1. An agricultural piece of land measuring 30 Kachcha Bighas owned by assessee Shri Janardan Das (since deceased) was acquired by the State Government by issuing notifications dt. 14th Jan., 1977 and 12th May, 1977 under the Land Acquisition Act. Its possession was taken on 26th June, 1977. But, the assessee received the compensation on 12th July, 1977. The assessee purchased the agricultural land on 15th May, 1977 (sic) which happened within two years from the date of receipt of compensation. Therefore, it was submitted that in view of Section 54B of the IT Act, the assessee was not liable to pay capital gains. This was not accepted by the ITO who took the view that the possession was taken over on 6th June, 1977 and the land was purchased by the assessee out of the compensation amount beyond period of two years. The case of the assessee was that the possession was taken on 26th of June, 1977 and the compensation was received on 12th July, 1977, therefore no capital gain was liable because the agricultural land was purchased on 15th June, 1979. In appeal, the CIT(A) held that even when the possession was taken over on 6th June, 1977, there was no liability to pay capital gain in view of Section 54B(2), as it then stood. The initial amount of compensation was received on 12th July, 1977, therefore the capital gains could arise only on that date and not earlier to it. He further held that the tubewells, trees etc. were part of the agricultural land. This order has been confirmed by the Tribunal in further appeal filed by the Department.
2. At the instance of the Department the following three questions of law relevant to the asst. yr. 1978-79 have been referred by the Tribunal as per direction of the High Court for its opinion:
1. Whether the finding of the Tribunal that the date of transfer should be taken as 26th June, 1977 and not 6th June, 1977 is vitiated in law inasmuch as the Tribunal has ignored the evidence which was relied on by the CIT(A) ?
2. Whether the Tribunal is correct in holding that capital gain does not arise unless the compensation is received and on that basis in computing the period of two years for purposes of exemption under Section 54B from the date of receipt of the compensation ?
3. Whether the Tribunal was correct in holding that the amount paid on account of tubewell and standing trees should be taken to have been paid for purchase of the agricultural land ?
3. Heard Shri R.K. Upadhyaya, learned standing counsel for the Department. None appeared on behalf of the assessee.
4. So far as the question No. 1 is concerned, the learned standing counsel could not point out any error in the order of the Tribunal holding that the date of transfer should be taken as 26th June, 1977. He could not even refer to any document in support of the stand of the Department. The first appellate authority as well as the Tribunal have found that the date of transfer should be taken as 26th June, 1977 and in the absence of any material to take a different view, we find that the finding recorded by the Tribunal is basically a finding of fact as it was not shown by the learned standing counsel that the said finding is vitiated in law in any manner.
5. The learned standing counsel for the Department submits on question No. 2 that the finding recorded by the Tribunal on question No. 2 is legally not sustainable. Reference was made to Section 45 of the IT Act wherein any profit or gain arising from transfer of capital assets effected in previous year is chargeable to income-tax, under the head 'Capital gains'. He submits that as soon as relevant notification under Section 6 of the Land Acquisition Act has been issued, the property vests in the State Government and the transfer of the agricultural land is complete. On the facts of the present case, the notification under Section 6 of the Land Acquisition Act being dt. 6th June, 1977, the taxable event for the purposes of capital gains took place on that date.
6. Considered the submission of learned standing counsel for the Department. The assessee out of the amount of compensation received from acquisition of his agricultural land, purchased agricultural land on 15th June, 1979. Question, thus, arises as to whether the purchase of agricultural land on 15th June, 1979 was within the period of two years for the purposes of Section 54B of the IT Act so as the assessee may not be charged for capital gain on transfer of land used for agricultural purposes. Section 54B(2) as it then stood reads as follows:
54B(1) ...
(2) Where the transfer of the original asset is by way of compulsory acquisition under any law and the compensation awarded for such acquisition is enhanced by any Court, Tribunal or other authority, then;
(a) so much of the capital gain, computed under Section 48 by taking the compensation as so enhanced as the full value of the consideration received or accruing as a result of such transfer, as is not excluded under Sub-section (1) from being charged to tax under Section 45, or
(b) the capital gain attributable to the enhancement of the compensation, whichever is less (that which is less being hereinafter referred to as the unadjusted capital gain), shall if the assessee has within a period of two years after the date of receipt of the additional compensation purchased any land for being used for agricultural purposes (hereinafter referred to as the relevant asset be dealt with in the following manner, that is to say:
(i) if the amount of the unadjusted capital gain is greater than the cost of the relevant asset, the difference between the amount of the unadjusted capital gain and the cost of the relevant asset shall be charged under Section 45 as the income of the previous year in which the transfer took place; and for the purpose of computing in respect of the relevant asset any capital gain arising from its transfer within a period of three years of its purchase the cost shall be nil, or
(ii) if the amount of the unadjusted capital gain is equal to or less than the cost of the relevant asset, the unadjusted capital gain shall not be charged under Section 45; and for the purpose of computing in respect of the relevant asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced by the amount of the unadjusted capital gain.
7. The aforestated section has to be read harmoniously with Section 45 of the IT Act. No doubt Section 45 as it then stood, provided that on transfer of capital asset any profits or gains arising shall be chargeable to income-tax under the head 'Capital gains'. It is also equally true that for the purposes of Land Acquisition Act, under Section 48 thereof, the land vests absolutely in the State Government after issuance of notification under Section 6 of the Act, as held by the apex Court in Government of A.P. v. Syed Akbar : AIR2005SC492 , wherein it has discussed its various earlier pronouncements. Under the Land Acquisition Act, thus, the vesting of land in the State Government has taken place immediately on taking the possession, free from all encumbrances. Whether this principle with all its rigidity be applied to Section 45 r/w Section 54B is the another question.
8. To find an answer, keeping in mind the avowed object of Section 54B, let us make an analysis of Section 54B of the Act. Sub-section (2) throws some light.
Section 54B(2) provides that where transfer of the asset is by way of compulsory acquisition under any law and compensation amount awarded for such acquisition enhanced by any Court, Tribunal or other authority, the capital gain attributable to the enhancement of the compensation, if the assessee had within the period of two years after the date of receipt of the additional compensation purchased any land for being used for agricultural purposes, capital gain attributable to the enhanced value of compensation shall be dealt with as provided for in Section 54B(2), according to which if the enhanced compensation as received has been invested in the agricultural land within two years of its receipt, to that extent, no capital gain will be charged. This provision gives an insight that Section 54B has taken into consideration the possibility of enhancement of compensation amount by the Courts, Tribunals etc. at the subsequent stages. If the agricultural land is purchased within a period of two years from such enhancement, the capital gain or no capital gain as the case may be, will be charged under Section 54B(2) of the Act. In other words, the period of two years in such cases will commence from the date of enhancement of the compensation amount by the Court, etc. This is indicative of the legislative intent to the effect that for the purposes of Section 54B, the date of receipt of enhancement of the compensation amount is the relevant consideration and not the date of transfer. It follows, therefore, that for a delay on the part of the acquiring body in making payment of compensation amount, the assessee should not be deprived of the benefit of Section 54B provided he fulfils the other conditions of the said section within the stipulated period from the date of receipt of the payment. Emphasis is on the date of actual receipt of the payment and not on the date of transfer of the asset, in the case of agricultural land. The statute should be interpreted as it stands in common language without making any addition or subtraction therein.
9. In ITC Ltd. v. CCE : 2004(171)ELT433(SC) , it has been said that,
Words have to be construed strictly according to their ordinary and natural meaning, particularly when the statute is a fiscal one irrespective of the object with which the provision was introduced. Of course, if there is ambiguity in the statutory language, reference may be made to the legislative intent to resolve the ambiguity. But, if the statutory language is unambiguous then that must be given effect to. The legislature is deemed to intend and mean what it says. The need for interpretation arises only when the words used in the statutes are, on their own terms ambivalent and do not manifest the intention of the legislature.-Keshavji Ravji & Co. and Ors. v. CIT : AIR1990SC854 .
Exceptions to the above rule of strict interpretation have also been noted therein. They are:
(1) The rule of strict construction does not apply to a provision which merely lays down the machinery for the calculation or procedure for the collection of tax.
(2) If two constructions are possible and a strict construction would lead to an absurd result then the construction which is in keeping with the object of the statutory provision or in keeping with equity could be accepted.
10. The apex Court in Binani Industries Ltd. v. Asstt. CCT : 2007(5)SCALE429 following its earlier decisions in Ahmedabad . v. S.G. Mehta, ITO : [1963]48ITR154(SC) and Biswanath Jhunjhunwalla has held that,
It is the language of the provision that matters and when the meaning is clear, it has to be given full effect. In both these cases, this Court held that the proviso which amended the existing provision gave it retrospectivity. When the provision of law is explicit, it has to operate fully and there could not be any limits to its operation. This Court in Biswanath Jhunjhunwalla case said that if the language expressly so states or clearly implies, retrospectivity must be given to the provision.
11. Keeping the above principle in mind, if the word 'transfer' is literally interpreted it may make Section 54B unworkable and may lead to absurdity. Take for example that the land is acquired and the possession is also taken for instance on 1st April, 2000, but the compensation is not paid by the acquiring body within a period of two years. The assessee/tenure-holder would not be able to avail the advantage of Section 54B by purchasing the agricultural land as provided for therein within a period of two years. He would be deprived of the benefit of such section for no fault of his own. Section 54B is a beneficial provision for an assessee who is otherwise liable to pay income-tax under the head 'Capital gain'. On a conjoint reading of Section 45 with Section 54B, to avoid such absurdity as pointed out above, the word 'transfer' should be read for the purposes of income-tax the date on which the compensation amount is paid to such assessee. In this regard reference can be made to the celebrated judgement of the apex Court in the case of K.P. Varghese v. ITO : [1981]131ITR597(SC) , wherein it has been observed:
The statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces manifestly absurd and unjust results which could not have been intended by the legislature, the Court may modify the language used by the legislature or even do some violence to it, so as to achieve obvious intention of the legislature and produce a rational construction.
The apex Court in the above case was interpreting Section 52(2) of the IT Act relating to capital gains and it was interpreted not in a literal way but in a manner to make it workable and to avoid absurd and unjust results.
12. In CIT v. Podar Cement (P) Ltd. and Ors. : [1997]226ITR625(SC) , the Supreme Court was required to interpret the word 'owner' in the context of Section 22 of the IT Act. A question arose as to whether a person who has got no valid title legally conveyed to him can be regarded as an owner, to take his income from the house property. The apex Court said that under common law 'owner' means a person who has got valid title legally conveyed to him after complying with requirements of law such as Transfer of Property Act, Registration Act, etc. But, in the context of Section 22 of the Act, a person is an owner who is entitled to receive income from the property in his own right. The relevant portion from the judgement is reproduced below : 'We are conscious of the settled position that under the common law, 'owner' means a person who has got valid title legally conveyed to him after complying with the requirements of law, such as, the Transfer of Property Act, Registration Act, etc. But, in the context of Section 22 of the IT Act, having regard to the ground realities and further having regard to the object of the IT Act, namely, 'to tax the income', we are of the view, 'owner' is a person who is entitled to receive income from the property in his own right.'
13. It is also relevant to note that legislature subsequently realised the difficulty felt by such assessees and inserted second proviso in Section 54E of the IT Act w.e.f. 1st April, 1984 by Taxation Laws (Amendment) Act, 1994. The said provision reads as follows:
54E(1) ...
Provided further that in a case where the transfer of the original asset is by way of compulsory acquisition under any law and the full amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period of six months referred to in this subsection shall, in relation to so much of such compensation as is not received on the date of the transfer, be reckoned from the date immediately following the date on which such compensation is received by the assessee or the 31st March, 1992, whichever is earlier.
The said proviso being procedural in nature and has been introduced with a view to remove the absurdity and clear anomaly will operate retrospectively being procedural in nature.
14. The assessee was an agriculturist and he received the initial compensation on 12th July, 1977 and having invested the compensation received within two years from that date, was entitled to get the benefit of Section 54B of the Act. Viewed as above, we are of the opinion that the Tribunal was correct that the period of two years for the purposes of exemption under Section 54B will commence from the date of receipt of compensation and not from the date of acquisition of the agricultural land. We answer the question No. 2 in affirmative i.e. in favour of the assessee and against the Department.
15. So far as the question No. 3 is concerned, the relevant fact with regard thereto may be noted. The assessee purchased the agricultural land on 15th June, 1979 with tubewell and standing trees. The contention of the Department which has not been found favour either by the first appellate authority or by the Tribunal was that the value of the tubewell and the standing trees should be deducted in the total investment made by the assessee in purchasing the agricultural land. The CIT(A) found, and in our view rightly so, that tubewell and trees could not have been ignored from the agricultural land in which investment was made by the assessee within a period of two years. The tubewell and trees were part of the agricultural land purchased by the assessee and their value could not be deducted from the total investment made by the assessee in purchase of the agricultural land. The learned standing counsel failed to advance any argument or produce any material to show that the tubewell and the trees were not part of the agricultural land purchased by the assessee. The Tribunal except confirming the order of the CIT(A) has not discussed the matter in detail.
16. In absence of any material we do not find any substance in the case of the Department.
17. In the result, we answer all the three questions referred to us in affirmative i.e. in favour of the assessee and against the Department.
No order as to costs.