TMI Blog2008 (2) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... "E", Delhi (hereinafter referred to as "the Appellate Tribunal"), whereby it has been held that the entire amount of additional compensation as received by the assessee on the basis of the award given by the district judge will be liable to be considered for the purpose of computation of capital gain under section 45 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), in the year of its receipt, irrespective of the fact that 50 per cent. amount of the additional enhanced compensation was received on furnishing security in terms of the interim order passed by the appellate authority till the final decision of the appeal filed by the State, challenging the award of enhancing the additional compensation. 2. The appellants have questioned the aforesaid decision of the Appellate Tribunal on the ground that it has failed to consider the basic fact that the amount of additional compensation received by the assessee under the interim order of the appellate court on furnishing security cannot be considered to have been received by the assessee in the year of receipt, which has not become final and against which the appeal is pending. The expression "received" as existin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying the ratio laid down in the case of CIT v. Hindustan and Land Development Trust Ltd. [1986] 161 ITR 524 in the present case even after insertion of section 45(5) in the Income-tax Act specifically for charging of enhanced compensation in the year of receipt?" 4. It is pertinent to mention here that the Revenue filed appeals against several decisions of the Appellate Tribunal wherein, while applying the ratio laid down in the case of CIT v. Hindustan and Land Development Trust Ltd. [1986] 161 ITR 524 and various other decisions of the different High Courts, including the Karnataka High Court in the case of Chief CIT v. Smt. Shantavva [2004] 267 ITR 67, it was held that section 45(5)(b) would be attracted only when the assessee receives the enhanced compensation in pursuance of final award/order of a court, Tribunal or other authority increasing the compensation and not on the actual receipt of the said amount under the interim order passed by the appellate court. All those appeals filed by the Revenue, i.e., Income-tax Appeal No. 322 of 2004 and other connected appeals were dismissed by this court in CIT v. Prem Singh (I. T. A. No. 695 of 2005 decided on May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in law in taking a view contrary to the view taken by the Karnataka High Court and this court. Learned counsel further submitted that the aforesaid view taken by the two Division Benches of this court, following the view taken by the Karnataka High Court has been taken by various other High Courts in the following cases: (i) CIT v. Jeevan and Sons [2000] 161 CTR 242 (Raj); (ii) Darapaneni Chenna Krishnayya (HUF) v. CIT [2007] 291 ITR 98 (AP); (iii) CIT v. Dehradun Tea Co. [2007] 291 ITR 212 (Uttranchal); (iv) CIT v. Abdul Mannan Shah Mohammed [2001] 248 ITR 614 (Bom); (v) CIT v. C. P. Lonappan and Sons [2004] 265 ITR 101 (Ker); (vi) CIT v. Laxman Dass [2000] 246 ITR 622 (All) ; and (vii) Anil Kumar Forma (HUF) v. CIT [2007] 289 ITR 245 (Mad). 7. On the other hand, Mr. Yogesh Putney, advocate, learned counsel for the Revenue submitted that neither in the case of the Karnataka High Court in Smt. Shantavva [2004] 267 ITR 67 nor in the Division Bench decisions of this court in Prem Singh (I. T. A. No. 695 of 2005 decided on May 16, 2007) and CIT v. Karanbir Singh, Rajinder Kuti's case [2007] 303 ITR 231, or any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the capital gain is charged to tax is sub-section (1) of section 45 of the Act. As per the scheme of the said section, capital gain is to be brought to tax "in the year in which the transfer takes place". However, during the course of time, difficulties were faced by the Revenue in realising the tax on enhanced compensation awarded by the courts in appellate proceedings. In order to remedy those difficulties, sub-section (7A) of section 155 of the Act was introduced by the Finance Act, 1978, with retrospective effect from April 1, 1974. However, the said amendment also did not serve the purpose and, therefore, sub-section (7A) was omitted with effect from April 1, 1988. Thereafter, sub-section (5) of section 45 of the Act was added, vide the Finance Act, 1987, with effect from April 1, 1988, to charge the compensation enhanced or further enhanced. However, even this provision was not adequate to deal with the situation where the enhanced compensation was reduced on appeal. Therefore, clause (c) in sub-section (5) of section 45 of the Act was inserted by the Finance Act, 2003, with effect from April 1, 2004, which provides that "Where in the assessment for any year, the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration the law as it stood even prior to that, therefore, these provisions will apply retrospectively. He submitted that the rule of retrospectivity has to apply to the procedural amendment. 10. On the other hand, Shri Sanjay Bansal, learned counsel for the appellant-assessees submitted that the right to receive compensation is essential to tax the enhanced compensation. A non-operative, non-effective, non-enforceable order or decree on account of stay or conditions imposed by the superior court cannot give rise to any chargeable income. The income must accrue or arise before it can be brought to tax under the Act. The expression "received" as existing in section 45(5)(b) of the Act mean received in pursuance of the accrual of right to receive as a result of or in consequence of a decision given by a court, the Tribunal or authority settling the lis between the claimant and the State. Learned counsel submitted that the expression "received" cannot be given a meaning of physical receipt of additional compensation without any right or title conferred upon the claimant by the adjudicatory process of the court, authority or the Tribunal. "Received" means lawfully received or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed great difficulty in carrying out the required rectification and in effecting the recovery of additional demand. With a view to remove these difficulties, a new sub-section (5) to section 45 was inserted which provides for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. This provision was interpreted by various High Courts as well as by this court and it has been held that section 45(5)(b) of the Act would be attracted only when the assessee receives the enhanced compensation in pursuance of a final award/order of a court, Tribunal or other authority increasing the compensation. If any amount is received after stay of the award, in pursuance of any interim order, as payment subject to the final result, it will not be an amount received as enhanced compensation under section 45(5) (b). This provision will be attracted only when the final decision is rendered by the appellate or other authority. In these decisions, the decision of the Supreme Court in Hindustan and Land Development Trust Ltd. [1986] 161 ITR 524 was constantly followed. We do not see any reason to have a contrary view to these judgments, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect from April 1, 1988. It has been observed that this clause was inserted to make the entire scheme workable and to supply an obvious omission in the provision. Therefore, the said clause has to be taken to be declaratory in character and is applicable with retrospective effect. In our opinion, the entire sub-section (5) of section 45 of the Act is a charging section. The said sub-section itself is a code and contains substantive provisions. Therefore, its provisions cannot be made applicable retrospectively without any express indication. Clause (c) to section 45(5) was inserted by the Finance Act, 2003, with effect from April 1, 2004. In the purpose clause, it was specifically stated that this amendment will take effect from April 1, 2004, and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. Similarly, sub-section (16) to section 155 of the Act was introduced with effect from April 1, 2004, and as per Note [published in [2003] 260 ITR 166] the amendment was to apply in relation to the assessment year 2004-05 and subsequent years. If the legislation wanted to insert these clauses with retrospective effect, it could have been so stated in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly stated that this amendment would come into force with effect from April 1, 2004, and will be applicable on the assessment year 2004-05. Therefore, we are of the opinion that these amendments would apply only to future periods and not to any period prior to April 1, 2004, or any assessment year prior to the assessment year 2004-05. 16. In the present cases, the dispute relates to the assessment years 1994-95 to 1998-99 and during that period, only section 45(5)(b) of the Act was applicable, which has already been interpreted by this court and various other courts, wherein it has been clearly held that section 45(5)(b) will be attracted only when the assessee receives the enhanced compensation in pursuance of a final award/order of a court, Tribunal or other authority increasing the compensation. If any amount is received after stay of the award, in pursuance of any interim order, as a payment subject to the final result, it will not be an amount received as enhanced compensation as contemplated under section 45(5)(b), but only an interim payment received subject to final decision. Since this court has already taken the view, therefore, in our opinion, the Tribunal was not j ..... X X X X Extracts X X X X X X X X Extracts X X X X
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