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Harish Chandra and Others Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax References Nos. 252 to 259 of 1975
Judge
Reported in(1985)45CTR(Del)319; [1985]154ITR478(Delhi)
ActsIncome Tax Act, 1961 - Sections 2(47), 41(2), 45, 48, 53, 54, 54B, 54D, 155(7A), 155(8A), 155(9), 155(10) and 256(1); Land Acquisition Act, 1894 - Sections 11, 12, 16, 18, 31(1) and 54
AppellantHarish Chandra and Others
RespondentCommissioner of Income-tax
Cases Referred and Webb v. Stenton and
Excerpt:
direct taxation - capital gains - sections 2 (47), 41 (2), 45, 54, 155 and 256 of income tax act, 1961 and sections 11, 12, 16, 18, 31 (1) and 54 of land acquisition act, 1894 - enhanced compensation allowed for compulsory acquisition of land - appeal against enhanced compensation pending - department imposed tax on enhanced compensation by virtue of section 45 - whether department justified - capital gain tax cannot be imposed on amount which has not become actually payable or enforceable - decision of enhanced compensation not final due to pendency of appeal - amount of enhanced compensation not payable or enforceable at time of assessment - amount cannot be taxed - department not justified. - - 16 of the acquisition act before march 31, 1966 (as the exact date is not on the.....chadha, j. 1. these eight references under s. 256(1) of the income-tax act, 1961 (hereinafter referred to as 'the act'), arise out of eight connection cases for the assessment year 1966-67, for the previous accounting year ending march 31, 1966. they pose the following questions of law for the opinion of this court : '1. whether, on the facts and in the circumstances of the case, the tribunal was right in holding that capital gains and was assessable in the hands of each assessed for the present year under section 45 of the income-tax act, 1961 2. whether, on the facts and in the circumstances of the case, the tribunal was right in taking into account the compensation received by each of the assesseds pursuant to the order of the district judge ?' 2. the eight references concern.....
Judgment:

Chadha, J.

1. These eight references under s. 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), arise out of eight connection cases for the assessment year 1966-67, for the previous accounting year ending March 31, 1966. They pose the following questions of law for the opinion of this court :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that capital gains and was assessable in the hands of each assessed for the present year under section 45 of the Income-tax Act, 1961

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in taking into account the compensation received by each of the assesseds pursuant to the order of the District Judge ?'

2. The eight references concern different co-shares of the property known as Kothi Anar Bagh, Subzi Mandi, Delhi, which was acquired by the Government under the Land Acquisition Act, 1894 (hereinafter referred to as 'the Acquisition Act'). Each assessed had 1/32 share in the said property. The notification under s. 4 of the Acquisition Act was made on September 10, 1962. The declaration under s. 6 of the Acquisition Act was made on June 11, 1963. The assessed then filed their claims before the Land Acquisition Collector in which the value of that property was stated as Rs. 24,51,408. The Land Acquisition Collector after holding as enquiry into the value of the land at the date of the publication of the notification under s. 4 and into the respective interests of the persons claiming the compensation made his award on November 20, 1965. The property was evaluated by the Land Acquisition Collector at Rs. 10,51,309 in his award and after adding 15% for compulsory acquisition assessed the value at Rs. 12,13,308.50. After the making of the award by the Land Acquisition Collector, the said amount was deposited. The amount as offered by the Land Acquisition Collector was received by the assessed under protests on March 24, 1966. The possession of the acquired land was taken by the Land Acquisition Collector under s. 16 of the Acquisition Act before March 31, 1966 (as the exact date is not on the record).

3. The assessed were not satisfied with the award of compensation by the Land Acquisition Collector and, thereforee, moved reference petitions under s. 18 of the Acquisition Act for the determination of the compensation by the court. The Land Acquisition Collector forwarded the reference petitions to the court. The Addl. District Judge determined the compensation on September 12, 1969, and enhanced the compensation by Rs. 3,58,669. The assessed were not satisfied with the determination of the compensation by the Court of Addl. District Judge and have filed appeals for further enhancement of the compensation up to the value of the property as stated in the claims made before the Land Acquisition Collector, namely, by Rs. 8,40,000. The Government is also aggrieved of the determination of the compensation by the Addl. District Judge and have preferred appeals against the enhancement allowed. The two appeals are pending in the High Court. During the pendency of the appeals, the assesseds have been allowed to withdrawn the enhanced compensation on furnishing securities for restitution. The enhanced compensation was received by the assesseds in September, 1970.

4. It was the common case of the parties before the Income-tax Appellate Tribunal (for the short called the 'Tribunal') that the year of transfer in the present case was the year relevant to the present assessment year. The award of the Land Acquisition Collector came in November, 1965, the compensation there of was received by the assessed on March 24, 1966, and the possession of the acquired land was taken by the Collector before March 31, 1966. All these dates fell within the previous year 1965-66, as the assessed have been maintaining financial year as the accounting year. In the present case, the ITO had assessed the value of the property as on January 1, 1954, at Rs. 50 per sq. yd. and this valuation was accepted by the Tribunal. Construing the provisions of s. 45 of the Act, the Tribunal came to the conclusion that the capital gains have to be treated as deemed to have accrued in the year in which the transfer took place. The Tribunal upheld the orders of the income-tax authorities who had taken into account the enhanced compensation received under the orders of the Add. District Judge while evaluating capital gains. The Tribunal observed that the assessed got the enhanced compensation in September, 1970, and that would not prevent the consideration of that sum in the computation of capital gains even if the compensation is enhanced or reduced on further appeals by the High Court or the Supreme Court. It opined that the effect of these enhancements or reduction would relate back to the year of the transfer and the capital gains would have to be accordingly adjusted in terms thereof.

5. The first question to considered is the year of chargeability in case of compulsory acquisition. Section 45 of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, saves as otherwise provided in ss. 53, 54, 54B and 54D, be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. By virtue of the definition contained in s. 2(47) of the Act, 'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. The compulsory acquisition under the law in this included in 'transfer'. For determining the chargeability, the relevant date would be the effect date of transfer of the title as contemplated by the statutory provisions. It is, thereforee, necessary to notice the provisions of the Acquisition Act to find out as to when the transfer on compulsory acquisition takes place. Section 4 deals with the publication of the preliminary notification and prescribes the powers of the appropriate officers thereupon. Whenever it appears to the appropriate Government the land in any locality is needs or is likely to be needed for any public purpose, a notification to that effect shall be published in the Official Gazette, and a public notice of its substance shall be given at convenient places in the said locality. Thereupon, it is lawful for certain officers to enter upon that land and to take specified actions. Section 5A provides for the filing and the hearing of the objections filed by person s interested in any land. After the objections are heard, a report is made to the appropriate Government who on consideration of the recommendations issues a declaration under s. 6 that that land is required for a public purpose. Section 9 requires the Collector to give public notice in the manner specified stating that the Government intend to take possession of the land and calling for claim to compensation in respect of all interests in such lands. Section 11 deals with the enquiry by the Collector and provides for the making of the award under his hand of the true area of the land, the compensation which, in his opinion, should be allowed for the land and the apportionment of the said compensation among all the persons known or believed to be interested in the land, of whom, or of whose claims, he has information, whether or not they have respectively appeared before him. Section 31(1) provides that on making an award under s. 11, the Collectors shall tender payments of the compensation awarded by him to person interested entitled there to according to the award, and shall pay it to him unless prevented by some one or more of the contingencies mentioned in sub-section (2). Section 12(1) provides that the award shall be filed in the Collector's office and shall, except as hereinafter provided, be final and conclusive evidence, as between the Collector and the person interested. The finally arises as to the area of the land, the value of the land and the apportionment of the compensation among the persons interested. Section 12(2) provides and makes it obligatory on the Collector to give immediate notice of his award to such of the persons interested as are not wholly prevent or by their representatives when the award is made. Section 16 provides that when the Collector has made an award under s. 11, he may take possession of the land, which shall thereupon vest absolutely in the Government, free from all encumbrances. The taking of the possession of the acquired land is the immediate consequence of the award under s. 11. The award gives the Collector the right to take possession. It is only when the possession of the land is taken that the vesting takes place. The word 'vest' had not got a fixed connotation, but in the Acquisition Act two consequence follow from the taking of the possession. Firstly, it is the vesting of the title of the land absolutely in the Government, and, secondly, such vesting is free from all encumbrances. The property becomes the property of the Government without any conditions or limitations either as to title or possession when the Collector takes possession of the land in pursuance of the award. It is a complete transfer by compulsory acquisition of the land in favor of the Government. The award by the Collector was made on November 20, 1965, and the possession taken before March 31, 1966. In this case, the transfer of the capital asset would be in the previous year relevant to the assessment year in question. Capital gains are assessable as income in the year in which the transfer takes place, even though the compensation may be determined by the court later or enhanced by the High Court or further enhanced by the Supreme Court in a subsequent year.

6. We may also notice at this stage as to what is an 'award' under the Acquisition Act. There is no definition of an award in the Acquisition Act. Under s. 11, the Collector is required to make an award under this land of the true area of the land, the compensation which is in his opinion should be allowed for the land and the apportionment of the said compensation. The amount of compensation under the award made by a Collector a cannot be said to be decision or determination by a judicial or quasi-judicial officer. An award made under s. 11 in relation to the compensation is merely an opinion or assessment of the Land Acquisition Collector. It is the nature of an offer made to the persons interested for the land notified in the acquisition. If the offer is accepted and the amount of the award is withdrawn, then there is an end of the acquisition proceedings. The filing of the award in the Collector's office gives finality to the same and thereafter it is conclusive evidence between the Collector and the person interested. Section 12 lays down in exception that the award could be attacked by asking for a reference to the court under s. 18. Section 18 of the Acquisition Act provides that any person interested who has not accepted the award can seek a reference for the determination of the compensation by the court. The person interested may even accept the compensation under protest, inter alia, as to the sufficiency of the amount and ask for a reference. The award of a Collector, thereforee, is not the source of the right to the determination of the compensation as the determination of the compensation as the determination of the compensation is provided by the court. The award merely quantifies the offer of the Land Acquisition Collector on behalf of the Government. In Raja Harish Chandra Raj Singh v. Land Acquisition Collector, : [1962]1SCR676 , the Supreme Court pronounced upon the legal character of the award made by the Collector under the Acquisition Act. There Lordships held that the award made by the Collector is in law an offer or tender of compensation determined by the Collector to the owner of the property under acquisition. If the owner accepts the offer, no further proceeding is required to be taken, the amount is paid the compensation proceedings are concluded. If, however, the owner does not accept the offer, then s. 18 gives him the statutory right of having the question determined by the court, and it is the amount of compensation which the court may determine that would bind both the owner and the Collector. In that case it is on the amount thus determined judicially that the acquisition proceedings would be concluded. It is because of this nature of the award that the award can be appropriately described as a tender or offer made by the Collector on behalf of the Government to the owner of the property for his acceptance.

7. If the receipt of the compensation amount under the award, when no reference under s. 18 of the Acquisition Act is sought by the interested person who is an assessed, results in capital gains, then the right to such income has arisen and has been received in the year in which the transfer is effected, that is when the possession is taken by the Collector under the Acquisition Act. There may be cases when compensation is not received by the interested persons. Even then there is an existing liability. The mere fact that the receipt of the payment is postponed to future would not detract from the liability becoming a debt. The filing of the award in the Collector's office gives finality to the same, inter alia, to the value of the land. The actual payment of the compensation is a subsequent matter and in no way is a condition precedent to making the award final. The right under s. 18 to apply for reference is given to 'any person interested'. Any person interested has to be given a plain and natural meaning, namely, a person who had an interest in the land. It does not cover the Collector or the Government. The award is final and conclusive under s. 12 as between the Collector and the person interested (who has not attacked the award by seeking a reference), inter alia, to the value of the land. The value of the land offered by the Collector is thus an existing liability; a determined debt. It is a liability in praesenti in respect of the value of the land under the award. Mr. G. C. Sharma, the learned counsel for the assesseds, did not rightly argue to the contrary for an answer to question No. 1.

8. Section 45 of the Act has, by a deeming provision or, in other words, by importing a fiction, rendered any profits or gains arising from the transfer of a capital asset effected in the previous year as liable to tax in the year in which the transfer took place. In the case of compulsory acquisition, the transfer takes place on possession belong taken. The crucial and relevant date is the date on which possession is taken by the Collector on the making of the award. In this case, the date falls in the previous accounting year relevant to the assessment year in question. To attract the liability to tax under s. 45, it is sufficient if, in the accounting year, profits or gains have arisen out of the transfer of the capital asset, in other words, the assessed had a right to receive the profits. Actual receipt of the profits is not a relevant consideration. Is it possible to construe that the right to receive the enhanced compensation arisen or accurse without final determination by the court In other words, the question is as to whether it can be said that any amount or profits had actually accrued or arisen to the assessed on the basis of the amount claimed by the assessed in his reference petition under s. 18 of the Acquisition Act or on determination of the compensation by the Additional District Judge when that judgment and decree is in appeal in the High Court, at the instance of the Government, or further appeal to the Supreme Court, again at the instance of the Government.

9. We may recall that the award in is law offer or tender of the compensation of the compensation determined by the Collector to the owner of the property. The owner in this case has not accepted the offer and sought the statutory right of having the question determined by the court under the Acquisition Act. The term 'court' refers to the competent District Court. The Court of Addl. District Judge is the first court in the hierarchy for the determination of the compensation on a reference under s. 18 of the Acquisition Act. Under the s. 54, an appeal lies in any proceedings under the Acquisition Act to the High Court from the award, or any part of the award, of the court and from any decree of the High Court passed in such appeal as aforesaid an appeal lies to the Supreme Court. The value of the land has first to be determined by the competent District Court. In the first appeal to the High Court, the determination of the value of the land is again at large, a continuation of the original proceedings in case the appeal by both sides for redetermination in accordance with the extent of dispute raised in the two appeals. The question is open again in the appeal to the Supreme Court.

10. Under the Act, income is taxable when it accrues, arises or is received, or when it is by fiction deemed to accrue, arise or is deemed to be received. Receipt is the only test of chargeability. If income accrues or arises, it may become liable to tax (see CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 27 . In Sassoon & Co. Ltd. v. CIT : [1954]26ITR27(SC) , a question arose before the Supreme Court whether the assessed's rights and benefits under the managing agency agreement were liable to tax on the accrual basis on the whole of the commission or whether there should be proper apportionment between the assignor and assignee in respect of the said income. It was held (p. 5) :

'To the same effect are the observations of Satyanaraya Rao J. in Commissioner of Income-tax v. Anamallais Timber Trust Ltd. : [1950]18ITR333(Mad) , and Mukherjea J. in Commissioner of Income-tax v. Ahmedbhai Umarbhai & Co. : [1950]18ITR472(SC) , where this passage from the judgment of Mukherji J. in Rogers Pyatt Shellac & Co. v. Secretary of State for India [1925] 1 ITC 365, is approved and adopted. It is clear, thereforee, that income may accrued to an assessed without the actual receipt of the same. If the assessed acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conceptions that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti solvendum in future : see W. S. Try Ltd. v. Johnson [Inspector of Taxes] [1946] 1 All ER 532 and Webb v. Stenton and others, Garnishees [1883] 11 QBD 518. Unless and until there is created in favor of the assessed a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that income has accrued to him.'

11. It is thus clear that unless and until there is created in favor of the assessed a debt due by somebody, it cannot be said that he has acquired right to receive the income or that income has accrued to him. In cases of claim for determination of compensation by the court, no debt is due or was due until the amount of compensation is judicially determined at all stages provided in the Acquisition Act. The offer made by the Collector by his award, if not accepted by the assessed, would not result automatically in a liability to pay enhanced compensation as claimed by the assessed. The claim made by the the assessed is in respect of an inchoate right and unless the question of payment of any enhanced compensation is decided and the amount of enhanced compensation becomes determinable and payable, the amount cannot be said to arise or accrue. With the filing of the appeal by the Government against the determination of compensation by the District Court, the amount is in jeopardy. The right to receive the enhanced compensation by the assessed is clearly unsettled. The assessed has withdrawn it only on furnishing security for restitution. The withdrawal of the amount is contingent inasmuch as it is likely to be defeated by the acceptance of the appeal of the Government. The liability to pay additional or enhanced compensations an inchoate or contingent right not creating a debt.

12. The question regarding capital gains arising out of the proceedings under the Acquisition Act has a arisen in various High Courts. In Topandas Kundanmal v. CIT : [1978]114ITR237(Guj) , it was held that if an assessed has got an inchoate right and has not acquired any vested right to enhanced or additional compensation over and above what has been offered to him by the Land Acquisition Officer, it cannot be said that he has a vested and complete right as to the interest on such amount. It is only when the amount of compensation is adjudicated upon by the court and it is only when the court awards interest on such enhanced amount of compensation that the assessed has an enforceable right to the principal amount of compensation as well as interest. It was held (p. 247) :

'In other words, the legal position which emerges is that there is not liability in praesenti to pay an enhanced compensation till it is judicially determined by the final court since the entire question, namely, whether the offer made by the Land Acquisition Officer is inadequate and the claimant is entitled to an additional compensation and if yes, at what rate, is in a flux till the question is set at rest finally, we do not think that any enforceable right to a particular amount of compensation arises. The offer made by the Land Acquisition Officer, by his award, if not accepted by a claimant would not result automatically in a liability to pay additional compensation as claimed by a party aggrieved. There is no doubt a liability to pay compensation as offered by the Land Acquisition Officer. But that is far from saying that that liability is the liability to pay additional compensation or enhanced compensation as claimed by a party aggrieved. If there is an existing liability, the mere fact that the payment is postponed to future would not detract that liability from becoming a debt but the liability from becoming a debt but the liability to pay unliquidated damages or additional compensation which are inchoate or contingent would not create a debt. We are, thereforee, of opinion that if an aggrieved party whose land is acquired does not accept the offer made by the Land Acquisition Officer in his award, he has a right to seek reference under section 18 for getting the question of the compensation determined by the court and it is on the amount thus determined judicially that the owner would be entitled to enforce that right for a particular sum. It is on the final determination, in our opinion, of the amount of compensation that the right to that income in the nature of compensation would arise or accrue and till then there is no liability in presenti in respect of the additional amount of compensation claimed by the owner of the land sought to be acquired.'

13. The Andhra Pradesh High Court in Ahmed Alladin Khan Bahadur & Sons v. CIT : [1969]74ITR651(AP) has taken the same view which was followed by the Andhra Pradesh High Court in subsequent cases. The Gujarat High Court also reiterated the same view in Addl. CIT v. New Jehangir Vakil Mills Co. Ltd. : [1979]117ITR849(Guj) .

14. In CIT v. Hindustan Housing and Land Development Trust Ltd. : [1977]108ITR380(Cal) , the question arose as to when income accrues. In that case also, the compensation amount allowed by the Collector was enhanced and State deposited the amount in court and appealed to the High Court against the enhancement. The amount was a deposited in the High Court but was paid to the assessed on executing a security bond. The Calcutta High Court held (p. 393) :

'On a consideration of these authorities, we are of the opinion that a compensation amount can only be considered to have accrued or arisen when the said amount has become determinate and payable. The authorities which we have discussed so far, in our opinion, support us in this view. Whether the amount of compensation is determinate and payable or not, will necessarily depend on the facts of each particular case. In the facts of the instant case, the Collector made an award for a particular sum. On appeal to the court of the arbitrator, the arbitrator has enhanced that amount. Against the decision of the arbitrator enhancing the amount, an appeal has been preferred and is now pending in the High Court. So far as the amount an as the amount awarded by the Collector is concerned, in the first instance, the said amount is clearly a determinate and, in fact, a determined amount, and is payable. There is no dispute with regard to the said amount and the said amount has already suffered tax. With regard to the enhanced amount which was subsequently fixed by the order of the arbitrator, the said amount cannot be said to be a determinate amount as the said amount is now pending appeal in the High Court. The enhanced amount may be affirmed by the High Court, may be reduced by the High Court or the entire enhanced amount may be disallowed. In the instant case, the claim for the said further amount is in jeopardy and in the right of the assessed to receive any further amount is also clearly unsettled. Unless the question of payment any enhanced compensation is decided the amount of enhanced compensation becomes determinate and payable, the said amount cannot, in our opinion, be said to accrued or arise. The further amount awarded by the arbitrator forms in reality at this stage the subject-matter of a mere claim or an assertion on the part of the assessed to receive the said amount, but the said claim has yet to be accepted by the court. The fact that the assessed was allowed to withdrawn the said amount after furnishing a security bond, does not, in our opinion, affect the position and does not make the amount of compensation either determinate payable. Apart from the question that actual payment is not a material consideration in the matter of compensation in a case where the accounts are maintained on the mercantile system, in the instant case the said payment received by the assessed cannot be considered to be a payment of any compensation, as the right of the assessed to receive any further compensation or the amount of the further compensation has not yet been adjudicated upon and decided. The said receipt is really the receipt of a particular sum pursuant to an order of court on the security bond executed by the assessed and on the basis of terms and conditions mentioned in the said bond.'

15. The legislature became conscious of the difficulties of the assessed in cases where he does not accept the compensation awarded by the Collector for the compulsory acquisition of his capital asset but initiate appropriate legal proceedings claiming higher compensation. A view was expressed that capital gains in such cases has to be computed with reference to the compensation awarded by the Government and the assessment made on this basis can be revised within four years from the end of the relevant assessment year if additional compensation is later awarded to the taxpayer. It was also noticed that a claim for additional compensation gets finally settled after many years when the statutory period of limitation for revising the original computation of capital gains would have expired. The legislature proposed amendments in the Finance Bill, 1978. Section 155(7A) was inserted with retrospective effect from April, 1974, reading as follows :

'Where, in the assessment for any year, the capital gain arising from the transfer of a capital asset, being transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, is computed under section 48 and the compensation for such acquisition or the consideration for such transfer is enhanced or further enhanced by the any court, Tribunal or other authority, the computation or, as the case may be, computations made earlier shall be deemed to have been wrongly made and the Income-tax Officer shall, notwithstanding anything contained in this Act, recompute in accordance with section 48 the capital gain arising from such transfer by taking the compensation or the consideration as enhanced or further enhanced, as the case may be, to be the full value of the consideration received or accruing as a result of such transfer and shall make the necessary amendment; and the provisions of s. 154 shall, so far as may be, apply thereto, the period of four year specified in sub-section (7) of that section being reckoned from the end of the previous year in which the additional compensation or consideration was received by the assessed.'

16. The scope of the newly inserted s. 155(7A) of the Act has been further elaborated in the Departmental Circular No. 281 dated September 22, 1980 [1981] 131 ITR 4. It is reiterated that the new sub-s. (7A) provides, that in such cases, the computation or, as the case may be, computation made earlier shall be deemed to be wrongly made and the ITO shall recompute the capital gains arising from such transfer by taking the compensation or consideration as enhanced or further enhanced to be the full value of the consideration received or accruing as a result of the transfer, and shall made the necessary amendment. The legislative intend is clear that unless the compensation or consideration is determined when it is so desired by the assessed or enhanced or further enhanced in the process of judicial determination, the amount does not actually become payable or enforceable and cannot be brought to tax as capital gains. It would accrued or be deemed to accrued on determination by the court or on enhancement by the High Court or further enhancement by the Supreme Court. Such amount accrued only when it becomes payable, in other words, when the courts accept the claim. In this case, the Government had exercised its right of appeal under s. 54 of the Acquisition Act. The compensation determined by the District Court is in jeopardy. It is not payable to the assessed as of right and thus capital gain have not arisen. The High Court may either disallow the appeal or may accept it and reduce the compensation. The legislature had only used the word 'enhanced' or 'further enhanced' in the newly added sub-s. (7A). It is obvious that there is no deeming provision or statutory fiction that the computation made earlier shall be deemed to have been wrongly made on reduction or further reduction. It cannot be imputed to the legislature that it was not aware of the provision of s. 54 of the Acquisition Act which give a right to the Government to have the compensation reduced in appeal to the High Court or further reduced in appeal to the Supreme Court. The enhanced compensation would thus accrue only when the court accepts it and the decision becomes final. Unless finality is attached to the determination by the District Court or enhancement by the High Court, it cannot be said to accrue or be deemed to have accrued. Mr. G. C. Sharma, the counsel for the assessed, fairly concedes that as and when the appeal is decided by the High Court and compensation determined, the computation made by the ITO shall be deemed to have been wrongly made. The enhanced compensation, if any, giving rise to capital gains can then be brought to tax.

17. In the end, we may notice the case of CIT v. Rohtak Textile Mills Ltd. : [1982]138ITR195(Delhi) , decided by this court and heavily relied upon by Mr. G.C. Lalwani, the learned counsel for the Revenue. The assessed there was running certain electrical undertaking at four places. Three of them were taken over by the Electricity Board under the provisions of the Indian Electricity Act, 1910, during the financial year relevant to the assessment year 1963-64, and the fourth during the financial year relevant to the assessment year 1965-66. The assessed was not satisfied with the compensation offered by the Board and resort to the remedies by way of arbitration and thereafter to the courts were still available to the assessed. The dispute was mainly on the questions raised under s. 41(2) of the Act. The income-tax authorities also took into consideration the market value of the assets as per the Electricity Board's offer. It comprised of Rs. 5,54,360 in respect of land, which had originally cost to the assessed Rs. 4,11,838. A sum of Rs. 1,42,522 was brought to capital gains in the assessment year 1965-66. For the earlier 1963-64, the long-term capital gain was similarly worked out at Rs. 2,30,114 and Rs. 2,120. The capital gains were worked out on the basis of compensation accruing to the assessed on market value of the assets as determined by the Electricity Board. This amount had been determined and thus accrued. The other question raised there was regarding the year in which the capital gains tax would be assessable. The vesting of the undertaking is provided in s. 7 of the Electricity Act. It is in this context that the following observations were made (p. 213) :

'Once it is found that a transfer had taken place in the previous year, it is clear on the language of s. 45 that the capital gains arising from the transfer are liable to tax as the deemed income of that previous year. It is clear that also that for bringing such capital gains to tax the Department cannot be asked to wait until the compensation or price payable is finally determined. All that is necessary that, by the end of the previous year in question, the assessed must have received or become entitled to receive moneys in excess of the actual cost of the assets. The assessment so made may be liable to modification in the somewhat unusual and unlikely event of the price being reduced subsequently (a threat of which seems to be present in the instant case in regard to the transfers relevant for the assessment year 1963-64), or in the event of the amount being sub-sequently enhanced, an eventuality which occurs perhaps, in almost every case of such acquisition. if there are any difficulties in the way of the assessed or Revenue (by way of limitation or otherwise) in having such modifications effected, these difficulties can be solved by necessary amendments to the statute (for example see s. 155(7A), (8A), (9) and (10)) but cannot preclude the Department from completing the assessment on such materials as may be available by the time of the assessment.'

18. No such question of reduction of the value of the assets as determined by the Electricity Board could have arisen in that case as the transaction of transfer of the undertaking is pursuant to the statutory option of purchase. It does not amount to compulsory acquisition. It is only a sale for consideration to be ultimately determined by arbitration. The determination of the purchase price is provided in section 7A of the Electricity Act. Those provisions are at variance with the provisions of the Acquisition Act.

19. The other case relied upon is Shah Vrajlal Madhavji v. CIT [1947] 95 ITR 614 . The Kerala High Court has taken the contra view. With great respect to the learned judges who rendered that opinion, we record a note of dissent.

20. In the result, we answer the first question in the affirmative that is against the assessed and in favor of the Department. The second question is answered in the negative that is in favor of the assessed and against the Department. In view of partial success, we leave the parties to bear their own costs.


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