Rajendra Nath Agarwal Vs. Income-tax Officer - Court Judgment

Excerpt:
1. this is an assessee's second appeal arising out of his assessment for assessment year 1987-88. we have heard the learned counsel for the assessee and the learned departmental representative and have perused the material placed before us.2. the only point arising in this appeal is about the determination of the cost of acquisition of two plots of land measuring 595 sq. mts.sold by the the assessee during the year under consideration for a total consideration of rs. 1,04,086.3. the facts are that the assessee owned some agricultural lands at sahibabad in the state of uttar pradesh. the said land was acquired for the purposes of the ghaziabad development authority. notifications under sections 4 and 6 of the land acquisition act were issued on 16-7-1960 and 24-7-1968. thereafter the possession of the land was taken from the assessee. the land acquisition officer determined the compensation payable to the assessee at rs. 35,968. the assessee challenged the same and later on the ghaziabad development authority (in short "gda") made an offer to the assessee that if he withdraws his claim regarding the quantum of compensation then it would grant the assessee lease-hold plots equivalent to 40 per cent of the area of land acquired, subject to payment of development cost by the assessee. thus, the assessee's claim for compensation remained in abeyance and in pursuance of the aforesaid agreement on 13-9-1984 the gda allotted 9 plots to the assessee having a total area of 3,857.97 sq. mts. of land and the assessee paid a sum of rs. 3,30,547 in respect of the development cost thereof. it was out of the aforesaid 9 plots that two plots were sold in the year under consideration.4. the assessee's contention before the assessing officer was that the cost of acquisition of the plots was @ rs. 175 per sq. mt., which was the price for which other plots in the vicinity were allotted by the gda. later the assessee contended that this case was in parity with the gold bonds, in which gold deposited by people was returned to them after a certain period and the board had clarified that on such return of gold no capital gain would arise, although the price of gold had increased in the meantime. both these contentions were not accepted by the assessing officer.according to him, the cost of acquisition of the plots measuring 3,857.97 sq. mts. of land was the amount of compensation that was awarded by the land acquisition officer, i.e., rs. 35,968 plus the development charges of rs. 3,30,547 and dividing the total of these two sums i.e., rs. 3,66,575 he arrived at the cost of acquisition at rs. 95 per sq. mt. thus, according to the assessing officer the cost of acquisition of the two plots came to rs. 56,504 and he determined the capital gain at rs. 47,582 (rs, 1,04,086 minus rs. 56,504). the assessee's contention that it was a long term gain was also not accepted. the assessee appealed to the dc (appeals), who has upheld the assessing officer's order.5. the assessee is now in appeal before us. the first ground raised in this appeal was about the ex parte decision of the appeal by the dc(a).this ground was not pressed and is accordingly rejected.6. we are, thus, left with the question of the capital gains only. the learned counsel for the assessee contended that the case of this assessee is at par with that of gold bonds, in which the board has clarified that no capital gain arises when the bonds are discharged by return of the gold to the depositors. this analogy, in our view, does not fit in the circumstances of the case. the land that belongs to the assessee was agricultural land that was acquired by the gda for development into a residential colony. on the taking of possession of the agricultural land, the land vested in the gda free from all encumbrances. the assessee was, therefore, entitled under the provisions of the land acquisition act to compensation for the acquired land with solatium and interest. in the case of gold deposits, on the other hand, the gold was deposited by people with the government of india and the terms of contract as contained in the gold bonds envisaged the return of the gold to the depositor after a certain period. therefore, in the case of gold bonds there was merely a deposit of gold with the government and not the acquisition of gold by the government at any stipulated price. the analogy of gold bonds, therefore, cannot apply to the facts of the present case.we have to determine in the present case what was the cost of acquisition of the plots in question to the assessee. admittedly the plots were allotted to the assessee by the gda on leasehold basis on 13-9-1984. therefore, we have to find out what was the cost of acquisition of these plots on that date. the cost of acquisition was the amount payable to the assessee for the acquisition of the land.admittedly the amount was not paid to the assessee till 13-9-1984 and it was agreed between the gda and the assessee that the amount so payable for the acquisition of the assessee's land would be adjusted against the price of the plots to be allotted to the assessee. the area of the plots to be allotted to the assessee was to be 40 per cent of the area of agricultural land acquired from the assessee and in addition to the adjustment of the said claim of the assessee, the latter would have to pay rs. 3,30,547 as development cost. as already stated the amount payable to the assessee in respect of the acquisition of the land would consist of three items, i.e., (i) the fair market value of the land as on the date of acquisition; (ii) solatium for the acquisition of the land; and (iii) interest till the date of actual payment. solatium is a certain percentage of the fair market value of the land which is granted because the acquisition is compulsory, i.e., is against the will of the owner, and interest is dependent on the determination of the principal amount of compensation and the period for which the compensation remains unpaid. in this case the land acquisition officer had determined the amount of compensation at rs. 35,968, which was not accepted by the assessee and was challenged. it is to be remembered that the award of compensation by the land acquisition officer is of the nature of an "offer". if it is accepted by the person concerned, then it becomes final, otherwise the person whose property is acquired, can get the matter referred to the district judge under section 18 of the land acquisition act and thereafter the matter can be challenged by either of the parties up to the supreme court. in the case before us the land acquisition officer made an offer of compensation offering rs. 35,968 which was not accepted. thereafter whether the assessee made a reference under section 18 to the district judge or not is not clear from the record placed before this tribunal, but that is immaterial because admittedly the matter was settled between the gda and the assessee that the former would allot 40 per cent area of developed residential land and the assessee would pay for the development cost. therefore, it cannot be said that the sum of rs. 35,968 was the amount of compensation that was finally awarded for the acquisition of the land. this was only the amount offered which was not accepted and, therefore, loses its significance. in order to determine the cost of acquisition of the plots in question as on 13-9-1984 we have to determine what could be the amount payable to the assessee for the acquisition of the land (compensation, solatium and interest).suppose this was an amount called 'x'. thus, 'x" plus rs. 3,30,547 is equal to the cost of acquisition. if we can find out the value of 'x', then we can determine the cost of acquisition. if it is not possible to determine the value of x, the cost of acquisition also becomes indeterminate and uncertain because in that event, we know only one part of the cost of acquisition, i.e., the sum of rs. 3,30,547 and not the other part of the cost, i.e., the value of the assessee s claim for compensation that was pending with the gda till 13-9-1984. the amount of compensation never having been finally determined, the amount of solatium and the interest also cannot be known. the result, therefore, is that it is impossible to directly determine the value of x' and consequently the cost of acquisition. in such situation the supreme court judgment in cit v. b.c. srinivasa setty [1981] 128 itr 294, as explained in a. gasper v. cit [1991] 192 itr 382, will come into play.the hon'ble supreme court in the case of b.c. srinivasa setty (supra) was concerned with capital gains arising from the sale of goodwill. it was held that goodwill in that case was a self-generated asset with no cost of acquisition and the provisions relating to capital gains did not apply to an asset which had no cost of acquisition. in a. gasper's case (supra) the hon'ble supreme court was concerned with determination of capital gains arising from the surrender of tenancy rights and the hon'ble supreme court affirmed the view taken in b.c. srinivasa setty's case (supra) that if the cost of acquisition cannot be ascertained, then no capital gain can be determined. as explained above, if we go on the lines indicated above, the cost of acquisition in this case is unascertainable because the value of one important component is not known and in that event, it would have to be held that the profit arising from the sale of the two plots in question cannot be ascertained.7. there is, however, another way of looking at the things and it is this method that was adopted by the assessee initially. the gda is a statutory public institution created by the state of u.p. it acquired lands for developing residential and commercial colonies etc. and after developing the land and creating the necessary infrastructure sold plots or built houses etc. on leasehold basis to needy people. it has fixed rates for the allotment of plots and it cannot vary those rates from person to person or from plot to plot. therefore, we can assume that the allotment to the assessee of the plots in question was also at the same price which the gda would have charged from any other customer and after fixing the price in that manner, the gda instead of asking the assessee to pay the entire amount in cash and then pay to the assessee the amount which it would have had to pay to him for the acquisition of the land, decided that the amount due to the assessee would be adjusted against such price and only the balance representing the development cost would be payable by the assessee. this is what has actually happened in this case. we are unable to see any sense in the approach taken by the authorities below, which was supported by the learned departmental representative before us that the sum of rs. 35,968 was the amount due to the assessee towards the acquisition of the land. this was not correct. even if this amount had been finally determined, the same having never been paid would have swelled to a much larger amount till 13-9-1984. we are, therefore, of the view that in the facts and the circumstances of the case, it would be appropriate to adopt this alternative approach and, therefore, setting aside the orders of the authorities below on this point, we direct the assessing officer to take the cost of acquisition of the plots in question at the amount which any other allottee of the plots would have had to pay to the gda on 13-9-1984 and treating that amount as the cost of acquisition find out whether there is any capital gain on the sale of those plots for rs. 1,04,086. ordered accordingly.

Judgment:
1. This is an assessee's second appeal arising out of his assessment for assessment year 1987-88. We have heard the learned counsel for the assessee and the learned Departmental Representative and have perused the material placed before us.

2. The only point arising in this appeal is about the determination of the cost of acquisition of two plots of land measuring 595 sq. mts.

sold by the the assessee during the year under consideration for a total consideration of Rs. 1,04,086.

3. The facts are that the assessee owned some agricultural lands at Sahibabad in the State of Uttar Pradesh. The said land was acquired for the purposes of the Ghaziabad Development Authority. Notifications under Sections 4 and 6 of the Land Acquisition Act were issued on 16-7-1960 and 24-7-1968. Thereafter the possession of the land was taken from the assessee. The Land Acquisition Officer determined the compensation payable to the assessee at Rs. 35,968. The assessee challenged the same and later on the Ghaziabad Development Authority (in short "GDA") made an offer to the assessee that if he withdraws his claim regarding the quantum of compensation then it would grant the assessee lease-hold plots equivalent to 40 per cent of the area of land acquired, subject to payment of development cost by the assessee. Thus, the assessee's claim for compensation remained in abeyance and in pursuance of the aforesaid agreement on 13-9-1984 the GDA allotted 9 plots to the assessee having a total area of 3,857.97 sq. mts. of land and the assessee paid a sum of Rs. 3,30,547 in respect of the development cost thereof. It was out of the aforesaid 9 plots that two plots were sold in the year under consideration.

4. The assessee's contention before the Assessing Officer was that the cost of acquisition of the plots was @ Rs. 175 per sq. mt., which was the price for which other plots in the vicinity were allotted by the GDA. Later the assessee contended that this case was in parity with the gold bonds, in which gold deposited by people was returned to them after a certain period and the Board had clarified that on such return of gold no capital gain would arise, although the price of gold had increased in the meantime. Both these contentions were not accepted by the Assessing Officer.

According to him, the cost of acquisition of the plots measuring 3,857.97 sq. mts. of land was the amount of compensation that was awarded by the Land Acquisition Officer, i.e., Rs. 35,968 plus the development charges of Rs. 3,30,547 and dividing the total of these two sums i.e., Rs. 3,66,575 he arrived at the cost of acquisition at Rs. 95 per sq. mt. Thus, according to the Assessing Officer the cost of acquisition of the two plots came to Rs. 56,504 and he determined the capital gain at Rs. 47,582 (Rs, 1,04,086 minus Rs. 56,504). The assessee's contention that it was a long term gain was also not accepted. The assessee appealed to the DC (Appeals), who has upheld the Assessing Officer's order.

5. The assessee is now in appeal before us. The first ground raised in this appeal was about the ex parte decision of the appeal by the DC(A).

This ground was not pressed and is accordingly rejected.

6. We are, thus, left with the question of the capital gains only. The learned counsel for the assessee contended that the case of this assessee is at par with that of gold bonds, in which the Board has clarified that no capital gain arises when the bonds are discharged by return of the gold to the depositors. This analogy, in our view, does not fit in the circumstances of the case. The land that belongs to the assessee was agricultural land that was acquired by the GDA for development into a residential colony. On the taking of possession of the agricultural land, the land vested in the GDA free from all encumbrances. The assessee was, therefore, entitled under the provisions of the Land Acquisition Act to compensation for the acquired land with solatium and interest. In the case of gold deposits, on the other hand, the gold was deposited by people with the Government of India and the terms of contract as contained in the gold bonds envisaged the return of the gold to the depositor after a certain period. Therefore, in the case of gold bonds there was merely a deposit of gold with the Government and not the acquisition of gold by the Government at any stipulated price. The analogy of gold bonds, therefore, cannot apply to the facts of the present case.

We have to determine in the present case what was the cost of acquisition of the plots in question to the assessee. Admittedly the plots were allotted to the assessee by the GDA on leasehold basis on 13-9-1984. Therefore, we have to find out what was the cost of acquisition of these plots on that date. The cost of acquisition was the amount payable to the assessee for the acquisition of the land.

Admittedly the amount was not paid to the assessee till 13-9-1984 and it was agreed between the GDA and the assessee that the amount so payable for the acquisition of the assessee's land would be adjusted against the price of the plots to be allotted to the assessee. The area of the plots to be allotted to the assessee was to be 40 per cent of the area of agricultural land acquired from the assessee and in addition to the adjustment of the said claim of the assessee, the latter would have to pay Rs. 3,30,547 as development cost. As already stated the amount payable to the assessee in respect of the acquisition of the land would consist of three items, i.e., (i) the fair market value of the land as on the date of acquisition; (ii) solatium for the acquisition of the land; and (iii) interest till the date of actual payment. Solatium is a certain percentage of the fair market value of the land which is granted because the acquisition is compulsory, i.e., is against the will of the owner, and interest is dependent on the determination of the principal amount of compensation and the period for which the compensation remains unpaid. In this case the Land Acquisition Officer had determined the amount of compensation at Rs. 35,968, which was not accepted by the assessee and was challenged. It is to be remembered that the award of compensation by the Land Acquisition Officer is of the nature of an "offer". If it is accepted by the person concerned, then it becomes final, otherwise the person whose property is acquired, can get the matter referred to the District Judge under Section 18 of the Land Acquisition Act and thereafter the matter can be challenged by either of the parties up to the Supreme Court. In the case before us the Land Acquisition Officer made an offer of compensation offering Rs. 35,968 which was not accepted. Thereafter whether the assessee made a reference under Section 18 to the District Judge or not is not clear from the record placed before this Tribunal, but that is immaterial because admittedly the matter was settled between the GDA and the assessee that the former would allot 40 per cent area of developed residential land and the assessee would pay for the development cost. Therefore, it cannot be said that the sum of Rs. 35,968 was the amount of compensation that was finally awarded for the acquisition of the land. This was only the amount offered which was not accepted and, therefore, loses its significance. In order to determine the cost of acquisition of the plots in question as on 13-9-1984 we have to determine what could be the amount payable to the assessee for the acquisition of the land (compensation, solatium and interest).

Suppose this was an amount called 'X'. Thus, 'X" plus Rs. 3,30,547 is equal to the cost of acquisition. If we can find out the value of 'X', then we can determine the cost of acquisition. If it is not possible to determine the value of X, the cost of acquisition also becomes indeterminate and uncertain because in that event, we know only one part of the cost of acquisition, i.e., the sum of Rs. 3,30,547 and not the other part of the cost, i.e., the value of the assessee s claim for compensation that was pending with the GDA till 13-9-1984. The amount of compensation never having been finally determined, the amount of solatium and the interest also cannot be known. The result, therefore, is that it is impossible to directly determine the value of X' and consequently the cost of acquisition. In such situation the Supreme Court judgment in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, as explained in A. Gasper v. CIT [1991] 192 ITR 382, will come into play.

The Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) was concerned with capital gains arising from the sale of goodwill. It was held that goodwill in that case was a self-generated asset with no cost of acquisition and the provisions relating to capital gains did not apply to an asset which had no cost of acquisition. In A. Gasper's case (supra) the Hon'ble Supreme Court was concerned with determination of capital gains arising from the surrender of tenancy rights and the Hon'ble Supreme Court affirmed the view taken in B.C. Srinivasa Setty's case (supra) that if the cost of acquisition cannot be ascertained, then no capital gain can be determined. As explained above, if we go on the lines indicated above, the cost of acquisition in this case is unascertainable because the value of one important component is not known and in that event, it would have to be held that the profit arising from the sale of the two plots in question cannot be ascertained.

7. There is, however, another way of looking at the things and it is this method that was adopted by the assessee initially. The GDA is a statutory public institution created by the State of U.P. It acquired lands for developing residential and commercial colonies etc. and after developing the land and creating the necessary infrastructure sold plots or built houses etc. on leasehold basis to needy people. It has fixed rates for the allotment of plots and it cannot vary those rates from person to person or from plot to plot. Therefore, we can assume that the allotment to the assessee of the plots in question was also at the same price which the GDA would have charged from any other customer and after fixing the price in that manner, the GDA instead of asking the assessee to pay the entire amount in cash and then pay to the assessee the amount which it would have had to pay to him for the acquisition of the land, decided that the amount due to the assessee would be adjusted against such price and only the balance representing the development cost would be payable by the assessee. This is what has actually happened in this case. We are unable to see any sense in the approach taken by the authorities below, which was supported by the learned Departmental Representative before us that the sum of Rs. 35,968 was the amount due to the assessee towards the acquisition of the land. This was not correct. Even if this amount had been finally determined, the same having never been paid would have swelled to a much larger amount till 13-9-1984. We are, therefore, of the view that in the facts and the circumstances of the case, it would be appropriate to adopt this alternative approach and, therefore, setting aside the orders of the authorities below on this point, we direct the Assessing Officer to take the cost of acquisition of the plots in question at the amount which any other allottee of the plots would have had to pay to the GDA on 13-9-1984 and treating that amount as the cost of acquisition find out whether there is any capital gain on the sale of those plots for Rs. 1,04,086. Ordered accordingly.