Commissioner of Income Tax, Delhi v. Suman Dhamija
[Citation -2015-LL-1208-1]

Citation 2015-LL-1208-1
Appellant Name Commissioner of Income Tax, Delhi
Respondent Name Suman Dhamija
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 08/12/2015
Assessment Year 1988-89
Judgment View Judgment
Keyword Tags additional compensation • bank guarantee • capital asset • capital gain • civil suit • computing capital gain • disputed amount • enhanced compensation • inchoate right • income chargeable to tax • interest received on enhanced compensation • land acquisition • mercantile system of accounting • net wealth • sale deed • solatium • valuation date
Bot Summary: As regards the interest amount, if at all it has to be added to the compensation received then only 50 thereof could be brought to tax by way of capital gain as is the sum computed by the AO out of the compensation received as per Section 45 of the Act as it stood for the relevant AY. Analysis of Section 45(5) of the Act 38. 43.2 Not satisfied with the compensation, the Assessee preferred an appeal before the Arbitrator who made an award enhancing the compensation to Rs. 30,10,873 with interest at 5 and a further recurring compensation at Rs. 6,272-10-4 per month. The facts were that the in the return filed for AY 1999-2000, the Assessee did not offer the amount of enhanced compensation and the interest received thereon during the previous year relevant to the assessment year for taxation, on the plea that the amount of enhanced compensation received had not accrued during the year of receipt as the entire amount was in dispute in appeal filed by the State before the High Court against the order of the Reference Court granting enhanced compensation. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. There is a possibility that if the Assessee ITA Nos.20, 21 24 of 2003 and WTA Nos.3, 4, 5 6 of 2003 Page 31 of 39 is unable to be successful in the said appeals arising from the proceedings under Section 31 LA Act, she may have to return the compensation amount and the enhanced compensation she has received. In Commissioner of Wealth Tax, Calcutta v. U.C. Mehatab it was held following the decision in Commissioner of Wealth Tax, Kolkatta v. Smt. Anjamli Khan that the moment an Assessee s land is acquired or otherwise vested in the State, he becomes entitled to compensation and merely because the amount of compensation is not determined immediately, it cannot be said that there is no right to compensation in the erstwhile holder. Question is answered by holding that the question of assessing to tax the interest received by the assessee on enhanced compensation in the same year in which the enhanced compensation is received will also have to await the final decision in the appellate proceedings emanating ITA Nos.20, 21 24 of 2003 and WTA Nos.3, 4, 5 6 of 2003 Page 38 of 39 from the order of the ADJ in the proceedings under Section 31 LA Act.


$ * IN HIGH COURT OF DELHI AT NEW DELHI Reserved on: October 29, 2015 Date of Decision: December 08, 2015 + ITA 20/2003 COMMISSIONER OF INCOME TAX, DELHI ..... Appellant Through: Mr. Rohit Madan, Senior Standing counsel with Mr. Zoheb Hossain, Advocate. versus SUMAN DHAMIJA ..... Respondent Through: Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. WITH + ITA 21/2003 COMMISSIONER OF INCOME TAX, DELHI ..... Appellant Through: Mr. Rohit Madan, Senior Standing counsel with Mr. Zoheb Hossain, Advocate. versus SUMAN DHAMIJA ..... Respondent Through: Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. WITH + ITA 24/2003 COMMISSIONER OF INCOME TAX, DELHI ..... Appellant Through: Mr. Rohit Madan, Senior Standing counsel with Mr. Zoheb Hossain, Advocate. versus ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 1 of 39 SUMAN DHAMIJA ..... Respondent Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. WITH WTA 3/2003 COMMISSIONER OF WEALTH TAX ..... Appellant Through: Mr. Rohit Madan, Senior Standing counsel with Mr. Zoheb Hossain, Advocate. versus SUMAN DHAMIJA ..... Respondent Through: Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. WITH + WTA 4/2003 COMMISSIONER OF WEALTH TAX, DELHI ..... Appellant Through: Mr. Rohit Madan, Senior Standing counsel with Mr. Zoheb Hossain, Advocate. versus SUMAN DHAMIJA ..... Respondent Through: Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. WITH + WTA 5/2003 COMMISSIONER OF WEALTH TAX ..... Appellant Through: Mr. Rohit Madan, Senior Standing counsel with Mr. Zoheb Hossain, Advocate. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 2 of 39 versus SUMAN DHAMIJA ..... Respondent Through: Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. AND + WTA 6/2003 COMMISSIONER OF WEALTH TAX, DELHI ..... Appellant Through: Mr. Rohit Madan, Senior Standing counsel with Mr. Zoheb Hossain, Advocate. versus SUMAN DHAMIJA ..... Respondent Through: Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU JUDGEMENT 08.12.2015 Dr. S. Muralidhar, J. Introduction 1. These are three Income Tax Appeals (ITAs) and four Wealth Tax Appeals (WTAs) filed by Revenue. ITA Nos.20, 21and 24 of 2003 are in respect of Assessment Years (AY) 1988-89, 1989-90 and 1985-86 respectively. WTA Nos.3/2003, 4/2003, 5/2003 and 6/2003 are in respect of AYs 1992-93, 1990-91, 1991-92 and 1988-89 respectively. 2. It must be noted at outset as far as Revenue s appeals under Income Tax Act, 1961 ('Act') are concerned, there were originally ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 3 of 39 nine appeals, ITA Nos. 20 to 28 of 2003. Common questions of law were framed in all appeals by Court on 14 th September, 2004. By order dated 7th April, 2011, ITA Nos. 22 to 28 of 2003 were disposed of by Court without answering questions framed on account of Circular dated 9th February, 2011 of Central Board of Direct Taxes (CBDT) since tax effect in each of appeals was less than Rs.10 lakhs. Subsequently, review petitions were filed by Revenue in respect of three of appeals, i.e., ITA Nos. 23, 24 and 25 of 2003. said review petitions were dismissed by Court on 26 th March, 2012, after giving liberty to Revenue to file proper applications, if so advised. 3. orders dated 7th April 2011 and 26th March 2012 in ITA No. 24 of 2003 were challenged by Revenue in Supreme Court by filing Civil Appeal Nos. 4919-20 of 2015. said appeals were allowed by Supreme Court on 1st July, 2015 by holding that CBDT Circular dated 9th February, 2011 was prospective. appeal was remitted to High Court for re-adjudication on merits. As result, ITA No. 24 of 2003 was revived. Taking note of above development, this Court on 24th August 2015, passed order directing that aforementioned ITA No. 24 of 2003 pertaining to AY 1985-86 be listed along with ITA No. 20/2003 (pertaining to AY 1988-89), ITA No.21/2003 (AY 1989-90) and four WTAs as noted above. Background Facts 4. facts leading to filing of present appeals is that land measuring 4826 bighas situated in Village Masoodpur was notified ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 4 of 39 under Section 4 of Land Acquisition Act, 1894 (LA Act) on 23 rd January, 1965 for being acquired for public purpose. 5. Even while acquisition proceedings were pending, predecessor-in-interest of Respondent, i.e. late Mr. J.N. Dhamija, purchased 1/16th share of bhumidari rights in respect of said land from one Mr. Rampal Malhotra and fifteen others on 1st June, 1965. sale deed for sum of Rs. 4,000/- was engrossed on stamp paper and sale deed was duly registered. It was noted in sale deed that Mr. Rampal Malhotra, vendor, had agreed to sell his share in said land, which he had purchased by way of deed dated 14th April, 1960. In sale deed Mr. Rampal Malhotra was described as holding 1/16th share of bhumidari rights regarding land measuring 4200 bighas situated in Village Masoodpur. sale deed stated that from that date, i.e. 1st June, 1965, vendee, i.e. Mr. J.N. Dhamija shall become shareholder of 1/16th share and shall be bound to pay or to receive, whatever is written in purchase deed mentioned above. 6. Mr. J.N. Dhamija was, therefore, not owner of land himself but had purchased 1/16th of bhumidari rights therein from Mr. Rampal Malhotra under aforementioned sale deed. Mr. Malhotra was one of transferees, who had acquired bhumidari rights from Smt. Gulab Sundri on 14th April, 1960 and she too was not owner of land. She had acquired bhumidari certificate on 5th July, 1958, with effect from 20th July, 1954 as proprietor of M/s. Diwan Bahadur Seth Kesri Singh Budh Singh which had taken land on sub-lease from M/s. Delhi Pottery Works, which had in turn taken land on ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 5 of 39 lease (to extent of 3224 bighas) for period of twenty years from owner of said land in 1939. 7. land was leased to Smt. Gulab Sundri, proprietor of aforementioned concern for purposes of extracting minerals as well as for agricultural and horticultural purposes. Revenue Assistant, Delhi in accordance with provisions of Delhi Land Reforms Act, 1954 (DLRA) declared Smt. Gulab Sundri as bhumidar on 5th July 1958, with effect from 20th July, 1954. few days thereafter on application filed by 4-5 proprietors of land, Revenue Assistant cancelled bhumidari certificate on 14th July, 1958 and ordered that land be vested in Gaon Sabha. 8. On 24th November, 1959, Smt. Gulab Sundri filed suit being Civil Suit No.174/66 before Court of Subordinate Judge, Delhi seeking declaration that order dated 14th July, 1958 of Revenue Assistant cancelling bhumidari certificate in her favour was void, illegal and without jurisdiction. This suit was decreed by Sub Judge on 12th December, 1966. Against aforementioned order, Gaon Sabha as well as Union of India filed appeal which was dismissed by Senior Sub Judge on 23rd April, 1968. No further appeal was filed by Gaon Sabha. aforementioned judgement dated 23rd April, 1968 became final and conclusive between parties. 9. It is in above background that late Mr. J.N. Dhamija acquired by way of sale deed dated 1st June, 1965 from Mr. Rampal Malhotra 1/16th share of bhumidari rights. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 6 of 39 Proceedings under Section 31 (2) LA Act 10. Now turning to land acquisition proceedings that commenced with notification dated 23rd January, 1965 under Section 4 of LA Act, Award No.2225 was made by Land Acquisition Collector (LAC) on 26th March 1969 in respect of land measuring 4826 bighas situated in Village Masoodpur, of which included land admeasuring 3224 bighas, 1/16th of bhumidari rights in which was purchased by late Mr. J.N. Dhamija. 11. Since there was dispute as to who should receive compensation, reference was made by LAC under Section 31(2) of LA Act to Additional District Judge (ADJ), Delhi. By judgement dated 20th April 1980, learned ADJ decided claims made by following three sets of claimants (i) Gaon Sabha of Village Masoodpur, (ii) Proprietors from owners of land acquired under awards and (iii) Smt. Gulab Sundri, proprietor of M/s. Dewan Bahadur Seth Kesari Singh Budh Singh, Kesari Pottery Works her transferees and bhumidars. While deciding reference under Section 31(2), learned ADJ framed following issues on 20 th November, 1969: (i) Whether claim of Gaon Sabha Masoodpur is not barred by res judicata? (ii) If issue No.1 is not proved, whether Gaon Sabha has any right or interest in land in dispute. If so, to what extent? ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 7 of 39 (iii) Whether declaration of bhumidari rights and issuance of bhumidari certificate in favour of Gulab Sundri was illegal, void and without jurisdiction? (iv) Whether alleged owners/bhumidars are legally barred from challenging and disputing validity of declaration of bhumidari certificates? (v) Whether provisions of DLRA were not applicable to land in dispute. If so, effect? (vi) Whether claims of alleged Owners/Proprietors are barred by time? (vii) What are rights and shares, if any, of various respondents in land in dispute? (viii) To what apportionment of amount of compensation if any, respondents are entitled? 12. following additional issues were framed by learned ADJ on 7th November, 1970: (i) Whether decrees of Civil Courts passed in favour of Smt. Gulab Sundri and against Gaon Sabha or in favour of owners and ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 8 of 39 against Gaon Sabha are illegal, without jurisdiction and nullity. If so, to what effect? (ii) Whether order dated 14th July 1958 passed by Revenue Assistant operates as res judicata? (iii) Whether land in dispute was waste land as defined in DLRA and as alleged by Gaon Sabha. If so its effect? (iv) Whether there were orders of Deputy Commissioner dated 1st November 1954 and 10th March 1966 in respect of land in dispute as alleged by Gaon Sabha and if so, whether same were valid (objected to). 13. While deciding issues (i) and (ii) framed on 18th December, 1969 and 7th November, 1970, learned ADJ (Mr. P.S.Singla) held that earlier judgement passed by Sub Judge confirmed by Senior Sub Judge operated as res judicata. Issue Nos.(iii) and (iv) were also decided against Gaon Sabha. Issue Nos.(iii) and (v) framed on 18th December, 1969 were decided in favour of Smt. Gulab Sundri. It was held that land in question fell within purview of Section 3(13) of DLRA and that Smt. Gulab Sundri was tenant as defined under Section 4(5) of Punjab Tenancy Act. Deciding issue No. (iv) framed on 18th December, 1969 in favour of Smt. Gulab Sundri, learned ADJ held that she had rightly been declared as bhumidar and that proprietors were legally barred from disputing bhumidari rights ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 9 of 39 confirmed in her favour. Deciding issue No. (vi) in her favour learned ADJ held that Smt. Gulab Sundri had been in possession of entire land on date of filing of suit on 15th April, 1970. learned ADJ while deciding issue Nos.(vii) and (viii) took note of compromise arrived at between parties on 31 st July, 1969 by virtue of which inter alia Mr. J.N. Dhamija was to get 1/32nd share (later this was corrected as 1/16th share by learned ADJ). 14. Against aforementioned judgement dated 20 th May, 1980, passed by learned ADJ, RFA Nos.309, 310, 356, 357, 340 and 341 of 1980 were filed in this Court. Reference under Section 18 LA Act for enhanced compensation 15. Meanwhile at instance of Mr. J.N. Dhamija reference was made under Section 18 of LA Act by way of LAC No.201/80 before learned ADJ, Mr. S.R. Goel, seeking enhancement of compensation. By judgement dated 7th July 1987, this reference was decided in favour of Mr. J.N. Dhamija holding that he was entitled to compensation of Rs.18,000/- per bigha and Rs.10,000/- per bigha for minerals in respect of his 1/16th share of rights in land acquired in terms of Award. 16. Against aforementioned judgement of Mr. S.R. Goel, learned ADJ, Union of India filed RFA No.768/87 in this Court. While said appeal was pending order was passed on 29th October, 1987 by Division Bench of this Court directing Union of India to deposit enhanced amount of compensation together with interest in trial ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 10 of 39 court with direction that it will not be disbursed till further orders of this Court. Thereafter on 9th March, 1988 after noticing that compensation amount had already been deposited it was directed by Division Bench that undisputed amount be paid to Mr. J.N. Dhamija without any guarantee and disputed amount be paid on Mr. J.N. Dhamija furnishing bank guarantee to satisfaction of learned ADJ. 17. Treasury vouchers were then prepared by learned ADJ on 30 th March, 1988 in favour of Mr. J.N. Dhamija for sums of Rs.6,02,330.67 and Rs.3,64,03,764.62 both dated 30th March, 1988. 18. As result Mr. J.N. Dhamija received net amount of Rs.3,64,03,764.62. This comprised additional compensation of Rs.52,79,463.75, 30 % solatium on said sum amounting to Rs. 15,82,839.12, additional amount of 12 % amounting to Rs. 27,64,511.90 and interest under Section 28 of LA Act amounting to Rs.2,67,75,949.85. Appeals arising from proceedings under Section 31(2) LA Act 19. Meanwhile appeals filed by Union of India being RFA No.309 and 310/80 in respect of proceedings under Section 31 (2) of LA Act were dismissed by High Court on 26th February, 1991 on ground of partial abatement in respect of sum of Respondents whose LRs were not brought on record by Appellant. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 11 of 39 20. Against aforementioned order, Union of India went in appeal to Supreme Court by way of Special Leave Petition. By judgement in S. Amarjit Singh Kalra (Dead) By LRs v. Smt. Pramod Gupta (Dead) By LRs 2002 (9) SCALE 577, judgement dated 26th February, 1991 of High Court was set aside and direction was issued to High Court decide appeals afresh on merits. As result RFA No.309 and 310/80 along with other RFAs stand restored to file of High Court and are pending. Appeals in enhancement proceedings under Section 18 LA Act 21. As far as order dated 7th July 1987 passed by learned ADJ (Mr. S.R.Goel) in proceedings under Section 18 of LA Act, Union of India did not question enhancement to extent of Rs. 6,02,330. However, as regards balance enhanced sum of Rs. 3,64,03,754 Union of India filed RFA Nos.85 and 868/1987 in this Court. Division Bench of this Court passed judgement on 5 th October, 2001 dismissing RFA Nos.85 and 868/1987. appeal filed against said judgement by Union of India was allowed by Supreme Court by judgement dated 7th September, 2005 in Union of India v. Pramod Gupta (2005) 12 SCC 1. Supreme Court set aside judgement of High Court and remitted appeals to this Court for fresh decision. 22. As result appeals arising both from proceedings under Section 31 of LA Act and proceedings for enhancement of compensation under Section 18 of LA Act are pending before this Court. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 12 of 39 Proceedings under Income Tax Act 23. Mr. J.N. Dhamija filed his return of income for AY 1989-90 on 26th August 1989 declaring income of Rs. 15,61,044 of which Rs. 14,44,39 was shown as interest from M/s. Kashmir Holdings. During course of assessment proceedings, Mr. Dhamija's auditors submitted letter dated 19th August 1990 to Assessing Officer (AO) explaining that Mr. Dhamija had received additional compensation of Rs. 3,64,03,764/- and Rs. 6,02,3301- in previous year relevant to AY 1989-90 for his share in land measuring 3224 bighas situated in village Masoodpur, Delhi pursuant to order passed by ADJ in LAC No. 201/80 on 7th July 1987. It was explained in said letter that while first enhanced sum of Rs.6,02,330/- was not disputed by Union and had been disclosed by Assessee as capital gains, balance enhanced sum of Rs.3,64,03,764/- was not accepted by Union of India and appeal had been filed by it in this Court. It was pointed out that money had been released to Assessee against bank guarantee and that in case Assessee did not succeed in High Court in said appeal of Union of India, entire amount would have to be returned by Assessee to Union of India. copy of guarantee was also enclosed with letter. It was submitted that till finality was attached to determination of appeal by High Court withdrawal of amount by Assessee was pursuant to inchoate and contingent right and therefore not liable to any capital gains. Further details were furnished in this regard by letters dated 27 th September, 1990, 5th December, 1990, 16th January, 1991, 13th February, 1991 and ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 13 of 39 27th November, 1991. copy of original compensation order dated 26th March 1969, which stood modified by aforementioned order of ADJ, was also furnished. 24. AO passed order dated 27th March 1992 holding that entire compensation received by Mr. Dhamija, whether in form of interest on solatium or additional compensation, was taxable in year of receipt. Capital gain was charged on this amount. CIT (A) by order dated 28th August 1992 held following order rendered by him in case of Mr. K.K. Kochar, one of co-owners of same property, that land in question was not agricultural land, and to this extent plea of Mr. Dhamija was negatived. CIT (A) however agreed with Mr. Dhamija that since negotiable instrument in nature of treasury vouchers were received by Mr. Dhamija on 30th March 1988, taxability of said sums had to be examined in AY 1988-89 and not in AY 1989-90. AO was directed to examine assessability of amount of capital gains, in accounting year 1987-88 relevant to AY 1988-89, after considering all contentions of Mr. Dhamija and pass speaking order after hearing him on all relevant points. 25. Meanwhile in relation to return that had been filed by Mr. Dhamija for AY 1988-89 on 29th July 1988 declaring total income of Rs. 76,020, assessment was completed u/s 143 (1) of Act by AO's order dated 24th November 1988. However, consequent upon developments in relation to assessment proceedings for AY 1989-90, ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 14 of 39 assessment for AY 1988-89 was reopened under Section 147 by issue of notice under Section 148 on 22nd March 1991. In response thereto, Mr. Dhamija filed return declaring same income on 19th October 1992. 26. As regards AY 1985-86, Mr. Dhamija had originally filed return disclosing income of Rs 49,540. In relation to said AY too notice under Section 148 was issued. Mr. Dhamija filed return in response to said notice on 10th June 1992 declaring income of Rs 49,540. AO held that interest to tune of Rs. 2,67,75,950 paid to Mr. Dhamija was also embedded in additional compensation. He noted that out of said sum, Rs. 14,63,028 was liable to be included in total income of Mr. Dhamija in relation to AYs 1981-82 to 1987-88 and accordingly added said sum to income of Mr. Dhamija for AY 1985-86. 27. AO, by order dated 18th March 1993, held that under Section 45(5) entire amount of compensation is to be taxed in year of receipt and that since Mr. Dhamija was not following mercantile system of accounting, interest received was also taxable in year of receipt. Accordingly, AO made additions in that regard for AY 1988-89, but on protective basis and subject to finality of proceedings in AY 1989-90 as Revenue had taken stand that entire receipt is taxable in AY 1989-90 and not 1988-89. 28. CIT (A), in appeal by Mr. Dhamija held, inter alia, that Section 45 (5), was not applicable on enhanced compensation since ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 15 of 39 as of that date order of Delhi High Court regarding ownership of land in favour of Assessee to extent of his share had not attained finality. Relying upon decision of Supreme Court in CIT v. Hindustan Housing and Land Development Trust Limited (1986) 161 ITR 524, CIT (A) agreed with Mr. Dhamija that he would be subject to tax at that stage only to extent of amount on which there was no dispute, i.e. Rs.1,20,446/- together with corresponding interest. CIT(A) held that re-opening of assessments for AY 1981-82 to 1987-88 by invoking Section 147 of Act was not justified. Consequently, CIT (A) invalidated action of AO in charging interest in AYs 1981-82 to 1987 -88. 29. At this stage Mr. J.N. Dhamija expired. Against above order of CIT(A), Revenue and Mr. Dhamija's legal heir, Suman Dhamija (hereafter 'the Assessee'), filed appeals. 30. Revenue was aggrieved by order of CIT (A) in invalidating reopening of assessments and in declining to apply Section 45 (5) of Act for even AY 1988-89. Revenue was also aggrieved by CIT (A) holding that interest could not be taxed since receipt itself was not covered under Section 45(5) of Act. Assessee was in appeal before ITAT on ground that invoking of Section 147 was justified only for AY 1989-90 and not for other years including AY 1988-89. other contentions urged by Assessee were that (i) land in question was agricultural land and therefore not amenable to capital gains tax; (ii) Assessee was not owner of land and was not at all liable to tax in respect of ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 16 of 39 enhanced compensation and (iii) since enhanced compensation was not finally settled, right to receive amount had not been acquired and could not be brought to tax in these AYs. In support of last submission Assessee relied upon ITAT's orders in respect of co-owners in respect of same land, i.e. Mr. KK Kochar and Mrs. Sharda Kochar. 31. As far as Wealth Tax Act (WT Act) proceedings are concerned, Assessee while computing net wealth for AY 1988-89 claimed that compensation received under bank guarantee was not includable in net wealth as it was only advance towards compensation for compulsory acquisition of land. While AO did not accept this claim, CIT(A) accepted it for AY 1988-89. similar exercise took place at hands of CIT(A) for AY 1990-91 as well to 1991-92 with only amount being different. Revenue was aggrieved by these orders and therefore appealed to ITAT. 32. common order dated 31st December, 2002 was passed by ITAT disposing of all of aforementioned appeals. Assessee's appeals were dismissed by holding that reopening of assessments for AYs 1981-82 to 1987-88 by invoking Section 147 of Act was valid. It was held that "AO's action for reopening assessments for all assessment years under consideration was based on material which came into existence only after completion of assessments in those years according to which income chargeable to tax was liable to taxed in those assessment years, we feel that his actions was based on his prima facie belief that income chargeable to tax has ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 17 of 39 escaped assessment." To that extent Revenue's appeals were partly allowed. However, ITAT agreed with Assessee that enhanced compensation could not be included in total income for AYs in question for reason that no finality was attached to receipt of amount. ITAT followed it earlier orders in cases of Mr. K.K. Kochar and Mrs. Sharda Kochar and also in case of Gulab Sundri Bapna 79 ITD 455 (Del). 33. As far as WT Act cases were concerned, ITAT agreed with Assessee that monies received were in nature of trust money. WT Act did not contemplate including trust money in net wealth. appeals of Revenue were dismissed and those of Assessee were allowed. As regards sum of Rs.6,02,330/-, since CIT(A) had not dealt with grievance of Assessee, said issue was remitted to CIT(A) for fresh adjudication. Questions of law 34. following questions of law were framed by this Court in ITAs by order dated 14th September, 2004: "1. Whether amount of enhanced compensation received by assessee during relevant previous year is taxable in view of provisions of Section 45(5)(b) of Income Tax Act, 1961? 2. Whether Income Tax Appellate Tribunal was correct in law in holding that decision of Supreme Court in CIT vs. Hindustan Housing and Land Development Trust Limited 161 ITR 524 is to be applied despite subsequent change in provisions of law, namely provisions of Section 45(5) of Act? ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 18 of 39 3. Whether ITAT was correct in law in holding that interest received by assessee on enhanced compensation pertaining to assessment year could not be assessed in same year though it had already been received by him along with enhanced compensation?" 35. In WTAs following question was framed by same order: "Whether Tribunal had not erred in holding that money received by assessee by way of enhanced compensation/interest was in nature of trust money and, therefore, not includable in net wealth of assessee?" Submissions of counsel 36. On behalf of Revenue, it was submitted by Mr. Zoheb Hossain, Advocate as under: (i) order of ITAT in cases of Mr. K.K. Kochar and Mrs. Sharda Kochar was reversed by this Court by decision dated 18th July 2014 of this Court in ITA No. 171 of 2001 (Commissioner of Income Tax v. Sharda Kochar). order of ITAT in Gulab Sundri Bapna (supra) was reversed by this Court in CIT v. Gulab Sundri Bapna (2014) 367 ITR 498. Consequently, these appeals of Revenue ought to succeed on that short ground. (ii) After decision of Supreme Court in CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC), earlier decision in CIT v. Hindustan Housing and Land Development Trust Limited (supra) was no longer good law as far as receipt of enhanced compensation, solatium, additional amount and interest in financial year ending 31st March ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 19 of 39 2008 (relevant to AY 1988-89) was concerned. It made no difference whether proceedings concerning enhancement of compensation were pending in appeal in High Court. Section 155(16) read with Section 45(5)(c) of Act would take care of consequences of final orders that might be passed in either proceedings for enhancement of compensation or those under Section 31(2) LA Act. Reliance was also placed on decision in CIT v. Govindbhai Mamaiya 367 ITR 498 (SC). (iii) In support of submission that Section 45 (5) was applicable from AY 1988-89 onwards reliance was placed on decisions in CIT v. Commissioner of Wealth Tax, Calcutta v. U.C. Mehatab AIR 1995 SC 1925, Commissioner of Wealth Tax, Kolkata v. Smt. Anjamli Khan AIR 1991 SC 2023, CIT v. Bhanwarlal Choudhary (2002) 125 Taxman 361 (Raj). 37. In reply, it was submitted by Mr. C.S.Aggarwal, learned Senior counsel for Assessee as under: (i) By virtue of sale deed executed by Mr. Ram Pal Malhotra in favour of Mr. Dhamija, latter had merely became shareholder of 1/16th share of bhumidari rights which were acquired by him from Mr. Ram Pal Malthora who had agreed to sell his share which he had purchased by virtue of purchase deed executed on 14the April 1960. In view of aforesaid purchase deed, Mr. Ram Pal Malhotra had nothing to do with land in question and consequently Assessee too had nothing do with it. compensation received and/or receivable ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 20 of 39 was not in respect of any land and was in respect of capital asset being merely right which right itself was inchoate right. Thus Section 45(5) of Act had no application since Assessee had not acquired any land but only 1/16th share in bhumidari rights. (ii) Further, question whether Assessee had right to receive compensation was itself in dispute and as such Section 45(5) of Act had no application. Thus, where right to receive compensation itself was inchoate and not merely amount received or receivable, Section 45 (5) of Act would have no application. decision in CIT v. Hindustan Housing and Land Development Trust Ltd. (supra) was still applicable. Reliance was also placed on decisions in CIT v. Sharda Sugar Industries Ltd. 239 ITR 393 (Bom). and CIT v. Smt. Prakash Kaur 330 ITR 332(P&H), (iii) decisions of this Court in CIT v. Sharda Kochar and CIT v. Smt. Gulab Sundri Bapna are not applicable as in neither decision, question whether two assessees therein had inchoate right in title to asset said to have been transferred was examined. dispute was only in respect of their inchoate right in amount of compensation. (iv) Mere receipt of amount of compensation could not be held to be income. Reliance is placed on decision in Parimisetti Seetharamamma v. CIT 57 ITR 532 (SC). receipt can be brought to tax only if it falls under any tax provisions of Act and burden is ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 21 of 39 on Revenue to establish same. Section 155(16) of Act cannot also be invoked to contend that in case assessee loses its right, order could be amended so as to refund amount. (v) Alternatively, and without prejudice, it is contended that if amount is held to be includible in total income then only amount as computed by AO for AY 1989-90 i.e. Rs. 26,41,232/- could be assessed to tax and addition made of Rs. 2,70,64,077/- should be held untenable in law. Without prejudice thereto, if it is held that amount is to be added while computing capital gain then AO be directed to compute capital gain as per statutory provisions contained in that AY i.e. 1989-90. As regards interest amount, if at all it has to be added to compensation received then only 50% thereof could be brought to tax by way of capital gain as is sum computed by AO out of compensation received as per Section 45 of Act as it stood for relevant AY. Analysis of Section 45(5) of Act 38. central issue that arises is whether land acquisition compensation received by Assessee can be subjected to capital gains tax in her hands for AYs in question. Section 45 (5) of Act is relevant in present case reads as under: 45 (5) Notwithstanding anything contained in sub-Section (1), where capital gain arises from transfer of capital asset, being transfer by way of compulsory acquisition under any law, or transfer consideration for which was determined or approved by Central Government or Reserve Bank of India, and compensation or consideration for such transfer is ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 22 of 39 enhanced or further enhanced by any Court, Tribunal or other authority, capital gain shall be dealt with in following manner, namely:- (a) capital gain computed with reference to compensation awarded in first reference or, as case may be, consideration determined or approved in first instance by Central Government or Reserve Bank of India shall be chargeable as income under head Capital gains of previous year in which such compensation or part thereof, or such consideration or part thereof, was first received; and (b) amount by which compensation or consideration is enhanced or further enhanced by Court, Tribunal or other authority shall be deemed to be income chargeable under head Capital gains of previous year in which such amount is received by assessee: Provided that any amount of compensation received in pursuance of interim order of court, Tribunal or other authority shall be deemed to be income chargeable under head Capital gains of previous year in which final order of such court, Tribunal or other authority is made; (c) where in assessment for any year, capital gain arising from transfer of capital asset is computed by taking compensation or consideration referred to in clause (a) or, as case may be, enhanced compensation or consideration referred to in clause (b), and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking compensation or consideration as so reduced by such court, Tribunal or other authority to be full value of consideration. Explanation For purposes of this sub-Section- ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 23 of 39 (i) in relation to amount referred to in clause (b), cost of acquisition and cost of improvement shall be taken to be nil; (ii) provisions of this sub-section shall apply also in case where transfer took place prior to 1st day of April 1988; (iii) where by reason of death of person who made transfer, or for any other reason, enhanced compensation or consideration is received by any other person, amount referred to in clause (b) shall be deemed to be income, chargeable to tax under head Capital gains of such other person. 39. In order to understand rationale behind insertion of sub- section (5) to Section 45 of Act with effect from 1st April 1988, law that was in force prior to its insertion requires to be noted. 40. To begin with, prior to introduction of sub-section (5) in Section 45, compensation initially awarded and enhanced compensation, finally determined on conclusion of proceedings in appeal, were both taxable in year of acquisition. Section 155 (7A) of Act provided for rectification of assessment of earlier year and this provision was invoked as and when additional compensation was received. Where additional compensation was awarded at several stages by different appellate authorities, it necessitated rectification of original assessment at each of said stages. To overcome this difficulty sub-section (5) was inserted in Section 45 with effect from 1st April 1988. In terms of this provision, both compensation as first determined in land acquisition Award as well as enhanced ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 24 of 39 compensation would be taxed in respective years of receipt. amount would be taxed in hands of recipient of additional compensation, even if that person was not original transferor. Section 155 (7A) was omitted with effect from 1st April 1992. By further amendment with effect from 1st April 2004, clause (c) to sub- section (5) to Section 45 was introduced in terms of which, for this purposes of Section 45 (5) (b) cost of acquisition would be taken as nil. 41. For purposes of Section 45 (5), in order to attract capital gains in regard to enhancement of compensation received in respect of land that has been acquired, following conditions must be fulfilled: (i) There must be transfer of capital asset (ii) compensation or consideration for such transfer has to be enhanced by court, Tribunal or other authority 42. Two questions that have arisen in past in relation to enhanced compensation received in terms of Section 45 (5) are: what happens (a) when right to receive compensation is itself in dispute and has not attained finality, and (b) when question of quantum enhanced compensation is pending final determination before Tribunal or Court? 43.1 distinction between two situations was brought out in decision of Supreme Court in CIT v. Hindustan Housing and Land Development Trust Limited (supra). There Assessee company was dealing in land and maintaining its accounts on mercantile system. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 25 of 39 Some of plots belonging to it initially requisitioned and later acquired by Government of West Bengal. Land Acquisition Officer (LAO) awarded sum of Rs. 24,97,249 as compensation. 43.2 Not satisfied with compensation, Assessee preferred appeal before Arbitrator who made award enhancing compensation to Rs. 30,10,873 with interest at 5% and further recurring compensation at Rs. 6,272-10-4 per month. State Government appealed to High Court and during pendency of appeal, it deposited Rs. 7,36,691, which Assessee was permitted to withdraw on furnishing security. On receipt of amount, assessee credited it in its suspense account on same date. 43.3 During assessment proceedings for AY 1956-57, relevant to accounting period ending 31st March 1956, AO brought to tax sum of Rs. 7,24,914 as Assessee's business income. This represented difference between sum of Rs. 7,37,190 payable to assessee in terms of award dated 29th July, 1955, of arbitrator and sum of Rs. 12,276 out of that amount which had already been assessed to tax. Income-tax Officer treated sum as liable to income-tax during that year on basis that income accrued to assessee on date of award. assessment was confirmed by Appellate Assistant Commissioner of Income-tax on first appeal. question was whether additional amount could be brought to tax in year in which it was received by Assessee. ITAT held that amount did not accrue to Assessee as its income in AY in question. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 26 of 39 43.4 Reversing High Court, Supreme Court held that "there is clear distinction between cases such as present one, where right to receive payment is in dispute and it is not question of merely quantifying amount to be received, and cases where right to receive payment is admitted and quantification only of amount payable is left to be determined in accordance with settled or accepted principles." decision in CIT v. Ghanshyam (HUF) 44.1 Supreme Court in CIT v. Ghanshyam (HUF) (supra) was called upon to interpret Section 45 (5) of Act and determine if it applied to situation where order of civil court enhancing compensation was pending challenge in superior court. facts were that in return filed for AY 1999-2000, Assessee did not offer amount of enhanced compensation and interest received thereon during previous year relevant to assessment year for taxation, on plea that amount of enhanced compensation received had not accrued during year of receipt as entire amount was in dispute in appeal filed by State before High Court against order of Reference Court granting enhanced compensation. amount was received by Assessee in terms of interim order of High Court against Assessee furnishing security to satisfaction of executing court. Assessee also contended that interest received on enhanced compensation during previous year was not chargeable to tax. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 27 of 39 44.2 AO did not accept contentions of Assessee in view of clear language of Section 45 (5) of Act which was effective from 1st April 1988. In appeal, CIT (A) agreed with Assessee that enhanced compensation and interest thereon had not accrued to Assessee since appeal was pending before High Court and Assessee had only been permitted to withdraw sum upon furnishing security. CIT (A) referred to decision in CIT v. Hindustan Housing and Land Development Trust Limited (supra). ITAT as well as High Court affirmed said order. 44.3 Supreme Court reversed above appellate orders and affirmed order of AO. It held that: (i) following conditions need to be satisfied for taxing transaction as capital gains, viz., subject-matter must be capital asset, transaction must fall in definition of "transfer", there must be profit or loss called "Capital Gains" and that taxpayer has claimed exemption in whole or in part by complying with legal provisions. (ii) Interest under Section 28 is part of amount of compensation whereas interest under Section 34 is only for delay in making payment after compensation amount is determined. Interest under Section 28 is part of enhanced value of land which is not case in matter of payment of interest under Section 34. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 28 of 39 (iii) Section 45 (5) of Act refers to compensation. Interest under Section 28 of LA Act unlike interest under Section 34 of LA Act is accretion to value and hence it is part of enhanced compensation or consideration which is not case with interest under Section 34 of LA Act. additional amount under Section 23 (1A) and solatium under Section 23 (2) of LA Act forms part of enhanced compensation under Section 45 (5 (b) of Act. (iv) receipt of enhanced compensation is to be taxed in year of receipt subject to adjustment, if any, under Section155 (16) of Act later on. 45. Three other provisions require to be noticed. proviso in clause b) of sub-Section (5) that amount by which compensation or consideration is enhanced shall be deemed to be income chargeable under head Capital gains of previous year in which such amount is received by Assessee, was introduced with effect from 1st April 2015. It contemplates passing of interim order by court, Tribunal or authority pursuant to which compensation is received. It is not in dispute that said proviso which is prospective does not apply to case on hand. Clause (c) to Section 45 (5), introduced with effect from 1st April 2004 envisages re-computation of capital gains of particular AY where by subsequent order of Court enhanced compensation is reduced. Likewise Section 155 (16) introduced simultaneously also envisages likewise. This would take care of final ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 29 of 39 outcome of compensation enhancement proceedings, which may be pending in Court. position in present case 46. question that then arises is whether in facts and circumstances of present case conditions for sub-section 5 (b) of Section 45 to be attracted can be said to have been fulfilled? 47. There are two strands of litigation. One pertains to right of Assessee to receive compensation which, from above narration of facts, has obviously not attained finality. civil suit pertaining to right of Assessee was decreed. However, after land acquisition Award was passed, there were three sets of claimants to compensation and this led to reference to ADJ under Section 31 (2) of LA Act. appeals challenging order passed by ADJ in said proceedings have been remanded by Supreme Court to this Court for fresh hearing. outcome of said appeals and any further proceedings arising therefrom would decide whether or not Assessee has right to receive compensation for 1/16th share of bhumidari rights. 48. Therefore, although there is transfer of 1/16th share of bhumidari right in land in question in favour of Assessee, question whether Assessee is entitled to receive compensation for extinguishment of such right on its vesting in State is still uncertain or inchoate. That will also depend on answer to ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 30 of 39 question whether transfer of bhumidari right by way of sale can be construed as transfer of asset for purposes of Section 45 (5) of Act. 49. second strand of litigation pertains to enhancement of compensation in reference under Section 18 of LA Act. appeals in those proceedings have also been remanded to this Court and are pending. During pendency of appeals, Assessee has been permitted to withdraw undisputed and disputed sums of compensation deposited in Court. She has withdrawn disputed (enhanced) sum by furnishing bank guarantee. 50. As far as second strand of litigation is concerned, in view of decision of Supreme Court in CIT v. Ghanshyam (HUF) (supra) legal position is clear that notwithstanding pendency of appeals regarding enhancement of compensation, amount of enhanced compensation is taxable in year of receipt. Also, said decision clarifies that interest under Section 28 of LA Act, additional compensation and solatium would also be likewise taxable. 51. right to receive such compensation in present case is intrinsically linked to outcome of appeals arising from proceedings under Section 31 (2) LA Act. question whether transfer of bhumidari rights is also transfer of right in land acquired and is, therefore, capable of being compensated would also hinge on outcome of appeals arising from proceedings under Section 31 (2) of LA Act. There is possibility that if Assessee ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 31 of 39 is unable to be successful in said appeals arising from proceedings under Section 31 (2) LA Act, she may have to return compensation amount and enhanced compensation she has received. 52. As is evident from decision of Supreme Court in S. Amarjeet Singh Kalra (Dead) by LRs v. Smt. Pramod Gupta (Dead) by LRs (supra) there are two other claimants for compensation, viz., Gaon Sabha of Village Masoodpur and owners of land. It was acknowledged in said decision that "the claim of each one was in respect of his distinct, definite and separate share and their respective rights are no inter-dependant but independent." 53. decision of Bombay High Court in CIT v. Sharda Sugar Industries Limited (supra) also appears to support case of Assessee insofar as it holds that where right to receive payment is in dispute, no income will arise or accrue. In that case, again amounts deposited by State which was withdrawn by Assessee on furnishing bank guarantee, where rights to dispute amount can be said to have accrued to Assessee. It is noticed that Assessee was accountable for excess collection and obliged to refund same if so directed by court. Such amounts collected by Assessee are not assessable as income of Assessee. It was held that said amounts were, therefore, not assessable in hands of Assessee in AY in which amount was withdrawn by Assessee. decision of Punjab and Haryana High Court in CIT v. Smt. Prakash Kaur (supra)also supports stand of Assessee. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 32 of 39 54. Turning to decisions relied upon by Revenue, it is seen that in Commissioner of Income Tax v. Sharda Kochar (supra), Assessee was compensated pursuant to land acquisition award against bank guarantee. AO rejected Assessee s contention that enhanced amounts were not taxable since question of enhancement was under challenge in Supreme Court. AO applied newly enacted Section 45 (5) itself with effect from 1st April 1988 and brought to enhanced compensation of tax. ITAT further accepted contention of Assessee following decision of this Court of CIT v. Harish Chander 154 ITR 473 and CIT v. Devki Nand 138 ITR 225 and held that Section 45 (5) would not applicable as money had been paid on furnishing of bank guarantee. This Court applied decision of Supreme Court in Commissioner of Income Tax v. Ghanshyam (HUF) (supra) and reversed decision of ITAT. 55. There are two distinct features as far as above case is concerned. One is there was no issue regarding right to receive compensation itself being inchoate. In other words there was no ground urged in that case that Assessee was not entitled to receive compensation. Secondly, decision was rendered in absence of Assessee and perhaps for that reason, above issue was not considered. 56. Turning to facts in CIT v. Gulab Sundri Bapna (supra) which was again given in absence of Assessee, vacant possession of land under sub-lease was handed over by Assessee on 30 th March 1976 and possession of factory building, which was also ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 33 of 39 acquired, was handed over on 17th September 1976. There were three claimants and District Judge, held that compensation for acquisition of land and building should be distributed inter se between assigning of rights in land and transferring of land from original lessor. Assessee also filed reference under Section 18 of Act. Like in present case, award for enhanced compensation was challenged by Union of India ( UOI ) in High Court, in appeal, which was admitted but Assessee was allowed to withdraw compensation that has been deposited on furnishing security. amount was withdrawn on 30th July 1987, by Assessee by furnishing security/guarantee. CIT (A) reversed order and Revenue filed appeal before ITAT before which it invoked Section 45 (5) of Act. ITAT upheld order of CIT (A). 57. questions framed by this Court in Revenue's appeal read as under: 1. Whether ITAT is justified in law in deleting addition of Rs. 59,63,410 being amount of enhanced compensation received by Assessee during year? 2. Whether amount of Rs. 59,63,410 received by Assessee during previous year relevant to assessment year 1988-89 is taxable in view of provisions of Section 45 (5) of IT Act? 3. Whether ITAT is correct in law that no capital gains arose to Assessee on receipt of compensation because of acquisition of land in which Assessee had tenancy rights only? 58. It was held by Court that tenancy right had computable cost of acquisition and therefore, consideration received on surrender or acquisition was taxable as capital gains even prior to 1st April 1988. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 34 of 39 decision in CIT v. Ghanshyam (HUF) (supra) held that additional compensation is taxable in AY in question , i.e., 1988-89. It was held that Section 45 (5) is both charging Section as well as computation section. For purpose of taxation of enhanced compensation received, cost of acquisition has to be taken as nil . Logically, therefore, it followed that compensation received in this year by Assessee has to be taxed. Each AY was separate and distinct and enhanced compensation received was to be taxed in year of receipt, i.e., year in question. Accordingly, question was answered in favour of Revenue and against Assessee. 59. What is significant is that there was no question in said case of entitlement of Assessee to receive compensation in first place. This is what distinguishes said decision in its applicability to facts at hand. 60. In Commissioner of Wealth Tax, Calcutta v. U.C. Mehatab (supra) it was held following decision in Commissioner of Wealth Tax, Kolkatta v. Smt. Anjamli Khan (supra) that moment Assessee s land is acquired or otherwise vested in State, he becomes entitled to compensation and merely because amount of compensation is not determined immediately, it cannot be said that there is no right to compensation in erstwhile holder. Again this decision did not involve question concerning entitlement of Assessee to be considered as holder of any rights in land and therefore, entitled to receive compensation as such. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 35 of 39 61. In present case Assessee is justified in contending that although award has been made and compensation payable has been enhanced, amount itself is in dispute, that dispute is pending in Court. In E.D. Sassoon & Co. v. CIT (1954) 26 ITR 27 (SC) it was held that income cannot be said to accrue or arise to Assessee unless and until there is created in favour of Assessee debt due by somebody. Unless that happens it could not be said that Assessee had acquired right to receive income or income has accrued to him. 62. upshot of above discussion is that but for proceedings under Section 31 (2) of LA Act still being inconclusive, amounts received by Assessee by way of enhanced compensation would have been amenable to capital gains tax in year of receipt as explained in CIT v. Ghanshyam (HUF) (supra). However, on account of pendency in this Court of appeals arising from order of ADJ in proceedings under Section 31 (2) of LA Act, right of Assessee to receive said sums is still unclear or inchoate. Consequently, question of bringing to tax said enhanced compensation has to await final outcome of above proceedings. This would equally apply to interest, solatium, additional sums received by assessee on enhanced compensation in AYs in question. further corollary is that stage for applying Section 45 (5) (c) read with Section 155 (16) of Act cannot be said to have arisen yet. Consequently, that question need not be examined at this stage. Section 45 (5) effective from AY 1988-89 ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 36 of 39 63. On question as to AY from which Section 45 (5) would become applicable, reference may be made to Circular No. 495 issued by Central Board of Direct Taxes. Para 24.5 to 24.7 which explain rationale behind introduction of Section 45 (5) of Act read as under: 24.5 Under existing provisions where capital gains accrue or arise by way of compulsory acquisition of assets, additional compensation is taken into consideration for determining capital gain for year in which transfer took place. To provide for rectification of assessment for year in which capital gain was originally assessed, Section 155 (7A) was introduced. additional compensation is awarded in several stages by different appellate authorities and necessitates rectification of original assessment at each stage. This causes great difficulty in carrying out required rectification and in effecting recovery of additional demand. Another difficulty which arises is in cases where original transferor dies and additional compensation is received by his legal heirs. In latter type of cases, proceedings have to be initiated against legal heirs. Repeated rectification of assessment on account of enhancement of compensation by different Courts often results in mistakes of computation of tax. 24.6 With view to removing these difficulties, Finance Act, 1987 has inserted new sub-Section (5) in Section 45 to provide for taxation of additional compensation in year of receipt instead of in year of transfer of capital asset. additional compensation will be deemed to be income in hands of recipient happens to be person different from original transferor by reason of death, etc. For this purpose, cost of acquisition in hands of receiver of additional compensation will be deemed to be nil. compensation awarded in first instance would continue to be chargeable as income under head Capital gains in previous year in which transfer took place. ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 37 of 39 24.7 These amendments will come into force with effect from 1 st April 1988 and will, accordingly, apply from assessment year 1988-89 and subsequent years. 64. It is, therefore, clear that Section 45 (5) applies with effect from AY 1988-89. decision in Karimatharuvi Tea Estate Limited v. State of Kerala (supra) also supports this position. Conclusions in ITAs 65. Consequently as far income tax appeals are concerned, questions framed by Court are answered as under: (i) Question (1) is answered by holding that question of bringing enhanced compensation received by Assessee during relevant previous year to tax for purposes of capital gains under Section 45 (5) (b) of Act will have to await final decision in appellate proceedings emanating from order of ADJ in proceedings under Section 31 (2) LA Act. (ii) Question (2) is answered by holding that, in facts of present case, ITAT was incorrect in law in holding that decision in CIT v. Hindustan Housing and Land Development Trust Limited (supra) is to be applied despite Section 45(5) of Act. (iii) Question (3) is answered by holding that question of assessing to tax interest received by assessee on enhanced compensation in same year in which enhanced compensation is received will also have to await final decision in appellate proceedings emanating ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 38 of 39 from order of ADJ in proceedings under Section 31 (2) LA Act. Wealth Tax appeals 66. Turning to wealth tax appeals, it is seen that as held by ITAT in present case, amount of compensation received by Assessee in nature of trust money which may be required to be returned by Assessee in case she does not succeed in appeal emanating from order in proceedings under Section 31 (2) of LA Act. For Assessee to be brought to tax within ambit of wealth tax provisions, it should be shown, as on valuation date, to be belonging to Assessee. In facts of case, ITAT was justified in holding that provision of WT Act did not stand attracted yet. That too will have to await final decision in appellate proceedings emanating from order of ADJ in proceedings under Section 31 (2) LA Act. 67. appeals are accordingly dismissed but, in facts and circumstances of case, with no orders as to cost. S. MURALIDHAR, J. VIBHU BAKHRU, J. DECEMBER 08, 2015 b nesh/Rk ITA Nos.20, 21 & 24 of 2003 and WTA Nos.3, 4, 5 & 6 of 2003 Page 39 of 39 Commissioner of Income Tax, Delhi v. Suman Dhamija
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