Income Tax Appellate Tribunal - Allahabad
Tej Kumar Bhargava vs Income-Tax Officer on 17 April, 1987
Equivalent citations: [1987]21ITD21(ALL)
ORDER
C.B. Rathi, Accountant Member
1. These appeals, one by the assessee and the other by the department, have been filed against the order passed by the Appellate Assistant Commissioner of Income-tax, Lucknow, in the income-tax appeal of the assessee for the assessment year 1967-68.
2. The assessee along with two others owned lands bearing the municipal lay out Nos. 61 and 62 within the municipal limits of Lucknow. The total area of these plots was 2,23,423 sq. ft. The northern portion of this land measuring 98,408 sq. ft. was acquired by the Bridge Construction Division of P.W.D., Lucknow for planned development of the town of Lucknow and the construction of a bund for protection from floods. The assessee along with another co-owner Shri Raja Ram Kumar Bhargava filed joint objection before the Special Land Acquisition Officer claiming compensation as under :
(a) Compensation @ Rs. 4 per sq. ft. of the acquired area.
(b) Damage on account of severance of the rest of land @ Rs. 4 per sq. ft. as it was claimed by the assessee that after the acquisition of the northern portion there was no approach left for the remaining portion.
(c) Interest on the compensation amount.
3. The Special Land Acquisition Officer vide his order dated 8-11-1966 awarded a sum of Rs. 98,408 only @ Re. 1 per sq. ft. of the land acquired. The claim for damage to the remaining portion of the land was rejected. Nothing was said about the claim for interest.
4. The award of the Land Acquisition Officer was not accepted and the assessee and Shri Raja Ram Kumar Bhargava moved an application under Section 18 of the Land Acquisition Act before the said officer requesting that the matter may be referred to the Court. The matter was accordingly referred to the Civil Judge, Mohanlalganj at Luckhow. Before the Civil Judge, the claim that the compensation for the acquired land should be awarded @ Rs. 4 per sq. ft. was repeated. It was also claimed that the southern portion of the plot which had not been acquired had been adversely affected by the acquisition of the northern strip of this plot and compensation @ Rs. 4 per sq. ft. should be awarded in respect of the remaining area on account of severance of status. The unacquired land was claimed to have become inaccessible from the road. The assessee also claimed that further amount of 15% should be awarded by way of solatium under Section 23(2) of the Land Acquisition Act. The learned Civil Judge decided the matter by his order dated 15-7-1969 as under :
(1) Compensation for the acquired land measuring 98,408 sq. ft. was allowed @ Rs. 3 per sq. ft,-Rs. 2,95,224 cost.
(2) Damages for severance of unacquired land measuring 1,25,015 sq. ft. @ Rs. 3 per sq. ft.-Rs. 3,75,045.
(3) The claim for payment of solatium was rejected.
5. The learned Civil Judge also held that the formal possession of the acquired land was taken by the State on 24-11-1966.
6. Against the above decision of the Civil Judge the State as well as the assessee have filed appeals before the High Court. The State has claimed that the compensation for the acquired land should not have been increased to Rs. 3 per sq. ft. and no damage should have been awarded, for the unacquired land. The assessee, on the other hand, has claimed that further compensation of Rs. 29,691 and the claim for payment of solatium should be allowed. Both the appeals are pending for decision before the High Court.
7. On the basis of the above facts the Income-tax Officer held that there had been a transfer of capital asset by the assessee on 24-11-1966 and the capital gain arising from the same was liable to be assessed in the assessment year 1967-68. The original assessment for this year having already been completed the Income-tax Officer issued a notice under Section 148 of the Income-tax Act. In response to this notice the assessee filed a return showing a capital gain of Rs. 11,402 worked out as below :
Compensation @ Rs. 3 per sq. ft.
for 98,408 sq. ft. of land Rs. 2,95,224
Less : Fair market value of the above
land as on 1-1-54 @ Rs. 2.50 per sq. ft. Rs. 2,46,020
Rs. 49,204
Assessee's share - he being 1/3rd
owner of the land Rs. 16,402
Less : Exempt under Section 114 of
the Income-tax Act Rs. 5,000
Rs. 11,402
The Income-tax Officer however held that the amount of Rs. 3,75,045 awarded as damages was also liable to be considered for computing the capital gains. He further held that the amounts of extra compensation and solatium for which the assessee had appealed to the High Court should also be considered for assessment as otherwise these amounts if allowed by the High Court would escape assessment. On this basis he computed the full value of consideration at Rs. 8,04,952. The fair market value of the acquired land as on 1-1-1954 was estimated by him at Rs. 98,408 @ Re. 1 per sq. ft. The capital gains was thus worked out at Rs. 7,06,544 and assessee's l/3rd share was 2 computed at Rs. 2,35,515 which amount was added to assessee's income. The assessee appealed to the Appellate Assistant Commissioner claiming that :
(i) The amounts awarded by the Civil Judge did not accrue and did not arise during the previous year under consideration and these are still in jeopardy due to the fact that the decision of the Civil Judge had not been accepted by the State and an appeal has been filed in the High Court against the decision of the Civil Judge
(ii) That the ITO was not at all justified in taking these amounts which were not even allowed by the Civil Judge but for which the assessee has made a claim before the High Court ;
(in) That the damages allowed by the Civil Judge were for lands which were not acquired. The amount of damages was not at all relevant for the purpose of computation of capital gain arising on the acquisition of lands actually acquired ; and
(iv) That the market price as on 1-1-1954 was much higher than the rupee one per sq. ft. taken by the ITO.
The Appellate Assistant Commissioner rejected the contention of the assessee that the amounts awarded by the Civil Judge could not be considered for working out the capital gain assessable in this year. On the basis of the language of Section 45(1) of the Income-tax Act, he held that the entire capital gain arising on transfer of the capital asset was liable to be assessed in the year in which the transfer took place. As the transfer of the land had admittedly taken place in this year the capital gain arising from this transfer was liable to be assessed in this year irrespective of the date of the judgment of the Civil Judge. The claim of the assessee that the amount awarded as damages could not be considered for computing the capital gains arising on this transfer was also rejected holding that these damages were also received as a result of the transfer of the acquired lands in this year and the same were, therefore, covered by the language of Section 48 of the Income-tax Act. Regarding the fair market value of the acquired land as on 1-1-1954 the Appellate Assistant Commissioner agreed with the estimate of Re. 1 per sq. ft. made by the Income-tax Officer and the claim of the assessee that this value was much higher was rejected. The contention of the assessee that the Income-tax Officer should not have included the amounts, claim for which was rejected by the Civil Judge and for which the assessee had filed appeal to the High Court, was accepted holding that the mere fact of the assessee's filing an appeal before the High Court could not mean that he was entitled to these amounts. The AAC accordingly excluded the amount of extra compensation of Rs. 29,691 and the amount of solatium included by the Income-tax Officer while computing the capital gains and on this basis the capital gain assessable in the hands of the assessee was reduced by Rs. 44,894.
8. Both, the assessee as well as the department, have appealed against the above order of the Appellate Assistant Commissioner. The assessee has appealed on the various points decided against him and the department against the relief of Rs. 44,894.
9. The assessee has claimed that only the amount awarded by the Land Acquisition Officer could be considered for determining the amount of capital gains and any enhancement in the amount of compensation made by the other authorities could not be held to be part of the consideration for the transfer. Shri Shanti Bhushan, the learned advocate of the assessee, claimed that unless it was so held the machinery provided in the Income-tax Act for computation of capital gains would become unworkable. Referring to Sections 4, 6, 11, 16, 18 and 26 of the Land Acquisition Act, 1894, the learned advocate explained the scheme of acquisition and determination of the compensation amount and claimed that the proceedings for the determination of the compensation amount could be a prolonged one in which the amounts awarded could keep on varying. The Income-tax Officer could not possibly wait till the final conclusion of the proceedings for making of the assessment and, therefore, the only workable proposition could be that the amount awarded by the Land Acquisition Officer was taken as the consideration for the transfer. In any case, the learned advocate claimed that the further amount awarded by the Civil Judge could not be said to have accrued or arisen to the assessee within the accounting year under consideration, the judgment of the Civil Judge having been delivered on 15-7-1969 much after the close of the accounting year. The extra compensation awarded by the Civil Judge was also in jeopardy as the State had appealed against the same to the High Court, which appeal was still pending. In any case, the amount having been awarded in a subsequent year the Income-tax Officer had no power to relate back the same to the year under consideration. In support of this contention the learned advocate referred to the decision of the Supreme Court in CIT v. A. Gajapathy Naidu [1964] 53 ITR 114. Relying on the decision of the Allahabad High Court in CIT v. Kalicharan Jagannath [1961] 41 ITR 40, Shri Shanti Bhushan argued that if an amount is to be taxable as income of the relevant previous year the right to receive it must have come into existence in that year. Referring to the observations of the Bombay High Court in CIT v. Associated Commercial Corporation [1963] 48 ITR 1, on pages 17 to 19 of the report, the learned advocate claimed that the extra amounts of compensation could not toe deemed to arise or accrue to the assessee so long as the matter was pending before the appellate authorities. In that case their Lordships observed that until the claim which was set up by the assessee to the profit was adjudicated and determined in his favour, the profit could not be said to have accrued to him. Till then the right of the assessee to the profit was in jeopardy. Relying on this observation the learned advocate of the assessee claimed that the right of the assessee to the extra amounts awarded by the Civil Judge being in jeopardy, these amounts could not be considered for assessment. In support of his contention the learned advocate also referred to the observation of their Lordships of the Punjab High Court in CIT v. Jai Parkash Om Parkash Co. Ltd. [1961] 41 ITR 718, on pages 722 and 723 of the report. In that case also it was held that no amount could be said to accrue unless it was actually due. The very foundation of the claim was in jeopardy as the matter was pending in appeal and if the appeal went against the assessee then nothing would be due. Applying the observations to the present case, Shri Shanti Bhushan claimed that the entire amount awarded by the Civil Judge being in jeopardy the same could not be held to have arisen to the assessee. The learned advocate then referred to the decision of the Andhra Pradesh High Court in Khan Bahadur Ahmed Alladin & Sons v. CIT [1969] 74 ITR 651. In that case some land of the assessee was acquired by the Government and it was held that the right of the owner to compensation was an inchoate right till the compensation was actually determined and became payable. It was further held that the enhanced compensation accrued to the assessee only when the Court accepted the claim and not when the land was taken over by the Government. We may, however, mention that in that case the land was held to be the stock-in-trade of the assessee's business and profit arising on the sale of the same was liable to be assessed as business profits and not as capital gains as in the present case. For finding out the correct meaning of the words 'accrue' and 'arise' the learned advocate referred to the decision of the Supreme Court in E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27, and particularly to the observations of their Lordships on pages 49 to 51 of the report to the effect that the words 'arising or accruing' meant a right to receive profits. Income can be said to have accrued to an assessee if he acquires a right to receive the same. There must be a debt owed to him by somebody and unless and until such a debt is created it cannot be said that the assessee had acquired a right to receive the income or that income had accrued to him. Shri Shanti Bhushan also referred to the decision of the Allahabad High Court in Lakshman Prakash v. CIT [1973] 92 ITR 492. In that case it was held that the amount of extra payment to be made to the assessee, an army contractor, became ascertained only on the date when the same was finally fixed and was assessable in the year in which this happened. The learned advocate also referred to the decision of the Allahabad High Court in CIT v. Mathvlal Baldeo Prasad [1961] 42 ITR 517. In that case it was held that an enforceable liability would be deerfted to have come into existence only when it was determined and fixed by the arbitrators.
10. On the basis of the above authorities Shri Shanti Bhushan claimed that the enhanced amount of compensation awarded by the Civil Judge could not be considered for determining the capital gains of the assessee taxable in the year under consideration. The judgment of the Civil Judge was delivered much after the close of the accounting year and, therefore, in view of the authorities mentioned above the amount awarded by the Civil Judge could not be deemed to have accrued or arisen to the assessee in this year. Moreover, the State having appealed against the judgment of the Civil Judge and the matter being still pending before the High Court the entire amount allowed by the Civil Judge was in jeopardy and the same could not, therefore, be deemed to have accrued or arisen to the assessee. On behalf of the department, Shri Ajit Sinha, the learned authorised representative, claimed that the entire amount of capital gains arising out of the transfer of the acquired land was liable to be assessed in the year under consideration. The various authorities cited by the learned advocate of the assessee related to the assessment of income other than capital gains. They were not applicable to the assessment of capital gains which was governed by Section 45 of the Income-tax Act. In this connection Shri Sinha also pointed out that the assessee himself had shown the amount of the capital gains computed on the basis of the award given by the Civil Judge in the return for this year and, therefore, he could not claim that the amount of capital gains arising to the assessee as a result of the award given by the Civil Judge could not be considered in this year. On behalf of the assessee, Shri Shanti Bhushan replied that the full facts regarding the litigation had been mentioned by the assessee in the letter sent with the return and, therefore, the assessee was competent to raise this legal issue. Repeating his argument mentioned earlier Shri Shanti Bhushan claimed that the amount of capital gain had to accrue or arise to the assessee before the same could be taxed and as according to him the amount of gain sought to be assessed had not actually accrued to the assessee the same was not taxable and the provisions of Section 45 had no application to that amount.
11. It would be relevant here to notice the language of Section 45 which deals with the assessment of capital gains. This section reads as under:
Capital gain.-Any profits or gains arising from the transfer of a capital asset effected, in the previous year shall, save as otherwise provided in Sections 53 and 54, be 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.
Section 45 thus provides that any profits or gains arising from the transfer of a capital asset shall be deemed to be the income of the previous year in which the transfer took place. In the case before us the date of transfer of the acquired land has been held to be 24-11-1966 and on this point there is no dispute. This date falls in the previous year for the assessment year under consideration. It, therefore, follows that the amount of profit or gain arising from this transfer shall be deemed to be the income of this year for purposes of assessment. This will be so even though the amount of consideration for the transfer (as has happened in the present case) may be determined after the end of the previous year in which the transfer took place. Irrespective of the date when the final amount of consideration is determined, the profit or gains arising as a result of the transfer will have to be related back to the year of transfer and the amount of capital gain will be assessable in that year. The various cases cited by the learned advocate (which have been discussed earlier) to show that income would be assessable in the year in which it really accrued to the assessee and not in any earlier year related to the assessment of business income of the assessee. None of these cases related to capital gains. The contention of the learned advocate of the assessee that no income can be taxed unless it has accrued to the assessee cannot be disputed but in the case of the capital gains the entire amount of capital gains arising as a result of the transfer is, by virtue of Section 45 of the Act deemed to accrue in the year of the transfer. But if for this deeming provision the capital gains would have accrued (and been assessable) in the respective years in which the enhanced amounts of compensation were awarded by the various authorities. We, therefore, hold that the entire amount of capital gains having been deemed to be the income of this year by Section 45 of the Income-tax Act, the authorities below were justified in considering the award of the Civil Judge even though the award was given much after the close of the previous year. The contention of the assessee that the amount awarded by the Civil Judge being in jeopardy could not be considered for computation of the capital gain is also not acceptable. The Civil Judge has given the award. Not only this, the amount awarded has been paid to the assessee though after his furnishing security in the shape of bank guarantee for the due performance by him in case the decree awarded by the Civil Judge was modified or reversed by the High Court. Therefore, it cannot be held that the departmental authorities were not justified in computing the capital gains of the assessee with reference to the amounts awarded by the Civil Judge merely because there is a possibility of the amount awarded by the Civil Judge being varied in appeal pending before the High Court. As held by the Kerala High Court in Shah Vrajlal Madhavji v. CIT [1974] 95 ITR 614, it was not necessary for the department in such cases either not to assess the income or keep the assessment open till the matter is finally decided by the High Court or after that by the Supreme Court in case any of the parties choose to pursue the matter further. We would, however, direct that the amount of capital gains shall be modified in case the decree of the Civil Judge is modified or reversed as a result of the appeals pending before the Hon'ble High Court or any further appeals which may be filed after the decision by the Hon'ble High Court. Our this observation will apply not only to the result of the appeal filed by the State but also to the appeal filed by the assessee, with the result that if the prayer of the assessee for enhancement in the amounts of compensation or grant of solatium is accepted the amounts so awarded shall also be liable to be considered for computation of the capital gains.
12. The next claim of the assessee is that the amount of damages awarded to the assessee on account of the severance of status of the unacquired land could not be considered as part of the consideration for computation of the capital gains. This amount was awarded by the Civil Judge for the severance of the status of the unacquired land over and above the compensation for the acquired land and so this amount could not be considered for finding out the profits arising from the transfer of the acquired land. In any case, if this amount was to be included, the fair market value of the unacquired land as on 1-1-1954 in respect of which this amount had been awarded was also liable to be deducted while computing the capital gains. On behalf of the department, Shri Sinha has supported the order of the authorities below by claiming that the entire amount received by the assessee as a result of the transfer was liable to be considered for computing the capital gains.
13. Section 48 of the Income-tax Act which prescribes the mode of computation and deductions for working out capital gains reads as under :
Mode of compulation and deductions.-The income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :-
(i) expenditure incurred wholly and exclusively in connection with such transfer ;
(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto ;
The corresponding section under the Indian Income-tax Act, 1922, was Section 12B(2) which read as under :
(2) The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made, namely :
(i) expenditure incurred solely in connection with sale, exchange, relinquishment or transfer ;
(ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of Sections 8, 9, 10 and 12.
14. A comparison of the section in force now with the provisions under the old Act would show that whereas under the provisions of the old Act full value of the consideration for which the transfer of the capital asset was made was to be considered for working out the capital gains, under the provisions of the Act now in force full value of the consideration received or accruing as a result of the transfer of the capital asset has to be considered. Any amount received by an assessee over and above the price of the capital asset could not be considered for working out the capital gains under the provisions of the old Act. The Bombay High Court in Baijnath Chaturbhuj v. CIT [1957] 31 ITR 643, held that, that part of consideration which was received by the assessee for assignment of managing agency could not be considered while working out the capital gains on the transfer of the shares. In that case the firm in which the assessee was a partner had sold some shares in a company together with its managing agency rights for an amount calculated at Rs. 65 per share. The income-tax authorities held that for the purpose of computing the capital gains under Section 12B of the Indian Income-tax Act, 1922, the full value of the consideration for sale of the shares must be taken to be Rs. 65 per share while the assessee contended that the full value was only the market value of the shares at the time of sale and that the firm had fixed an inflated value for the shares as it parted with its managing agency also. The Court held that the consideration received by the firm was a composite consideration for transfer of the shares and the assignment of the managing agency, and only the amount received by the assessee for transfer of the shares could be considered while working out the capital gains on the sale of shares. In New Era Agencies (P.) Ltd. v. CIT [1968] 68 ITR 585, (SC) the assessee who had sold some shares held by it in a company claimed that part of the amount received as sale proceeds of the shares was for procuring the resignation of the directors of that company and the managing agents of the company in favour of the purchaser and the same could not be considered while working out the capital gains on the sale of the shares. The principle on which the claim was made was found acceptable but the claim was rejected as it was held that the assessee neither had controlling power over the company nor was it in a position to procure the resignation of the managing agents and the directors in favour of the purchaser. These authorities show that under the provision of the 1922 Act the amount to be considered for computation of capital gains was the full value of the consideration for which the transfer of the capital asset was made. Any amount received over and above this consideration was not liable to be considered. The position, however, appears to have been changed under the provisions of the Income-tax Act, 1961. In place of the words "from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made" appearing in Section 12B(2) of the Indian Income-tax Act, 1922 Section 48 of the Income-tax Act, 1961 contains the words "full value of the consideration received or accruing as a result of the transfer of the capital asset". Therefore, under the provisions of the Act now in force all amounts which are received or accrued as a result of the transfer of the capital asset will have to be considered for computation of the capital gains even though these amounts may not be the consideration for which the transfer of the capital asset is made. The amount of damages was received by the assessee as a result of the transfer of the acquired land and, therefore, even though it may not be consideration for the transfer of the acquired land, it is well covered by the provisions of Section 48 of the Income-tax Act and is liable to be considered for computation of the capital gains accruing to the assessee as a result of the transfer of the acquired land.
14A. The next question is of the deduction to be allowed from the amount received by the assessee for computing the amount of capital gains. The assessee's claim is that if the amount of damages is to be taken into account the market value of the unacquired land as on 1-1-1954 should also be deducted. The department's claim, on the other hand, is that only the market value of the acquired land as on 11-1954 could be allowed as a deduction. We find that the provisions of Section 48 provide only for the deduction of the cost of acquisition of the asset transferred by the assessee and the claim of the assessee that cost of the unacquired land in respect of which damages had been received should also be deducted does not appear to be correct. But while determining as on 1-1-1954 the market value of the land which was acquired we will have to take into account the fact that the assessee would not agree to sell the same without receiving due compensation for the damage done to the unacquired land. To this extent, therefore, the value of the acquired land will have to be enhanced to find out its market value as on 1-1-1954.
15. Now we take up the valuation of the acquired land as on 1-1-1954. The assessee, as has been mentioned earlier, estimated the fair market value of this land on 1-1-1954 @ Rs. 2.50 per sq. ft. The Income-tax Officer estimated this value @ Re. 1 per sq. ft. The Income-tax Officer rejected the claim of the assessee and valued the land at, Re. 1 per sq. ft. on the ground that the land of the assessee was not meant for building purposes in 1954, it was open to the river Gaumati which swallowed it during the rainy season, the High Court had awarded compensation for Dilkhusha Colony land which was acquired in 1947 @ -/14/~ annas per sq. ft. only, the assessee's land was only 1J furlongs away from the cremation ground, and was inferior to the plot of land of Smt. Noor Jehan Begum which was sold in 1958 @ Rs. 2 per sq. ft., the area of the plot the assessee was very big and the same could not, therefore, fetch as much price as the small plots, the demand for land in the area where assessee's land was situated gained momentum only after 1961 and the assessee had not filed any valuer's certificate or comparable sale deed in support of his claim. When the matter came up before the Appellate Assistant Commissioner the assessee filed an affidavit claiming that the Income-tax Officer had wrongly stated that the plots of the assessee were not meant for building purposes and that the land was open to the river Gomti. It was claimed that the plots were suitable for construction of the buildings and were not affected by floods. It was also stated that the cremation ground was about a mile away from the assessee's land and not only 1J furlong's away as mentioned by the Income-tax Officer. The claim that there was not much demand for lands in the area where the assessee's land was situated before 1961 was also disputed and it was claimed that there was always a great demand for building plots in the city of Lucknow. A report of a valuer was also filed estimating the fair market value of the land on 1-1-1954 at Rs. 2.25 per sq. ft. The Appellate Assistant Commissioner did not entertain the valuer's report on the ground that the same should have been filed before the Income-tax Officer. He also examined the assessee and found that though the assessee had claimed that his lands were not affected by floods, the same had been submerged by the floods of 1961 and 1971. The Appellate Assistant Commissioner agreed with the finding of Income-tax Officer that the city of Lucknow had not spread far in the direction of the assessee's lands till 1954 and keeping in view all the above facts he confirmed the Income-tax Officer's estimate of the fair market value of this land as on 1-1-1954. The assessee has filed another affidavit before us reiterating that his land was free from floods and the fact that the same was affected by the floods of 1961 and 1971 could not be taken as an evidence to the contrary because these floods were unusual floods in which even Hazratganj, which was the centre of the city was flooded. It has also been denied that the land could not be subdivided into smaller plots as observed by the Appellate Assistant Commissioner. The observation of the Appellate Assistant Commissioner that the city of Lucknow had not spread far in the direction of the assessee's lands till 1954 has also been disputed by claiming that Mahanagar area which was situated beyond the assessee's land across the river Gomti had started developing as far back as in 1946-47. Shri Shanti Bhushan, the learned advocate of the assessee, claimed that the authorities below were not justified in rejecting the claim of the assessee that the value of his land on 1-1-1954 was Rs. 2.50 per sq. ft. Besides referring to the affidavits filed before the Appellate Assistant Commissioner and before us he referred to the judgment of the Civil Judge in which the learned Judge had discussed the various facts regarding the value of the assessee's land while determining the compensation payable to him. The land of Smt. Noor Jehan Begum which was sold in 1958 @ Rs. 2 per sq. ft. was inferior to the land of the assessee. There had been no rise in prices of land in the period 1954 to 1958 in the city of Lucknow and, therefore, the fair market value of the assessee's land as on 1-1-1954 should be held to be more than Rs. 2 per sq. ft. at which rate the land of Smt. Noor Jehan Begum was sold in 1958. In support of Ms contention that the prices of land during 1954 to 1958. remained stationary in the city of Lucknow, the learned advocate referred to two transactions of land in Bhilawan (claimed to be a locality of Lucknow) one in 1954 and the other in 1958 in both of which the land had been sold @ Rs. 250 per biswa. Reference was also made to the judgment of the Allahabad High Court in the case of H.S. Gupta to claim that the average price of land for building purposes in the city of Lucknow was about Rs. 2 per sq. ft. as long ago as 1947. On this basis the learned advocate claimed that the assessee's valuation of his land at Rs. 2.50 per sq. ft. was quite justified and should have been accepted. On behalf of the department, Shri Sinha supported the estimate of the authorities below by relying on the facts mentioned by them in their orders. He also disputed the proposition of the assessee that the prices of land in Lucknow city remained stationary during 1954 to 1958. Shri Sinha further claimed that the valuation report having not been produced before the Income-tax Officer was rightly not entertained by the AAC.
16. It appears that while estimating the value of the assessee's land on 1-1-1954 the Income-tax Officer was under the impression that the land was not suitable for construction of buildings because it was open to the river Gomti and further because it was only 1\ furlongs away from the cremation ground. He also thought that there was not much demand for land in that area till 1954. While agreeing with the estimate of the Income-tax Officer the Appellate Assistant Commissioner has also observed that the city of Lucknow had not expanded towards the assessee's land till 1954 and that the land of the assessee could not be sub-divided into small plots. He was also influenced by the fact that the land of the assessee was submerged by the floods of 1961 and 1971. All these facts have been challenged by the assessee in his affidavit. There is also evidence on record to show that the city of Lucknow had started expanding towards the land of the assessee and even the Mahanagar Colony, which is far beyond, had started developing since 1947. The copy of the judgment of the Hon'ble Chief Court of Avadh at Lucknow in the case of Mr. H.S. Gupta, a copy of which has been filed at page 136 of the paper book shows that there was substantial demand for building plots in the city of Lucknow even in 1947. In that case the Hon'ble Court fixed the amount of compensation for the land which was acquired in 1947 at 14 annas per sq. ft. That land was, it may be mentioned, outside the municipal limits of Lucknow whereas the lands under consideration are within the municipal limits and the valuation has to be done in 1954. The estimate of Re. 1 per sq. ft. made by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner, therefore, appears to be low. The contention of the assessee that there was no rise in the prices of land in the city of Lucknow during 1954 to 1958 and, therefore, the value of the assessee's land in 1954 should be estimated on the basis of the sale of Smt. Noor Jehan Begum's land in 1958 @ Rs. 2 per sq. ft. also appears to be unacceptable. The claim is sought to be supported on the basis of two small transactions of land in Bhilawan. Apart from the fact that the evidence is very scanty we also find that the lands in those transactions were sold @ Rs. 250 per Biswa and the same could not be held ^as comparable with the land of the assessee nor could the transactions be indicative of the trend of prices of building plots during this period. On the other hand, the evidence considered by the Civil Judge while giving his award shows that the prices of land had been steadily increasing in Lucknow. Therefore, keeping the entire facts in view, we would estimate the value of the assessee's acquired land as on 1-1-1954 @ Rs. 1.50 per sq. ft. This will have to be further increased by the amount to be added on account of damage to the unacquired portion. The Civil Judge has awarded compensation for the acquired land @ Rs. 3 per sq. ft. and also the damages in respect of the unacquired land at the same rate. We have estimated the value of the acquired land as on 1-1-1954 at the rate of Rs. 1.50 per sq. ft. The reasonableness of the damages awardable by the Civil Judge has been questioned by the UP Government and the matter is now pending before the Hon'ble High Court. Therefore, instead of trying to determine the amount of damages which the assessee should be entitled to receive we would hold that 50% of the amount of damages awarded to the assessee should be added to the value of the acquired land computed at the rate of Rs. 1.50 per sq. ft. and this gross amount shall be liable to be deducted while computing the capital gain. The computation of capital gain shall be modified accordingly. This disposes of the assessee's appeal.
17. Coming to the department's appeal we find that the only objection is against the reduction of Rs. 44,890 allowed by the Appellate Assistant Commissioner holding that the Income-tax Officer was not justified in including those amounts which had not been awarded to the assessee by the Civil Judge but for which the assessee had filed an appeal to the High Court. We are unable to see how these amounts could be held to be assessee's income merely on the ground that even though the claim of the assessee had been rejected by the Civil Judge, he had filed an appeal against the order to the High Court claiming these amounts.
No amount can accrue to the assessee merely on the basis of his claim and we, therefore, hold that the Appellate Assistant Commissioner was justified in deleting the same. However, as we have already held earlier the amounts, if any, awarded to the assessee in the appeal shall be liable to be considered for computation of the capital gains as and when the same are awarded.
18. In the result, the assessee's appeal is partly allowed and the department's appeal, is subject to our observation earlier dismissed.
T.D. Sugla, Judicial Member
1. I have gone through the judgment of my learned brother, the Accountant Member. I agree with him almost on all points except those dealt in paras 14 to 16 of his order. The facts have been beautifully summarised by him in paras 2 to 8 of the order. For the sake of brevity, I do not propose to repeat them here. The factual position in nutshell is that the assessee owned a big plot of open land in the city of Lucknow, a portion of which measuring 98,408 sq. ft. was acquired by the Project Construction Division of P.W.D., Lucknow, and the remaining portion measuring 1,25,015 sq. ft. was badly damaged in the sense that it became inaccessible on account of the acquisition of the aforesaid land. In is common ground that in terms of the Hon'ble High Court's decision, the assessee received Rs. 2,95,224 as compensation for the acquired land measuring 98,408 sq. ft. at the rate of Rs. 3 per sq. ft. and Rs. 3,75,045 as damages for severance on unacquired land measuring Rs. 1,25,025 sq. ft. also at the rate of Rs. 3 per sq. ft. There being no dispute that the capital gains have to be computed in this case under Section 48 of the Income-tax Act, the short question that arose for consideration and which has been dealt with by my learned brother in paras 14 to 16 of his order is what is the meaning of the phrase "the full value of the consideration received or accruing as a result of the transfer of the capital asset" as used in Section 48. The learned Accountant Member has himself referred to a number of decisions to show that the position under the old Act in this behalf was that the amount received for transfer of the capital asset alone could be considered while computing the capital gains and not the other .receipts whether incidental or otherwise to the transfer. The learned Accountant Member has, however, felt that the phraseology used in Section, 12B(2) of the old Act and Section 48 of the new Act being different, the decisions on the provisions of Section 12B of the old Act would not be relevant. According to him under the provisions of the Act now in force all amounts, which are received or accrued as a result of the transfer of the capital asset will have to be considered for computation of the capital gains even though those amounts may not be the consideration for which the capital asset has been transferred. Observing then that the amount of damages was received by the assessee as a result of the transfer of the acquired land, he held that even though it might not be a consideration for the transfer of the acquired land, it was well covered by the provisions of Section 48 of the Income-tax Act, 1961 and was liable to be considered for computation of the capital gains. It may be stated that the learned Accountant Member has also held that the value of the damage caused to the unacquired land cannot be taken to be the cost of the acquired land as the unacquired land has not been transferred.
2. There is no dispute that the phraseology used in Section 48 of the new Act in this behalf is somewhat different from what it was in Section 12B of the old Act. To this extent, I am in agreement with my learned brother that the decisions wherein the provisions of the old Act were considered might not apply as such. I, however, find myself unable to agree with him that the difference in the language used is so vital as that. In this connection, it may not be out of place to observe that the new Act received the assent of the President on 29th April, 1961. The relevant Bill when piloted in the Parliament had a Chapter known as "Statement of objects and reasons". There were notes on clause s wherever there was intended deviation from the provisions of the old Act, which indicated the reasons and the effect of deviation. This is what "Notes on clauses" have to say with regards to Clauses 45 to 55 of the Bill now embodied in Sections 45 to 55 of the Income-tax Act, 1961 :
Clauses 45 to 55.-These embody the provisions of existing Section 12B. The provisions have been split up, simplified and logically re-arranged. The following changes have been made : -
(1) any transfer by way of distribution of the capital assets by a company in liquidation is not regarded as a transfer for the purpose of changing capital gains in the case of the company but the shareholder receiving the capital assets from the company is chargeable on the difference between the market value of the asset on the date of distribution and the cost of acquisition of the shares by him, subject to appropriate adjustment, if any, on the portion of the value of the capital asset which has been assessed as dividend under Section 2(6A)(c) of the existing Act ;
(2) any distribution of capital on the dissolution of a firm and any transfer of a capital asset under an irrevocable trust, is not regarded as a transfer for the purpose of capital gains tax ;
(3) the distinction drawn between assets acquired as a result of a partition of a Hindu undivided family or by way of gift, before and up to 1-4-1956 has been abolished. A uniform procedure is proposed according to which, for assets acquired before 1-1-1954, either the market value on the date of acquisition or the market value on 1-1-1954, at the option of the assessee, is adopted, whatever be the mode of acquisition.
I am aware that the notes on clauses of a Bill or debates in Parliament pertaining thereto are not conclusive of the intention of the Legislature and, in any event, the Courts have not to interpret the intention of the Legislature from such notes or the discussions in the Parliament, but have to interpret it as expressed through the language of the statutes. All the same usefulness of such notes and debates has never been doubted. It is only for this limited purpose that I have made reference to the Notes, which clearly suggests that the relevant provisions have only been split up, simplified and logically rearranged except for the changes referred to therein. The change considered to have been envisaged by the difference in the phraseology used herein at least does not seem to have been conceived by the Legislature.
3. I have tried to examine the question from another angle. Capital gains are made chargeable to income-tax under Section 45 of the Income-tax Act, 1961. It is true that Section 48 provides the mode of computation and deduction of such capital gains. All the same, however, as I understand "capital gains" referred to in Section 48 cannot but refer to the "Capital gains as made taxable by Section 45". The provisions of Section 45 read as under:
Capital gains.-(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall save as otherwise provided in Sections 53, 54 and 54B be 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.
It is pertinent that Section 45 is making only such profits or gains chargeable to income-tax under the head "Capital gains" as arise from the transfer of a capital asset. This is important because, according to me, the mode of computation is, in the absence of a specific indication to the contrary, not expected to widen the meaning of such capital gains. It may be that unlike Section 12B(2) of the old Act, where Section 12B(1) made capital gains chargeable to tax and Section 12B(2) provided the manner in which such capital gains were to be computed, the present scheme of the Act is that separate sections have been enacted for different purposes. It is, however, difficult to hold that the section providing the mode of computation and deductions will even enlarge the scope of capital gains, From this point of view also I hold that the full value of consideration refers to the consideration for which the capital asset has been transferred.
4. Even the plain language of Section 48, as I understand, does not justify the conclusion that every receipt occasioned on account of transfer of the capital asset, whether directly connected with it or not should be taken into account for the purposes of computing the capital gains under Section 48. For this purpose, it is desirable to refer to the provisions of Section 12B(2) of the old Act and Section 48 of the new Act :
Section 12B(2) of the IT Act, 1922 :-
The amount of a capital gain shall be computed after making the following deductions from the full value of the considerations for which the sale, exchange, relinquishment or transfer of the capital assest is made, namely :-
(i) expenditure incurred solely in connection with sale, exchange, relinquishment or transfer ;
(ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of Sections 8, 9, 10 and 12.
Section 48 of the IT Act, 1961 :-
Mode of computation and deductions.-The income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :¦-
(i) expenditure incurred wholly and exclusively in connection with such transfer ;
(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto.
Before proceeding to consider the difference in the phraseology, it may not be out of place to take a hypothetical case. Suppose the unacquired land herein did not belong to the assessee but to somebody else. The damage was caused to it because by acquiring the assessee's lands, the Government made that land inaccessible. In that case, the damages would have been naturally awarded to the persons, who owned those lands. I do not think that it can be even suggested that "the full value of the consideration received or accruing as a result of the transfer of the capital asset" would be not only the compensation for the land acquired but also the damages awarded for damage to the other land merely because the word "assessee" is not appearing in Section 48.
It may be argued that the word "assessee" in Section 48 is implied and the damages awarded would be included in the full value of consideration only if they accrue to the same assessee. This argument, to my mind, apart from being unwarranted, is illogical. I say so because the phrase "accruing as a result of" cannot be considered in isolation from the phrase "the full value of the consideration". Whatever might have been received, has got to be the consideration for the transfer of the capital asset and not for anything else. There being no dispute that the full value of consideration as such refers to the full value of the consideration of the capital asset transferred only. I have no difficulty in holding that it is at least not free from doubt that the interpretation placed on the phrase is not justified. In this connection, I may usefully refer to the Supreme Court's decision in the case of Kesholal Lallubhai Palel, 55 ITR 337. The point in that case was very much different. I am only referring to the manner in which certain words occurring after certain other words were interpreted by their Lordships in that decision. It was a case where their Lordships were required to interpret the provisions of Section 16(3)(iii) and (iv) of the Indian Income-tax Act, 1922. The word "transfer" in those clauses was followed by the words "directly or indirectly". The question arose what is the scope of the word "indirectly". It was held that the word "indirectly" did not destroy the significance of the word "transfer". According to me here also, the phrase "occurring as a result of the transfer of the capital asset" following the phrase "the full value of the consideration" does not destroy the significance of the phrase "the full value of the consideration". In any event, I consider that the damages awarded herein have no direct nexus to the capital asset transferred and, therefore, cannot form part of "the full value of the consideration" by now well settled.
5. There is yet another aspect. The Supreme Court has in the case of Miss. Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651, held that in order to compute the cost of the capital asset sold, depreciation in the value of the other assets as a result of acquisition and sale of the capital asset should be taken into account. In the premises, in case the damages awarded were to be taken into account for computing the capital gains under Section 48, the amount by which the unacquired land depreciated in value on account of the land acquired by the Government will have to be taken into account in arriving at the capital gains. Since, in view the Civil Judge's decision, it cannot but be held that the unacquired land depreciated in its value by the amount of damages awarded, in either event the damages awarded cannot be taken into account for the purposes of computing capital gains herein. Assuming in spite of all this it comes to this that both views are possible, it is well settled that the view in favour of the subject must prevail. With respect, I do not agree that the depreciation to the unacquired land should be taken at 50% of the damages awarded. In my view the correct income liable to tax under the head "Capital gains" will be half of Rs. 2,95,224, i.e., Es. 1,47,612 and not half of Rs. 6,70,269 (Rs. 2,95,224 compensation + Rs. 3,75,045 damages), i.e. Rs. 335,135 as determined by the learned Accountant Member.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Since there is a difference on the point at issue, the following question, on which there is difference, is referred to the President for reference to a Third Member as laid down in Section 255(4) :
Whether, on the facts and in the circumstances of the case, the assessee's income liable to tax under the head "Capital gains" is Rs. 3,35,135 as per the Accountant Member or it is Rs. 1,47,612 as per the Judicial Member ?
G. Krishnamurthy, President
1. These appeals were heard by Allahabad Bench of the Income-tax Appellate Tribunal and the learned Members, who constituted the Bench could not agree on the following point. Hence the President of the Tribunal has referred this point of difference for the opinion of the Third Member and by reason of succession in office, I came to be the Third Member to hear this matter. The point is :
Whether, on the facts and in the circumstances of the case, the assessee's income liable to tax under the head 'Capital gains' is Rs. 3,35,135 as per the Accountant Member or it is Rs. 1,47,612 as per the Judicial Member ?
2. Now I shall briefly refer to the relevant facts that gave rise to the difference of opinion : The assessee along with two others owned lands bearing Municipal layout Nos. 61 and 62 within the Municipal limits of Lucknow. The total area of this plot was 2,23,423 sq. ft. The northern portion of this land measuring 98,408 sq. ft, was acquired by the Bridge Construction Division of PWD, Lucknow for planned development of the town of Lucknow and for the construction of a bund for protection from floods. On objections filed by the assessee along with the co-owners of this land, the Special Land Acquisition Officer vide his order dated 8-9-1966 awarded a sum of Rs. 98,408 as compensation, that is at the rate of Re. 1 per sq. ft. of the land acquired. It may be stated here that the claim made by the assessee and the co-owners of this land before the Land Acquisition Officer was a compensation at the rate of Rs. 4 per sq. ft. for the acquired area and damages on account of severance of the rest of land at Rs. 4 per sq. ft. These damages were claimed on the ground that after the acquisition of the northern portion of the land there was no approach road for the remaining portion. The Special Land Acquisition Officer while rejecting the claim for damages in toto, granted only compensation at the rate of Re. 1 per sq. ft. There was then an appeal before the Civil Judge, Lucknow reiterating these claims and also claiming solatium at the rate of 15%. The learned Civil Judge by his order dated 15-7-1969 awarded compensation at the rate of Rs. 3 per sq. ft., i.e., Rs. 2,95,224. At the same rate of Rs. 3 per sq. ft. he also awarded damages for severance of unacquired land measuring 1,25,015 sq. ft. which came to Rs. 3,75,045. He did not accept the claim for payment of solatium. There were then appeals filed both by the assessee and by the State to the High Court against these orders of the Civil Judge.
3. In the meantime, the Income-tax Officer held that in this acquisition proceedings there was a capital gain as capital asset of the assessee was transferred. The assessment was originally completed without including the capital gains and for including capital gains a notice under Section 148 was issued, in response to which the assessee filed a return admitting a capital gain of only Rs. 11,402 in computing which he had taken the compensation awarded at Rs. 2,95,224 and excluded in toto the damages received of Rs. 3,75,045. But the Income-tax Officer was of the opinion that the exclusion of the damages was not correct because the damages also formed part of full value of the consideration accruing or arising to the assessee as a result of the transfer of the land. By including the claims made by the assessee for solatium and other matters, he computed the full value of consideration at Rs. 8,04,952 and determined the capital gains at Rs. 7,06,544 and the share of the assessee therein at Rs. 2,35,515.
4. The assessee then appealed to the Appellate Assistant Commissioner claiming, inter alia, that the damages of Rs. 3,75,045 and other amounts for which the assessee laid only a claim but not received, should not have been included. The Appellate Assistant Commissioner considered that the claims made by the assessee were only claims and should not have been included but confirmed the inclusion of the damages. In his view the amount received by way of damages formed part of the full value of consideration received for the transfer of the land.
5. Against the order of the Appellate Assistant Commissioner appeals were filed before the Tribunal both by the assessee and the department. In this Third Member reference I am only concerned with the assessee's appeal. In the assessee's appeal, the only point that was in dispute was whether the damages of Rs. 3,75,045 should or should not be included as forming part of the full value of the consideration. The learned Accountant Member held that the amount of damages could be included in computing the capital gains. He came to this conclusion on the basis of the difference in the language used in Section 12B of the Indian Income-tax Act 1922 and the language used in Section 48 of the Income-tax Act, 1961. In Section 12B of the Indian Income-tax Act, 1922 the expression used was "that the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made" while the language used in Section 48 of the Income-tax Act, 1961 is "full value of the consideration received or accruing as a result of the transfer of capital asset". According to the learned Accountant Member the language used in Section 12B permitted inclusion of the full value of consideration pertaining to the transfer of the capital asset, i.e., at which it was made and not any amount received over and above the price of the capital asset. He drew support for this view from the decision of the Bombay High Court in the case of Baijnath Chaturbhuj v. CIT [1957] 31 ITR 643 and New Era Agencies (P.) Ltd. v. CIT [1968] 68 ITR 585 (SC). But Section 48 of the Income-tax Act, 1961, according to him, permitted not only the inclusion of the full value of the consideration but also the amount received over and above the consideration but relating to or occasioned by the transfer. He held that since the damages received by the assessee related to the transfer of the capital asset, that amount also became includible in the full value of the consideration. To quote his own words :
Therefore, under the provisions of the Act now in force all amounts which are received or accrued as a result of the transfer of the capital asset will have to be considered for computation of the capital gains even though these amounts may not be the consideration for which the transfer of the capital asset is made. The amount of damages received by the assessee was part of the consideration for the transfer and, therefore, even though it may not be consideration for the acquired land, it is well covered by the provisions of Section 48 of the Income-tax Act and is liable to be considered for computation of the capital gains accruing to the assessee as a result of the transfer of the acquired land.
6. The learned Judicial Member did not agree with this conclusion. He could not agree that the difference in the language used in Section 12B of the Indian Income-tax Act, 1922 and Section 48 of the Income-tax Act, 1961 made any difference so as to give rise to an inference or interpretation that the old Act permitted inclusion of the amounts relating only to the transfer and the new Act provided for inclusion of all amounts having a relation to the transfer. According to him there was no difference either under the Income-tax Act, 1922 or under the Income-tax Act, 1961 except that there was re-arrangement of sections conveying the same idea in perhaps a little more altered language. Secondly, he was also of the opinion that Section 45 of the Income-tax Act, 1961 was the charging section and it had a limited application in the sense of arriving at the full value of consideration and what was not specifically provided,, for in the charging Section 45 could not be said to have been enlarged by Section 48, which only provided the mode of computation of capital gains. From this his inference was that only the consideration relating to the transfer of capital asset should be included and not the damages awarded for severance of the land relating to the unacquired portion. He was further of the opinion that since in a case where the unacquired land if belonged to a third party, the damages awarded by the Land Acquisition Officer would accrue to the third party and not to the assessee, on the same anology the damages awarded for the unacquired land even if the land belonged to the assessee could not be included as consideration for the transfer of the land for the purpose of computing capital gains. His main emphasis was thus on the point that any amount received and having a relation to the transfer of the capital asset should only be included in the full value of consideration for the transfer and not any amount received occasioned by the transfer. Since the amount relatable to the transfer of the capital asset in this case was 98,408 sq. ft., the compensation relatable to that land alone should be taken and not the damages which related only to the unacquired land and also computed with reference to the unacquired land. He was of the firm opinion that the damages awarded had no nexus to the capital asset transferred. He also held relying upon a decision of the Supreme Court in Miss Dhun Dadabhoy Kapadia's case (supra), where the Supreme Court held that in order to compute the cost of the capital asset sold any depreciation in the value of other asset as a result of acquisition or sale of a capital asset should also be taken into account, the depreciation for the unacquired land occasioned by the acquisition of the acquired land should also be taken into consideration, in which case the damages awarded for the unacquired land would be equal to the compensation received for the acquired land and therefore there would not be any capital gains. Eventually he held that in a case where two views are possible, the view that is in favour of the assessee must be adopted. He therefore held that the capital gains on the acquisition of 98,408 sq. ft. of land would work out to only Rs. 1,47,612 and not Rs. 3,35,135 as determined by the learned Accountant Member. Hence, the difference of opinion between the two learned Members, which was referred to me for my opinion.
7. I have heard this case at length. The learned Departmental Representative, who opened the case relying upon Section 23 of the Land Acquisition Act submitted that the Land Acquisition Act contemplated determination of compensation for the acquisition of land by taking into account various factors that are likely to cause damage to the person, whose land was acquired and one of the elements that was to be taken into consideration is the damages if any sustained by a person interested, at the time of taking possession of the land by reason of the acquisition injuriously affecting his other property, movable or immovable, in any other manner, or his earnings. If this was so all the amounts attributable to each one of these elements would together constitute the compensation and it cannot be said having regard to the language used in Section 23 of the Land Acquisition Act that only certain amounts attributable to certain elements alone is compensation and not the amounts attributable to the other components, i.e., seggergation in the manner suggested is not permissible. Section 23 of the Land Acquisition Act provided :
First, the market value of the land at the date of the publication of the notification under Section 4, Sub-section (1) ;
secondly, the damage sustained by the person interested, by reason of he taking of any standing crops or trees which may be on the land at the time of the Collector's taking possession thereof;
thirdly, the damage (if any) sustained by the person interested, at the time of the Deputy Commissioner's taking possession of the land by reason of severing such land from his other land ;
fourthly, the damage (if any) sustained by the person interested, at the time of the Deputy Commissioner's taking possession of the land, by reason of the acquisition injuriously affecting his other property, movable or immovable, in any other manner, or his earnings ; fifthly, if in consequence of the acquisition of the land by the Collector, the person interested is compelled to change his residence or place of business, the reasonable expenses (if any) incidental to such change, and sixthly, the damage (if any) bona fide resulting from the diminution of the profits of the land between the time of the publication of the declaration under Section 6 and the time of the Collector's taking possession of the land.
Since the section lays down in clear terms that the Court awarding compensation shall take into consideration the market value of the land and the damages sustained by the person interested by reason of severing such land from his other land and also the damages sustained by the person interested by reason of the acquisition injuriously affecting his other property, how can it be said that the damages awarded did not form part of the compensation and when it formed part of the compensation, the argument that the damages related to the unacquired land and not to the acquired land and therefore should not be included, would have no place or legs to stand. It is by reason of the acquisition of the land that damages were caused to the unacquired land and damages caused to the unacquired land is only computed with reference to the unacquired land and was awarded as compensation for the acquisition of the land and that amount could not therefore be looked at de hors the acquisition. In this connection he invited my attention to a judgement passed by the Karnataka High Court in the case of CIT v. Smt. P. Mahalakshmi [1982] 134 ITR 428. In this case the Karnataka High Court was directly concerned with a similar situation as arising before me and the High Court clearly pointed out that the damages awarded for the injurious effect on the unacquired portion under Section 23 of the Land Acquisition Act should also be included in the full value of consideration and should be taken into account in arriving at the capital gains. In particular the learned Departmental Representative drew my attention to the following passage occurring in the head-note at page 428 :
Further, in working out capital gains, regard must be had to commercial practice and, viewed from this point also, if out of a composite unit of immovable property, which by virtue of its enjoyment as such, commands certain advantages and amenities, a portion is sold leaving the remaining portion denuded of those advantages and amenities or imposing disadvantages in the enjoyment thereof, the fixation of the sale price, in the usual run of business and practical consideration is necessarily informed not only by the market value of the portion sold, but also by the consequent diminution of the value of, or loss of advantages and amenities respecting the remaining portions. The price stipulated in such a case would still be a price for the portion sold, though it takes into account loss of advantages, imposed as a result of the severance, on the remaining portion.
He also relied upon the decision of the Supreme Court in the case of CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622. In this case the expression "full value of the consideration for which the sale, exchange or transfer of the capital asset is made" occurring in Section 12B(2) of the Income-tax Act, 1922 came up for interpretation. The Supreme Court held that the consideration for the transfer of a capital asset is what the transferor receives in lieu of the assets he had parted with, i.e., money or moneys worth. Therefore, the full value of the thing received by the transferor in exchange of the capital asset transferred must be held to be the full consideration. He argued that this is an authority for the proposition that every thing that is received as a consequence of a transfer must form part of the full consideration whatever may be the head under which it is received and it is no argument to say that certain portions alone are includible and not others. To show that even solatium was taxable as part of the compensation he relied upon a decision of the Income-tax Appellate Tribunal delivered by the Ahmedabad Bench in the case of Murubhai Ramji v. ITO [1986] 16 ITD 293. In this case the Bench held that the solatium received formed part of the consideration and should be so taxed.
8. The learned counsel for the assesses Shri Vikram Gulati contended in the first instance relying very heavily upon the points made out by the learned Judicial Member in his order that damages claimed over and above compensation by way of a suit could never constitute the consideration for the transfer. The consideration for the transfer was only the compensation and demages are awarded after the acquisition as a consequence of acquisition and did not therefore form part of the sale price. Then he pointed out that in a very recent case in CIT v. Smt. M. Subaida Beevi [1986] 160 ITR 557 the Kerala High Court in a direct reference of the same question has held in favour of the assessee and against the revenue and that judgement being later in point of time should be followed and it should be held that the damages received for the severance of the land should not form part of the full value of consideration for computing the capital gains.
9. After a perusal of the orders passed by my learned Brothers and after a careful consideration of the arguments addressed to me and decisions referred to me I found my job considerably made easier by the decisions of the Karnataka and Kerala High Courts. The question referred to the Karnataka High Court at the instance of the Commissioner of Income-tax was :
Whether in law and on facts, the Appellate Tribunal was justified in holding that compensation for injurious affection of the remaining land, i.e., the land not acquired, cannot be regarded as forming part of the full value of the consideration for the land acquired for the purpose of computation of capital gains under Section 48 of the Income-tax Act, 1961 ?
The Karnataka High Court after referring to Section 23 of the Land Acquisition Act and. the definition of the words "capital asset" used in Section 2(14) and the definition of the term "transfer" as given in Section 2(47) of the Income-tax Act and to Section 48 of the Income-tax Act, came to the conclusion that the damages awarded form part of the full value of the consideration because Section 23(1) of the Land Acquisition Act stipulated several criteria under the heads first to sixth for quantifying computation though however the exercise is one for determination of the compensation to be awarded for the land acquired. Almost an identical question was also referred to the Kerala High Court again at the instance of the Commissioner of Income-tax and in the case in Smt. M. Subaida Beevi (supra) the Kerala High Court pointed out at page 563 as under :
The compensation for severance for the reason that the acquisition has injuriously affected the property other than the property acquired cannot be treated as part of the consideration received or accrued as a result of the transfer of the capital asset. The compensation for severance is by way of damages for injurious effect of other land belonging to the assessee and is not related to the transfer of capital asset.
Thus, the Kerala High Court decided this issue against the department while the Karnataka High Court decided the issue in favour of the Revenue. Thus I have two High Court decisions taking two different views on identical point. It is also noteworthy that the Kerala High Court's attention does not appear to have been drawn to the Karnataka High Court decision in Smt. P. Mahalakshmi's case (supra). However, the law relating to precedence clearly dictate that a decision given by a High Court of co-ordinate jurisdiction later in point of time on the same issue should normally be followed in preference to a decision given by another High Court earlier to it. If this principle of law of precedence is to be applied, I must follow the decision of the Kerala High Court and hold against the revenue and in favour of the assessee. I see no reason why this view should not be followed, because of another reason, namely, when two views are possible in fiscal statutes, the view in favour of the assessee must be preferred and should prevail. See Supreme Court decisions in the cases of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 and K.P. Varghese v. ITO [1981] 131 ITR 597. This is also the point made out by the learned Judicial Member in his order. Since now two views are clearly possible as interpreted by the two High Courts and in the absence of any direct decision by the Allahabad High Court, I prefer to follow the view expressed by the Kerala High Court and then hold that the damages received by the assessee by way of compensation for a severance of land for the injurious effect that the acquisition of the land has caused on unacquired land should not form part of the full value of the consideration in computing the capital gains. That amount has, therefore, to be excluded. In view of the decisions of the High Courts, I found it unnecessary to discuss the other points raised by the learned Departmental Representative before me based upon George Henderson & Co. Ltd.'s case (supra). I am, however, of the opinion that as pointed out by the learned Judicial Member nothing will turn out on the difference of the language used in Section 12B of the Income-tax Act, 1922 and the language used in Section 48 of the Income-tax Act, 1961 for the purpose of determininig the full value of the consideration for the transfer. I am of the view that both under Section 12B of the Income-tax Act, 1922 and Section 48 of the Income-tax Act, 1961, full value of consideration must include all amounts receivable relating to the transfer but excluding those occasioned by the transfer or as a consequence of the transfer. Here in the case before me the damage s were awarded not for the transfer of the land but as a consequence of the transfer. Thus, I am inclined to agree, following respectfully the decision of the Kerala High Court in the case of Smt. N. Subaida Beevi (supra) that the capital gains in this case should be computed at Rs. 1,47,612 as determined by the learned Judicial Member and not at Rs. 3,35,135 computed by the learned Accountant Member.
10. Certain other points were raised before me, which I have deliberately refrained from dealing. Now that the matter is going back before the regular Bench for disposal of the appeal in accordance with the majority view, the parties are free to raise those questions before the regular Bench for adjudication over them.
11. The case will now go back to the regular Bench, which heard the appeal for disposal in accordance with the opinion of the majority.