew Rs. 1 Crore during the Assessment Year 1996-97. The said amount has been taxed in the said Assessment Year by the Department.

It is further submitted that, the Assessing Officer held that the sum of Rs. 1 Crore as income of the Appellant herein for the Assessment Year, when the Delhi Administration paid the amount and accepted his liability to pay it as damages for occupation.

It is also admitted that on 28th April, 2004, the Hon''ble Supreme Court upheld the decision of the Hon''ble Delhi High Court. The only question in this matter is that the damages payable are subject to variation of the amount by the learned Arbitrator, already appointed in the matter. It is also a fact that the learned Arbitrator has not yet published the final award and that the possibility of passing an award less that Rs. 4 crores, is remote.

It is further submitted that in the case of an award being of a higher amount, the excess will be taxable in future and the receipt of Rs. 1 INDIAN LAW REPORTS [2007]

Crore would be unaffected. It is further submitted that the amount so received by the Appellant during the Assessment Year 1996-97 is assessable and the conclusion of the Learned Tribunal to that effect is unassailable.

Mr. Mallick, learned senior advocate appearing on behalf of the Respondents, however relied upon the following decisions reported in, Commissioner of Income Tax, Madras Vs. G.R. Karthikeyan, (1993) 202 ITR 253 (SC) (C.I.T. v. T. Nagireddy); (1993) 200 ITR 588 (SC) (Jonnalla Narshimharao & Co. v. C.I.T.); (1998) 230 ITR 534 (SC) (C.I.T. v, Thiruhnalaiswamy Naidu Sons); (2000) 245 ITR 421 (SC) (K.C.P. Ltd. v. C.I.T.); and S. Kempadevamma Vs. Commissioner of Income Tax,

Relying on the decisions, it is further submitted that the amount of Rs. 1 Crore received by the Assesses, bears income character. In the present case there is no dispute regarding liability of the Delhi Administration to pay damages. The dispute is in respect of the acquisition proceedings only. Even if it is there, that would not affect the Assessee''s liability of the amount so received by the Appellant on receipt basis.

It is further submitted that the damages received would constitute an income in the said Assessment Year in which the amount was received. It is further submitted that the amount so received is assessable in the year of receipt and there is no like refund of any refund. Even if it is so, the Appellant will get the deduction in the year when he will refund the same.

It is further submitted that the case cited on behalf of the Appellant reported in (1997) 108 ITR 380 (Cal.) (C.I.T. v. Hindustan Housing and Land Development Trust Ltd.), is distinguishable since in the instant case there is no dispute regarding the damages payable by the Delhi Administration. In the case of C.I.T. v. Hindustan Housing and Land Development Trust Ltd. (supra), the question was related to additional compensation for acquisition whereas in the instant case the acquisition proceedings have been quashed and there is no question of compensation for acquisition. Therefore, the said decision has no application in the facts and circumstances of this case.

The case reported in (1986) 161 ITR 524 (SC) (C.I.T. v. Hindustan Hosing and Land Development Trust Ltd.) also has no application since in the said decision the Hon''ble Court decided the question whether there is a right to receive the amount by the Respondent. But in the instant case there is no dispute regarding the right of the Assesses to receive the amount. The only question is that the learned Arbitrator has to quantify the amount. In these circumstances, it is submitted that the decision of the Learned Tribunal should be upheld by this Hon''ble Court.

After considering the facts and circumstances of this case, it appears to us that the Petitioner/ Appellant on the basis of interim order passed by the Hon''ble Court withdrew the said sum of Rs. 1 Crore out of the deposit made by the Delhi Administration pursuant to the interim order passed by the Hon''ble Court as a condition for grant of stay during the pendency of the appeal of the Delhi Administration for uploading the acquisition of the Appellant''s property.

The said fact cannot be denied by the Department. The receipt of such amount of Rs. 1 Crore by the Appellant is nothing but the amount withdrawn by the Appellant out of the deposit made by the Delhi Administration.

After Analyzing the facts, it appears to us that at that point of time the proceeding between the parties could not said to be reached its finality. It is true that the appeal was dismissed by the Delhi High Court on March 22, 2002 much after the amount was withdrawn by the Appellant intact the amount was withdrawn by the Appellant during the Financial Year 1995-96 and it appears to us that the proceedings u/s 147 was initiated on June 30, 2000 to reopen the assessment of the Appellant for the said Assessment Year 1996-97 and the order was passed by the Department on March 26, 2002, much after the date of withdrawal of the said amount.

It also has to be taken into account that the appeal was dismissed by the Hon''ble Division Bench of the Delhi High Court on March 22, 2002 and furthermore, against the said order the SLP was also initiated by the Delhi Administration before the Hon''ble Supreme Court and the said appeal was dismissed on April 28, 2004, much after the initiation of the proceedings by the Department on June 30, 2000. It is also absolutely clear that the amount was withdrawn by the Appellant during the financial year 1996-97.

Therefore, it could not have been said that the proceedings was concluded and/or there was any determination finally made by the Hon''ble Court at that point of time.

It is also to be noted that in case of acquisition proceedings declared to be valid by the court the sum so to be awarded would be on account of consideration for the land and thereby liable to be assessed under the head "capital gains" and in case of acquisition proceeding would be unlawful then the same would be permitted towards the damages that would be awarded by the learned Arbitrator appointed by the Hon''ble Delhi High Court.

Therefore, the quantum and the nature of the said receipt were in controversy during the relevant previous year, i.e. 1995-96 and it has to be held that the controversy between the parties were pending for final adjudication during the said Assessment Year and could not have been brought to tax.

In these facts and circumstances, we have to accept the contention of Mr. Bajoria, learned Senior Advocate appearing on behalf of the Appellant and answer the issue raised before us in favour of Appellant and we have to come to such a conclusion that the findings of the Learned Tribunal is totally wrong since the Learned Tribunal held that the said amount was quantified and offered by the Delhi Administration as compensation for use of the Appellant''s property and there was no appeal against the same.

Therefore, in our opinion, the Learned Tribunal wrongly assessed the facts in the matter and came to a wrong conclusion. It also appears to us that the Learned Tribunal was also wrong in holding that the Appellant had the absolute right to receive the amount and the same accrued as income during the said Assessment year in the facts and circumstances of this case.

The Learned Tribunal failed to appreciate that the payment was made as a condition precedent to get a stay of the order passed by the Hon''ble Trial Court of the Hon''ble Delhi High Court and the payment was made by virtue of interim order so passed by the Hon''ble Division Bench and the same was a condition precedent for granting such stay.

Accordingly, we have to come to such a conclusion that the Learned Tribunal mis-appreciated the facts in the matter and came to such a conclusion which cannot be accepted by us. The Learned Tribunal were proceeded on the wrong assumption and failed to appreciate the facts in the matter and came to such a conclusion which cannot be acceptable to us.

Therefore, we have accepted the contention of Mr. Bajoria, learned Senior Advocate appearing on behalf of the Appellant and come to such a conclusion that, during the said relevant previous year there was no determination of rights of the parties and therefore, the said amount could not be stated to be any accrual of income from other sources.

We have also accepted the contention of Mr. Bajoria, learned Senior Advocate appearing on behalf of the Appellant, that the right of an Assesses is merely an inchoate right at that point of time. It is also accepted that the Learned Tribunal proceeded erroneously on assumption that the issue and nature of the mesne profits were decided by the Hon''ble Supreme Court at that point of time.

We also cannot brush aside the fact that the other owners who have received the aid amount pursuant to be said interim order filed Review Petition before the Learned Tribunal and the Learned Tribunal accepted the fact and held that the said amounts were not taxable in the said year of receipt.

Therefore, in these circumstances, in our opinion, no different view could be taken in respect of the case of Appellant and the order so passed by the Learned Tribunal cannot be sustainable in the eye of law.

Accordingly, the issues are decided in favour of the Appellant.

Accordingly, we set aside the order so passed by the Learned Tribunal and allow the appeal.

Tapan Kumar Dutt, J.

I agree