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TMI Blog2001 (5) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... the 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to the assessee under the provisions of section 48(2)(b)(i)(B), which was allowed by the Assessing Officer, but withdrawn by the CIT(Appeals), by way of enhancement; (c) Exemption a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; ---------------- Rs. 1,47,953 .........." ------------------------------------------------------------------------------ It is mentioned that the assessee made the following claims for deduction-- (i) Expenditure under section 48(1)(a) at 20 per cent of the addl.compensation amount received. (ii) Deduction under section 48(2)(a) of Rs. 10,000 and 50 per cent under section 48(2)(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of acquisition and improvement, and it does not speak anything about the expenditure incurred wholly and exclusively in connection with the transfer, allowable in terms of section 48(1)(a), as it stood during the relevant period. He stressed that the receipt of consideration by way of additional compensation and transfer are integral to each other, and constitute one and single transaction, and so, some expenditure on estimation has to be allowed. 8. On the other hand, the learned Departmental Representative reiterated the contention that section 45(5)(b) read with Explanation thereunder, prohibit the deduction of any expenditure. 9. We are of the view that the assessee is entitled for the deduction of some expenditure on estimate basis, from the additional compensation and interest amounts received by him. The decision of the Kerala High Court in CIT v. Dr. P. Rajendran [1981] 127 ITR 810 is an authority for the proposition that proceeding before Civil Court for enhancement of compensation are integral part of the proceedings for the transfer of the property, and so, the expenditure incurred in such proceedings must be regarded as incurred wholly and exclusively in connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a court shall be brought to tax under the head 'Capital gains'. It does not, to our mind, stipulate that the entire enhanced compensation should be brought to tax as income under the head 'Capital gains'. In other words, the section does not preclude computation of the chargeable capital gains. If that were the intention, there is no need for specifically mentioning in clause (i) of Explanation to section 45(5) that 'cost of acquisition and the cost of improvement shall be taken to be nit. In relation to the amount referred to in clause (b) of section 45(5). Similar inference can also be drawn from second proviso to section 48(2), wherein a reference is made to restricting the initial deduction of Rs.10,000 allowable under clause (a) of section 48(2) from the amount referred to in clause (b) of section 45(5). The said proviso is reproduced below-- "48(1) ..... (2) ..... Provided that ..... Provided further that, in relation to the amount referred to in clause (b) of sub-section (5) of section 45, the initial deduction of ten thousand rupees under clause (a) of this sub-section shall be reduced by the deduction already allowed under clause (a) of section 80T in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 in terms of section 48(2)(a) was concerned. He was however, of the view that the Assessing Officer erroneously allowed deduction of Rs.53,230 in terms of section 48(2)(b)(i)(B) for the reasons recorded by him, in the context of the deduction for expenditure incurred by the assessee for securing additional compensation. 14. The learned counsel for the assessee invited our attention to the second proviso to section 48, as it stood at the relevant time, which we have already extracted in para-10 above. In terms of the said proviso, it is argued that what is prohibited under the specified circumstances as deduction in relation to the amount referred to in clause (b) of sub-section (5) of section 45 is only initial deduction of Rs.10,000, and the prohibition under that clause does not apply to the further deduction of 50 per cent of the amount of capital gains in excess of that amount allowed under section 48(2)(b). 15. The learned Departmental Representative, on the other hand, relied on the order of the Commissioner (Appeals). 16. We find merit in the contention of the learned counsel for the assessee. In terms of the language of the second proviso to section 48(2), we find no ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to the proviso to section 54H, which reads as under-- "54H ..... Provided that where the compensation in respect of transfer of the original asset by way of compulsory acquisition under any law is received before the 1st day of April, 1991, the aforesaid period or periods, if expired, shall extend upto the 31st day of December, 199l." In terms of the said proviso, according to the learned counsel for the assessee, the time for constructing the residential house has been extended till 31 st December, 1991, in a case where the compensation has been received before 1-4-1991. 19. The learned Departmental Representative on the other hand, supported the view taken by the Assessing Officer and the CIT(Appeals), and submitted that the proviso to section 54H referred to by the learned counsel refers only to compensation, and does not refer to additional compensation. So, the said proviso does not help the assessee. 20. We have to agree with the Revenue authorities on this issue. The decision of the Hon'ble A.P. High Court in case of S. Gopal Reddy case was rendered in the context of the provisions of section 54E, which with effect from 1-4-1984 contained a proviso, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note two different things. So, it appears to us that even in the proviso, the word 'compensation'refers only to initial compensation, and extends the benefit of section 54H to the cases where the compensation is received before 1-4-1991, and does not apply to a case where the additional compensation is received before 1-4-1991. The learned counsel for the assessee further pleaded before us that the word 'compensation' used is with reference to even additional compensation in section 45(5). We do not find any scope for this inference from the language of section 45(5). Section 45(5) refers to situations, where the compensation is enhanced or further enhanced. The use of the word 'enhanced' brings out the distinction between initial compensation and additional compensation. It does not appear to us from the language of section 45(5) that the word 'compensation' without the qualifying words 'enhanced' or 'further enhanced' includes additional compensation. So we are of the view that in the present case, the assessee is not saved by the proviso to section 54H. We have also referred to the CBDT Circular No. 621, dated 19th December, 1991. It refers to the purpose of introducing section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature has used the word 'enhanced' whenever it wanted to qualify even additional compensation, and so, the word 'compensation' simplicitor should normally refer only to the original or initial compensation awarded by the Land Acquisition Officer. In this view of the matter, we find that the Revenue authorities were correct in denying the claim of the assessee for exemption of the capital gains under section 54F of the Act. 22. Subject to the above, assessee's appeal for the assessment year 1988-89 is allowed in part. ITA No. 572/Hyd/96: Asstt. Year - 1993-94 23. During the previous year relevant to assessment year 1993-94, the enhanced compensation received by the assessee was as under-- ------------------------------------------------------------------------------ '(1) Consideration for the land acquired at Rs. 50 per sq. yd. Rs. 3,92,000 (2) Solatium at 30 per cent of the above Rs. 1,17,600 (3) Addl. Market value at 12 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 asset in question. So, it is an allowable deduction under section 48(1)(a)(i) of the Income-tax Act. Admittedly, the expenditure is not vouched and has to be allowed only on estimate basis. We hold that deduction of an overall amount of Rs.75,000 towards expenditure incurred for additional compensation and interest thereon would meet the ends of justice. We direct that an amount of Rs.70,000 may be allowed as deduction from the capital gains assessed under section 45(5) of the Act, and the balance amount of Rs.5,000 may be allowed as deduction from the interest assessed under the head 'other sources', under section 57(1) of the Act. 26. The next ground of the assessee in this appeal is that the CIT(Appeals) erred in determining the income from business at Rs.39,000 instead of Rs.39,950 returned by the assessee. No arguments have been advanced by the learned counsel for the assessee on this issue. This ground is ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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