TMI Blog1983 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... -of the property known as Kothi Anar Bagh, Subzi Mandi, Delhi, which was acquired by the Government under the Land Acquisition Act, 1894 (hereinafter referred to as "the Acquisition Act "). Each assessee had 1/32 share in the said property. The notification under s. 4 of the Acquisition Act was made on September 10, 1962. The declaration under s. 6 of the Acquisition Act was made on June 11, 1963. The assessees then filed their claims before the Land Acquisition Collector in which the value of that property was stated as Rs. 24,51,408. The Land Acquisition Collector after holding an enquiry into the value of the land, at the date of the publication of the notification under s. 4 and into the respective interests of the persons claiming, the compensation made his award on November 20, 1965. The property was evaluated by the Land Acquisition Collector at Rs. 10,51,309 in his award and after adding 15% for compulsory acquisition assessed the value at Rs. 12,13,308.50. After the making of the award by the Land Acquisition Collector, the said amount was deposited. The amount as offered by the Land Acquisition Collector was received by the assessees under protest on March 24, 1966. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n received under the orders of the Addl. District Judge while evaluating capital gains. The Tribunal observed that the assessees got the enhanced compensation in September, 1970, and that would not prevent the consideration of that sum in the computation of capital gains even if the compensation is enhanced or reduced on further appeals by the High Court or the Supreme Court. It opined that the effect of these enhancements or reduction would relate back to the year of transfer and the capital gains would have to be accordingly adjusted in terms thereof. The first question to be considered is the year of chargeability in case of compulsory acquisition. Section 45 of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in ss. 53, 54, 54B and 54D, 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. By virtue of the definition contained in s. 2(47) of the Act, " transfer ", in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd conclusive evidence, as between the Collector and the person interested. The finality arises as to the area of the land, the value of the land and the apportionment of the compensation among the persons interested. Section 12(2) provides and makes it obligatory on the Collector to give immediate notice of his award to such of the persons interested as are not personally present or by their representatives when the award is made. Section 16 provides that when the Collector has made an award under s. 11, he may take possession of the land, which shall thereupon vest absolutely in the Government, free from all encumbrances. The taking of the possession of the acquired land is the immediate consequence of the award under s. 11. The award gives the Collector the right to take possession. It is only When the possession of the land is taken that the vesting takes place. The word " vest " has not got a fixed connotation, but in the Acquisition Act two consequences follow from the taking of the possession. Firstly, it is the vesting of the title of the land absolutely in the Government and, secondly, such vesting is free from all encumbrances. The property becomes the property of the Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies the offer of the Land Acquisition Collector on behalf of the Government. In Raja Harish Chandra Raj Singh v. Land Acquisition Collector, AIR 1961 SC 1500, the Supreme Court pronounced upon the legal character of the award made by the Collector under the Acquisition Act. Their Lordships held that the award made by the Collector is in law an offer or tender of compensation determined by the Collector to the owner of the property under acquisition. If the owner accepts the offer, no further proceeding is required to be taken, the amount is paid and compensation proceedings are concluded. If, however, the owner does not accept the offer then s. 18 gives him the statutory right of having the question determined by the court, and it is the amount of compensation which the court may determine that would bind both the owner and the Collector. In that case it is on the amount thus determined judicially that the acquisition proceedings would be concluded. It is because of this nature of the award that the award can be appropriately described as a tender or offer made by the Collector on behalf of the Government to the owner of the property for his acceptance. If the receipt of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Actual receipt of the profits is not a relevant consideration. Is it possible to construe that the right to receive the enhanced compensation arises or accrues without final determination by the court ? In other words, the question is as to whether it can be said that any amount or profits had actually accrued or arisen to the assessee on the basis of the amount claimed by the assessee in his reference petition under s. 18 of the Acquistion Act or on determination of the compensation by the Additional District judge when that judgment and decree is in appeal in the High Court, at the instance of the Government, or further appeal to the Supreme Court, again at the instance of the Government. We may recall that the award in is law an offer or tender of the compensation determined by the Collector to the owner of the property. The owner in this case has not accepted the offer and sought the statutory right of having the question determined by the court under the Acquisition Act. The term " court " refers to the competent District Court. The Court of the Addl. District judge is the first court in the hierarchy for the determination of the compensation on a reference under s. 18 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less and until there is created in favour of the assessee a debt due by somebody, it cannot be said that he has acquired right to receive the income or that income has accrued to him." It is thus clear that unless and until there is created in favour of the assessee a debt due by somebody, it cannot be said that he has acquired right to receive the income or that income has accrued to him. In cases of claims for determination of compensation by the court, no debt is due or was due until the amount of compensation is judicially determined at all stages provided in the Acquisition Act. The offer made by the Collector by his award, if not accepted by the assessee, would not result automatically in a liability to pay enhanced compensation as claimed by the assessee. The claim made by the assessee is in respect of an inchoate right and unless the question of payment of any enhanced compensation is decided and the amount of enhanced compensation becomes determinable and payable, the amount cannot be said to arise or accrue. With the filing of the appeal by the Government against the determination of compensation by the District Court, the amount is in jeopardy. The right to receive the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We are, therefore, of opinion that if an aggrieved party whose land is acquired does not accept the offer made by the Land Acquisition Officer in his award, he has a right to seek reference under section 18 for getting the question of the compensation determined by the court and it is on the amount thus determined judicially that the owner would be entitled to enforce that right for a particular sum. It is on the final determination, in our opinion, of the amount of compensation that the right to that income in the nature of compensation would arise or accrue and till then there is no liability in praesenti in respect of the additional amount of compensation claimed by the owner of the land sought to be acquired. " The Andhra Pradesh High Court in Ahmed Alladin Khan Bahadur Sons v. CIT [1969] 74 ITR 651 has taken the same view which was followed by the Andhra Pradesh High Court in subsequent cases. The Gujarat High Court also reiterated the same view in Addl. CIT v. New Jehangir Vakil Mills Co. Ltd. [1979] 117 ITR 849. In CIT v. Hindusthan Housing and Land Development Trust Ltd. [1977] 108 ITR 380 (Cal), the question arose as to when income accrues. In that case also, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not make the amount of compensation either determinate or payable. Apart from the question that actual payment is not a material consideration in the matter of compensation in case where the accounts are maintained on the mercantile system, in the instant case the said payment received by the assessee cannot be considered to be a payment of any compensation, as the right of the assessee to receive any further compensation or the amount of the further compensation has not yet been adjudicated upon and decided. The said receipt is really the receipt of a particular sum pursuant to an order of court on the security bond executed by the assessee and on the basis of terms and conditions mentioned in the said bond. " The legislature became conscious of the difficulties of the assessee in cases where he does not accept the compensation awarded by the Collector for the compulsory acquisition of his capital asset but initiates appropriate legal proceedings claiming higher compensation. A view was expressed that capital gains in such cases has to be computed with reference to the compensation awarded by the Government and the assessment made on this basis can be revised within four years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or consideration is determined when it is so desired by the assessee or enhanced or further enhanced in the process of judicial determination, the amount does not actually become payable or enforceable and cannot be brought to tax as capital gains. It would accrue or be deemed to accrue on determination by the court or on enhancement by the High Court or further enhancement by the Supreme Court. Such amount accrues only when it becomes payable, in other words, when the courts accept the claim. In this case, the Government has exercised its right of appeal under s. 54 of the Acquisition Act. The compensation determined by the District Court is in jeopardy. It is not payable to the assessee as of right and thus capital gains have not arisen. The High Court may either disallow the appeal or may accept it and reduce the compensation. The legislature has only used the word " enhanced " or " further enhanced " in the newly added sub-s. (7A). It is obvious that there is no deeming provision or statutory fiction that the computation made earlier shall be deemed to have been wrongly made on reduction or further reduction. It cannot be imputed to the legislature that it was not aware of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this context that the following observations were made (p. 213): " Once it is found that a transfer had taken place in the previous year, it is clear on the language of s. 45 that the capital gains arising from the transfer are liable to tax as the deemed income of that previous year. It is clear also that for bringing such capital gains to tax the Department cannot be asked to wait until the compensation or price payable is finally determined. All that is necessary is that, by the end of the previous year in question, the assessee must have received or become entitled to receive moneys in excess of the actual cost of the assets. The assessment so made may be liable to modification in the somewhat unusual and unlikely event of the price being reduced subsequently (a threat of which seems to be present in the instant case in regard to the transfers relevant for the assessment year 1963-64), or in the event of the amount being subsequently enhanced, an eventuality which occurs perhaps, in almost every case of such acquisition. If there are any difficulties in the way of the assessee or Revenue (by way of limitation or otherwise) in having such modifications effected, these diffic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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