Solatium received under Section 23(2) of the Land Acquisition Act, 1894, on the compulsory acquisition of land forms part of the consideration for capital gains and the assessee is not entitled to a deduction of the solatium value as on January 1, 1954, or January 1, 1964.

N.K.Agrawal, J.

1. The following questions of law have been referred by the Income-tax Appellate Tribunal, Amritsar (for short "the Tribunal"), under Section 256(1) of the Income-tax Act, 1961 (for short "the Act") :

"(i) Question in Income-tax Reference No. 20 of 1982 (assessment year 1977-78) : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 28,810 received as solatium did not form part of the consideration for the purpose of working out the capital gain under the Income-tax Act, 1961 ?

2. If the answer to the first question is in the negative, whether the assessee is entitled to the deduction of the value of the solatium as on January 1, 1954, in computing the capital gains ?

(ii) Question in Income-tax Reference No. 75 of 1983 (assessment year 1978-79) : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 3,353 received as solatium, did not form part of the consideration for the purpose of working Out the capital gains under the Income-tax Act, 1961 ?

2. If the answer to question No. 1 is in the negative, whether the assessee is entitled to the deduction of the value of solatium as on January 1, 1964, in computing the capital gains ?"

2. Basically, the questions in both the assessment years (1977-78 and 1978-79) are identical.

3. The assessee filed a return of income in the status of a Hindu undivided family for the assessment year 1977-78, declaring income of Rs. 18,440 and for the next assessment year, declaring income of Rs. 32,510. The assessee derived income from agriculture, house property and interest. The assessee had sold certain assets, including land measuring 77 kanals, in the previous year relevant to the assessment year 1977-78 and declared capital gains of Rs. 8,328. The Assessing Officer accepted it and, after allowing statutory exemption of Rs. 5,000 and further exemption at the rate of 25 per cent. under Section 80-T of the Act, assessed capital gains at Rs. 2,496. The assessee had also a one-third share in land measuring 232 kanals acquired by the improvement trust. The market value of the land was determined at Rs. 1,92,967 by the Acquisition Collector. Solatium at the rate of 15 per cent. amounting to Rs. 28,810, was also received by the assessee in this year. This amount was also brought to tax by the Assessing Officer under the head "capital gains" in the assessment year 1977-78.

4. In the previous year relevant to the assessment year 1978-79, the assessee had sold certain properties and, on such sales, he had declared capital gains at Rs. 11,103. This was accepted by the Assessing Officer and, after allowing statutory exemption of Rs. 5,000 and further exemption at the rate of 25 per cent. under Section 80-T of the Act, the amount of Rs. 4,578 was brought to tax under the head "Capital gains". The sum of Rs. 3,353 was further added to the assessees income under the head "Capital gains" as the assessee had received in this year this money by way of solatium on compulsory acquisition of land.

5. The assessee challenged the inclusion of the amount of solatium received by him from the Land Acquisition Collector under Section 23(2) of the Land Acquisition Act, 1894, with the plea that solatium was awarded not as part of the market value of the land but as compensation for the injured feelings of the assessee as owner of the land. The Appellate Assistant Commissioner upheld the inclusion of the solatium in the total amount of compensation received by the assessee, in appeal for the assessment year 1977-78. However, in the next assessment year, the Appellate Assistant Commissioner, following the order of the Tribunal, took the view that the amount of solatium did not form part of the salt-price of the land.

6. The Tribunal also agreed with the assessee with regard to the plea that the amount of solatium, received under Section 23(2} of the Land Acquisit