CATHERINE THOMAS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The question raised in the appeal filed by the assessee is whether Tribunal was justified in confirming the assessment of capital gains for the additional amount of compensation received in land acquisition proceedings by the late husband of the appellant for the assessment year 1992-93. We have heard counsel appearing for the appellant and Standing Counsel appearing for the respondents. The facts in brief are the following. An extent of 83 cents of land with building thereon was acquired by the Land Acquisition Officer from appellant's late husband on 10.7.1986 for a compensation of Rs. 4,20,970/-. The possession was taken over on 10.9.1986 and Land Acquisition reference case was instituted before the Sub Court, Kozhikode for enhancement of compensation. The Sub Court on 22.10.1990 enhanced the compensation to Rs. 17,53,887.50 with interest @ 9% for first year and @ 15% thereafter. Since there was dispute about the title of the property, the Government deposited additional compensation with interest of Rs. 23,47,886/- in the Sub Court. On 19.9.1991 the Sub Court released the additional compensation to the late husband of the appellant on his furnishing security for the amount for 3 years. According to the appellant the deceased had to fumish security to get the money released from the court and in fact he deposited the amount for 3 years in the Bank in the year 1991 to get Bank Guarantee. However, admittedly on expiry of the bank guarantee on 19.9.1994 the Bank released the amount deposited in the Bank to the late assessee. Pursuant to a raid, late assessee filed income tax return for the year 1995-1996 and eventhough the additional compensation for the acquisition of the property was received from the Bank after release by the court, the assessee filed a covering letter along with the return filed for the year 1995-96 stating that appeal is filed by the State against increase in compensation in LAA.281/92 and in view of the appeal and based on the judgment of the Supreme Court in Commissioner of Income Tax, West Bengal-II v. Hindustan Housing and Land Development Trust Ltd., 1986 161 ITR 524 assessee is not liable to pay tax on the additional compensation received. However based on the information furnished by the assessee about receipt of additional compensation the Assessing Officer re-opened the assessment for 1992-93 and assessed additional compensation received in that year for the reason that in terms of Section 45(5)(b) the tax on capital gains in land acquisition proceedings is payable on receipt basis and the assessee had in fact received the payment from the Court on 19.9.2001.

(2.) The assessee filed appeal against the assessment which the CIT (Appeal) dismissed and the Tribunal confirmed the said order. It is against this order assessee has filed this appeal.

(3.) Counsel for the assessee relied on the decision of the Supreme Court Commissioner of Income Tax, West Bengal-II v. Hindustan Housing and Land Development Trust Ltd., 1986 161 ITR 524 and decision of the Karnataka High Court in Chief Commissioner of Income Tax and Anr. v. Smt. Shantavva, 2004 267 ITR 67. Two other decisions relied On by the assessee are of the Madras High Court, one reported in Anilkumar Forma (HUF) v. Commissioner of Income Tax reported in , and their later decision in K. Mahender v. Commissioner of Income Tax, 2008 303 ITR 245. Based on above decisions counsel contended that additional compensation awarded by land acquisition court in reference is assessible only in the year in which all the court proceedings came to an end which in this case is the dismissal of the State appeal by the High Court in the year 2003. The counsel for the Revenue on the other hand contended that the decision of the Supreme Court referred above is for the period prior to the introduction of Section 45(5)(b) and so much so it has no application. According to him by virtue of the provision contained in Section 45(5)(b) of the Act capital gains by way of additional compensation received is assessible on receipt basis and if there is any reduction of the same later in appeal by any court, assessment calls for modification as provided in Clause (5)(c) of Section 45 of the Act. Eventhough Section 45(5) with Sub-clauses (a) and (b) was introduced by Finance Act, 1987 and Clause (c) was introduced only in 2003, the Tribunal took the view that Clause (c), the protective clause taking care of reduction of enhanced compensation in further appeal is clarificatory in nature and so much so the additional compensation received by the late assessee in the financial 1991-1992 was rightly assessed for the assessment year 1992-1993. Since the judgments of the High Court and the decision of Supreme Court relied on by the assessee relate to the period prior to introduction of Section 45(5)(b) and (c) we extract hereunder the said subsections for easy reference.