Section 45, of the Income-tax Act, 1961

HIGH COURT OF ALLAHABAD Commissioner of Income-tax v. Prem Kumar SUSHIL HARKAULI AND K.N. OJHA, JJ IT APPLICATION NO. 32 OF (DEFECTIVE) OF 1999 November 2o, 2007 Section 45, of the Income-tax Act, 1961 read with and section 17 of the Land Acquisition Act, 1894 - Capital gains - Year in which assessable - Assessment year 1984-85 - During relevant assessment year, possession of assessee’s land acquired under section 17 of 1894 Act was taken - However, compensation award was given by Collector on 18-9-1986 - Revenue sought to tax capital gain arising as a result of such acquisition in relevant assessment year on ground that capital gain should be taxed in year in which transfer took place or possession was taken - However, Tribunal held that no capital gain was exigible in relevant assessment year - Whether since award of compensation had not been passed in relevant assessment year, Tribunal was justified in its holding - Held, yes FACTS The assessee’s land was acquired under section 17(4) of the Land Acquisition Act, 1894, and its possession was taken during the relevant assessment year. A small part of the compensation was received during assessment year 1985-86. The compensation award was given by the Collector/ Land Acquisition Officer on 18-9-1986 and remaining compensation amounting was received by the assessee in the assessment year 1988-89. The revenue sought to tax capital gain arising as a result of the said acquisition of land in the relevant assessment year when possession was taken. The revenue relying upon definition of section 2(47) contended that for determining the assessment year in which capital gain should be taxed, it is the date of transfer which has to be considered and since under section 16 of the Land Acquisition Act, 1894, the title passed to the Government upon taking of possession, the date of transfer in matters of compulsory land acquisition would be the date on which possession was taken. However, the Tribunal held that no capital gain was exigible to tax in the relevant assessment year. On reference: HELD The revenue’s contention overlooked the vital facts, namely, that where section 17 of the 1894 Act has been invoked for the purposes of acquisition of land, possession can be taken even where no award of compensation had been given. [Para 7] If revenue’s contention was accepted; it would mean that the assessee whose land had been acquired would have to file a return disclosing the amount of capital gain arising to him without even knowing the amount of that capital gain because that amount would become known to him only after the award had been given. ‘Lex non cogit ad impossibilia’ is an age old maxim meaning that the law does not compel a man to do which he cannot possibly perform. Requiring the assessee to file a proper and complete return by including the income under the head 'capital gain' would be impossible for the assessee, in cases where award of compensation had not been given. [Para 8] Moreover, in assessment year 1984-85, section 54. H had not been added. That section has been inserted by Finance Act (No. 2) of 1991 with effect from 1-10-1991. Thus, till the assessment year 1984-85 the assessee was required to invest the capital gain in the specified securities, like capital gain bonds issued from time to time or in a residential house under the various provisions of the Act, from section 54 onwards within the time specified therein as computed from the date of transfer. It was obvious that in order to invest the money in the specified items, the assessee must first receive the money. Therefore, accepting the contention of the revenue would mean depriving the assessee of those benefits or tax relief in all cases where section 17 of the 1894 Act, had been applied. [Para 9] Therefore, for the relevant assessment year that is before the 1991 amendment was made the Tribunal was justified in holding that no capital gain was exigible to tax in the assessment year 1984-85. [Para 11] CASE REVIEW: ¬CIT v. Nawab Mahmood Jung Bahadur [1988] 172 ITR 592 (AP) distinguished. [Para 10]