TEJ KUMAR BHARGAVA v. INCOME TAX OFFICER
[Citation -1987-LL-0417]

Citation 1987-LL-0417
Appellant Name TEJ KUMAR BHARGAVA
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 17/04/1987
Assessment Year 1967-68
Judgment View Judgment
Keyword Tags full value of consideration • computation of capital gain • transfer of capital asset • land acquisition officer • appropriate adjustment • company in liquidation • enhanced compensation • cost of acquisition • date of acquisition • commercial practice • immovable property • deeming provision • fair market value • irrevocable trust • severance of land • valuation report • municipal limits • comparable sale • stock-in-trade • inchoate right • bank guarantee • capital nature • income liable • market price • actual cost • sale price • sale deed
Bot Summary: The amount of damages was received by the assessee as a result of the transfer of the acquired land and even though it may not be consideration for the transfer of the acquired land, it is well covered by the provisions of s. 48 of the IT Act, 1961 and is liable to be considered for computation of the capital gains accruing to the assessee as a result of the transfer of the acquired land. The area of the plot of the assessee was a very big and the same could not fetch as much price as the small plots, the demand for land in the area where assessee's land was situated gained momentum only after 1961 and the assessee had not filed any valuer s certificate or comparable sale deed in support of his claim. The amount of damages received by the assessee was part of the consideration for the transfer and even though it may not be consideration for the acquired land, it is well covered by the provisions of s. 48 of the IT Act and is liable to be considered for computation of the capital gains accruing to the assessee as a result of the transfer of the acquired land. The compensation relatable to that land alone should be taken and not the damages which related only to the unacquired land and also computed with reference to the unacquired land. Departmental Representative, who opened the case relying upon s. 23 of the Land Acquisition Act submitted that the Land Acquisition Act, 1894 contemplated determination of compensation for the acquisition of land by taking into account various factors that are likely to cause damage to the person, whose land was acquired and one of the elements that was to be taken into consideration is the damages, if any, sustained by a person interested, the time of taking possession of the land by reason of the acquisition injuriously affecting his other property, movable or immovable, in any other manner, or his earnings. Since the section lays down in clear terms that the Court awarding compensation shall take into consideration the market value of the land and damages sustained by the person interested by reason of severing such land from his other land and also the damages sustained by the person interested by reason of the acquisition injuriously affecting his other property, how can it be said that the damages awarded did not form part of the compensation and when it formed part of the compensation, the argument that the damages related to the unacquired land and not to the acquired land and should not be included, would have no place or legs to stand. Since now two views are clearly possible as interpreted by the two High Courts and in the absence of any direct decision by the Allahabad High Court, I prefer to follow the view expressed by the Kerala High Court and then hold that the damages received by the assessee by way of compensation for a severance of land for the injurious effect that the acquisition of the land has caused on unacquired land should not form part of the full value of the consideration in computing the capital gains.


These appeals, one by assessee and other by Department, have been filed against order passed by AAC of Income-tax, Lucknow, in Income-tax appeal of assessee for asst. yr. 1967-68. assessee along with two others owned lands bearing municipal lay out Nos. 61 and 62 within municipal limits of Lucknow. total area of these plots was 2,23,423 sq. ft. northern portion of this land measuring 98,408 sq. ft. was acquired by Bridge Construction Division of P.W.D., Lucknow for planned development of town of Lucknow and construction of bund for protection from floods. assessee along with another co-owner Shri Raja Ram Kumar Bhargava filed joint objection before Special Land Acquisition Officer claiming compensation as under: (a) Compensation @ Rs.. 4 per sq. ft of acquired area. (b) Damage on account of severance of rest of land @ Rs. 4 per sq. ft. s it was claimed by assessee that after acquisition of northern portion there was no approach left for remaining portion. (c) Interest on compensation amount. Special Land Acquisition Officer vide his order dt. 8th Nov., 1966 awarded sum of Rs. 98,408 only @ Re. 1 per sq. ft. of land acquired. claim for damage to remaining portion of land was rejected. Nothing was said about claim for interest. award of Land Acquisition Officer was not accepted and assessee and Shri Raja Ram Kumar Bhargava moved application under s. 18 of Lad Acquisition Act, 1894 before said officer requesting that matter may be referred to Court. matter was accordingly referred to Civil Judge, Mohanlalganj at Lucknow. Before Civil Judge, claim that compensation for acquired land should be awarded @ Rs. 4 per sq. ft. was repeated. It was also claimed that southern portion of plot which had not been acquired had been adversely affected by acquisition of northern strip of this plot and compensation @ Rs. 4 per sq. ft. should be awarded in respect of remaining area on account of severance of status. un- acquired land was claimed to have become inaccessible from road. assessee also claimed that further amount of 15 per cent should be awarded by way of solartium under s. 23(2) of Land Acquisition Act. ld. Civil Judge decided matter by his order dt. 15th July, 1969 as under: (1) Compensation for acquired land measuring 98,408 sq. ft. was allowed @ Rs. 3 per sq. ft. Rs. 2,95,224 cost. (2) Damages for severance of un-acquired land measuring 1,25,015 sq. ft. @ Rs.. 3 per sq. ft-Rs. 3,75,045. (3) claim for payment of solartium was rejected. ld. Civil Judge also held that formal possession of acquired land was taken by State on 24th Nov., 1966. Against above decision of Civil Judge State as well as assessee have filed appeals before High Court. State has claimed that compensation for acquired land should not have been increased to Rs. 3 per sq. ft. and no damages should have been awarded for un-acquired land. assessee, on other hand, has claimed that further compensation of Rs. 26,691 and claim for payment of solartium should be allowed. Both appeals are pending for decision before High Court. On basis of above facts ITO held that there had been transfer of capital asset by assessee on 24th Nov., 1966 and capital gain arising from same was liable to be assessed in asst. yr. 1967-68. original assessment for this year having already been completed ITO issued notice under s. 148 of IT Act. In response to this notice assessee filed return showing capital gain of Rs. 11,402 worked out as below: Compensation @ Rs. 3 per sq. ft. for 98,408 sq. ft. of land Rs. 2,95,224 Less: Fair market value of above land as on 1-1-54 @ Rs. 2.50 per sq. ft Rs. 2,46,020 Rs. 49,204 Assessee's share-he being 1/3rd owner of land Rs. 16,402 Less: Exempt under s. 114 of IT Act Rs. 5,000 Rs. 11,402 ITO however, held that amount of Rs. 3,75,045 awarded as damages was also liable to be considered for computing capital gains. He further held that amounts of extra compensation and solartium for which assessee had appealed to High Court should also be considered for assessment as otherwise, these amounts if allowed by High Court would escape assessment. On this basis he computed full value of consideration at Rs. 8,04,952. fair market value of acquired land as on 1st Jan., 1995 was estimated by him at Rs. 98,408 @ Re. 1 per sq. ft. capital gain was thus worked out at Rs. 7,06,544 and assessee's 1/3rd share was computed at Rs. 2,35,515 which amount was added to assessee's income. assessee appealed to AAC claiming that: (i) amounts awarded by Civil Judge did not accrue and did not arising during previous year under consideration and these are still in jeopardy due to fact that decision of Civil Judge had not been accepted by State and appeal has been filed in High Court against decision of Civil Judge; (ii) That ITO was not at all justified in taking these amounts which were not even allowed by Civil Judge but for which assessee has made claim before High Court; (iii) that damages allowed by Civil Judge were for lands which were not acquired. amount of damages were not at all relevant for purpose of computation of capital gain arising on acquisition of lands actually acquired; and (iv) That market price as on 1st Jan., 1954 was much higher than rupee one per sq. ft. taken by ITO. AAC rejected contention of assessee that amounts awarded by Civil Judge could not be considered for working out capital gain assessable in this year. On basis of language of s. 45(1) of IT Act, 1961 he held that entire capital gain arising on transfer of capital asset was liable to be assessed in year in which transfer took place. As transfer of land had admittedly taken place in this year capital gain arising from this transfer was liable to be assessed in this year irrespective of date of judgment of Civil Judge. claim of assessee that amount awarded as damages could not be considered for computing capital gains arising on this transfer was also rejected holding that these damages were also received as result of transfer of acquired lands in this year and same were, therefore, covered by language of s. 48 of IT Act. Regarding fair market value of acquired land as on 1st Jan., 1954 AAC agreed with estimate of Re. 1 per sq. ft. made by ITO and claim of assessee that this value was much higher was rejected. contention of assessee that ITO should not have included amounts, claim for which was rejected by Civil Judge and for which assessee had filed appeal to High Court, was accepted holding that mere fact of assessee's filing appeal before High Court could not mean that he was entitled to these amounts. AAC accordingly excluded amount of extra compensation of Rs. 29,691 and amount of solatium included by ITO while computing capital gains and on this basis capital gain assessable in hands of assessee was reduced by Rs. 44,894. Both, assessee as well as Department have appealed against above order of AAC. assessee has appealed on various points decided against him and Department against relief of Rs. 44,894. assessee has claimed that only amount awarded by Land Acquisition Officer could be considered for determining amount of capital gains and any enhancement in amount of compensation made by other authorities could not be held to be part of consideration for transfer. Shri Shanti Bhushan, ld. advocate of assessee, claimed that unless it was so held machinery provided in IT Act for computation of capital gains would become unworkable. Referring to ss. 4,6,11,16,18 and 26 of Land Acquisition Act, 1894 ld. advocate explained scheme of acquisition and determination of compensation amount and claimed that proceedings for t h e determination of compensation amount could be prolonged one in which amounts awarded could keep on varying. ITO could not possibly wait till final conclusion of proceedings for making of assessment and, therefore, only workable proposition could be that amount awarded by Land Acquisition Officer was taken as consideration for transfer. In any case, ld. advocate claimed that further amount awarded by Civil Judge could not be said to have accrued or arisen to assessee within accounting year under consideration, judgment of Civil Judge having been delivered on 15th July, 1969 much after close of accounting year. extra compensation awarded by Civil Judge was also in jeopardy as State had appealed against same to High Court, which appeal was still pending. In any case, amount having been awarded in subsequent year ITO had no power to relate back same to year under consideration. In support of this contention, ld. advocate referred to decision of Supreme Court in CIT vs. Gajapathy Naidu (1964) 53 ITR 114 (SC). Relying on decision of Allahabad High Court in CIT vs. Kalicharan Jagannath (1961) 41 ITR 40 (All). Shri Shanti Bhushan argued that if amount is to be taxable as income of relevant previous year right to receive it must have come into existence in that year. Referring to observations of Bombay High Court in CIT vs. Associated Commercial Corpn. (1963) 48 ITR 1 (Bom) on pages 17 to 19 of report, ld. advocate claimed that extra amounts of compensation could not be deemed to arise or accrue to assessee so long as matter was pending before appellate authorities. In that case, their Lordships observed that until claim which was set up by assessee to profit was adjudicated and determined in his favour, profit could not be said to have accrued to him. Till then right of assessee to profit was in jeopardy. Relying on this observation ld. advocate of assessee claimed that right of assessee to extra amounts awarded by Civil Judge being in jeopardy, these amounts could not be considered for assessment. In support of his contention ld. advocate also referred to observation of their Lordships of Punjab High Court in CIT vs. Jal Parkash Om Parkash Co. Ltd. (1961) 41 ITR 718, (Punj) on pages 722 and 723 of report. In that case also it was held that no amount could be said to accrue unless it was actually due. very foundation of claim was in jeopardy as matter was pending in appeal and if appeal went against assessee then nothing would be due. Applying observations to present case, Shri Shanti Bhushan claimed that entire amount awarded by Civil Judge being in jeopardy same could not be held to have arisen to assessee. ld. advocate then referred to decision of Andhra Pradesh High Court in Khan Bahadur Ahmed Alladin & Sons vs. CIT (1969) 74 ITR 651 (AP). In that case some land of assessee was acquired by Government and it was held that right of owner to compensation was inchoate right till compensation was actually determined and became payable. It was further held that enhanced compensation accrued to assessee only when Court accepted claim and not when land was taken over by Government. We may, however, mention that in that case land was held to be stock-in-trade of assessee's business and profit arising on sale of same was liable to be assessed as business profits and not as capital gains as in present case. For finding out correct meaning of words 'accrue' and 'arise' ld. advocate referred to decision of Supreme Court in E.D. Sassoon & Co. Ltd. vs. CIT (1954) 26 ITR 27 (SC) and particularly to observations of their Lordships on pages 49 to 51 of report to effect that words 'arising or accruing' meant right to receive profits. Income can be said to have accrued to assessee if he acquires right to receive same. There must be debt owed to him by somebody and unless and until such debt is created it cannot be said that assessee had acquired right to receive income or that income had accrued to him. Shri Shanti Bhushan also referred to decision of Allahabad High Court in Lakshman Prakash vs. CIT (1973) 92 ITR 492 (All). In that case it was held that amount of extra payment to be made to assessee, army contractor, became ascertained only on date when same was finally fixed and was assessable in year in which this happened. ld. advocate also referred to decision of Allahabad High Court in CIT vs. Mathulal Baldeo Prasad (1961) 42 ITR 517 (All). In that case it was held that enforceable liability would be deemed to have come into existence only when it was determined and fixed by arbitrators. On basis of above authorities, Shri Shanti Bhushan claimed that enhanced amount of compensation awarded by Civil Judge could not be considered for determining capital gains of assessee taxable in year under consideration. judgment of Civil Judge was delivered much after close of accounting year and, therefore, in view of authorities mentioned above amount awarded by Civil Judge could not be deemed t o have accrued or arisen to assessee in this year. Moreover, State having appealed against judgment of Civil Judge and matter being still pending before High Court entire amount allowed by Civil Judge was in jeopardy and same could not, therefore, be deemed to have accrued or arisen to assessee. On behalf of Department, Shri Ajit Sinha, ld. authorised representative, claimed that entire amount of capital gains arising out of transfer of acquired land was liable to be assessed in year under consideration. various authorities cited by ld. advocate of assessee related to assessment of income other than capital gains. They were not applicable to assessment of capital gains which was governed by s. 45 of IT Act, 1961. In this connection Shri Sinha also pointed out that assessee himself had shown amount of capital gains computed on basis of award given by Civil Judge in return for this year and, therefore, he could not claim that amount of capital gains arising to assessee as result of award given by Civil Judge could not be considered in this year. On behalf of assessee, Shri Shanti Bhushan replied that full facts regarding litigation had been mentioned by assessee in letter sent with return and, therefore, assessee was competent to raise this legal issue. Repeating his argument mentioned earlier Shri Shanti Bhushan claimed that amount of capital gain had to accrue or arise to assessee before same could be taxed and as according to him amount of gain sought to be assessed had not actually accrued to assessee same was not taxable and provisions of s. 45 had no application to that amount. It would be relevant here to notice language of s. 45 which deals with assessment of capital gains. This section reads as under: "Capital gain. Any profits or gains arising from transfer of capital asset effected in previous year shall, save as otherwise provided in ss. 53 and 54, be chargeable to income-tax under head 'Capital gains', and shall be deemed to be income of previous year in which transfer took place." Sec. 45 thus provides that any profits or gains arising from transfer of capital asset shall be deemed to be income of previous year in which transfer took place. In case before us date of transfer of acquired land has been held to be 24th Nov., 1966 and on this point there is no dispute. This date falls in previous year for assessment year under consideration. It, therefore, follows that amounts of profit or gain arising from this transfer shall be deemed to be income of this year for purposes of assessment. This will be so even though amount of consideration for transfer (as has happened in present case) may be determined after end of previous year in which transfer took place. Irrespective of date when final amount of consideration is determined, profit or gains arising as result of transfer will have to be related back to year of transfer and amount of capital gain will be assessable in that year. various cases cited by ld. advocate (which have been discussed earlier, to show that income would be assessable in year in which it really accrued to assessee and not in any earlier year related to assessment of business income of assessee. None of these cases related to capital gains. contention of ld. advocate of assessee that no income can be taxed unless it has accrued to assessee cannot be disputed but in case of capital gains entire amount of capital gains arising as result of transfer is, by virtue of s. 45 of Act, deemed to accrue in year of transfer. But if for this deeming provision capital gains would have accounted (and been assessable) in respective years in which enhanced amounts of compensation were awarded by various authorities. We, therefore, hold that entire amount of capital gains having been deemed to be income of this year by s. 45 of IT Act, 1961, authorities below were justified in considering award of Civil Judge even though award was given much after close of previous year. contention of assessee that amount awarded by Civil Judge being in jeopardy could not be considered for computation of capital gain is also not acceptable. Civil Judge has given award. Not only this, amount awarded has been paid to assessee though after his furnishing security in shape of bank guarantee for due performance by him in case decree awarded by Civil Judge was modified or reversed by High Court. Therefore, it cannot be held that Department authorities were not justified in computing capital gains of assessee with reference to amounts awarded by Civil Judge merely because there is possibility of amount awarded by Civil Judge being varied in appeal pending before High Court. As held by Kerala High Court in Shah Vrajlal Madhavji vs. CIT (1974) 95 ITR 614 (Ker) it was not necessary for Department in such cases either not to assess income or keep assessment open till matter is finally decided by High Court or after that by Supreme Court in case any of parties choose to pursue matter further. We would, however, direct that amount of capital gains shall be modified in case decree of Civil Judge is modified or reversed as result of appeals pending before Hon'ble High Court or any further appeals which may be filed after decision by Hon'ble High Court. Our this observation will apply not only to result of appeal filed by State but also to appeal filed by assessee, with result that if prayer of assessee for enhancement in amounts of compensation or grant of solatium is accepted amounts so awarded shall also be liable to be considered for computation of capital gains. next claim of assessee is that amount of damages awarded to assessee on account of severance of status of unacquired land could not be considered as part of consideration for computation of capital gains. This amount was awarded by Civil Judge for severance of status of unacquired land over and above compensation for acquired land and so this amount could not be considered for finding out profits arising from transfer of acquired land. In any case, if this amount was to be included, fair market value of un-acquired land as on 1st Jan., 1954 in respect of which this amount had been awarded was also liable to be deducted while computing capital gains. On behalf of Department, Shri Sinha has supported order of authorities below by claiming that entire amount received by assessee as result of transfer was liable to be considered for computing capital gains. Sec. 48 of IT Act, 1961 which prescribes mode of computation and deductions for working out capital gains reads as under: "Mode of computation and deductions. income chargeable under head "Capital gains" shall be computed by deducting from full value of consideration received or accruing as result of transfer of capital asset following amounts, namely: (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) cost of acquisition of capital asset and cost of any improvement thereto" corresponding section under Indian IT Act, 1922, was s. 12B(2) which reads as under: "(2) amount of capital gain shall be computed after making following deductions from full value of consideration for which sale, exchange, relinquishment or transfer of capital asset is made, namely: (i) expenditure incurred solely in connection with sale, exchange, relinquishment or transfer; (ii) actual cost to assessee of capital asset, including any expenditure of capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of ss. 8, 9, 10 and 12." comparison of section in force now, with provisions under old Act would show that whereas under provisions of old Act full value of consideration for which transfer of capital asset was made was to be considered for working out capital gains, under provisions of Act now in force full value of consideration received or accruing as result of transfer of capital asset has to be considered. Any amount received by assessee over and above price of capital asset could not be considered for working out capital gains under provisions of old Act. Bombay High Court in Baijnath Chaturbhuj & Anr. vs. CIT (1957) 31 ITR 643 (Bom) held that, that part of consideration which was received by assessee for assignment of managing agency could not be considered while working out capital gains on transfer of shares. In that case, firm in which assessee was partner had sold some shares in company together with its managing agency rights for amount calculated at Rs. 65 per share. IT authorities held that for purpose of computing capital gains under s. 12B of Indian IT Act, 1922, full value of consideration for sale of shares must be taken to be Rs. 65 per share while assessee contended that full value was only market value of shares at time of sale and that firm had fixed and inflated value for shares as it parted with its managing agency also. Court held that consideration received by firm was composite consideration for transfer of shares and assignment of managing agency, and only amount received by assessee for transfer of shares could be considered while working out capital gains on sale of shares. In New Era Agencies (Pvt.) Ltd. vs. CIT (1968) 68 ITR 585 (SC), assessee who had sold some shares held by it in company claimed that part of amount received as sale proceeds of shares was for procuring resignation of directors of that company and managing agents of company in favour of purchaser and same could not be considered while working out capital gains on sale of shares. principle on which claim was made was found acceptable but claim was rejected as it was held that assessee neither had controlling power over company no was it in position to procure resignation of managing agents and directors in favour of purchase. These authorities show that under provisions of 1922 Act amount to be considered for computation of capital gains was full value of consideration for which transfer of capital asset was made. Any amount received over and above this consideration was not liable to be considered. position, however, appears to have been changed under provisions of IT Act, 1961. In place of words 'from full value of consideration for which sale, exchange, relinquishment or transfer of capital asset is made" appearing in s. 12B(2) of Indian IT Act, 1922, s. 48 of IT Act, 1961 contains words "full value of consideration received or accruing as result of transfer of capital asset". Therefore, under provisions of Act now in force all amounts which are received as result of transfer of capital asset will have to be considered for computation of capital gains even though these amounts may not be consideration of which transfer of capital asset is made. amount of damages was received by assessee as result of transfer of acquired land and, therefore, even though it may not be consideration for transfer of acquired land, it is well covered by provisions of s. 48 of IT Act, 1961 and is liable to be considered for computation of capital gains accruing to assessee as result of transfer of acquired land. next question is of deduction to be allowed from amount received by assessee for computing amount of capital gains. assessee s claim is that if amount of damages is to be taken into account market value of unacquired land as on 1st Jan., 1954 should also be deducted. Department's claim, on other hand, is that only market value of acquired land as on 1st Jan., 1954 could be allowed as deduction. We find that provisions of s. 48 provide only for deduction of cost of acquisition of asset transferred by assessee and claim of assessee that cost of unacquired land in respect of which damages had been received should also be deducted does not appear to be correct. But while determining as on 1st Jan., 1954 market value of land which was acquired we will have to take into account fact that assessee would not agree to sell same without receiving due compensation for damage done to unacquired land. To this extent, therefore, value of acquired land will have to be enhanced to find out its market value as on 1st Jan., 1954. Now we take up valuation of acquired land as on 1st Jan., 1954. assessee, as has been mentioned earlier, estimated fair market value of this land on 1st Jan., 1954 @ Rs. 2.50 per sq. ft. ITO estimated this value @ this land on 1st Jan., 1954 @ Rs. 2.50 per sq. ft. ITO estimated this value @ Rs. 1 per sq. ft. ITO rejected claim of assessee and valued land at Re. 1 per sq. ft. on ground that land of assessee was not meant for building purposes in 1954, it was open to river Gomti which swallowed at during rainy season, High Court had awarded compensation for Dilkhusha Colony land which was acquired in 1947 @ 14 annas per sq. ft. only, assessee land was only 11/2 furlongs away from cremation ground, and was inferior to plot of land of Smt. Noor Jehan Begum which was sold in 1958 @ Rs. 2 per sq. ft., area of plot of assessee was very big and same could not, therefore, fetch as much price as small plots, demand for land in area where assessee's land was situated gained momentum only after 1961 and assessee had not filed any valuer s certificate or comparable sale deed in support of his claim. When matter came up before AAC assessee filed affidavit claiming that ITO had wrongly stated that plots of assessee were not meant for building purposes and that land was open to river Gomti. It was claimed that plots were suitable for construction of buildings and were not affected by floods. It was also stated that cremation ground was about mile away from assessee s land and not only 11/2 furlongs away as mentioned by ITO. claim that there was not much demand for lands in area where assessee s land was situated before 1961 was also disputed and it was claimed that there was always great demand for building plots in city of Lucknow. report of valuer was also filed estimating fair market value of land on 1st Jan., 1954 at Rs. 2.25 per sq. ft. AAC did not entertain valuer s report on ground that same should have been filed before ITO. He also examined assessee s and found that though assessee had claimed that his lands were not affected by floods, same had been submerged by floods of 1961 and 1971. AAC agreed with finding of ITO that city of Lucknow had not spread far in direction of assessee lands till 1954 and keeping in view all above facts he confirmed ITO's estimate of fair market value of this land as on 1st Jan., 1954. assessee had filed another affidavit before us reiterating that his land was free from floods and fact that same was affected by floods of 1961 and 1971 could not be taken as evidence to contrary because these floods were unusual floods in which even Hazratganj, which was centre of city was flooded. It has also been denied that land could not be subdivided into smaller plots as observed by AAC. observation of AAC that city of Lucknow had not spread far in direction of assessee s lands till 1954 has also been disputed by claiming that Mahanagar area, which was situated beyond assessee s land across river Gomti had started developing as far back as in 1946-47. Shri Shanti Bhushan, ld. advocate of assessee, claimed that authorities below were to justified in rejecting claim of assessee that value of his land on 1st Jan., 1954 was Rs.2.50 per sq. ft. Besides referring to affidavits filed before AAC and before us he referred to judgment of Civil Judge in which ld. Judge had discussed various facts regarding value of assessee's land while determining compensation payable to him. land of Smt. Noor Jehan Begum which was sold in 1958 @ Rs. 2 per sq. ft. was inferior to land of assessee. There had been no rise in prices of land in period 1954 to 1958 in city of Lucknow and, therefore, fair market value of assessee's land as on 1st Jan., 1954 should be held to be more than Rs. 2 per sq. ft. at which rate land of Smt. Noor Jehan Begum was sold in 1958. In support of his contention that prices of land during 1954 to 1958 remained stationary in city of Lucknow, ld. advocate referred to two transactions of land in Bhilawan (claimed to be locality of Luknow), one in 1954 and other in 1958 in both of which land had been sold @ Rs. 2.50 per biswa. Reference was also made to judgment of Allahabad High Court in case of H.S. Gupta to claim that average price of land for building purposes in city of Lucknow was about Rs. 2 per sq. ft. as long ago as 1947. On this basis ld. advocate claimed that assessee's valuation of his land at Rs. 2.50 per sq. ft. was quite justified and should have been accepted. On behalf of Department, Shri Sinha supported estimate of authorities below by relying on facts mentioned by them in their orders. He also disputed proposition of assessee that prices of land in Lucknow city remained stationary during 1954 to 1958. Shri Sinha further claimed that valuation report having not been produced before ITO was rightly not entertained by AAC. It appears that while estimating value of assessee's land on 1st Jan., 1954 ITO was under impression that land was not suitable for construction of buildings because it was open to river Gomti and further because it was only 11/2 furlongs away from cremation ground. He also thought that there was not much demand for land in that area till 1954. While agreeing with estimate of ITO AAC has also observed that city of Lucknow had not expanded towards assessee's land till 1954 and that land of assessee could not be sub-divided into small plots. He was also influenced by fact that land of assessee was submerged by floods of 1961 and 1971. All these facts have been challenged by assessee in his affidavit. There is also evidence on record to show that city of Lucknow had started expanding towards land of assessee and even Mahanagar Colony which is far beyond, had started developing since 1947. copy of judgment of Hon'ble Chief Court of Avadh at Lucknow in case of Mr. H.S. Gupta, copy of which has been filed at page 128 of paper book shows that there was substantial demand for building plots in city of Lucknow even in 1947. In that case Hon'ble Court fixed amount of compensation for land which was acquired in 1947 at 14 annas per sq. ft. That land was it may be mentioned, outside municipal limits of Lucknow whereas lands under consideration are within municipal limits and valuation has to be done in 1954. estimate of Re. 1 per sq. ft. made by ITO and confirmed by AAC, therefore, appears to be low. contention of assessee that there was no rise in prices of land in city of Lucknow during 1954 to 1958 and, therefore, value of assessee's land in 1954 should be estimated on basis of sale of Smt. Noor Jehan Begum's land in 1958 @ Rs. 2 per sq. ft. also appears to be unacceptable. claim is sought to be supported on basis of two small transactions of land in Bhilawan. Apart from fact that evidence is very scanty we also find that lands in those transactions were sold @ Rs. 2.50 per Biswa and same could not be held as comparable with land of assessee nor could transactions be indicative of trend of price of building plots during this period. On other hand, evidence considered by Civil Judge while giving his award shows that price of land had been steadily increasing in Lucknow. Therefore, keeping entire facts in view we would estimate value of assessee's acquired land as on 1st Jan., 1954 @ Rs. 1.50 per sq. ft. This will have to be further increased by amount to be added on account of damage to unacquired portion. Civil Judge has awarded compensation for acquired land @ Rs. 3 per sq. ft. and also damages in respect of unacquired land at same rate. We have estimated value of acquired land as on 1st Jan., 1954 at rate of Rs. 1.50 per sq. ft. reasonableness of damages awardable by Civil Judge has been questioned by UP Government and matter is now pending before Hon'ble High Court. Therefore, instead of trying to determine amount of damages which assessee should be entitled to receive we would hold that 50 per cent of amount of damages awarded to assessee should be added to value of acquired land computed at rate of Rs. 1.50 per sq. ft. and this gross amount shall be liable to be deducted while computing capital gain. computation of capital gain shall be modified accordingly. This disposes of assessee's appeal. Coming to Department's appeal we find that only objection is against reduction of Rs. 44,890 allowed by AAC holding that ITO was n o t justified in including those amounts which had not been awarded to assessee by Civil Judge but for which assessee had filed appeal to High Court. We are unable to see how those amounts could be held to be assessee's income merely on ground that even though claim of assessee had been rejected by Civil Judge he had filed appeal against order to High Court claimed these amounts. No amount can accrue to assessee merely on basis of his claim and we, therefore, hold that AAC was justified in deleting same. However, as we have already held earlier amounts, if any, awarded to assessee in appeal shall be liable to be considered for computation of capital gains as and when same are awarded. In result, assessee's appeal is partly allowed and Department's appeal, is subject to our observation earlier dismissed. T.D. SUGLA, J.M. I have gone through judgment of my ld. brother, Accountant Member. I agree with him almost on all points except those dealt in paras 14 to 16 of his order. facts have been beautifully summarised by him in paras 2 to 8 of order. For sake of brevity, I do not propose to repeat them here. factual position in nutshell is that assessee owned big plot of open land in city of Lucknow, portion of which measuring 98,408 sq. ft. was acquired by Project Construction Division of P.W.D., Lucknow, and remaining portion measuring 1,25,015 sq. ft. was badly damaged in sense that it became inaccessible on account of acquisition of aforesaid land. It is common ground that in terms of Hon'ble High Court's decision, assessee received Rs. 2,95,224 as compensation for acquired land measuring 98,408 sq. ft. at rate of Rs. 3 per sq. ft. and Rs. 3,75,045 as damages for severance on unacquired land measuring 1,25,025 sq. ft. also at rate of Rs. 3 per sq. ft. There being no dispute that capital gains have to be computed in this case under s. 48 of IT Act, 1961 short question that arose for consideration and which has been dealt with by my ld. brother in paras 14 to 16 of his order is what is meaning of phrase "the full value of consideration received or accruing as result of transfer of capital asset" as used in s. 48. ld. A.M. has himself referred to number of decisions to show that position under old Act in this behalf was that amount received for transfer of capital asset alone could be considered while computing capital gains and not other receipts, whether incidental or otherwise, to transfer. ld. A.M. has, however, felt that phraseology used in s. 12B(2) of old Act and s. 48 of new Act being different, decisions on provisions of s. 12B of old Act would not be relevant. According to him under provisions of Act now in force all amounts, which are received or accrued as result of transfer of capital asset will have to be considered for computation of capital gains even though these amounts may not be consideration for which capital asset has been transferred. Observing then that amount of damages was received by assessee as result of transfer of acquired land, he held that even though it might not be consideration for transfer of acquired land, it was well covered by provisions of s. 48 of IT Act, 1961 and was liable to be considered for computation of capital gains. It may be stated that ld. A.M. has also held that value of damage caused to unacquired land cannot be taken to be cost of acquired land as unacquired land has not been transferred. There is no dispute that phraseology used in s. 48 of new Act in this behalf is somewhat different from what it was in s. 12B of old Act. To this extent, I am in agreement with my ld. brother that decisions wherein provisions of old Act were considered might not apply as such. I however, find myself unable to agree with him that difference in language used is so vital as that. In this connection it may not be out of place to observe that new Act received assent of President on 29th April, 1961. relevant Bill when piloted in Parliament had Chapter known as "Statement of objects and reasons". There were notes on clauses wherever there was intended deviation from provisions of old Act, which indicated reasons and effect of deviation. This is what "Notes on clauses" have to say with regard to cls. 45 to 55 of Bill now embodied in ss. 45 to 55 of IT Act, 1961: "Clauses 45 to 55. These embody provisions of existing s. 12B. provisions have been split up, simplified and logically rearranged following changes have been made: (1) any transfer by way of distribution of capital assets by company in liquidation is not regarded as transfer for purpose of changing capital gains in case of company but shareholder receiving capital assets from company is chargeable on difference between market value of asset on date of distribution and cost of acquisition of shares by him, subject to appropriate adjustment, if any, on portion of value of capital asset which has been assessed as dividend under s. 2(6A)(c) of existing Act; (2) any distribution of capital on dissolution of firm and any transfer of capital asset under irrevocable trust, is not regarded as transfer for purpose of capital gains tax; (3) distinction drawn between assets acquired as result of partition of HUF or by way of gift, before and up to 1st April, 1956 has been abolished. uniform procedure is proposed according to which, for assets acquired before 1st Jan., 1954, either market value on date of acquisition or market value on 1st Jan., 1954, at option of assessee, is adopted, whatever be mode of acquisition." I am aware that notes on clauses of Bill or debates in Parliament pertaining thereto are not conclusive of intention of legislature and, in any event, Courts have not to interpret intention of legislature from such notes or discussions in Parliament, but have to interpret it as expressed through language of statutes. All same usefulness of such notes and debates have never been doubted. It is only for this limited purpose that I have made reference to Notes, which clearly suggests that relevant provisions have only been split up, simplified and logically rearranged except for changes referred to therein. change considered to have been envisaged by difference in phraseology used herein at least does not seem to have been conceived by legislature. I have tried to examine question from another angle. Capital gains are made chargeable to income-tax under s. 45 of IT Act, 1961. It is true that s. 48 provides mode of computation and deduction of such capital gains. All same, however, as I understand "capital gains" referred to in s. 48 cannot but refer to "Capital gains as made taxable by s. 45". provisions of s. 45 read as under: "Capital gains. (1) Any profits or gains arising from transfer of capital asset effected in previous year shall save as otherwise provided in ss. 53, 54 and 54B be chargeable to income-tax under head "Capital gains", and shall be deemed to be income of previous year in which transfer took place." It is pertinent that s. 45 is making only such profits or gains chargeable to income-tax under lead "Capital gains" as arise from transfer of capital asset. This is important because, according to me, mode of computation is in absence of specific indication to contrary, not expected to widen meaning of such capital gains. It may be that unlike s. 12B(2) of old Act where s. 12B(1) made capital gains chargeable to tax and s. 12B(2) provided manner in which such capital gains were to be computed, present scheme of Act is that separate sections have been enacted for different purposes. It is, however, difficult to hold that section providing mode of computation and deductions will even enlarge scope of capital gains. From this point of view also, I hold that full value of consideration refers to consideration for which capital asset has been transferred. Even plain language of s. 48, as I understand, does not justify conclusion that every receipt occasioned on account of transfer of capital asset, whether directly connected with it or not should be taken into account for purposes of computing capital gains under s. 48. For this purpose, it is desirable to refer to provisions of s. 12B(2) of old Act and s. 48 of new Act: " Sec. 12B(2) of IT Act, 1922 amount of capital gains shall be computed after making following deductions from full value of consideration for which sale, exchange, relinquishment or transfer of capital asset is made namely: (i) expenditure incurred solely in connection with sale exchange, relinquishment or transfer; (ii) actual cost to assessee of capital asset, including any expenditure of capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of ss. 8, 9, 10 and 12. " Sec. 48 of IT Act, 1961 Mode of computation and deductions.- income chargeable under head "Capital gains" shall be computed by deducting from full value of consideration received or accruing as result of transfer of capital asset following amounts namely; (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) cost of acquisition of capital asset and cost of any improvement thereto." Before proceeding to consider difference in phraseology, it may not be out of place to take hypothetical case. Suppose unacquired land herein did not belong to assessee but to somebody else. damage was caused to it because by acquiring assessee's lands, Government made that land inaccessible. In that case, damages would have been naturally awarded to t h e persons, who owned those lands. I do not think that it can be even suggested that " full value of consideration received or accruing as result of transfer of capital asset" would be not only compensation for land acquired but also damages awarded for damage to other land merely because word " assessee" is not appearing in s. 48. It may be argued that word "assessee" in s. 48 is implied and damages awarded would be included in full value of consideration only if they accrue to same assessee. This argument, to my mind, apart from being unwarranted, is illogical. I say so because phrase " accruing as result of " cannot be considered in isolation from phrase " full value of consideration". Whatever might have been received, has got to be consideration for transfer of capital asset and not for anything else. There being no dispute that full value of consideration as such refers to full value of consideration of capital asset transferred only. I have no difficulty in holding that it is at leas not free from doubt that interpretation placed on phrase is not justified. In this connection, I may usefully refer to Supreme Court's decision in case of CIT vs. Kesholal Lallubhai Patel (1965) 55 ITR 637 (SC). point in that case was very much different. I am only referring to manner in which certain words occurring after certain other words were interpreted by their Lordships in that decision. It was case where their Lordships were required to interpret provisions of s. 16(3)(iii) and (iv) of Indian IT Act, 1922. word "transfer" in those clauses was followed by words "directly or indirectly." question arose what is scope of word "indirectly". It was held that word "indirectly" did not destroy significance of word "transfer". According to me here also, phrase "occurring as result of transfer of capital asset" following phrase "the full value of consideration" does not destroy significance of phrase "the full value of consideration". In any event, I consider that damages awarded herein have no direct nexus to capital asset transferred and, therefore, cannot form part of "the full value of consideration" by now well settled. There is yet another aspect. Supreme Court has in case of Miss. Dhun Dadabhoy Kapadia vs. CIT (1967) 63 ITR 651 (SC) held that in order to compute cost of capital asset sold, depreciation in value of other assets as result of acquisition and sale of capital asset should be taken into account. In this premises, in case damages awarded were to be taken into account for computing capital gains under s. 48, amount by which unacquired land depreciated in value on account of land acquired by Government will have to be taken into account in arriving at capital gains. Since, in view of Civil Judge's decision, it cannot but be held that unacquired land depreciated in its value by amount of damages awarded. In either event damages awarded cannot be taken into account for purposes of capital gains herein. Assuming in spite of all this it comes to this that both views are possible, it is well settled that view in favour of subject must prevail. With respect, I do not agree that depreciation to unacquired land should be taken at 50 per cent of damages awarded. In my view, correct income liable to tax under head "Capital gains" will be half of Rs. 2,95,224 i.e., Rs. 1,47,612 and not half of Rs. 6,70,269 (Rs. 2,95,224 compensation + Rs. 3,75,045 damages) i.e., Rs. 35,135 as determined by ld. A.M. Order under s. 255(4) of IT Act, 1961 Since there is difference on point issue, following question, on which there is difference, is referred to President for reference to Third Member as laid down in s. 255(4): "Whether, on facts and in circumstances of case, assessee's income liable to tax under head "Capital gains" is Rs. 3,35,135 as per Accountant Member or it is Rs. 1,47,612 as per Judicial Member?" THIRD MEMBER ORDER G. KRISHNAMURTHY, PRESIDENT (AS THIRD MEMBER) These appeals were heard by Allahabad Bench of ITAT and ld. Members, who constituted Bench could not agree on following point. Hence President of Tribunal gas referred this point of difference for opinion of Third Member and by reason of succession in office, I came to be Third Member to hear this matter. point is: "Whether, on facts and in circumstances of case, assessee's income liable to tax under head 'Capital gains' is Rs. 3,35,135 as per Accountant Member or it is Rs. 1,47,612 as per Judicial Member?" Now I shall briefly refer to relevant facts that gave rise to difference of opinion: assessee along with two others owned lands bearing Municipal layout Nos. 61 and 62 within Municipal limits of Lucknow. total are of this plot was 2,23,423 sq. ft. northern portion of this land measuring 98,408 sq. ft. was acquire by Bridge Construction Division of PWD, Lucknow for planned development of town of Lucknow and for construction of fund for protection from floods. On objections filed by assessee along with co- owners of this land, Special Land Acquisition Officer vide his order dt. 8th Sept., 1966 awarded sum of Rs. 98,408 as compensation, that is, at rate of Re. 1 per sq. ft. of land acquired. It may be stated here that claim made by assessee and co-owners of land before Land Acquisition Officer was compensation at rate of Rs. 4 per sq. ft. for acquired area and damages on account of severance of rest of land at Rs. 4 per sq. ft. these damages were claimed on ground that after acquisition of northern portion of land there was no approach road for remaining portion. Special Land Acquisition Officer while rejecting claim for damages in toto granted only compensation at rate of Re. 1 per sq. ft. There was then appeal before Civil Judge, Lucknow reiterating these claims and also claiming solatium at rate of 15 per cent. ld. Civil Judge by his order dt. 15th July, 1969 awarded compensation at rate of Rs. 3 per sq. ft., i.e., Rs. 2,95,224. At same rate of Rs. 3 per sq. ft. he also awarded damages for severance of unacquired land measuring 1,25,015 sq. ft. which came to Rs. 3,75,045. He did not accept claim for payment of solatium. There were then appeals filed both by assessee and by State to High Court against these orders of Civil Judge. In meantime, ITO held that in this acquisition proceedings there w s capital gain as capital asset of assessee was transferred. assessment was originally completed without including capital gains and for including capital gains notice under s. 148 was issued, in response to which t h e assessee filed return admitting capital gain of only Rs. 11,402 in computing which he had taken compensation awarded at Rs. 2,95,224 and excluded in toto damages received of Rs. 3,75,045. But ITO was of opinion that exclusion of damages was not correct because damages also formed part of full value of consideration accruing or arising to assessee as result of transfer of land. By including claims made by assessee for solatium and other matters, he computed full value of consideration at Rs. 8,04,952 and determined capital gains at Rs. 7,06,544 and share of assessee therein at Rs. 2,35,515. assessee then appealed to AAC claiming, inter alia, that damages of Rs. 3,75,045 and other amounts for which assessee laid only claim but not received, should not have been included. AAC considered that claims made by assessee were only claims and should not have been included but confirmed inclusion of damages. In his view, amount received by way of damages formed part of full value of consideration received for transfer of land. Against order of AAC appeals were filed before Tribunal both by assessee and Department. In this Third Member reference I am only concerned with assessee's appeal. In assessee's appeal, only point that was in dispute was whether damages of Rs. 3,75,045 should or should not be included as forming part of full value of consideration. ld. A.M. held that amount of damages could be included in computing capital gains. He came to this conclusion of basis of difference in language used in s. 12B of Indian IT Act, 1922 and language used in s. 48 of IT Act, 1961. In s. 12B of Indian IT Act, 1922 expression used was "that full value of consideration for which sale, exchange, relinquishment or transfer of capital asset is made" while language used in section 48 of IT Act, 1961 is "full value of consideration received or accruing as result of transfer of capital asset". According to ld. A.M. language used in s. 12B permitted inclusion of full value of consideration pertaining to used in s. 12B permitted inclusion of full value of consideration pertaining to transfer of capital asset, i.e., at which it was made and not any amount received over and above price of capital asset. He drew support for this view from decision of Bombay High Court in case of Baijnath Chaturbhuj vs. CIT (1957) 31 ITR 643 (Bom) and New Era Agencies (P.) Ltd. vs. CIT (1968) 68 ITR 585 (SC). But s. 48 of IT Act, 1961, according to him, permitted not only inclusion of full value of consideration but also amount received over and above consideration but relating to or occasioned by transfer. He held that since damages received by assessee related to transfer of capital asset, that amount also became includible in full value of consideration. To quote his own words: "Therefore, under provisions of Act now in force all amounts which are received or accrued as result of transfer of capital asset will have to be considered for computation of capital gains even though these amounts may not be consideration for which transfer of capital asset is made. amount of damages received by assessee was part of consideration for transfer and, therefore, even though it may not be consideration for acquired land, it is well covered by provisions of s. 48 of IT Act and is liable to be considered for computation of capital gains accruing to assessee as result of transfer of acquired land." ld. J.M. did not agree with this conclusion. He could not agree that difference in language used in s. 12B of Indian IT Act, 1922 and s. 48 of IT Act, 1961 made any difference so as to give rise to inference or interpretation that old Act permitted inclusion of amounts relating only to transfer and new IT Act provided for inclusion of all amounts having relation to transfer. According to him, there was no difference either under IT Act, 1922 or under IT Act, 1961 except that there was re-arrangement of sections conveying same idea in perhaps little more altered language. Secondly, he was also of opinion that s. 45 of IT Act, 1961 was charging section and it had limited application in sense of arriving at full value of consideration and what was not specifically provided for in charging s. 45 could not be said to have been enlarged by s. 48, which only provided mode of computation of capital gains. From this his inference was that only consideration relating to transfer of capital asset should be included and not damages awarded for severance of land relating to unacquired portion. He was further of opinion that since in case where unacquired land if belonged to third party, damages awarded by Land Acquisition Officer would accrue to third party and not to assessee, on same analogy damages awarded for unacquired land even if land belonged to assessee could not be included as consideration for transfer of land for purpose of computing capital gains. His main emphasis was thus on point that any amount received and having relation to transfer of capital asset should only be included in full value of consideration for transfer and not any amount received occasioned by transfer. Since amount relatable to transfer of capital asset in his case was 98,408 sq. ft., compensation relatable to that land alone should be taken and not damages which related only to unacquired land and also computed with reference to unacquired land. He was of firm opinion that damages awarded had no nexus to capital asset transferred. He also held relying upon decision of Supreme Court in Miss. Dhun Dadabhoy Kapadia's case (1967) 63 ITR 651 (SC) where Supreme Court held that in order to compute cost of capital asset sold any depreciation in value of other asset as result of acquisition or sale of capital asset should also be taken into account, depreciation for unacquired land occasioned by acquisition of acquired land should also be taken in to consideration, in which case damages awarded for unacquired land would be equal to compensation received for acquired land and, therefore, there would not be any capital gains. Eventually, he held that in case where two views are possible, view that is in favour of assessee must be adopted. He, therefore, held that capital gains on acquisition of 98,408 sq. Ft. Of land would work out to only Rs. 1,47,612 and not Rs. 3,35,135 as determined by ld. A.M. Hence, difference of opinion between two ld. Members, which was referred to me for my opinion. I have heard this case at length. ld. Departmental Representative, who opened case relying upon s. 23 of Land Acquisition Act submitted that Land Acquisition Act, 1894 contemplated determination of compensation for acquisition of land by taking into account various factors that are likely to cause damage to person, whose land was acquired and one of elements that was to be taken into consideration is damages, if any, sustained by person interested, time of taking possession of land by reason of acquisition injuriously affecting his other property, movable or immovable, in any other manner, or his earnings. If this was so, all amounts attributable to each one of these elements would together constitute compensation and it cannot be said having regard to language used in s. 23 of Land Acquisition Act that only certain amounts attributable to certain elements alone is compensation and not amounts attributable to other components, i.e., segregation in manner suggested is not permissible. Sec. 23 of Land Acquisition Act provided: "First, market value of land at date of publication of notification under s. 4, sub-s.(1); secondly, damage sustained by person interested, by reason of taking of any standing crops or trees which may be on land at time of Collector's taking possession thereof; thirdly, damage (if any) sustained by person interested, at time of Deputy Commissioner's taking possession of land by reason of severing such land for his other land; fourthly, damage (if any) sustained by person interested, at time of Deputy Commissioner's taking possession of land, by reason of acquisition injuriously affecting his other property, movable or immovable, in any other manner, or his earnings; fifthly, if in consequence of acquisition of land by Collector, person interested is compelled to change his residence or place of business, reasonable expenses (if any) incidental to such change, and sixthly, damage (if any) bona fide resulting from diminution of profits of land between time of publication of declaration under s. 6 and time of Collector's taking possession of land." Since section lays down in clear terms that Court awarding compensation shall take into consideration market value of land and damages sustained by person interested by reason of severing such land from his other land and also damages sustained by person interested by reason of acquisition injuriously affecting his other property, how can it be said that damages awarded did not form part of compensation and when it formed part of compensation, argument that damages related to unacquired land and not to acquired land and, therefore, should not be included, would have no place or legs to stand. It is by reason of acquisition of land that damages were caused to unacquired land and damages caused to unacquired land is only computed with reference to unacquired land and was awarded as compensation for acquisition of land and that amount could not, therefore, be looked at de hors acquisition. In this connection he invited my attention to judgment passed by Karnataka High Court in case of CIT vs. Smt. P. Mahalakshmi & Ors. (1982) 27 CTR (Kar) 136: (1982) 134 ITR 428 (Kar). In this case Karnataka High Court was directly concerned with similar situation as arising before me and High Court clearly pointed out that damages awarded for injurious effect on unacquired portion under s. 23 of Land Acquisition Act should also be included in full value of consideration and should be taken into account in arriving at capital gains. In particular, ld. Departmental Representative drew my attention to following passage occurring in head-note at page 428 of ITR (P-136 of CTR): "Further, in working out capital gains, regard must be had to commercial practice and, viewed from this point also, if out of composite unit of immovable property, which by virtue of its enjoyment as such, commands certain advantages and amenities, portion is sold leaving remaining portion denuded of those advantages and amenities or imposing disadvantages in enjoyment thereof, fixation of sale price, in usual run of business and practical consideration is necessarily informed not only by market value of portion sold, but also by consequent diminution of value of, or loss of advantages and amenities respecting remaining portions. price stipulated in such case would still be price for portion sold, though it takes into account loss of advantages, imposed as result of severance, on remaining portion." He also relied upon decision of Supreme Court in case of CIT vs. George Henderson & Co. Ltd. (1967) 66 ITR 622 (SC). In this case expression "full value of consideration for which sale, exchange or transfer of capital asset is made" occurring in s. 12B(2) of IT Act, 1922 came up for interpretation. Supreme Court held that consideration for transfer of capital asset is what transferor receives in lieu of assets he had parted with, i.e., money or moneys worth. Therefore, full value of thing received by transferor in exchange of capital asset transferred must be held to be full consideration. He argued that this is authority for proposition that every thing that is received as consequence of transfer must form part of full consideration whatever may be head under which it is received and it is no argument to say that certain portions alone are includible and not others. To show that even solatium was taxable as part of compensation he relied upon decision of IT AT delivered by Ahmedabad Bench in case of Murubhai Ramji vs. ITO (1986) 25 TTJ (Ahd) 366: (1986) 16 ITD 293 (Ahd). In this case Bench held that solatium received formed part of consideration and should be so taxed. ld. counsel for assessee Shri Vikram Gulati contended in first instance relying very heavily upon points made out by ld. J.M. in his order that damages claimed over and above compensation by way of suit could never constitute consideration for transfer. consideration for transfer was only compensation and damages are awarded after acquisition as consequence of acquisition and did not, therefore, form part of sale price. Then he pointed out that in very recent case in CIT vs. Smt. M. Subaida Beevi (1986) 57 CTR (Ker) 324: (1986) 160 ITR 557 (Ker) Kerala High Court in direct reference of same question has held in favour of assessee and against Revenue and that judgment being later in point of time should be followed and it should be held that damages received for severance of land should not form part of full value of consideration for computing capital gains. After perusal of orders passed by my ld. Brothers and after careful consideration of arguments addressed to me and decisions referred to me I found my job considerably made easier by decisions of Karnataka and Kerala High Courts. question referred to Karnataka High Court at instance of Commissioner of Income-tax was: "Whether in law and on facts, Appellate Tribunal was justified in holding that compensation for injurious affection of remaining land, i.e., land not acquired, cannot be regarded as forming part of full value of consideration for land acquired for purpose of computation of capital gains under s. 48 of IT Act, 1961?" Karnataka High Court after referring to s. 23 of Land Acquisition c t and definition of words "capital asset used in s. 2(14) and definition of term "transfer" as given in s. 2(47) of IT Act, 1961 and to s. 48 of IT Act, 1961 came to conclusion that damages awarded form part of full value of consideration because s. 23(1) of Land Acquisition Act 1894 stipulated several criteria under heads first to sixth for quantifying computation though, however, exercise is one for determination of compensation to be awarded for land acquired. Almost identical question was also referred to Kerala High Court again at instance of CIT and in case in smt Subaida Beevi (supra) Kerala High Court pointed out at page 563 (p 324 of CTR) as under: "The compensation for severance for reason that acquisition has injuriously affected property other than property acquired cannot be treated as part of consideration received or accrued as result of transfer of capital asset. compensation for severance is by way of damages for injurious effect of other land belonging to assessee and is not related to transfer of capital asset." Thus, Kerala High Court decided this issue against Department while Karnataka High Court decided issue in favour of Revenue. Thus I have two High Court decisions taking two different views on identical point. It is also noteworthy that Kerala High Court's attention does not appear to have been drawn to Karnataka High Court decision in Smt. P. Mahalakshmi's case (supra). However, law relating to precedence clearly dictate that decision given by High Court of co-ordinate jurisdiction later in point of time on same issue should normally be followed in preference to decision given by another High Court earlier to it. If this principle of law of precedence is to be applied, I must follow decision of Kerala High Court and hold against Revenue and in favour of assessee. I see no reason why this view should not be followed, because of another reason namely, when two views are possible in fiscal statutes, view in favour of assessee must be preferred n d should prevail. See Supreme Court decisions in cases of CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177: (1973) 88 ITR 192 (SC) and K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358: (1981) 131 ITR 597 (SC). This is also point made out by ld. J.M. in his order. Since now two views are clearly possible as interpreted by two High Courts and in absence of any direct decision by Allahabad High Court, I prefer to follow view expressed by Kerala High Court and then hold that damages received by assessee by way of compensation for severance of land for injurious effect that acquisition of land has caused on unacquired land should not form part of full value of consideration in computing capital gains. That amount has, therefore, to be excluded. In view of decisions of High Courts, I found it unnecessary to discuss other points raised by ld. Departmental Representative before me based upon George Henderson & Co. Ltd's case (1967) 66 ITR 622 (SC). I am, however, of opinion that as pointed out by ld. J.M. nothing will turn out on difference of language used in s. 12B of IT Act, 1922 and language used in s. 48 of IT Act, 1961 for purpose of determining full value of consideration for transfer. I am of view that both under s. 12B of IT Act, 1922, and s. 48 of IT Act, 1961, full value of consideration must include all amounts receivable relating to transfer but excluding those occasioned by transfer or as consequence of transfer. Here, in case before me, damages were awarded not for transfer of land but as consequence of transfer. Thus, I am inclined to agree, following respectfully decision of Kerala High Court in case of Smt. N. Subaida Beevi (supra) that capital gains in this case should be computed at Rs. 1,47,612 as determined by ld. J.M. and not at Rs. 3,35,135 computed by ld. A.M. Certain other points were raised before me, which I have deliberately refrained from dealing. Now that matter is going back before regular Bench for disposal of appeal in accordance with majority view, parties are free to raise those questions before regular Bench for adjudication over them. case will not go back to regular Bench, which, heard appeal for disposal in accordance with opinion of majority. *** TEJ KUMAR BHARGAVA v. INCOME TAX OFFICER
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