Aditya Kumar Fomra v. The Commissioner Of Income Tax Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 5.9.2006 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARAN ANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.Nos.2380 to 2385 of 2006 Anil Kumar Fomra (HUF),126, Mint Street,Sowcarpet, Chennai 79 ... Appellant in T.C.2380 & 2381/2006 Aditya Kumar Fomra126, Mint Street,Sowcarpet, Chennai 79 ... Appellant in T.C.2382/2006 Aditya Kumar Fomra (HUF)126, Mint Street,Sowcarpet, Chennai 79Aditya Kumar Fomra (HUF)126, Mint Street,Sowcarpet, Chennai 79 ... Appellant in T.C.2383/2006 ... Appellant in T.C.2384/2006 Aditya Kumar Fomra 126, Mint Street,Sowcarpet, Chennai 79 ... Appellant in T.C.2385/2006vs. The Commissioner of Income TaxChennai. .. Respondent in all appeals PRAYER: Appeal under Section 260A of the Income Tax Act, againstthe order of the Income Tax Appellate Tribunal, Madras 'A' Bench,dated 21.7.2006 in ITA.Nos.2946 to 2951/Mds/05 for the assessmentyears 1997-98, 1998-99, 1997-98, 1997-98, 1998-99, 1998-99. ITA.Nos.32/2005-06 dated 29.11.2005ITA.Nos.31/2005-06 dated 28.11.2005ITA.Nos.36/2005-06 dated 29.11.2005ITA.Nos.34/2005-06 dated 29.11.2005ITA.Nos.33/2005-06 dated 29.11.2005and ITA.Nos.35/2005-06 dated 29.11.2005 on the file of Commissioner of Income Tax, (Appeals) X, 121,Mahatma Gandhi Road, Chennai-34 against PAN/GIR No.AAAPF 5858P.4200-A dated 11.3.2005 (in TC.Nos.2380 and 2381/2006) AAAMA.1385-G/4201-A; dated 11.3.2005 (in TC.No.2383/2006) AAAMA.1385-G/4201-A;dated 11.3.2005 (in TC.No.2384/2006) on the file of AssistantCommissioner of Income Tax, Circle X, Chennai-6 AAAPF 2633E/47516-A, dated 24.3.2005 on the file of Income Tax Officer, Ward X (1)Chennai-6 (in TC.Nos.2382 and 2385/2006) For Appellants :Mr.T.N.SeetharamanFor respondent : Mr.N.Muralikumaran, Sr.Standing Counsel (IT)JUDGMENT (Delivered by P.D.DINAKARAN,J.) These appeals are directed against the common order dated21.7.2006 made in I.T.A.Nos.2946 to 2951/Mds/2005of the Income TaxAppellate Tribunal Madras 'A' Bench, raising the following commonsubstantial questions of law: 1. Whether on the facts and in the circumstances of the casethe Income-tax Appellate Tribunal is right in law in holdingthat in acquisition proceedings of land belonging to theassessee made by the State Government, the amounts receivedas per interim conditional orders of the Court when theappeal by the State objecting to the enhancement ofcompensation was pending were liable to tax? 2. Whether on the facts and in the circumstances of thecase, Section 45(5)(c) of the Income-tax Act inserted by theFinance Act, 2003 w.e.f. 1.4.2004 is applicable for theassessment years 1997-98 and 1998-99? 3. Whether on the facts and in the circumstances of thecase the Income-tax Appellate Tribunal was right in notreferring to and not following the decision of this Hon'blehttps://hcservices.ecourts.gov.in/hcservices/ Court in the case of CWT/IT vs. T.Girija Ammal (282 ITR 614)cited and relied on before the Appellate Tribunal? 2.1. The assessment years with which we are concerned are1997-98 and 1998-99. The assessees are the appellants herein. Theassessees are co-owners of the property comprising land andbuilding at No.83 & 84 (Part), Acharya Jagdish Chandra Bose Road,Kolcutta which was subjected to land acquisition proceedings underthe West Bengal Land (Requisition and Acquisition) Act. The LandAcquisition Officer awarded compensation which was enhanced by theAdditional Special Land Acquisition Judge, Alipore by order dated22.2.1994. Court in the case of CWT/IT vs. T.Girija Ammal (282 ITR 614)cited and relied on before the Appellate Tribunal? 2.1. The assessment years with which we are concerned are1997-98 and 1998-99. The assessees are the appellants herein. Theassessees are co-owners of the property comprising land andbuilding at No.83 & 84 (Part), Acharya Jagdish Chandra Bose Road,Kolcutta which was subjected to land acquisition proceedings underthe West Bengal Land (Requisition and Acquisition) Act. The LandAcquisition Officer awarded compensation which was enhanced by theAdditional Special Land Acquisition Judge, Alipore by order dated22.2.1994. 2.2. As against the enhancement of compensation, the Statefiled appeals before the Calcutta High Court. The Calcutta HighCourt passed an interim order dated 25.4.1995 directing the Stateof West Bengal to deposit the award amount of which the co-ownerswere permitted to withdraw 50% on condition. Accordingly, the co-owners withdrew amounts on 22.4.1996 and 2.4.1997. The appealsfiled by the State were ultimately dismissed by the Calcutta HighCourt on 3.3.2002. Since the State did not file any furtherappeal, the award of enhanced compensation reached finality inJuly, 2000, when the time limit to prefer appeal expired. 2.3. The assessing officer reopened the assessments forassessment years 1997-98 and 1998-99 under section 147 of theIncome-tax Act and made reassessments bringing to tax the amountsreceived by the assessees as per interim directions of the CalcuttaHigh Court as additional compensation assessable as capital gainsunder section 45(5)(b) of the Income-tax Act. 2.4. The Commissioner of Income-tax (Appeals) dismissed theappeal filed by the assessees. On further appeal, the AppellateTribunal upheld the order of the Commissioner of Income-tax(Appeals). Hence, the present appeal. 3. The primary issue that arises in all the appeals is as tothe taxability of compensation received pending appeals before theCalcutta High Court. It is not in dispute that pending the appealsfiled against the award of compensation, the assessees withdrew theaward amounts as per interim orders of the Calcutta High Court,which were brought to tax. 4. Learned counsel for the appellants submitted that theassessees received the amounts pending appeals which reached itsfinality subsequently and hence, for the assessment years inquestion, the amounts cannot be treated as additional compensationtill the final outcome of the appeals. According to him, theamounts received were ad hoc conditional payments and thedetermination of the enhanced compensation became final after thejudgment of the Calcutta High Court. https://hcservices.ecourts.gov.in/hcservices/ 5. On the other hand, learned senior standing counselappearing for the Revenue contended that the assessees received theamounts on 22.4.1996 and 2.4.1997 and hence, the amounts should beconstrued as additional compensation charged on receipt basis undersection 45(5)(b) of the Income-tax Act. 6. Before proceeding further, it is apt to refer section 45(5) of the Income-tax Act as under: "45(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from thetransfer of a capital asset, being a transfer by way ofcompulsory acquisition under any law, or a transfer theconsideration for which was determined or approved by theCentral Government or the Reserve Bank of India, and thecompensation or the consideration for such transfer isenhanced or further enhanced by any court, tribunal orother authority, the capital gain shall be dealt with inthe following manner, namely:-- 6. Before proceeding further, it is apt to refer section 45(5) of the Income-tax Act as under: "45(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from thetransfer of a capital asset, being a transfer by way ofcompulsory acquisition under any law, or a transfer theconsideration for which was determined or approved by theCentral Government or the Reserve Bank of India, and thecompensation or the consideration for such transfer isenhanced or further enhanced by any court, tribunal orother authority, the capital gain shall be dealt with inthe following manner, namely:-- (a) the capital gain computed with reference to thecompensation awarded in the first instance or, as thecase may be, the consideration determined or approved inthe first instance by the Central Government or theReserve Bank of India shall be chargeable as income underthe head "Capital gains" of the previous year in whichsuch compensation or part thereof, or such considerationor part thereof, was first received; and (b) the amount by which the compensation or considerationis enhanced or further enhanced by the court, tribunal orother authority shall be deemed to be income chargeableunder the head "Capital gains" of the previous year inwhich such amount is received by the assessee. (c) where in the assessment for any year, the capitalgain arising from the transfer of a capital asset iscomputed by taking the compensation or considerationreferred to in clause (a) or, as the case may be,enhanced compensation or consideration referred to inclause (b), and subsequently such compensation orconsideration is reduced by any court, Tribunal or otherauthority, such assessed capital gain of that year shallbe recomputed by taking the compensation or considerationas so reduced by such court, Tribunal or other authorityto be the full value of the consideration." 7. A reading of the above provision shows that the amount ofadditional compensation should be deemed to be income chargeablein the previous year in which such amount is received by theassessees. In the present case, the assessees received the amountshttps://hcservices.ecourts.gov.in/hcservices/ on 22.4.1996 and 2.4.1997. The amounts so received would normallyhave been brought to tax in the assessment years in question, butfor the fact that the amounts were received pending appeal, thattoo, on the basis of conditional interim order passed by theCalcutta High Court. 8. This Court in identical situation in Commissioner of--Wealthtax/Incometax v. Smt. T. Girija Ammal [(2006) 282 ITR614], held that the additional compensation received could not betreated as part of the compensation received for the transfer ofthe land until it was finally determined by the High Court or theSupreme Court. This Court held as under: ".... the additional compensation awarded by thecivil court had not been accepted by the State Governmentand it has preferred an appeal objecting to theenhancement. Hence, the additional compensation received,could not be treated as part of the compensation receivedfor the transfer of the land until it is finallydetermined by the High Court or Supreme Court. If theappeal of the State is allowed, the assessee is bound torefund the amount and hence, the same cannot be assessedbefore reaching finality. The right to receive additionalamount awarded by the court as part of the compensation,was only an inchoate right during the pendency of thematter before higher judicial forums. In suchcircumstances, the disputed compensation has to beassessed only when it is finally determined by the higherCourts." 9. We are of the view that the amounts received by theassessees cannot be assessed before the appeals pending before theCalcutta High Court reached their finality, which are said to havebeen dismissed on 20.4.2000. Following the ratio laid down inT.Girija Ammal case, cited supra, we hold that the right on theamounts received by the assessees as part of the compensation, wasonly an inchoate right during the pendency of appeals before theCalcutta High Court and the amounts could be assessed only when theappeals were finally determined by the Calcutta High Court. Hence,it cannot be stated that right over the amounts had accrued to theassessee on the date of receipt. The Appellate Tribunal onlyconsidered the effect of amendment to section 45(5) of the Act andconcluded that the amounts so received by the assessees arechargeable to tax as capital gain on receipt basis, but failed totake note of the fact that the amounts were received pendingappeals. We therefore hold that the Appellate Tribunal was notright in holding that the amounts received as per interimconditional orders of the Court were liable to tax. 10. In the view we have taken, it is not necessary to go into(i) the question of applicability of section 45(5)(c) of theIncome-tax Act; and (ii) the question of non-consideration of thedecision of this Court in T.Girija Ammal case [(2006) 282 ITR 614]by the Tribunal. In the result, the first question of law referred to us isanswered in negative, in favour of the assessee and against theRevenue and other two questions are not answered as they havebecome academic, in the view we have taken. The appeals areordered accordingly. No costs. naSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo1.The Assistant Registrar,Income Tax Appellate TribunalRajaji Bhavan, III Floor,Besant Nagar, Chennai.2.The Commissioner of Income Tax (Appeals)-X, Chennai.3.The Asst.Commissioner of Income-tax, Circle X, Chennai.4. the Income Tax Officer, Ward X (1), Chennai-65.The Commissioner of Income Tax, Chennai. 1 cc to Mr.T.N.Seetharaman, Advocate, SR.412472 ccs to Mr.Muralikumaran, Advocate, SR.40867, 40868akm (co)dv./10.10.06 T.C.Nos.2380 to 2385 of 2006