G. Sivarajan. J.
1. This is an appeal filed by the CIT, Cochin, against the order of the Tribunal, Cochin Bench, in ITA No. 153/Coch/96, in respect of the asst. yr. 1992-93. The respondent-assessee owned an extent of 0.3059 hectares of land. The said land was acquired by the State Government for widening the national highway pursuant to a declaration made on llth Oct., 1991. It appears that the land was taken advance possession of. On 30th Aug., 1991, the assessee got a sum of Rs. 27,08,000 as advance towards compensation payable for the acquisition of the land. Later, the Land Acquisition Officer passed the award on 18th Dec., 1992. As per the said award, the assessee became entitled to get a total sum of Rs. 38,11,604 by way of compensation. After adjusting the advance payment, the balance amount was paid to the assessee on llth Jan., 1993. Relying on the provisions of Section 45(5)(a) of the IT Act, 1961, for short 'the Act', the AO took the view that the entire compensation received by the assessee should be subjected to capital gains tax in the asst. yr. 1992-93, since the assessee had received a sum of Rs. 27,08,000 on 30th Aug., 1991, which fell within accounting period relevant to the assessment year concerned. Accordingly, the entire sum of Rs. 38,11,604 along with the interest was assessed to capital gains for the asst. yr. 1992-93 itself. In this context, it is relevant to note that the assessee, in the return filed for the asst. yr. 1993-94, had offered the award amount of Rs. 38,11,604 for capital gains tax. However, the AO has subjected the same to capital gains tax for the year 1994-95. The assessee, being aggrieved by the assessment order for 1992-93 in which the entire compensation amount was included, took up the matter in appeal before the CIT(A)-II, Cochin, who by his order dt. 13th Nov., 1995, allowed the appeal upholding the claim made by the assessee. The appellate authority has taken the view that the crucial 'date for assessing the compensation to capital gains tax is the date of the award. In appeal by the Department, the Tribunal has taken a different view from the one taken by the AO and the one taken by the first appellate authority. According to the Tribunal, by virtue of the provisions of Section 45(5)(a) of the Act, the advance payment of Rs. 27,08,000 has to be assessed in the year of receipt, that is in the asst. yr. 1992-93, and the balance consideration as per the award has to be assessed in the asst. yr. 1993-94, since the same was received on llth Jan., 1993. Though the Revenue is happy with the finding regarding the assessability of the sum of Rs. 27,08,000 in the asst. yr. 1992-93, it is aggrieved by the direction in the order regarding the assessability of the balance amount of Rs. 9,73,219 pursuant to the award in the asst. yr. 1993-94. Hence, this appeal.
2. While admitting the appeal, notice was ordered on the following questions of law :
'1. Whether, on the facts and in the circumstances, of the case, the Tribunal is right in law in its interpretation of Section 45(5)(a) of the IT Act ?
2. Whether, on the facts and in the circumstances of the case and on an interpretation of the words 'in the first instance', is not the entire amount of compensation of Rs. 27,08,000 awarded by the Land Acquisition Officer assessable in the asst. yr. 1992-93 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in its interpretation/understanding of the circular relied on
3. Sri P. K. R. Menon, learned senior Central Government standing counsel for Taxes appearing for the appellant, submits that this is a case where Section 45(5)(a) of the Act, introduced for the first time by the Finance Act, 1987, w.e.f. 1st April, 1988, squarely apply. The senior counsel submitted that Clause (a) clearly provides that when the award amount or any part thereof is received on different dates, the entire award amount has to be assessed in the year in which a portion of the said amount was first received. The senior counsel on the basis of the above interpretation, of Clause (a) of Sub-section 5 of Section 45 submits that the Tribunal had erred in holding that only the sum of Rs. 9,73,219 has to be assessed in the year of receipt.
4. Sri P. Balachandran, the learned counsel appearing for the assessee, on the other hand, submits that insofar as capital gains is concerned, the charging provision is Section 45(1) of the Act, which clearly provides that the capital gains arising from the transfer of a capital asset shall be deemed to be the income of the previous year in which the transfer took place, and that in the case of compulsory acquisition, the crucial date of transfer is the date of award, and therefore, the liability to pay capital gains tax arises only on dispossession from the property pursuant to the award. So understood, the counsel submits that in the instant case, since the award was passed only on 18th Dec,, 1992, the compensation received on such transfer can be subjected to capital gains tax under Section 45 only in the asst. yr. 1993-94. The counsel also relied on the decisions of the Gujarat and Bombay High Courts in CIT v. Purshottambhai Maganbhai Hatheesing (HUF) : [1985]156ITR150(Guj) and in M.B. Kamarkar and D.L. Gokhale v. CIT : [1984]150ITR234(Bom) respectively in that regard. Counsel pointed out that under Section 45(1), the crucial date for assessing the compensation amount to capital gains is the date of transfer, in the instant case, the date of the award and, therefore, even the enhanced compensation received as a result of the award passed by a Court can be brought to tax only by reopening the assessment already completed for the year in which the award was passed by the Collector. The counsel submits that Section 45(5) of the Act, however, inter alia, makes a departure in the case of compulsory acquisition under any law where the compensation for such transfer is enhanced or further enhanced by Court. In such case under Clause (a) the compensation awarded in first instance shall be chargeable as income under the head 'capital gains' of the previous year, in which such compensation or part thereof was first received and under Clause (b), the enhanced compensation received as per award of the Court shall be deemed to be the income chargeable under the head 'capital gains' of the previous year in which such amount is received. Counsel submits that this position is made clear by the use of notwithstanding clause in Section 45(5) itself.
5. In order to appreciate the rival contentions, it is necessary to refer to the relevant provisions of Section 45. Section 45(1) of the Act reads as follows :
45. Capital gains.--(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise, provided in Sections (....)54, 54B, 54D, 54E, 54F, 54G and 54H, be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place.
Section 45(5), Clauses. (a) and (b) reads as follows :
'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.'
Since the senior counsel has also relied on the provisions. of Section 54H of the IT Act, the said provision is also extracted.
'54H. Extension of time for acquiring new asset or depositing or investing amount of capital gain--Notwithstanding anything contained in Sections 54, 54B, 54D and 54F, where the transfer of the original asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period for acquiring the new asset by the assessee referred to in those sections or, as the case may be, the period available to the assessee under those sections for depositing or investing the amount of capital gain in relation to such compensation as is not received on the date of the transfer, shall be reckoned from the date of receipt of such compensation : Provided that where the compensation in respect of transfer of, the original asset by way of compulsory acquisition under any law is received before the 1st day of April, 1991, the aforesaid period or periods, if expired, shall extend upto the 31st day of December, 1991'.
6. From the provisions of Section 45(1) extracted above, it is clear that any profits or gains arising from the transfer of a capital asset effected in the previous year shall except as provided under Section 54 series 'shall be deemed to be the income of the previous year in which the transfer took place'. The expressions 'transfer of a capital asset effected in the previous year' and shall be deemed to be the income of the previous year in which the transfer took place make it clear that it is the date of transfer which is crucial. It is the execution of the sale deed and its registration that confers title to the property transferred to the vendee. This is the normal case of transfer of ownership of an immovable property. Compulsory acquisition of immovable property under the provisions of the Land Acquisition Act is also another mode of transfer of a capital asset. In that case, the transfer is complete only by the passing of the award, payment of the award amount and the dispossession of the owner from the property. Hence, by virtue of the provisions of Section 45(1), the entire compensation received in respect of compulsory acquisition of the capital asset, viz., the immovable property has to be assessed with reference to the date of the award by the Collector. However, Section 45(5) is special provision dealing with capital gains arising from the transfer of a capital asset by way of compulsory acquisition under any law and the compensation is enhanced or further enhanced by any, Court, Tribunal or other authority. In such case, the capital gain shall be dealt with in the manner provided in Clauses (a) and (b) thereto, From the above, it would appear that two conditions are to be satisfied for. The application of Sub-section (5) :
1. Capital gains must arise from the transfer of a capital asset by way of compulsory acquisition under any law, and
2. The compensation for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority.
Unless both these conditions concur, there is no question of application of Sub-Section (5). If we understand the purport of Sub-section (5) in the above manner, since there is no case for the Department that enhanced compensation was awarded by the Court, Tribunal or other authority, there is no question of application of Sub-section (5) of Section 45 at all in the instant case.
7. However, we will deal with the contention of the senior counsel for the Department that Clause (a) of Sub-section (5) applies even to a case where no enhancement of compensation is awarded. Clause (a) of Sub-section (5) states that the capital gain computed with reference to the compensation awarded in the first instance shall be chargeable as income under the head 'capital gains' of the previous year in which such compensation or part thereof, was first received. We have already noted the contention of the senior counsel that since the advance payment is a part of the consideration for the compulsory acquisition, it forms part of the award and therefore by virtue of the provisions of Clause (a) of Section 45(5), the award amount must be assessed to capital gains tax in the year of receipt of the advance amount. We are unable to agree with the said contention of the senior counsel. A reading of the provisions of Clause (a) of Section 45(5) with reference to the opening portion of Sub-section (5) of Section 45 makes it clear that it is with reference to the compensation awarded in the first instance, i.e., the award passed by the Collector, it is stated that it shall be chargeable as income under head 'capital gains' of the previous year in which such compensation or part thereof was received. According to us the words. 'the compensation awarded' in the first instance occurring in Clause (a) refers to the compensation determined by the Collector as per his award and the words 'such compensation or part thereof .............received by the assessee' occurring in the said clause refers to the amounts received pursuant to the award passed by the Collector and not the amount received earlier to the award. The view which we have taken not only on the basis of an understanding of Clause (a) of Sections 45(5), but also provisions of Section 45(1) and with reference to the provisions of Sections 11 and 12 of the Land Acquisition Act, 1894.
8. As we have already noted, Section 45(1) is the charging provision which clearly refers to 'any profits or gains arising from the transfer of a capital asset effected in the previous year'. Thus, it is clear that it is the transfer of the capital asset, which attracts liability to capital gains under Section 45. The question is, in the case of a acquisition when does the transfer takes place. For understanding that, we have to look to the provisions of the Land Acquisition Act itself. Section 11 of the Land Acquisition Act, is the provision for enquiry and award. Section 11(2) reads as follows :
'11(2) Notwithstanding anything contained in Sub-section (1), if at any stage of the proceedings, the Collector is satisfied that all the persons interested in the land who appeared before him have agreed in writing on the matters to be included in the award of the Collector in the form prescribed by rules made by the appropriate Government, he may, without making further enquiry, make an award according to the terms of such agreement',
Section 11(3) of the Land Acquisition Act is also relevant, which reads as follows :
'11(3) The determination of compensation for any land under Sub-section (2) shall not in anyway affect the determination of compensation in respect of other lands in the same locality or elsewhere in accordance with the other provisions of this Act.'
Section 12 of the said Act reads as follows :
'12. Award of Collector when to be final.--(1) Such award shall be filed in the Collector's office and shall, except as hereinafter provided, be final and conclusive evidence, as between the Collector and the persons interested. whether they have respectively appeared before the Collector or not, of the true area and value of the land, and the apportionment of the compensation among the persons interested.
(2) The Collector shall give immediate notice of his award to such of the persons interested as are not present personally or by their representatives when the award is made.'
9. From a reading of the aforesaid provisions, it is clear that the transfer is effective only on the passing of the award and on surrendering the documents of title and on getting the award amount pursuant thereto. Thus, according to us, the compensation received by the assessee as per the award dt. 18th Dec., 1992, is the crucial date for determining the assessment year with respect to which the compensation can be brought to capital gains tax. If that be so, the entire award amount (Rs. 27,08,000 and Rs. 9,73,219) has to be assessed only during the asst. yr. 1993-94, as held by the first appellate authority. We are unable to agree with the findings of the Tribunal which took the view that the advance compensation received must be assessed in the year of receipt and the balance amount received pursuant to the award must be assessed in the year of receipt of that amount. Such a conclusion does not warrant from the provisions of Clause (a) of Sub-section (5) of Section 45 of the Act. In the normal course, we should have vacated the said finding of the Tribunal. However, in this case, though the Tribunal has held that the advance payment of Rs. 27,08,000 has to be assessed in the year of receipt, the assessee has not come up in appeal. In the above circumstances, notwithstanding our disapproval of the finding of the Tribunal as above, we are not interfering with the finding of the Tribunal that the sum of Rs. 27,08,000 must be assessed in the assessment for the year 1992-93. However, the finding regarding the assessability of the balance amount of Rs. 9,73,219 does not arise for consideration in this case, and we vacate the said finding.
This IT Appeal is disposed of as above.