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2014 (7) TMI 1002 - HC - Income TaxTaxability u/s 45(5)(b) – Transfer of capital asset - Held that:- Section 45(5) is inserted to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset - additional compensation is treated as “deemed income” in the hands of the recipient even if the actual recipient happens to be a person different from the original transferor by reason of death, etc. For this purpose, the cost of acquisition in the hands of the receiver of the additional compensation is deemed to be nil – Section 45(5) was an overriding provision and took care of the situation where the capital gains arose from transfer of a capital asset being a transfer by way of compulsory acquisition and the compensation for such transfer was enhanced in stages by a court, tribunal or authority. Following the decision in Commissioner of Income Tax Vs. Ghanshyam (HUF), [2009 (7) TMI 12 - SUPREME COURT] - the Finance Act, 1987 inserted Section 45(5) to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. Accordingly, additional compensation is treated as “deemed income” in the hands of the recipient even if the actual recipient happens to be a person different from the original transferor by reason of death, etc. For this purpose, the cost of acquisition in the hands of the receiver of the additional compensation is deemed to be nil. However, the compensation awarded in the first instance would continue to be chargeable as income under the head “capital gains”, in the previous year in which the transfer took place - addition made by AO was in accordance with law i.e. Section 45(5) of the Act – Decided in favour of Revenue.
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