1. This appeal is filed against the order of the Commissioner (Appeals), dated 1-1-1983, confirming the order of the ITO under Section 155(7A) of the Income-tax Act, 1961 ('the Act'), dated 21-10-1980. As will be seen below, this is in reality a case of the assessee seeking relief under Section 155(1OB) and the ITO declining it for the reasons given by him in the above matter. As mention of wrong Sections does not bar the appellate authorities from applying the applicable provisions of law, we are examining the issue as below.
2. The assessee owned certain lands at Vadaj in the municipal limits of Ahmedabad. They were acquired by the Government during the previous year for the assessment year 1974-75. In the original return filed for 1974-75, the assessee did not show any capital gains on this transaction, though she had received already an amount of Rs. 2,46,663 from the Land Acquisition Officer (LAO). Consequently, the original assessment completed on 27-2-1975 under Section 143(1) of the Act resulted in N. A., the income being Rs. 1,234 only. Whatever may be the reasons for the failure to file the correct return, the ITO did notice the escape of income from assessment and initiated action under Section 147 of the Act and ultimately, assessed the capital gains under his order dated 18-7-1979, assuming that the total compensation received/receivable was only Rs. 2,46,663. Actually long before 18-7-1979 when the reassessment was completed, the assessee had claimed enhancement in the compensation which was granted by the civil court on 23-12-1977. The additional compensation came to Rs. 83,074 and was actually received in two instalments, viz., Rs. 73,299 (22-11-1978) and Rs. 9,775 (30-1-1979). If the ITO was made aware of this position, the additional compensation would perhaps have been included in the reassessment dated 18-7-1979. Anyway this remained to be considered.
Ultimately, when the ITO did notice the facts, he issued a notice for action under Section 155(7A). In reply, the assessee took the plea that no order need be passed as the assessee had made the requisite deposit as required under Section 54E of the Act. Rs. 75,000 were kept in fixed deposit with Union Bank on 28-2-1979 and Rs. 10,000 were already deposited earlier in Union Bank on 30-5-1978. It will be seen from this that such a stand is no defence against proposed order under Section 155 (7A). What the assessee really intended, though she did not express in clear terms is that the demand under Section 155(7A) would be neutralized by the relief due under Section 155(10B) and that, consequently, there would be no additional liability. The ITO rejected the claim firstly, on the ground that Section 54E does not apply to capital gains assessable for the assessment year 1974-75 as the provision came into effect from 1-4-1978 (the assessment year 1978-79) and, secondly, on the ground that the investment made did not fulfil the conditions of Section 54E even if Section 54E is applicable to the facts of the case. This view of the ITO is confirmed by the Commissioner (Appeals) and the assessee has now come up in appeal before us.
3. Before coming to the arguments of Shri K.C. Patel, we may take note of the legislative background. We would like to make it clear that we have considered this aspect only for the purpose of understanding the background and not for interpreting the relevant provisions of law.
4. Section 54E was enacted by the Finance (No. 2) Act, 1977, with effect from 1-4-1978. At the time of piloting the Bill, the Hon'ble Finance Minister read : ... I propose to exempt capital gains from tax, if the sale proceeds of any assets are invested within six months in shares, bank deposits, units of the Unit Trust or other preferred assets. . . .
The intention that the proposal was not retrospective for pre-1978-79 assets came in Notes on clauses (Clause 13) as below : This amendment will take effect from 1-4-1978 and will accordingly apply in relation to the assessment year 1978-79 and subsequent years.
Para 17.6 of the CBDT Circular No. 229 [F. No. 131(9)/77/-TPL], dated 9-8-1977- 111 ITR (St.) 9-is worded similarly : These provisions will take effect from 1st April, 1978 and will accordingly apply in relation to the assessment year 1978-79 and subsequent years.- 111 ITR (St.) 26.
5. Section 155(7A) invoked by the ITO was introduced by the Finance Act, 1978, retrospectively, from the assessment year 1974-75. As there is no dispute about this, we need not say more.
6. Section 155(1OB), which enabled the assessee to seek rectification of the assessment in respect of the capital gains by investing the proceeds in the prescribed manner under Section 54E, was enacted by the Finance Act, 1978. No specific reference to this was made in the Hon'ble Finance Minister's speech. Notes on clauses, however, stated as below : These provisions (except the provisions relating to exemption under Section 54E) will take effect retrospectively from 1-4-1974 and will apply accordingly in relation to the assessment year 1974-75 and subsequent years. The provisions relating to exemption under Section 54E will take effect from 1-4-1978, i.e., the date on which the said Section comes into force.
Para 23.7 of the CBDT Circular No. 240 [F. No. 131(2)/78-TPL], dated 17-5-1978- 117 ITR (St.) 17-is more specific as below : ...The new Sub-section (10B) relating to recomputation of capital gain in cases falling under Section 54E will take effect from 1st April, 1978 and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. - 117 ITR (St.) 39.
7. Coming now to the facts and arguments of the case, Shri Patel submitted that the benefit of Section 54E is available in respect of additional compensation received after 1-4-1978, irrespective of the assessment year in question because Section 155(10B) opens with the words "Where in the assessment for any year". According to him, additional compensation received any time even within six months prior to 1-4-1978 can be invested in bank deposit and benefit of Section 54E availed. In support he relied on the decision of the Tribunal (Ahmedabad Bench) decided as a single member case in the case of Govindlal Maneklal Patel (HUF) [IT Appeal No. 765 of 1982, dated 27-6-1983], of which the appellant is a member. Regarding investment, in respect of 22-11-1978 (Rs. 73,299), the deposit is made on 28-2-1979 (Rs. 75,000) and in respect of 30-1-1979 (Rs. 9,775), the deposit of Rs. 9,000 made on 30-5-1978 should be taken as operative as the required special endorsement was made on this fixed deposit in time.
Reliance was placed on the CBDT Circular No. 359, dated 30-5-1983- 14 Taxman 37 (Sec. IV).
8. The learned departmental representative relied on the orders of the authorities below.
9. We have carefully examined the facts and the arguments. Capital gains have arisen on only one single item of capital asset (Vadaj land) during the previous year relevant to the assessment year 1974-75. The fact that additional compensation was received at a later date, does not change the situation. Section 155(7A) fictionally relates the additional capital gains to the date of divestment of title to the property. This fiction has to be taken to its logical end. The incidents of additional compensation should, therefore, be the same as those of the original compensation. If the ITO was aware of the figure of correct compensation at the time of the passing of the order on 19-7-1979, the full value of consideration, including the additional compensation, would have been included in the assessment. In para 23.1 of the CBDT Circular No. 240, this aspect has come out (this is mentioned not for interpreting the provision but for understanding the background) as below : ...Where the transfer of the capital asset is by way of compulsory acquisition under any law, the capital gain has to be computed by taking the compensation awarded by the Government as the full value of the consideration, even though the adequacy of the compensation may be questioned by the assessee. On additional compensation being awarded to the assessee, the earlier computation can be revised within four years from the end of the assessment year, by taking the enhanced compensation as the full value of the consideration received or accruing as a result of the transfer. This is, however, not feasible in most cases because the claim for additional compensation usually gets settled after many years, when the statutory period of limitation for revising the earlier computation of capital gains would have expired.  117 ITR (St.) 37.
10. The relevant part of Section 54E(3) is given below (effective from 1-4-1978) : Where the transfer of the original asset is by way of compulsory acquisition under any law...and the compensation awarded for such acquisition...is enhanced by any court, tribunal or other authority, then, so much of the capital gain, ...as is attributable to the enhancement of the compensation...shall, if the assessee has, within a period of six months after the date of receipt of the additional compensation...invested or deposited the whole or any part of such additional compensation....
The additional compensation clearly refers to capital gains assessable in the assessment year 1978-79. If the intention was to give benefit to pre-1978-79 capital gains, the enactment would have been made effective from 1-4-1974 as in the case of Section 155(7A).
11. Again Section 155(10B), made effective from 1-4-1978, refers to Section 54E(3), which as mentioned above came in force from 1-4-1978. A plain reading itself would show that no further retrospective operation was contemplated. Even if there is doubt, a harmonious interpretation of the two clauses would leave no doubt that the benefit of Section 54E cannot be available to any capital gain accruing prior to the assessment year 1978-79, on the only ground that the additional compensation was received some time during the previous year for the assessment year 1978-79 or later. Additional compensation, thus, acquires all the incidents and characteristics of the original compensation. If the original compensation itself could not become the subject-matter of Section 54E benefit, there is no reason why additional compensation should get the benefit, for the sole reason that the vagaries of the compensation awarding authorities, led to the delay.
12. Although, as mentioned above, the meaning and scope of Section 54E, read with Section 155(10B), is clear and unambiguous, a doubt has doubtless been created by Govindlal Maneklal Patel's case (supra) and also by IT Appeal No. 169 (Bang.) of 1982, Second ITO v. B. Vasudeva Rao  9 ITD 53 (Bang.). We have gone through these judgments and we find that the above issues have not been fully debated. In Govindlal Maneklal Patel's case (supra), the only issue was whether the formalities regarding deposit and declaration were made in time, it being assumed that Section 54E applies to capital gains arising any time (sic). In B. Vasudeva Rao's case (supra), the provisions of Section 155(7A) , alone have been looked into. There is no doubt that these provisions operate from 1-4-1974. The implications of provisions of Section 155(10B), which came from 1-4-1978 and not 1-4-1974, have not become the subject-matter of adjudication by the Tribunal. We are in respectful disagreement with the view in these judgments.
13. Apart from harmonious interpretation which warrants treatment of additional compensation on par with original compensation, this is a case where interpretation will have to be made with reference to the consequences. One might refer to the following extract from Maxwell on the Interpretation of Statutes, 12th edition : ...'It is always proper,' Lord Reid has said 'to construe an ambiguous word or phrase in the light of the mischief which the provision is obviously designed to prevent and in light of the reasonableness of the consequences which follow from giving it a particular construction.' 'If the language,' he said elsewhere, 'is capable of more than one interpretation, we ought to discard the more natural meaning if it leads to an unreasonable result and adopt that interpretation which leads to a reasonably practicable result'.
In the words of Romer L.J., 'the court...when faced with two possible constructions of legislative language, is entitled to look to the results of adopting each of the alternatives respectively in its quest for the true intention of Parliament'. (p. 105) 14. Possibly, the ambiguity has arisen on account of the opening words of Section 155(1OB) 'Where for any assessment year'. Actually the Legislature did not think of mentioning the assessment year as the provision (Section 54E) itself came into operation from 1-4-1978, it is true that the Legislature, anxious to secure investments in banks, etc., could have thought of giving the benefit in respect of pre-1978-79 gains if additional compensation was received after the new provision came into force, but that such an intention was not there, is clear from the distinction made between Section 155(7A) relating to additional compensation to original capital gains operative from 1-4-1974 on the one hand and Sections 155(1OB) and 54E which became effective only from 1-4-1978 on the other hand. If Section 155(10B) is taken as purely procedural and hence applicable to additional compensation received after the date, one pertaining to any assessment year, it would cause an invidious and unwarranted discrimination between two assessees whose properties were acquired on the same day, but who received additional compensation on different days (one before and one after 1-4-1978) for reasons beyond the control of the respective assessees. Such a consequence could not have been contemplated. We, accordingly, hold that the benefit of Sections 54E and 155(10B) is not available to the assessee to whom full capital gains accrued in 1974-75.
15. In the view we have taken it is not necessary to examine whether the bank deposits are made within the statutory period. We hold that the authorities below were justified in holding the view they have taken.