TMI Blog2004 (2) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961 ("the Act" for short), by the Revenue is against the order of the Income-tax Appellate Tribunal, Bangalore Bench, in I.T.A. No.439/Bang of 1998 relating to the assessment year 1994-95. The respondent's land measuring two acres 14 guntas in Gadag-Betgeri was acquired under notification dated April 24,1977, for extension of market yard. The Land Acquisition Officer made an award at the rate of 75 paise per sq. ft. in regard to the acquired land. The respondent sought increase in compensation. The reference court increased the compensation to Rs. 8.50 per sq. ft. The judgment and award of the reference court was challenged in MFA No.837 of 1987 before this court. This court by judgment dated October 7, 1992, determined the market price at Rs. 7 per sq. ft. plus solatium and interest. The judgment of this court was challenged by the Land Acquisition Officer before the Supreme Court in C.A. No. 12884 of 1996. In terms of the interim orders of this court and the Supreme Court, the respondent received four sums of Rs. 2 lakhs each on April 1,1993, June 13,1993, July 14,1993 and November 30,1993, by furnishing security to the satisfaction of the reference court. Ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54F, 54G and 54H, 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. Sub-section (5) of section 45 which is relevant provides thus: "45. (5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law . . . 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. . . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the use of the word "deemed" in section 45(5)(b), the amounts received in pursuance of the interim orders, would become "income". The Tribunal held that having regard to the time spent for adjudication and settlement of the final compensation in land acquisition matters due to procedural delays, the compensation is received several years after the acquisition of the land, and therefore, the deeming provision in section 45(5)(b) provides for taxing the additional compensation not in the year of acquisition, but in the year when the compensation amount is received by the assessee. The Tribunal held that the deeming effect of the clause (b) of section 45(5) cannot be extended so as to take in its fold, conditional interim payments, made subject to the final orders of the court. We may clarify the effect of clauses (a) and (b) of section 45(5) with reference to the following two illustrations: -------------------------------------------------------------------------------- Illustration I Illustration II -------------------------------------------------------------------------------- 1-5-1990 Award of the LAO Award by the LAO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first instance will be chargeable to tax as capital gain chargeable to tax, as for the previous year, relevant capital gain for the to the assessment year 1991-92; previous year,relevant to the assessment year 1991-92; (ii) The sum of Rs. 20,000 (ii) The sum of Rs. 40,000 shall be shall be chargeable to tax chargeable to tax for the assessment for the assessment year year 1993-94, under the head of capi- 1995-96, under the head of tal gains for the previous year; capital gains for the previous year; (iii) The sum of Rs. 10,000 (iii) The sum of Rs. 10,000 shall shall be chargeable to tax be chargeable to tax,as capital as capital gain for the gain for the previous year, rele- previous year,relevant to vant to the assessment year the assessment year 1996-97. 1996-97. ----------------------------------------------------------------------------------- Note: In the first illustration, the sum of Rs. 20,000 is received on November 1,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,691 deposited by the State Government on April 25,1956, without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal was allowed in its entirety, the right to payment of the enhanced compensation would have fallen altogether." In CIT v. A.B.V. Gowda [1986] 157 ITR 697, this court held as follows: "A mere claim to income without an enforceable right thereto cannot, therefore, be regarded as an accrued income for the purpose of the Income-tax Act." The above principles are squarely applicable and section 45(5)(b) does not change the position in any manner. Section 45(5)(b) shifts the date of "income" from the date of acquisition and from the date of determination of compensation by a court/Tribunal/authority, to the date of receipt of the compensation in pursuance of an enhancement by the court/Tribunal/authority. Two conditions have to be satisfied for applicability of section 45(5)(b): (i) There should be enhancement of compensation by a court/Tribunal/ authority. (ii) The assessee should receive payment of such enhanced compensation. When the award ..... X X X X Extracts X X X X X X X X Extracts X X X X
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