Case Note & Summary
The case concerns the assessment year 1971-1972 for the assessee Amrik Singh HUF, whose land was acquired by the Haryana Government for a college playground. The acquisition process began with a notification under Section 4 of the Land Acquisition Act, 1894 on 15.05.1968, followed by a declaration under Section 6 on 13.08.1969, and the Land Acquisition Collector made the award on 29.09.1970. The land was already under lease to the college, which expired on 31.08.1967, but the college remained in possession. The Assessing Officer initially did not tax capital gains, considering the acquisition occurred in earlier years. However, the CIT(A) held that capital gains accrued on the date of award and added Rs. 23,146/- as capital gains. The ITAT reversed, holding that the date of notification (15.05.1968) should be treated as the date of transfer because possession was taken then. The High Court restored the CIT(A)'s view, holding that capital gains accrue only when compensation is determined by the award. The Supreme Court affirmed the High Court's decision, reasoning that until the award, the right to compensation is inchoate and not an ascertained sum; thus, no income accrues. The Court emphasized that the transfer in compulsory acquisition is complete only when the amount of compensation is determined, and the date of award is the relevant date for charging capital gains under Section 45 of the Income-tax Act, 1961. The appeal was dismissed.
Headnote
A) Income Tax - Capital Gains - Accrual of Capital Gains - Section 45 of Income-tax Act, 1961 - The question was whether capital gains arising from land acquisition compensation accrue on the date of notification under Section 4 of the Land Acquisition Act, 1894 or on the date of award of compensation. The Supreme Court held that the transfer of capital asset in compulsory acquisition takes place when the compensation is determined by the Collector's award, not on the date of notification or taking possession. The right to compensation is an inchoate right until quantified, and income accrues only when the amount is ascertained. The Court upheld the High Court's view that capital gains are chargeable for the previous year referable to the date of award (Paras 1-3, 7-9).
Issue of Consideration
Whether, on the facts and circumstances of the 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 Income-tax Act, 1961?
Final Decision
The Supreme Court dismissed the appeal and upheld the High Court's judgment, holding that capital gains arising from land acquisition compensation are chargeable to income-tax under Section 45 of the Income-tax Act, 1961 for the previous year referable to the date of award of compensation (29.09.1970) and not the date of notification for acquisition.
Law Points
- Capital gains accrue on date of award of compensation
- not on date of notification for acquisition
- Section 45 of Income-tax Act
- 1961
- Section 4 and Section 6 of Land Acquisition Act
- 1894
- Date of transfer in compulsory acquisition
