[READ JUDGMENT] SC Decides- Whether Capital Gains will accrue from the date of award or from the date of Notification of Land Acquisition?

A three Judges Bench of the Supreme Court comprising Justice A.M. Khanwilkar, Justice Hemant Gupta and Justice Dinesh Maheshwari, has on 25 August 2020 delivered Judgment in the case of Raj pal Singh vs Commissioner of Income Tax, haryana Rohtak (CIVIL APPEAL NO. 2416 OF 2010) answering the question as to  Whether Capital Gains will accrue from the date of award or from the date of Notification of Land Acquisition for the purpose of Section 45 of the Act of 1961?

Facts:

A notification under Section 4 of the Land Acquisition Act, 18947 was issued by the Government of Haryana on 15.05.1968, seeking to acquire the subject land for public purpose, namely, a playground for the College. This was followed by the declaration dated 13.08.1969 under Section 6 of the Act of 1894. Ultimately, after submission of the claim for compensation, the Land Acquisition Collector, Ambala proceeded to make the award on 29.09.1970.

After several rounds of  assessment the matter went before the ITAT, which did not approve of charging tax over capital gains with reference to the date of award while observing that the date of notification (i.e., 15.05.1968) would be treated as the date of taking over physical possession and the transaction (leading to capital gains) would be considered as having taken place on that date and not on the date of award (i.e., 29.09.1970). The High Court, however, did not agree with this line of reasoning and held that the amount of compensation was determined only on passing of the award dated 29.09.1970 and, therefore, if any capital gain was chargeable to tax, it would be chargeable for the previous year referable to the date of award.

Submission of Appellant:

1. on the facts and in the circumstances of the present case, where the land in question was already in possession of the beneficiary College, the assessee-appellant was divested of its title and right to this property with issuance of notification under Section 4 of the Act of 1894 when the State took up the acquisition in urgency; and the transfer for the purposes of Section 2(47) of the Act of 1961 was complete on the date of that notification itself i.e., on 15.05.1968 and hence, capital gains arising out of such acquisition and interest accrued could not have been charged to tax with reference to the date of award i.e., 29.09.1970.
2. It is not open for the revenue to question the decision of ITAT in the present case pertaining to the assessment year 1971-1972 because, the fact situation of the present case is similar to that of the other case of the appellant in relation to the assessment year 1975-1976, where the same issue was decided by the ITAT in favour of the appellant and the revenue accepted the said decision by not challenging the same any further.

Submission of Respondents

1. In 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 year relevant for the assessment year 1971-1972.
2. Though possession of the subject land was with the College in the year 1968 and continued as such but, no gain on account of transfer of land accrued to the assessee on the date of notification i.e15.05.1968 because, at the relevant point of time, compensation had not been determined; and the same was determined only in the award dated 29.09.1970.

Points for determination by Court

1. As to whether, on the facts and in the circumstances of the present case, transfer of the capital asset (land in question), resulting in capital gains for the purposes of Section 45 of the Act of 1961, was complete on 15.05.1968, the date of notification for acquisition under Section 4 of the Act of 1894; and hence, capital gains arising out of such acquisition and interest accrued could not have been charged to tax with reference to the date of award i.e., 29.09.1970?
2. As to whether the fact situation of the present case is similar to that of the other case of the appellant in relation to the assessment year 1975-1976 where the same issue relating to the date of accrual of capital gains was decided by the ITAT in favour of the appellant with reference to the date of taking possession by the Government; and having not challenged the same, it is not open for the revenue to question the similar decision of ITAT in the present case pertaining to the assessment year 1971-1972?

The Court Held:

1. The answer to Point No. 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 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 notification for acquisition under Section 4 of the Act of 1894; and hence, capital gains arising out of such acquisition have rightly been charged to tax with reference to the date of award i.e., 29.09.1970.
2. The answer to Point No. 2 is also in the negative i.e., against the assessee-appellant and in favour of the revenue that the fact 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 the assessment year 1975-1976 and the revenue is not precluded from taking the stand that the transfer of capital asset in the present case was complete  only on the date of award i.e., on 29.09.1970.

Direction of Court

For what has been discussed herein above, we have not an iota of doubt that in the second round of proceeding, the AO had rightly assessed the tax liability of the appellant, on long-term capital gains arising on account of acquisition, on the basis of the amount of compensation allowed,in the award dated 29.09.1970 as also the enhanced amount of compensation accrued finally to the appellant; and as regards interest income, had rightly made protective assessment on accrual basis.