The Commissioner Of Income-Taxpatiala v. Amrik Singh

ITR No.36 of 1984 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No.36 of 1984Date of decision: .2008 The Commissioner of Income-taxPatiala ......Applicant Versus Amrik Singh......Respondent CORAM:-HON'BLE MR.JUSTICE SATISH KUMAR MITTALHON'BLE MR.JUSTICE RAKESH KUMAR GARG * * * Present:Mr. Sanjiv Bansal, Advocate for the applicant-revenue. * * * Rakesh Kumar Garg, J . The Income-tax Appellate Tribunal, Chandigarh, vide orderdated 30.4.1984 passed in RA No.141 of 1983 arising out of ITA No.760 of1981 for the assessment year 1974-75 has referred the following questionto this Court for its opinion:- “Whether, on the facts and in the circumstances of thecase, the Appellate Tribunal erred in law in holding thatthe assessee was not liable to pay capital gains tax?” The brief facts, out of which the present reference has arisen,are as under:- The assessee-respondent filed a return declaring taxableincome of Rs.6,110/- on 13.12.1977. In response to the notice underSection 143(2), the assessee through his counsel attended theassessment proceedings. It is the case of the assessee that the assesseeacquired the land through Court Decree dated 12.1.1972 and claimed that he got this land under the provisions of Punjab Occupancy Tenants Act,1952 and no amount was paid in lieu of the acquisition of land. It wascontended that the rights of ownership of the land were, thus, acquired bythe assessee by operation of law, namely, Section 3 of the PunjabOccupancy Tenants (Vesting of Proprietory Rights) Act, 1952 and not bypurchase or inheritance and therefore, the assessee was not liable to payany capital gains for the said land. However, the ITO did not agree with theassessee and the amount received by the assessee from the acquisition ofthe said land was added to the income of the assessee. The said order forassessment was made under Section 143(3) of the Income Tax, Act on30.6.1978. The assessee carried an appeal under Section 250(6) of theIncome Tax Act before the Commissioner of Appeals who vide his orderdated 1.9.1981 allowed the appeal of the assessee holding that no taxablecapital gains arise in this case because the capital assets did not costanything to the assessee in terms of money but had been acquired merelyby operation of law. The appeal filed by the revenue before the Income-taxAppellate Tribunal, Chandigarh was also dismissed vide order dated30.7.1983. The appeal of the revenue was dismissed by the Tribunalrelying upon its own decision in the case of Sh. Baldev Singh(ITANos.462(ASR)/1979 and 694(ASR)/1979 dated 29.4.1981. It is relevant to mention here thatBaldev Singh's case (supra)was on identical facts and he had also acquired the land on the basis ofsame Court decree dated 31.1.1972 vide which the present appellant hadacquired land. The revenue filed a reference application under Section 256(1)of the Income-tax Act with a prayer for referring the questions mentioned inthe application, said to be a question of law and arising out of Tribunal'sorder dated 1.9.1981. It has been contended by the counsel for the revenue that theprofits or gains arising from the acquisition of the assesses's land isassessible under the head capital gains. Counsel for the revenue hasrelied upon the judgements of the Gujarat High Court in the case ofCommissioner of Income Tax, Gujarat v.Mohanbhai Parabhai(1973)91 ITR 393 and the Calcutta High Court judgement in the case of K.N.Daftary v. Commissioner of Income Tax, West Bengal(1977) 106 ITR998. We have heard learned counsel for the applicant and perusedthe record. It is useful to reproduce Section 45 of the Income-tax Act,1961 as it existed at the relevant time: It has been contended by the counsel for the revenue that theprofits or gains arising from the acquisition of the assesses's land isassessible under the head capital gains. Counsel for the revenue hasrelied upon the judgements of the Gujarat High Court in the case ofCommissioner of Income Tax, Gujarat v.Mohanbhai Parabhai(1973)91 ITR 393 and the Calcutta High Court judgement in the case of K.N.Daftary v. Commissioner of Income Tax, West Bengal(1977) 106 ITR998. We have heard learned counsel for the applicant and perusedthe record. It is useful to reproduce Section 45 of the Income-tax Act,1961 as it existed at the relevant time: “45. (1) Any profits or gains arising from the transfer of acapital asset effected in the previous year shall, save asotherwise provided in sections 53 and 54, be chargeableto income-tax under the head “Capital gains', and shallbe deemed to be the income of the previous year inwhich the transfer took place.” After perusing the record and considering the varioussubmissions made by the counsel for the revenue, this Court is unable toaccept the argument raised by the counsel for the applicant-revenue. Wefind that the Hon'ble Supreme Court in the case of Commissioner ofIncome Tax, Bangalore v. B.C. Srinivasa Setty(1981) 128 ITR 294 hasheld with regard to capital gains that the charging section and thecomputation provision together constitute an integrated code. When thereis a case to which the computation provisions cannot apply at all it isevident that such a case was not entitled to fall within the chargingsection. It is further held that all the transaction encompassed by Section 45 must fall under the governance of its computation provisions. Atransaction to which those provisions cannot be applied must be regardedas never intended by Section 45 to be the subject of the charge. What iscontemplated by Section 48 (ii) is an asset in the acquisition of which it ispossible to envisage a cost. It must be an asset which possesses theinherent quality of being available on the expenditure of money to a personseeking to acquire it. None of the provisions pertaining to the head 'capitalgains' suggests that they include an asset in the acquisition of which nocost at all can be conceived. This Court has also followed the above ratio of law in thecase of Commissioner of Income-tax v. New Suraj TransportCorporation(P.) Ltd.(1992) 194 ITR 458 . A perusal of the facts of the present case would show that theassessee entered into an agreement with Sh. Surjan Singh videagreement dated 14.2.1970 recognising him to be the occupancy Tenant inrespect of certain land. A declaratory decree was subsequently passed bythe Court on 31.1.1972 whereby agreement dated 14.2.1970 was giventhe Court’s sanction in terms of Section 3 of the Punjab OccupancyTenant’s (Vesting of Proprietory Rights) Act, 1952 in the following words:- “In the terms of the statement of the parties andcounsel for the parties present, decree for declarationdeclaring the plaintiff No.1 to 4 to be the owners of landmeasuring 196 kanals 1 marla to the extent of ½ sharejointly while plaintiffs No.5 to 6 to be the owners of theremaining half share more fully described in the headingof the plaintiff situated at Village Jamalpur Awana,Tehsil & Distt Ludhiana is passed in favour of theplaintiff and against the defendant.” Thus, the assessee became the owner of the land in respect of which he had earlier acquired only the tenancy rights. Thus, the assesseehad acquired the ownership rights in the land by operation of law and notby purchase or inheritance. It is also useful to refer to the order of theTribunal passed in ITA No.462/ASR/1979 filed by Baldev Singh and ITANo.694/ASR/1979 filed by the revenue against said Sh.Baldev Singh. Thus, the assessee became the owner of the land in respect of which he had earlier acquired only the tenancy rights. Thus, the assesseehad acquired the ownership rights in the land by operation of law and notby purchase or inheritance. It is also useful to refer to the order of theTribunal passed in ITA No.462/ASR/1979 filed by Baldev Singh and ITANo.694/ASR/1979 filed by the revenue against said Sh.Baldev Singh. “The case before us is one of a promise never to eject inview of the written agreement dated 14.2.1970. Thisagreement got approval of the Court of Senior SubJudge Ludhiana as per order dated 31.1.1972 which wehave abstracted supra. The historical background of theacquisition of the land by Sh. Surjan Singh also showsthat there is no record of any payment made for theacquisition of the land. In any case , the assesseeacquired the land in view of the right of occupancy etc.under Section 8 of the Punjab Tenancy Act read withSection 3 of the Punjab Occupancy Tenants (vesting ofpropreitory Rights) Act, 1952 without payment ofanythings. In other words, the cost of the acquisition ofthe land to the assessee was nil. When such a situationarises and an asset acquired by the assessee is sold,our view is that no capital gains is assessable to taxunder the Act arising out of such a transaction.” From the above facts, it is clearly established that there is norecord of any payment made for the acquisition of the land in questioneither by the assessee or his predecessor-in-interest. Therefore, the cost ofacquisition in this case has been rightly taken as Nil. Even otherwise, therevenue has never taken stand to say that the cost of acquisition of theland at the hands of the assessee or his predecessor-in-interest was not Nil and they had made any payment of compensation/price for the acquisitionof the said land. Thus, the cost of the land as Nil at the hands of theassessee has been taken correctly by the Tribunal. Thus, in view of theauthoritative pronouncements of the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Bangalore v. B.C. Srinivasa Shetty(supra), the Tribunal was right while dismissing the appeal of the revenuein the case of the assessee holding that the assessee was not liable to payany capital gains tax. In view of the above, the question of law is answered in thenegative and against the revenue. Thus, the reference is answeredaccordingly. (RAKESH KUMAR GARG) JUDGE ps ,2008 (SATISH KUMAR MITTAL) JUDGE