Dwarka Prasad, J.
1. The Commissioner of Income-tax, Jaipur, by this reference application-under Section 256 of the Income-tax Act, 1961 (hereinafter referred to as ' the Act '), has prayed that the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as ' the Tribunal '), may be directed to state the case and refer the following two questions arising out of its order dated January 17, 1979, to this court for its opinion:
' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that only that part of the interest which related to the assessment year 1972-73 should be brought to tax in the assessment year 1972-73 and not the entire amount, viz., Rs. 21,916 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the additional amount of compensation received during the period relevant to the assessment year 1972-73 was assessable in the assessment year 1964-65?'
2. The circumstances in which the aforesaid reference application arises are as under :
The assessee, M/s Sardar Sajit Singh and Sons, had a plot of land at Delhi, which was purchased in the year 1948 for a sum of Rs. 25,000. This plot of land was acquired by the Government by notification datedNovember 13, 1959. It appears that the possession of the land in question was also taken by the Government at the same time. The Land Acquisition Collector in the year 1963 adjudged the amount of compensation payable to the assessee at Rs. 38,242 by an award passed under Section 11 of the Land Acquisition Act. The aforesaid amount of compensation was paid to the assessee during the assessment year 1964-65 and capital gains amounting to Rs. 13,242 were assessed by the Income-tax Officer while making the assessment of the income of the assessee in the assessment year 1964-65, taking the purchase price of the plot of land at Rs. 25,000.
3. The assessee felt dissatisfied with the amount of compensation awarded by the Land Acquisition Collector and under Section 18 of the Land Acquisition Act required the Collector that the matter relating to the amount of compensation be referred to the civil court for determination. The District Judge passed an award under Section 26 of the Land Acquisition Act enhancing the amount of compensation awarded to the assessee to a sum of Rs. 1,24,435 including a sum of Rs. 21,916 as interest. The award passed by the District Judge thus made an addition of a sum of Rs. 1,02,519 inclusive of interest to the amount of compensation awarded by the Land Acquisition Collector. The District Judge passed his award and the amount of compensation awarded by him was received by the assessee during the period relevant to the assessment year 1972-73.
4. During the assessment proceedings for the year 1972-73, the question arose before the Income-tax Officer as to whether the amount of enhanced compensation paid to the assessee on account of the award passed by the District Judge and which constituted capital gains within the meaning of Section 45 of the Act should be assessed to tax during the assessment year 1972-73 or the said enhanced compensation could only have been assessed in the assessment year 1964-65 when the amount of compensation received by the assessee on the basis of the award passed by the Land Acquisition Collector was subjected to assessment proceedings. The further question which arose for,consideration was as to whether the entire amount of interest of Rs. 21, 916 received by the assessee could be assessed to tax during the assessment year 1972-73. The Income-tax Officer, by his order dated March 20, 1975, held that as the enhanced compensation was quantified in the year 1972-73, it was only receivable by the assessee as capital gains during the assessment year 1972-73 and not during the assessment year 1964-65. As regards interest, the Income-tax Officer held that the entire accumulated interest was also assessable as the income of the assessee from other sources during the assessment year 1972-73.
5. On appeal, the Appellate Assistant Commissioner of Income-tax, Central Range, Jaipur, by his order dated June 4, 1977, held that theIncome-tax Officer was justified in bringing to tax the enhanced amount of compensation received during the accounting year relevant to the assessment year 1972-73, in that year. As regards interest, the Appellate Assistant Commissioner disagreed with the Income-tax Officer and held that the entire accumulated interest could not have been brought to tax only in one year, as according to him, the interest accrued each year and was payable to the assessee on accrual basis, year after year, and not on accumulated receipt basis. As such, the Appellate Assistant Commissioner directed the Income-tax Officer to bring to tax only that part of the interest which was payable in respect of the accounting period referable to the assessment year 1972-73.
6. The assessee as well as the Income-tax Officer filed appeals against the order passed by the Appellate Assistant Commissioner before the Tribunal. After consideration of the facts of the case, the Tribunal came to the conclusion that as transfer of the plot of land which was compulsorily acquired by the Government under the provisions of the Land Acquisition Act took place in the previous year relevant to the assessment year 1964-65, the capital gains arising from such transfer of the plot of land could be assessed only in the assessment year 1964-65 and not in the assessment year 1972-73. It was pointed out that capital gain arose only when there was a legal transfer or sale by the assessee. According to the view taken by the Tribunal, although the Government had acquired the plot of land in question by a Notification dated November 13, 1959, and had also taken possession of the said plot of land at that time, yet the assessee would be considered to have been merely dispossessed by the Government and no legal transfer of property had taken place at that point of time. Thus the view of the Tribunal was that the legal title in respect of the plot of land in question was transferred to the Government only when the award of the Collector was passed in the year 1963 and as such capital gains arising out of the transfer of the plot of land accrued to the assessee during the period relevant to the assessment year 1964-65. Thus, the Tribunal held that the additional amount of compensation paid to the assessee in accordance with the award passed by the District Judge could not be assessed to tax as capital gains in the assessment year 1972-73. On the question of interest, the Tribunal held that the accumulated interest could not be assessed in full in the assessment year 1972-73, but it should be spread over the years between the date of acquisition and the date of actual payment of interest. Thus, the Tribunal arrived at the conclusion that in the assessment year 1972-73, only that part of interest could be assessed to tax which was received by the assessee relating to the relevant previous year. The Tribunal consequently allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue by its order dated January 17, 1979.
7. The Commissioner of Income-tax, Jaipur, filed an application before the Tribunal under Section 256 of the Act seeking a reference to this court in respect of the two questions referred to above. However, the' Tribunal refused to make a reference by its order dated December 12, 1979, on the question of additional amount of capital gains. The Tribunal thought that the issue stood concluded by the judgment of their Lordships of the Supreme Court in CIT v. Bhurangya Coal Co. : [1958]34ITR802(SC) . On the question of interest, the Tribunal held that the matter was concluded by the decision of their Lordships of the Supreme Court in CIT v. A. Gajapathy Naidu : [1964]53ITR114(SC) . Hence, this application under Section 256(2) of the Act has been made before this court on behalf of the Revenue.
8. Learned counsel for the parties referred to the decisions of various High Courts on both the questions in respect of which reference is sought and we are of the view that there is a divergence of judicial opinion in the country on both the questions. In respect of the question of assessment of capital gains resulting from enhanced compensation made payable or paid to the assessee on account of the award passed by the District Judge on a reference made under Section 18 of the Land Acquisition Act or on appeal by the High Court or the Supreme Court, although it has undoubtedly been held that the right to compensation in case of compulsory acquisition of land under the provisions of the Land Acquisition Act accrues to the assessee on the date of the transfer, yet in case of enhancement of compensation as a result of proceedings in a court on a reference made under Section 18 of the Land Acquisition Act, it has been held-by some High Courts that the right to enhanced compensation accrued only when the award was passed by the civil court.
9. In Bhurangya Coal Company's case : [1958]34ITR802(SC) , their Lordships of the Supreme Court held that the title to immovable properties covered by the sale deed passed to the transferee on the date it was executed and the title to the movable properties passed to the transferee on the date on which possession thereof was handed over, but the question of payment of compensation or enhanced compensation as a result of proceedings taken on a reference under Section 18 of the Land Acquisition Act did not come up for consideration before their Lordships of the Supreme Court in that case and it cannot, therefore, be held that the matter stood concluded by the decision of their Lordships in Bhttratngya Coal Company's case : [1958]34ITR802(SC) .
10. The question of acquisition of land under the provisions of the Land Acquisition Act was considered by their Lordships of the Supreme Court in Dr. G. H. Grant v. State of Bihar : [1965]3SCR576 . It was held by theirLordships of the Supreme Court in the aforesaid case that the award passed by the Collector under Section 11 of the Land Acquisition Act was strictly speaking an offer made to the person interested in the land notified for acquisition, but he was not bound to accept the offer. A person interested in the land may ask for a reference to the court for adjudication of his claim for adequate compensation and that the award of the Collector was not the source of the right to compensation but the award merely quantified appropriate Government's offer or intended to take over the land in question under the provisions of the Land Acquisition Act.
11. In Shah Vrajlal Madhavji v. CIT : [1974]95ITR614(Ker) , the Kerala High Court held that under Section 45 of the Income-tax Act, capital gains arising from the transfer of capital assets was chargeable to tax only if the transfer had taken place in the previous year relevant to the assessment year in question. It was observed that the quantum as determined by the civil court could be taken by the taxing authorities to be amount of profits and gains and, therefore, the quantum of income for purposes of capital gain under Section 45 of the Act irrespective of the possibility that the amount of compensation could be reduced or enhanced on appeal to the High Court or any further appeal to the Supreme Court.
12. In Dollar Company v. CIT : [1977]107ITR280(Mad) , the same view was taken by the Madras High Court that the right to compensation arose in the year in which the transaction of acquisition took place and what happened subsequently was merely a quantification thereof. Thus, the capital gains should be deemed to have accrued to the assessee in the year in which the transaction of acquisition took place and the circumstances that the amount was subsequently awarded in later years or subsequently quantified did not affect the assessability of the amount in the assessment year under consideration. In that case, the Land Acquisition Collector awarded a sum of Rs. 1,17,715 by way of compensation. The City Civil Court on reference granted an additional compensation of Rs. 29,264. The High Court, on further appeal, granted further compensation of Rs. 1,17,458. Further appeal to the Supreme Court was dismissed. In these circumstances, the Madras High Court held that the entire amount of compensation whenever awarded either by the City Civil Court or by the High Court should have been brought to tax in the year in which the acquisition took place.
13. However, this view was not accepted by the Gujarat High Court in Topandas Kundanmal v. CIT : [1978]114ITR237(Guj) and in Addl. CIT v. New Jehangir Vakil Mills Co. Ltd. : [1979]117ITR849(Guj) , wherein although it was held that if the receipt of the compensation amount results in capital gains, then the right to such income would accrue in the year in whichthe transfer is effected, i.e., when possession is taken under the provisions of the Land Acquisition Act and that the capital gains had to be considered with reference to the amount of compensation paid to the assessed by the Land Acquisition Officer when the acquisition of the land is effected. It was, however, held that when compensation amount is determined during judicial proceedings by the District Court or by the High Court or finally by the Supreme Court, the amount will be brought to tax as and when the further compensations finally determined in the judicial hierarchy of courts and that when the amount is finally judicially determined, the amount of capital gains will have to be computed. The Gujarat High Court accepted the view taken by the Andhra Pradesh High Court in Khan Bahadur Ahmsd Alladin & Sons v. CIT : [1969]74ITR651(AP) . In that case, it was held that when land is taken over by the Government under the provisions of the Land Acquisition Act, the right of the owner to compensation is an inchoate right till the compensation is actually determined and became payable. It was observed that once the amount of compensation becomes payable, the question whether it is actually received or is deemed to have been received would depend upon the method of accounting adopted by the assessee. But before the right to receive a particular amount as income accrues, no charge can be levied under the Income-tax Act on that amount in any year anterior to the one in which such amount was receivable. Thus, the view taken by the Andhra Pradesh High Court was that the enhanced amount of compensation accrued to the assessee only when the court accepted the claim of the assessee and not when the land was taken over by the Government.
14. This view was also taken by the Calcutta High Court in CIT v. Hindusthan Housing and Land Development Trust Ltd. : [1977]108ITR380(Cal) , wherein it was emphasised that the compensation amount could be considered to have accrued or arisen only when the said amount has become determinate and payable. When the amount of compensation was awarded by the Collector in land acquisition proceedings, it was clearly a determined amount and was payable and was liable to tax under the provisions of the Income-tax Act. But the right of the assessee to receive any further amount or enhanced amount was clearly unsettled at that stage and could not become settled until the amount of enhanced compensation was determined on appeal by the High Court.
15. The same view was also taken by the Delhi High Court in Harish Chandra v. CIT [1985] 154 ITR 478. It was held in that case that compulsory acquisition of land amounted to transfer thereof and for determining the liability to tax, the relevant date for chargeability to tax on the amount of compensation payable under the Land Acquisition Act would bethe effective date of transfer of the title. It was observed that the taking of the possession of the acquired land was the immediate consequence of the award passed by the Land Acquisition Collector and it is only when the possession of the land is taken that the vesting thereof becomes effective and land becomes the property of the Government when the possession thereof is taken by the Collector in pursuance of the award. It was also held that the enhanced compensation awarded by the civil court or by the High Court, on appeal, could only be subject-matter of tax under the Income-tax Act when the same becomes determinate or payable and until then the said amount could not be said to accrue or arise to the assessee.
16. Thus, there are two different and divergent views expressed by different High Courts on the question as to when the right to receive enhanced compensation accrues or arises to the assessee. One view is that the right to compensation arises on the date of transfer when the acquisition is complete and the quantification of the compensation later on is immaterial, while the other view is that the right in respect of enhanced compensation payable to the assessee on account of judicial determination, on a reference made to the civil court under Section 18 of the Land Acquisition Act or on appeal to the High Court or on further appeal to the Supreme Court would accrue only when the amount of enhanced compensation is determined and becomes payable. In our view, therefore, a question of law arises from the order of the Tribunal in this respect.
17. It appears that the Legislature became conscious of the difficulties of the assessee in case where he did not accept the compensation awarded by the Land Acquisition Collector for compulsory acquisition of his capital assets, but initiated abruptly legal proceedings for claiming higher compensation by a reference to the civil court under Section 18 of the Land Acquisition Act. Section 155(7A) was, therefore, inserted in the Income-tax Act by the Finance Act, 1978, with retrospective effect from April 1, 1974, which runs as under :
'(7A) Where, in the assessment for any year, the capital gain arising 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, is computed under Section 48 and the compensation for such acquisition or the consideration for such transfer is enhanced or further enhanced by any court, tribunal or other authority, the computation or, as the case may be, computations made earlier shall be deemed to have been wrongly made and the Income-tax Officer shall, notwithstanding any-thing contained in this Act, recompute in accordance with Section 48 the capital gain arising from such transfer by taking the compensation or the consideration as enhanced or further enhanced, as the case may be, to be the full value of the consideration received or accruing as a result of such transfer and shall make the necessary amendment; and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that Section being reckoned from the end of the previous year in which the additional compensation or consideration was received by the assessee.'
18. Thus, after April 1, 1974, the Income-tax Officer would be entitled to recompute the capital gains arising from transfer by way of compulsory acquisition by taking the enhanced compensation accruing on determination by the court or on enhancement by the High Court or on further enhancement by the Supreme Court, as the case may be, as part of the capital gains arising from such transfer to the extent of the full value of consideration arising or received as a result thereof and shall make necessary amendment in the computation of tax upon the assessee under the provisions of Section 154 of the Income-tax Act. But, as in the present case, the amount of enhanced compensation became payable to the assessee during the relevant period relating to the assessment year 1972-73, the provisions of Section 155(7A) of the Income-tax Act would not be attracted.
19. On the question of interest also, there is divergence of judicial opinion. While one view is that the interest on the amount of enhanced compensation accrues to the assessee when the decree of the civil court was passed as the amount of enhanced compensation became payable to the assessee only upon the passing of the decree by the civil court, while the other view is that interest income should be spread over from year to year from the date of acquisition to the date of receipt or the date when it becomes recoverable. While the Madras High Court in T. N. K. Govindarajulu Chetty v. CIT : [1973]87ITR22(Mad) and the Punjab and Haryana High Court in CIT v. Dr. Sham Lal Narula , took the view that the interest income should be spread over as the right to recovery of interest arose to the assessee the moment the owner of the land was deprived of his property under the Land Acquisition Act, because of the provisions contained under Section 34 of the Land Acquisition Act, yet the Mysore High Court in CIT v. Sampangiramaiah : [1968]69ITR159(KAR) , the Andhra Pradesh High Court in CIT v. Smt. Sankari Manickyamma : [1976]105ITR172(AP) and the Kerala High Court in M. Jairam v. CIT : [1979]117ITR638(Ker) , took the other view that the right to get the amount of excess compensation arose and the income by way of interest accrued to the assessee only on the date when the court passed a decree allowing enhanced compensation to theassessee and awarded interest thereon and not prior to it. In the last mentioned case, it was held that the entire amount of interest should be included in the total income of the assessee for the assessment year duping which the civil court passed the decree granting enhanced compensation to the assessee under the provisions of Section 34 of the Land Acquisition Act. Thus a question of law arises in this respect as well.
20. We are, therefore, of the view that the following two questions of law arise from the order of the Tribunal dated January 17, 1979 :
' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the additional amount of compensation received by the assessee during the period relevant to the assessment year 1972-73 was assessable in the assessment year 1964-65?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the interest found payable to the assessee should be spread over and only that part of interest which related to the assessment year 1972-73 should be brought to tax in the assessment year 1972-73 and not the entire amount of interest which accrued to the assessee on account of the award of the civil court ?'
21. We, therefore, direct the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, to state the case and refer the abovementioned two questions for opinion. The parties are left to bear their own costs.