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2001 (5) TMI 146

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..... he Sub-ordinate Judge, Ongole, who vide his order dated 31-7-1986 enhanced the compensation payable to the assessee to Rs.20 per sq. yard. In addition to the compensation, the assessee was also awarded solatium and interest on the basis of such enhanced compensation. Still aggrieved, assessee preferred a further appeal before the Hon'ble A.P. High Court, which vide its order dated 16-8-1991 further enhanced the compensation payable to the assessee to Rs.70 per sq. yard, against Rs.20 per sq. yard fixed by the lower court. Hon'ble High Court also ordered payment of additional compensation, solatium and interest at the rate of 9 per cent from the time of taking over possession of the land till it is deposited in the Court. 3. Issues raised by the assessee in these appeals, in relation to the compensation, interest, etc. received by the assessee, are as follows-- (a) Deduction for expenditure incurred by the assessee by way of legal fee, etc., for obtaining extra compensation; (b) Deduction allowable to the assessee under the provisions of section 48(2)(b)(i)(B), which was allowed by the Assessing Officer, but withdrawn by the CIT(Appeals), by way of enhancement; (c) Exemption .....

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..... ing the amount of additional compensation and interest thereon, and accordingly restricted the claim of the assessee to 10 per cent of the additional compensation, and allowed such restricted claim of Rs.10,600 as deduction from the interest income brought to tax under the head 'other sources'. In other words, the stand of the Assessing Officer was that while no deduction was allowable under the head capital gains in terms of clause (i) of Explanation to section 45(5), some expenditure was allowable against interest income brought to tax under the head 'Other sources'. 6. On appeal, the CIT(Appeals) agreed with the Assessing Officer that no expenditure was allowable as deduction in terms of section 45(5). He further, held that in terms of section 45(5)(b), the entire amount of additional compensation received, has to be brought to tax in the year of receipt. He accordingly, not only rejected the claim of the assessee for the deduction of 20 per cent of additional compensation, by way of expenditure, but also withdrew by way of enhancement, the deduction for expenditure, of Rs.10,600 allowed by the Assessing Officer against interest income, as mentioned by us hereinabove. 7. Bef .....

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..... e consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely-- (a) the capital gain computed with reference to the compensation awarded in the first instance, as the case may be, the consideration determined or approved by the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head 'Capital gains' of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received; and (b) the amount by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority shall be deemed to be income chargeable under the head 'Capital gains' of the previous year in which such amount is received by the assessee. Explanation.-For the purposes of this sub-section-- (i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to b .....

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..... any deduction for the expenditure incurred in the context 'of the transfer, which is allowable in terms of section 48(1) of the Act. 12. In view of the above, we are of the opinion that the assessee is entitled for the deduction of the expenditure incurred for obtaining the enhanced compensation and other benefits. In the circumstances of the present case, we are of the view that a round sum deduction of Rs.15,000 would meet the ends of justice, out of which a deduction of Rs.10,000 may be allowed in the computation of capital gains in terms of section 45(5); and the balance amount of Rs.5,000 may be allowed as deduction against the interest income assessed under the head 'other sources'. We accordingly set aside the direction of the CIT(Appeals) for withdrawal of deduction of Rs.10,600 allowed by the Assessing Officer against interest, but direct the Assessing Officer to allow only an amount of Rs.5,000 against interest income. We also direct the Assessing Officer to allow deduction of an amount of Rs.10,000 against capital gains assessed under section 45 (5) of the Act. 13. As for the deduction claimed by the assessee under section 48(2)(a), the Assessing Officer mentioned t .....

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..... ecause the compensation was not received in one lump sum, but received in spells through court action. In this view of the matter, we find no justification for withdrawal of the deduction of Rs.53,230 allowed by the Assessing Officer under section 48(2)(b)(i)(B). However, the correct amount of this deduction may have to be worked out again, in view of our directions to allow Rs.15,000 as expenditure incur-red, against capital gains and interest assessed to tax. Assessing Officer, may therefore, work out the correct amount of deduction allowable under section 48(2)(b)(i)(B). 17. The next issue relates to the claim for exemption under section 54F. The Assessing Officer observed that the assessee constructed a residential house in the previous year relevant to assessment year 1991-92. He denied the exemption under section 54F on the ground that the transfer of the capital asset in question, i.e. land, tookplace in the year 1976, when the Land Acquisition Officer passed the award and the construction had not taken place within a period of three years from the date of transfer, as stipulated is section 54F of the Act. The CIT(Appeals) agreed with this reasoning of the Assessing Office .....

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..... er is earlier.' The Hon'ble High Court accepted the contention of the assessee that the above proviso was, merely clarificatory in nature, and such position as made out by the second proviso to sub-section (1) of section 54E, should be, deemed to have prevailed even prior to April 1, 1984, i.e., with effect from the date of the enactment of section 54E. There is no provision similar to the above proviso in section 54F. So, we are of the view that the benefit of the above decision of the Hon'ble A.P. High Court, cannot be extended to the assessee, since the present case is not considered under section 54E but under section 54F. 21. Even the alternative contention of the learned counsel for the assessee that the case of the assessee is covered by the proviso to section 54H does not seem to hold good. From the language of the main provision of section 54H, it is clear that section 54H applies to an assessee in whose case the amount of compensation awarded on compulsory acquisition of an asset, is not received on the transfer of the asset. The word 'compensation' in the main provision should refer only to the initial compensation awarded by the Land Acquisition Officer, because on .....

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..... in which it is received. 23.1 It has been brought to the notice of the Government that in cases of compulsory acquisition of assets, at times there is a considerable gap between the date of acquisition and payment of compensation. The result is that the existing provisions of capital gains taxation operate harshly inasmuch as the affected persons are unable to avail of the exemption for roll over of capital gains, within the specified time period, though investment in specified assets. 23.2 Section 45 of the Income-tax Act has, therefore, been amended to provide that capital gains arising from the transfer of the capital asset by way of compulsory acquisition under any law shall be charged to tax in the previous year in which the compensation is first received. 23.3 This amendment takes effect retrospectively from 1 st April, 1988. 23.4 Further, a new section 54H has been inserted in the Income-tax Act, to provide that in cases where compensation in respect of any asset acquired compulsory is received after the date of such transfer, the period for investment in specified assets shall be reckoned from the date of receipt of such compensation. However, where the compensatio .....

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..... at 20 per cent for expenditure incurred on the aggregate interest of Rs.1,05,509 so, the total expenditure claimed is Rs.1,30,259 (wrongly mentioned by the Assessing Officer as Rs.42,981). 24. The Assessing Officer rejected the above claim for the deduction of the expenditure, claimed to have been incurred for securing additional compensation, for court proceedings, etc. subsequent to the award of the Land Acquisition Officer, on the ground that the said expenditure incurred subsequent to the award of the Land Acquisition Officer cannot be regarded as incurred in the context of the transfer of the capital asset, since the transfer was complete on the award of the Land Acquisition Officer. The CIT(Appeals) has also agreed with this view of the Assessing Officer, and upheld the disallowance of the claim for deduction of the expenditure. 25. We have already discussed this issue in the context of the assessee's appeal for the assessment year 1988-89 hereinabove. For the reasons recorded therein, we hold that the expenditure incurred for obtaining enhanced compensation must be regarded as having been incurred wholly and exclusively in connection with the transfer of the capital asse .....

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