RAJ PAL SINGH versus COMMISSIONER OF INCOME-TAX, HARYANA, ROHTAK

[2020] 9 S.C.R. 185

RAJ PAL SINGH

COMMISSIONER OF INCOME-TAX, HARYANA, ROHTAK

(Civil Appeal No. 2416 of 2010)

AUGUST 25, 2020

[A. M. KHANWILKAR, HEMANT GUPTA ANDDINESH MAHESHWARI, JJ.]

Income Tax Act, 1961 – s. 45 – Land Acquisition Act, 1894 –A land was on lease with college and the lease was to expire on31.08.1967 – The college moved the State Government forcompulsory acquisition of the subject land – While acting on thisproposition, notification u/s. 4 of the 1894 Act was issued by theState on 15.05.1968, seeking to acquire the subject land – This wasfollowed by the declaration u/s. 6 of the 1894 Act – After submissionof the claim for compensation, the Land Acquisition Collectorproceeded to make the award on 29.09.1970 – Thereafter, questionconcerning date of accrual of capital gains arose – Before reachingthe High Court in the reference proceedings, the matter hadundergone two rounds of proceedings up to the stage of appealbefore ITAT – The High Court while answering the reference underthe then existing s. 256 of the 1961 Act disapproved the order dated29.06.1990 passed by the ITAT for the assessment year 1971-1972and held that the capital gains arising out of land acquisitioncompensation were chargeable to income-tax u/s. 45 of the 1961Act for the previous year referable to the date of award ofcompensation i.e. 29.09.1970 and not the date of notification foracquisition i.e. 15.05.1968 – The High Court also concluded thatthe land vested in the Government on the date of making of theaward – The root question is whether the High Court was right intaking the date of award as the date of accrual of capital gains forthe purpose of s. 45 of the 1961 Act – On appeal, held: The decisionscited by the parties are not of direct application to the instant casefor, they essentially relate to the right to receive compensation andnot about the date of vesting of the land, with which the instantmatter is concerned – In the matters of compulsory acquisition,accrual of capital gain depends upon completion of transfer ofproperty from the owner to the Government and not upon accrual

CDEFG

Aof right to receive compensation – Further, the matters relating tocompulsory acquisition of land under the 1894 Act, completion oftransfer with vesting of land in the Government essentially correlateswith taking over of possession of the land under acquisition by theGovernment – However, where possession is taken over beforearriving of the relevant stage for such taking over, capital gainsBshall be deemed to have accrued upon arrival of the relevant stageand not before – To be more specific, capital gains shall be deemedto have accrued: a) upon making of the award, in the case ofordinary acquisition referable to s.16; and (b) after expiration offifteen days from the publication of the notice mentioned in s.9(1),Cin the case of urgency acquisition u/s.17 – In the instant case, theland in question was subjected to acquisition under the 1894 Actby adopting the ordinary process leading to award u/s.11 –Therefore, capital gains would have accrued upon taking over ofpossession after making of the award – Consequently, capital gainsto the assessee-Appellant for the acquisition in question could notDhave accrued before the date of award i.e. 29.09.1970 – Theassessment of capital gains as income of the appellant for theprevious year relevant to the assessment year 1971-1972 does notsuffer from any infirmity or error – Thus, in facts and thecircumstances of the present case, transfer of the capital asset (landEin question), for the purposes of s.45 of the Act of 1961, wascomplete only on 29.09.1970, the date of award and not on15.05.1968, the date of notification.

Dismissing the appeal, the Court

HELD: 1. The following principal points have arisen forFdetermination: -

(i) As to whether, on the facts and in the circumstances ofthe present case, transfer of the capital asset (land in question),resulting in capital gains for the purposes of Section 45 of the Actof 1961, was complete on 15.05.1968, the date of notification forGacquisition under Section 4 of the Act of 1894; and hence, capitalgains arising out of such acquisition and interest accrued couldnot have been charged to tax with reference to the date of awardi.e., 29.09.1970?[Para 23][215-A-B]

(ii) As to whether the fact situation of the present case issimilar to that of the other case of the appellant in relation to theassessment year 1975-1976 where the same issue relating tothe date of accrual of capital gains was decided by the ITAT infavour of the appellant with reference to the date of takingpossession by the Government; and having not challenged thesame, it is not open for the revenue to question the similar decisionof ITAT in the present case pertaining to the assessment year1971-1972?[Para 23][215-C]

Point (i)

2.1. The right to receive compensation comes into beingthe moment Government takes possession of the propertyacquired; and the right to receive interest also accrues at thepoint of time when the right to receive compensation accruesand runs day to day, do not correspondingly result in completionof transfer of the property under acquisition and accrual of such again that may classify as “capital gain”. As noticed, in the mattersof compulsory acquisition, accrual of capital gain depends uponcompletion of transfer of property from the owner to theGovernment and not upon accrual of right to receivecompensation. [Para 34.1.3][232-C-D]

2.2. The decisions cited by the counsel for parties, even ifof guidance on the question relating to the right to receivecompensation, do not directly assist this Court in determinationof the core question involved in this matter because, income-taxon capital gains is not levied on the mere right to receivecompensation. For chargeability of income-tax, the income oughtto have either arrived or accrued. In the matter of acquisition ofland under the Land Acquisition Act, 1894, taking over ofpossession before arrival of relevant stage for such taking overmay give rise to potential right in the owner of the property tomake claim for compensation but, looking to the scheme ofenactment, it cannot be said that transfer resulting in capital gainsis complete with taking over of possession, even if such takingover had happened earlier than the point of time of vestingcontemplated in the relevant provisions. [Para 35][234-B-D]

A2.3. The decision of this Court in the case of AvinashSharma, however, supports the view that in the case of urgencyacquisition, even if possession of the land under acquisition istaken earlier, it should be related to the process contemplatedby Section 17 (1) of the Act of 1894, and deemed to be effectivefrom the date on which the period prescribed by Section 17 (1)Bwould expire that is, fifteen days from the publication of the noticeunder Section 9(1) of the Act of 1894. In S. Appala Narasammaand Pandari Laxmaiah, the Andhra Pradesh High Court appliedthese principles to the cases pertaining to ordinary process ofacquisition and held that if possession had been taken earlier, itCwould relate to the award; and the date of award would be therelevant date for vesting of the land in the Government.[Para 35.1][234-E-F]

2.4. In an overall conspectus of the matter, this Court isclearly of the view that the statements of law in the aforesaidDdecisions of Andhra Pradesh High Court, based on theenunciations by this Court in the case of Avinash Sharma, arerather unquestionable and need to be given imprimatur forapplication to the controversy like the present one. [Para35.2][234-G]

E2.5. For what has been discussed hereinabove, in view ofthis Court, in the matters relating to compulsory acquisition ofland under the Act of 1894, completion of transfer with vesting ofland in the Government essentially correlates with taking overof possession of the land under acquisition by the Government.However, where possession is taken over before arriving of theFrelevant stage for such taking over, capital gains shall be deemedto have accrued upon arrival of the relevant stage and not before.To be more specific, in such cases, capital gains shall be deemedto have accrued: (a) upon making of the award, in the case ofordinary acquisition referable to Section 16; and (b) after expirationGof fifteen days from the publication of the notice mentioned inSection 9 (1), in the case of urgency acquisition underSection 17. [Para 36][234-H; 235-A-B]

2.6. As per the facts-sheet noticed hereinbefore, in thepresent case, the land in question was subjected to acquisitionHunder the Act of 1894 by adopting the ordinary process leading

to award under Section 11. Therefore, ordinarily, capital gainswould have accrued upon taking over of possession after makingof the award. Consequently, capital gains to the assessee-appellantfor the acquisition in question could not have accrued before thedate of award i.e., 29.09.1970. [Para 37][235-C]

2.7. However, on the strength of the submissions that theland in question had already been in possession of the beneficiaryof acquisition, it has been suggested on behalf of the assessee-appellant that the land vested in the Government immediatelyupon issuance of notification under Section 4 of the Act of 1894i.e., 15.05.1968 and capital gain accrued on that date. Thissuggestion and the contentions founded thereupon remain totallymeritless for variety of factors as indicated infra. [Para 38][235-D-E]

2.8. Even if all the other aspects are kept aside and it isassumed that the land in question was, or came, in possession ofthe Government before passing of the award, the position of lawstated in point (a) i.e. upon making of the award, in the case ofordinary acquisition referable to Section 16, would apply; andcapital gains shall be deemed to have accrued upon arrival of therelevant stage of taking possession i.e., making of award andhence, capital gains cannot be taken to have accrued before thedate of award i.e., 29.09.1970. [Para 38.1][235-F]

2.9. In Nand Ram, this Court also quoted with approval theprinciples stated by Delhi High Court in the case of MEC IndiaPvt. Ltd. v. Lt. Col. Inder Maira & Ors.: 80 (1999) Delhi Law Times679. The said principles, when applied to the present case, leavenothing to doubt that in relation to that part of the land in questionwhich was given on lease, possession of the College, afterdetermination of the lease on 31.08.1967, was only that of tenantat sufferance because it has not been shown if the lessor i.e., theappellant accepted rent or otherwise assented to the continuationof lease. The possession of College over the part of land inquestion being only that of tenant at sufferance, had thecorresponding acknowledgment of the title of the appellant andof the liability of the College to pay mesne profits for use andoccupation. The same status of the parties qua the land under

Alease existed on the date of notification for acquisition i.e.,15.05.1968 and continued even until the date of award i.e.,29.09.1970. In other words, even until the date of award, theappellant-assessee continued to carry its status as owner of theland in question and that status was not lost only because partof the land remained in possession of the College. In this view ofBthe matter, the suggestion that the land vested in the Governmenton the date of initial notification remains totally baseless and couldonly be rejected. [Paras 39.3.1 and 39.4][239-A, E-H; 240-A]

2.10. Apart from the above, the significant factor for whichthe entire case of the assessee-appellant is knocked to the groundCis that neither on the date of notification i.e., 15.05.1968 nor untilthe date of award, the Government took over possession of theland in question. As noticed, the possession had been of theerstwhile lessee, the College. Even if the said College was goingto be the ultimate beneficiary of the acquisition, it cannot be saidDthat immediately upon issuance of notification under Section 4 ofthe Act of 1894, its possession became the possession of theGovernment. Its possession, as noticed, remained that of tenantat sufferance and not beyond. [Para 39.5][240-B-C]

2.11. Viewed from any angle, it is clear that accrual of capitalEgains in the present case had not taken place on 15.05.1968. If atall possession of the College was to result in vesting of the landin the Government, such vesting happened only on the date ofaward i.e., 29.09.1970 and not before. In other words, the transferof land from the assessee-appellant to the Government reachedits completion not before 29.09.1970 and hence, the earliest dateFfor accrual of capital gains because of this acquisition was thedate of award i.e., 29.09.1970. Therefore, the assessment ofcapital gains as income of the appellant for the previous yearrelevant to the assessment year 1971-1972 does not suffer fromany infirmity or error. [Para 39.6][240-D-E]G

2.12. The answer to Point No. 1 is clearly in the negativei.e., against the assessee-appellant and in favour of the revenuethat on the facts and in the circumstances of the present case,transfer of the capital asset (land in question), for the purposes

of Section 45 of the Act of 1961, was complete only on 29.09.1970,the date of award and not on 15.05.1968, the date of notificationfor acquisition under Section 4 of the Act of 1894; and hence,capital gains arising out of such acquisition have rightly beencharged to tax with reference to the date of award i.e., 29.09.1970.[Para 41][240-H; 241-A]

Point No. (ii)

3. The answer to Point No. 2 is also in the negative i.e.,against the assessee-appellant and in favour of the revenue thatthe fact situation of the present case relating to the assessmentyear 1971-1972 is not similar to that of the other case of theappellant relating to the assessment year 1975-1976 and therevenue is not precluded from taking the stand that the transferof capital asset in the present case was complete only on the dateof award i.e., on 29.09.1970. [Para 45][243-G; 244-A]

Special Land Acquisition Officer, Bombay and Ors. v.Godrej and Boyce (1988) 1 SCC 50 : [1988] 1 SCR590; Fruit & Vegetable Merchants Union v. DelhiImprovement Trust: AIR 1957 SC 344 : [1957] SCR 1;Lt. Governor of Himachal Pradesh v. Avinash Sharma(1971) 1 SCR 413; Nand Ram (D) through LRs. andOrs. v. Jagdish Prasad (D) through LRs. 2020 (5)SCALE 723 – relied on.

Peter John v. Commissioner of Income-Tax (1986) 157ITR 711; Bombay Burmah Trading Corporation Ltd. v.Commissioner of Income-Tax (1988) 169 ITR 148;Rama Bai v. Commissioner of Income-Tax, AndhraPradesh (1990) 181 ITR 400; Joginder Singh and Ors.v. State of Punjab and Anr. AIR 1985 SC 382 : [1985]1 SCR 682 – inapplicable.

S. Appala Narasamma v. Commissioner of Income-Tax(1987) 168 ITR 17; Commissioner of Income-Tax v.Pandari Laxmaiah (1997) 223 ITR 671 – approved.

Berger Paints India Ltd. v. Commissioner of Income-Tax (2004) 266 ITR 99; Buddaiah v. Commissioner ofIncome-Tax, Karnataka-2 (1985) 155 ITR 277;

[2020] 9 S.C.R.

MEC India Pvt. Ltd. v. Lt. Col. Inder Maira & Ors. 80(1999) Delhi Law Times 679 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2416of 2010.

From the Judgment and Order dated 23.04.2008 of the High Courtof Punjab and Haryana at Chandigarh in Income Tax Reference No.(ITR) 53A of 1991.

Sunil Muki, Ms. Arya Das, Rameshwar Prasad Goyal, Advs. forHthe Appellant.

A.K. Srivastava, Sr. Adv., D.L.Chidnanda, Shekar Vyas,Mrs. Ani Katiyar, B. V. Balaram Das, Advs. for the Respondent.

The Judgment of the Court was delivered by

DINESH MAHESHWARI, J.

PRELIMINARY AND BRIEF OUTLINE

1. This appeal takes exception to the judgment and order dated23.04.2008 passed by the High Court of Punjab and Haryana atChandigarh[1] in Income Tax Reference No. 53-A of 1991 whereby theHigh Court, while answering the reference under the then existing Section256(1) of the Income-tax Act, 1961[2], disapproved the order dated29.06.1990 passed by the Income Tax Appellate Tribunal, ChandigarhBench[3] in ITA No. 739/Chandi/89 for the assessment year 1971-1972;and held that the capital gains arising out of land acquisition compensationwere chargeable to income-tax under Section 45 of the Act of 1961 forthe previous year referable to the date of award of compensation i.e.,29.09.1970 and not the date of notification for acquisition.

2. In the present case, the question concerning date of accrual ofcapital gains arose in the backdrop that though the proceedings foracquisition in question were taken up by way of notification dated15.05.1968 and award of compensation was made on 29.09.1970 but, asa matter of fact, at the time of issuance of the initial notification foracquisition, the subject land was already in possession of the beneficiaryunder lease, though the period of lease had expired on 31.08.1967. Inthe light of these facts, the ITAT did not approve of charging tax overcapital gains with reference to the date of award while observing thatthe date of notification (i.e., 15.05.1968) would be treated as the date oftaking over physical possession and the transaction (leading to capitalgains) would be considered as having taken place on that date and noton the date of award (i.e., 29.09.1970). The High Court, however, didnot agree with this line of reasoning and held that the amount ofcompensation was determined only on passing of the award dated

1 For short, ‘the High Court’.

2 For short, ‘the Act of 1961’ or ‘the Act’.

3 For short, ‘ITAT’.

A29.09.1970 and, therefore, if any capital gain was chargeable to tax, itwould be chargeable for the previous year referable to the date of award.

3. Thus, the root question is as to whether, on the facts and in thecircumstances of the present case, the High Court was right in takingthe date of award as the date of accrual of capital gains for the purposeBof Section 45 of the Act of 1961?

4. Keeping the question aforesaid in view, we may brieflysummarise the relevant factual and background aspects of this casewhile indicating at the outset that the matter relating to the assessmentin question, before reaching the High Court in the reference proceedings,Chad undergone two rounds of proceedings up to the stage of appealbefore ITAT.THE ASSESSEE; THE SUBJECT LAND; AND THEACQUISITION

5. The assessment in question is for the assessment year 1971-D1972 in relation to the assessee Amrik Singh HUF[4]. The appellant RajPal Singh is son of late Shri Amrik Singh and is Karta of the assesseeHUF. As noticed, the dispute essentially concerns the chargeability oftax for capital gains arising out of the award of compensation towardsacquisition of land belonging to the assessee-appellant.

E6. It is noticed from the material placed on record and theobservations in the orders passed in this matter that the subject land,admeasuring 41 kanals and 14 marlas and comprising Khasra Nos. 361to 369 and 372 to 375 at village Patti Jattan, Tehsil and District Ambala[5],became an evacuee property after its original owner migrated to Pakistan;Fand the same was, as such, allotted to the said Shri Amrik Singh, whohad migrated to India, in lieu of his property left in Pakistan. However, asubstantial part of the subject land, except that comprising Khasra Nos.361 and 364 admeasuring 5 kanals and 7 marlas, had been given by theoriginal owner on lease for 20 years to Government College, beingS.A. Jain College, Ambala City[6]; and the lease was to expire onG31.08.1967. Later on, the College moved the Government of Haryanafor compulsory acquisition of the subject land. While acting on thisproposition, notification under Section 4 of the Land Acquisition Act,

4 Hindu Undivided Family.

5 For short, ‘the subject land’ or ‘the land in question’.

6 For short, ‘the College’.

1894[7] was issued by the Government of Haryana on 15.05.1968, seekingto acquire the subject land for public purpose, namely, playground forthe College. This was followed by the declaration dated 13.08.1969 underSection 6 of the Act of 1894. Ultimately, after submission of the claimfor compensation, the Land Acquisition Collector, Ambala proceeded tomake the award on 29.09.1970.

7. The relevant features concerning possession of the land inquestion and computation of the amount of compensation are dulyrecorded in the award dated 29.09.1970 and for their relevance, thematerial parts of the award need to be taken note of.

7.1. As regards possession of the land in question, the learnedCollector observed as under:-

“Possession of land:

The land in question was on lease with the Jain College, managingSociety upto 31[st] August 1967. Thereafter the acquisitionproceedings were started and the society was in possession ofthe same since then. Therefore the land owners are entitled tothe interest from the date of notification u/s 4 which was issuedon the 15[th] May, 1968. The interest at the rate of 6% per annumwill be paid to the land owners in addition to the compensationand Solatium from 15[th] May,1968, to date.”

7.2. As regards entitlement to compensation, the learned Collectorexamined the cross-claims made by the land owners and the ManagingSociety of the College; and found it justified to award compensation tothe land owners while observing as under:-

“Mode of Payment:

The land owners have claimed that the compensation bepaid to them whereas the S.A. Jain College, trust and ManagementSociety has applied that the Society be paid 2/3[rd] of thecompensation being the 99 years lease of the land or otherwise astenant under the East Punjab Urban Rent Restriction Act. Thesociety has neither produced any documentary record nor any toestablish the claim. As per application of the Principal S.A. JainCollege, Ambala City, this fact as confirmed that the land in questionwas on the lease with the College upto 31.8.67 only and the college

7 For short, ‘the Act of 1894’.

Awanted to acquire the same so that its possession remains withthe college. In addition to it, Shri Amar Chand President S.A. JainCollege, Management Committee stated on oath before theRevenue Assistant Ambala on 21.3.68 that the Managementcommittee was prepared to pay the price of the land fixed by theCollector to the land owners. From the copy of the jamabandiBattached with this file, khasra Nos. 361 and 364 measuring 5 kanalsand 7 marlas were not on the lease with the college. But theManagement is claiming compensation for this land also. In thesecircumstances, the college management cannot be awarded anyamount from the compensation of this land being tenant. ICtherefore, allow the compensation to the land owners accordingto their share entered in the jamabandi….”(sic)

First round of assessment proceedings

By the Income Tax Officer, ‘B’ Ward, AmbalaD8. For the assessment year 1971-1972, the assessee declared itsincome at Rs. 1,408/- inclusive of Rs. 408/- from the house property andRs. 1,000/- being the amount of interest earned. While not accepting theincome so declared, the Assessing Officer[8], in his assessment orderdated 12.02.1982, enhanced the income from house property toRs.1,200/- and also enhanced the interest income to Rs. 11,596/- withEreference to the interest received under the award in question. However,the AO observed that capital gains were not relevant for the year underconsideration for the reason that the land in question had been acquiredin the earlier years. The relevant part of the assessment order dated12.02.1982 reads as under:-F“……..The assessee has shown intt. at Rs. 1000/- only. Theassessee’s lands were required by Haryana Govt. vide notificationdate 16.05.68, 11.06.69 and 13.08.69. Since the lands wereacquired in the earlier years and the capital gains are not relevantfor the year under consideration. However, the assessee receivedGcompensation late vide award dated 29.07.70 by land AcquisitionController, the assessee received interest of Rs.10596/- whichthe assessee has not shown in the return. As such the intt. Incomeis taken at 11596 including 1000/- so-moto shown by theassessee….” (sic)

H8 Hereinafter referred to as ‘the AO’ or ‘the ITO’.

Before the Appellate Commissioner

9. Being aggrieved by the order so passed by the Assessing Officer,the assessee preferred an appeal before the Appellate AssistantCommissioner of Income Tax, Ambala[9] in B/Amb/82-83 on the grounds,inter alia, that the AO was not justified in enhancing the annual lettingvalue of the house property and was also not justified in including theinterest amount of Rs.11,596/- received from Land Acquisition Collectoron the compensation paid for acquisition of land for the reason that thesaid interest amount was required to be treated as part of compensation.

9.1. Though the ground of appeal concerning house property wasaccepted and the addition made by AO in that regard was deleted but,on examination of the award dated 29.09.1970, the CIT(A) found thatthe assessee was paid Rs.62,550/- as compensation and Rs.9,532/- assolatium and yet, capital gains on this account were not taxed by theAssessing Officer. Accordingly, show cause notice dated 18.11.1983was issued to the assessee as to why capital gains relating to theacquisition of this land be not charged to tax in the assessment yearunder consideration. The assessee filed written reply dated 26.12.1983to this notice and stated, inter alia, that in the urgency acquisition underSection 17 of the Act, the transfer takes place immediately after thenotification and the owner ceases to be in possession of the land inquestion.9.2. The CIT(A), in his order dated 17.05.1984, rejected thesubmissions made on behalf of the assessee and held that the capitalgains on the acquisition of the land amounting to Rs. 23,146/- wererequired to be added to the income of the previous year relevant to theassessment year under consideration. The CIT(A) ordered such additionwhile observing and holding as under:-

“9…. … ITO has not given any reason in the assessment orderwhy the capital gain on the acquisition of the land is not taxable.Moreover, powers conferred on me under the Income-Tax Actdoes not preclude me from considering this issue at the appellatestage.

10. There is no doubt that the notifications were published muchearlier that the date of award and the possession of land was alsotaken earlier that the date of award but it does not mean that the

9 For short, ‘the CIT(A)’.

Acapital gain is to be taxed in the earlier years on that basis. Whenthe land is taken possession of by the Government, no compensationhas, in fact been determined but it has become only payable. Theright of the owner is, therefore, an inchoate right…….. Thedeeming provisions can have no relevance unless the income isreceivable can have it is receivable, then the determination of theBquestion whether it is actually received or is deemed to have beenreceived depends upon the method of accounting. If the actualamount of compensation has not been fixed by the LandAcquisition Collector, no income could be said to haveoccurred to the appellant…… Income Tax is not levied onCa mere right to receive compensation, there must besomething tangible, something in the nature of debt,something in nature of an obligation to pay an ascertainedamount. Till such time, no income can be said to haveaccrued. On the date when the collector awarded thecompensation, it is only that amount which had accruedDwhether in fact paid or not. Accordingly, in the present case,even though the possession of land was taken in 1968, no amountcan be said to accrued on the date of possession because thecompensation at that point of time was not determined at all. Thisamount of compensation was determined only after the awardEdated 29.9.70. Therefore, if any income on account of capitalgain is chargeable to tax, it will be chargeable on the date ofaward. It is held accordingly that the capital gain arising out ofacquisition of land is chargeable to tax in the previous year, relevantto assessment year under consideration because the date of awardi.e. 29.9.70 is within the relevant previous year.”F

(emphasis in bold supplied)

Before the Income Tax Appellate Tribunal, Chandigarh Bench

10. Against the order so passed by the CIT(A), the assessee-appellant preferred an appeal before the Income Tax Appellate Tribunal,GChandigarh Bench, being ITA No.634/Chandi/84 and argued, inter alia,that it had been matter of urgent acquisition under Section 17 of theAct of 1894 and possession of the land in question was taken on15.05.1968 when the notification under Section 4 of the said Act of 1894was issued and hence, the CIT(A) exceeded his jurisdiction in taxing theHcapital gains for the year under reference on the basis of the date of

award made by the Land Acquisition Collector under Section 11 of theAct of 1894. It was also argued that the interest amount could not havebeen treated separately and was required to be considered as part ofthe compensation amount.

11. The appeal so filed, relating to the assessment year 1971-1972, was considered and decided by ITAT by its order dated 19.12.1985.Interestingly, on the same date, i.e., on 19.12.1985, the ITAT alsoconsidered and decided another appeal of the appellant pertaining to theassessment year 1975-1976, being ITA No.635/Chandi/84, wherein too,similar question of capital gains arising out of another award ofcompensation for acquisition of another parcel of land was involved.Since the said decision pertaining to the assessment year 1975-1976 hasformed part of submissions in the present appeal, we may usefullytake note of its relevant features before proceeding further.

11.1. It appears that in the said appeal pertaining to the assessmentyear 1975-1976, the question of capital gains arose in the backdrop ofthe facts that another parcel of land of the appellant, in village Rangrnan,Tehsil and District Ambala admeasuring 15 kanals and 10 marlas, wasacquired for the purpose of construction of warehouse of Ambala City.The notification under Section 4 of the Act of 1894 for that acquisitionwas issued on 26.06.1971; possession of the said land was taken on04.09.1972; and award of compensation was made on 27.06.1974. Inthe given set of facts and circumstances, the ITAT accepted the contentionthat the case fell under the urgency provision contained in Section 17 ofthe Act of 1894 where the assessee was divested of title to the property,that vested in the Government with effect from 04.09.1972, the date oftaking possession. Thus, the ITAT held that the capital gains arising fromthe said acquisition were not assessable for the accounting period relevantfor the assessment year 1975-1976. The material part of findings ofITAT in the said order dated 19.12.1985, in ITA No.635/Chandi/84pertaining to the assessment year 1975-1976, reads as under:-

“9…The case, therefore, falls under the urgency provisioncontained in section 17 of the Land Acquisition Act, 1894. Thetransfer within the meaning of section 2(47) took place on thedate the possession of land was taken by the Government. Section2(47)(i) provides that the transfer in relation to capital assetincludes the extinguishment of any rights therein. Section 17 ofthe Act provides that after taking possession of the land in urgent

cases, such land shall thereupon vest absolutely in the Governmentfree from all encumbrances. The assessee was, therefore, divestedof the title to the lands and the lands thereafter vested in theGovernment w.e.f. 4-9-72 i.e. the date of possession of the lands.In this view of the matter, we are of the opinion that the capitalgains arising from the acquisition of the lands in question were notassessable for the accounting period relevant to the assessmentyear 75-76. The income from capital gains included in the totalincome by the ITO and confirmed by the AAC and also furtherenhanced by Rs. 28,379/- therefore, cannot be sustained. Thesame is deleted.”

12. Reverting to the assessment year 1971-1972, it is noticed thatin the appeal relating to this case, the ITAT referred to its aforesaidorder of the even date pertaining to the assessment year 1975-1976 butfound that in the present case, actual date of taking possession by theGovernment was not forthcoming and hence, proceeded to restore theDmatter to the file of AO to find out the date when the Government took

over possession, while observing that if possession was taken before theaward and before 01.04.1970, capital gains were not to be included inthe income for the assessment year 1971-1972 but, if possession wastaken during the period 01.04.1970 to 31.03.1971, capital gains would beassessable for this assessment year 1971-1972. The material part of theEorder dated 19.12.1985 in ITA No.634/Chandi/84 pertaining to the presentcase reads as under:-

“5. We have carefully considered the rival submission. The firstNotification for the acquisition of the lands in 15.5.68 as mentionedin the order of the ITO. The date of award u/s 11 of the LandAcquisition Act is 29.9.70 which is also mentioned in the order ofthe ITO. The actual date of possession of the lands by theGovernment is neither mentioned in the order of the ITO nor ofthe AAC though the learned counsel for the assessee at the timeof hearing stated that it was on 15.5.68. The AAC has also statedin para 10 of his order that the notifications were published muchearlier than the date of the award and the possession of the landwas also taken earlier than the date of award but that did notmean that the capital gains was to be taxed in the earlier years onthat basis. He has, however, not specified the actual date ofpossession of the lands by the Government. The date given by the

learned counsel for the assessee also cannot be accepted firstlybecause no evidence in relation there to has been furnished beforeus. Secondly the date of notification is 16.5.68 and it was notelaborated as to how the possession of the land could be takeneven prior to the date of notification. One thing, however, is certainthat the possession of the lands was taken before the award wasmade u/s 11 of the Land Acquisition Act.

6. Similar issue came up for consideration before us in the case ofthe assessee itself for the assessment year 1975-76 and vide ourorders of even date in I.T.A. No. 635/Chandi we have held that itwas case which fell u/s 17 of the Act and, therefore, capitalgains were assessable on the basis that the transfer took place onthe date of possession of lands by the Government. Since theactual date of possession of the land is not available, we are ofthe opinion that the matter should be restored to the file of theITO who should find out the actual date of possession of thelands by the Government. In case the possession of the lands wastaken by the Government prior to the date of award and beforeIst April,1970, the capital gains will not be included in the incomefor the assessment year 71-72. If the possession of the lands wasalso taken during the period 1-4-70 to 31-3-71, the capital gainswill be assessable for the assessment year 71-72. After findingthe actual date of possession by Govt. the ITO, he shall recomputethe income on the above basis.”

Supplementary facts concerning enhancement of compensation

13. Before entering into the orders passed in second round ofproceedings after remand by the ITAT, apposite it would be to take noteof set of supplementary facts relating to the enhancement of the amountof compensation. It is noticed that as against the aforesaid award dated29.09.1970, the appellant took up the proceedings in LA Case Nos. 37and 38 of 1971 before the Additional District Judge, Ambala who, by theorder dated 30.12.1984, allowed marginal enhancement of the amountof compensation and corresponding solatium and interest. Not satisfiedyet, the appellant preferred an appeal, being Regular First Appeal No.390 of 1975 before the Punjab and Haryana High Court, seeking furtherenhancement. The High Court allowed this appeal by its judgment dated25.10.1985 and awarded compensation by applying the rate of Rs. 8/-

Aper sq. yd. against Rs. 3.50 and Rs. 2.50 per sq. yd., as allowed by theAdditional District Judge and the Land Acquisition Collector respectively.The High Court also allowed 30% solatium and corresponding interest[10].

Second Round of Proceedings for assessment

By the Income Tax Officer, ‘C’ Ward, Ambala.B

14. Having noticed the relevant facts concerning acquisition ofthe land in question, the award of compensation for such acquisition andenhancement of the amount of compensation as also the first round ofproceedings for assessment for the assessment year 1971-1972, we maynow take note of the orders passed in the second round of proceedingsCfor this assessment after the matter was remanded by the ITAT.

15. In compliance of the directions of ITAT in the aforesaid orderdated 19.12.1985 in ITA No.634/Chandi/84, the AO took up the matterin GIR No. 920A and, on 17.07.1987, served specific question to theassessee-appellant about the date on which possession of the acquiredDland was taken by the Government of Haryana. In his reply dated22.07.1987, the appellant stated such date of possession as 15.05.1968,being the date of notification under Section 4 of the Act of 1894. Thoughno evidence in this regard was adduced but, the appellant relied upon thedecision of Kerala High Court in the case of Peter John v. CommissionerEof Income-Tax: (1986) 157 ITR 711 to submit that capital gains, ifany, arise at the point of time when the land vests in the Government andsuch date in the present case was 15.05.1968. Further, by way ofcommunications dated 28.09.1987 and 11.01.1988, the AO asked theassessee-appellant to give the exact date-wise calculation of interest interms of the aforesaid judgment of High Court dated 25.10.1985 but notFmuch of assistance came up from the appellant in that regard.

15.1. As the appellant was unable to bring forth the requisiteinformation with evidence, the AO also made enquiries from the revenueauthorities, particularly regarding the date of taking over possession. Inresponse, the AO received information that the land in question was onGlease with the College; and that as per the procedure adopted, the date

10 As per the material on record, the High Court allowed interest @12% p.a. on themarket value of the land from the date of notification under Section 4 of the Act of 1894until the date of taking possession; 9% p.a. after the date of possession for one year;Hand 15% p.a. thereafter.

of taking possession by the Government was ‘in consonance’ with thedate when the award was announced.

15.2. The AO took note of all the facts and features of this casein his re-assessment order dated 25.01.1988 and observed that ‘since inthe instant case, the award was announced on 29.09.1970, the saiddate viz 29.09.1970 is deemed to be the date of taking possessionby the Government’. In this view of the matter, the AO held that‘taxability of capital gains arose in the previous year relevant tothe assessment year under consideration’.

15.3. It was also suggested by the appellant before the AO thatacquisition was of urgent nature, as was the case in relation to the otheracquisition relevant for the assessment year 1975-1976. The AO foundsuch suggestion incorrect because of different purposes of acquisition;and specific date of taking over possession (04.09.1972) having beenmentioned in the said case pertaining to the assessment year 1975-1976.The AO also noticed that the appellant failed to place on record the dateof publication of notice under Section 9 of the Act of 1894 and observedthat there was no reference to urgency acquisition in the present casenor any such mention was found in the award dated 29.09.1970. In thegiven circumstances, the AO held that the acquisition in question wasnot matter of urgency under Section 17 of the Act of 1894 and thisacquisition had only been under the ‘normal powers’.15.4. With the findings aforesaid, the AO proceeded to assessthe tax liability of the appellant, on long-term capital gains arising onaccount of acquisition, on the basis of the amount of compensation allowedin the award dated 29.09.1970 as also the enhanced amount ofcompensation accruing finally as result of the aforesaid order dated30.12.1984 passed by the Additional District Judge and the judgmentdated 25.10.1985 passed by the High Court. As regards interest income,the AO carried out protective assessment on accrual basis @ 12% perannum for the previous year relevant to the assessment year in questioni.e., for the period 01.04.1970 to 31.03.1971 while providing that suchcalculation would be subject to amendment, if necessary.

Before the Commissioner of Income Tax (Appeals), Karnal

16. The aforesaid order of re-assessment dated 25.01.1988 waschallenged by the appellant before the CIT(A) in Appeal No. 87/87-88.This appeal was considered and dismissed by the CIT(A) by way of hiselaborate order dated 31.03.1989.

A16.1. It was argued in the first place before the CIT(A) that theITAT, by its order dated 19.12.1985, had only restored the issue as regardsthe date of possession to the file of AO and therefore, the AO was notjustified in proceeding as if making de-novo assessment; and was notjustified in bringing the enhanced amount of compensation to tax forwhich, he should have passed separate order under Section 155(7A)Bof the Act of 1961. In regard to this contention, the CIT(A) noted thatindisputably, for computation of capital gains, the ITO had the power totake into consideration the enhanced compensation received by theappellant for compulsory acquisition of the land; and when the ITO couldhave drawn up separate order under Section 155(7A), he was wellCwithin the powers to combine such an order with his order for carryingout the directions of ITAT. The contention on the frame of the orderwas, therefore, rejected.

16.2. The CIT(A), thereafter, extensively dealt with the facts ofthe case on the issue as to whether the ITO had correctly held thatDpossession of the appellant’s compulsorily acquired land was taken overby the Government during the previous year relevant to the assessmentyear in question. The CIT(A) held that it had not been case ofcompulsory acquisition under Section 17 of the Act 1894; and thatawarding of interest from 15.05.1968 was of no effect on the date ofaccrual of capital gains, particularly when such interest could have beenEawarded under Section 28 of the Act of 1894. The CIT(A) furtherobserved that the College remained in unauthorized possession of theland in question after the expiry of lease on 31.08.1967 but, it was onlyon the date of award i.e., 29.09.1970, that the possession legally passedon to the College so as to vest it with the ownership through theFGovernment. The relevant observations and findings of the CIT(A) inthe order dated 31.03.1989 could be usefully reproduced as under:-

“9…It is an admitted fact that the special procedure prescribedu/s 17 of the Land Acquisition Act for exercising of the emergencypowers of the Govt. for taking possession of lands to beGcompulsorily acquired, earlier than the date of award u/s 11 ofLand Acquisition Act, was not followed in this case. Neither thereis any direction of the Govt. to the Collector to take over possessionearlier then the date of award u/s 11 of Land Acquisition Act andnor the possession was so taken by the collector after 15 days ofthe publication of notice u/s 9(1) of the Land Acquisition Act.H

These two conditions are absolutely necessary if the possessionwas to be taken u/s 17 of the Land Acquisition Act. The possessionof the lands already with S.A. Jain College Ambala was obviouslyregularized in the instant case u/s 16 of the Land Acquisition Actwhich is the general Section for taking the possession of landsacquired under the Land Acquisition Act. The possession ofcompulsorily acquired land u/s 16 of the Land Acquisition Act canbe taken by the Govt. only after the date of award u/s 11 of theLand Acquisition Act which in the instant case was 29.9.70.Therefore, it is only on 29.9.70 that the possession legallypassed to S.A. Jain College, Ambala so as to vest theownership in the property in S.A. Jain College City throughthe Govt. …… If the possession of the lands had been takenu/s 17 of the Land Acquisition Act, then interest would have beenawarded to the appellant only from the date after 15 days of thepublication of notice u/s 9(1) of the Land Acquisition Act, whereasin the instant case, the interest has been awarded from the dateof notification u/s 4 of the Land Acquisition Act i.e. 15.5.68. Thisgoes to show that the interest was awarded to the appellant froma date prior to the date of award u/s 11 of the Land AcquisitionAct which is dated 29.9.70 not because the possession had beentaken u/s 17 of the Land Acquisition Act but because of variousCourt, rulings be holding, as mentioned above, that on equitableinterpretation of Sec. 28 of the Land Acquisition Act, interestshould be awarded from the date of possession even in caseswhere the possession had been taken before the date of awardu/s 11 of the Land Acquisition Act, even though the possessionwas unauthorized or taken with or without the consent of thelandlord.

10. In view of the above discussion, it is obvious that thepossession of the lands in the instant case legally passedto S.A. Jain College, Ambala City through the Govt. on thedate of the award u/s 11 of the Land Acquisition Act and itis only on this date that the ownership in the lands gotvested in the Govt……. As discussed above, the fact that S.A.Jain College, Ambala was already in unauthorized possession ofthe lands and that interest has been awarded to the appellant frompart of the period during which S.A. Jain College, Ambala werein unauthorized possession of the lands, would not effect the above

mentioned legal position i.e. that the possession and ownership inthe lands got transferred from the landlord to the Government on29.9.70 i.e. the date of the award u/s 11 of the Land AcquisitionAct. Therefore, the capital gain on the compulsory acquisition ofthese lands is to be taxed in this year and has been rightly sotaxed. The order of the learned I.T.O. on this point also is upheld.

11…..Since I have already held that the learned ITO was justifiedin including the enhanced compensation in the total considerationreceived by the appellant for acquisition of his lands, forcomputation of capital gains, I hold that appellant has no case inrespect of the interest amount of Rs.27255/- as mentioned inCground of Appeal No.5 of the original grounds of appeal. Noarguments having been advanced in respect of appeal No. 4,6,7of the original grounds of appeal, these grounds of appeal are,therefore, rejected as, on the face of it, there is nothing wrong inthe order of the learned ITO in this respect.

DIn the result, appeal is dismissed.”

(emphasis in bold supplied)

Before the Income Tax Appellate Tribunal, Chandigarh Bench

17. Being aggrieved by the order so passed by the CIT(A), theEappellant preferred an appeal before the ITAT, being ITA No.739(Chandi)89, raising essentially three issues for consideration namely,(i) about the date of taking over physical possession of the land in questionby the Government; (ii) about the ITO’s power to frame the re-assessmentinstead of re-computing the income in terms of the ITAT’s order ofFremand; and (iii) against the inclusion of enhanced compensation andinterest, etc., in the re-assessment by the ITO. This appeal was consideredand allowed by the ITAT by way of its order dated 29.06.1990.

17.1. The ITAT took up the first issue concerning the date oftaking over physical possession of the land in question and, with referenceto the relevant background aspects as noticed hereinabove, observedGthat though it had earlier directed the ITO to ascertain the actual date ofpossession but the matter presented complex scenario, where clearfinding about this date was difficult to emerge. The ITAT observed thus:-

“12. The direction of the Bench earlier was for determination ofactual date of possession. The Ld. ITO in his own way came toH

the conclusion that the date of award was the date of possessionwhereas assessee’s case depended on the date of notification.Both the dates appear to be misconceived as the actual physicalpossession of the land was already with the college, under lease,since 1.1.47. Thus as consequence of the acquisition proceedingsonly some of symbolic or constructive possession was to be takenas the physical possession was already there. In terms of theorder under challenge and so also the assessment order and theposition of law also, the ownership exchanges hands from thedate of award which in the present case is 29.9.70, but beforerecording firm finding in this respect, we have to keep in mindthe earlier finding of the Bench dated 19.12.85 wherein it wasobserved that the actual date of possession be ascertained andcapital gains assessed in the year in which the possession wastaken. The determination of this aspect is slightly difficult in viewof the complex factual position existing on the record. We cannottake 29.9.70 as on the date of doubt (sic) the award was givenbut the possession was already with the college. We also cannottake 15.5.68 because no doubt the notification was there but beforethat date the college was in possession of land under lease.Thus clear finding is difficult to emerge.”

17.2. Having said that, the ITAT referred to the observationsregarding “possession of land”, as occurring in the award dated29.09.1970[11] and observed that as per those observations in the award,possession of the land in question was supposed to have been taken on15.05.1968. The ITAT further observed that to sort out the controversy,such stipulation in the award was required to be depended upon; and thedate of actual physical possession was inferable from the intention ofthe parties and the language of such stipulation in the award. On thisreasoning, the ITAT held that since the actual physical possessionexchanged hands on 15.05.1968, the transaction should be consideredas having taken place on that date and not on the date of award i.e.,29.09.1970; and hence, capital gains were not to be taxed for the yearunder consideration. Having reached this conclusion, the ITAT held thatthe very basis of assessing capital gains having been knocked out, theother issues were rendered redundant. The ITAT, accordingly, allowedthe appeal with the following observations and findings:-

11 Reproduced in paragraph 7.1 hereinbefore.

A“14. According to the stipulation in the award, the possession ofland is supposed to have taken place on 15.5.68 as from that date,the assessee was entitled in interest at 6% per annum on theamount of compensation. This is infact the date i.e. 15.5.68, fromwhich date the assessee was supposed to have parted with theownership of the land in lieu of the compensation. The assesseeBwas to have the compensation and the land was supposed to haveparted company. Thus to sort out the controversy we arerequired to heavily depend upon this stipulation in theaward. The date of actual physical possession is inferablefrom the intention of parties and the language of theCstipulation. The date of dispossession is inferable to be15.5.68. The issue is now required to be decided, in the light ofthe earlier observation of the Bench that since the physicalpossession(ownership) exchanged hands on 15.5.68, thetransaction should be considered as having taken place on thedate and not on the date of award on 29.9.70. For coming to thisDconclusion we are dependent upon the intention of the parties andthe mention in the award that the interest became payable to theassessee from that date only and not from any other date. In thelight of the above discussion, we are inclined to hold that the capitalgains could not be assessed for the year under consideration asEthe transaction did take place on 15.5.68. The revenue authoritieswere thus not justified to include the capital gains for the yearunder consideration and the Ld (CIT(A) was not justified toconfirm such action. We vacate the finding of this aspect. TheRevenue authorities are at liberty to look into the matter in respectof capital gains taking the date of possession as 15.5.1968.FDispossession or actual date of taking physical possession is to beunderstood in the context of the facts to the present case as thechange of the ownership as the possession was already with thecollege under the lease.

15. Since we have held that capital gains are not to be taxed forthe year under consideration, other issues connected with thisaspect and raised by the assessee not to be gone into as the verybasis has knocked down.”

(emphasis in bold supplied)

18. Taking exception against the order so passed in appeal, therevenue made an application before the ITAT seeking reference to theHigh Court under Section 256(1) of the Act of 1961. The ITAT, in itsorder dated 15.07.1991, took note of all the relevant facts; and, afterfinding it to be fit case for making reference, drew up the statement ofcase and referred the matter to the High Court for determination of thefollowing question:-

“Whether on the facts and in the circumstances of the case, theTribunal was right in Law in holding that the capital gains are notassessable in the year under consideration as the transaction didtake place on the date of notification i.e. 15.05.1968 and not onthe date of award on 29.09.1970?”

The reference proceedings in High Court

19. The High Court of Punjab and Haryana considered andanswered the question aforesaid by its impugned judgment and orderdated 23.04.2008 in Income Tax Reference No.53-A of 1991.

19.1. It was argued on behalf of the revenue before the HighCourt that any profits or gains arising from the transfer of the capitalasset effected in the previous year shall be deemed to be income of theprevious year in which the transfer took place and thus, would fall withinthe ambit of Section 45(1) of the Act of 1961; and as such, the date ofaward 29.09.1970 ought to be considered for the purpose of calculatingcapital gains and not the date of notification i.e., 15.05.1968. As againstthese submissions, it was submitted on behalf of the assessee-appellantthat the referred question was required to be decided in the light of theobservations made by ITAT in its order dated 19.12.1985; and that it hadbeen matter of urgency acquisition where the possession of land wastaken on the date of notification i.e., 15.05.1968 and hence, in view ofthe provisions contained in Section 17 of the Act of 1894, the transfertook place on that date (15.05.1968) and not on the date of award(29.09.1970).

19.2. After taking into consideration the rival submissions, thefacts of this case and the scheme of the Act of 1894, particularly Sections16 and 17 thereof, the High Court answered the reference in favour ofthe revenue while holding that the Collector had not taken possession ofthe land under Section 17 of the Act of 1894 and that the said provisionwas not invoked by the State Government. The High Court further held

Athat for the purpose of assessment of capital gains, the date of award(i.e., 29.09.1970) was required to be taken as the date of taking overpossession because, on that date, the land in question vested in theGovernment under Section 16 of the Act of 1894.

19.3. The High Court further examined the ambit and scope ofBSection 45 of the Act of 1961 and on its conjoint reading with Section 16of the Act of 1894, came to the conclusion that the transfer of capitalasset (the land in question) and its vesting in the Government took placeon 29.09.1970, the date of award. The High Court further held thatunder the Income-tax Act, 1961, an income was chargeable to tax onlywhen it had accrued or was deemed to have accrued in the year ofCassessment; and in the present case, if any income on account of capitalgains was chargeable to tax, it would be chargeable on the date whenthe Collector determined the compensation because, the income accruedto the appellant only upon such determination. The High Court, therefore,held that the capital gains arising out of acquisition of land wereDchargeable to tax in the previous year relevant to assessment year underconsideration because the date of award i.e., 29.09.1970 fell within therelevant previous year.

19.4. Accordingly, the High Court disapproved the ITAT’s orderdated 29.06.1990 and answered the reference in favour of the revenueEwhile holding, inter alia, as under:-

“13…..It is clear from Section 45(1) of the Income Tax Act thatthe capital gains are chargeable to income-tax arising from thetransfer of capital assets effected in the previous year in whichthe transfer took place. On conjoint reading of Section 16 of theFLand Acquisition Act and Section 45(1) of the Act, it is clear thatthe transfer of the capital asset (land of the assessee) has to betaken as 29.09.1970 i.e. the date of award on which date the landvested in State.

14. Under the Income Tax Act, an income is chargeable toGtax only when it accrues or is deemed to accrue or arise inthe year of assessment. The deeming provision can have norelevance unless the income is receivable and if it is receivable,then the determination of the question whether it is actuallyreceived or is deemed to have been receive depends upon themethod of accounting. If the actual amount of compensationHhas not been fixed by the Land Acquisition Collector, no

income could be said to have accrued to the appellant. Itcannot be contended that the mere claim by the assesseeafter taking of possession by the Govt. at particular rateis the compensation. It is the amount actually awarded bythe Collector accrues on the date on which the award ispassed. Income tax is not levied on mere right to receivecompensation. There must be something tangible, something inthe nature of debt, something in the nature of an obligation to payan ascertained amount. Till such time no income can be said tohave accrued. On the date when the Collector awarded thecompensation, it is only that amount which had accrued. Thisamount of compensation was determined only on passing of theaward date 29.09.70. Therefore, if any income on account ofcapital gain is chargeable to tax, it will be chargeable on the dateof award. It is held accordingly that the capital gain arising out ofacquisition of land is chargeable to tax in the previous year relevantto assessment year under consideration because the date of awardi.e. 29.09.70 is within the relevant previous year.”

(emphasis in bold supplied)

20. Being aggrieved by the judgment and order dated 23.4.2008so passed by the High Court, holding that the capital gains arising out ofthe acquisition in question were chargeable to tax in the assessmentyear 1971-1972, the assessee-appellant has preferred this appeal byspecial leave.

Rival Submissions

Appellant

21. Assailing the view taken by the High Court, learned counselfor the appellant has essentially crusaded on two-fold arguments: One,that on the facts and in the circumstances of the present case, wherethe land in question was already in possession of the beneficiary College,the assessee-appellant was divested of its title and right to this propertywith issuance of notification under Section 4 of the Act of 1894 whenthe State took up the acquisition in urgency; and the transfer for thepurposes of Section 2(47) of the Act of 1961 was complete on the dateof that notification itself i.e., on 15.05.1968 and hence, capital gains arisingout of such acquisition and interest accrued could not have been chargedto tax with reference to the date of award i.e., 29.09.1970. Secondly, it

ABC

Ais not open for the revenue to question the decision of ITAT in the presentcase pertaining to the assessment year 1971-1972 because, the factsituation of the present case is similar to that of the other case of theappellant in relation to the assessment year 1975-1976, where the sameissue was decided by the ITAT in favour of the appellant and the revenueaccepted the said decision by not challenging the same any further.B

21.1. Elaborating on the first limb of arguments, learned counselfor the appellant has contended that indisputably, the land in questionwas already in possession of the beneficiary College when the StateGovernment took up the proceedings for its acquisition by issuingnotification under Section 4 of the Act of 1894 on 15.05.1968; and theCappellant was immediately divested of the rights in the land in question,as amply established by the recital about “possession of land” in theaward dated 29.09.1970, where the appellant was allowed interest overthe amount of compensation and solatium from 15.05.1968. Therefore,according to the learned counsel, the transfer, for the purposes of SectionD2(47) of the Act of 1961, was complete on the date of notification i.e.,on 15.05.1968 and capital gains, if any, could have only been charged forthe previous year referable to that date of notification and not withreference to the date of award.

21.1.1. Taking this line of argument further, learned counsel hasEreferred to the Full Bench decision of Kerala High Court in the case ofPeter John (supra) to submit that in land acquisition proceedings, theowner of property is entitled to compensation on the day on which he isdispossessed; and that such right does not await quantification ofcompensation by the Land Acquisition Officer or the Court. On applicationof these principles to the case at hand, according to the learned counsel,Fthe date of award i.e., 29.09.1970 for quantification of compensationhas no relevance for the purpose of assessing capital gains; and the onlyrelevant date is 15.05.1968, when the appellant was legally dispossessedof the land in question and its rights therein stood extinguished.

21.1.2. Learned counsel for the appellant has further contended,Gwith reference to the decision of this Court in the case of Rama Bai v.Commissioner of Income-Tax, Andhra Pradesh: (1990) 181 ITR400, that the interest income in cases of land acquisition accrues fromyear to year and is taxable in the respective year of its accrual; and, inthe present case, since the possession was taken on 15.05.1968, capitalHgains and interest accrued were taxable only in the assessment year1969-1970 and not in the assessment year 1971-1972.

21.2. In the second limb of submissions, learned counsel for theappellant has referred to the order dated 19.12.1985, as passed by theITAT in ITA No. 635/CHD/84 for the assessment year 1975-1976(Annexure P-5) and has submitted that in the similar facts andcircumstances, pertaining to the acquisition of another land of theappellant, the ITAT specifically decided that capital gains were notrelatable to the date of award but were relatable to the date ofdispossession; and the revenue indeed accepted the said decision by notchallenging it any further. While strongly relying upon the decision ofthis Court in Berger Paints India Ltd. v. Commissioner of Income-Tax: (2004) 266 ITR 99, the learned counsel has contended that wherethe order passed in favour of the very same assessee and against therevenue in similar matter has attained finality, the revenue cannot seekre-opening of the issue in relation to the other case without just cause.Thus, according to the learned counsel, the view as taken in relation tothe similar case for the assessment year 1975-1976 squarely covers thepresent case and the revenue cannot take different stand in relation tothe assessment year 1971-1972.21.3. Learned counsel for the appellant has also contended thatthe interest income and solatium accrued on 15.05.1968 as per the awarditself and hence, the income to be taxed pertains to the financial year1968-1969, relevant to the assessment year 1969-1970 and the samecannot be taxed in the assessment year 1971-1972. Therefore, accordingto the learned counsel, the ITAT had rightly taken the view againsttaxability of the income pertaining to the acquisition in question in theassessment year 1971-1972 and the High Court has committed manifesterror in upturning the view of ITAT.

Respondent

22. Per contra, learned counsel for the revenue has supportedthe order passed by the High Court, essentially with the submissions thatin the present case, transfer of capital asset i.e., the land of assessee,took place only on the date of award falling within the previous yearrelevant for the assessment year 1971-1972.

22.1. Learned counsel for the revenue has referred to thedefinitions of “capital asset” and “transfer” in the Act of 1961 and hascontended that though possession of the subject land was with the Collegein the year 1968 and continued as such but, no gain on account of transferof land accrued to the assessee on the date of notification i.e., 15.05.1968

Abecause, at the relevant point of time, compensation had not beendetermined; and the same was determined only in the award dated29.09.1970. Therefore, according to the learned counsel, capital gainschargeable to income-tax accrued only on the date of award and, in thisposition, the date of notification i.e., 15.05.1968 is not relevant for thepurpose of taxing the capital gains.B

22.2. Learned counsel for the revenue has further elaborated onthe submissions that the acquisition in question had not been under theurgency provisions contained in Section 17 of the Act of 1894 becausethereunder, the Government was to issue directions to the Collector totake possession after the expiry of fifteen days from the date of publicationCof notice under Section 9(1) but, no such direction was issued by theGovernment in the present case. According to the learned counsel, theonly applicable provision for taking possession in the present case hadbeen Section 16 of the Act of 1894 whereunder, possession could betaken by Collector after making the award under Section 11 and onlyDthereupon the land under acquisition vests in the Government, free fromall encumbrances. The learned counsel would maintain that on the factsof the present case, the possession legally passed on to the Collegethrough the Government only on 29.09.1970 i.e., the date of award; andthis date of award shall alone be relevant for chargeability of tax againstcapital gains of the assessee with transfer of capital asset. In support ofEhis contentions, the learned counsel has referred to and relied upon variousdecisions including those in Joginder Singh and Ors. v. State of Punjaband Anr.: AIR 1985 SC 382 and Bombay Burmah TradingCorporation Ltd. v. Commissioner of Income-Tax: (1988) 169 ITR148.F

22.3. Learned counsel for revenue has also submitted that relianceby the appellant on the case of Berger Paints (supra) is entirely misplacedbecause the said case relates to business expenditure under Section34B of the Act of 1961 and has no relevance to the present case.

Points for determination

23. We have heard learned counsel for the parties at length andhave scanned through the material on record. Having regard to thesubmissions made and the contents of judgment/orders underconsideration, the following principal points arise for determination inthis appeal: -H

1. As to whether, on the facts and in the circumstances of thepresent case, transfer of the capital asset (land in question),resulting in capital gains for the purposes of Section 45 of the Actof 1961, was complete on 15.05.1968, the date of notification foracquisition under Section 4 of the Act of 1894; and hence, capitalgains arising out of such acquisition and interest accrued couldnot have been charged to tax with reference to the date of awardi.e., 29.09.1970?

2. As to whether the fact situation of the present case is similarto that of the other case of the appellant in relation to theassessment year 1975-1976 where the same issue relating to thedate of accrual of capital gains was decided by the ITAT in favourof the appellant with reference to the date of taking possession bythe Government; and having not challenged the same, it is notopen for the revenue to question the similar decision of ITAT inthe present case pertaining to the assessment year 1971-1972?

24. For appropriate dealing with the controversy at hand, we maytake note of the relevant statutory provisions in the Income-tax Act,1961, as applicable to the assessment year 1971-1972, as also in theLand Acquisition Act, 1894, as existing at the relevant time.

Statutory Provisions

25. In the Income-tax Act, 1961, the heads of income for thepurpose of computation of total income are defined in Section 14 thatcarries, inter alia, the heading “E. Capital gains”. Part-E of Chapter IVcarries the provisions relating to Capital gains arising from the transferof capital asset. For the purpose of present appeal, the provision relatingto chargeability of capital gains to tax as contained in Section 45 and thedefinition of the expression “transfer” as occurring in clause (47) ofSection 2 of the Act of 1961 are relevant and these provisions, asapplicable to the assessment year 1971-1972 had been as follows.[12]:-

12 In the re-assessment order dated 25.01.1988, the AO had included the amount ofenhanced compensation for computing the quantum of capital gains and this inclusionwas questioned before the CIT(A) but, it was held that as regards enhanced compensation,the AO could have passed the order by virtue of his powers under sub-section (7A) ofSection 155 of the Act of 1961. Though, this aspect is not directly involved in thepresent appeal but, for the sake of reference, we may indicate that Section 155 of theAct deals with the power of amendments of assessment; and sub-section (7A) theretowas inserted by Finance Act, 1978 with retrospective effect from 01.04.1974 and wasomitted by Act No. 4 of 1988 with effect from 01.04.1992. This sub-section (7A) of

A“Section 45. Capital gains.-Any profits or gains arising fromthe transfer of capital asset effected in the previous year shall,save as otherwise provided in sections 53, 54 and 54B bechargeable to income-tax under the head “Capital gains”, andshall be deemed to be the income of the previous year in whichthe transfer took place.”B

“Section 2(47) “transfer”, in relation to capital asset, includesthe sale, exchange or relinquishment of the asset or theextinguishment of any rights therein or the compulsory acquisitionthereof under any law;”

C26. For an overview of the processes envisaged by the LandAcquisition Act, 1894 to bring about lawful acquisition of land, we mayput glance over the principal parts of relevant provisions therein, asexisting at the relevant point of time.

26.1. The process of acquisition, as contained in Part II of theDAct of 1894 could be reasonably taken into comprehension by referenceto Sections 4, 5A, 6, 9, 11 and 16 therein, respectively occurring underthe headings ‘Preliminary Investigation’, ‘Objections’, ‘Declaration ofIntended Acquisition’, ‘Enquiry into Measurements, Value and Claims,and Award by the Collector’ and ‘Taking Possession’. These provisionsor relevant parts thereof, as applicable to the acquisition in question, hadEbeen as under:-

Section 155, as existing at the relevant time of passing the order by the AO, had been asunder:-

“(7A) Where in the assessment for any year, the capital gain arising from thetransfer of capital asset, being transfer by way of compulsory acquisitionFunder any law, or transfer the consideration for which was determined orapproved by the Central Government or the Reserve Bank of India, is computedunder section 48 and the compensation for such acquisition or the considerationfor such transfer is enhanced or further enhanced by any court, tribunal or otherauthority, the computation or, as the case may be, computations made earliershall be deemed to have been wrongly made and the Assessing Officer shall,notwithstanding anything contained in this Act, recompute in accordance withGsection 48 the capital gain arising from such transfer by taking the compensationor the consideration as enhanced or further enhanced, as the case may be, to bethe full value of the consideration received or accruing as result of suchtransfer and shall make the necessary amendment; and the provisions of section154 shall, so far as may be, apply thereto, the period of four years specified insub-section (7) of that section being reckoned from the end of the previous yearin which the additional compensation or consideration was received by theHassessee.”

“4. Publication of preliminary notification and powers ofofficers thereupon.- (1) Whenever it appears to the appropriateGovernment that land in any locality is needed or is likely to beneeded for any public purpose notification to that effect shall bepublished in the Official Gazette, and the Collector shall causepublic notice of the substance of such notification to be given atconvenient places in the said locality.

(2) Thereupon it shall be lawful for any officer, either, generallyor specially authorised by such Government in this behalf, and forhis servants and workmen, -

to enter upon and survey and take levels of any land in suchlocality;

to dig or bore into the sub-soil;

to do all other acts necessary to ascertain whether the land isadapted for such purpose;

to set out the boundaries of the land proposed to be taken andthe intended line of the work (if any) proposed to be madethereon;

to mark such levels, boundaries and line by placing marks andcutting trenches; and,

where otherwise the survey cannot be completed and the levelstaken and the boundaries and line marked, to cut down andclear away any part of any standing crop, fence or jungle:

Provided that no person shall enter into any building or upon anyenclosed court or garden attached to dwelling house (unlesswith the consent of the occupier thereof) without previously givingsuch occupier at least seven days’ notice in writing of his intentionto do so.”

“5A. Hearing of Objections.- (1) Any person interested in anyland which has been notified under section 4, sub-section (1), asbeing needed or likely to be needed for public purpose or for acompany may, within thirty days after the issue of the notification,object to the acquisition of the land or of any land in the locality, asthe case may be.

(2) Every objection under sub-section (1) shall be made to theCollector in writing, and the Collector shall give the objector anopportunity of being heard either in person or by pleader and shall,after hearing all such objections and after making such furtherinquiry, if any, as he thinks necessary, either make report inrespect of the land which has been notified under Section 4, sub-section (1), or make different reports in respect of different parcelsof such land to the appropriate Government, containing hisrecommendations on the objections, together with the record ofthe proceedings held by him, for the decision of that Government.The decision of the appropriate Government on the objectionsshall be final.

(3) For the purposes of this section, person shall be deemed tobe interested in land who would be entitled to claim an interest incompensation if the land were acquired under this Act.”

“6. Declaration that land is required for public purpose.-(1) Subject to the provisions of Part VII of this Act, when theappropriate Government is satisfied after considering the report,if any, made under section 5A, sub-section (2), that any particularland is needed for public purpose, or for company, declarationshall be made to that effect under the signature of Secretary tosuch Government or of some officer duly authorised to certify itsorders and different declarations may be made from time to timein respect of different parcels of any land covered by the samenotification under Section 4, sub-section (1), irrespective ofwhether one report or different reports has or have been made(wherever required) under section 5-A, sub-section (2).

(3) The said declaration shall be conclusive evidence that the landis needed for public purpose or for company, as the case maybe; and, after making such declaration the appropriate Government,may acquire the land in manner hereinafter appearing.”

“9. Notice to persons interested.- (1) The Collector shall thencause public notice to be given at convenient places on or nearthe land to be taken, stating that the Government intends to takepossession of the land, and that claims to compensation for allinterests in such land may be made to him.

(2) Such notice shall state the particulars of the land so needed,and shall require all persons interested in the land to appearpersonally or by agent before the Collector at time and placetherein mentioned (such time not being earlier than fifteen daysafter the date of publication of the notice), and to state the natureof their respective interests in the land and the amount andparticulars of their claims to compensation for such interests, andtheir objections (if any) to the measurements made under Section8. The Collector may in any case require such statement to bemade in writing and signed by the party or his agent.(3) The Collector shall also serve notice to the same effect on theoccupier (if any) of such land and on all such persons known orbelieved to be interested therein, or to be entitled to act for personsso interested, as reside or have agents authorised to receive serviceon their behalf, within the revenue district in which the land issituate.

******”

“11. Enquiry and award by Collector.- On the day so fixed, orany other day to which the enquiry has been adjourned, the Collectorshall proceed to enquire into the objections (if any), which anyperson interested has stated pursuant to notice given underSection 9 to the measurements made under Section 8, and intothe value of the land and at the date of the publication of thenotification under Section 4, sub-section (1), and into the respectiveinterests of the persons claiming the compensation, and shall makean award under his hand of—

(i) the true area of the land;

(ii) the compensation which in his opinion should be allowedfor the land; and

(iii) the apportionment of the said compensation among all thepersons known or believed to be interested in the land, of whom,or of whose claims, he has information, whether or not theyhave respectively appeared before him.”

“16. Power to take possession.- When the Collector has madean award under Section 11, he may take possession of the land,which shall thereupon vest absolutely in the Government, freefrom all encumbrances.”

A26.2. different process was, however, envisaged by Section 17of the Act of 1894 for taking possession in cases of urgency even beforemaking of award but upon the directions of the appropriate Government.The relevant part of that provision had been as under:-

“17. Special powers in cases of urgency.- (1) In cases ofBurgency, whenever the appropriate Government so directs, theCollector, though no such award has been made, may, on theexpiration of fifteen days from the publication of the noticementioned in Section 9, sub-section (1), take possession of anywaste or arable land needed for public purposes or for company.Such land shall thereupon vest absolutely in the Government freeCfrom all encumbrances.

*********”[13]

26.3. One peripheral aspect relating to the treatment of intereston enhanced compensation has also occurred in the present case forDwhich, the CIT(A) in his order dated 31.03.1989, has referred to Section28 of the Act of 1894. This provision, as existing at the relevant time,had been as under:-

“28. Collector may be directed to pay interest on excesscompensation.- If the sum which, in the opinion of the Court,Ethe Collector ought to have awarded as compensation is in excessof the sum which the Collector did award as compensation, theaward of the Court may direct that the Collector shall pay intereston such excess at the rate of six per centum per annum from thedate on which he took possession of the land to the date of payment

of such excess into Court.”[14]F13 We have not extracted the other sub-sections of Section 17 of the Act of 1894, forbeing not relevant in the present case but, for completing the reference to the broadfeatures of process contemplated by Section 17, we may also indicate that sub-section

(4) thereof, as existing at the relevant time had been as under: –

(4) In the case of any land to which in the opinion of the appropriateGovernment, the provisions of sub-section (1) or sub-section (2) are applicable,Gthe appropriate Government may direct that the provisions of Section 5A shallnot apply, and, if it does so direct, declaration may be made under Section 6in respect of the land at any time after the publication of the notification underSection 4, sub-section (1).”

14 Note: We may again observe that the extractions in paragraph 25 are of the provisionsof the Act of 1961 as applicable for the assessment year 1971-1972. Similarly, theextractions in paragraphs 26.1, 26.2 and 26.3 are of the provisions of the Act of 1894Has applicable in the year 1968 when the notification under Section 4 pertaining to thesubject land was issued.

27. Having regard to the relevant provisions of the Act of 1961whereby and whereunder, “capital gains” essentially relate to the transferof capital asset by the assessee; and the background aspects of thepresent case, where the capital asset of the assessee-appellant (land inquestion) was in possession of the beneficiary College even after expiryof the lease on 31.08.1967, it shall also be apposite to take note of fewprovisions of the Transfer of Property Act, 1882[15] concerning the generalconnotation of “transfer of property” as also those relating to thetransaction of lease of immovable property.

27.1. In Section 5, occurring in Chapter II of the Act of 1882, thephrase “transfer of property” is defined as under:-

“5. “Transfer of property” defined.- In the following sections“transfer of property” means an act by which living personconveys property, in present or in future, to one or more otherliving persons, or to himself, or to himself and one or more otherliving persons; and “to transfer property” is to perform such act.

In this section “living person” includes company orassociation or body of individuals, whether incorporated or not,but nothing herein contained shall affect any law for the timebeing in force relating to transfer of property to or by companies,associations or bodies of individuals.”

27.2. The rights and liabilities of lessor and lessee of immovableproperty are delineated in Section 108 of the Act of 1882 and its clause(q) postulates an implied obligation of the lessee to put the lessor intopossession of the property on determination of the lease in the followingwords:-

“108. Rights and liabilities of lessor and lessee. – In theabsence of contract or local usage to the contrary, the lessorand the lessee of immovable property, as against one another,respectively, possess the rights and are subject to the liabilitiesmentioned in the rules next following, or such of them as areapplicable to the property leased:-*********

(q) on the determination of the lease, the lessee is bound to putthe lessor into possession of the property.”

15 For short, ‘the Act of 1882’

A27.2.1. Determination of lease by efflux of time is envisaged inclause (a) of Section 111 of the Act of 1882 as follows:

“111. Determination of lease.- lease of immovable propertydetermines-

(a) by efflux of the time limited thereby;

******”

27.2.2. One of the features of the transaction of lease, in the casewhere lessee remains in possession after determination thereof and thelessor assents to his possession, is dealt with by Section 116 of the Actof 1882 that reads as under:-C

“116. Effect of holding over.- If lessee or under-lessee ofproperty remains in possession thereof after the determination ofthe lease granted to the lessee, and the lessor or his legalrepresentative accepts rent from the lessee or under-lessee, orDotherwise assents to his continuing in possession, the lease is, inthe absence of an agreement to the contrary, renewed from yearto year, or from month to month, according to the purpose forwhich the property is leased, as specified in section 106.”

Point No. 1.

E28. As noticed, the first point for determination revolves aroundthe basic questions as to when did the transfer of the land in question, byway of compulsory acquisition, take place and when did the capital gainsaccrue to the assessee-appellant? The assessee maintains that thistransfer, leading to capital gains, took place on the very date of preliminarynotification (15.05.1968) because, possession of the land in question wasFalready with the beneficiary College. The revenue, however, assertsthat such transfer reached its completion, resulting in capital gains, onlyon the date of award (29.09.1970).

29. For effectual determination of the questions involved, we maytake into comprehension the basic features of the head of incomeGdescribed as “capital gains”.

29.1. As noticed, capital gains are those profits or gains whicharise out of the transfer of capital asset. The expression “capital asset”is defined in Section 2(14) of the Act of 1961. In the present case, muchdilation on this definition is not required because the subject land hadH

indisputably been “capital asset” of the assessee-appellant. We may,however, observe that such definition of ‘capital asset’ is of wideamplitude, taking in its fold the property of any kind held by an assessee,except what has been expressively excluded therein, like stock-in-trade,consumables stores, personal effects, etc.

29.2. The expression “transfer” in relation to capital asset hasbeen defined in Section 2(47) of the Act of 1961. The said definition hasalso been of substantially wide amplitude so as to include sale, exchangeor relinquishment of capital asset; or extinguishment of any rightstherein; or compulsory acquisition thereof. It is also noteworthy that asper the fundamentals in the Act of 1882, “transfer of property” meansan act by which living person conveys property, in present or in future,to one or more other living persons, or to himself, or to himself and oneor more other living persons.

29.3. Thus, the contents of the then existing Section 45 of theAct of 1961 read with the relevant definitions would make it clear thatsuch profits or gains are chargeable to income-tax as “capital gains”that arise out of the transfer of capital asset by any of the recognizedmodes, including sale, exchange, relinquishment and even compulsoryacquisition; and, by fiction, it has been provided that such profits or gainsshall be deemed to be the income of the previous year in which transfertook place. Differently put, capital gains of an assessee, arising fromtransfer of capital asset, are chargeable to tax as income of the previousyear in which transfer had taken place.

30. Applying the aforesaid concepts of “transfer” and “transferof property” to the facts of the present case, it could be readily foundthat when the subject land has been compulsorily acquired, its transferfrom the assessee-appellant to the Government is directly covered bySection 2(47) of the Act of 1961.

30.1. Thus, the basic elements for chargeability of the gains, arisingfrom compulsory acquisition of the subject land, to income-tax under thehead “capital gains”, do exist in the present case. However, the gains soarising would be deemed to be the income of the previous year in whichtransfer took place.

31. Entering into the enquiry as to when had the transfer, of subjectland from the assessee-appellant to the Government, taken place, weneed to take into account the principles governing completion of transfer

Aof land from the owner to the Government in the matters of compulsoryacquisition. Ordinarily, in such matters of compulsory acquisition, thereis structured process prescribed by law, which is required to be compliedwith for lawful acquisition and which has the legal effect of transfer ofownership of the property in question to the acquiring body, usually theappropriate Government. The controversy in the present matter has itsBgenesis in the compulsory acquisition of the land of assessee-appellantunder the Act of 1894 and hence, pertinent it would be to look at theprocesses contemplated by the said enactment.

31.1. brief overview of the scheme of the Act of 1894, asexisting at the relevant point of time, makes it clear that publication ofCpreliminary notification under Section 4 by itself did not vest the propertyin the Government; it only informed about the intention of the Governmentto acquire the land for public purpose. After this notification, in theordinary course, under Section 5A, the Land Acquisition Collector wasrequired to examine the objection, if any, to the proposed acquisition;Dand after examining his report, if so made, the Government was to issuedeclaration under Section 6, signifying its satisfaction that the land wasindeed required for public purpose. These steps were to be followed bynotice under Section 9, stating that the Government intended to takepossession of the land and inviting claims for compensation. Thereafter,the Collector was to make his award under Section 11. As noticedEhereinbefore, as per Section 16 of the Act of 1894, the Land AcquisitionCollector, after making the award, could have taken possession of theland under acquisition and thereupon, the land vested in the Governmentfree from all encumbrances.

31.2. deviation from the process above-noted and somewhatFdifferent process was permissible in Section 17 of the Act of 1894whereunder, in cases of urgency and if the Government had so directed,the Collector could have taken possession of any waste or arable landafter fifteen days from the publication of the notice mentioned in Section9(1), even though the award had not been made; and thereupon, the landGwas to vest in the Government free from all encumbrances.

31.3. In the case of Special Land Acquisition Officer, Bombayand Ors. v. Godrej and Boyce: (1988) 1 SCC 50, while dealing withthe power of the Government to withdraw from the acquisition underSection 48 of the Act of 1894, this Court exposited on the gamut of the

ordinary process of taking possession of the land under acquisition andlegal requirements as also implications thereof, in the following words:-

“5……Under the scheme of the Act, neither the notificationunder Section 4 nor the declaration under Section 6 northe notice under Section 9 is sufficient to divest the originalowner of, or other person interested in, the land of his rightstherein. Section 16 makes it clear beyond doubt that thetitle to the land vests in the government only whenpossession is taken by the government. Till that point oftime, the land continues to be with the original owner andhe is also free (except where there is specific legislation to thecontrary) to deal with the land just as he likes, although it may bethat on account of the pendency of proceedings for acquisitionintending purchasers may be chary of coming near the land. Solong as possession is not taken over, the mere fact of anotification under Section 4 or declaration under Section 6having been made does not divest the owner of his rightsin respect of the land or relieve him of the duty to take care ofthe land and protect it against encroachments. Again, such anotification does not either confer on the State Government anyright to interfere with the ownership or other rights in the land orimpose on it any duty to remove encroachments therefrom or inany other way safeguard the interests of the original owner of theland. It is in view of this position, that the owner’s interests remainunaffected until possession is taken, that Section 48 gives libertyto the State Government to withdraw from the acquisition at anystage before possession is taken…….”

(emphasis in bold supplied)

31.4. In the case of Fruit & Vegetable Merchants Union v.Delhi Improvement Trust: AIR 1957 SC 344, this Court expoundedon variegated features of the term “vesting” as follows:-

“As will presently appear, the term “vesting” has variety ofmeaning which has to be gathered from the context in which Ithas been used. It may mean full ownership, or only possession fora particular purpose, or clothing the authority with power to dealwith the property as the agent of another person or authority…….That the word “vest” is word of variable import is shown byprovisions of Indian statutes also. For example, S. 56 of the

AProvincial Insolvency Act (5 of 1920) empowers the Court at thetime of the making of the order of adjudication or thereafter toappoint receiver for the property of the insolvent and furtherprovides that “such property shall thereupon vest in such receiver.”The property vests in the receiver for the purpose of administeringthe estate of the insolvent for the payment of his debts afterBrealising his assets. The property of the insolvent vests in thereceiver not for all purposes but only for the purpose of theInsolvency Act and the receiver has no interest of his own in theproperty. On the other hand, Ss. 16 and 17 of the LandAcquisition Act (Act 1 of 1894), provide that the propertyCso acquired, upon the happening of certain events, shall“vest absolutely in the Government free from allencumbrances”. In the cases contemplated by Ss. 16 and17 the property acquired becomes the property ofGovernment without any conditions or limitations eitheras to title or possessions. The legislature has made it clearDthat the vesting of the property is not for any limited purposeor limited duration. It would thus appear that the word “vest”has not got fixed connotation, meaning in all cases that theproperty is owned by the person or the authority in whom it vests.It may vest in title, or it may vest in possession, or it may vest in aElimited sense, as indicated in the context in which it may havebeen used in particular piece of legislation…..”

(emphasis in bold supplied)

31.5. The expositions aforesaid leave nothing for debate that inthe matter of compulsory acquisition of land under the Act of 1894 forFpublic purpose, the property was to vest absolutely in the Government(thereby divesting the owner of all his rights therein) only after taking ofpossession in either of the methods i.e., after making of award, asprovided in Section 16; or earlier than making of award, as provided inSection 17. In other words, the owner was divested of the property andGsame vested in the Government in absolute terms only if, and after, thepossession was taken by either of the processes envisaged in Sections16 and 17. However, so long as possession was not taken, the mere factof issuance of notification under Section 4 of the Act of 1894 ordeclaration under Section 6 thereof, did not divest the owner of his rightin respect of the property in question.H

32. Having thus taken note of the general principles governing“capital gains” and “transfer of capital asset in compulsory acquisition”,we may now examine as to when capital gains accrue on transfer of acapital asset in compulsory acquisition.

32.1. The features above-noticed, relating to completion oftransfer by way of compulsory acquisition under the Act of 1894 upontaking of possession by the Government; and such event of takingpossession being the relevant happening for the purpose of Section 45 ofthe Act of 1961, were duly applied by the Courts in various decisionsrelated with taxing of capital gains. As an example, we may usefullyrefer to decision of Karnataka High Court in the case of Buddaiah v.Commissioner of Income-Tax, Karnataka-2: (1985) 155 ITR 277wherein, the High Court referred to the aforesaid decision of this Courtin Fruit & Vegetable Merchants Union and held that since title of landpasses to the Government on possession being taken by the DeputyCommissioner under Section 16 of the Act of 1894, such date of takingpossession becomes relevant for the purposes of Section 45 of the Actof 1961. The High Court said (at p. 281 of ITR),-“The assessee’s contention, therefore, is contrary to the provisionsof s. 16 of the Land Acquisition Act. Since the title of the ownerof the lands acquired under the Land Acquisition Act passes tothe Government on possession being taken by the DeputyCommissioner under s. 16 of the Act, the date of takingpossession becomes relevant for purposes of s. 45 of theI.T. Act, so far as transfer of title is concerned.”

(emphasis in bold supplied)

33. However, the propositions aforesaid do not directly apply to acase where, for any reason, possession of the land had already beentaken by the Government or delivered by the owner before completionof process envisaged by Section 16 or Section 17 of the Act of 1894. Insuch case, the question, obviously, would be as to when has capitalgain accrued? And this is the core of the present matter.

33.1. Taking up the core question, as to when capital gains wouldaccrue in case of compulsory acquisition of land where possessionhad already been taken before reaching of the relevant stage for takingover possession in the structured process contemplated by the statute,we may usefully refer to the decision of Andhra Pradesh High Court in

Athe case of S. Appala Narasamma v. Commissioner of Income-Tax:(1987) 168 ITR 17. Therein, the land of the assessee was acquired forthe Town Planning Trust but, during the course of land acquisitionproceedings, possession of the land was delivered voluntarily by theassessee to the Town Planning Trust on 25.03.1970. The award ofcompensation was made on 22.03.1971. In the assessment proceedings,Bthe question arose, as to in which year did the capital gain arise? Thus,similar question was involved therein, i.e., as to whether the land mustbe deemed to have vested in the State on the date when the possessionwas taken with the consent of the landlord or on the date of award? TheTribunal took the view that the land vested in the Government on theCdate of making of the award and this conclusion was affirmed by theHigh Court. While dealing with the principles relating to vesting of titleand examining the fact situation where possession was taken beforemaking of award, the High Court held that vesting of title to the land wasa matter of law and not matter of inference; and in the given situation,the moment the award was made, possession from that moment onwardsDshould be related to the award; and on that date, the land vested in theGovernment. The High Court said (at pp. 20 and 21 of ITR),-

“Vesting of title to the land is matter of law, not matterof inference. This is case of transfer of property by operationof law and the relevant statute clearly provides the situations inEwhich the land vests, viz., section 16, section 17(1) and section17(2). According to these provisions, the taking of possession perse does not bring about vesting; the taking of possession must beconsequent upon passing of an award (section 16) or an ordercontemplated by section 17(1), or in situation contemplated byFsection 17(2). The Act does not provide for taking of possessionbefore the passing of the award, except in situations contemplatedby section 17 (1) and (2). The question is what is the reasonableview to take in such situation? Should we relate back the awardto the date of taking possession or should we relate the possessionalready taken to the date of the award? We think it moreGreasonable, and consistent with the provisions of the Act, to adoptthe latter view. Since possession taken before the awardcontinues to be with the Government, we must say that themoment the award is passed, possession from that momentonwards should be related to the award. It is on that datethat the land vests in the Government.”H

(emphasis in bold supplied)

33.1.1. While affirming that in the given set of facts, the liability totax for capital gains arose on the date of award, the High Court referredto various decisions on relating back, of the possession previously taken,to the date envisaged by the Act of 1894; and took guidance, inter alia,from the following enunciation by this Court in the case of Lt. Governorof Himachal Pradesh v. Avinash Sharma: (1971) 1 SCR 413:-

“In the present case notification under s. 17 (1) and (4) wasissued by the State Government and possession which hadpreviously been taken must, from the date of expiry of fifteendays from the publication of the notice under s. 9(1), be deemedto be the possession of the Government. We are unable to agreethat where the Government has obtained possession illegally orunder some unlawful transaction and notification under s. 17(1)is issued the land does not vest in the Government free from allencumbrances. We are of the view that when notificationunder s. 17(1) is issued, on the expiration of fifteen daysfrom the publication of the notice mentioned in s. 9(1), thepossession previously obtained will be deemed to be thepossession of the Government under s. 17(1) of the Actand the land will vest in the Government free from allencumbrances.”

(emphasis in bold supplied)

33.2. The said decision in S. Appala Narasamma was followedby the same High Court in the case of Commissioner of Income-Taxv. Pandari Laxmaiah: (1997) 223 ITR 671 where, possession ofthe subject land was taken on 03.08.1977 whereas the preliminarynotification for acquisition was published on 01.09.1977 while notice underSection 9(1) was issued on 20.05.1980 and award was passed on25.03.1981. The High Court held that the relevant date for vesting of theland in the Government would be the date of making the award.

34. Before dilating on the principles aforesaid, we may refer tothe decisions cited by the learned counsel for the parties but, while pointingout at once that the said decisions are not of direct application to thepresent case for, they essentially relate to the right to receivecompensation and not about the date of vesting of the land, with whichwe are concerned in the present matter.

A34.1. Learned counsel for the appellant has laid emphasis on thedecision of the Full Bench of Kerala High Court in the case of PeterJohn (supra). In that case, the High Court essentially dealt with thequestions as to when, in the matters of acquisition of land, the right toreceive compensation arises and as to when interest accrues, as wouldbe evident from the question of law referred, which had been as underB(at p.713 of ITR) :-

“Whether, on the facts and in the circumstances of the case, asper the ratio of the Supreme Court decisions in Shamlal Narulav. CIT [1964] 53 ITR 151 (SC) and Ramanathan Chettiar v. CIT[1967] 63 ITR 458 (SC), the land acquisition interest of Rs. 80,253Cincluded by the Income Tax Officer under section 5(1)(b) of theIncome-tax Act, 1961, in the total income for 1968-69 assessment,accrued de die in diem from the date of taking possession of thelands during the years 1961 and 1962 up to March 31, 1968,inclusive and, therefore, only Rs. 12,626 which accrued de die inDdiem during the concerned previous year of 366 calendar datesfrom April 1, 1967, to March 31, 1968, inclusive should have beenincluded in the total income for 1968-69 assessment and the balanceinterest of Rs. 67,627 should be similarly included on accrual basisunder section 5(1)(b) of the I.T. Act, 1961, in the income for thesix assessment years from 1962-63 to 1967-68 inclusive, as hadEalready been done by the Income Tax Officer by his orders datedJune 6, 1972, for the 1967-68 and 1969-70 assessments? “34.1.1. In relation to the question as to when does the compensationaccrue or when it is deemed to accrue, the High Court referred to theenunciation by this Court in the case of Joginder Singh (supra) andFheld that such right arises immediately on dispossession and does notawait quantification of compensation. The High Court said (at p.716 ofITR), –“When does the compensation accrue or when is it deemed toaccrue? It is well settled that the owner of the property is entitledGto compensation from the date on which he is dispossessed of theproperty on acquisition. This is because what the Land AcquisitionOfficer does is to offer to purchase the property for the marketvalue and when in the process he takes possession of the propertyat whatever stage it might be, the owner of the property is deprivedHof the income and enjoyment of the property from that time.

Whether the offer in regard to the quantum of compensation isaccepted by the land owner straightaway or finally settled by thecourt is different question touching on the quantum ofcompensation, not of the right to receive compensation. We arehere on the question as to from which date the land owner isentitled to receive it. There could be absolutely no doubt that bothstatutorily and in equity, the land owner has right to receivecompensation on the day on which he is dispossessed of theproperty. That right arises immediately on dispossession and doesnot await quantification of the compensation by the LandAcquisition Officer or by the court…..”

34.1.2. Further, in relation to the question as to when does theright to receive interest accrue or when it is deemed to accrue, the HighCourt again referred to the enunciation in Joginder Singh (supra) andheld that it would not be at point of time other than the date when theright to receive compensation accrues. The High Court again said (atpp.717-718 and 722 of ITR), –

“Now, the question is, when does the right to receive interestaccrue or is deemed to accrue; could it be at point of time otherthan the date on which the right to receive compensation accrues?It could not be, as we have already noticed that the right to receivecompensation accrues on dispossession of the land owner fromthe property on acquisition. He has right in praesenti to receivecompensation, though it might actually be quantified or paid at alater stage. If the entire compensation or true compensation asthe Supreme Court would have it in Joginder Singh’s case, AIR1985 SC 382: [1985] 1 SCWR 110, to which the land owner wasentitled, on correct evaluation on the basis of the standards andguidance under sections 23 and 24, was paid the moment he wasdispossessed of the property, no question of right to interest wouldsurvive. It is only where the compensation payable is not paid onthe date when it was actually due, in order to compensate the lossarising out of the deprival of the use of the amount, that interest ispaid till the date of actual payment. That the right to receive interestarises on the date of dispossession on which date the land owneris entitled to receive compensation, admits of no doubt….

AIn the light of the foregoing discussions, our conclusion is thatinterest on compensation awarded with respect to the landacquired under the Land Acquisition Act runs from day to day,accruing from the date on which the Government took possessionof the land, that being the date on which the land owner’s right toreceive the entire compensation arises, though determined andBpaid later….”

34.1.3. The principles aforesaid, that the right to receivecompensation comes into being the moment Government takes possessionof the property acquired; and the right to receive interest also accrues atthe point of time when the right to receive compensation accrues andCruns day to day, do not correspondingly result in completion of transferof the property under acquisition and accrual of such gain that mayclassify as “capital gain”. As noticed, in the matters of compulsoryacquisition, accrual of capital gain depends upon completion of transferof property from the owner to the Government and not upon accrual ofDright to receive compensation. Therefore, reference to the decision inPeter John (supra) is entirely inapt in the present case.

34.2. In the case of Rama Bai (supra), this Court dealt with abatch of appeals and references essentially involving the questionregarding the point of time at which the interest payable under SectionsE28 and 34 of the Act of 1894 accrues or arises, where such interest ispaid on enhanced compensation awarded on reference under Section18 or on further appeal to the High Court and/or the Supreme Court.This Court found that the issue stood concluded by the decision inCommissioner of Income-Tax v. Govindrajulu Chetty (T.N.K.):[1987] 165 ITR 231; and it was held that the interest cannot be takenFto have accrued on the date of the order granting enhanced compensationbut has to be taken as having accrued year after year from the date ofdelivery of possession. This Court said as under:-

“……we are of the opinion that the appeals before us (CivilAppeal No. 810 of 1974 and Civil Appeal No. 3027 of 1988) haveGto be allowed and the references made under section 257 (Taxreference Cases Nos. 3 of 1976 and 1 to 3 of 1978) have to beanswered by saying that the question of accrual of interest willhave to be determined in accordance with the above decision ofthis court. The effect of the decision, we may clarify, is that theinterest cannot be taken to have accrued on the date of the orderH

of the court granting enhanced compensation but has to be takenas having accrued year after year from the date of delivery ofpossession of the lands till the date of such order.”

34.2.1. Obviously, the decision in Rama Bai (supra), does notrelate to the questions at hand as regards completion of transfer so as toresult in capital gains. In fact, the principles aforesaid are relevant onlyto the second part of the re-assessment order dated 25.01.1988, whereby,as regards interest income, the AO carried out protective assessment onaccrual basis at the rate of 12% per annum for the previous year relevantto the assessment year in question i.e., for the period 01.04.1970 to31.03.1971.

34.3. Again, the decision of this Court cited by learned counselfor the revenue in the case of Joginder Singh (supra), which wasfollowed by the Kerala High Court in Peter John (supra), relates to theright to receive compensation and the right to receive interest. In thatcase, the question was about the date from which interest had to begranted and arose in the circumstances that though the High Courtenhanced the amount of compensation for acquisition and awarded 6%per annum as the rate of interest on the amount of compensationdetermined by the Land Acquisition Officer and the District Judge but,restricted such rate of interest on the amount of compensation enhancedby it at 4% per annum from the date of possession and 6% per annumfrom the date of its judgement. In that context, this Court held that theHigh Court erred in restricting the rate of interest on the enhanced amountof compensation because owner of the land was entitled to be paid thetrue value of land on the date of taking over of possession; and merelybecause the amount was determined later did not mean that the right toamount came into existence at later date. This Court also observedthat when the High Court held that the rate of interest at 6% per annumwas applicable from the date of possession in relation to the componentof compensation determined by the District Judge, there was no reasonwhy the same rate should not be applied from the date of taking overpossession in relation to the component of enhancement effected by theHigh Court. For the reasons already discussed, this judgement also doesnot directly relate with the question of completion of transfer for accrualof capital gain.

34.4. The case of Bombay Burmah Trading Corpn. Ltd. (supra),is also inapplicable to the present case because therein, the questions

Abasically related to the amount of damages received by the assesseedue to the loss suffered during World War II. The observations therein,again, do not have bearing on the question as to when the transfer ofland, in the matter of compulsory acquisition, be treated as complete soas to result in capital gains.

B35. Therefore, the aforesaid decisions cited by the learned counselfor parties, even if of guidance on the question relating to the right toreceive compensation, do not directly assist us in determination of thecore question involved in this matter because, income-tax on capital gainsis not levied on the mere right to receive compensation. For chargeabilityof income-tax, the income ought to have either arrived or accrued.CIn the matter of acquisition of land under the Act of 1894, taking over ofpossession before arrival of relevant stage for such taking over maygive rise to potential right in the owner of the property to make claimfor compensation but, looking to the scheme of enactment, it cannot besaid that transfer resulting in capital gains is complete with taking overDof possession, even if such taking over had happened earlier than thepoint of time of vesting contemplated in the relevant provisions.35.1. The decision of this Court in the case of Avinash Sharma(supra), however, supports the view that in the case of urgency acquisition,even if possession of the land under acquisition is taken earlier, it shouldEbe related to the process contemplated by Section 17 (1) of the Act of1894, and deemed to be effective from the date on which the periodprescribed by Section 17 (1) would expire that is, fifteen days from thepublication of the notice under Section 9(1) of the Act of 1894. In S.Appala Narasamma and Pandari Laxmaiah (supra), the AndhraPradesh High Court applied these principles to the cases pertaining toFordinary process of acquisition and held that if possession had been takenearlier, it would relate to the award; and the date of award would be therelevant date for vesting of the land in the Government.

35.2. In an overall conspectus of the matter, we are clearly of theview that the statements of law in the aforesaid decisions of AndhraGPradesh High Court, based on the enunciations by this Court in the caseof Avinash Sharma (supra), are rather unquestionable and need to begiven imprimatur for application to the controversy like the present one.

36. For what has been discussed hereinabove, in our view, in thematters relating to compulsory acquisition of land under the Act of 1894,Hcompletion of transfer with vesting of land in the Government essentially

correlates with taking over of possession of the land under acquisitionby the Government. However, where possession is taken over beforearriving of the relevant stage for such taking over, capital gains shall bedeemed to have accrued upon arrival of the relevant stage and not before.To be more specific, in such cases, capital gains shall be deemed to haveaccrued: (a) upon making of the award, in the case of ordinary acquisitionreferable to Section 16; and (b) after expiration of fifteen days from thepublication of the notice mentioned in Section 9 (1), in the case of urgencyacquisition under Section 17.

37. As per the facts-sheet noticed hereinbefore, in the presentcase, the land in question was subjected to acquisition under the Act of1894 by adopting the ordinary process leading to award under Section11. Therefore, ordinarily, capital gains would have accrued upon takingover of possession after making of the award. Consequently, capitalgains to the assessee-appellant for the acquisition in question could nothave accrued before the date of award i.e., 29.09.1970.

38. However, on the strength of the submissions that the land inquestion had already been in possession of the beneficiary of acquisition,it has been suggested on behalf of the assessee-appellant that the landvested in the Government immediately upon issuance of notification underSection 4 of the Act of 1894 i.e., 15.05.1968 and capital gain accrued onthat date. This suggestion and the contentions founded thereupon remaintotally meritless for variety of factors as indicated infra.

38.1. Even if we keep all other aspects aside and assume thatthe land in question was, or came, in possession of the Governmentbefore passing of the award, the position of law stated in point (a) ofparagraph 36 hereinabove would apply; and capital gains shall be deemedto have accrued upon arrival of the relevant stage of taking possessioni.e., making of award and hence, capital gains cannot be taken to haveaccrued before the date of award i.e., 29.09.1970.

38.2. In order to wriggle out of the above-mentioned plainoperation of law, it has been desperately suggested on behalf of theappellant that it had been case of urgency acquisition and hence, theprocess contemplated by Section 17 of the Act of 1894 would apply.This suggestion is also baseless and suffers from several infirmities.

38.2.1. In the first place, it is evident on the face of the recordthat it had not been matter of urgency acquisition and nowhere it

Aappears that the process contemplated by Section 17 of the Act of 1894was resorted to. Even the contents of the award dated 29.09.1970 makeit clear that the learned Land Acquisition Collector only awarded interestfrom the date of initial notification for the reason that the land was inpossession of the College but, it was nowhere stated that he had receivedany directions from the Government to take possession of the land beforeBmaking of the award while acting under Section 17.

38.2.2. Secondly, if at all the proceedings were taken under Section17 of the Act of 1894, the land could have vested in the Governmentonly after expiration of fifteen days from the date of publication of noticeunder Section 9(1); and, in any case, could not have vested in theCGovernment on the date of publication of initial notification under Section4 of the Act of 1894. Significantly, the assessee-appellant did not divulgethe date of publication of notice under Section 9(1) of the Act of 1894despite the queries of the Assessing Officer. The suggestion aboutapplication of the process contemplated by Section 17 of the Act ofD1894 remains totally unfounded.

39. In view of the above, the only question that remains is as towhat is the effect of possession of College over part of the subjectland at the time of issuance of initial notification for acquisition.

39.1. Going back to the facts-sheet, it is not in dispute that largeEpart of the subject land was given on lease to the College[16] and the saidlease expired on 31.08.1967 but, the land continued in possession of theCollege. The legal effect of these facts could be gathered from therelevant provisions of the Transfer of Property Act, 1882 and theenunciations by the Courts.F

39.2. As noticed, where the time period of any lease of immovableproperty is limited, it determines by efflux of such time, as per Section111(a) of the Act of 1882. Further, in terms of Section 108(q) of the Actof 1882, on determination of lease, the lessee is bound to put the lessorinto possession of the leased property. In case where lessee does notGdeliver possession to the lessor after determination of the lease but thelessor accepts rent or otherwise assents to his continuing in possession,in the absence of an agreement to the contrary, the status of such lesseeis that of tenant holding over, in terms of Section 116 of the Act of 1882.

16 As noticed from the contents of the award, the land comprising Khasra Nos. 361 andH364 admeasuring 5 kanals and 7 marlas was not on lease with the College

But, in the absence of acceptance of rent or otherwise assent by thelessor, the status of lessee is that of tenant at sufferance.

39.3. The aforesaid aspects relating to the status of parties afterexpiry of the period of lease remain well settled and do not require muchelaboration. However, for ready reference, we may point out that in thecase of Nand Ram (D) through LRs. and Ors. v. Jagdish Prasad(D) through LRs.: 2020 (5) SCALE 723, this Court has re-expoundedthe relevant principles in sufficient details, albeit in different context.The relevant background of the said case had been that the land ofplaintiff was taken on lease by the defendant where it was agreed thatthe plaintiff-lessor will not seek ejectment of defendant-lessee except inthe case where the rent for one year remained in arrears. The entireleased land was acquired under the Act of 1894. The Land AcquisitionCollector determined the amount of compensation but then, dispute arosewith regard to apportionment between the plaintiff and the defendantfor which, the matter went in reference. The Reference Court held thatlessee having not paid rent for more than twelve months, the lease hadcome to end and, therefore, he had no right to claim any share in thecompensation. Later on, part of the land was de-notified from acquisitionand that part remained in possession of the defendant-lessee. Thereafter,the plaintiff-lessor took up action claiming possession of the land byfiling suit against the defendant-lessee. The suit was decreed by theTrial Court and the decree was affirmed by the First Appellate Court.However, the High Court allowed the second appeal holding that thefinding recorded in the award about the lease coming to an end operatedas res judicata and the suit was filed beyond the period of limitation. Infurther appeal, this Court did not approve the decision of High Courtand, in the course of allowing the appeal, exposited on the principlesrelating to the status of parties after expiry of the lease but retention ofpossession by the lessee, inter alia, in the following passage:-

“29. The Defendant was inducted as lessee for period of 20years. The lease period expired on 23rd September, 1974. Even ifthe lessee had not paid rent, the status of the lessee would notchange during the continuation of the period of lease. The lessorhad right to seek possession in terms of Clause 9 of the leasedeed. The mere fact that the lessor had not chosen to exercisethat right will not foreclose the rights of the lessor as owner of theproperty leased. After the expiry of lease period, and in the

absence of payment of rent by the lessee, the status of thelessee will be that of tenant at sufferance and not tenantholding over. Section 116 of the TP Act confers the status of atenant holding over on yearly or monthly basis keeping in viewthe purpose of the lease, only if the lessor accepts the payment oflease money. If the lessor does not accept the lease money, thestatus of the lessee would be that of tenant at sufferance. ThisCourt in the judgments reported as Bhawanji Lakhamshi andOrs. v. Himatlal Jamnadas Dani and Ors. (1972) 1 SCC 388,Badrilal v. Municipal Corp. of Indore : (1973) 2 SCC 388 andR.V. Bhupal Prasad v. State of A.P. and Ors.: (1995) 5 SCC698 and also judgment in Sevoke Properties Ltd. v. West BengalState Electricity Distribution Co. Ltd. examined the scope ofSection 116 of the TP Act and held that the lease would be renewedas tenant holding over only if the lessor accepts the pay-ment ofrent after the expiry of lease period. This Court in BhawanjiLakhamshi held as under:“9. The act of holding over after the expiration of the termdoes not create tenancy of any kind. If tenant remains inpossession after the determination of the lease, the commonlaw rule is that he is tenant on sufferance. distinction shouldbe drawn between tenant continuing in possession after thedetermination of the term with the consent of the landlord anda tenant doing so without his consent. The former is tenantat sufferance in English Law and the latter tenant holdingover or tenant at will. In view of the concluding words ofSection 116 of the Transfer of Property Act, lessee holdingover is in better position than tenant at will. The assent ofthe landlord to the continuance of possession after thedetermination of the tenancy will create new tenancy. Whatthe section contemplates is that on one side there should be anoffer of taking new lease evidenced by the lessee or sub-lessee remaining in possession of the property after his termwas over and on the other side there must be definite consentto the continuance of possession by the landlord expressed byacceptance of rent or otherwise. ……”

(emphasis in bold supplied)

39.3.1. Further, in Nand Ram (supra), this Court also quoted withapproval the principles stated by Delhi High Court in the case of MECIndia Pvt. Ltd. v. Lt. Col. Inder Maira & Ors.: 80 (1999) Delhi LawTimes 679. relevant part of such quotation from the decision of DelhiHigh Court may also be usefully noticed for the present purpose asunder:-

“43. Thus, tenant at sufferance is one who wrongfully continuesin possession after the extinction of lawful title and that tenancyat sufferance is merely legal fiction or device to avoid continuancein possession from operating as trespass. tenant remaining inpossession of the property after determination of the lease doesnot become trespasser, but continues as tenant at sufferancetill possession is restored to the landlord. The possession of anerstwhile tenant is juridical and he is protected from dispossessionotherwise than in due course of law. Although, he is tenant, butbeing one at sufferance as aforesaid, no rent can be paid since, ifrent is accepted by the landlord he will be deemed to haveconsented and tenancy from month-to-month will come intoexistence. Instead of rent, the tenant at sufferance and by hismere continuance in possession is deemed to acknowledge boththe landlord’s title and his (tenant’s) liability to pay mesne profitsfor the use and occupation of the property.”

39.4. The said principles, when applied to the present case, leavenothing to doubt that in relation to that part of the land in question whichwas given on lease, possession of the College, after determination of thelease on 31.08.1967, was only that of tenant at sufferance because ithas not been shown if the lessor i.e., the appellant accepted rent orotherwise assented to the continuation of lease. The possession of Collegeover the part of land in question being only that of tenant at sufferance,had the corresponding acknowledgment of the title of the appellant andof the liability of the College to pay mesne profits for use and occupation.The same status of the parties qua the land under lease existed on thedate of notification for acquisition i.e., 15.05.1968 and continued evenuntil the date of award i.e., 29.09.1970. In other words, even until thedate of award, the appellant-assessee continued to carry its status asowner of the land in question and that status was not lost only because apart of the land remained in possession of the College. In this view ofthe matter, the suggestion that the land vested in the Government on the

Adate of initial notification remains totally baseless and could only berejected.

39.5. Apart from the above, the significant factor for which theentire case of the assessee-appellant is knocked to the ground is thatneither on the date of notification i.e., 15.05.1968 nor until the date ofBaward, the Government took over possession of the land in question. Asnoticed, the possession had been of the erstwhile lessee, the College.Even if the said College was going to be the ultimate beneficiary of theacquisition, it cannot be said that immediately upon issuance of notificationunder Section 4 of the Act of 1894, its possession became the possessionof the Government. Its possession, as noticed, remained that of tenant atCsufferance and not beyond.

39.6. Viewed from any angle, it is clear that accrual of capitalgains in the present case had not taken place on 15.05.1968. If at allpossession of the College was to result in vesting of the land in theGovernment, such vesting happened only on the date of award i.e.,D29.09.1970 and not before. In other words, the transfer of land from theassessee-appellant to the Government reached its completion not before29.09.1970 and hence, the earliest date for accrual of capital gainsbecause of this acquisition was the date of award i.e., 29.09.1970.Therefore, the assessment of capital gains as income of the appellantEfor the previous year relevant to the assessment year 1971-1972 doesnot suffer from any infirmity or error.

40. An incidental aspect of the submissions on behalf of theappellant that interest and solatium accrued on 15.05.1968 as per theaward and that being the income pertaining to the financial year 1968-F1969 could not have been taxed in the assessment year 1971-1972, alsodeserves to be rejected for the reasons foregoing and for additionallythe reason that in his order dated 25.01.1988, the AO has consciouslymade protective assessment on accrual basis on the interest componentreferable to the previous year 1970-1971, relevant for the assessmentyear 1971-72.G

40.1. We may also usefully observe that awarding of interest from15.05.1968 in the award had only been just and equitable application ofthe provisions of law, including Section 28 of the Act of 1894 but that didnot result in vesting of the land in Government on that date of notification.

41. For what has been discussed hereinabove, the answer to PointHNo. 1 is clearly in the negative i.e., against the assessee-appellant and in

favour of the revenue that on the facts and in the circumstances of thepresent case, transfer of the capital asset (land in question), for thepurposes of Section 45 of the Act of 1961, was complete only on29.09.1970, the date of award and not on 15.05.1968, the date ofnotification for acquisition under Section 4 of the Act of 1894; and hence,capital gains arising out of such acquisition have rightly been charged totax with reference to the date of award i.e., 29.09.1970.

Point No. 2

42. Though we have found that vesting of land in question for thepurpose of accrual of capital gains in this case was complete only on thedate of award that falls within the previous year relevant for theassessment year 1971-72, the question still remains, in view of thesubmissions made on behalf of the appellant, about the effect of thedecision of ITAT in relation to the other case of the assessee-appellantfor the assessment year 1975-1976 where the issue concerning date ofaccrual of capital gains was decided against the revenue with referenceto the date of taking possession. Admittedly, the said decision for theassessment year 1975-1976 was not appealed against and had attainedfinality. Hence, it has been argued on behalf of the appellant that it is notopen for the revenue to question the similar decision of ITAT in thepresent case pertaining to the assessment year 1971-1972.43. We may gainfully recapitulate that in the case pertaining tothe assessment year 1975-1976, the question of capital gains arose inthe backdrop of the facts that another parcel of land of the appellantwas acquired for the purpose of construction of warehouse of AmbalaCity. The notification under Section 4 of the Act of 1894 was issued on26.06.1971 and the award of compensation was made on 27.06.1974but, possession of the said land was taken by the Government on04.09.1972 i.e., before making of the award. In the given set of factsand circumstances, in ITA No.635/Chandi/84, the ITAT accepted thecontention that the case fell under the urgency provision contained inSection 17 of the Act of 1894 where the assessee was divested of thetitle to the property, that vested in the Government with effect from04.09.1972, the date of taking over possession. Hence, the ITAT heldthat the capital gains arising from the said acquisition were not assessablefor the accounting period relevant for the assessment year 1975-1976.

43.1. Learned counsel for the appellant has strenuously arguedthat the revenue is not entitled to take different stand in the present

Acase pertaining to the assessment year 1971–1972, after having acceptedthe said decision pertaining to the assessment year 1975–1976 where itwas held that capital gains accrued on the date of taking over possessionof the land under acquisition by the Government. The learned counselhas relied upon the following observations in Berger Paints India Ltd.(supra):-B

“In view of the judgments of this court in Union of Indiav. Kaumudini Narayan Dalal [2001] 249 ITR 219; CIT v.Narendra Doshi [2002] 254 ITR 606 and CIT v. Shivsagar Estate[2002] 257 ITR 59, the principle established is that if the Revenuehas not challenged the correctness of the law laid down by theCHigh Court and has accepted it in the case of one assessee, thenit is not open to the Revenue to challenge its correctness in thecase of other assessees, without just cause.”

44. The question is whether the above-noted observations applyto the present case? In our view, the answer to this question is clearly inDthe negative for more than one reason.

44.1. In the first place, it is ex facie evident that the matterinvolved in the said case pertaining to the assessment year 1975-1976was taken to be an acquisition under the urgency provision contained inSection 17 of the Act of 1894 whereas, the acquisition proceedings inEthe present case had not been of urgency acquisition but had been ofordinary process where possession could have been taken only underSection 16 after making of the award. As noticed, the very structure ofthe ordinary process leading to possession under Section 16 of the Actof 1894 has been different than that of the urgency process under SectionF17; and the said decision pertaining to the proceedings under Section 17of the Act of 1894 cannot be directly applied to the present case.

44.2. Secondly, the fact that the said case relating to theassessment year 1975-1976 was not akin to the present case was indicatedby the ITAT itself. As noticed, both the cases, i.e., the present one relatingGto the assessment year 1971-1972 (in ITA No. 634/Chandi/84) and thatrelating to the assessment year 1975-1976 (in ITA No. 635/Chandi/84)were decided by ITAT on the same date i.e., 19.12.1985. While theanswer in relation to the assessment year 1975-1976 was given by theITAT in favour of assessee-appellant to the effect that possession havingbeen taken on the specified date i.e., 04.09.1972, capital gains were notH

assessable for the assessment year 1975-1976 but, while deciding theappeal relating to the present case for the assessment year 1971-1972,the ITAT found that the date of taking over possession was not availableand hence, the matter was restored to the file of the ITO to find out theactual date of possession.[17]

44.3. Thirdly, even if we assume that the stand of revenue in thepresent case is not in conformity with the decision of ITAT in relation tothe assessment year 1975-1976, it cannot be said that revenue has nojust cause to take such stand. As noticed, while rendering the decisionin relation to the assessment year 1975-1976, the ITAT did not notice theprinciples available in various decisions including that of this Court inAvinash Sharma (supra) that even in the case of urgency acquisitionunder Section 17 of the Act of 1894, land was to vest in Government noton the date of taking over possession but, only on the expiration of fifteendays from the publication of the notice mentioned in Section 9(1). Lookingto the facts of the present case and the law applicable, in our view, therevenue had every reason to question the correctness of the later decisionof ITAT dated 29.06.1990 in the second round of proceedings pertainingto the assessment year 1971-1972.

44.4. Fourthly, the ITAT itself on being satisfied about the questionof law involved in this case, made reference by its order dated15.07.1991 to the High Court. The High Court having dealt with thematter in the reference proceedings and having answered the referencein conformity with the applicable principles, the assessee cannot be heardto question the stand of the revenue with reference to the other orderfor the assessment year 1975-1976. In any case, it cannot be said thatthe decision in relation to the assessment year 1975-1976 had been ofany such nature which would preclude the revenue from raising theissues which are germane to the present case.

45. Hence, the answer to Point No. 2 is also clearly in the negativei.e., against the assessee-appellant and in favour of the revenue that thefact situation of the present case relating to the assessment year 1971-1972 is not similar to that of the other case of the appellant relating to theassessment year 1975-1976 and the revenue is not precluded from taking

17 Of course, one observation was made by the ITAT in the order dated 19.12.1985relating to the present case that possession of the land in question was taken beforemaking of the award. However, this observation turns out to be incorrect on facts asalso in law, for the reasons mentioned hereinbefore in Point No. 1.

Athe stand that the transfer of capital asset in the present case was completeonly on the date of award i.e., on 29.09.1970.

Conclusion

46. For what has been discussed hereinabove, we have not aniota of doubt that in the second round of proceeding, the AO had rightlyBassessed the tax liability of the appellant, on long-term capital gains arisingon account of acquisition, on the basis of the amount of compensationallowed in the award dated 29.09.1970 as also the enhanced amount ofcompensation accrued finally to the appellant; and as regards interestincome, had rightly made protective assessment on accrual basis.

47. In the result, this appeal fails and is, therefore, dismissed. Nocosts.

Ankit Gyan

Appeal dismissed.