Whether Capital Gains would arise on receipt of compensation if the assessee only has tenancy rights in acquisition of land?

Last updated: 05 September 2014

Court :
Delhi High Court

Brief :
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.

Citation :
Commissioner of Income Tax – Appellant – Versus – Gulab Sundri Bapna – Respondent