Union of India (UOI) and Another vs Fr. Joseph Vilangatil

K.S. Paripoornan, J.—Respondents Nos. 1 and 2 in 0. P. No. 2379 of 1986 (the Revenue) (See Fr. Joseph Vilengetil Vs. Union of India (UOI) and Others, are the appellants herein. The petitioner in the original petition is the sole respondent herein. He is an assessee to Income Tax. He filed a return for the assessment year 1983-84, wherein he disclosed an amount of Rs. 3,11,065 in Part III of the return, being advance paid to him on March 11, 1983, towards compensation to be yet finally determined in respect of the agricultural land acquired by the Government and of which the Government took advance possession on November 19, 1982. The award was passed by the Land Acquisition Officer on March 31, 1984. Deducting the advance amount paid in the sum of Rs. 3,11,065, a further sum of Rs. 4,26,150.58 was paid to the assessee on April 30, 1984. Within six months from the date of the advance payment of Rs. 3,11,065, on August 26, 1983, the assessee invested a sum of Rs. 3,10,200 in the Seven Year National Rural Development Bonds (Second Issue). The balance of Rs. 4,26,150.58, received on April 30, 1984, was invested by the assessee on July 28, 1984, in specified units of the Unit Trust. During the assessment stage, the assessee pleaded that capital gains, if any, which arose by acquisition of the agricultural lands, could not be brought to tax in view of the decision of the Bombay High Court in Manubhai A. Sheth and others Vs. N.D. Nirgudkar, 2nd Income Tax Officer, A-II Ward, Bombay and another, . In the alternative, it was also pleaded that, by reason of the investments made by him in approved assets on August 26, 1983 and July 28, 1984, within six months of the receipt of the instalments of the award of compensation, he is entitled to the benefit of Section 54E of the Income Tax Act. Both the pleas were rejected by the Income Tax Officer. The Income Tax Officer held that both the investments were made beyond the period of six months from November 19, 1982, when the Government took advance possession of the lands in question and title to the said lands vested in the Government. The date on which the Government took possession of the land was taken as the date of transfer from which alone the period for investment is to be reckoned. On this basis, it was further held that the investments made by the petitioner in VII Year National Rural Development Bonds and Unit Trust were not specified assets for the purpose of Section 54E of the Act on the said date. So stating, exhibit P-1 order dated February 17, 1986 was passed, denying the benefit of Section 54E of the Act to the assessee. The assessee filed the original petition and assailed exhibit P-1 on various grounds. K. A. Nayar J. by judgment dated March 22, 1990 [(See Fr. Joseph Vilengetil v. Union of India [1990] 183 ITR 63], quashed exhibit P-1 and directed the second respondent (income tax Officer) to rework the benefit available to the assessee in the light of the observations in the judgment. The learned judge, following the Bench decision of the Andhra Pradesh High Court in S. Gopal Reddy Vs. Commissioner of Income Tax, , held that exhibit P-1, in so far as it construed the date of transfer as November 19, 1982, for getting the benefit of Section 54E of the Income Tax Act, is erroneous. It was held that the second proviso to Sub-section (1) of Section 54E is only clarificatory in nature, that in the case of compulsory acquisition of property under the statute, if the full amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period of six months referred to in Sub-section (1) of Section 54E shall, in relation to so much of such compensation as is not received on the date of transfer, be reckoned from the date on which such compensation is received by the assessee and the said provision should be deemed to have prevailed from the date of the enactment of Section 54E of the Act. The learned single judge further concluded that the National Rural Development Bonds (Second Issue) 1983, has been notified as a specified security in pursuance of Sub-clause (iii) of Clause (c) of Explanation 1 to Sub-section (1) of Section 54E of the Income Tax Act, 1961. The investment made by the petitioner on August 26, 1983, in the National Rural Development Bonds (Second Issue), 1983, is an investment in a specified security. The second investment made on July 28, 1984, in the special series of units issued under the Capital Gains Unit Scheme of 1983 was held to be notified as a specified security by Notification No. G. S. R. 804(E) dated October 27, 1983 (See Commissioner of Income Tax, Tamilnadu - I Vs. B. Nagi Reddi, ). Both the investments were held to be in specified securities enabling the assessee to avail of the benefit u/s 54E of the Income Tax Act. The original petition was allowed. Aggrieved by the said judgment of the learned single judge, dated March 22, 1990 (See Fr. Joseph Vilengetil Vs. Union of India (UOI) and Others, ), the Revenue has come up in writ appeal. The judgment of the learned single judge is reported in Fr. Joseph Vilengetil Vs. Union of India (UOI) and Others, .

We heard counsel for the Revenue, Mr. N. R. K. Nair. The relevant statutory provisions with which we are concerned are Section 54E(1) and the second proviso to Section 54E(1) of the Act They are as follows :

"54E. Capital gain on transfer of capital assets not to be charged in certain cases.--(1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset), and the assessee has, within a period of six months after the date of such transfer invested or deposited the whole or any part of the net consideration in any specified asset (such specified asset being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is. to say,--

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged u/s 45 ;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the net consideration shall not be charged u/s 45 ....

Provided further that in a case where the transfer of the original asset is by way of compulsory acquisition under any law and full amount of compensation awarded for such acquisition is not received by the asses-see on the date of such transfer, the period of six months referred to in this sub-section shall, in relation to so much of such compensation as is not received on the date of the transfer, be reckoned from the date immediately following the date on which such compensation is received by the assessee."

Counsel for the Revenue stated that if the second proviso to Section 54E(1) of the Act, added by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1984, is only clarificatory or declaratory, and is applicable to the instant case, the investments in the two securities, or in specified securities, made by the petitioner, and the conclusion of the learned single judge in paragraph 4 of the judgment in that regard is unassailable. But the main question that was argued was that the State took possession of the land on November 19, 1982, and the transfer took place for the purpose of Section 45 of the Act then and the investments made on August 26, 1983, and July 28, 1984 cannot satisfy the requirements of law. It may be that the amounts due to the assessee were paid only on March 11, 1983 and April 30, 1984, but since the investments in specified securities were not made within six months from the date of the transfer (i.e., November 19, 1982--possession taken on November 19, 1982), the assessee is not entitled to the benefit of Section 54E of the Act. The learned single judge, after referring to Section 54E of the Act, as also the second proviso to the said section, added by the Taxation Laws (Amendment) Act, 1984, held that, in the case of compulsory acquisition of land, the date of transfer should be reckoned as the date immediately following the date on which such compensation is received by the assessee and the assessee will get six months'' time for getting the benefit of Section 54E of the Act, from the date of receipt of compensation. Law cannot insist that the person should deposit in specified securities, an amount which he has not received. The view, so taken by the learned single judge, is fully supported by the Bench decision of the Andhra Pradesh High Court in S. Gopal Reddy Vs. Commissioner of Income Tax, . Therein the court said thus (at pp. 382, 383) :

"It is true that Section 54E is in the nature of a special provision. Whether it can be called an exception to Section 45 or not, is immaterial. It indeed confers a benefit upon the assessees ; it also serves a public purpose. The idea was to encourage investment in specified assets, all of which are, generally speaking, of a public nature. It provides that where the consideration received in lieu of transfer of a capital asset is invested, within six months from the date of the transfer, in a specified asset, and for the period specified, the said consideration shall not be chargeable to capital gains tax. Whether it is a taxing statute or any other statute, it has to be construed reasonably. The effort should always be to ascertain the intention of Parliament from the words employed, as far as possible ; an interpretation which leads to absurdity should be avoided. In this case, we are not dealing with a voluntary transfer and it is important to stress this aspect. The property of the assessee was acquired compulsorily by the State in exercise of its power of eminent domain. Possession of property was taken before the award was passed and it is the common case of the parties that the date of the transfer is the date on which possession of the property was taken, i.e., January 10, 1978. But the assessee was not paid a single pie on that date or within six months thereof. Compensation was paid to him only on August 19, 1980, i.e., more than two and half years later. If Sub-section (1) of Section 54E is construed literally, the assessee ought to have deposited the consideration within six months of January 10, 1978, if he wanted to avail of the benefit provided by the said provision. But it was impossible for the assessee to do so, because he was not paid the compensation on the date of the transfer or within six months thereof. The law could not have contemplated that the assessee, if at all he wanted to take advantage of the said provision, should invest some other amount/income in the specified asset. After all, what is to be invested is the consideration received by the assessee and not any other amount. It is precisely to meet such a situation that the second proviso was inserted by the Taxation Laws (Amendment) Act, 1984. Section 16 of the said Amendment Act, no doubt, does not say that the said proviso shall have retrospective effect ; but, in our opinion, it would be consistent with reason to construe the said proviso as merely clarificatory. In other words, we are inclined to hold that even prior to April 1, 1984, the very same situation as has been expressly provided by the said Amendment Act obtained. Now, the said proviso says that in the case of compulsory acquisition of property under a statute, if the full amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period of six months referred to in Sub-section (1) shall, in relation to so much of such compensation as is not received on the date of the transfer, be reckoned from the date on which such compensation is received by the assessee. The proviso takes note of the situation obtaining under the Land Acquisition Act which is the primary statute relating to compulsory acquisition of property. Normally speaking, possession of the property acquired is taken after the award is passed and the property vests in the State on the date possession is taken. However, the Act also provides for taking possession of the property even before the passing of the award, viz., Section 17. In such a case, the property vests in the State on the date possession is taken, though the award is passed later. Prior to the Land Acquisition (Amendment) Act 68 of 1984, the Act did not provide for payment of any compensation on the date possession of the property is taken u/s 17, The owner was obliged, all the same, to wait until the award is passed, for compensation. Then again, the Act provides for a reference to the civil court in case the owner is not satisfied with the compensation awarded by the Land Acquisition Officer. A further appeal is provided to the High Court and yet another appeal to the Supreme Court under Article 136 of the Constitution. It may happen in a given case that compensation is enhanced by the civil court, then again by the High Court and yet again by the Supreme Court. It is to meet such a situation where full compensation is not received by the claimant/assessee at one stage that the said proviso was made. The proviso does not apply to voluntary acquisition, but only to compulsory acquisition under a statute. The reason is obvious. The owner of the property has no choice in the matter of acquisition, nor has he any choice in the matter of receipt of compensation. All that he has to do is to receive the compensation awarded by the Land Acquisition Officer, and if dissatisfied with it, fight for enhancement in accordance with law. In such a situation, and for the further reason that what the law contemplates is investment of consideration in the specified asset, we are inclined to hold that in the case of compulsory acquisition, the period of six months should be reckoned from the date of receipt of compensation, as and when received. In other words, the provision made by the second proviso to Sub-section (1) should be deemed to have prevailed even prior to April 1, 1984, i.e., with effect from the date of enforcement of Section 54E." (emphasis* supplied).

The ratio in the above case is fully applicable herein. We concur with the Bench decision of the Andhra Pradesh High Court. So, in this view, we hold that the second proviso to Section 54E(1) of the Income Tax Act, inserted with effect from April 1, 1984, is only clarificatory in nature, that, in the case of compulsory acquisition of property under the statute, for the purpose of Section 54E(1) of the Act, it is sufficient if the investment in specified assets is made within six months from the date of receipt of the compensation amount. We further hold that the second proviso to sub-section (1) of Section 54E should take effect from the date of enforcement of Section 54E of the Act and it is applicable to the original compensation as also to the enhanced compensation received for the acquisition.

In the light of the above, we hold that the learned single judge was justified in quashing exhibit P-1 and directing the Income Tax Officer to rework the benefit available to the assessee in the light of the observations contained in his judgment.

This writ appeal is without merit. It is dismissed in limine.