ORDER
R.S. Syal, A.M.
These cross-appeals, one by the assessed and the other by the revenue, emanate from the order passed by the Commissioner (Appeals)-III, New Delhi, on 16-12-1991 relevant to the assessment year 1988-89.
2. Since both the appeals arise from a common order of the Commissioner (Appeals), we proceed to dispose of these appeals by way of this common consolidated order for the sake of convenience.
ITA No. 2947/Del/1992-Revenue's appeal
3. The revenue in the first ground is aggrieved against the deletion of addition of Rs. 24,81,705 under the head capital gains. In order to understand the controversy in hand, it is sine qua non to mention the facts in brief. A piece of land measuring 24.1 acres at village Arkpur owned by the Government and managed by the Land Development Officer was given on lease on 19-3-1924 in favor of Shri Ram Singh Kabli under a registered deed. The lease was in perpetuity in the name of Delhi Pottery Works (P) Ltd. Shri Ram Singh Kabli kept only 5 acres and alienated the rest of the land measuring 19.1 acres. On this land a superstructure for factory was raised. The assessor's late husband Shri Kesar Singh and their son took on sub-lease of the said land, factory premises and machinery installed thereon on 20-3-1942 and the rent payable was fixed at Rs. 500 per month. The sub-lease was for a period of 17 years. Delhi Pottery Works (P) Ltd. went into liquidation and the official liquidator released the aforementioned property in favor of Smt. Harnam Kaur, widow of late Shri Ram Singh Kabli in March, 1949. Shri Kesar Singh started paying sublease rent of Rs. 500 per month to Smt. Harnam Kaur. After the death of Shri Kesar Singh, the same lease-hold right in the said land devolved on the assessee, who started pottery business in the name and style of M/s Kesar Potteries. On 15-9-1962 the Government of India issued a Notification under, section 4 of Land Acquisition Act acquiring the land in Arkpur village including the aforesaid land of 5 acres, which was under the tenancy and occupancy of the assessee. Notification under section 6 of the Land Acquisition Act was issued by the Government in respect of the aforesaid land on 5-12-1968. Meanwhile in 1964 Smt. Harnam Kaur perpetual lease-holder executed a trust styled as Sardarni Harnam Kaur Trust, to which she assigned her right in the said land. This Trust filed suits for ejectment against the appellant, first in 1964 and then in 1975, which were dismissed/withdrawn. In January 1975 two awards were made by the Land Acquisition Officer in respect of the said land and the value for compensation was fixed at Rs. 6,300 per bigha. The assessed handed over the vacant possession of land on 30-3-1976 and factory building on 17-9-1976. There were three claimants for compensation in respect of the said property. The District Judge in his decision dated 20-4-1983 held that these three claimants were entitled to share the compensation in the following manner :
(1)
Union of India
:
25 per cent of the award money
(2)
Smt. Harnam Kaur Trust
:
Rs. 1,20,000 being 20 years' capitalization of monthly rent of Rs. 500
(3)
Smt. G.S. Bapna
:
The remaining balance amount.
4. The assessed was not satisfied with the quantum of compensation and, thereforee, filed a reference under section 18 of the Land Acquisition Act before the District Judge. This reference was decided by the Addl. District Judge, Delhi on 20-2-1987, This judgment was not accepted by the Union Government and an appeal was filed before the Hon'ble Delhi High Court, which passed ad interim order on 20-7-1987 directing the stay of execution of decree conditionally on Union Government depositing the enhanced amount of compensation in the court of Additional District Judge and allowing the decree holder to withdraw the disputed amount of Rs. 94,89,304 on furnishing security for restitution and allowing the withdrawal of the rest of the amount without security. The assessed withdrew the entire amount of compensation on 30-7-1987 after furnishing bank security/guarantee.
5. In the background of these facts, the assessing officer found that the enhanced compensation received by the assessed during the relevant assessment year was Rs. 59,63,410 and after excluding 50 per cent in terms of section 48(2) be brought to tax the remaining amount under the head 'Capital gains'.
6. Before the first appellate authority it was urged that the amount of compensation was not liable to be taxed till the matter was finally decided by the court and also that the assessed was a sublessee of the land and structure standing thereon and her interest was only as a tenant. The assessed further pointed out that as there was no cost of acquisition of the tenancy right, capital gain was not chargeable to tax. The learned first appellate authority concurred with the submissions advanced on behalf of the assessed and held that there was no justification in bringing to tax the capital gain of Rs. 24,81,705 and accordingly deleted the addition.
7. Before us the learned Departmental Representative contended that the first appellate authority erred in reversing the order of the assessing officer on this issue. It was contended by the learned Departmental Representative that the case of the assessed was squarely falling within the provisions of section 45(5) which was introduced with effect from assessment year 1988-89 and the year under consideration was also the same. The learned Departmental Representative contended that clause (b) of section 45(5) provides in unambiguous terms that the amount by which compensation is enhanced was to be deemed to be the income chargeable under the head 'Capital gains' of the previous year as if such amount were received by the assessee. It was further emphasized by the learned Departmental Representative that Explanation (ii) to section 45(5) leaves no scope for not taxing the enhanced compensation for the reason that it is provided in this Explanationn that the cost of acquisition and the cost of improvement shall be taken as nil in respect of the amount referred to in clause (b) of section 45(5). Based on these submissions, the learned Departmental Representative strenuously urged that the order of the first appellate authority on this issue be reversed.
8. In oppugnation, Shri Anand Prakash, the learned counsel for the assessed reiterated the submissions as were advanced before the first appellate authority and on the basis of his reasoning, urged that order of the Commissioner (Appeals) be maintained. Reference was made to the decision of Apex Court in the case of CIT v. Hindustan Housing & Land Development Trust Ltd. : [1986]161ITR524(SC) for the proposition that the Addl. compensation did not accrue to the assessed as the amount awarded was itself disputed by the Government be filing the appeal. It was pointed out that in this case the Supreme Court has held that enhanced compensation being inchoate was not accrued in the year of receipt. The learned counsel also pointed out that the compensation received by the assessed could not be taxed for the reason that the same was on account of tenancy rights. In order to buttress his contention, the learned counsel relied on the judgment in the case of Bawa Shiv Charan Singh v. CIT : [1984]149ITR29(Delhi) .
9. In the rejoinder the learned Departmental Representative stressed on the expression 'in which such amount is 'received' by the assessee' used section 45(5)(b) and pointed out that since the assessed had received the enhanced compensation during the year under consideration, the case fell within the ambit of this sub-section.
10. We have considered the rival submissions in the light of the material placed before us and the precedents relied upon. It is palpable that the assessed had received enhanced compensation during the year under consideration after furnishing the necessary security/guarantee, which was put to tax by the revenue. There is no dispute about the fact that the judgment of the District Judge, enhancing compensation was not accepted by the Union Government and appeal was filed before the Hon'ble High Court. In order to consideration the applicability of section 45(5) to the facts of the present case it is necessary to note down the contents of this provision :
'45(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely :
(a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve bank of India shall be chargeable as income under the head 'Capital gains' of the previous year in which such compensation or part thereof or such consideration or part thereof, was first received; and
(b) the amount by which the compensation or consideration 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.
Explanation. -For the purposes of this sub-section,
(i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil
(ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1-4-1988;
(iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head 'Capital gains', of such other person. '
A bare perusal of this sub-section brings to light that the enhanced compensation is taxable in the year of receipt under the head 'capital gains'. The key word used in this sub-section is 'received'. Now the question arises as to what is the significance of the word 'received' as employed in this sub-section. There can be two situations, first, wherein the assessed has received the enhanced compensation against which the Government is not in appeal and second, in which the Government is aggrieved against the enhancement and is in appeal against the said enhancement. The second category of 'receipt', in our considered opinion, does not mean 'receiving compensation' within the meaning of section 45(5) for the reason that if the Government succeeds before the High Court, the assessed will become liable to refund the amount already received. Had there been the situation in which the assessee, after receiving enhanced compensation, agitates for further enhancement for which the Government does not make any counter claim for the reduction in the already enhanced compensation, then the provisions of section 45(5) would have been clearly attracted. But in the instant case the Government came up in appeal against the enhancement made by the District Judge thus jeopardising the enhancement. Now the fate of the enhancement already received by the assessed got disturbed, the finality in respect of which became dependent on the outcome of the final judicial pronouncement. Till then it cannot be said that the assessed has 'received' the enhancement within the meaning of section 45(5) entitling the revenue to charge tax thereon. Unless the enhanced compensation is received within any embargo, leaving thereby no scope or likelihood of the return, the same cannot be said to fall within the scope of section 45(5) of the Income Tax Act.
We are reminded of the judgment of the Hon'ble Supreme Court in the case of P. Mariappa Gounder v. CIT : [1998]232ITR2(SC) , wherein. Their Lordships held that mesne profit is assessable to tax in the year in which the liability became ascertained. In this case the assessed filed a suit against the vendor for specific performance of the conveyance deed of a property. The suit was decreed by the Supreme Court on 22-4-1958 and by its judgment dated 22-4-1958 the Supreme Court also declared the assessed as entitled to mesne profits and directed the trial court to determine the quantum of such mesne profits. The trial court determined the same by order dated 22-12-1962 and the mesne profit was received by the assessed in the assessment year 1963-64. In this case it was held that mesne profits were to be assessed in assessment year 1963-64 for the reason that the decree passed by the Supreme Court created only an inchoate right in favor of the assessee, and the liability became ascertained only when the trial court passed the order on 22-12-1962.
11. Another important aspect of this issue needs to be highlighted. Compensation received by the assessed pertained to compulsory acquisition of the property in respect of which the assessed had only tenancy rights and not the ownership rights. So it was only against the tenancy rights that the assessed got compensation and the enhanced compensation which the revenue sought to tax. It is important in this connection to note that section 55(2)(a) was substituted by the Finance Act, 1994, with effect from 1-4-1995, including the tenancy rights, inter alia, within the definition of 'capital asset' having cost of acquisition as nil. It implies that only with effect from assessment year 1995-96, the tenancy rights have been considered as capital asset, on the transfer of which taxable capital gains arises. Since the tenancy rights in the present case did not involve any cost of acquisition and the transfer was prior to 1-4-1995, the transfer of the tenancy rights even otherwise would not amount to result in taxable capital gains. Respectfully following the decision of the jurisdictional High Court in the case of Bawa Shiv Charan Singh (supra), we confirm the action of the first appellate authority in this regard.
12. The next grievance of the revenue relates to the interest income earned by the assessee. The facts on this issue lie in narrow compass. The assessed received interest on the advancement of interest-bearing loans and accordingly earned interest income which was shown as business income. The assessing officer taxed the interest under the head 'Income from other sources' on the ground that the assessed could not be treated as money lender as no money-lending license was obtained by her. The assessed agitated the matter before the first appellate authority by submitting that the assessing officer had not brought any material on record to suggest that the series of transactions shown by the assessed were not business. It was also contended that the absence of money lender's license was not crucial in determining the head of income under which it is taxable.
12.1 Before us the learned Departmental Representative contended that the Commissioner (Appeals) had not appreciated the facts in the right perspective. It was further pointed out that the money advanced by the assessed was not in the nature of business because it was given to only a handful of her relatives and also that there was no organized activity which could establish that the assessed was engaged in the money lending business. He relied on the decision in the case of Bengal & Assam Investors Ltd. v. CIT : [1966]59ITR547(SC) and CIT v. K.S. Venkatasubbiah Reddiar : [1996]221ITR18(Mad) for the proposition that the activity of the assessed advancing money on interest did not constitute business.
12.2 As against this, the learned counsel for the assessed invited our attention towards a chart included in the assessor's paper book showing-details of persons to whom the money was lent. In particular, our attention was drawn towards the statement of three pages annexed with this chart, which includes names of 51 persons to whom the assessed had advanced money on interest, which also included various firms and also private limited companies, in addition to individuals. The learned counsel further pointed out that the assessed was in this business since assessment year 1981-82 and was regularly showing interest income under the head 'business income'.
12.3 Having heard the rival submissions and perused the relevant record, and considered the authorities relied upon by the learned Departmental Representative, we are of the considered view that the Commissioner (Appeals) was justified in holding the 'interest income' as 'business income'. The case of the revenue is erected on the edifice of fact that the assessed was not regularly engaged in money lending activities and also no license was obtained for this purpose. The Hon'ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT : [1975]101ITR234(SC) has held that in order to constitute a business there should be a course of dealings in terms of frequency and activities. From the facts placed before us it is patent that the assessed is regularly engaged in the money-lending business since 1980 and earning interest income there from albeit the assessed had not obtained money lending licence, yet the regular course of dealings in money-lending cannot be brushed aside. Taking into consideration the conspectus of the case, we hold that the interest income is taxable under the head 'Business income'.
13. In the result, the revenue's appeal stands dismissed.