Leila Advani Vs ACIT (ITAT Mumbai)
Held that compensation with interest received by the assessee up to the date of land acquired pursuant to the Hon’ble Supreme Court order should be taxed under the head “Capital Gains”.
Facts-
The appellant is an Individual filed her return of income for the year under consideration on 28-09-2011, declaring total income of Rs 3,81,39,318 /-. The case was selected for scrutiny and relevant notices u/s 143 (2) and 142(1) were issued and duly served on the assessee. A.O. assessed the total income of the assessee at Rs 23, 15, 90,770/-.
During the year under consideration the appellant received the compensation under compulsory acquisition of her plot at Worli. The said compensation consist of interest component on the originally awarded amount the appellant has 1/3rd share of the property and the consideration awarded along with interest component was offered as sales consideration and was declared under the head business income. A.O. issued show cause notice to the appellant asking her to explain why the amount of interest received should not be treated as income from other sources and compensation received shouldn’t be treated under the head capital gains. The A.O. also questioned the estimation of land at Rs 2,00,000/- per square meter as on 01-04-2000 and the basis of adopting the FMV as on 01-04-1981 at Rs 10,000/- per square meter and why the same shouldn’t be treated at Rs 1000 per square meter. A.O. called for other details also w.r.t the eligible investment claimed as deduction u/s 54F and the professional fee claimed of Rs 4,80,12,787/-.
After obtaining the explanations and submissions of the assessee, A.O. analyzed the details furnished w.r.t assessee’s contention of income to be assessed under the head business income considering the plot as stock in trade is reversed by the A.O. stating that no business income was accrued to the assessee in the said transaction. A.O. considered the interest income of Rs 14, 71, 54,166/ under the head income from other sources. The compensation received is treated as capital gains and recomputed such long term capital gains on sale of plot at Worli taking the FMV as on 01-04-1981 as per the valuation report only for the land part, stating that there is no permanent structure and the ministry of defense also doesn’t specify any structure on the land and on such land pert allowed the indexation. While doing so, A.O. disallows the deduction claimed u/s 54F also.
Now we will deal the appeal under consideration with reference to various grounds of appeal taken by the appellant against the order of Ld. CIT (Appeal)-30, Mumbai.
Conclusion-
Held that the interest paid to the assessee for any delay in payment of the compensation from the date of acquisition of the property in pursuance to Hon’ble Supreme Court order, the same should be taxed under the head “Income from other sources” and compensation with interest received by the assessee up to the date of land acquired pursuant to the Hon’ble Supreme Court order should be taxed under the head “Capital Gains”.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. These two are the cross appeals by the assessee and the Revenue are directed against the order of Commissioner of Income Tax (Appeals)-30, Mumbai [hereinafter referred to as ‘the CIT (A)’] vide common order dated 26.02.2016 for the Assessment Years (AY) 2011-12. In ITA No. 3286/Mum/2016, the revenue has raised the following grounds of appeal:
1. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to ascertain the quantum of interest received by the assessee on such compensation up to the date of land acquisition by the Ministry of Defence Special Land Acquisition Officer pursuant to the Supreme Court order and tax the same under the head ‘Capital Gain in terms of section 45(5)(b) r.w.s. 48 of the I.T Act and the balance interest paid to assessee for any delay in payment of the compensation from the date of acquisition of the property in pursuance to High Court/Supreme Court order, as ‘Income from Other Sources?
2. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to allow a deduction of 50% of that portion of the aggregate compensation received by the assessee liable to be taxed under the head ‘Income from Other Sources?”
3. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to allow the legal expenses, if any, directly incurred by the assessee, u/s. 48(1) of the Act, while working out the Capital Gain as directed.?”
4. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to allow the deduction under section 54F to the extent of the amount eligible and calculated as per provisions of section 54F, aggregating to Rs. 17,65,16,000/-?”
5. The appellant prays that the order of the Learned CIT (A) on the above ground be set aside and that of the AO be restored.
6. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
2. In ITA No. 2270/Mum/2016, the assessee has raised the following grounds of appeal:
“The under mentioned grounds are without prejudice to one another.
1. The Commissioner of Income-tax (Appeals) erred in rejecting the appellant’s claim that the payment to Mr. Kishore Mansukhani on the successful transfer of property was in fact “diversion of income by overriding title” and the sale proceeds should accordingly be reduced.
2. Without prejudice to Ground 1 above, the CIT (A) erred in restricting the deduction u/s 48(i) of the Income Tax Act, 1961 to legal expenses incurred by Mr. Kishore Mansukhani, ignoring the fact that the entire payment to Mr. Kishore Mansukhani represents expenditure incurred wholly and exclusively in connection with the transfer of the said property and so, fully deductible.
3. The AO erred in considering the Cost Inflation Index (CII) for FY 1994-95 as the year in which the assessee transferred the asset instead of the CII for FY 2010-11 being the year in which the ownership of the asset is actually transferred pursuant to the decision of the Supreme Court.
4. The appellant craves leaves to add, alter, amend and/or supplement any ground or grounds, if necessary, at the time of hearing of the appeal.”
3. Brief facts of the case are that the assessee has filed return of income on 28.09.2011 declaring total income at Rs. 3,81,39,318/-. The case was selected for scrutiny and accordingly the statutory notices under section 143(2) & 142(1) of the Income Tax Act, 1961 (for short ‘the Act’) were issued and duly served on the assessee.
4. The appellant is an Individual filed her return of income for the year under consideration on 28-09-2011, declaring total income of Rs 3,81,39,318 /-. The case was selected for scrutiny and relevant notices u/s 143 (2) and 142(1) were issued and duly served on the assessee. A.O. assessed the total income of the assessee at Rs 23, 15, 90,770/-
5. During the year under consideration the appellant received the compensation under compulsory acquisition of her plot at Worli. The said compensation consist of interest component on the originally awarded amount the appellant has 1/3rd share of the property and the consideration awarded along with interest component was offered as sales consideration and was declared under the head business income. A.O. issued show cause notice to the appellant asking her to explain why the amount of interest received should not be treated as income from other sources and compensation received shouldn’t be treated under the head capital gains. The A.O. also questioned the estimation of land at Rs 2,00,000/- per square meter as on 01-04-2000 and the basis of adopting the FMV as on 01-04-1981 at Rs 10,000/- per square meter and why the same shouldn’t be treated at Rs 1000 per square meter. A.O. called for other details also w.r.t the eligible investment claimed as deduction u/s 54F and the professional fee claimed of Rs 4,80,12,787/-
6. After obtaining the explanations and submissions of the assessee, A.O. analyzed the details furnished w.r.t assessee’s contention of income to be assessed under the head business income considering the plot as stock in trade is reversed by the A.O. stating that no business income was accrued to the assessee in the said transaction. A.O. considered the interest income of Rs 14, 71, 54,166/ under the head income from other sources. The compensation received is treated as capital gains and recomputed such long term capital gains on sale of plot at Worli taking the FMV as on 01-04-1981 as per the valuation report only for the land part, stating that there is no permanent structure and the ministry of defense also doesn’t specify any structure on the land and on such land pert allowed the indexation. While doing so, A.O. disallows the deduction claimed u/s 54F also.
7. Now we will deal the appeal under consideration with reference to various grounds of appeal taken by the appellant against the order of Ld. CIT (Appeal)-30, Mumbai.
8. Appellant raised 4 grounds of appeal originally at the time of filing of appeal. Out of these 4 grounds, ground no. 4 is general in nature hence not required any adjudication Thereafter assessee raised an additional ground no. 5 and modification in ground no. 1 under rule-11 of the appellate tribunal rules 1963 vide letter dated 2nd May 2018 filed on 3rd May 2018. Although Ground no.5 is also not pressed vide assessee’s letter dated 7th June 2022.
9. Ground no. 1 and 2 are interlinked hence adjudicated by common finding
10. Relevant facts to decide ground no.1 and 2 are as under:
i) A notification u/s (4) of the land acquisition act (LAA) was issued on 04-02-1995 and the award of the special land acquisition officer (SLAO) was issued on 30-05-1995. This land was in possession of ministry of defense (Government of India) since before independence
ii) No further steps were taken by the Government authorities towards acquisition formalities. Thereafter on 21-01-1999 the notification for suo-moto withdrawal was issued resulting in acquisition initiated by the govt. was rendered null and void ab-initio.
iii) Thus, the appellant along with her co-owners, had encumbered rights in the said property and were legally entitled to deal with the land in any manner deemed fit. Accordingly to commercially exploit the land by developing the same and constructing residential flats thereon, the appellant and the co-owners, identified Mr Kishore Mansukhani who had experience in land development and construction to partner in the business of land development. With a view to maximize profit and in the view of the fact that neither the appellant, his mother or sister could undertake the development of land themselves, the appellant and the co-owner entered into the joint venture agreement on 23 May 2000 with Mr. Kishore Manusukhani to maximize the gains on the commercial exploitation of the land.
iv) Under the circumstances, the capital asset being land, was converted into Stock-in – Trade. Mr. Kishore Manusukhani was mandated to commence the development process after obtaining possession of the land from the Ministry of Defense
v) Kishore Manusukhani thereafter started making all efforts to obtain vacant possession of the land, but was not able to do so up to 31 March 2001. At this stage, it became evident to all the parties concerned that the Ministry of Defense did not intend to relinquish possession of the land. The terms of the Joint Venture Agreement dated 23 May 2000, could therefore not be implemented as per its agreed intent and accordingly , the appellant along with the co-owners and Mr. Kishore Manusukhani jointly decided to maximize return on the said land by negotiating the best possible compensation from the Ministry –of –Defense.
vi) The fresh arrangement was documented in an agreement dated 2nd April 2001 between the appellant and the co-owners on one hand and Mr. Kishore Manusukhani on the other. Under the arrangement, Mr. Kishore Manusukhani was required to take all necessary steps for sale of property to the Defense Department of the Government of India, at the maximum compensation.
vii) The A.O. erred in ignoring the fact that the charge of Mr. Kishore Manusukhani existed on the source of income itself much before the date on which the award was granted. Consequently, the appellant was never entitled to 20% of the compensation which became the property of Mr. Kishore Manusukhani at the source itself and therefore constituted a diversion of income by overriding title.
viii) The payments made to Mr. Kishore Manusukhani in relation to the commercial exploitation of the said land and the legal expenses incurred for and on behalf of the appellant and her co-owners in pursuing the legal recourse against the Ministry of Defense, Government of India
11. We have gone through the order of the A.O., Ld. CIT (Appeal), submissions of the assessee before the lower authorities and paper book submitted along with appeal.
12. As indicated in the chronology of the event given on pg 13 of the paper book the land I question was acquired in 1942 by Late Mr. Bhagwan Advani who passed away in 1986 and the assessee along wither co-owners inherited the same assessee is entitled to 1/3rd share of the land. The land remained under tenancy of the Indian navy from the time of purchase till 1995 the land in question was notified for acquisition for a total compensation of Rs 27,87,29,369/.
13. Subsequently vide letter dated 30-11-1998 and 21-01-1999 (vide pg no. 4042 of the P.B) the land was withdrawn from acquisition process. After the land was withdrawn from acquisition the assessee decided to convert the asset into stock-in-trade, intending to seek eviction of the Indian navy as tenants and then construct a building for sale purpose. For this purpose assessee entered into a joint venture agreement with Mr. Kishore Manusukhani on 23rd May 2000(vide pg no 43-49 of P.B) subsequently both, assessee and Mr. Kishore Manusukhani realized the difficulty in securing eviction than assessee decided to make an attempt to revive the acquisition of land and secure appropriate compensation. In consequent to this joint venture agreement was annulled and a fresh agreement was executed with Mr. Kishore Manusukhani on 2nd April 2001 (vide pg no 50-53 of P.B)
14. After prolonged legal process the assessee obtained a favorable decision in her favour with the help of Mr. Kishore Manusukhani from the honorable Bombay High Court in July 2009. This decision of honorable Bombay High Court was challenged by the Government through SLP in honorable Supreme Court. This SLP of the Govt. was dismissed by the honorable Supreme Court in Oct 2009(vide pg no 54-76 of the PB). subsequently Government of India addressed a letter to the chief of navy staff conveyed the sanctions of the President of India for the acquisition of the subject land for a total consideration of Rs 72,01,91,805/-
15. From the above discussion of the facts and various submissions by the assessee at various stages it is apparently clear that right from the beginning of the agreement with Mr. Kishore Manusukhani that all the expenses involved in the process of obtaining vacant possession by evicting the Indian Navy would be borne by Mr. Kishore Manusukhani (pg 45, clause-3 and pg 46, clause-9 of the PB). Considering the uncertainty of the time ,outcome and the cost involved the assessee had agreed in the original joint venture agreement of May2000 to pay Mr. Kishore Manusukhani 20% of the profit of the development venture or as the case may be 20% of the sales considerations if the property was to be disposed without any development.
16. With reference to the facts mentioned supra a fresh agreement was executed in April 2001 to pursue the recourse action of enforcing acquisition of the land for appropriate compensation , the understanding of the parties as regards risk and rewards continued and it was agreed that 20% of the compensation would be paid to Mr. Kishore Manusukhani and the remaining compensation after making payment to Mr. Kishore Manusukhani would be shared among the co-owners equally(vide pg 52,clause 3 and 4 of the PB)
17. Mansukhani has taken all necessary legal action such as selection of appropriate lawyers, preparation of documents/ petitions, etc. to fight a protracted legal battle to secure eviction and possession of the land, or in the alternative, to secure acquisition of the land. Entire expenditure incurred in the process of litigation before the Mumbai high Court and the Supreme Court was paid by Mr. Mansukhani and no part was paid by the assessees.
18. There is no doubt that Mr. Mansukhani had the necessary expertise having been involved in the legal proceedings of the adjacent plot number 53A of Ms. Meher Rusi Dalal. Pursuant to directions from the Bench on 22nd July 2021, the assessee had submitted, vide application of for admission of additional evidence dated 05.10.2021, a compilation of correspondence between Kishore Mansukhani and the advocates and assessees. These show the extent of involvement of Mr. Mansukhani, who was in no way related to the assessees and who possessed evident experience in handling such long gestation litigation relating to land, having handled, inter alia, the case of the land right next to the assessees’.
19. Having no idea how long the litigation would continue, what would be the cost in the entire process, whether it would end successfully and if it did, what would be the quantum of compensation; the assessees found it convenient to agree to pay a lump sum determined as a fixed percentage of an uncertain amount of compensation receivable, if at all, at an uncertain point of time in future. The entire risk was that of Mr. Mansukhani while the assessees just had to pay the expenditure once they received payment. This is exactly what was agreed in the case of plot 53A and the Hon’ble Tribunal has held that entire payment to be eligible expenditure under section 48 of the Income-tax Act, 1961.
20. The claim for this expenditure has been restricted by holding that “legal expenses incurred” by Mr. Mansukhani would be allowed as deduction. There is no such restriction in section 48 confining the deduction to legal expenses. Any expenditure is allowable so long as it is incurred in connection with the transfer. Reference is made to the following cases where various kinds of payments have been held allowable under section 48 of the Act.
CIT v/s Abrar Alvi [2001] 247 ITR 312(Bom)
CIT vs. Smt. Shakuntala Kantilal [1991] 190 ITR 56 (Bom)
Kaushalya Devi vs. CIT [2018] 92 taxmann.com 335 (Del)
21. Mansukhani has offered a sum of Rs. 9.28 crores to tax in his income tax return for AY 2011-12, as the balance amount was kept in an Escrow account and released on completion of the milestone. Kindly see page 81 of paper-book in the head “Income from Business/Profession”.
22. In the case of the adjacent plot 53A, Mrs. Meher Rusi Dalal [I.T.A. No.4569/Mum/2009] wherein similar payments to Mr. Suresh H Mansukhani, Mr. Kishor A. Mansukhani and Mr. Ashok P. Shah have been allowed for services rendered by them to obtain the compensation as early as possible from the Land Acquisition authorities. In that case, the Mansukhani and Mr. Shah were paid 33.33% of the total consideration for pursuing the matter at their cost whereas in the assessee case the payment to Mr. Kishore Manusukhani was only 20% of at the total cost compensation.
23. The honorable bench had directed the assessee and the department to find out status of similar issues if any, in the case of the adjacent plot of Meher Rusi Dalal. In that case, the only issue in the department’s appeal before the Tribunal (no appeal by the assessee) was the allow ability of payment made to Mr. Kishore Manusukhani and others the Hon’ble tribunal held vide order dated 28th September 2011 in ITA No 4569/Mum/2009 that agreement between the assessee and the facilitators was valid and that the payments to them being expenses incurred by the assessee in connection with transfer of capital assets, were deductible in computing capital gains. This decision, submitted vide letter dated 7th February 2022, is a binding precedent in view of similarity of facts and in view of the interim order dated 19th January 2022.
24. In the case of Anil Advani, in the Order giving effect to Ld. CIT (A) Order dated 14 August 2015, the entire payments to Mr. Mansukhani were rightly held to be in the nature of legal expenses, and have been allowed as deduction u/s 48 of the Income Tax Act, 1961 (‘Act’) while computing income under the head Capital Gains.
25. Further the said sum received from the appellant and her co-owners had been offered to tax by Mr. Kishore Manusukhani as evident by his return of income provided by the appellant in the Paper -Book.
26. It is evident from the chronology of the events discussed (supra) and relying on the findings of the ITA No 4569/MUM/2009 in the matter Mrs. Meher Rusi Dalal (read with following pronouncements of various High Courts and Apex Court), wherein coordinating bench of tribunal have allowed 33.33% of the total consideration to obtain a compensation as early as possible from the land acquisition authorities .Here also assessee availed the same services in the similar circumstances. A.O. and LD CIT (Appeal) himself observed that the matter was in litigation in court and compensation could be enhanced, if at all, only in a legal manner. It is not the case that there was no legal battle and just to avoid tax liability assessee as a matter of diversion of income opted for any colorable device by including Mr. Kishore Manusukhani the whole scenario of the matter clearly indicates that the assessee was suffering with the illegal occupancy of her land and requires a help to come out this adverse situation.
“[2001] 117 Taxman 95 (Bombay) Commissioner of Income-tax v. Abrar Alvi
Section 48 of the Income-tax Act, 1961 – Capital gains – Computation of – Assessee sold certain property in which he was tenant – Tribunal held that what was to be allowed as deduction for working out capital gains was not cost of tenancy but cost of ownership rights – Tribunal remanded matter to Assessing Officer to work out market value of property as on 4-8-1983 and allow as a deduction to work out capital gains – Whether Tribunal’s finding was a pure finding of fact and order of remand was justified – Held, yes – Tribunal also allowed deduction of amount paid by assessee to his son who had filed a suit seeking injunction restraining assessee from selling property in question – Tribunal found that there was acrimonious dispute between father and son and amount was paid to remove encumbrance – Whether Tribunal rightly allowed deduction of expenditure incurred by assessee to remove encumbrance to transfer – Held, yes
[1991] 58 TAXMAN 106 (BOM) Commissioner of Income-tax v. Smt. Shakuntala Kantilal
It could not be disputed that unless the assessee had settled the dispute with R Ltd. the sale transaction with the society would not, or could not, have materialized. If this transaction had not materialized there would have perhaps been no question of capital gains. One way of looking at the problem could be to say that the full value of consideration in this case was not the apparent consideration, i.e., Rs. 2,58,672 but Rs. 2,24,168 (Rs. 2,58,672 minus Rs. 35,504). The Legislature while using the expression ‘full value of consideration’ has contemplated both additions to as well as deductions from the apparent value. What it means is the real and effective consideration.
That apart, so far as clause (i) of section 48 is concerned, the expression used by the Legislature in its wisdom is wider than the expression ‘for the transfer’. The expression used is the ‘expenditure incurred wholly and exclusively in connection with such transfer’. The expression ‘in connection with such transfer’ is certainly wider than the expression ‘for the transfer’. Here again any amount the payment of which is absolutely necessary to effect the transfer will be expenditure covered by this clause. Accordingly, the sale consideration is required to be reduced by the amount of compensation.
[2018] 92 taxmann.com 335 (Delhi) Kaushalya Devi v. Commissioner of Income-tax
Section 48 of the Income-tax Act, 1961 – Capital gains – Computation of (Deductions) – Assessment year 1994-95 – During relevant year, assessee declared long-term capital gains from sale of immovable property – Assessee had earlier entered into agreement to sell for sale of said property with ‘A’ – Under said agreement assessee had received certain amount as advance and part payment from ‘A’ – Since said sale transaction did not materialize and assessee sold property subsequently to another buyer, she had to pay certain amount as liquidated damages to ‘A’ in terms of earlier agreement to sell – Assessee claimed deduction of payment of liquidated damages under section 48(i) – Assessing Officer as well as Tribunal rejected assessee’s claim on ground that payment was not incurred wholly and exclusively in connection with transfer of property to purchaser – Whether since there was a close nexus and connect between payment of liquidated damages and transfer of property resulting in income by way of capital gains, it had to be treated as expenditure incurred wholly and exclusively in connection with transfer of immovable property and, thus, allowable as a deduction under clause (i) of section 48 of Act – Held, yes [Para 26] [In favour of assessee]
[1986] 29 TAXMAN 215 (DELHI) Commissioner of Income-tax v.Smt. Shakuntala Rajeshwar
As regards the question as to whether a sum of Rs. 1 lakh paid to the tenant was an allowable deduction, it was clear that the said sum was paid to persuade the tenant to vacate the property in order to facilitate its development. If this was so, it was clear that the said sum was an allowable deduction. Therefore, no referable question of law arose from the Tribunal’s order on this point also.
[2002] 125 Taxman 632 (Madras) Commissioner of Income-tax v.Bradford Trading Co. (P.) Ltd.
Section 48 of the Income-tax Act, 1961 – Capital gains – Computation of – Assessment year 1974-75 – Assessee-company was engaged in construction of hotel and entered into an agreement with ‘A’ whereby ‘A’ was to pay an advance of Rs. 5 lakhs and 2,500 shares were to be transferred to ‘A’ and after construction of Hotel, it was to be sold to ‘A’ – Assessee-company, in between, entered into an agreement with another company ITC Ltd. for sale of entire undertaking – Disputes arose between parties and, subsequently, compromise was reached whereby ‘A’ was required to transfer 2,500 shares held by him to wife of chairman of assessee-company for a consideration of Rs. 2,50,000 and assessee-company had to repay to ‘A’ a sum of Rs. 2,50,000 advanced by him and a sum of Rs. 2 lakhs in full and final settlement of all claims – ITC Ltd. agreed to reimburse a sum of Rs. 1,50,000 to assessee for payment of Rs. 2 lakhs to be made to ‘A’ – Assessee-company claimed in its return that sum of Rs. 2 lakhs was an expenditure incurred wholly and exclusively in connection with said sale and it was allowable as a deduction under section 48(i) – ITO rejected assessee’s claim on ground that payment of Rs. 2 lakhs had no nexus with sale and held that sum of Rs. 1.50 lakhs received from ITC Ltd. by way of reimbursement should be treated as a part of sale consideration – Whether sum of Rs. 2 lakhs was paid to ‘A’ over and above his contribution of Rs. 5 lakhs so as to pave way for easy transfer of capital asset in favour of ITC Ltd. and only by such payment assessee was in a position to transfer property and, hence, payment was made wholly and exclusively in connection with transfer of capital asset – Held, yes – Whether sum paid by ITC Ltd. to settle claim of ‘A’ was part of sale consideration – Held, yes – Whether, however, even if sum of Rs. 1.5 lakhs was taken as a part of sale consideration, amount paid to ‘A’ would constitute an expenditure incurred wholly and exclusively in connection with transfer – Held, yes”
27. Without any advance payment or any commitment to Mr. Kishore Manusukhani other than on successful outcome. This material fact can’t be ignored by the authorities below and this amount of 4, 80, 12,787/- is clearly not a diversion of income rather it’s an expense deductible u/s 48 of the act. This amount of 4, 80, 12,787/- is in extricable part of the whole transaction hence allowable u/s 48, in the result ground no 1 and 2 of the assessee are allowed and A.O. is directed to delete the disallowance while computing the income of the assessee.
28. In Ground no -3 appellant challenged the action of the A.O. where he considered cost inflation index (CII) till F.Y. 1994-95 instead of CII for Financial year 2010-11. As the complete chronology of events has already been discussed (supra), based on that it can be reasonably concluded that the order of the land acquisition officer dated 05-01-1995 was rendered void ab-initio by the subsequent withdrawal of such land acquisition order dated 21-01-1999
29. This matter for all the purposes of transfer of property as discussed in the act for the purposes of computation of Capital gains came to an end only after dismissal of SLP before the Supreme Court dated 05-10-2009.
30. Before dismissal of SLP filed by Ministry of Defense before Hon’ble Supreme Court, the whole transaction of transfer of land was declared void ab-initio as mentioned supra. In view of the discussion above it is clear that the said compensation accrue and arose and was received by the appellant only subsequent to the implementation of the directions issued by the honorable Bombay High Court to the special land acquisition officer. Pursuant to the direction of the honorable Bombay High Court the SLAO made the payment on 28-04-2010 i.e F.Y. 2010-11. In addition to the facts considered following pronouncements of various High Courts and Tribunal also concur with the view of the assessee as under:
“However, in S. Appalanayasamma v. CIT [1987] 87 Taxation (3) 133 (AP), where certain land was acquired by the Government and possession was handed over on March 25, 1970; as the award was passed on March 22, 1971, it was held that the year for computing capital gain would be when the award was passed and not in the year when possession was given under section 17(1) of the Land Acquisition Act as the vesting of land in the Government takes place on making the award. Yet, in another case of CIT v. Smt. Sheggy Abdulla [2000] 108 Taxman 249, it was held by the Kerala High Court that capital gain did not arise on the date of notification for acquisition but only after the land vested in the Government after actual possession was handed over.
In Rita Mechanical Works v. Asstt. CIT [2000] 111 Taxman (AT) 92 (Chd.), the question was as to the date of transfer. The firm revalued the assets on March 31, 1995 and the partners’ accounts were credited with the difference in book value and the value on revaluation. The firm was converted into a joint-stock company which was registered on April 3, 1995. It was held that the date of transfer was the date when the company was registered and not the date of revaluation relevant for the assessment year 1995-96. The capital gain could be computed, if any, in the year 1996-97
In Sajjansingh N. Chauhan v. ITO [2000] 73 ITD 38 (Ahd.), it was held that compensation (enhanced) received for abolition of Jagirs for the trees standing on Jagir lands is assessable in the year of receipt as per section 45(5)(b); 5 lakhs in the assessment year 1987-88 and Rs. 18,97,697 in 1989-90 when the compensation was received in the previous years relevant to these assessment years, respectively.”
31. Considering the facts mentioned (supra), provisions of law and pronouncements mentioned (supra), in our considered view assessee is entitled for CII till F.Y. 2010-11 in the light of above Ground No. 3 of the appellant is allowed and A.O. is hereby directed to give effect of this finding while computing the income of assessee.
32. In the result, appeal of the assessee is partly allowed.
ITA No. 3286/Mum/2016 (A.Y. 2011-12)
33. Appellant revenue raised total 6 grounds of appeal against the order of the Ld. CIT (A). It’s a cross appeal filed by the revenue. Out of these six grounds ground no. 3 had already been considered and disposed off in assessee’s favor vide assesses appeal in ITA No. 2270/Mum/2016. Those findings are applicable here also mutatis mutandis hence no separate adjudication required here.
34. Ground no. 5 and 6 are general in nature hence no adjudication is required
35. Ground no. 1 pertains to ‘. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to ascertain the quantum of interest received by the assessee on such compensation up to the date of land acquisition by the Ministry of Defense/Special Land Acquisition Officer pursuant to the Supreme Court order and tax the same under the head ‘Capital Gain’ in terms of section 45(5)(b) r.w.s. 48 of the IT Act and the balance interest paid to assessee for any delay in payment of the compensation, from the date of acquisition of the property in pursuance to High Court/Supreme Court order, as ‘Income from Other Sources’?
36. The relevant facts are the appellant is 1/3rd share holder in the plot of land in question, received total award of Rs. 72,01,91,805/-, it comprises award amount of Rs 27,87,29,307/- and interest amount of Rs. 44,14,62,498/-. Assessee share in total of Rs. 72,01,91,805/- is Rs. 24,00,63,935/-. Out of these Rs. 24, 00, 63,935/- A.O treated Rs. 14, 71, 54,166/- as interest on award amount and chargeable to tax under the head income from other sources. Whereas before the LD CIT(Appeal) assessee argued that nomenclature is of the interest but it is actually a part of compensation only, hence is liable to be taxed under the head capital gains.
37. We have carefully considered the order of the A.O., order of the LD CIT(Appeal) and submissions made by the assessee before the authorities below read with the order of honorable Bombay High Court dated 17-june -2009 and honorable Supreme Court order dated 05-October 2009 dismissing the SLP. In view of above following 4 points emerged for consideration as under:
