3 Sh. Chirag Deepchandani v. Income Tax Officer, Ward 1(1), Kota, Central Revenue Building, Kota

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 10 / 2017 Sh. Chandi Ram Prop. Chandi Ram & Co. A-20, Vallabh Nagar, Kota (deceased)through legal heirs 1/1 Smt. Sarla Deepchandani W/o late Sh. Chandi Ram, R/o A-20, VallabhNagar, Kota. 1/2 Smt. Hitesh Deepchandani S/o late Sh. Chandi Ram, R/o A-20, VallabhNagar, Kota. 1/3 Sh. Chirag Deepchandani S/o late Sh. Chandi Ram, R/o A-20, VallabhNagar, Kota. ----Appellants Versus Income Tax Officer, Ward 1(1), Kota, Central Revenue Building, Kota ----Respondent D.B. Income Tax Appeal No. 210 / 2017 Pr. Commissioner of Income Tax, Kota Versus ----Appellant Sh. Chandi Ram Prop. Chandi Ram & Co. A-20, Vallabh Nagar, Kota (deceased)through legal heirs 1/1 Smt. Sarla Deepchandani W/o late Sh. Chandi Ram, R/o A-20, VallabhNagar, Kota. ½ Smt. Hitesh Deepchandani S/o late Sh. Chandi Ram, R/o A-20, VallabhNagar, Kota. 1/3 Sh. Chirag Deepchandani S/o late Sh. Chandi Ram, R/o A-20, Vallabh Nagar, Kota. ----Respondent_____________________________________________________ For Appellant(s) : Mr. Siddharth Ranka with Mr. Muzafar Iqbal(Respondent in appeal No.210/2017) For Respondent(s) : Mrs. Parinitoo Jain (Appellant in appeal no. 210/2017) _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI 06/11/2017 HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 1.In both these appeals common questions of law and factsare involved hence they are decided by this common judgment. 2.By way of appeal no.210/2017, the department has assailedthe judgment and order of the tribunal whereby tribunal has dismissed the appeal of the department and deletedRs.91,59,305/-. 3.In appeal No.10/2017, by this appeal the assessee haschallenged the judgment and order of the tribunal wherebytribunal has dismissed the appeal of the assessee. 4.This court while admitting the appeal No.10/2017 on 30.5.2017 framed following substantial question of law:- “Whether on the facts, material available onrecord and in law the ld. ITAT was justifiedin holding that proceedings u/s 148 of theAct were validity initiated by the ld.Assessing Officer?” 5.This court while admitting the appeal No.210/2017 on20.9.2017 framed following substantial question of law:- “1. Whether the tribunal was legally justifiedin deleting the addition of Rs.91,59,305/-made on account of amount actuallyreceived during the assessment year, as aresult of Arbitration Award Passed in favourof the assessee specifically when thepayment of such amount by the assessee isan unascertained and a contingent liability?” 6.The facts of the case are that the assessee has filed hisreturn of income declaring total of Rs.3,16,040/- on 30.9.2008.The case was selected for scrutiny and, therefore, the AssessingOfficer completed the assessment u/s 143(3) of the Act on14.5.2010 at a total income of Rs.7,55,353/-. Subsequently, itwas noticed by the AO that the assessee had received a sum of Rs.91,59,305/- as arbitration receipts during the F.Y. 2007-08 (AY2008-09). But the assessee has not disclosed these receipts in thereturn of income as well as before the Assessing Officer during theassessment proceedings u/s 143(3) of the Act for the year underconsideration. It was also noticed by the AO that the assessee hasfailed to deduct TDS on payments of Rs.39,96,030/-, thus thisamount was not allowable u/s 40(a)(ia) of the IT Act. Consideringthe above escapement of income, proceedings u/s 147 of the Actwere initiated after obtaining necessary approval of competentauthority and notice u/ 148 of the IT Act was issued on 29.3.2012,which was served on the assessee on 29.3.2012. Rs.91,59,305/- as arbitration receipts during the F.Y. 2007-08 (AY2008-09). But the assessee has not disclosed these receipts in thereturn of income as well as before the Assessing Officer during theassessment proceedings u/s 143(3) of the Act for the year underconsideration. It was also noticed by the AO that the assessee hasfailed to deduct TDS on payments of Rs.39,96,030/-, thus thisamount was not allowable u/s 40(a)(ia) of the IT Act. Consideringthe above escapement of income, proceedings u/s 147 of the Actwere initiated after obtaining necessary approval of competentauthority and notice u/ 148 of the IT Act was issued on 29.3.2012,which was served on the assessee on 29.3.2012. 7.Counsel for the appellant contended that tribunal and CIT(A)have committed serious error in coming to the conclusion infavour of the assessee inasmuch in view of instructions ofSupreme Court in Commissioner of Income Tax vs. Ghanshyam(HUF) reported in (2009) 315 ITR 1 (SC ) where speaking for theSupreme Court, Hon’ble Mr. Justice S.H. Kapadia observed asunder:- 9. We quote hereinbelow Section 2(47) ofthe 1961 Act which reads as under: 2 – Definitions In this Act, unless the context otherwiserequires,- (47) "transfer", in relation to a capitalasset, includes,- (i) the sale, exchange or relinquishment ofthe asset; or (ii) the extinguishment of any rightstherein; or (iii) the compulsory acquisition thereofunderanylaw;or (iv) in a case where the asset is convertedby the owner thereof into, or is treated byhim as, stock-in-trade of a business carriedon by him, such conversion or treatment;[or] (v) any transaction involving the allowingof the possession of any immovableproperty to be taken or retained in partperformance of a contract of the naturereferred to in Section 53A of the Transferof Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way ofbecoming a member of, or acquiring sharesin, a co-operative society, company orother association of persons or by way ofany agreement or any arrangement or inany other manner whatsoever) which hasthe effect of transferring, or enabling theenjoyment of, any immovable property. Explanation.-For the purposes of sub-clauses (v) and (vi), "immovable property"shall have the same meaning as in Clause(d) of Section 269UA. 10. We also quote hereinbelow Section45(1) of the 1961 Act as it stood prior to1.4.2004 which reads as under: 45 - Capital gains (1) Any profits or gains arising from thetransfer of a capital asset effected in theprevious year shall, save as otherwiseprovided in Sections [***] [54, 54B, [***][54D, [54E, [54EA, 54EB,] 54F [, 54G and54H]]]]], be chargeable to income-taxunder the head "Capital gains", and shallbe deemed to be the income of theprevious year in which the transfer tookplace. 12. We also quote hereinbelow Section45(5) of the 1961 Act after 1.4.2004 whichreads as under: 45 - Capital gains (5) Notwithstanding anything contained inSub-section (1), where the capital gainarises from the transfer of a capital asset,being a transfer by way of compulsoryacquisition under any law, or a transfer theconsideration for which was determined orapproved by the Central Government orthe Reserve Bank of India, and thecompensation or the consideration for suchtransfer is enhanced or further enhancedby any court, Tribunal or other authority,the capital gain shall be dealt with in thefollowingmanner,namely: (a) the capital gain computed withreference to the compensation awarded inthe first instance or, as the case may be,the consideration determined or approvedin the first instance by the CentralGovernment or the Reserve Bank of Indiashall be chargeable as [income under thehead "Capital gains" of the previous year inwhich such compensation or part thereof,or such consideration or part thereof, wasfirst received]; and (a) the capital gain computed withreference to the compensation awarded inthe first instance or, as the case may be,the consideration determined or approvedin the first instance by the CentralGovernment or the Reserve Bank of Indiashall be chargeable as [income under thehead "Capital gains" of the previous year inwhich such compensation or part thereof,or such consideration or part thereof, wasfirst received]; and (b) the amount by which the compensationor consideration is enhanced or furtherenhanced by the court, Tribunal or otherauthority shall be deemed to be incomechargeable under the head "Capital gains"of the previous year in which such amountis received by the assessee; (c) where in the assessment for any year,the capital gain arising from the transfer ofa capital asset is computed by taking thecompensation or consideration referred toin Clause (a) or, as the case may be,enhanced compensation or considerationreferred to in Clause (b), and subsequentlysuch compensation or consideration isreduced by any court, Tribunal or otherauthority, such assessed capital gain ofthat year shall be recomputed by takingthe compensation or consideration as soreduced by such court, Tribunal or otherauthority to be the full value of theconsideration. Explanation.-For the purposes of this Sub-section,- (i) in relation to the amount referred to inClause (b), the cost of acquisition and thecost of improvement shall be taken to benil; (ii) the provisions of this Sub-section shallapply also in a case where the transfertook place prior to the 1st day of April,1988; (iii) where by reason of the death of theperson who made the transfer, or for anyother reason, the enhanced compensationor consideration is received by any otherperson, the amount referred to in Clause(b) shall be deemed to be the income,chargeable to tax under the head "Capitalgains", of such other person. (emphasis supplied by us) 17. The important point to be noted is thatin the case of compulsory acquisition of anasset, the capital gains in thecompensation, as originally awarded, ischarged to tax in the year in which thetransfer by way of compulsory acquisitiontakes place, but additional compensation isbrought to tax only in the year in which itis received. 18. Thus, Section 45(5) enacts overridingprovisions and takes care of a situation: --where the capital gains arises from thetransfer of a capital asset, being-- --a transfer by way of compulsoryacquisition under any law, or --a transfer the consideration for whichwas determined or approved by the CentralGovernment or the Reserve Bank of India,and --the compensation or consideration forsuch transfer is enhanced or furtherenhanced by any court, tribunal or otherauthority. In such a situation, the capital gain soarising is, for and from assessment year1988-89, to be dealt with as under: (a) the capital gain computed withreference to-- --the compensation awarded in the firstinstance or, as the case may be --theconsiderationdeterminedorapproved in the first instance by theCentral Government or the Reserve Bankof India is chargeable as income under thehead "Capital gains" of the previous year inwhich such compensation or part thereof,or such consideration or part thereof, wasfirst received;and (b) the amount by which the compensationor consideration is enhanced or furtherenhanced by the court, tribunal or otherauthority is to be deemed to be the incomechargeable under the head "Capital gains"of the previous year in which such amountisreceivedbytheassessee.Analysis of the provisions of L.A. Act, 1894. 26. The question before this Court is :whether additional amount under Section23(1A), solatium under Section 23(2),interest paid on excess compensationunder Section 28 and interest underSection 34 of the 1894 Act, could betreated as part of the compensation underSection 45(5) of the 1961 Act? (b) the amount by which the compensationor consideration is enhanced or furtherenhanced by the court, tribunal or otherauthority is to be deemed to be the incomechargeable under the head "Capital gains"of the previous year in which such amountisreceivedbytheassessee.Analysis of the provisions of L.A. Act, 1894. 26. The question before this Court is :whether additional amount under Section23(1A), solatium under Section 23(2),interest paid on excess compensationunder Section 28 and interest underSection 34 of the 1894 Act, could betreated as part of the compensation underSection 45(5) of the 1961 Act? 27. In the case of Hindustan Housing(supra) certain lands belonging to theassessee-company, which was in thebusiness of dealing in land and whichmaintained its account on mercantilesystem, were first requisitioned and thencompulsorily acquired by the StateGovernment. The Land Acquisition Officerawarded Rs. 24,97,249/- as compensation.On appeal the Arbitrator made an award atRs. 30,10,873/- with interest at 5% fromthe date of acquisition. Thereupon, theState preferred an appeal to the HighCourt. Pending the appeal, the StateGovernment deposited in the Court Rs. 7,36,691/- being the additional amountpayable under the award and the assesseewas permitted to withdraw that additionalamount on furnishing a security bond forrefunding the amount in the event of thesaid Appeal being allowed. On receiving theamount, the assessee credited it in itssuspense account on the same date. Thequestion was : whether the additionalamount of Rs. 7,24,914/- could be taxedas the income on the ground that itbecame payable pursuant to the award ofthe Arbitrator. The Tribunal held that theamount did not accrue to the assessee asits income and was, therefore, not taxablein the assessment year 1956-57. Thefinancial year in which the additionalamount came to be withdrawn ended on31.3.56. It was held by this Court thatalthough award was made on 29.7.1955,enhancing the amount of compensationpayable to the assessee, the entire amountwas in dispute in the appeal filed by theState. Therefore, there was no absoluteright to receive the amount at that stage.It was held that if the Appeal was to beallowed in its entirety, the right to paymentof enhanced compensation would havefallen altogether. Therefore, according tothis Court, the extra amount ofcompensation of Rs. 7,24,914/- was notincome arising or accruing to the assesseeduring the previous year relevant to theassessment year 1956-57. 28. The question is : whether the judgmentof this Court in Hindustan Housing (supra)would apply to the present case whicharises under the Income-tax Act, 1961? Atthe outset, it may be noted that thejudgment of this Court in HindustanHousing (supra) was delivered on 29.7.86.It was prior to 1.4.88 when Section 45(5)stood incorporated by Finance Act 1987w.e.f. 1.4.88. Further, the judgment of thisCourt in Hindustan Housing (supra) hasbeen given in respect of assessment year1956-57 under the Income-tax Act, 1922whereas, in the present case, we areconcerned with the 1961 Act which definesthe word "transfer" in much wider sense 28. The question is : whether the judgmentof this Court in Hindustan Housing (supra)would apply to the present case whicharises under the Income-tax Act, 1961? Atthe outset, it may be noted that thejudgment of this Court in HindustanHousing (supra) was delivered on 29.7.86.It was prior to 1.4.88 when Section 45(5)stood incorporated by Finance Act 1987w.e.f. 1.4.88. Further, the judgment of thisCourt in Hindustan Housing (supra) hasbeen given in respect of assessment year1956-57 under the Income-tax Act, 1922whereas, in the present case, we areconcerned with the 1961 Act which definesthe word "transfer" in much wider sense under Section 2(47). Lastly, for thereasons given hereinafter, particularly inthe context of introduction of Section 45(5)of the 1961 Act w.e.f.1.4.88 a totally newscheme stood introduced keeping in mindcases of compulsory acquisition under the1894 Act under which compensation ispayable at multiple stages and amountsstand withdrawn by the assessee-claimants and used by the assessee(s) forseveral years, during which litigation ispending. It is in the context of Section45(5) that we need to decide the year oftaxability. It is significant to note thatSection 12B of 1922 Act did not containspecific reference to compulsory acquisitionas contained in Section 2(47) of the 1961Act. Therefore, in our view, the judgmentof this Court in Hindustan Housing (supra)is not applicable to the present case. 29. From Section 45 it is clear that capitalgains are not income accruing from day today. It is deemed income which arises at afixed point of time, viz, date of transfer.Section 45(5), newly inserted by theFinance Act, 1987, w.e.f. 1.4.88 andsubsequently amended, retrospectivelyw.e.f. 1.4.88, by the Finance Act, 1991,enacts overriding provision and takes careof a situation - Where the capital gains arise from thetransfer of a capital asset, being a transferby way of compulsory acquisition and thecompensation for such transfer standsenhanced in stages by any court, tribunalor authority. In such a situation, the capitalgains so arising is, for and fromassessment year 1988-89, has to be dealtwith as under: (i) the capital gains computed with respectto the compensation awarded in the firstinstance would be chargeable as Incomeunder the head "Capital Gains" of theprevious year in which such compensationor part thereof was first received; and (ii) amount by which compensation orconsideration is enhanced or furtherenhanced by the court, tribunal orauthority is to be Deemed Incomechargeable under the head "Capital Gains" of the previous year in which such amountis received by the assessee.” 7.1She has also taken us to the decision of this court in TAXAppeal No.143/2012 (CIT, Kota vs. M/s. Mittal Borthers & Co.)decided on 12.9.2017 where while deciding the identical case,this court relied on the judgment of the Supreme Court in the caseof Hindustan Housing and Ghanshyam (HUF) supra and held as under:- “11. He further contended that whileconsidering the case, the tribunal hasrightly held in favour of the assesseeobserving as under:- (ii) amount by which compensation orconsideration is enhanced or furtherenhanced by the court, tribunal orauthority is to be Deemed Incomechargeable under the head "Capital Gains" of the previous year in which such amountis received by the assessee.” 7.1She has also taken us to the decision of this court in TAXAppeal No.143/2012 (CIT, Kota vs. M/s. Mittal Borthers & Co.)decided on 12.9.2017 where while deciding the identical case,this court relied on the judgment of the Supreme Court in the caseof Hindustan Housing and Ghanshyam (HUF) supra and held as under:- “11. He further contended that whileconsidering the case, the tribunal hasrightly held in favour of the assesseeobserving as under:- “After considering the orders of the AOand ld. CIT(A) we find that ld. CIT(A) hasrightly deleted both the additions. As perDistrict Curt order, Award was given infavour of the assessee for Rs.91,20,054/-.This award contains two items i.e.Rs.30,46,914/- for work+Rs.60,24,042/-for interest. It is a matter of fact that thisaward was awarded by District Court for adispute of contract work which was relatedto assessment year 1981-82. The entireorder of the District Court is challengedbefore the Hon’ble High Court. Copy of theaward given by District Court as well ascopy of petition filed by the RajasthanGovernment before the Hon’ble High Courtare placed on record. We further notedthat even the AO himself admitted at page4 of his order that the dispute is beforeHon’ble High Court and it has beenobserved by AO that it will take yearstogether and for this reason this incomecannot be said that is not assessable inthe year under consideration. It has beenfurther mentioned by AO himself that ifthe Hon’ble High Court decided the issueagainst the assessee, then the assesseecan seek relief in the year of decision. Allthese facts are mentioned in the order ofthe AO at page 4 as mentioned above.This is undisputed fact that entire award given by District Court has beenchallenged before the Hon’ble RajasthanHigh Court which is pending and the ld.CIT(A) has examined this fact extensivelyand then only has held that neither anytrading addition can be made nor anyaddition can be made on account ofinterest. For this purpose reliance isplaced on the decision of Hon’ble ApexCourt in case of Hindustan Housing andLand Development Trust Ltd, 161 ITR 524(SC). For the sake of further clarification,the interest component is not theassessee has earned any interest incomeon account of principal award received byassessee which was deposited in the bankand interest income has accrued to theassessee. In fact, the District Court awardwas for Rs.91 lacs or odd which includedthe interest on the principal and this entireaward has been challenged by theRajasthan Government before the Hon’bleRajasthan High Court. Therefore, thematter is under dispute. Since the matteris under dispute, no addition can be madein the year under consideration in thehands of the assessee as held by theHon’ble Apex Court (supra). In view ofthese facts and circumstances and in viewof the detailed reasoning given by the ld.CIT(A), we confirm his order.” 11. However taking into account that thecarry forward loss was not there and inview of the decision of the Supreme Courtin Ghayshyam (supra) as reproducedherein above, we are of the view that theinterest actually received was income. 12. We restore the order of the AO andthe order of CIT(A) and order of thetribunal is quashed and set aside. 13. It is made clear that ultimatelyassessee will make payment in case helost before the court the same will betreated as set off expenses. 14. Counsel for appellant contended thatin view of the provision of Section 155(16) of the Income Tax Act which reads asunder:- “155……. 11. However taking into account that thecarry forward loss was not there and inview of the decision of the Supreme Courtin Ghayshyam (supra) as reproducedherein above, we are of the view that theinterest actually received was income. 12. We restore the order of the AO andthe order of CIT(A) and order of thetribunal is quashed and set aside. 13. It is made clear that ultimatelyassessee will make payment in case helost before the court the same will betreated as set off expenses. 14. Counsel for appellant contended thatin view of the provision of Section 155(16) of the Income Tax Act which reads asunder:- “155……. (16) Where in the assessment for anyyear, a capital gain arising from thetransfer of a capital asset, being a transferby way of compulsory acquisition underany law, or a transfer, the considerationfor which was determined or approved bythe Central Government or the ReserveBank of India, is computed by taking thecompensation or consideration as referredto in clause (a) or, as the case may be,the compensation or considerationenhanced or further enhanced as referredto in clause (b) of sub-section (5) ofsection 45, to be the full value ofconsideration deemed to be received oraccruing as a result of the transfer of theassetandsubsequentlysuchcompensationor consideration is reducedby any court, Tribunal or other authority,the Assessing Officer shall amend theorder of assessment so as to compute thecapital gain by taking the compensation orconsideration as so reduced by the court,Tribunal or any other authority to be thefull value of consideration; and theprovisions of section 154 shall, so far asmay be, apply thereto, and the period offour years shall be reckoned from the endof the previous year in which the orderreducing the compensation was passed bythe court, Tribunal or other authority.” 8.Counsel for the respondent Mr. Ranka has relied upon thefollowing decisions:- 8.1 In Commissioner of Income Tax, West Bengal-II, Calcutta vs.Hindustan Housing and Land Development Trust Ltd. (1986)161ITR 524 (SC), it has been held as under:- 4. During the assessment proceedings forthe assessment year 1956-57, the relevantaccounting period being the year endedMarch 31, 1956 the Income Tax Officerbrought to tax a sum of Rs. 7,24,914 inthe assessee's business income. This 8.Counsel for the respondent Mr. Ranka has relied upon thefollowing decisions:- 8.1 In Commissioner of Income Tax, West Bengal-II, Calcutta vs.Hindustan Housing and Land Development Trust Ltd. (1986)161ITR 524 (SC), it has been held as under:- 4. During the assessment proceedings forthe assessment year 1956-57, the relevantaccounting period being the year endedMarch 31, 1956 the Income Tax Officerbrought to tax a sum of Rs. 7,24,914 inthe assessee's business income. This represented the difference between thesum of Rs. 7,37,190 payable to theassessee in terms of the award dated July29, 1956 of the Arbitrator and a sum of Rs.12,276 out of that amount which hadalready been assessed to tax. The Incometax Officer treated the sum as liable toincome-tax during that year on the basisthat the income accrued to the assessee onthe date of the award. The assessment wasconfirmed by the Appellate AssistantCommissioner of Income-tax on firstappeal. In second appeal by the assesseebefore the Income-tax Appellate Tribunal,two contentions were raised by it. It wasurged that the amount of compensationreceived by the assessee was not a receiptof a revenue nature. It was also contendedthat in any event the amount did notaccrue to the assessee as its income duringthe relevant previous year ended March31, 1956. The Appellate Tribunal rejectedthe first contention and held that thecompensation received by the assesseerelated to the acquisition of land which wasthe stock-in-trade of the assessee, andwas, therefore, a trading receipt of thebusiness carried on by the assessee, andtherefore, a receipt of a revenue natureliable to tax. The Appellate Tribunal,however, accepted the other contentionthat the sum of Rs. 7,24,914 was nottaxable in the assessment year 1956-57. Itallowed the appeal accordingly by its orderdated February 22, 1964. At the instanceof the Revenue the Appellate Tribunalreferred the question of law set out earlierto the Calcutta High Court for its opinion,and by its judgment dated January 9, 1973the High Court answered the question infavour of the assessee and against theRevenue. 5. The question raised in this appeal islimited to the point whether on the factsand circumstances of the case the Revenuecan claim that the sum of Rs. 7,24,914payable to the assessee as compensationcan be said to have accrued to it as incomeduring the previous year ended March 31,1956 relevant to the assessment year 5. The question raised in this appeal islimited to the point whether on the factsand circumstances of the case the Revenuecan claim that the sum of Rs. 7,24,914payable to the assessee as compensationcan be said to have accrued to it as incomeduring the previous year ended March 31,1956 relevant to the assessment year 1956-57. Now as long ago as E.D. Sassoonand Company Ltd. and Ors. v.Commissioner of Income-tax, Bombay City[1954]26ITR27(SC) this Court consideredthe question as to the point at whichincome could be said to accrue or arise toan assessee for the purpose of the IndianIncome Tax Act. In the majority judgmentdelivered by N.H. Bhagwati, J. it wasexplained that the words "arising oraccruing" describe a right to receiveprofits, and that there must be a debtowed by some body. "Unless and untilthere is created in favour of the assessee adebt due by somebody", it was observed"it cannot be said that he has acquired aright to receive the income or the incomehas accrued to him". In the present case,although the award was made by theArbitrator on July 29, 1955 enhancing theamount of compensation payable to theassessee, the entire amount was in disputein the appeal filed by the StateGovernment. Indeed, the dispute wasregarded by the Court as real andsubstantial, because the assessee was notpermitted to withdraw the sum of Rs.7,36,691 deposited by the StateGovernment on April 25, 1956 withoutfurnishing a security bond for refunding theamount in the event of the appeal beingallowed. There was no absolute right toreceive the amount at that stage. If theappeal was allowed in its entirety the rightto payment of the enhanced compensationwould have fallen altogether. This is a casewhich must be distinguished from thatdecided by this Court in Kedarnath JuteMfg. Co. Limited, v. Commissioner ofIncome-Tax(Central),Calcutta:[1971]82ITR363(SC) where the liability tosales tax arose immediately on a dealeraffecting sales which were subject to salestax and what remained to be done was amere quantification of that liability. Thecase compares rather with Commissionerof Income-tax v. Jai Parkash Om ParkashCo. Ltd. The very foundation of the claimmade by the assessee was in seriousjeopardy and nothing would be due if theappeal was decided against the assessee.Our attention has been drawn by the Revenue to Pope The King Match Factory v.CommissionerofIncome-tax: [1963]50ITR495(Mad) . That case,however, proceeded on the basis thatexcise duty was payable and itsquantification alone remained to bedecided in the appeal. We may point outthat the Andhra Pradesh High Court,dealing with the taxability of compensationreceived under the Land Acquisition Act inKhan Bahadur Ahmed Alladin & Sons v.CommissionerofIncome-tax:[1969]74ITR651(AP) held that when landwas taken over by the Government theright of the owner to compensation was aninchoate right until the compensation hadbeen actually determined and had becomepayable. It was observed that theenhanced compensation accrued to anassessee only when the Court accepted theclaim and not when the land was takenover by the Government. Examining thequestion whether income could be said tohave accrued to the assessee on the datewhen possession of the land was taken bythe Government for the purpose ofassessment to tax in the year ofassessment P. Jaganmohan Reddy, C.J.,speaking for the Court, said: If the actual amount of compensation If the actual amount of compensation has not been fixed, no income could accrueto him. It cannot be contended that themere claim by the assessee, after taking ofpossession, at a particular rate or for acertain sum is the compensation. It is theamount actually awarded by the Collectoror subsequently decreed by the courtwhich accrues to him, and the respectiveamounts, whether awarded by theCollector or the court accrue on therespective dates on which the award or thedecree is passed. Income-tax is not leviedon a mere right to receive compensation;there must be something tangible,something in the nature of a debt,something in the nature of an obligation topay an ascertained amount. Till such time,no income can be said to have accrued....On the date when the Collector awardedthe compensation, it is only that amount which had accrued or deemed to accrue,whether in fact paid or not. But by nostretch of the words in Section 4(1)(b)(i),could it be said that the right to enhancedcompensation, which has not yet beenaccepted by the proper forum, namely, thecourt, has become payable on the datewhen the original compensation becamepayable, for being included in that year ofassessment. The enhanced compensationaccrues only when it becomes payable, i.e.,when the court accepts the claim. As hasbeen stated earlier, a mere claim by theassessee, after taking of possession of theland, at a particular rate or for a certainsum is not compensation. It must not beforgotten that, even if a court was awardedenhanced compensation, there is a right ofappeal by the Government to the HighCourt, and the High Court may eitherdisallow that claim or reduce thecompensation. As against that judgment,there is further right of appeal to theSupreme Court. The assessee also canappeal against the insufficiency of theenhanced compensation. Can it be saidthat the final determination by the highestcourt of the compensation would entitle theIncome-tax Officer, notwithstanding theperiod of limitation fixed under theIncome-tax Act, to reopen the assessmentin which he had included the initialcompensation awarded by the Collectorand recompute the entire income on thebasis of the final compensation? We do notthink there can be any justification for sucha proposition. On a proper construction ofthe terms 'accrue' or 'arise', we are of theview that such an interpretation cannot beplaced. The interpretation given by us doesnot affect the interests of the revenue. Atthe same time, it safeguards the assesseeand prevents harassment. To holdotherwise would be contrary to theprovisions of law. The legal position was explained in furtherdetail by the Gujarat High Court inTopandas Kundanmal v. Commissioner ofIncome-tax,Gujarat:[1978]114ITR237(Guj) . The High Court was called upon to decide without the rightto receive the enhanced compensationunder the Land Acquisition Act accrued orarose to the assessee when he sought areference under Section 18 of the Act orwhen the award was made by the CivilJudge although an appeal was pendingagainst that award. The learned Judgesreferred to the nature of an award made bythe Collector, and adverting to the opinionof this Court in Harish Chandra Raj Singh v.The Deputy Land Acquisition Officer andAnr. : [1962]1SCR676 that the awardmade by the Collector was merely an offeror tender of the compensation determinedby the Collector to the owner of theproperty on the acquisition, the High Courtobserved: was called upon to decide without the rightto receive the enhanced compensationunder the Land Acquisition Act accrued orarose to the assessee when he sought areference under Section 18 of the Act orwhen the award was made by the CivilJudge although an appeal was pendingagainst that award. The learned Judgesreferred to the nature of an award made bythe Collector, and adverting to the opinionof this Court in Harish Chandra Raj Singh v.The Deputy Land Acquisition Officer andAnr. : [1962]1SCR676 that the awardmade by the Collector was merely an offeror tender of the compensation determinedby the Collector to the owner of theproperty on the acquisition, the High Courtobserved: ... the legal position which emerges isthat there is no liability in praesenti to payan enhanced compensation till it isjudicially determined by the final courtsince the entire question, namely, whetherthe offer made by the Land AcquisitionOfficer is inadequate and the claimant isentitled to an additional compensation andif yes, at what rate is in flux till thequestion is set at rest finally, we do notthink that any enforceable right to aparticular amount of compensation arises.The offer made by Land Acquisition Officer,by his award, if not accepted by a claimantwould not result automatically in a liabilityto pay additional compensation as claimedby party aggrieved. There is no doubt aliability to pay compensation as offered bythe Land Acquisition Officer. But that is farfrom saying that liability is a liability to payadditional compensation or enhancedcompensation as claimed by a partyaggrieved. If there is an existing liability,the mere fact that the payment ispostponed to the future would not detractthat liability from becoming a debt but theliability to pay unliquidated damages oradditional compensation which areinchoate or contingent would not create adebt. Khan Bahadur Ahmed Alladin & Sons(supra) and Topandas Kundanmal (supra)were relied on by the Gujarat High Court inAdditional Commissioner of Income-tax,Gujarat v. New Jehangir Vakil Mills Co.Ltd.:[1979]117ITR849(Guj)forreaffirming that it was on the finaldetermination of the amount ofcompensation that the right to such incomein the nature of compensation would ariseor accrue and till then there was no liabilityin praesenti in respect of the additionalamount of compensation claimed by theowner of the land. 6. It is unnecessary to refer to all the casescited before us. It is sufficient to point outthat there is a clear distinction betweencases such as the present one, where theright to receive payment is in dispute andit is not a question of merely quantifyingthe amount to be received, and caseswhere the right to receive payment isadmitted and the quantification only of theamount payable is left to be determined inaccordance with settled or acceptedprinciples. We are of opinion that the HighCourt is right in the view taken by it and,therefore, this appeal must be dismissed. 8.2 In H.P. Biswas and Co. vs. Commissioner of Income Tax and Anr. (PATNAHC) [1999] 237 ITR 288 it has been held as under :- 16. I am of the opinion that this writpetition is fit to be allowed on the basis ofthe first point urged by Mr. Moitra which isfully supported by the decision of theSupreme Court in CIT v. Hindustan Housingand Land Development Trust Limited:[1986]161ITR524(SC) . The case ofHindustan Housing was very similar to thefacts of the case in hand and in that casethe Supreme Court held as follows (page527) : "In the present case, although theaward was made by the arbitrator on July 8.2 In H.P. Biswas and Co. vs. Commissioner of Income Tax and Anr. (PATNAHC) [1999] 237 ITR 288 it has been held as under :- 16. I am of the opinion that this writpetition is fit to be allowed on the basis ofthe first point urged by Mr. Moitra which isfully supported by the decision of theSupreme Court in CIT v. Hindustan Housingand Land Development Trust Limited:[1986]161ITR524(SC) . The case ofHindustan Housing was very similar to thefacts of the case in hand and in that casethe Supreme Court held as follows (page527) : "In the present case, although theaward was made by the arbitrator on July 29, 1955, enhancing the amount ofcompensation payable to the assessee, theentire amount was in dispute in the appealfiled by the State Government. Indeed, thedispute was regarded by the court as realand substantial, because the assessee wasnot permitted to withdraw the sum of Rs.7,36,691 deposited by the StateGovernment on April 25, 1956, withoutfurnishing a security bond for refunding theamount in the event of the appeal beingallowed. There was no absolute right toreceive the amount at that stage. If theappeal was allowed in its entirety, the rightto payment of the enhanced compensationwould have fallen altogether." 19. The Revenue overlooks the fact that atthat time the amount of Rs. 13,48,945 asthe total value of the work done wassimply the claim of the petitioner whichwas not being accepted by BCCL and atthat stage the petitioner had no means toknow definitely as to what extent its claimwould be allowed by the arbitrator/the trialcourt and would be finally sustained by thehigher courts. The petitioner, therefore,could not reckon that amount or any partof it as income accrued in that year. 20. It may further be noted that Mr.Jhunjhunwala, counsel for the Revenue,laid great stress that the petitionermaintained its account on the mercantilesystem and, therefore, that amount mustbe deemed to be the income in that year.The point concerning mercantile system ofaccounts is to be simply rejected andsuffice it to point out in that regard thatthe assessee in the case of HindustanHousing : [1986]161ITR524(SC) , alsomaintained its account on the mercantilesystem and it was in that back ground thatthe Supreme Court made the above quotedobservations. 21. As I have found that this writ petitionis fit to succeed on the merits, I need notgo into the other point raised by Mr. Moitra pertaining to the authority with whose priorapproval notice could be issued. 8.3 In Commissioner of Income Tax, Delhi and Ors. vs. SumanDhamija (DELHC) [2016] 382 ITR 343 it has been held as under :- 62. The upshot of the above discussion isthat but for the proceedings under Section31(2) of the LA Act still being inconclusive,the amounts received by the Assessee byway of enhanced compensation would havebeen amenable to capital gains tax in theyear of receipt as explained in CIT v.Ghanshyam (HUF) (supra). However, onaccount of the pendency in this Court ofthe appeals arising from the order of theADJ in the proceedings under Section31(2) of the LA Act, the right of theAssessee to receive the said sums is stillunclear or inchoate. Consequently, thequestion of bringing to tax the saidenhanced compensation has to await thefinal outcome of the above proceedings.This would equally apply to the interest,solatium, additional sums received by theassessee on enhanced compensation in theAYs in question. A further corollary is thatthe stage for applying Section 45 (5) (c)read with Section 155 (16) of the Actcannot be said to have arisen yet.Consequently, that question need not beexamined at this stage. Section 45(5) effective from AY 1988-89 Section 45(5) effective from AY 1988-89 66. Turning to the wealth tax appeals, it isseen that as held by the ITAT in thepresent case, amount of compensationreceived by the Assessee in the nature of'trust money' which may be required to bereturned by the Assessee in case she doesnot succeed in the appeal emanating fromthe order in the proceedings under Section31(2) of the LA Act. For an Assessee to bebrought to tax within the ambit of the wealth tax provisions, it should be shown,as on the valuation date, to be belongingto the Assessee. In the facts of the case,the ITAT was justified in holding that theprovision of WT Act did not stand attractedyet. That too will have to await the finaldecision in the appellate proceedingsemanating from the order of the ADJ in theproceedings under Section 31(2) LA Act. 8.4 In Commissioner of Income Tax, Central Circle vs. L. Sambashiva Reddy (KARHC) (2015) 62 taxmann.com 174, it hasbeen held as under :- 4. The crux of the issue is, whether theenhanced award pronounced by thearbitrator and the dispute in question, hadnot attained finality, can it be brought totax under the tax net during the period inwhich the amounts were received by wayof an interim order? Reliance is placed onseveral judgments of the Apex Court, aswell as this court. All those cases aredealing with acquisition of land andpayment of compensation and the matteris pending in appeal against such orders.But the principle which emerges from areading of the aforesaid judgment is,income tax is not levied on a mere right toreceive compensation. There must besomething tangible, something in thenature of a debt, something in the natureof an obligation to pay an ascertainedamount. Till such time, no income can besaid to have accrued. The enhancedcompensation accrues only when itbecomes payable i.e., when the courtaccepts the claim. It is also pointed out inthe judgment of the Apex Court in the caseof CIT v. Hindustan Housing & LandDevelopment Trust Ltd. : [1986] 161 ITR524/27 Taxman 450A, as under: "It must not be forgotten that, even if acourthasawardedenhancedcompensation, there is a right of appeal bythe Government to the High Court, and the High Court may either disallow that claimor reduce the compensation. As againstthat judgment, there is a further right ofappeal to the Supreme Court. Theassessee also can appeal against theinsufficiencyoftheenhancedcompensation. Can it be said that the finaldetermination by the highest court of thecompensation would entitle the Income-taxOfficer, notwithstanding the period oflimitation fixed under the Income-tax Act,to reopen the assessment in which he hadincluded the initial compensation awardedby the Collector and recomputed the entireincome on the basis of the finalcompensation? We do not think there canbe any justification for such a proposition.On a proper construction of the terms'accrue' or 'arise', we are of the view thatsuch an interpretation cannot be placed.The interpretation given by us does notaffect the interests of the Revenue. At thesame time, it safeguards the assessee andprevents harassment. To hold otherwisewould be contrary to the provisions of law." 5. Therefore, what emerges from theaforesaid judgment is, when an assesseereceives money, either under an award orby a decree of the court, or under anaward passed by the arbitrator, if theamount paid to him is not in dispute, th