Delhi High Court
This appeal by the Revenue raised the following substantial questions of law:- “1. Whether the ITAT is justified in law in deleting the addition of Rs.59,63,410/- being the amount of enhanced compensation received by the assessee during the year? 2. Whether the amount of Rs.59,63,410/- received by the assessee during the previous year relevant to assessment year 1988-89 is taxable in view of the provisions of Section 45(5)(b) of I.T. Act? 3. Whether the ITAT is correct in law that no capital gains arose to the assessee on receipt of compensation because of the acquisition of land in which the assesse had tenancy rights only?” Held that in case of compulsory acquisition of assets, capital gain charged on the compensation originally awarded in the year of transfer, the additional compensation is deemed to be taxable income and is taxed in the year in which it is received and, it is not taxed in the year of transfer of the capital asset and that capital gain tax is leviable on enhanced compensation u/s 45(5).As regards question 3, held that Capital gains arising on receipt of compensation if the assesse only has tenancy rights in acquisition of land is taxable.
Commissioner of Income Tax – Appellant – Versus – Gulab Sundri Bapna – Respondent
IN THE HIGH COURT OF DELHI AT NEW DELHI
ITA No. 198/2001
Commissioner of Income Tax - VIII, New Delhi
Through Mr. Sanjay Kumar, Jr. Standing Counsel for Mr. Kamal Sawhney, Sr. Standing Counsel.
HON’BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V. KAMESWAR RAO
Reserved on: 24th July, 2014
Date of Decision: 28th August, 2014
SANJIV KHANNA, J.
1. This appeal by the Revenue which relates to assessment year 1988-89, was admitted for hearing vide order dated 18th May, 2004 on the following substantial questions of law:-
“1. Whether the ITAT is justified in law in deleting the addition of Rs.59,63,410/- being the amount of enhanced compensation received by the assessee during the year?
2. Whether the amount of Rs.59,63,410/- received by the assessee during the previous year relevant to assessment year 1988-89 is taxable in view of the provisions of Section 45(5)(b) of the I.T. Act?
3. Whether the ITAT is correct in law that no capital gains arose to the assessee on receipt of compensation because of the acquisition of land in which the assessee had tenancy rights only?”
2. The facts, as noticed by the Income Tax Appellate Tribunal (Tribunal, for short), are that land admeasuring 24.1 acres in village Arkpur, owned by the Government and managed by the Land Development Officer was given on lease in favour of M/s Delhi Pottery Works (P) Ltd., vide registered lease deed dated 19th March, 1924. Late Kesar Singh and his sons took on sub-lease 19.1 acres of land and constructed factory premises and installed machinery thereon under the sub-lease dated 20th March, 1942. The sub-lease was for a period of 17 years and rent fixed was Rs.500 per month. Respondent assessee Late Gulab Sundri Bapna, now represented by her legal heirs, was wife of Late Kesar Singh. M/s Delhi Pottery Works (P) Ltd., went into liquidation and the leasehold rights were transferred in favour of Harnam Kaur, widow of Ram Singh Kabli, in March, 1949 and thereafter rent payable under the sub-lease was paid to her. Notification under Section 4 of the Land Acquisition Act dated 15th September, 1962, was issued in respect of land in Village Arkpur including the land under sub-tenancy and occupation of the respondent assessee. This was followed by a notification under Section 6 of the Act dated 5th December, 1968. In January, 1975, two awards were made by the Land Acquisition Officer fixing compensation for the acquired land. The respondent assessee handed over vacant possession of land under sub-lease on 30th March, 1976 and of the factory building on 17th September, 1976. In the meanwhile, in 1964, Harnam Kaur had executed a Trust Deed whereby Sardarni Harnam Kaur Trust was assigned rights in the land. Thus, there were three claimants and the District Judge, in his decision dated 20th April, 1983, held that the compensation for acquisition of land and building should be distributed inter se in the following manner:-
A. Union of India- 25% of the award money.
B. Smt. HarnamKaur Trust- Rs.1,20,000/- being 20 years capitalization of monthly rent of Rs.500/-.
C. Smt. G.S. Bapna (Respondent assessee)- The Balance amount.
3. Aggrieved by the quantum awarded, respondent assessee filed a reference under Section 18 of the Land Acquisition Act, which was decided by the Additional District Judge on 20th February, 1987. Award for enhanced compensation was challenged by the Union of India before the Delhi High Court, in an appeal which was admitted but the respondent assessee was allowed to withdraw Rs.94,89,304/- on furnishing security for restitution. The aforesaid amount was withdrawn on 30th July, 1987, by the respondent assessee by furnishing security/guarantee.
4. The Assessing Officer brought to tax Rs.59,63,410/- after excluding 50% of the compensation so awarded in terms of Section 48(2) of the Act. The respondent assessee, however, succeeded before the Commissioner of Income tax (Appeals) who observed that she was only a sub-lessee of the land and her interest was only that of a tenant. As there was no cost of acquisition of the tenancy right, capital gain was not chargeable/computable. Further, the compensation paid was not taxable till the dispute was finally decided by the High Court.
5. Appeal filed by the Revenue before the Tribunal relying upon Section 45(5) of the Act was rejected observing that the word "received" would not include or mean compensation received, if the assessee was liable to refund the amount received. Further, the compensation paid was for acquisition of tenancy right and not for acquisition of ownership rights. Section 55(2)(a) was substituted by Finance Act, 1994 w.e.f. 1st April, 1995, stipulating that the cost of acquisition of tenancy rights could be taken as NIL in cases where there was no purchase price and the said amendment was applicable only with effect from the assessment year 1994-95.
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