M/S B.C. Gupta And Sons Ltd v. Commissioner Of Income Tax N.E. Region, Shillon

N.S. SINGH, J.

(1.) This reference lias been made at the instance of the assessee under Section 256(1) of foe Income Tax Act, 1961, by the Income Tax Appellate Tribunal with three questions, stated to be questions of law, arising out of the order dated 19.3.1992 passed by the Income Tax Appellate Tribunal in ITA No.108(Gau) of 1990, for opinion of this Court. The questions referred to us are quoted below :

"(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the transfer took place on the date of taking possession by the Government even though initial compensation/ advance had been determined and became payable in subsequent years ? (ii) Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the land was legally transferred within the meaning of section 17 of the l.a. act when the land was neither waste or arable ? (iii) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that capital gain was chargeable to tax in the year of taking possession even though no Capital Gains could be computed u/s 48 of the I.T.Act during that year ?"

(2.) The assessee is a private limited company having its registered office at Silchar. The assessee company follows the merchantile system of accounting and maintains accounts on the basis of it and as such the relevant assessment year ended on 31.1:2.1973. The relevant original assessment was made on 29.1.1976 under Section 143(3) of the Income Tax Act, in short the Act hereinafter referred to, for the assessment year 1974-75 on total income of Rs.10,260/-. But subsequently the assessment was reopened under Section 147 of the Act with a view to make the assessment of the income from Capital Gains earned by the Assessee in the previous year ending 1973 relevant to the assessment year 1974-75 arising out of the acquisition of land of the Assessee by the State Government during that year. Initially the State Government issued notification for acquisition of land of 6 bighas 4 kathas and 15 chhataks of urban land belonging to the assessee located at Malugram in the heart of Silchar town. Notice dated 12.9.1972 under Section 9(3) and (4) of the Land Acquisition Act, 1894, in short L.A.Act, were issued and served on the Assessee on 13.9.1972 intimating that the Govt was in need of land for construction of staff quarters of All India Radio at Silchar. The Assessee filed petition dated 29.9.1972 stating inter alia, that the land in question was required by itself for its office premises and the residence of Shareholders. On consideration of the said petition, the Government by its notification No.RLA-430/68/136 dated 12.12.1975 released 3 bighas 3 kathas and 5 chhataks of land and accordingly the State Govenment: acquired the remaining part of the land measuring 3 bighas 1 katha and 10 chhatak.

(3.) The Collector did not make any award upto the end of 1973. However, an advance payment of Rs.67,325/- was made on 5.7.1978. Later on, the award was made on 27.7.1979 for an amount of Rs. 1,34,650.63 and after deducting the advance payment made on 5.7.1978 the balance amount of Rs.67,325.63 was paid on 16.9.1979.

(4.) In the reassessment proceedings for the said assessment year 1974-75, the Assessing Officer opined that the land was acquired under section 17 of the l.a.act and as such, the land acquired vested absolutely with the Government on 7.2.1973 when the possession was taken over. It was further opined by the Assessing Officer that since possession of land has been given / vested to the Government on 7.2.1973, the Capital Gains arising out of the said transfer is assessable at the hand of the assessee in the assessment year 1974-75. Since the assessee company follows the accounting year from 1.1.1973 to 31.12.1973. The Assessing Officer also charged the interest under Section 139(8) of the Act. Being dis-satisfied with the assessment order dated 6.3.1987 of the ITO, Assessing Officer; passed under Section 143(3)/147 of the Act for the assessment year 1974-75, the assessee company preferred an appeal to the Commissioner of Income Tax (Appeals), Gauhati, in shout CIT(A). The Appellate Authority, CIT(A) observed that CIT(A) was not appropriate authority to pass an order as to the validity of the land acquisition proceedings. However, the CIT(A) held that no interest is chargeable under Section 217(1 A) of the Act. and no interest under Section 139(8) of the Act can be charged in case of re-assessment vide order dated 7.7.11989 passed in Appeal No.63-817/87-88.

(5.) Being aggrieved by the said order of 7.7.1989 passed by the CIT(A), the assessee further preferred: an appeal before the Income Tax Appellate Tribunal, Gauhati Bench, Gauhati. The learned Tribunal decided the appeal in favour of the Revenue by observing that the Capital Gains earned by Assessee in the previous year 1973 relevant to the assessment year 1974-75 arising out of compulsory acquisition of its land by the State Government was assessable during the accounting year relevant to assessment year 1974-75.

(6.) Sri B.R. Dey, learned Counsel for the Assessee submits that the Assessee's land (land so acquired) is situated in the heart of Silchar town which is neither waste nor arable land and as such the said land could not bave been acquired under Section 17(4) of the L.A.Act He further submits that even if the acquisition of the said land under section 17 of the l.a.act was justified, the possession of the land could not be said to have been taken by the Collector in the year 1973 in view of the provisions of Section 16 of the L.A.Act; inasmuch as by the end of that year, no award was yet made, but the award was made only on 27.7.1979. Sri Dey in support of his submission relied on a decision of the Bombay High Court in a case between M.B. Karmarkar and D.L. Gokhale Vs. Commissioner of Income Tax reported in (1984) 150 ITR 234 wherein it was held that until and unless award or compensation is made, or, even though the possession being handed over earlier than award; there would have no relevance of passing of property or legal vesting of title of the land acquired in the Government.

(7.) Sri U. Bhuyan, learned counsel for the Revenue / Respondent submits that the acquisition of the land in question was made by invoking a special provisions of law contemplated under section 17 of the l.a.act which deals with the special powers of the Collector for acquisition of land in cases of urgency. He also submits that it is not the CIT(A) or Appellate Tribunal to decide the questions or issues relating to the validity of the acquisition of the Assessee's land under section 17 of the l.a.act.

(8.) It would be apparent from perusal of the decision of the Bombay High Court in the case of M.B. Karmarkar and D.L. Gokhale Vs. Commissioner of Income Tax (supra) that the notifications which are rescinded cease to exist legality and the Court only considered the relevant operative notifications unden Sections - 4 and 6 of the L.A.Act and; the Court in that case further held that there would not be any passing of the property or legal vesting of the same in the Government even though the possession have been handed over to the Government earlier. It is also evident from the said decision of the Bombay High Court about the distinction between the provisions of law contemplated under Section 16 and Section 17 of the L.A. Act relating to the taking of possession of the land so acquired. Section 16 of the L.A.Act enables the Collector to take possession of the land only when he has made an award under Section 11. Thereafter, the land shall thereupon vest absolutely in the Government, free from all encumbrances. section 17 of the l.a.act provides that in case of urgency whenever the (appropriate Government) so directs, the Collector, though no such award has been made, may, on the expiration of 15 days from the publication of the notice mentioned in Section 9, subsection (1), shall take possession of any waste or arable land needed for public purposes or for a company. Such land shall thereupon vest absolutely in the Government, free from ail encumbrances.

(9.) The decision and the judgment of the Bombay High Court in M.B. Karmarkar and D.L. Gokhale Vs. Commissioner of Income Tax (supra) does not help to the case of tie Assessee as the said case is quite different from the present case of the Assessee-petitioner.

(10.) The Income Tax Appellate Tribunal found that since the land has been acquired and taken possession on 7.2.1973 and that, the accounting period of the assessee company starts from 1.1.1973 and ends on 31.12.73, the capital gain is assessable in the assessment year 1974-75.

(11.) It is also evident from the; order of the Tribunal that assessee - company / applicant could not substantiate its contention that the land so acquired is not waste or arable land and that it has challenged the acquisition proceedings under section 17 of the l.a.act in the Court of law. The learned Tribunal also found that no suit number or date of filing of suit or other relevant material have been filed by the assessee-company.

(12.) In our considered view, if the possession of the land has been taken over and handed over in case of urgency, as required under section 17 of the l.a.act in respect of any waste or arable land, such land shall thereupon vest absolutely in the Government, even though the award has been made subsequently after the possession of the land is taken. It is also evident from the records that the Government took possession of the land in question on 7.2.1973 and the effective date of transfer of the title in the land would be 7.2.1973 and hence the capital gains was assessable during accounting year relevant to the assessment year 1974-75.

(13.) The Income Tax Appeltate Tribunal also observed that so long the order of the Collector acquiring the land of the Assessee company under Section 17(1) even bad in law ;as alleged by the assessee's counsel, is in subsistance and not quashed or in any manner modified, the acquisition of land under section 17 of the l.a.act is to be considered valid one. Undoubtedly, Tribunal have no jurisdiction to go into the merit of the land acquisition proceedings. In the instant case, old Section 17(1) of file L.A.Act was made applicable by the competent authority in respect of the acquisition of the land of the Assessee company. Old Section 17(1) of the L.A.Act is quoted below :

"17. Special powers in cases of urgency- (1) In case of urgency, whenever the (appropriate Government) so directs, the Collector, thougth no such award has been made, may, on the expiration of fifteen days from the publication of the notice mentioned in Section 9, sub-section (1), take possession of any waste or arabde land needed for public purposes or for a Company. Such land shall thereupon (vest absolutely in the Government), from from all encumbrances."

(14.) The new section 17 of the l.a.act was not in force at the relevant time of the acquisition of the Assessee's land. The new Section 17(1) of the L.A.Act is also quoted below for ready reference :

"17. Special powers in case in urgency - (1) In case of urgency, whenever the appropriate Government so directs, the Collector, though no such award has been made, may, on the expiration of fifteen days from the publication of the notice mentioned in Section 9, sub-section (1), (take possession of any land needed for a public purpose) such land shall thereupon vest absolutely in the Government from all encumbrances."

(15.) Under the: new section 17 of the l.a.act, the words "any waste" or "arable land" do not find its place as the same has been substituted by the words "any land".

(16.) From the above discussions, we are of the view that the learned Tribunal was justified in dismissing the appeal of the assessee company. In the result, we answer the Question No. (i) and (iii) in the affirmative and in favour of the Revenue and against the assessee. On perusal and consideration of the question No. (ii) referred herein, the said question is vague inasmuch as it relates to the validity of the order of the learned Tribunal in holding that the land was legality transferred within the meaning of section 17 of the l.a. act when the land was neither "waste" nor "arable" (emphasis laid). In our considered view, mis question No. (ii) shall not arise at all from the order of the Tribunal in view of the existing facts and circumstances of the case. Hence, we left this question No. (ii) unanswered. However, we affirmed the observation of the learned Tribunal that the acquisition of the assessee's land under section 17 (old) of the l.a. act is valid one. A copy of this judgment under the signature of the Registrar and seal of the High Court shall be transmitted to the Income Tax Appellate Tribunal.