Addl. Commissioner Of Income-Tax, A.P v. G.M Omarkhan

1. The facts relevant for the purpose of answering the reference are these: The assessee, G.M. Omar Khan, was the owner of the property known as "Khadar Bagh" in Hyderabad. It comprises of buildings and lands measuring about 45 acres and 10 gunthas. Out of this total extent, an extent of 36 acres and 22 gunthas was acquired by the Government under the Requisitioning and Acquisition of Immovable Property Act, 1952. That was in the year 1970. The Collector of Hyderabad ordered an "on account" payment of Rs. 14,05,536 as there was likelihood of some delay in assessing the compensation in respect of the acquired land.

The assessee claimed a total compensation of Rs. 1,15,86,500 with a solatium of 15 per cent. for the acquired property. The ITO issued a notice under Section 148 of the Act to the assessee on the ground that the acquisition took place on March 12, 1970, and the property acquired is non-agricultural land and the assessee defaulted in filing voluntary return of the capital gain earned by him which was assessable for the assessment year 1970-71.

The assessee, in response to the notice, filed a return with a covering letter claiming that he was not liable to tax on capital gain. The ITO rejected this contention of the assessee, holding that the transfer of the property in question took place only on March 12, 1970, the date on which the acquired property vested in the Government. He also held that the property was situated within the municipal limits of Hyderabad and hence was non-

agricultural. He determined the consideration for the transfer as Rs. 1,33,24,475 and, after giving a deduction of Rs. 18,000 towards cost of the land and giving a further relief under Section 80T to the tune of Rs. 59,90,665, determined the capital gain at Rs. 73,15,810, The AAC, on appeal, con firmed the order of the ITO, though he observed that the amount of tax to be recovered will be on the figure of Rs. 21,08,304 as fixed by the Deputy Collector. On further appeal to the Tribunal, the Tribunal found that the acquired lands are agricultural lands situate in a village within the Hyderabad Municipal Corporation, which has a population of less than ten thousand. In that view, the Tribunal held that the acquired lands do not fall within the meaning of the term "capital asset" as defined in Section 2(14)(iii)(a) of the Act. As regards the date of transfer, the Tribunal, on an examination of the provisions of the Requisitioning and Acquisition of Immovable Property Act, held that the transfer takes effect only from the date the requisitioned property absolutely vested in the Central Government and that date is March 12, 1970. On the question whether the date of payment of compensation is relevant for the purpose of determining the liability to capital gains, the Tribunal held that the payment was effected after the close of the previous accounting year and, therefore, is liable to be assessed in the assessment year 1970-71. It also held that the amount of claim made by the assessee for compensation cannot be the basis for computing the capital gain. On those findings, the assessment was cancelled.

As the Tribunal rejected the application made by the Addl. CIT under Section 256(1) of the Act for reference of the case to this court, he moved this court under Section 256(2) and this court allowed the application. The following questions have been referred for our opinion:

"1. Whether, on the facts and in the circumstances of the case, the lands acquired by the Government are agricultural lands ?

2. Whether, on the facts and in the circumstances of the case, the interpretation given by the Tribunal based upon the definition of 'capital asset' in Section 2(14)(iii)(a) of the I.T. Act, 1961, is correct ?

3. Whether the profits or gains arising from the transfer of a 'capital asset' can be chargeable to income-tax if the transfer is effected in the previous year and if no amount is received ?

4. Whether, on the facts and in the circumstances of the case, the mere claim of the assessee for additional compensation can be taken into account for the purpose of determining the capital gains derived by the assessee?"

2. Mr. Waghray, appearing for the assessee, gave a notice of motion (C.M.P. No. 9787 of 1977) seeking to urge the question "as to the actual date of transfer of the agricultural lands in this case". He has alternatively argued that in the event of the above application not being allowed by us, he should be allowed to sustain the order of the Tribunal on the alternative ground that the transfer of the property acquired took place prior to 1st March, 1970.

3. Before we answer the questions referred for our opinion, it may be convenient to dispose of the miscellaneous petition filed by the assessee, as its maintainability is questioned by Mr. Rama Rao, learned counsel for the revenue. Section 256 of the Act provides for reference to the High Court. Section 256(1) enables either the assessee or the Commissioner, within the time prescribed therein, to require the Tribunal to refer to the High Court any question of law arising out of the Tribunal's order. If the Tribunal allows such an application, it shall, within one hundred and twenty days of the receipt of such application, draw up a statement of the case and refer it to the High Court. But, if that application is rejected by the Tribunal, then it would be open either to the assessee or to the Commissioner under Sub-section (2) of the same section, to move the High Court; and the High Court may, if it is not satisfied with the correctness of the decision of the Tribunal, require the Tribunal to state the case and refer the questions of law for the opinion of the High Court. It is manifest from a reading of both the sub-sections that the High Court is empowered to entertain an application under Sub-section (2) of Section 256 only when an application made under Sub-section (1) has been rejected by the Tribunal. In other words, unless the Tribunal is moved in the first instance and it refuses to state the case on the ground that no question of law arises, neither the assessee nor the Commissioner can avail of Sub-section (2) for moving the High Court. The assessee had not chosen to move the Tribunal under Sub-section (i). The reason given by Mr. Waghray is that the assessee was not an aggrieved party and, therefore, the need to move the Tribunal did not arise. He, however, maintains that he cannot be deprived of his right to sustain an order in his favour on a question though not referred under either of the sub-sections, if it arises out of the order of the Tribunal and on the analogy of Order 41, Rule 22, Civil Procedure Code, the assessee would be entitled to support the order on any of the grounds decided against him by the Tribunal. According to him, as question No. 3 raises the very basis of assessability to tax, the assessee is entitled to attack the finding recorded by the Tribunal as to the date of transfer "of the property. It is well settled that the jurisdiction of the High Court, is only advisory. It is strictly limited to the questions referred to it for its opinion. The final orders are passed by the Tribunal on receipt of the judgment of the High Court or the Supreme Court containing the grounds on which such decision is based. Under Section 260 it is mandatory for the Tribunal to pass such orders as are necessary to dispose of the case conformably to the judgment of the High Court or the Supreme Court. The High Court cannot suo motu entertain any question under Sub-section (2) of Section 256. Before it entertains any question under Sub-section (2), the preliminary requirements of the section must be strictly complied with. The preliminary requirements laid down by Sub-section (2) are not complied with at all. The object of enacting Sub-section (2) is to see that the High Court is not flooded with applications without compliance with the requirements of Section 256(1) in the first instance and again with the requirements of Section 256(2). Mr. Waghray, however, sought to place reliance upon the decision in N.V. Khandvala v. CIT [1946] 14 ITR 635 (Bom), which was referred to with approval by the Supreme Court in Lakshmiratan Cotton Mills Co. Ltd. v. CIT [1969] 73 ITR 634 and CIT v. McLeod & Co. Ltd. [1970] 78 ITR 22. The facts of that case are these: An assessee filed an application under Section 66(2) of the 1922 Act before the Bombay High Court. The High Court directed the Tribunal to state a case. According to the practice of that High Court, questions of law were not formulated by the High Court but were left to be raised by the Tribunal. The Tribunal prepared a case and submitted for the opinion of the High Court one question of law. The assessees were dissatisfied with the action of the Tribunal and filed a petition praying for an order directing the Tribunal to state four more questions of law for the opinion of the High Court. Kania J. (as he then was), who spoke for the Division Bench, observed that the proper time for the assessees to bring to the notice of the court that certain further and other facts were necessary to be stated or certain further or ether questions of law arose was at the hearing of the case stated by the Tribunal. As may be seen from the facts set out there was compliance with the statutory requirements of Section 66 in that case. The practice of the Bombay High Court was that no questions of law were formulated by it. So, when the Tribunal was asked to state the case and refer the questions of law arising, it chose to refer only one question and obviously failed to refer the other questions of law arising. It is for that reason that the assessee filed the application praying to direct the Tribunal to state four more questions of law for the opinion of the High Court. The learned judge, therefore, said at page 637 :

"When a statement of case, with the question of law framed by the Tribunal, is filed in court for disposal, if a party is aggrieved and wants to contend that certain further facts ought to be stated, or certain questions of law should be raised, he can make an application by way of notice of motion. That should be heard along with the case stated by the Tribunal for the court's opinion."

4. The Supreme Court in Lakshmiratan Cotton Mitts Co. Ltd. v. CIT [1969] 73 ITR 634 held that the High Court had no power to call for a statement of the case on questions which were incorporated neither in the application under Section 66(1) nor in the application under Section 66(2), that the power under Section 66(4) might be exercised to call for a supplementary statement only when the court is satisfied that the statements in a case referred under Section 66(1) and (2) were not sufficient to enable it to determine the question raised by that statement, and that Section 66(4) did not confer a power to raise any additional questions or to call for a statement of case on questions not referred by the Tribunal. That was a case where the assessee-company submitted an application under Section 66(1) and the Tribunal rejected that application holding that no question of law arose out of its order. The questions sought to be raised by the company were pure questions of fact. Then the company moved an application in the High Court of Allahabad and that application was allowed. The Supreme Court, after referring to the decision in N.V. Khandvala v. CIT [1946] 14 ITR 635 (Bom), at page 647, observed:

"The power under Section 66(4) may be exercised when the High Court is not satisfied that the statements in a case referred are sufficient to determine the question referred thereby; it cannot be exercised for calling for another statement on questions not referred by the Tribunal. The procedure followed by the High Court in calling for, in exercise of the power under Section 66(4), an additional statement of the case on questions which were not incorporated in the applications under Section 66(1) and (2) was, in our judgment, irregular."

5. It is for that reason that the Supreme Court proceeded to observe:

"Correctness of an order of the High Court calling for a statement of case may be challenged at the hearing of the reference and the court may decline to answer the question referred pursuant to the direction of the High Court, if it did not arise out of the order of the Tribunal, of is a question of fact or is academic or could not have been raised because it was not incorporated in the application under Section 66(1): Commissioner of Income-tax v. Smt. Anusuya Devi . Counsel for the company has, therefore, rightly confined himself to the question which was originally submitted by the Tribunal by order dated December 29, 1954, and has raised his argument on that question only."

6. In CIT v. McLeod & Co. Ltd. the CIT moved the Tribunal under Section 66(1) of the Indian I.T. Act of 1922 for a case to be stated to the High Court for reference of two questions of law. The CIT not being satisfied with the form of the question formulated by the Tribunal, applied to the High Court under Section 66(2) wherein, after referring to the finding of the ITO and the AAC, he complained that the conclusion to the contrary of the Tribunal, was not supported by any material on record and its finding was perverse in the sense that no reasonable man could have come to that conclusion. According to him, the question framed did not set out the real point in controversy between the parties. The Supreme Court felt that the question framed by the Tribunal was suggestive of the answer and the grievance of the Commissioner was not ill-founded. It found that the statement of case of the Tribunal to the High Court was far from complete. It is for that reason that the application made by the CIT under Section 66(2) of the Act was allowed, approving the observations of Kania J. in N. V. Khandvala v. CIT [1946] 14 ITR 635 (Bom). From the facts narrated in the two Supreme Court cases, it is obvious that it is not open to an assessee or the Commissioner to move this court under Section 256(2) unless there was an application in the first instance under Sub-section (1) of Section 256, and the Tribunal had failed to make a complete statement of the case and draw up the question of law which really arises.

7. The learned counsel also sought to rely upon Muir v. IRC [1966] 43 TC 367 (CA). In that case, it was no doubt held, in the Court of Appeal, that it was open to the Crown, on giving due notice, to support the decision in their favour on any ground of law available. We have got to, in a reference made under Section 256, go strictly by the language of the provision. It is the mandate of the legislature that there shall be strict compliance with the requirements of Section 256. When there is absence of such compliance, it would not be open either to the assessee or to the Commissioner to give a notice of motion like the one given by the assessee here. We are, therefore, unable to permit him to raise any question either on facts or on law other than those referred to us for our decision by the Tribunal. The view expressed by the Court of Appeal in Muir's case [1966] 43 TC 367 (CA) is on the lines of the right given to a successful party under Order 41, Rule 22, Civil Procedure Code. The Code of Civil Procedure cannot be called in aid by the assessee when we are called upon to give our opinion on the questions of law referred to us in an advisory capacity under Section 256.

8. The learned counsel, however, sought to place reliance upon the opinion expressed by N.A. Palkhivala and B.A. Palkhivala in their book, The Law and Practice of Income-tax, 7th Edn., Vol. 1, at page 1149. What the learned authors said is :

"There is a conflict of judicial opinion on the question whether, when one party has filed a reference application, the other party which has not can ask the Tribunal to refer other questions also to the High Court. A distinction should be made between two classes of cases :

(a) the appeal may have been decided by the Tribunal entirely in favour of the other party, and therefore it could not file a reference application though it may have lost on certain grounds ; and

(b) the other party may have partly lost the appeal (either by losing partly in respect of the sole subject-matter of the appeal or by losing, wholly or partly, in respect of some of several independent items) and could have asked for a reference on the questions decided against it.

In cases falling under (a), the other party is entitled to ask for cross-questions to be referred, and the decisions to the contrary which have blurred the distinction between the two classes of cases are incorrect. In cases falling under (b), the other party cannot ask the Tribunal to refer questions which it could have raised on a substantive reference application of its own : the opposite view seems to be erroneous."

9. With great respect to the authors, we are unable to share their opinion for the reasons stated above. We are supported in our view by the decisions of this court and the Supreme Court. The Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. , dealing with the jurisdiction of the court under Section 66(2) observed at page 609 :

"It was argued for the respondents that in view of the fact that the court could compel the Tribunal to refer a question of law under Section 66(2) for its decision, not much significance could be attached to the advisory character of its jurisdiction. It is not conceivable, it was said, that any authority should have a right to compel another authority to take its advice. We see no force in this contention. Section 66(2) confers on the court a power to direct a reference only where the Tribunal was under a duty to refer under Section 66(1) and it is, therefore, subject to the same limitations as Section 66(1). That has been held by this court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax and in Zoraster & Co. v. Commissioner of Income-tax . Moreover, the power of the court to issue direction to the Tribunal under Section 66(2) is, as has often been pointed out, in the nature of a mandamus and it is well settled that no mandamus will be issued unless the applicant had made a distinct demand on the appropriate authorities for the very reliefs which he seeks to enforce by mandamus and that had been refused. Thus, the power of the court to direct a reference under Section 66(2) is subject to two limitations--the question must be one which the Tribunal was bound to refer under Section 66(1) and the applicant must have required the Tribunal to refer it...It is, therefore, clear that under Section 66(2) the court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under Section 66(1)."

10. The Calcutta High Court followed CIT v. Scindia Steam Navigation Co. Ltd. in CIT v. A.K. Das . A specific question was raised before the Calcutta High Court.

"Can the Tribunal raise a question of law under Section 256(1) of the I.T. Act, 1961, where there is no application by the aggrieved party as required and within the time thereunder ?"

After a review of several cases, it held (See headnote):

"Section 256 of the Act lays down the whole procedure how reference has to be made. That procedure does not give the Appellate Tribunal any jurisdiction or power to admit cross-objections within the meaning of the Civil Procedure Code to raise a question of law not raised by an application in the prescribed form within the time prescribed and make a reference of the same to the High Court,"

11. This court in CIT v. Hindustan Shipyard Ltd. , after referring to the observations of Kania J., which was quoted with approval by the Supreme Court in CIT v. McLeod & Co. Ltd. :

"The observations of the Supreme Court are confined only to such defective references. They do not justify adjudication by the court of a question not referred to it by the Tribunal either because the Tribunal was not invited to refer such question or because the Tribunal expressly refused to do so."

12. To the same effect was the view expressed by another Division Bench of this court in Krishna Mining Company v. CIT . It was held that it is only the assessee or the Commissioner whoever has preferred an application under Section 66(1) and was aggrieved by the refusal of the Tribunal to state a case for the opinion of the High Court that can approach and invoke the jurisdiction of the High Court under Section 66(2) of the Act. For the above reasons, we reject the application of mation made by the assessee.

13. Questions Nos. 1 and 2 may be considered together. "Capital asset" as defined in Section 2(14) means "property of any kind held by an assessee, whether or not connected with his business or profession, but does not include--...

(iii) agricultural land in India, not being land situate-

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or

(b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;...... "

14. In respect of the agricultural lands, the Tribunal observed :

"The lands in question are situate in Gaddimalkapur village. The said village is within the Hyderabad Municipal Corporation as seen from the statement showing the constituent villages of each of the towns at the 1961 census at the page entitled C-15 Appendix to Table A-IV in the District Census Hand Book, Hyderabad District, published by the Andhra Pradesh Government in 1968 (item...4/87)."

15. It held that the first condition is satisfied. But, as the last census figures given in the hand book show that the population of the village was less than 10,000, the second requirement of the definition has not been satisfied. It is on that basis that the Tribunal held that the lands do not fall within the meaning of the term "capital asset" under Section 2(14)(iii)(a) of the Act. On the question whether they are agricultural or non-agricultural lands, the Tribunal held that they are agricultural lands. The assessee placed documentary evidence to prove that the lands were agricultural in nature. It consists of (1) Record of rights; (2) Pahani Patrak; (3) Pavti bahi; and (4) Tahsildar's certificate. The assessee in his claim petition filed before the District Collector also set out the number of trees and the income he was deriving from the trees and crops raised on the lands. The assessee claimed that he was getting an average annual income of Rs. 55,200 from cultivation by raising paddy, moong, onion and garlic, chillies and vegetables, etc. The facts stated by the assessee were not controverted by the revenue. We are, therefore, in agreement with the finding recorded by the Tribunal that the lands were agricultural lands. But the question still remains whether they come within the meaning of "capital asset". That the village, Gaddimalkapur, is within the municipal limits of the Hyderabad Municipal Corporation is not in dispute. It is one of the constituent parts of the Municipal Corporation of Hyderabad. The Tribunal found that they are comprised within the jurisdiction of the municipality. But, it holds that that particular part of the municipality, viz., Gaddimalkapur, has less than 10,000 population according to the last preceding census. What has to be taken into account or consideration is not the population of each constituent part or ward of a municipality but the population of the municipal corporation or a cantonment board as a whole. Several constituent parts of the municipality are known as villages by different names. The mere fact that a particular part, area or locality of a municipality or a cantonment is called a village will not take it out of the territorial jurisdiction of the municipality. It is the jurisdiction of the municipality that is the relevant factor which determines whether the area where the agricultural lands in question are situate, viz., Gaddimalkapur Village, is within the jurisdiction of the Hyderabad municipal limits, and not whether that particular part of the Hyderabad Municipal Corporation has a separate name. The municipality comprises of several areas, localities, villages or wards. If all those constituents come within the municipal limits of the Municipal Corporation, then if any agricultural land is comprised within that area or jurisdiction of the municipal corporation it would be a "capital asset" within the meaning of Section 2(14)(iii)(a). The Tribunal was in error in construing the provision, Section 2(14)(iii)(a), by thinking that because a particular area, though situated within the municipal limits, goes by a separate name and the population of that particular area as per the preceding census is less than 10,000, the second requirement of the definition is not satisfied.

16. The expression "capital gains" is defined in Section 45 :

"Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54, 54B and 54C 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."

17. Section 2(47) defines "transfer" to mean:

"'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law."

Section 45 is attracted when any profit or gain arises from the transfer of a capital asset, effected in the previous year unless otherwise provided therein. We have, therefore, to see when there was a transfer of the capital asset. The Madras High Court in T. V. Sundaram Iyengar and Sons Ltd. v. CIT [1959] 37 ITR 26 opined (per headnote):

"In order to attract liability to tax on capital gains under Section 12B of the Indian Income-tax Act, 1922, it is sufficient if in the relevant accounting year profits have arisen out of the sale of capital assets that is to say, if the assessee has a right to receive the profits. It is not necessary that the assessee should have received them. When once profits have arisen in the accounting year out of the sale of capital assets, what the parties did subsequent to that year will not have any bearing on their liability to tax in respect of that year."

18. The Supreme Court in Alapati Venkataramiah v. Commissioner Of Income Tax, Hyderabad. [1965] 57 ITR 185 held (per headnote):

"Before Section 12B of the Indian Income-tax Act, 1922, could be attracted, title must pass by any of the modes mentioned in Section 12B, i.e., sale, exchange or transfer. In the context 'transfer' meant effective conveyance of the capital asset to the transferee. Delivery of possession of immovable property could not by itself be treated as equivalent to conveyance of the immovable property."

19. The Supreme Court also held that (ibid):

"The entries in the account books of the appellant and of the company on March 20, 1948, were irrelevant for the purpose of determining the date when the sale or transfer took place.

Title to the land and buildings and the plant and machinery and electrical fittings permanently embedded thereon could not pass to the company till the conveyance was executed and registered; and as the sale deed was executed and registered only on November 22, 1948, no sale or transfer of these assets took place before April 1, 1948, and no capital gains arose in the relevant previous year."

20. Therefore, the transfer is effective only from the date when the title passes to the other party. For determining the year of chargeability it is the date of effective transfer of title that is relevant and capital gains are assessable as income of the year in which the transfer took place, even though they may be realised later. This is a case where the properties of the assessee in question were acquired under the provisions of the Requisitioning and Acquisition of Immovable Property Act. The property of the assessee was requisitioned under the Defence of India Act, 1962, under the orders of the Government dated November 1, 1963, and February 28, 1967. Notice in Form : under Section 7(1) of the Requisitioning and Acquisition of Immovable Property Act, 1952, was issued on February 12, 1970, calling upon the assessee to show cause within 15 days of the service of notice on him as to why the said property should not be acquired. By letter dated February 25, 1970, he gave his consent for the acquisition. By notice in Form J dated February 27, 1970, the Collector, Hyderabad, passed the following order:

"Now, therefore, in exercise of the powers of Sub-section (1) of Section 7 of the said Act, the Central Government having been satisfied that it is necessary so to do, do hereby acquire the said property."

21. What Mr. Waghray contends is that the acquisition or transfer was prior to March 1, 1970, and, therefore, the compensation received on agricultural lands is not chargeable to income-tax under capital gains prior to March 1, 1970.

22. A few provisions of the Requisitioning and Acquisition of Immovable Property Act, 1952, require to be noticed in this connection. The expression "requisition" should not be mixed up or confused with the expression "acquisition". The power to requisition immovable property is different from the power to acquire the property that has been requisitioned. Section 3 of the said Act empowers the competent authority to requisition any property if it is needed for any public purpose by calling upon the owner or any other person, who is in possession of the property. It also empowers the competent authority to take possession of the requisitioned property. The title to the property does not pass to the competent authority by reason of taking over possession on requisition. It will be open to the Central Government or the competent authority under Section 6 to release from requisition any property requisitioned under the Act. It also enjoins upon the Central Government to restore the property in as good a condition as it was when possession thereof was taken by the competent authority. It is only when the Central Government is of opinion that the property which has been requisitioned should be acquired for public purpose that it proceeds to notify under Section 7 by publishing the same in the official Gazette. Then the question of determining the compensation and other questions arise. Section 7(3) lays down that no property shall be acquired under it except in the circumstances mentioned in Clauses (a) and (b) thereof. Section 7(2) is the relevant provision and it reads :

"When a notice as aforesaid is published in the Official Gazette, the requisitioned property shall, on and from the beginning of the day on which the notice is so published, vest absolutely in the Central Government free from all encumbrances and the period of requisition of such property shall end."

23. So, the crucial date when the property requisitioned vested absolutely in the Central Government free from all encumbrances under Sub-s, (2) of section 7 is the date when the notice is published in the Official Gazette stating that the Central Government has decided to acquire the property under Section 7(1). In this case, the notification was published in the Official Gazette on March 12, 1970, that is to say, the property of the assessee, which was under requisition, did not vest absolutely in the Central Government till the date of the publication of the notice in the Official Gazette. So, the crucial date for purposes of transfer of the capital asset is March 12, 1970. The Tribunal was, therefore, in error in holding, under issue No. 8, that during the relevant accounting year under consideration, no specific amount was determined as the compensation payable in respect of the acquired lands and thus no profits or gains were either received or accrued to the assessee as a result of the transfer as per sections 45 and 48 of the i.t. act.

24. To attract the liability to tax under Section 45, it is sufficient if, in the accounting year, profits have arisen out of the transfer of capital asset, in other words, the assessee had a right to receive the profits. Actual receipt of profits is not a relevant consideration. When once profits have arisen in the accounting year out of the transfer of the capital asset, that would be sufficient to attract liability under Section 45. It is true that the assessee put in a claim for compensation of Rs. 1,33,24,475. The mere fact that he put in such a claim does not by itself establish that he had received that amount as compensation for the transfer effected. The claim put in by the assessee before the competent authority under the Requisitioning and Acquisition of Immovable Property Act cannot be considered as an amount realised or accrued for purposes of capital gain. Unless there is determination of the compensation by the competent authority, it cannot be said that any amount had actually accrued to the assessee on the basis of the amount claimed by him in his claim petition. The amount that was finally awarded as compensation by the competent authority would be the amount to be taken into consideration for purposes of Section 45. In view of the findings recorded by us, we answer the questions referred to us as follows :

Question No. 1 is answered in the affirmative and in favour of the assessee.

Question No. 2 is answered in the negative and in favour of the revenue.

Question No. 3 is answered in the affirmative and in favour of the revenue.

Question No. 4 is answered in the negative and in favour of the assessee.

25. Reference is answered accordingly. There will be no order as to costs. Advocate's fee Rs. 250.

26. Mr. Upendralal Waghray appearing for the assessee made an oral application under section 261 of the i.t. act for a certificate to appeal to the Supreme Court. We certify this case to be a fit one for appeal to the Supreme Court. Certificate granted. There will be stay of operation of our judgment for six weeks from today to enable the assessee to move the Supreme Court and obtain appropriate orders.