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Additional Commissioner of Income-tax, Andhra Pradesh Vs. Bhavani Devi Soni - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 41 of 1977
Judge
Reported in[1982]136ITR333(AP)
ActsIncome Tax Act, 1961 - Sections 5
AppellantAdditional Commissioner of Income-tax, Andhra Pradesh
RespondentBhavani Devi Soni
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateSrirama Rao, Adv. for ;J.V. Srinivasa Rao, Adv.
Excerpt:
direct taxation - compensation - section 5 of income tax act, 1961 - whether right to receive compensation that arose to assessee on acquisition of property by municipal corporation of hyderabad on 12.07.1968 under land acquisition act was a single and indivisible right - whether enhanced compensation as per court's judgment on 19.12.1970 arose or accrued to assessee on dated and fell outside relevant 'previous year' for assessment year 1969-70 - right to receive compensation for lands acquired by government at their market value on date of acquisition is one and indivisible right - mere claim by assessee after taking of possession at a particular rate of for a certain sum is not compensation - income-tax is not levied on a mere right to receive compensation - enhanced compensation..........those questions. '1. whether, on the facts and in the circumstances of the case, the right to receive compensation that arose to the assessee on the acquisition of property in question by the municipal corporation of hyderabad on july 12, 1968, under the land acquisition act, was a single and indivisible right 2. if the answer to question no. 1 above is in the affirmative, whether the appellate tribunal's decision that the enhanced compensation as per the court's judgment on december 19, 1970, arose or accrued to the assessee on the dated and fell outside the relevant 'previous year' for the assessment year 1969-70, was sound in law ?' 3. both the questions referred to us present little or no difficulty. this court in mrs. khorshed shapoor chenai v. asst. ced : [1973]90itr47(ap).....
Judgment:

P. Ramachandra Raju, J.

1. Smt. Bhawani Devi Soni, the assessee, is an individual, deriving income from different sources, including among other things, income form purchase and sale of land. The assessment year under reference is 1969-70, the corresponding accounting year being the Dewali year, i.e. from November 1, 1967, to October 21, 1968. An extent of 9,790 sq. yards belonging to the assessee was acquired by the Municipal Corporation of Hyderabad on July 12, 1968, under the Land Acquisition Act. The Land Acquisition Officer, by his award dated August 30, 1968, awarded a to total compensation of Rs. 1,12,585. During the assessment year 1969-70, the assessee returned the profits of Rs. 37,191 as arising out of the acquisition. The assessee, being dissatisfied by the compensation award of the Land Acquisitions Officer, sought a reference under s. 18 of the Land Acquisitions Act for enhanced compensation. The city civil court, by its judgment dated December 19, 1970, allowed a further sum of Rs. 90,068 as compensation. It is thus to be seen that the compensation payable on account of the land acquisitions become payable to the assessee first in an amount of Rs. 1,12,585 by the award dated August 30, 1968, of the Land Acquisition officer and later by the judgment of the city civil court dated December 19, 1970, awarding to her a sum of Rs. 90,068 as additional compensation.

2. While making the assessment for the assessment year 1969-70, the ITO took into account the enhanced compensation as well for determining the profits arising out of the acquisition of the land, despite the objection raised by the assessee that the additional compensation did not accrue to her during the relevant accounting year. On the assessee's appeal, the AAC held in favour of the assessee. The revenue has taken the matter in further appeal before the Income-tax Appellate Tribunal, Hyderabad Bench 'A'. The said Tribunal, following the decision of this court in Khan Bahadur Ahmed Alladin & sons v. CIT : [1969]74ITR651(AP) decided that as the enhanced compensation accrued to the assessee on December 19, 1970, outside the relevant accounting year, the enhanced compensation cannot be taken into account during the accounting year 1967-68. It has, accordingly, dismissed the appeal filed by the revenue. At the instance of the revenue, this court directed the said Tribunal to refer the following questions of law and the Tribunal has accordingly referred those questions.

'1. Whether, on the facts and in the circumstances of the case, the right to receive compensation that arose to the assessee on the acquisition of property in question by the Municipal Corporation of Hyderabad on July 12, 1968, under the Land Acquisition Act, was a single and indivisible right

2. If the answer to question No. 1 above is in the affirmative, whether the Appellate Tribunal's decision that the enhanced compensation as per the court's judgment on December 19, 1970, arose or accrued to the assessee on the dated and fell outside the relevant 'previous year' for the assessment year 1969-70, was sound in law ?'

3. Both the questions referred to us present little or no difficulty. This court in Mrs. Khorshed Shapoor Chenai v. Asst. CED : [1973]90ITR47(AP) had occasion to go into the question which is identical in terms with the first question referred to us. Sriramulu J., speaking for the Bench, observed (p. 62 :

'The right to receive compensation for the lands acquired by the Government at their market value on the dated of the acquisition is one and indivisible right. There is no right to 'receive compensation' and a separate right to receive 'extra compensation'. The only right is to receive compensation for the lands acquired by the Government, which is the fair market value on the date of acquisition. The argument of the learned counsel that the right to receive extra compensation accrued when the civil court passed the order and not before, does not merit acceptance. The so-called right to receive extra compensation cannot be torn from of considered separately from the right to receive the market value of the lands acquired by the government. The right accrues to the owner of the lands as soon as the lands are acquired by the Government. It is, therefore, difficult to accept the argument of the learned counsel for the petitioner that a fresh and an independent right to 'receive extra compensation' accrued to the heirs of the deceased and that it was owned and possessed by the heirs of the deceased.'

4. That case arose under the E.D. Act. In the aforesaid decision, this court held that such enhanced compensation should also be computed as in appeal to the Supreme Court. The Supreme Court in Mrs. Khorshed Shapoor Chenai v. Asst. CED : [1980]122ITR21(SC) , have approved the aforesaid extracted observations made by this court and observed (pp. 31,32 :

'In our opinion, the High Court was right in holding that there are no two separate right-one a right to receive compensation and the other, a right to receive extra or further compensation. Upon acquisition of the lands under the Land Acquisition Act the claimant has only one right which is to receive compensation for the lands at their market value on the dated of the relevant notification and it is this right which is quantified by the Collector under s. 11 and by the Civil Court under s. 26 of the Land Acquisition Act.... This, however, does not mean that Civil Court's evaluation of this right done subsequently would be its valuation as at the relevant dated either under the E.D. Act or the W.T. Act.'

5. The view expressed by this court that the compensation cannot be computed at that figure as an asset for the purposes of estate duty has not been accepted by the Supreme Court. The law, is, however, well settled by the two decisions referred to above that the right to receive compensation for the lands acquired by the Government at their market value on the date of acquisition is one and indivisible right. The first question referred to us is, accordingly, answered in favour of the revenue and against the assessee.

6. In Khan Bahadur Ahmed Alladin's case : [1969]74ITR651(AP) the question arose whether the enhanced compensation awarded to an assessee, on a date outside the accounting year can be said to have accrued or deemed to have accrued to the assessee during the according year. It was observed (p. 654 :

'On a consideration of the nature of acquisitions proceedings, it appears to us that when lands are notified to be taken by the Government under the Land Acquisition Act, the owner of the land is entitled to payment of compensation at the market value on the date when possession was taken pursuant to a notification under section 3 of the Hyderabad Land Acquisition Act. It may be stated that on the date when land is taken possession of by the Government, no compensation had in fact been determined, but it has become only payable. The right of the owner is, therefore, an inchoate right. It is like, to borrow a term applicable to movable proparties, a chose-in-action, i.e., a present right to take proceeding to recover a debt or damages, and thus inchoate in the sense that the compensation has not in fact been determined or become payable. In so far as the Income-tax Act is concerned, an income is assessable to charge only when it accrues or arises or is deemed to accrue or arise in the year of assessment.'

7. Dealing with the question as to whether the enhanced compensation accrued or is deemed to have accrued to the assessee, the court in the same decision referred to above, after referring to E.D. Sassoon & Co. Ltd. v. CIT : [1954]26ITR27(SC) , Rogers Pyatt Shellac & Co. v. Secretary of State for India [1925] 1 ITC 363 and CIT v. Gajapathy Naidu : [1964]53ITR114(SC)

'The deeming provision can have no relevance unless the income is receivable, and once it is receivable, then the determination of the questions whether it is actually received or is deemed to have been received might depend upon the system or method of accounting. But before ever the right to receive a particular amount as income accrues, no charge can be levied on that amount in any year anterior to the one in which it is receivable.... What is the income that can be said to have accrued to him on that date which can be assessed to tax in the year of assessment If the actual amount compensation has not been fixed, no income could accrue to him. It cannot be contended that the mere claim by the assessee, after taking of possession, at a particular rate of for a certain sum is the compensation. It is amount actually awarded by the Collector or subsequently decreed by the court which accrues to him, and the respective amounts, whether awarded by the Collector or the court accrue on the respective dates on which the award or the decree is passed. Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued....

In our view, unless the amount of compensation actually becomes payable or enforceable, it cannot be said to accrue or be deemed to accrue. On the date when the Collector awarded the compensation, it is only that amount which had accrued or deemed to accrue, whether in fact paid or not. But by no stretch of the words in section 4(1)(b)(i), could it be said that the right to enhanced compensation, which has not yet been accepted by the proper forum, namely, the court, has also become payable on the date when the original compensation become payable, for being included in that year of assessment. The enhanced compensation accrues only when it becomes payable, i.e., when the court accept the claim. As has been stated earlier, a mere claim by the assessee, after taking of possession of the land, at a particular rate or for a certain sum is not compensation.'

8. Mr. Rama Rao, learned counsel appearing for the Revenue, has submitted that the Supreme Court in Mrs. Khorshed Shapoor Chenai v. Asst. CED : [1980]122ITR21(SC) , has observed that the right to receive extra compensation accrues to the owner of the lands as soon as the lands are acquired by the government and that it must, therefore, be held that irrespective of the date when the enhanced compensation was given by the court, such compensation can be assessed as income during the accounting year when the original compensation was received by the assessee, on account of the acquisition of lands. The aforesaid observation of the Supreme Court have to be appreciated in the context in which they were made. The question which arose in that case was whether, under the E.D. Act, a right to receive enhanced compensation could also be valued as part of the estate of the deceased. The Supreme Court did not determine that irrespective of the year in which the enhanced compensation accrued, such enhanced compensation could be computed in an accounting year prior to the year in which such enhanced compensation accrued. In Gajapathi Naidu's case : [1964]53ITR114(SC) Subba Rao J. (as he then was) observed (p. 118 :

'An income accrues or arises when the assessee acquires a right to receive the same. It is commonplace that there are two principal methods of accounting for the income, profits and gains of a business; one is the cash basis and the other, the mercantile basis. The latter system of accountancy 'brings into credit what is due immediately it becomes legally due and before it is actually received; and it brings into debit expenditure the amount for which a legal liability had been incurred before it is actually disbursed'. The book profits ar taken for the purposes of assessment of tax, though the credit amount is not realised or the debit amount is not actually disbursed. If an income acres within a particular year, if it liable to be assessed in the succeeding year..... When an Income-tax Officer proceeds to include a particular income in the assessment, he should ask himself, inter alia, two questions, namely; (i) what is the system of accountancy adopted by the assessee and (ii) if it is the mercantile system of accountancy subject to the deemed provisions, when has the right to receive the amount accrued If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he shall include the said income in the assessment of the succeeding assessment year. No power is conferred on the Income-tax Officer under the to another earlier year on the ground that the said income arose out of the an earlier transaction.'

9. In the nature of things, the assessee would not have knows what amount would be awarded as enhanced compensation. In Alladin's case : [1969]74ITR651(AP) , dealing with this aspect, it was observed (p. 658 :

'It must not be forgotten that, even if a court has awarded enhanced compensation, there is a right of appeal by the government to the High Court, and the High Court may either disallow that claim or reduce the compensation. As against that judgment, there is a further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the enhanced compensation. Can it be said that the final determination by the highest court of the compensation would entitled the Income-tax Officer, notwithstanding the period of limitation fixed under the Income-tax Act, to reopen the assessment in which he had included the initial compensation awarded by the Collector and recompute the entire income on the basis of the final compensation We do not think there can be any justification for such a proposition. On a proper construction of the terms 'accrue' or 'arise', we are of the view that such an interpretation cannot be placed. The interpretation given by us does not affect the interests of the revenue. At the same time, it safeguards the assessee and prevents harassment. To hold otherwise would be contrary to the provisions of law.'

10. We, accordingly, answer question No. 2 referred to us in the affirmative and in favour of the assessee and against the revenue. The assessee, who has substantially succeeded in this reference, will get her costs from the revenue. Advocate's fee is assessed at Rs. 200.


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