Long Term Capital Gain on compulsory acquisition – Taxability Event – and applicability of RFCTLARR Act 2013 – Whether the compensation received on account of Compulsory Acquisition by Government is exempt under provision of Section 96 of RFCTLRR Act 2013 – if the land acquired prior to applicability of RFCTLARR Act but compensation received after applicability of RFCTLARR.
CBDT issued circular dated 25.10.16 vide circular no.36/2016 (File no 225/18/88/2016-ITA/2) where in CBDT ha clarified that the Compensations received in respect of award or agreement which has been exempted from levy of Income Tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provision of income tax, 1961 even if there is no provision of exemption for such compensation under the Income Tax Act, 1961.
Held : the cut off date for the purpose of determining its taxability is the date when the assessee was entitled to receive the compensation and not the date when it was actually received by the assessee
FULL TEXT OF THE ITAT JUDGEMENT
These are to appeal is filed by the assessee, feeling aggrieved by the order passed by the CIT(A) on the following grounds
1. That the learned CIT (Appeals) has erred on facts and in law while not accepting the submissions of the assessee that the land under consideration acquired by the government is acquired under RFCTLARR Act. The land under consideration wasacquired under RFCTLARR Act being the payment and award was duly given after insertion of the RFCTLARR Act. No capital gain arises on the acquisition of the above yun6m d, the capital gain computed by the AO, sustained by the learned CIT (Appeals) is against the provisions of FFCTLARR Act, Addition made on this score is not called for, same is liable to be deleted.
2. That while rejecting the assessee’s submissions and charging the tax under the Head ‘long term capital gain’, the authorities below have not considered the facts and the explanation offered before them. After taking into consideration the above, no capital gain arises on the compulsory acquisition of the above land, the capital gain charged on the compulsory acquisition of this land is not called for, the addition made on this score is liable to be deleted.
3. That the appellate order dated 28.12.2018 is bad in law.
1. The facts about the appeals are identical, therefore we are reproducing hereinbelow the facts of ITA No. 59/ 2019 .
2. As per the facts mentioned in the CIT(A) order in paragraph 3 it was mentioned as under:
3. In this case, assessment has been completed u/s143(3) vide the impugned order dated 31.12.2017 determining the assessed income at ₹ 69,60,900/- as against the income of ₹ 3,60,390/- disclosed in the revised return of income. The sole addition of ₹ 66,00,506/- has been made by the AO by bringing to tax, Long Term Capital gain of the same amount, which, as per the AO, had arisen to the appellant through the compensation received byhim in lieu of land compulsorily acquired by the government.
4. As the assessing officer has taxed the money received by the assessee under the long-term capital gain , feeling aggrieved by the order passed by the assessing officer, an appeal preferred by the appellant against the order passel U/s 143(3) of Income Tax Act Dt. 28.12.17 wherein the AO has made the addition towards- the income of the appellant, under the head long term capital gain which the AO has computed on the compensation received to appellant against the acquisition of fond which the appellant has taken exempt in the return of income filed being received to appellant as per RFCTLARR Act,. The AO has not considered the same as exempt as the appellant could not file any document in support of the exemption claimed by the assessee that the land is acquired under RFCTLARR Act. Accordingly the AO has taxed the amount received to appellant against the acquisition of land, under the head long term capital gain.
5. The Ld.AR for the assessee had drawn our attention, to the order passed by the CIT(A) wherein the CIT(A) whereby he had rejected the grounds of appeal raised by the assessee on three grounds namely
A) The land was not a capital asset as it was situated in the urban limits and therefore the assessee is not entitled to the benefit of RFCTLARR Act.
B) Secondly the land was acquired under NHAI Act and not under RFCTLARR Act, therefore the assessee is not entitled to the exemption of tax on account of acquisition of land.
C) Lastly it was held that that the RFCTLARR Act is not applicable as the proceeding for acquisition have commenced prior to coming into effect RFCTLARR Act..
6. Feeling aggrieved by the order passed by the CIT(A), the assessee preferred the appeal before us on the ground mentioned hereinabove.
7. At the outset the Ld. AR for the assessee had submitted that as per circular issued by the CBDT dated 25.10.16 vide circular no.36/2016 (File no 225/18/88/2016-ITA/2) where in CBDT ha clarified that the Compensations received in respect of award or agreement which has been exempted from levy of Income Tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provision of income tax, 1961 even if there is no provision of exemption for such compensation under the Income Tax Act, 1961. That as per the circular issued by the CBDT compensation received to the appellant against the acquisition of the land is exempted under the become lax Act being awarded though issues of the cheques to awarded dated 27.01.15 and there is no agreement or award is executed between the authority acquiring the land prior to 27.01.15. Thus the compensation given to assessee through award on 27.01.15 which is very much under the RFCTLARR Act liable to the exempt from the Income tax.
8. Secondly it was mentioned by the AR that as per the schedule of RFCTLARR Act, NHAI is duly mentioned hence the assessee is entitle to exemption .
9. Lastly it was submitted that in the present case, as per the order of the assessing officer the acquisition of order was passed on 24.02.2014 , the copy of the acquisition award was provided to the assessing officer. AO in the order duly acknowledges the passing of the acquisition award on 24.2.2014, under NHAI Act. It was submitted that RFCTLARR Act, came into effect on 1.1.2014, therefore the assessee is entitled to the benefit of exemption under RFCTLARR Act.
10. Per contra DR for the revenue had vehemently relied upon the order passed by the assessing officer as well as by the CIT (A). he had drawn our attention to the order of CIT(A) wherein it was decided as under :-
6.1 The facts of the case are that the appellant land was compulsorily acquired by the government under the National Highway Act, 1956 and in his return of income he had disclosed no LTCG earned thereon. During the assessment proceedings, the appellant stated that the said LTCG was exempt from taxation in view of the CBDT Circular no 36/2016 dated 25.10.2016 The AO findings on the issue are reproduced below.
Para 4.1 and 4.2
4.1.”In response, the assessee furnished copy of award/compensation, from perusal of the copy of award dated 24.02.2014, it is noticed that all the proceedings for land acquisition in the case of assessee have completed under the National Highway Act, 1956 and not under the RFCTLARR Act. it is also clear from the document award/compensation in the provisions of section 3A of National Highway Act, 1956 on 20.01.2010, further the effected parties were asked to submit/raise their objections/protest under the provision contained in section 3D submitted their the provisions contained in section of National Highway Act only. Further, for land acquisition certain parties/agencies has raised objections and after the disposal of the objections from the parties, the gazette has been published on 23.07.2010 as per section 3D of the National Highway Act, 1956 Finally, after completing all the above proceedings, the award had been declared on 24.02.2014 u/s 3G of the National Highway Act, 1956and not under the RFCTLARR Act It is evident from the record that,the whole procedure for acquisition of land was performed under the national Highway Act, 1956, hence, the assessee cannot begiven the benefit of section 96 of RFCTLARR Act.”
4.2 “Further, the assessee submission that the awared which is given after the enactment of the Act should be consideredas the award given under this RFCTLARR Act is also not acceptable as determination/computation of compensation under any act does not mean that the acquisition has been done under the specific and requisition nthe case of assessee is done under the specific provisions of the National Highway Act, which is the Act in existence’ and epealedby the RFCTLARRAct therein the land acquisition in the case of assessee has been found to be under the national highway act, 1956 only. From the above discussion, it is clearly precipitated that the land acquisition in the case of assessee has been done under the specific provisions of the national highway act 1956 (1956 ka 48) and therefore, the assessee cannot be given the benefit of section 96 of the RFCTLARR Act, 2013 and the receipt from the land acquisition cannot be treated as exempt. Hence, the gains from the land acquisition are taxable as long term capital gain “
The provisions of section 10(37) of the Income Tax Act, 1961 are the only provisions in the Act which can be considered for the purpose of analyzing the appellants’ claim of exemption of capital gain arising from compulsory acquisition of his land. However, a mere perusal of the provisions of that section reveals that under that section such exemption is available only in respect of agricultural land and that too on fulfillment of certain conditions. It is reproduced below
In the case of an assessee being an individual or a Hindu undivided family, any income chargeable under the head Capital gain arising from the transfer of agricultural land where such land is suitable in any area referred to in item (a) or item(b) of sub-clause (iii) of clause (14) of section 2.Such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his.Such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India.Such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 004.
I find that the appellant’s land acquired by the government is not an agricultural land. This fact is borne out of title documents submitted by appellant during the course of the assessment proceedings and is also confirmed from paragraph no 5 of his written submission to the AO that is dated 30.11.2017 and is reproduced below
“ Para 5 As required by your good self to furnish the copy of last year’s original and revised income tax returns in this connection same are furnished herewith as the reason for the revision of return is concerned. In this connection it is submitted that during the year under consideration two properties of the assessee have been acquired by Government of India under compulsory acquisition on which TDS was deducted and tax was also paid by the assessee under the head long term capital gain would be charged on the non agricultural lands compulsory acquired by the government but by then assessee had already deposited the taxes and filed the return so in order to rectify this mistake returned was revised by the assessee.
Further, since the appellant’s land is acquired not under the RFCTLARR Act but under the National Highway Act, 1956 the appellant’s argument that its case falls within the ambit of CBDT Circular No 36/2016 dated 25.10.2016 too has no basis.
11. On the basis of the order passed by the CIT(A) it was submitted by the Ld.DR that the assessee is not entitled to any relief from this tribunal and the appeal of the assessee is required to be dismissed.
12. We have considered the rival contention of the parties and perused the material available on record, including the judgments cited at bar during the course of hearing by both the parties.We are reproducing hereinbelow the circular issued by the board bearing No. 36/2016, which provides as under:
Subject: Taxability of the compensation received by the land owners for the land acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (‘RFCTLARR ACT’)-reg.
Under the existing provisions of the Income Tax Act 1961) an agriculture land which is not situated in specified urban area is not regarded as capital asset. Hence, capital gains arising from the transfer (including compulsory acquisition) of such agricultural land is not taxable. Finance [No. 2] Act, 2004 inserted section 10(37) in the Act from 01.04.2005 to provide specific exemption, to the capital gain arising to an individual or a HUF from compulsory acquisition of an agricultural land situated in, specified urban limit, subject to fulfillment of certain conditions. Therefore, compensations received from compulsory acquisitions of an agricultural land is not taxable under the act (subject to fulfillment of certain conditions for specified urban land.
2. The RFCTLARR Act which came into effect from 1 january, 2014, in section 96, inter alia provides that income-tax shall not be levied on any award or agreement made [except those made under section 46] under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act], is exempted from the levy of Income-Tax.
3. As no distinction has been made between compensation received from compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under RFCTLARR Act. the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of income-tax Act, 196l even if there is no specific provision of exemption for such compensation in the income-tax Act, 19621.
4. The above may be brought to the notice of all concerned.”
13. From the reading of the circular, it is abundantly clear that no distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under RFCTLARR Act. The exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax exemption provided under the existing provisions of Income-tax Act, 1961. This clearly meets the argument of the assessing officer the CIT(A) that exemption under the RFCTLARR Act , are even applicable to non-agricultural.
14. Now the next objection raised by the lower authorities was that the above said exemption under section 96 was only applicable to the lands acquired under RFCTLARR Act, after1.1.2014 and it can not be extended to the lands if acquired under various enactments mentioned in fourth schedule of RFCTLARR Act.
15. For the above said purposes it would be apt to reproduce section 105 and fourth schedule to the above said that provides as under
105. Provisions of this Act not to apply in certain cases or to apply with certain modifications.–
(1) Subject to sub-section (3), the provisions of this Act shall not apply to the enactments relating to land acquisition specified in the Fourth Schedule.
(2) Subject to sub-section (2) of section 106, the Central Government may, by notification, omit or add to any of the enactments specified in the Fourth Schedule.
(3) The Central Government shall, by notification, within one year from the date of commencement of this Act, direct that any of the provisions of this Act relating to the determination of compensation in accordance with the First Schedule and rehabilitation and resettlement specified in the Second and’ third Schedules, being beneficial to the affected families, shall apply to the cases of land acquisition under the enactments specified in the Fourth Schedule or shall apply with such exceptions or modifications that do not reduce the compensation or dilute the provisions of this Act relating to compensation or rehabilitation and resettlement as may be specified in the notification, as the case may be.
(4) A copy of every notification proposed to be issued under sub-section (3), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses of Parliament.
THE FOURTH SCHEDULE
(See section 105)
LIST OF ENACTMENTS REGULATING LAND ACQUISITION AND REHABILITATION AND RESETTLEMENT
1. The Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958).
2. The Atomic Energy Act, 1962 (33 of 1962).
3. The Damodar Valley Corporation Act, 1948 (14 of 1948).
4. The Indian Tramways Act, 1886 (11 of 1886)
5. The Land Acquisition (Mines) Act, 1885 (18 of 1885).
6. The Metro Railways (Construction of Works) Act, 1978 (33 of 1978).
7. The National Highways Act, 1956 (48 of 1956).
8. The Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962 (50 of 1962).
9. The Requisitioning and Acquisition of Immovable Property Act, 1952 (30 of 1952).
10. The Resettlement of Displaced Persons (Land Acquisition) Act, 1948 (60 of 1948).
11. The Coal Bearing Areas Acquisition and Development Act, 1957 (20 of 1957).
12. The Electricity Act, 2003 (36 of 2003).
13. The Railways Act, 1989 (24 of 1989).
16. The reading of the provisions of section 105(3) read with fourth schedule made it abundantly clear that the provisions of RFCTLARR Act2013, shall be applicable to the enactments mentioned in fourth schedule, if, the central government, within one year of passing of the Act, issues the notification in that regard mentioning therein that RFCTLARR Act 2013shall apply with such exceptions or modifications to enactment namely The National Highways Act, 1956 (48 of 1956).
17. NO notification has been brought to our notice by the Ld.AR for the assessee, which was issued by the central government in terms of section 105 of the Act, where by the benefit of the RFCTLARR Act 2013had been extended to the land acquired under The National Highways Act, 1956 (48 of 1956).
18. In the absence of notification the benefit under section 96 of RFCTLARR Act 2013, cannot be extended to the assessee. In our view the exemption is required to be specifically granted by the statute and it cannot be inferred or drawn. It is the duty of the assessee to make out his case unequivocally, if wanted to get the benefit of exemption that the exemption provided under section 96 of the RFCTLARR Act 2013 is applicable to the assessee.Therefore, the assessee is not liable to pay income tax for long-term capital gain. Needful has not been done by the assessee either before the lower authority or before us.
19. As mentioned by the assessing officer in the assessment order, the acquisition award under the National Highway authority act 1956 was passed on 24.2.2014, though cheques were received on 27/1/2015. In our considered opinion, the chargeability of the income is required to be determined in accordance with section 4 and 5of the Income Tax Act 1961 .In the case of ITA No.173/Agra/2019 title as Shri Krishna Kumar Sharma, this tribunal in para 6 had held as under:
6. From the perusal of aforesaid provision, the award made in Section 3G of the National Highways Act on 05.02.2013 and compensation was given as per Form 16A on 01.01.2014. Hence, we do not find applicability of RFCTLARR Act to the transaction under consideration before us. We are of the opinion that even section 24 is not applicable as in the present case award was passed on 7 .12.2013 which is a date prior to the date when RFCTAAR Act was made applicable .Therefore, its provisions are not applicable. Further as per section 5 income of assessee (compensation received by assessee) is required to be taxed when the said compensation have accrued in favour of the assessee or deemed to have been accrued. Undisputedly, the assessee was entitled to receive the compensation when the award was passed quantifying the amount in favor the assessee for acquisition of land. Therefore, in our opinion, the cut off date for the purpose of determining its taxability is the date when the assessee was entitled to receive the compensation and not the date when it was actually received by the assessee. In the light of the above we do not find any merit in o he assessee. Accordingly, the same deserves to be dismissed”
20. Respectfully Following the decision in the matter of Shri Krishna Kumar Sharma, we are left with no other option but to dismiss the appeal of the assessee.
21. As the facts and circumstances of the ITA No. 58/2019, are identical to the ITA No. 59/2019, therefore Following our decision, in the matter of No. 59/2019, this appeal is also liable to be dismissed. Accordingly be dismissed the same.
In the result both the appeal of the assessee has dismissed.