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Deputy Commissioner of Income Tax Vs. C.P. Lonappan and Sons - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Reported in(2001)75ITD301(Coch.)
AppellantDeputy Commissioner of Income Tax
RespondentC.P. Lonappan and Sons
Excerpt:
.....27,08,000 received by the assessee during the previous year ending on 31-3-1992 was assessable to capital gains under section 45(5)(a) of the income tax act. accordingly he computed the capital gains assessable for the assessment year 1992-93. as per the award, the assessee also became entitled to get interest from 1-9-1991. the assessing officer took the view that the interest relatable to the period upto 31-3-1992 was assessable for the assessment year 1992-93. aggrieved with the order passed by the assessing officer on the above lines, the assessee filed an appeal before the commissioner (appeals). the appellate authority held that what the assessee had received in the year ending 31-3-1992 was only an advance and that the compensation amount was actually receivable only as per the.....
Judgment:
This is an appeal directed against the order of the Commissioner (Appeals), Cochin in the income-tax assessment of the assessee, M/s.

C.P. Lonappan & Sons, Trichur for the assessment year 1992-93.

In the course of the assessment proceedings for the assessment year 1992-93 the assessing officer came to know that 0.3059 hectors of land belonging to the assessee was acquired by the Government of Kerala for widening the National Highway by virtue of declaration made on 11-10-1991. On 30-8-1991 the assessee was given a sum of Rs. 27,08,000 as advance towards the compensation payable for the acquisition of the land. The Land Acquisition Officer later passed the award on 18-12-1992. As per the award the assessee became entitled to get a total sum of Rs. 38,11604 by way of compensation. After setting off the advance paid earlier, the balance amount was paid to the assessee on 11-1-1993. The assessing Officer was of the view that the sum of Rs. 27,08,000 received by the assessee during the previous year ending on 31-3-1992 was assessable to capital gains under section 45(5)(a) of the Income Tax Act. Accordingly he computed the capital gains assessable for the assessment year 1992-93. As per the award, the assessee also became entitled to get interest from 1-9-1991. The assessing officer took the view that the interest relatable to the period upto 31-3-1992 was assessable for the assessment year 1992-93. Aggrieved with the order passed by the assessing officer on the above lines, the assessee filed an appeal before the Commissioner (Appeals). The appellate authority held that what the assessee had received in the year ending 31-3-1992 was only an advance and that the compensation amount was actually receivable only as per the award given in the financial Year 1992-93 and so in terms of section 45(5)(a) the capital gains was assessable for the assessment year 1993-94. On that view he deleted the assessment of the capital gains for the assessment year 1992-93. The Commissioner (Appeals) further held that his decision was equally applicable in respect of the interest receivable on the compensation.

The revenue is in appeal before the Tribunal against the order passed by the Commissioner (Appeals) deleting the assessment of the capital gains and the interest on the compensation.

We have heard the Departmental Representative Shri C. D. Nair and the assessee's representative Shri Venugopal, chartered accountant. From the facts as brought on record, we find that though the assessee received the sum of Rs. 27,08,000 on 30-8-1991, the award was given by the Land Acquisition Officer only on 18-12-1992. The Commissioner (Appeals) has held that the compensation under the award was received by the assessee in the year ending 31-3-1993 after the award was passed by the Land Acquisition Officer and in that sense under the provisions of section 45(5)(a) the capital gains could be considered for assessment for the assessment year 1993-94 only.

Sub-section (5) was inserted in section 45 of the Income Tax Act by Finance Act, 1987 with effect from 1-4-1988. New sub-section (5) provided that the initial compensation awarded or determined or approved on compulsory acquisition of property shall be deemed to be assessee's income of the previous year in which the transfer took place. In case any enhanced compensation is received subsequently the compensation so received will be charged to tax as capital gains of the year in which such amount is received. Clause (a) of sub-section (5) originally read as under: "(a) The capital gains computed with reference to the compensation on the first instance or as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head 'capital gains of the previous year in which the transfer took place.

Clause (a) was later amended by the Finance (No. 2) Act, 1991, with retrospective effect from 1-4-1988. The amended clause (a) now reads as under: "(a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head 'capital gains' of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received;" The effect of the amendment is that the initial compensation is assessable as capital gains of the previous year in which the compensation or consideration is first received. CBDT Circular No. 621 dated 19-12-1991 providing the explanatory notes on the provisions of the Finance (No. 2) Act, 1991 deals with the amendment in clause (a) of section 45(5) as under: "Streamlining the provisions relating to exemption for roll-over of capital gains.

23. Capital gains are deemed to be income of the previous year in which the transfer giving rise to the gains takes place except where otherwise provided. Accordingly, in the case of compulsory acquisition of assets, the capital gains included in the compensation, as originally awarded, is charged to tax in the year in which the transfer by way of compulsory acquisition takes place but additional compensation is brought to tax only in the year in which it is received.

23.1 It has been brought to the notice of the Government that in cases of compulsory acquisition of assets, at times there is a considerable gap between the dates of acquisition and payment of compensation.

The result is that the existing provisions of capital gains taxation operate harshly inasmuch as the affected persons are unable to avail of the exemption for roll-over of capital gains, within the specified time period, through investment in specified assets.

23.2 section 45 of the Income Tax Act has, therefore, been amended to provide that capital gains arising from the transfer of the capital asset way of compulsory acquisition under any law shall be charged to tax in the previous year in which the compensation is first received.

23.3 This amendment takes effect retrospectively from 1st April, 1988.

(195 ITR St. 154) In the light of the Board's circular, it is clear that section- 45 has been amended to provide that capital gains arising from the compulsory acquisition of the capital assets is chargeable to tax in the previous year in which the compensation or part thereof is received. The amendment helps the affected person to avail of the exemption for roll-over of capital gains within the specified period, with reference to the receipt of the compensation or part thereof. In the present case, the assessee received Rs. 27,08,000 on 30-8-1991. In the award No. 14/92 dated 18-12-1992, the compensation payable was determined at Rs. 36,81,219 and in the order of the Land Acquisition Officer the sum of Rs. 27,08,000 was shown as advance paid on 30-8-1991. The Commissioner (Appeals) was of the view that the sum of Rs. 27,08,000 being only an advance, it would not be correct to assess the compensation for the assessment year 1992-93 on the basis of the receipt on 31-8-1991. According to the Commissioner (Appeals) the compensation was received by the assessee during the financial year 1992-93 only and so the same could be assessed for the assessment year 1993-94 and not for the assessment year 1992-93.

The question to be considered now is whether the sum of Rs. 27,08,000 received by the assessee on 31-8-1991 was part of the compensation amount, which could be assessed for the assessment year 1992-93 on receipt basis as per clause (a) of section 45(5). It may be noted that the assessee became entitled to the compensation on the acquisition of the property by the Government. What the Govt. paid on 31-8-1991 as advance to the assessee was part of the compensation payable on the acquisition of the property. Though the compensation payable was determined subsequently by the award dated 18-12-1992, the advance received earlier cannot be viewed as anything other than part of the compensation received on the acquisition of the property belonging to the assessee. It is our considered view that the advance of Rs. 27,08,000 received by the assessee was part of the compensation only, even though the actual amount of compensation was determined subsequently only. It may be noted that after the award was given on 13-12-1992, the assessee was paid only the balance amount of Rs. 9,73,219 (excluding the interest) in the year ending 31-3-1993. We do not think the Commissioner (Appeals) is correct in his view that the entire compensation of Rs. 36,81,219 was assessable for the assessment year 1993-94 even though during the previous year the assessee had received only Rs. 9,73,219 after adjusting the advance paid earlier. It is our considered view that in terms of clause (a) of section 45(5) the sum of Rs. 27,08,000 is assessable under the head 'capital gains' for the assessment year 1992-93 as part of compensation, or actual receipt basis. For the assessment year 1993-94 the receipt being only the balance amount of Rs. 9,73,219, the assessment to capital gains could be that amount only. We may mention here that the assessing officer is also not correct in considering the entire compensation amount of Rs. 36,81,290 for assessment as capital gains for the assessment year 1992-93, when the part payment received during the previous year was Rs. 27,08,000 only. We thus modify the order of the Commissioner (Appeals) and direct the assessing officer to consider the sum of Rs. 27,08,000 only for assessment of capital gains for the assessment year 1992-93.

The other ground raised by the revenue in this appeal is that the Commissioner (Appeals) erred in deleting the addition towards the interest receivable on the compensation amount. In the assessment, the assessing officer included Rs. 51,095 as interest on the compensation on accrual basis. The assessee became eligible to interest at 9 per cent on the compensation amount as per the award dated 18-12-1992. It was the finding of the Commissioner (Appeals) that, as the award was given on 18-12-1992, the accrual of interest was in the year ended on 31-3-1993 and so assessable for the assessment year 1993-94. According to the Commissioner (Appeals) the entire interest would be assessable for the assessment year 1993-94 only. In the case of Peter John v. CIT (1986) 157 ITR 711 (FB) the Kerala High Court has held that the interest on compensation awarded with respect to the land acquired under the Land Acquisition Act would run from day-to-day accruing from the date on which the Government took possession of the land, that being the date on which the land owners' right to receive the entire compensation accrue, though determined and paid later and only interest accruing each year was assessable in that year. In the case of Korshed Shapoor Chenai v. CIT (1990) 181 ITR 400 (SC), the Supreme Court has also held that view. In the light of the above decisions, we reverse the order the Commissioner (Appeals) and uphold the assessment of the interest on the compensation for the assessment year 1992-93 on accrual basis.

In the result, this appeal by the revenue is partly allowed. The assessing officer will revise the assessment accordingly.


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