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Shah Vrajlal Madhavji Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 43 of 1971
Judge
Reported in[1974]95ITR614(Ker)
ActsIncome Tax Act, 1961 - Sections 45; Land Acquisition Act
AppellantShah Vrajlal Madhavji
RespondentCommissioner of Income-tax
Appellant Advocate K. Sreenivasan, Adv.
Respondent Advocate P.A. Francis, Adv.
Cases ReferredVuppala China Sambamurthy v. Addl. Income
Excerpt:
- .....on the facts and in the circumstances of the case, the assessment of the sum of rs. 38,525 as capital gains chargeable to tax under section 45 of the income-tax act, 1961, is valid in law ? 2. whether, on the facts and in the circumstances of the case, the assessment of the sum of rs. 90,867 as capital gains arising to the assessee in the assessment year 1963-64 is valid in law ?' 2. the year of assessment is 1963-64 and the relevant previous year ended on october 28, 1962. during that previous year, a property which belonged to the assessee was compulsorily acquired under the land acquisition act (1 of 1894). it is admitted in the application moved by the assessee before the tribunal under section 256(1) that the transfer of the property took place on april 1, 1962, and that the.....
Judgment:

Govindan Nair, J.

1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following two questions to this court:

' Whether, on the facts and in the circumstances of the case, the assessment of the sum of Rs. 38,525 as capital gains chargeable to tax under Section 45 of the Income-tax Act, 1961, is valid in law ?

2. Whether, on the facts and in the circumstances of the case, the assessment of the sum of Rs. 90,867 as capital gains arising to the assessee in the assessment year 1963-64 is valid in law ?'

2. The year of assessment is 1963-64 and the relevant previous year ended on October 28, 1962. During that previous year, a property which belonged to the assessee was compulsorily acquired under the Land Acquisition Act (1 of 1894). It is admitted in the application moved by the assessee before the Tribunal under Section 256(1) that the transfer of the property took place on April 1, 1962, and that the award of the Land Acquisition Officer was passed on April 5, 1962 (vide paragraph 3 of the reference application at page 19 of the paper book). The Land Acquisition Officer awarded Rs. 40,208 as compensation. There was a reference to the Subordinate Judge, Kozhikode, and the compensation, was enhanced by the court to Rs. 1,30,216. The judgment of the court was on January 15, 1965, Before this judgment was pronounced, the assessment for the year 1963-64 had been completed on November 28, 1963. On the 9th September, 1967, the assessee wrote to the Income-tax Officer and the relevant part of the letter is in these terms :

'During the previous year ended 12th November, 1966, I have received from the Government a further compensation towards my building acquired for the Malabar Market Committee and the capital gains assessable for the year 1963-64 comes to Rs. 43,513.37 as detailed below. I, therefore, request that the assessment for 1963-64 may kindly be reopened and the capital gains assessed as required by Section 45 of the Income-tax Act. '

3. Pursuant to this communication, the earlier assessment was reopened and a fresh assessment order dated November 29, 1961, annexure 'A', was passed by the Income-tax Officer. He calculated the capital gains as follows :

'Total acquisition pricereceived

Rs. 1,30,216

Deduct book value of the property

Rs. 39,349

Total

Rs. 90,867'

4. The sum of Rs. 90,867 mentioned in question No. 2 was arrived at as stated above. There is no dispute regarding this amount. One of the contentions by the assessee before the Appellate Assistant Commissioner in appeal from the order, annexure 'A', and in further appeal before the Tribunal was that the decision of the subordinate judge had been appealed against by the State before the High Court and in the appeal the State contested the quantum of the compensation awarded by the sub-judge to the extent of Rs. 38,525 and, therefore, the sum of Rs. 38,525 was a contingent liability and should be deducted in computation of the capital gains for the year 1963-64. A further contention was raised before the Tribunal that the compensation payable got crystallized only when the subordinate judge passed its judgment on January 15, 1965 and, therefore, should have been assessed only for the year 1966-67. This latter contention was negatived by the Tribunal on the ground that the principle of equitable estoppel will apply and the assessee having written to the Income-tax Officer on September 9, 1967, that an assessment must be made for the year 1963-64 and an assessment having been made on that basis, the assessee cannot be heard to say that the assessment should have been in any other year. The Tribunal relied on the decision of the Andhra Pradesh High Court in Vuppala China Sambamurthy v. Addl. Income-tax Officer, [1960] 38 I.T.R. 685 (A.P.). We are not now concerned with this aspect.

5. Counsel on behalf of the assessee contended before us that it is not possible to postulate the quantum of the capital gains before it was finally settled by the final judgment in appeal either of this court or in given cases by the Supreme Court and, therefore, it was not possible for the taxing authorities to impose any tax on the basis of capital gains arising out of a compulsory acquisition of the land unless the quantum of the compensation had been settled as indicated above. Counsel also contended that the principle of equitable estoppel has no application. He further stressed that in case the High Court reduced the quantum of the compensation in appeal, the assessee will be left without a remedy and the effect of the order of assessment would be to impose a tax on a non-existing income and, therefore, the order of the Tribunal was erroneous.

6. On behalf of the revenue, counsel did not seek to support the order of the Tribunal on the ground of equitable estoppel. We, therefore, need not consider this aspect at all. Section 45 of the Income-tax Act, 1961, speaks of profits or gains arising from the transfer of a capital asset effected in the previous year. Such profits or gains are 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. The only questions, therefore, are was there any transfer in the previous year and what was the quantum of the profits and gains arising from such transfer. As we indicated already, that there was a transfer in the previous year is admitted. The profits and gains arising from that transfer have also been determined by the subordinate judge. The only question is whether the quantum as determined by the subordinate judge can be taken by the taxing authorities to be the quantum of the profits and gains and, therefore, the quantum of the income under capital gains under Section 45 of the Income-tax Act, 1961. We can see that there is the possibility of this quantum determined by the subordinate judge being varied in appeal by the High Court or in further appeal by the Supreme Court where such an appeal would lie. Because of this possibility is it necessary for the income-tax authorities either not to assess the income at all which had arisen during the year or keep the assessment open till the matter is finally decided by the High Court or the Supreme Court We do not think that either of these courses need necessarily be adopted by the taxing authorities. They will be justified in taking the quantum as determined by the subordinate judge or for that matter by the Land Acquisition Officer and impose tax on that basis. Perhaps, the assessee would have been justified if he had contended before the taxing authorities that the order itself should provide for making necessary alterations in the quantum of capital gains if the quantum determined by the subordinate judge or the Land Acquisition Officer which had been taken by the taxing authorities as the true quantum of income is varied in further appeal. Such a request would have been a legitimate request and if it had been made, we are inclined to think that the Tribunal would have made the position clear by so stating. Even if this had not been done, it is not as though the assessee has no remedy. As we see it, in cases where Section 254(2) of the Income-tax Act, 1961, applied, the assessee can seek a rectification of the order of the Tribunal if the income determined by the subordinate judge or the Land Acquisition Officer as the case may be and taken by the taxing authority to be the true income is varied after the order of the Tribunal by an appellate authority. In this case, the appeal to the High Court did not succeed and the quantum fixed by the subordinatejudge has been upheld and no such difficulty as envisaged by the assessee actually arose.

7. We see no error in the order of the Tribunal. We answer the two questions referred to us in the affirmative, that is, in favour of the department and against the assessee. We direct the parties, to bear their respective costs.

8. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.


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