# RAJ PAL SINGH v. COMMISSIONER OF INCOME-TAX, HARYANA, ROHTAK

- **Citation:** [2020] 9 S.C.R. 185
- **Court:** Supreme Court of India
- **Decided:** 2020-08-25
- **Case number:** Civil Appeal No. 2416 of 2010
- **Bench:** A. M. Khanwilkar, Hemant Gupta, Dinesh Maheshwari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/raj-pal-singh-v-commissioner-of-income-tax-haryana-rohtak-34863
- **Pages:** 60

## Headnote

Income Tax Act, 1961 - s. 45 - Land Acquisition Act, 1894 -
A land was on lease with a college and the lease was to expire on
31.08.1967 - The college moved the State Government for
compulsory acquisition of the subject land - While acting on this
proposition, a notification u/s. 4 of the 1894 Act was issued by the
State on 15.05.1968, seeking to acquire the subject land - This was
followed by the declaration u/s. 6 of the 1894 Act - After submission
of the claim for compensation, the Land Acquisition Collector
proceeded to make the award on 29.09.1970 - Thereafter, a question
concerning date of accrual of capital gains arose - Before reaching
the High Court in the reference proceedings, the matter had
undergone two rounds of proceedings up to the stage of appeal
before ITAT - The High Court while answering the reference under
the then existing s. 256 of the 1961 Act disapproved the order dated
29.06.1990 passed by the ITAT for the assessment year 1971-1972
and held that the capital gains arising out of land acquisition
compensation were chargeable to income-tax u/s. 45 of the 1961
Act for the previous year referable to the date of award of
compensation i.e. 29.09.1970 and not the date of notification for
acquisition i.e. 15.05.1968 - The High Court also concluded that
the land vested in the Government on the date of making of the
award - The root question is whether the High Court was right in
taking the date of award as the date of accrual of capital gains for
the purpose of s. 45 of the 1961 Act - On appeal, held: The decisions
cited by the parties are not of direct application to the instant case
for, they essentially relate to the right to receive compensation and
not about the date of vesting of the land, with which the instant
matter is concerned - In the matters of compulsory acquisition,
accrual of capital gain depends upon completion of transfer of
property from the owner to the Government and not upon accrual
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of right to receive compensation - Further, the matters relating to
compulsory acquisition of land under the 1894 Act, completion of
transfer with vesting of land in the Government essentially correlates
with taking over of possession of the land under acquisition by the
Government - However, where possession is taken over before
arriving of the relevant stage for such taking over, capital gains
shall be deemed to have accrued upon arrival of the relevant stage
and not before - To be more specific, capital gains shall be deemed
to have accrued: a) upon making of the award, in the case of
ordinary acquisition referable to s.16; and (b) after expiration of
fifteen days from the publication of the notice mentioned in s.9(1),
in the case of urgency acquisition u/s.17 - In the instant case, the
land in question was subjected to acquisition under the 1894 Act
by adopting the ordinary process leading to award u/s.11 -
Therefore, capital gains would have accrued upon taking over of
possession after making of the award - Consequently, capital gains
to the assessee-Appellant for the acquisition in question could not
have accrued before the date of award i.e. 29.09.1970 - The
assessment of capital gains as income of the appellant for the
previous year relevant to the assessment year 1971-1972 does not
suffer from any infirmity or error - Thus, in facts and the
circumstances of the present case, transfer of the capital asset (land
in question), for the purposes of s.45 of the Act of 1961, was
complete only on 29.09.1970, the date of award and not on
15.05.1968, the date of notification.
Dismissing the appeal, the Court
HELD: 1. The following principal points have arisen for
determination: -
(i) As to whether, on the facts and in the circumstances of
the present case, transfer of the capital asset (land in question),
resulting in capital gains for the purposes of Section 45 of the Act
of 1961, was complete on 15.05.1968, the date of notificat

## Text

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RAJ PAL SINGH
v.
COMMISSIONER OF INCOME-TAX, HARYANA, ROHTAK
(Civil Appeal No. 2416 of 2010)
AUGUST 25, 2020
[A. M. KHANWILKAR, HEMANT GUPTA AND
DINESH MAHESHWARI, JJ.]
Income Tax Act, 1961 - s. 45 - Land Acquisition Act, 1894 -
A land was on lease with a college and the lease was to expire on
31.08.1967 - The college moved the State Government for
compulsory acquisition of the subject land - While acting on this
proposition, a notification u/s. 4 of the 1894 Act was issued by the
State on 15.05.1968, seeking to acquire the subject land - This was
followed by the declaration u/s. 6 of the 1894 Act - After submission
of the claim for compensation, the Land Acquisition Collector
proceeded to make the award on 29.09.1970 - Thereafter, a question
concerning date of accrual of capital gains arose - Before reaching
the High Court in the reference proceedings, the matter had
undergone two rounds of proceedings up to the stage of appeal
before ITAT - The High Court while answering the reference under
the then existing s. 256 of the 1961 Act disapproved the order dated
29.06.1990 passed by the ITAT for the assessment year 1971-1972
and held that the capital gains arising out of land acquisition
compensation were chargeable to income-tax u/s. 45 of the 1961
Act for the previous year referable to the date of award of
compensation i.e. 29.09.1970 and not the date of notification for
acquisition i.e. 15.05.1968 - The High Court also concluded that
the land vested in the Government on the date of making of the
award - The root question is whether the High Court was right in
taking the date of award as the date of accrual of capital gains for
the purpose of s. 45 of the 1961 Act - On appeal, held: The decisions
cited by the parties are not of direct application to the instant case
for, they essentially relate to the right to receive compensation and
not about the date of vesting of the land, with which the instant
matter is concerned - In the matters of compulsory acquisition,
accrual of capital gain depends upon completion of transfer of
property from the owner to the Government and not upon accrual
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of right to receive compensation - Further, the matters relating to
compulsory acquisition of land under the 1894 Act, completion of
transfer with vesting of land in the Government essentially correlates
with taking over of possession of the land under acquisition by the
Government - However, where possession is taken over before
arriving of the relevant stage for such taking over, capital gains
shall be deemed to have accrued upon arrival of the relevant stage
and not before - To be more specific, capital gains shall be deemed
to have accrued: a) upon making of the award, in the case of
ordinary acquisition referable to s.16; and (b) after expiration of
fifteen days from the publication of the notice mentioned in s.9(1),
in the case of urgency acquisition u/s.17 - In the instant case, the
land in question was subjected to acquisition under the 1894 Act
by adopting the ordinary process leading to award u/s.11 -
Therefore, capital gains would have accrued upon taking over of
possession after making of the award - Consequently, capital gains
to the assessee-Appellant for the acquisition in question could not
have accrued before the date of award i.e. 29.09.1970 - The
assessment of capital gains as income of the appellant for the
previous year relevant to the assessment year 1971-1972 does not
suffer from any infirmity or error - Thus, in facts and the
circumstances of the present case, transfer of the capital asset (land
in question), for the purposes of s.45 of the Act of 1961, was
complete only on 29.09.1970, the date of award and not on
15.05.1968, the date of notification.
Dismissing the appeal, the Court
HELD: 1. The following principal points have arisen for
determination: -
(i) As to whether, on the facts and in the circumstances of
the present case, transfer of the capital asset (land in question),
resulting in capital gains for the purposes of Section 45 of the Act
of 1961, was complete on 15.05.1968, the date of notification for
acquisition under Section 4 of the Act of 1894; and hence, capital
gains arising out of such acquisition and interest accrued could
not have been charged to tax with reference to the date of award
i.e., 29.09.1970?[Para 23][215-A-B]
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(ii) As to whether the fact situation of the present case is
similar to that of the other case of the appellant in relation to the
assessment year 1975-1976 where the same issue relating to
the date of accrual of capital gains was decided by the ITAT in
favour of the appellant with reference to the date of taking
possession by the Government; and having not challenged the
same, it is not open for the revenue to question the similar decision
of ITAT in the present case pertaining to the assessment year
1971-1972?[Para 23][215-C]
Point (i)
2.1. The right to receive compensation comes into being
the moment Government takes possession of the property
acquired; and the right to receive interest also accrues at the
point of time when the right to receive compensation accrues
and runs day to day, do not correspondingly result in completion
of transfer of the property under acquisition and accrual of such a
gain that may classify as "capital gain". As noticed, in the matters
of compulsory acquisition, accrual of capital gain depends upon
completion of transfer of property from the owner to the
Government and not upon accrual of right to receive
compensation. [Para 34.1.3][232-C-D]
2.2. The decisions cited by the counsel for parties, even if
of guidance on the question relating to the right to receive
compensation, do not directly assist this Court in determination
of the core question involved in this matter because, income-tax
on capital gains is not levied on the mere right to receive
compensation. For chargeability of income-tax, the income ought
to have either arrived or accrued. In the matter of acquisition of
land under the Land Acquisition Act, 1894, taking over of
possession before arrival of relevant stage for such taking over
may give rise to a potential right in the owner of the property to
make a claim for compensation but, looking to the scheme of
enactment, it cannot be said that transfer resulting in capital gains
is complete with taking over of possession, even if such taking
over had happened earlier than the point of time of vesting
contemplated in the relevant provisions. [Para 35][234-B-D]
RAJ PAL SINGH v. COMMISSIONER OF INCOME-TAX,
HARYANA, ROHTAK
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2.3. The decision of this Court in the case of Avinash
Sharma, however, supports the view that in the case of urgency
acquisition, even if possession of the land under acquisition is
taken earlier, it should be related to the process contemplated
by Section 17 (1) of the Act of 1894, and deemed to be effective
from the date on which the period prescribed by Section 17 (1)
would expire that is, fifteen days from the publication of the notice
under Section 9(1) of the Act of 1894. In S. Appala Narasamma
and Pandari Laxmaiah, the Andhra Pradesh High Court applied
these principles to the cases pertaining to ordinary process of
acquisition and held that if possession had been taken earlier, it
would relate to the award; and the date of award would be the
relevant date for vesting of the land in the Government.
[Para 35.1][234-E-F]
2.4. In an overall conspectus of the matter, this Court is
clearly of the view that the statements of law in the aforesaid
decisions of Andhra Pradesh High Court, based on the
enunciations by this Court in the case of Avinash Sharma, are
rather unquestionable and need to be given imprimatur for
application to the controversy like the present one. [Para
35.2][234-G]
2.5. For what has been discussed hereinabove, in view of
this Court, in the matters relating to compulsory acquisition of
land under the Act of 1894, completion of transfer with vesting of
land in the Government essentially correlates with taking over
of possession of the land under acquisition by the Government.
However, where possession is taken over before arriving of the
relevant stage for such taking over, capital gains shall be deemed
to have accrued upon arrival of the relevant stage and not before.
To be more specific, in such cases, capital gains shall be deemed
to have accrued: (a) upon making of the award, in the case of
ordinary acquisition referable to Section 16; and (b) after expiration
of fifteen days from the publication of the notice mentioned in
Section 9 (1), in the case of urgency acquisition under
Section 17. [Para 36][234-H; 235-A-B]
2.6. As per the facts-sheet noticed hereinbefore, in the
present case, the land in question was subjected to acquisition
under the Act of 1894 by adopting the ordinary process leading
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to award under Section 11. Therefore, ordinarily, capital gains
would have accrued upon taking over of possession after making
of the award. Consequently, capital gains to the assessee-appellant
for the acquisition in question could not have accrued before the
date of award i.e., 29.09.1970. [Para 37][235-C]
2.7. However, on the strength of the submissions that the
land in question had already been in possession of the beneficiary
of acquisition, it has been suggested on behalf of the assesseeappellant that the land vested in the Government immediately
upon issuance of notification under Section 4 of the Act of 1894
i.e., 15.05.1968 and capital gain accrued on that date. This
suggestion and the contentions founded thereupon remain totally
meritless for a variety of factors as indicated infra. [Para 38]
[235-D-E]
2.8. Even if all the other aspects are kept aside and it is
assumed that the land in question was, or came, in possession of
the Government before passing of the award, the position of law
stated in point (a) i.e. upon making of the award, in the case of
ordinary acquisition referable to Section 16, would apply; and
capital gains shall be deemed to have accrued upon arrival of the
relevant stage of taking possession i.e., making of award and
hence, capital gains cannot be taken to have accrued before the
date of award i.e., 29.09.1970. [Para 38.1][235-F]
2.9. In Nand Ram, this Court also quoted with approval the
principles stated by Delhi High Court in the case of MEC India
Pvt. Ltd. v. Lt. Col. Inder Maira & Ors.: 80 (1999) Delhi Law Times
679. The said principles, when applied to the present case, leave
nothing to doubt that in relation to that part of the land in question
which was given on lease, possession of the College, after
determination of the lease on 31.08.1967, was only that of a tenant
at sufferance because it has not been shown if the lessor i.e., the
appellant accepted rent or otherwise assented to the continuation
of lease. The possession of College over the part of land in
question being only that of tenant at sufferance, had the
corresponding acknowledgment of the title of the appellant and
of the liability of the College to pay mesne profits for use and
occupation. The same status of the parties qua the land under
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lease existed on the date of notification for acquisition i.e.,
15.05.1968 and continued even until the date of award i.e.,
29.09.1970. In other words, even until the date of award, the
appellant-assessee continued to carry its status as owner of the
land in question and that status was not lost only because a part
of the land remained in possession of the College. In this view of
the matter, the suggestion that the land vested in the Government
on the date of initial notification remains totally baseless and could
only be rejected. [Paras 39.3.1 and 39.4][239-A, E-H; 240-A]
2.10. Apart from the above, the significant factor for which
the entire case of the assessee-appellant is knocked to the ground
is that neither on the date of notification i.e., 15.05.1968 nor until
the date of award, the Government took over possession of the
land in question. As noticed, the possession had been of the
erstwhile lessee, the College. Even if the said College was going
to be the ultimate beneficiary of the acquisition, it cannot be said
that immediately upon issuance of notification under Section 4 of
the Act of 1894, its possession became the possession of the
Government. Its possession, as noticed, remained that of tenant
at sufferance and not beyond. [Para 39.5][240-B-C]
2.11. Viewed from any angle, it is clear that accrual of capital
gains in the present case had not taken place on 15.05.1968. If at
all possession of the College was to result in vesting of the land
in the Government, such vesting happened only on the date of
award i.e., 29.09.1970 and not before. In other words, the transfer
of land from the assessee-appellant to the Government reached
its completion not before 29.09.1970 and hence, the earliest date
for accrual of capital gains because of this acquisition was the
date of award i.e., 29.09.1970. Therefore, the assessment of
capital gains as income of the appellant for the previous year
relevant to the assessment year 1971-1972 does not suffer from
any infirmity or error. [Para 39.6][240-D-E]
2.12. The answer to Point No. 1 is clearly in the negative
i.e., against the assessee-appellant and in favour of the revenue
that on the facts and in the circumstances of the present case,
transfer of the capital asset (land in question), for the purposes
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of Section 45 of the Act of 1961, was complete only on 29.09.1970,
the date of award and not on 15.05.1968, the date of notification
for acquisition under Section 4 of the Act of 1894; and hence,
capital gains arising out of such acquisition have rightly been
charged to tax with reference to the date of award i.e., 29.09.1970.
[Para 41][240-H; 241-A]
Point No. (ii)
3. The answer to Point No. 2 is also in the negative i.e.,
against the assessee-appellant and in favour of the revenue that
the fact situation of the present case relating to the assessment
year 1971-1972 is not similar to that of the other case of the
appellant relating to the assessment year 1975-1976 and the
revenue is not precluded from taking the stand that the transfer
of capital asset in the present case was complete only on the date
of award i.e., on 29.09.1970. [Para 45][243-G; 244-A]
Special Land Acquisition Officer, Bombay and Ors. v.
Godrej and Boyce (1988) 1 SCC 50 : [1988] 1 SCR
590; Fruit & Vegetable Merchants Union v. Delhi
Improvement Trust: AIR 1957 SC 344 : [1957] SCR 1;
Lt. Governor of Himachal Pradesh v. Avinash Sharma
(1971) 1 SCR 413; Nand Ram (D) through LRs. and
Ors. v. Jagdish Prasad (D) through LRs. 2020 (5)
SCALE 723 - relied on.
Peter John v. Commissioner of Income-Tax (1986) 157
ITR 711; Bombay Burmah Trading Corporation Ltd. v.
Commissioner of Income-Tax (1988) 169 ITR 148;
Rama Bai v. Commissioner of Income-Tax, Andhra
Pradesh (1990) 181 ITR 400; Joginder Singh and Ors.
v. State of Punjab and Anr. AIR 1985 SC 382 : [1985]
1 SCR 682 - inapplicable.
S. Appala Narasamma v. Commissioner of Income-Tax
(1987) 168 ITR 17; Commissioner of Income-Tax v.
Pandari Laxmaiah (1997) 223 ITR 671 - approved.
Berger Paints India Ltd. v. Commissioner of IncomeTax (2004) 266 ITR 99; Buddaiah v. Commissioner of
Income-Tax, Karnataka-2 (1985) 155 ITR 277;
RAJ PAL SINGH v. COMMISSIONER OF INCOME-TAX,
HARYANA, ROHTAK
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Commissioner of Income-Tax v. Govindrajulu Chetty
(T.N.K.) [1987] 165 ITR 231 - referred to.
MEC India Pvt. Ltd. v. Lt. Col. Inder Maira & Ors. 80
(1999) Delhi Law Times 679 - referred to.
Case Law Reference
(1986) 157 ITR 711
inapplicable
Para 15
(1990) 181 ITR 400
inapplicable
Para 21.1.2
(2004) 266 ITR 99
referred to
Para 21.1.2
[1985] 1 SCR 682
inapplicable
Para 22.2
(1988) 169 ITR 148
inapplicable
Para 22.2
[1988] 1 SCR 590
relied on
Para 31.3
[1957] SCR 1
relied on
Para 31.4
(1985) 155 ITR 277
referred to
Para 32.1
(1987) 168 ITR 17
approved
Para 33.1
(1971) 1 SCR 413
relied on
Para 33.1.1
(1997) 223 ITR 671
approved
Para 33.2
[1987] 165 ITR 231
referred to
Para 34.2
2020 (5) SCALE 723
relied on
Para 39.3
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2416
of 2010.
From the Judgment and Order dated 23.04.2008 of the High Court
of Punjab and Haryana at Chandigarh in Income Tax Reference No.
(ITR) 53A of 1991.
Sunil Muki, Ms. Arya Das, Rameshwar Prasad Goyal, Advs. for
the Appellant.
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A.K. Srivastava, Sr. Adv., D.L.Chidnanda, Shekar Vyas,
Mrs. Ani Katiyar, B. V. Balaram Das, Advs. for the Respondent.
The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
PRELIMINARY AND BRIEF OUTLINE
1. This appeal takes exception to the judgment and order dated
23.04.2008 passed by the High Court of Punjab and Haryana at
Chandigarh1 in Income Tax Reference No. 53-A of 1991 whereby the
High Court, while answering the reference under the then existing Section
256(1) of the Income-tax Act, 19612, disapproved the order dated
29.06.1990 passed by the Income Tax Appellate Tribunal, Chandigarh
Bench3 in ITA No. 739/Chandi/89 for the assessment year 1971-1972;
and held that the capital gains arising out of land acquisition compensation
were chargeable to income-tax under Section 45 of the Act of 1961 for
the previous year referable to the date of award of compensation i.e.,
29.09.1970 and not the date of notification for acquisition.
2. In the present case, the question concerning date of accrual of
capital gains arose in the backdrop that though the proceedings for
acquisition in question were taken up by way of notification dated
15.05.1968 and award of compensation was made on 29.09.1970 but, as
a matter of fact, at the time of issuance of the initial notification for
acquisition, the subject land was already in possession of the beneficiary
under a lease, though the period of lease had expired on 31.08.1967. In
the light of these facts, the ITAT did not approve of charging tax over
capital gains with reference to the date of award while observing that
the date of notification (i.e., 15.05.1968) would be treated as the date of
taking over physical possession and the transaction (leading to capital
gains) would be considered as having taken place on that date and not
on the date of award (i.e., 29.09.1970). The High Court, however, did
not agree with this line of reasoning and held that the amount of
compensation was determined only on passing of the award dated
1 For short, 'the High Court'.
2 For short, 'the Act of 1961' or 'the Act'.
3 For short, 'ITAT'.
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29.09.1970 and, therefore, if any capital gain was chargeable to tax, it
would be chargeable for the previous year referable to the date of award.
3. Thus, the root question is as to whether, on the facts and in the
circumstances of the present case, the High Court was right in taking
the date of award as the date of accrual of capital gains for the purpose
of Section 45 of the Act of 1961?
4. Keeping the question aforesaid in view, we may briefly
summarise the relevant factual and background aspects of this case
while indicating at the outset that the matter relating to the assessment
in question, before reaching the High Court in the reference proceedings,
had undergone two rounds of proceedings up to the stage of appeal
before ITAT.
THE ASSESSEE; THE SUBJECT LAND; AND THE
ACQUISITION
5. The assessment in question is for the assessment year 19711972 in relation to the assessee Amrik Singh HUF4. The appellant Raj
Pal Singh is son of late Shri Amrik Singh and is Karta of the assessee
HUF. As noticed, the dispute essentially concerns the chargeability of
tax for capital gains arising out of the award of compensation towards
acquisition of land belonging to the assessee-appellant.
6. It is noticed from the material placed on record and the
observations in the orders passed in this matter that the subject land,
admeasuring 41 kanals and 14 marlas and comprising Khasra Nos. 361
to 369 and 372 to 375 at village Patti Jattan, Tehsil and District Ambala5,
became an evacuee property after its original owner migrated to Pakistan;
and the same was, as such, allotted to the said Shri Amrik Singh, who
had migrated to India, in lieu of his property left in Pakistan. However, a
substantial part of the subject land, except that comprising Khasra Nos.
361 and 364 admeasuring 5 kanals and 7 marlas, had been given by the
original owner on a lease for 20 years to a Government College, being
S.A. Jain College, Ambala City6; and the lease was to expire on
31.08.1967. Later on, the College moved the Government of Haryana
for compulsory acquisition of the subject land. While acting on this
proposition, a notification under Section 4 of the Land Acquisition Act,
4 Hindu Undivided Family.
5 For short, 'the subject land' or 'the land in question'.
6 For short, 'the College'.
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18947 was issued by the Government of Haryana on 15.05.1968, seeking
to acquire the subject land for public purpose, namely, playground for
the College. This was followed by the declaration dated 13.08.1969 under
Section 6 of the Act of 1894. Ultimately, after submission of the claim
for compensation, the Land Acquisition Collector, Ambala proceeded to
make the award on 29.09.1970.
7. The relevant features concerning possession of the land in
question and computation of the amount of compensation are duly
recorded in the award dated 29.09.1970 and for their relevance, the
material parts of the award need to be taken note of.
7.1. As regards possession of the land in question, the learned
Collector observed as under:-
"Possession of land:
The land in question was on lease with the Jain College, managing
Society upto 31st August 1967. Thereafter the acquisition
proceedings were started and the society was in possession of
the same since then. Therefore the land owners are entitled to
the interest from the date of notification u/s 4 which was issued
on the 15th May, 1968. The interest at the rate of 6% per annum
will be paid to the land owners in addition to the compensation
and Solatium from 15th May,1968, to date."
7.2. As regards entitlement to compensation, the learned Collector
examined the cross-claims made by the land owners and the Managing
Society of the College; and found it justified to award compensation to
the land owners while observing as under:-
"Mode of Payment:
The land owners have claimed that the compensation be
paid to them whereas the S.A. Jain College, trust and Management
Society has applied that the Society be paid 2/3rd of the
compensation being the 99 years lease of the land or otherwise as
tenant under the East Punjab Urban Rent Restriction Act. The
society has neither produced any documentary record nor any to
establish the claim. As per application of the Principal S.A. Jain
College, Ambala City, this fact as confirmed that the land in question
was on the lease with the College upto 31.8.67 only and the college
7 For short, 'the Act of 1894'.
RAJ PAL SINGH v. COMMISSIONER OF INCOME-TAX,
HARYANA, ROHTAK [DINESH MAHESHWARI, J.]
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wanted to acquire the same so that its possession remains with
the college. In addition to it, Shri Amar Chand President S.A. Jain
College, Management Committee stated on oath before the
Revenue Assistant Ambala on 21.3.68 that the Management
committee was prepared to pay the price of the land fixed by the
Collector to the land owners. From the copy of the jamabandi
attached with this file, khasra Nos. 361 and 364 measuring 5 kanals
and 7 marlas were not on the lease with the college. But the
Management is claiming compensation for this land also. In these
circumstances, the college management cannot be awarded any
amount from the compensation of this land being tenant. I
therefore, allow the compensation to the land owners according
to their share entered in the jamabandi...."(sic)
First round of assessment proceedings
By the Income Tax Officer, 'B' Ward, Ambala
8. For the assessment year 1971-1972, the assessee declared its
income at Rs. 1,408/- inclusive of Rs. 408/- from the house property and
Rs. 1,000/- being the amount of interest earned. While not accepting the
income so declared, the Assessing Officer8, in his assessment order
dated 12.02.1982, enhanced the income from house property to
Rs.1,200/- and also enhanced the interest income to Rs. 11,596/- with
reference to the interest received under the award in question. However,
the AO observed that capital gains were not relevant for the year under
consideration for the reason that the land in question had been acquired
in the earlier years. The relevant part of the assessment order dated
12.02.1982 reads as under:-
"........The assessee has shown intt. at Rs. 1000/- only. The
assessee's lands were required by Haryana Govt. vide notification
date 16.05.68, 11.06.69 and 13.08.69. Since the lands were
acquired in the earlier years and the capital gains are not relevant
for the year under consideration. However, the assessee received
compensation late vide award dated 29.07.70 by land Acquisition
Controller, the assessee received interest of Rs.10596/- which
the assessee has not shown in the return. As such the intt. Income
is taken at 11596 including 1000/- so-moto shown by the
assessee...." (sic)
8 Hereinafter referred to as 'the AO' or 'the ITO'.
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Before the Appellate Commissioner
9. Being aggrieved by the order so passed by the Assessing Officer,
the assessee preferred an appeal before the Appellate Assistant
Commissioner of Income Tax, Ambala9 in B/Amb/82-83 on the grounds,
inter alia, that the AO was not justified in enhancing the annual letting
value of the house property and was also not justified in including the
interest amount of Rs.11,596/- received from Land Acquisition Collector
on the compensation paid for acquisition of land for the reason that the
said interest amount was required to be treated as part of compensation.
9.1. Though the ground of appeal concerning house property was
accepted and the addition made by AO in that regard was deleted but,
on examination of the award dated 29.09.1970, the CIT(A) found that
the assessee was paid Rs.62,550/- as compensation and Rs.9,532/- as
solatium and yet, capital gains on this account were not taxed by the
Assessing Officer. Accordingly, a show cause notice dated 18.11.1983
was issued to the assessee as to why capital gains relating to the
acquisition of this land be not charged to tax in the assessment year
under consideration. The assessee filed a written reply dated 26.12.1983
to this notice and stated, inter alia, that in the urgency acquisition under
Section 17 of the Act, the transfer takes place immediately after the
notification and the owner ceases to be in possession of the land in
question.
9.2. The CIT(A), in his order dated 17.05.1984, rejected the
submissions made on behalf of the assessee and held that the capital
gains on the acquisition of the land amounting to Rs. 23,146/- were
required to be added to the income of the previous year relevant to the
assessment year under consideration. The CIT(A) ordered such addition
while observing and holding as under:-
"9.... ... ITO has not given any reason in the assessment order
why the capital gain on the acquisition of the land is not taxable.
Moreover, powers conferred on me under the Income-Tax Act
does not preclude me from considering this issue at the appellate
stage.
10. There is no doubt that the notifications were published much
earlier that the date of award and the possession of land was also
taken earlier that the date of award but it does not mean that the
9 For short, 'the CIT(A)'.
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capital gain is to be taxed in the earlier years on that basis. When
the land is taken possession of by the Government, no compensation
has, in fact been determined but it has become only payable. The
right of the owner is, therefore, an inchoate right........ The
deeming provisions can have no relevance unless the income is
receivable can have it is receivable, then the determination of the
question whether it is actually received or is deemed to have been
received depends upon the method of accounting. If the actual
amount of compensation has not been fixed by the Land
Acquisition Collector, no income could be said to have
occurred to the appellant...... Income Tax is not levied on
a mere right to receive compensation, there must be
something tangible, something in the nature of debt,
something in nature of an obligation to pay an ascertained
amount. Till such time, no income can be said to have
accrued. On the date when the collector awarded the
compensation, it is only that amount which had accrued
whether in fact paid or not. Accordingly, in the present case,
even though the possession of land was taken in 1968, no amount
can be said to accrued on the date of possession because the
compensation at that point of time was not determined at all. This
amount of compensation was determined only after the award
dated 29.9.70. Therefore, if any income on account of capital
gain is chargeable to tax, it will be chargeable on the date of
award. It is held accordingly that the capital gain arising out of
acquisition of land is chargeable to tax in the previous year, relevant
to assessment year under consideration because the date of award
i.e. 29.9.70 is within the relevant previous year."
(emphasis in bold supplied)
Before the Income Tax Appellate Tribunal, Chandigarh Bench
10. Against the order so passed by the CIT(A), the assesseeappellant preferred an appeal before the Income Tax Appellate Tribunal,
Chandigarh Bench, being ITA No.634/Chandi/84 and argued, inter alia,
that it had been a matter of urgent acquisition under Section 17 of the
Act of 1894 and possession of the land in question was taken on
15.05.1968 when the notification under Section 4 of the said Act of 1894
was issued and hence, the CIT(A) exceeded his jurisdiction in taxing the
capital gains for the year under reference on the basis of the date of
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award made by the Land Acquisition Collector under Section 11 of the
Act of 1894. It was also argued that the interest amount could not have
been treated separately and was required to be considered as a part of
the compensation amount.
11. The appeal so filed, relating to the assessment year 19711972, was considered and decided by ITAT by its order dated 19.12.1985.
Interestingly, on the same date, i.e., on 19.12.1985, the ITAT also
considered and decided another appeal of the appellant pertaining to the
assessment year 1975-1976, being ITA No.635/Chandi/84, wherein too,
similar question of capital gains arising out of another award of
compensation for acquisition of another parcel of land was involved.
Since the said decision pertaining to the assessment year 1975-1976 has
formed a part of submissions in the present appeal, we may usefully
take note of its relevant features before proceeding further.
11.1. It appears that in the said appeal pertaining to the assessment
year 1975-1976, the question of capital gains arose in the backdrop of
the facts that another parcel of land of the appellant, in village Rangrnan,
Tehsil and District Ambala admeasuring 15 kanals and 10 marlas, was
acquired for the purpose of construction of warehouse of Ambala City.
The notification under Section 4 of the Act of 1894 for that acquisition
was issued on 26.06.1971; possession of the said land was taken on
04.09.1972; and award of compensation was made on 27.06.1974. In
the given set of facts and circumstances, the ITAT accepted the contention
that the case fell under the urgency provision contained in Section 17 of
the Act of 1894 where the assessee was divested of title to the property,
that vested in the Government with effect from 04.09.1972, the date of
taking possession. Thus, the ITAT held that the capital gains arising from
the said acquisition were not assessable for the accounting period relevant
for the assessment year 1975-1976. The material part of findings of
ITAT in the said order dated 19.12.1985, in ITA No.635/Chandi/84
pertaining to the assessment year 1975-1976, reads as under:-
"9...The case, therefore, falls under the urgency provision
contained in section 17 of the Land Acquisition Act, 1894. The
transfer within the meaning of section 2(47) took place on the
date the possession of land was taken by the Government. Section
2(47)(i) provides that the transfer in relation to a capital asset
includes the extinguishment of any rights therein. Section 17 of
the Act provides that after taking possession of the land in urgent
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cases, such land shall thereupon vest absolutely in the Government
free from all encumbrances. The assessee was, therefore, divested
of the title to the lands and the lands thereafter vested in the
Government w.e.f. 4-9-72 i.e. the date of possession of the lands.
In this view of the matter, we are of the opinion that the capital
gains arising from the acquisition of the lands in question were not
assessable for the accounting period relevant to the assessment
year 75-76. The income from capital gains included in the total
income by the ITO and confirmed by the AAC and also further
enhanced by Rs. 28,379/- therefore, cannot be sustained. The
same is deleted."
12. Reverting to the assessment year 1971-1972, it is noticed that
in the appeal relating to this case, the ITAT referred to its aforesaid
order of the even date pertaining to the assessment year 1975-1976 but
found that in the present case, actual date of taking possession by the
Government was not forthcoming and hence, proceeded to restore the
matter to the file of AO to find out the date when the Government took
over possession, while observing that if possession was taken before the
award and before 01.04.1970, capital gains were not to be included in
the income for the assessment year 1971-1972 but, if possession was
taken during the period 01.04.1970 to 31.03.1971, capital gains would be
assessable for this assessment year 1971-1972. The material part of the
order dated 19.12.1985 in ITA No.634/Chandi/84 pertaining to the present
case reads as under:-
"5. We have carefully considered the rival submission. The first
Notification for the acquisition of the lands in 15.5.68 as mentioned
in the order of the ITO. The date of award u/s 11 of the Land
Acquisition Act is 29.9.70 which is also mentioned in the order of
the ITO. The actual date of possession of the lands by the
Government is neither mentioned in the order of the ITO nor of
the AAC though the learned counsel for the assessee at the time
of hearing stated that it was on 15.5.68. The AAC has also stated
in para 10 of his order that the notifications were published much
earlier than the date of the award and the possession of the land
was also taken earlier than the date of award but that did not
mean that the capital gains was to be taxed in the earlier years on
that basis. He has, however, not specified the actual date of
possession of the lands by the Government. The date given by the
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learned counsel for the assessee also cannot be accepted firstly
because no evidence in relation there to has been furnished before
us. Secondly the date of notification is 16.5.68 and it was not
elaborated as to how the possession of the land could be taken
even prior to the date of notification. One thing, however, is certain
that the possession of the lands was taken before the award was
made u/s 11 of the Land Acquisition Act.
6. Similar issue came up for consideration before us in the case of
the assessee itself for the assessment year 1975-76 and vide our
orders of even date in I.T.A. No. 635/Chandi we have held that it
was a case which fell u/s 17 of the Act and, therefore, capital
gains were assessable on the basis that the transfer took place on
the date of possession of lands by the Government. Since the
actual date of possession of the land is not available, we are of
the opinion that the matter should be restored to the file of the
ITO who should find out the actual date of possession of the
lands by the Government. In case the possession of the lands was
taken by the Government prior to the date of award and before
Ist April,1970, the capital gains will not be included in the income
for the assessment year 71-72. If the possession of the lands was
also taken during the period 1-4-70 to 31-3-71, the capital gains
will be assessable for the assessment year 71-72. After finding
the actual date of possession by Govt. the ITO, he shall recompute
the income on the above basis."
Supplementary facts concerning enhancement of compensation
13. Before entering into the orders passed in second round of
proceedings after remand by the ITAT, apposite it would be to take note
of a set of supplementary facts relating to the enhancement of the amount
of compensation. It is noticed that as against the aforesaid award dated
29.09.1970, the appellant took up the proceedings in LA Case Nos. 37
and 38 of 1971 before the Additional District Judge, Ambala who, by the
order dated 30.12.1984, allowed a marginal enhancement of the amount
of compensation and corresponding solatium and interest. Not satisfied
yet, the appellant preferred an appeal, being Regular First Appeal No.
390 of 1975 before the Punjab and Haryana High Court, seeking further
enhancement. The High Court allowed this appeal by its judgment dated
25.10.1985 and awarded compensation by applying the rate of Rs. 8/-
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per sq. yd. against Rs. 3.50 and Rs. 2.50 per sq. yd., as allowed by the
Additional District Judge and the Land Acquisition Collector respectively.
The High Court also allowed 30% solatium and corresponding interest10.
Second Round of Proceedings for assessment
By the Income Tax Officer, 'C' Ward, Ambala.
14. Having noticed the relevant facts concerning acquisition of
the land in question, the award of compensation for such acquisition and
enhancement of the amount of compensation as also the first round of
proceedings for assessment for the assessment year 1971-1972, we may
now take note of the orders passed in the second round of proceedings
for this assessment after the matter was remanded by the ITAT.
15. In compliance of the directions of ITAT in the aforesaid order
dated 19.12.1985 in ITA No.634/Chandi/84, the AO took up the matter
in GIR No. 920A and, on 17.07.1987, served specific question to the
assessee-appellant about the date on which possession of the acquired
land was taken by the Government of Haryana. In his reply dated
22.07.1987, the appellant stated such date of possession as 15.05.1968,
being the date of notification under Section 4 of the Act of 1894. Though
no evidence in this regard was adduced but, the appellant relied upon the
decision of Kerala High Court in the case of Peter John v. Commissioner
of Income-Tax: (1986) 157 ITR 711 to submit that capital gains, if
any, arise at the point of time when the land vests in the Government and
such a date in the present case was 15.05.1968.