2020 Supreme(SC) 499

SUPREME COURT OF INDIA
A.M.Khanwilkar, Hemant Gupta, Dinesh Maheshwari, JJ.
RAJ PAL SINGH – APPELLANT
Vs.
COMMISSIONER OF INCOME-TAX, HARYANA, ROHTAK – RESPONDENT
Civil Appeal No. 2416 of 2010
Decided on : 25-08-2020

IMPORTANT POINTS
(1) Chargeability of tax for capital gains arising out of award of compensation towards acquisition of land belonging to assessee-appellant – Accrual of capital gain depends upon completion of transfer of property from owner to Government and not upon accrual of right to receive compensation – Income-tax on capital gains is not levied on mere right to receive compensation – For chargeability of income-tax, income ought to have either arrived or accrued.
(2) Emergent acquisition of land – Owner is divested of property and same vests in Government in absolute terms only if and after possession was taken by either of processes envisaged in Sections 16 and 17.

Headnote:

(A) Income-tax Act, 1961 – Section 45 read with Sections 2(47), 16 and 17 – Chargeability of tax for capital gains arising out of award of compensation towards acquisition of land belonging to assessee-appellant – Such definition of ‘capital asset’ is of wide amplitude, taking in its fold property of any kind held by an assessee, except what has been expressively excluded therein, like stock-in-trade, consumables stores, personal effects, etc. – Capital gains of an assessee, arising from transfer of capital asset, are chargeable to tax as income of previous year in which transfer had taken place – When subject land has been compulsorily acquired, its transfer from assessee-appellant to Government is directly covered by Section 2(47) of Act of 1961 – Basic elements for chargeability of gains, arising from compulsory acquisition of subject land, to income-tax under head “capital gains”, do exist in present case – However, gains so arising would be deemed to be income of previous year in which transfer took place. (Paras 29.1, 29.3, 30 and 30.1)

(B) Income-tax Act, 1961 – Section 45 read with Sections 16 and 17 – Chargeability of tax for capital gains arising out of award of compensation towards acquisition of land belonging to assessee-appellant – Subject land had been a capital asset of assessee-appellant – Accrual of capital gain depends upon completion of transfer of property from owner to Government and not upon accrual of right to receive compensation – Income-tax on capital gains is not levied on mere right to receive compensation – For chargeability of income-tax, income ought to have either arrived or accrued – In matter of acquisition of land under Act of 1894, taking over of possession before arrival of relevant stage for such taking over may give rise to a potential right in owner of property to make a claim for compensation but, looking to scheme of enactment, it cannot be said that transfer resulting in capital gains is complete with taking over of possession, even if such taking over had happened earlier than point of time of vesting contemplated in relevant provisions – In case of urgency acquisition, even if possession of land under acquisition is taken earlier, it should be related to process contemplated by Section 17 (1) of Act of 1894 and deemed to be effective from the date on which period prescribed by Section 17 (1) would expire that is, fifteen days from the publication of notice under Section 9(1) of Act of 1894 – In such cases, capital gains shall be deemed to have accrued upon making of award, in case of ordinary acquisition referable to Section 16; and after expiration of fifteen days from publication of notice mentioned in Section 9 (1), in case of urgency acquisition under Section 17 – Assessment of capital gains as income of appellant for previous year relevant to assessment year 1971-1972 does not suffer from any infirmity or error – AO had rightly assessed tax liability of appellant, on long-term capital gains arising on account of acquisition, on the basis of amount of compensation allowed in award as also enhanced amount of compensation accrued finally to appellant and as regards interest income, had rightly made protective assessment on accrual basis – Appeal dismissed. [Transfer of Property Act, 1882 – Section 5] (Paras 34.1.3, 35, 35.1, 36, 39, 46 and 47)

(C) Land Acquisition Act, 1894 – Sections 4, 6, 16 and 17 – Emergent acquisition of land – In matter of compulsory acquisition of land under Act of 1894 for public purpose, property is to vest absolutely in Government thereby divesting owner of all his rights therein only after taking of possession in either of methods i.e., after making of award, as provided in Section 16; or earlier than making of award, as provided in Section 17 – Owner is divested of property and same vests in Government in absolute terms only if and after possession was taken by either of processes envisaged in Sections 16 and 17 – However, so long as possession was not taken, mere fact of issuance of notification under Section 4 of Act of 1894 or declaration under Section 6 thereof, do not divest owner of his right in respect of property in question. (Para 31.5)

Facts of the case:

Controversy in the present matter has its genesis in compulsory acquisition of the land of assessee-appellant under the Act of 1894. Present appeal takes exception to the judgment and order dated 23.04.2008 passed by the High Court of Punjab and Haryana at Chandigarh in Income Tax Reference No. 53-A of 1991 whereby High Court, while answering the reference under the then existing Section 256(1) of the Income-tax Act, 19612, disapproved the order dated 29.06.1990 passed by the Income Tax Appellate Tribunal, Chandigarh Bench for assessment year 1971-1972 and held that capital gains arising out of land acquisition compensation were chargeable to income-tax under Section 45 of Act of 1961 for the previous year referable to the date of award of compensation i.e., 29.09.1970 and not the date of notification for acquisition. Root question is as to whether, on the facts and in circumstances of the present case, the High Court was right in taking the date of award as the date of accrual of capital gains for the purpose of Section 45 of the Act of 1961?

Findings of Court:

Acquisition proceedings in the present case had not been of urgency acquisition but had been of ordinary process where possession could have been taken only under Section 16 after making of

the award. As noticed, the very structure of the ordinary process leading to possession under Section 16 of the Act of 1894 has been different than that of the urgency process under Section 17; and the said decision pertaining to the proceedings under Section 17 of the Act of 1894 cannot be directly applied to the present case.

Result : Appeal dismissed