1. These three appeals involve identical issues and have been heard together. Two appeals viz. bearing ITA Nos. 4507 and 4508/Ahd/1992 relating to asst. yrs. 1987-88 and 1989-80 have been filed by the assessee against the order of the CIT(A), dt. 7th August, 1992, the appeal being ITA No. 4839/Ahd/1995, relating to asst. yr. 1989-90 has been filed by the Revenue against the order of the CIT(A) dt. 31st August, 1995. These three appeals involving identical points are being disposed of by a common order for the sake of convenience.
2. At the outset we may notice briefly the relevant facts. The assessee is the son and heir of Maharaja Naharsinhji Fatehsinhji, younger son of the Maharaja of Chhotaudepur. Maharaja had granted to his son Maharaja Naharsinhji 6 villages including Zar and Dadigam in Chhotaudepur Taluka in the year 1919 by a Sanad dt. 22nd December, 1919. The Jagir came to be abolished by the Bombay Merged Territory and Area (Jagir Abolition) Act, 1953 w.e.f. 1st August, 1954, Maharaja Naharsinhji made an application for compensation and the Jagir Abolition Officer, Baroda passed the award on 29th July, 1959, for an amount of Rs. 38,456 under s. 11(3) of the Jagir Abolition Act. The Jagirdar did not make any claim for compensation in respect of the forest areas in the two villages viz. Zar and Dadigam measuring about 2500 acres and the trees standing thereon presumably because the Jagirdar believed that these lands had not vested in the State Government.
3. In the year 1965, the Hon'ble Supreme Court handed down the judgment in the case of Mavinkarve vs. Madhavsinghji AIR 1965 SC 1747, popularly known as "Waghach case' the State Government prevented the Jagirdar from cutting and removing the trees and also tried to exercise the rights of ownership and possession in respect of these lands.
Meanwhile, Maharaja Naharsinhji died in the year 1966 and his only son, the assessee Maharaja Sajjansinhji, made an application in 1969 to the Collector, Baroda claiming Rs. 52,03,001 as compensation for the trees.
Since the application was filed by the Collector without taking any action thereon, the assessee filed a writ petition in the Gujarat High Court. The petition was resisted by the State Government on the basis of the Hon'ble Supreme Court decision in Waghach case referred to earlier. The State Government further contended that the trees on the waste lands in the two villages were cut and sold by the assessee in the year 1952 and again in 1955-56 and, therefore, the assessee became disentitled to any compensation for the trees in question . The State Government also raised the contention that the application for compensation made after 31st March, 1966 was clearly time-barred. The High Court disposed of the writ petition on 15th March, 1972 by a consent order restoring the entire matter to the Collector, Baroda to decide the following two issues : (i) whether the areas in dispute are private forests of the assessee and his predecessors-in-title and (ii) what amount, if any, is payable as and by way of compensation for these private forests. The assessee furnished claim petition on 18th April, 1972, claiming again Rs. 52,03,001 by way of compensation under s.
11(3) of the Jagir Abolition Act for the trees. The Dy. Collector, Chhotaudepur vide his judgment dt. 31st December, 1973, held that the areas in dispute of villages Zar and Dadigam were private forests of the assessee and again on 21st October, 1977 award was passed for Rs. 1,20,556.
4. The assessee preferred an appeal against the award before the Hon'ble Gujarat Revenue Tribunal. The Revenue Tribunal vide its order dt. 9th July, 1980 took the view that the compensation should be awarded under the Gujarat Private Forests (Acquisition) Act, 1972, and directed the assessee to make an application in that regard to the Dy.
Collector. The order of the Tribunal was challenged before the Hon'ble Gujarat High Court both by the assessee as well as by the State Government. The Hon'ble High Court of Gujarat remanded the matter back to the Tribunal with the observation that the lands in dispute are waste lands and compensation is to be allowed under s. 11 of the Jagir Abolition Act.
5. The Revenue Tribunal proceeded to decide the issue afresh and determined the total amount of compensation at Rs. 25,18,264 under s.
11(3) of the Jagir Abolition Act. Since the compensation adopted by the Dy. Collector and received by the assessee amounted to Rs. 1,20,567 the Tribunal determined the balance payable at Rs. 23,97,697 vide its order dt. 12th September, 1984. Interest at the rate of 3 per cent on the aforesaid sum of Rs. 23,97,697 was also payable from 1st Aug., 1954 till the date of payment if no payment was made by the State Government. Both the parties viz., the State Government and the assessee filed writ petitions before the Hon'ble High Court of Gujarat.
Vide its interim order dt. 31st December, 1985, the order of the Revenue Tribunal was stayed to the extent of payment other than Rs. 5 lacs. Protracted litigation ultimately concluded with a compromise agreement between the assessee and the Government on 29th Aug., 1988, whereunder : (i) The Government of Gujarat gave up its contention as regards principal amount of Rs. 25,18,264.30.
(ii) The assessee gave up his claim for interest beyond 20 years only.
6. The writ petitions filed before the Hon'ble High Court of Gujarat by the assessee as well as the State Government were withdrawn. The assessee received balance amount of compensation of Rs. 18,97,697 along with interest of Rs. 6,53,385 as per the compromise agreement.
7. From the above facts it would be seen that the assessee has received a sum of Rs. 5 lacs by way of interim compensation in the period relevant to the asst. yr. 1987-88 along with interest of Rs. 1,72,156 and again in the period relevant to the asst. yr. 1989-90 the balance compensation of Rs. 18,97,697 along with interest of Rs. 6,53,385 has been received.
8. The issues involved in the three appeals before us relate to taxability of compensation as well as the interest on delayed payment of compensation. For the asst. yr. 1987-88 the AO assessed the compensation of Rs. 5 lacs as capital gains and the payment of interest of Rs. 1,72,156 as revenue receipt. For the asst. yr. 1989-90 the AO brought to tax the compensation of Rs. 18,97,697 as well as the interest for delayed payment of Rs. 6,53,385. The learned CIT(A) vide his consolidated order dt. 7th August, 1992, opined that : (i) this is a case of enhanced compensation which has accrued to the assessee in the period relevant for the asst. yr. 1989-90 and the enhanced amount of compensation of Rs. 23,96,697 should be subjected to capital gains tax by invoking the provisions of s. 45(5)(b), (ii) interest on delayed payment of compensation brought to tax Rs. 1,72,156 for asst. yr.
1987-88 and Rs. 6,53,685 for asst. yr. 1989-90 has been upheld as revenue receipt. Aggrieved by the said order of the CIT(A) the assessee has come up in appeal before us for both the assessment years. The appeal filed by the Revenue bearing ITA No. 4839 is directed against the order of the CIT(A) dt. 20th September, 1995 for the asst. yr.
1989-90, whereby the CIT(A) has held that provisions of s. 45(5)(b) are not applicable and this is a case of compensation awarded for waste lands and trees thereon. The CIT(A), therefore, directed that cost of acquisition as on 1st January, 1974, may be deducted from the total amount of compensation for arriving at the capital gain. The Department is aggrieved and has come up in appeal before us.
9. The assessee vide his application dt. 12th June, 1998, sought our permission to raise additional ground which reads as under : "Under the facts and circumstances of the case learned CIT(A) has erred in holding both in law and on facts entire compensation received as enhance compensation and thereby taking cost of acquisition of all assets at Rs. Nil and also not allowing fair market value of assets as on 1st Jan., 1974, for which compensation was awarded by the Court for the first time in asst. yr. 1989-90." 10. The additional ground raised by the assessee does arise from the orders of the CIT(A). After hearing both the sides and in the interest of justice we hereby admit the additional ground.
11. The learned counsel for the assessee argued that the compensation received by the assessee for the trees under the Jagir Abolition Act partakes of the nature of agricultural income and is, therefore, exempt. The learned counsel placed reliance on the decision of Calcutta High Court in the case of CIT vs. All India Tea & Trading Co. Ltd. (1978) 113 ITR 545 (Cal). In the alternative, the learned counsel argued that the compensation is a capital receipt in view of the Hon'ble Supreme Court decision in CIT vs. Ambat Echukutty Menon (1979) 120 ITR 70 (SC) and capital gains tax is not exigible. Without prejudice to this contention, the learned counsel argued that even if capital gains has accrued to the assessee, provisions of s. 45 of levy of capital gains tax are not attracted since there was no cost of acquisition of the Jagir acquired in 1919. Reliance is placed by the learned counsel on the decision of the Hon'ble Supreme Court in the case of CIT vs. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC). The learned counsel further placed reliance on the following decisions : (3) Manoharsinhji P. Jadeja vs. ITO (1987) 28 TTJ (Ahd) 43 : (1987) 20 ITD 121 (Ahd).
12. Further, with regard to interest on compensation the learned counsel argued that the interest on compensation has accrued not on the date of the order of the High Court but as having accrued year after year from 1st August, 1954, and, therefore, such interest cannot be assessed to income-tax in one lumpsum in the year in which the order is made or the payment is received. In support of this contention, the learned counsel placed reliance on the following decisions : (2) Major Mohd. Ahsanuddin Hussain vs. CIT (1998) 230 ITR 439 (AP); and 13. The learned Departmental Representative, on the other hand, support the order of the AO.14. We have carefully considered the facts and circumstances of the case as well as the rival submissions made before us. We have also gone through the array of rulings cited before us on behalf of the assessee.
The first issue which falls for consideration is regarding the taxability of the compensation received by the assessee for the compulsory acquisition of waste lands in Zar and Dadigam villages and trees standing thereon. From the order of the Gujarat Revenue Tribunal, dt. 12th September, 1984, placed at p. 6 of the paper book of the assessee it appears that the award of compensation is in respect of waste lands measuring 2,520 acres in the two villages Zar and Dadigam and the trees standing thereon. The Tribunal has referred to the assessment regarding the lands in question at Rs. 1,418 and relying upon the provisions of cl. (i) of sub-s. (3) of s. 11 of the Jagir Abolition Act held that since the lands in question are waste and uncultivated lands the compensation for the lands would be three times the assessment and hence the compensation for the lands had been quantified at Rs. 4,255 only. From these facts it is evidently clear that the trees on the waste lands are self-growing without nurturing or rearing by the assessee. No operations whatsoever by way of cultivation or planting of the trees have been carried out by the assessee on these lands. The quantification of the compensation made by the Revenue Tribunal on the basis of s. 11(3)(i) amply indicates the fact that lands in question are not cultivated and no agricultural operations had been carried out on these waste lands by the assessee. Even otherwise, no evidence has been led by the assessee in support of its claim that agricultural operations by way of planting, nurturing and rearing of the trees has been carried out at any point of time by the assessee.
Vide para 11 of the assessment order dt. 30th March, 1992, the AO has observed that undated statements of two persons viz. Shri Shivshankar P. Joshi and Shri Virendraprasad G. Joshi have been filed where it has been claimed that these persons were looking after the work of sowing, growing, ploughing, etc. However, these persons have not been produced for examination by the AO. Such undated statements without production of the witnesses have been rightly rejected by the AO by arriving at a finding that the trees on the assessee's lands in Zar and Dadigam villages are forest trees having spontaneous growth and require no cultivation activity on the part of the assessee. Unless the lands in question are used for agricultural purposes and agricultural operations are carried out thereon, the compensation received by the assessee on such lands as well as trees standing thereon could not, by any stretch of imagination, be treated as agricultural income. The decision of Hon'ble Calcutta High Court in All India Tea & Trading Co. Ltd. (supra) relied upon by the learned counsel is based on an entirely distinguishable set of facts and do not support the case of the assessee. In the said case the lands were being used for agricultural purposes. At p. 550, their Lordships observed as followed : "The requisitioned lands were used by the assessee for agricultural purposes in the accounting year and also in the earlier years. Those lands were under cultivation at the time of their requisition by the Government of Assam. The compensation was paid for the requisitioned lands which were used for agricultural purposes by the assessee.
Those lands were also cultivated by the refugees after they were given to them by the State Government after requisition." 15. In the instant case in the absence of agricultural operation the ratio of the decision would not apply. The contention of the learned counsel claiming exemption of compensation as agricultural income is, therefore, rejected.
16. The next contention of the assessee is that s. 45 would not apply since the cost of acquisition of the Jagir is Nil. The decision of the Hon'ble Supreme Court in the case of B. C. Srinivasa Setty (supra) has been strongly pressed into service by the learned counsel for the assessee in support of this argument. The case of B. C. Srinivasa Setty essentially analyses the levy of capital gains on the transfer of goodwill. Goodwill is a self-generating asset of intangible nature.
Referring to the difficulties in the matter of computation for the purposes of s. 45, the Court observed that goodwill cannot be described as an 'asset' within the terms of s. 45. With a view to get over the difficulties envisaged in Srinivasa Setty's case (supra), the legislature in its wisdom amended the provisions of s. 55 by Finance Act, 1987 and provided that the cost of acquisition of goodwill of a business in any case other than the purchase from a previous owner shall be taken to be Nil. With regard to receipt of enhanced compensation, the Finance Act, 1987 brought in important legislative changes inasmuch as the enhancement in the compensation has been deemed to be the income chargeable under the head 'capital gains' in the previous year in which such amount is received by the assessee. Expln.
(i) has been appended to the sub-s. 45(5)(b) providing that the cost of acquisition and the cost of improvement of the capital asset under question shall be taken to be Nil for the purposes of s. 45(5)(b).
These amendments brought in by the Finance Act, 1987 are effective w.e.f. 1st April 1988. Since these amendments brought about a change bringing to tax under s. 45 even those capital assets in respect of which cost of acquisition is Nil, the Hon'ble Supreme Court decision in Srinivasa Setty's case (supra) as well as other decisions of Madhya Pradesh High Court in (1986) 162 ITR 92 (MP) (supra) and (1998) 232 ITR 754 (MP) (supra) are not applicable in the instant case in sofar as assessment of compensation under s. 45 for asst. yr. 1989-90 is concerned. Both the Madhya Pradesh High Court decisions pertain to assessment years prior to 1st April, 1988, and, therefore, afford no assistance to the assessee's case. Lokendra Singhji's case (supra) considers the provisions of s. 55(2) prior to the amendments introduced by Finance Act, 1997. In the second decision of Pushparaja Singh's case the facts are entirely distinguishable inasmuch as the legal rights in the shares and bonds did not vest with the assessee and, therefore, the surplus arising out of those sales was held as not exigible to tax.
Both these decisions, therefore, render no assistance to the assessee's case. For the reasons as indicated above we hold that the enhanced compensation of Rs. 23,96,697 is liable to be assessed as capital gains under s. (5)(b) for asst. yr. 1989-90. We further hold that interim amount of Rs. 5 lakhs assessed by the AO in asst. yr. 1987-88 has been rightly deleted by the learned CIT(A) vide order dt. 7th August, 1992.
As we shall presently see, the assessee's case involves receipt of enhanced compensation liable to capital gains tax as per the provisions of s. 45(5)(b) in asst. yr. 1989-90. Therefore, the contention of the learned counsel based on cost of acquisition being Nil does not advance the assessee's case. In view of the aforesaid discussion we have come to the conclusion that the compensation in respect of waste lands and trees standing thereon received by the assessee is liable to capital gains tax under s. 45.
17. The next issue which falls for determination is whether the amount of compensation received during the period relevant for the asst. yr.
1989-90 represents the enhanced compensation liable to be assessed to capital gains tax under the provisions of s. 45(5)(b) of the Act. Under the award passed by the Jagir Abolition Officer, Baroda, compensation amounting to Rs. 38,456 was awarded on 29th July, 1959, under the Jagir Abolition Act. It was in the year 1969 that the assessee filed a fresh claim for additional compensation under the Jagir Abolition Act for an amount of Rs. 52,03,001. Protracted litigation took place with the Government of Gujarat. From the facts mentioned earlier it appears that the Government of Gujarat contested the claim for additional compensation on various grounds inter alia that the claim was time-barred and further that the trees on the waste land in Zar and Dadigam villages did not belong to the assessee. Ultimately on 15th March, 1972 the Hon'ble High Court of Gujarat while disposing of the writ petitions filed by the assessee as well as the State of Gujarat remitted the matter to the Collector, Baroda for adjudicating the issue of ownership of the private forest in the two villages and if any compensation in respect thereof was payable to the assessee. The Dy.
Collector, Chhotaudepur thereupon passed an award dt. 21st October, 1977, for Rs. 1,20,567. Spate of litigations again ensued as per facts indicated hereinbefore and ultimately on 29th Aug., 1988, litigations came to an end with an agreement reached between the assessee and the State of Gujarat under which compensation amounting to Rs. 25,18,264 was agreed to be payable as against Rs. 1,20,567 determined by the Dy.
Collector, Chhotaudepur in October, 1977. This additional amount of Rs. 23,90,697 was determined to be payable along with interest for a period of 20 years. From these facts, it is evidently clear that the original compensation determined as payable in respect of the Jagir of the assessee was for an amount of Rs. 38,456 on 29th July, 1959.
Subsequently, additional claim has been filed by the assessee which was strongly resisted and opposed by the State Government. On the directions of the High Court the matter was considered by the Dy.
Collector, Chhotaudepur and for the waste lands in the two villages Zar and Dadigam and trees standing thereon compensation amounting to Rs. 1,20,561 was determined as payable. This amount of Rs. 1,20,561 essentially represents the enhancement in the compensation in respect of the Jagir of the assessee abolished under the Jagir Abolition Act.
Protracted litigations culminated in the further enhancement by an amount of Rs. 23,97,697. From these facts, it is evidently clear that the additional compensation of Rs. 23,97,697 has fallen due for payment to the assessee on the basis of contractual agreement with the State Government and this represents the enhanced compensation in terms of the provisions of s. 45(5)(b). The enhanced compensation agreed by both the parties received the assent of the Hon'ble High Court of Gujarat on 16th September, 1988. Provisions of s. 45(5)(b) clearly stipulated that the amount by which the compensation is enhanced or further enhanced by the Court, Tribunal or other authority shall be deemed to be income chargeable under the head 'capital gains' of the previous year in which such amount is received by the assessee. Expln. (i) further provides that in addition to the amount referred to in cl. (b) as above, the cost of acquisition shall be taken to be Nil. Therefore, the amount of Rs. 23,97,697 has been rightly held to be assessable towards capital gains by the CIT(A) vide the order dt. 7th August, 1992. The assessee had received a sum of Rs. 5 lacs in the period relevant to the asst.
yr. 1987-88 along with interest of Rs. 1,72,156 by way of interim award as per interim order of the High Court dt. 31st December, 1985. These interim payments do not represent enhancement of compensation under the provisions of s. 45(5)(b) since the payments were of contingent nature and right to receive the enhanced compensation was being seriously contested and resisted by the Government of Gujarat. The right to receive additional compensation accrued in the asst. yr. 1989-90 when the litigation came to an end and the additional compensation was finally upheld by the Hon'ble High Court of Gujarat vide its order dt.
16th September, 1988. The Hon'ble Supreme Court decision in the case of CIT vs. Hindustan Housing & Land Development Trust Ltd. (1987) 161 ITR 24 (SC) is a direct authority in support of the view being taken by us.
The Hon'ble Supreme Court approvingly referred to the two decisions of Hon'ble High Court of Gujarat in the case of Topandas Kundanmal vs. CIT (1978) 114 ITR 237 (Guj) and Addl. CIT vs. New Jehangir Vakil Mills Co.
Ltd. (1979) 117 ITR 847 (Guj) and held that it was on a final determination of the amount of compensation that the right to receive such income in the nature of compensation would arise or accrue and till then there was no liability in praesenti in respect of the additional amount of compensation claimed by the owner of the land.
Having regard to the aforesaid discussion, we hold that this is a case of additional compensation in terms of the provisions of s. 45(5)(b) and the additional amount of compensation amounting to Rs. 23,97,697 is liable to be assessed as capital gains in the asst. yr. 1989-90.
18. At this stage we may refer to the order of the Tribunal in assessee's own case in WTA Nos. 811 and 813/Ahd/1992 relating to asst.
yr. 1985-86 to 1987-88 wherein vide order dt. 12th March, 1998, it has been held that the right to receive additional compensation arose to the assessee during the period relevant to asst. yr. 1989-90. Vide the said order the Tribunal has, accordingly, accepted the contention of the assessee that no right to receive additional compensation accrued to the assessee during the asst. yrs. 1985-86 to 1987-88. Thus, the view being taken by us in the present order is fully in conformity with the aforesaid order of the Tribunal in the wealth-tax appeals of the assessee as indicated above.
19. The second issue which is to be considered by us is regarding the assessment of interest accrued to the assessee on the enhanced compensation. The AO has added a sum of Rs. 1,72,156 for the asst. yr.
1987-88 and Rs. 6,53,685 for the asst. yr. 1989-90 on account of interest. The additions have been confirmed by the CIT(A) vide his order dt. 7th August, 1992. After careful consideration of the arguments of the learned counsel on the issue as well as the facts and material on record we have come to the conclusion that since the right to receive the additional compensation arose or accrued during the period relevant to the asst. yr. 1989-90 after the compromise agreement of the assessee with the Government of Gujarat dt. 29th August, 1988, which has been approved by the Hon'ble Gujarat High Court vide its order dt. 6th September, 1988, right to receive interest on the compensation has also accrued during the period relevant to asst. yr.
1989-90. The contention of the assessee that the right to receive interest accrued from year to year right since 1954 is factually and legally erroneous and is, therefore, rejected. From the detailed facts and sequence of events as indicated earlier it is evidently clear that there was serious and substantial litigation with regard to the right of enhanced compensation and this litigation concluded in the accounting year relevant to the asst. yr. 1989-90 wherein the right to receive interest as well as the enhanced compensation was finally agreed by the parties and upheld by the High Court. There is no question of accrual of interest on enhanced compensation when the very right to the payment of enhanced compensation is in jeopardy. This is not a case of mere quantification of the enhanced compensation which was in dispute. The dispute was with regard to the very right of the assessee to receive the enhanced compensation. The long and tortuous route traversed by the entire controversy involving several rounds of litigations before the Hon'ble Gujarat High Court provides eloquent proof of the fact that there was no liability in praesenti to pay an enhanced compensation till it was finally determined by the High Court on 16th September, 1988 when the question is set at rest finally and an enforceable right to the compensation arose and accrued to the assessee along with interest thereon. As long ago as E.D. Sasoon & Co. vs. CIT (1954) 26 ITR 27 (SC) the Hon'ble Supreme Court considered the question as to the point at which income could be said to accrue or arise to an assessee for the purpose of IT Act. In the majority judgment the Hon'ble Supreme Court held that "the words "arising or accruing" described a right to receive profits and that there must be a debt owed by somebody. Unless and until there is credit in favour of the assessee a debt due by somebody", it was observed, "it cannot be said that he has acquired a right to receive the income or the income has accrued to him". This decision has been referred and approved by the Hon'ble Supreme Court in its subsequent decision in Hindustan Housing & Land Development Trust cited earlier.
20. Having regard to the aforementioned facts and respectfully relying upon the decisions of the Hon'ble Supreme Court as cited above, we hold that the interest on the additional compensation is liable to be assessed for the asst. yr. 1989-90. The addition of Rs. 6,53,685 on account of interest for asst. yr. 1989-90 upheld by the CIT(A) is, therefore, confirmed. The interest amount of Rs. 1,72,156 included in the asst. yr. 1987-88 by the AO and upheld by the CIT(A) is hereby deleted with the observation that this amount of interest is liable to be included in asst. yr. 1989-90 and not in the asst. yr. 1987-88.
21. The learned counsel raised a contention before us towards the concluding stages of the hearing that the compensation received from the State Government is in any case liable to be assessed in the hands of the members of the assessee's HUF since a partition has taken place in the family. This contention has been rightly rejected by the tax authorities below since no evidence whatsoever has been furnished in support of the alleged claim of partition of the assessee's HUF. In fact, for the asst. yr. 1987-88 the assessee's HUF in the return of income has itself disclosed the interest of Rs. 625 on the delayed payment of the enhanced compensation. The argument of the learned counsel has been rightly rejected by the tax authorities on account of enhanced compensation and interest thereon has been rightly assessed in the hands of the assessee's HUF.22. To summarise our conclusion in the three appeals under reference, it is held that : (i) assessee's appeal in ITA No. 4507/.Ahd/1992 is allowed and the interest amount of Rs. 1,72,156 is deleted, (ii) the assessee's appeal in ITA No. 4508/Ahd/1992 is dismissed. The additional ground raised by the assessee is also dismissed since the provisions of s. 45(5)(b) are held to be applicable for asst. yr. 1989-90. The assessee's appeal for the asst. yr. 1989-90 is, therefore, dismissed, (iii) Department's appeal in ITA No. 4839/Ahd/1995 is allowed and the order of the CIT(A) dt. 26th September, 1995, relating to the asst. yr.
1989-90 is cancelled.