(1.) AT the instance of the assessee under section 256(1) of the Income Tax Act, 1961, the following question of law has been referred to this court for answer :
(2.) UNDER section 45 of the Act, any profit or gain arising from transfer of a capital asset is chargeable to income -tax under the head 'capital gain' by treating the same as income of the previous year in which the transfer took place. Section 54F was introduced in the Act by Finance Act, 2/1977 with effect from 1 -4 -1978, for the purpose of exempting capital gain from tax, if sale proceeds of the asset are invested within six months in shares, bank deposits, units of the Unit Trust or other 'specified assets'. Where transfer of capital asset is by way of compulsory acquisition under any law, in accordance with the normal procedure prescribed, capital gain is to be computed by taking compensation awarded by the government as full value of consideration, even though adequacy of compensation is questioned by the assessee in higher court or Tribunal. On additional compensation being awarded to the assessee, earlier computation of compensation is required to be revised. To enable the tax authorities to do the same, sub -section (7A) was added in section 155 with effect from 1 -4 -1974. Under the said provision, award of additional compensation, capital gain earlier computed on the basis of award of original compensation, can be recomputed. This provision by insertion of sub -section (7A) to section 155 was introduced by Finance Act of 1978, but it was given retrospective effect from 1 -4 -1974. By the same Finance Act of 1978, sub -section (10B) to section 155 was introduced not retrospectively but prospectively from 1 -4 -1978, which enables the 'assessee to invest or deposit whole or part of the additional compensation in any specified assets for the purpose of claiming benefit of exemption from payment of tax on capital gain.
(3.) LEARNED counsel Mr. R.K. Patel appearing for the assessee questioned the correctness of the reasonings and conclusion reached by the Tribunal. The argument on behalf of the assessee is that if grant of enhanced amount of compensation enables recomputation of tax on capital gain, benefit of exemption from tax on specified deposits and investments cannot be denied because provisions of section 54E(3) and section 155(10B) have prospective operation. Reliance is placed on a direct decision of the Andhra Pradesh High Court in the case of CIT v. Smt. Roda Mistry : [1998]231ITR12(AP) in which earlier Division Bench decision of the same court in S. Gopal Reddy v. CIT : [1990]181ITR378(AP) has been referred and relied. Learned counsel appearing for the assessee submits that in the case of CIT v. J.H. Gotla : [1985]156ITR323(SC) , the Supreme Court has observed that 'though equity and taxation are strangers, attempt should be made that these do not remain always so and if construction results in equity rather than injustice, then, such construction should be preferred to the literal construction'. It is submitted that the amount of compensation subsequently enhanced can only be invested or deposited in the specified assets after the said amount is received, and merely because on the amount of original compensation received, the assessment was completed on capital gain, the assessee should not be denied benefit of claiming exemption from capital gain tax on deposit of the amount of compensation subsequently enhanced and received. Any other conclusion would lead to an absurd result that such enhanced compensation can be brought to tax as capital gain on recomputation and opening of original assessment but it would be of no avail to the assessee for claiming exemption by making specified deposits and investments. He submitted that 'in case of doubt with regard to interpretation, such interpretation which is favourable to the assessee should be adopted' Reliance is placed on CIT v. J.K. Hosiery Factory : [1986]159ITR85(SC) .