B.C. Gupta and Sons Ltd. vs Commissioner of Income Tax

N.S. Singh, J.—This reference has been made at the instance of the assessee u/s 256(1) of the 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 March 19, 1992, passed by the Income Tax Appellate Tribunal in I. T. A. 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 Land Acquisition Act, 1894, 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 Income Tax Act, 1961, during that year ?"

The assessee is a private limited company having its registered office at Silchar. The assessee-company follows the mercantile system of accounting and maintains accounts on the basis of it and, as such, the relevant assessment year ended on December 31, 1973. The relevant original assessment was made on January 29, 1976, u/s 143(3) of the Income Tax Act (in short, "the Act" hereinafter referred to), for the assessment year 1974-75 on a total income of Rs. 10,260. But, subsequently, the assessment was reopened u/s 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 September 12, 1972, u/s 9(3) and (4) of the Land Acquisition Act, 1894 (in short, "the L. A. Act"), were issued and served on the assessee on September 13, 1972, intimating that the Government was in need of land for construction of staff quarters of All India Radio at Silchar. The assessee filed petition dated September 29, 1972, stating, inter alia, that the land in question was required by itself for its office premises and the residence of shareholders. On a consideration of the said petition, the Government by its Notification No. RLA-430/68/136 dated December 12, 1975, released 3 bighas, 3 kathas, and 5 chhataks of land and accordingly, the State Government acquired the remaining part of the land measuring 3 bighas, 1 katha, and 10 chhataks.

The Collector did not make any award up to the end of 1973. However, an advance payment of Rs. 67,325 was made on July 5, 1978. Later on, the award was made on July 27, 1979, for an amount of Rs. 1,34,650.63 and after deducting the advance payment made on July 5, 1978, the balance amount of Rs. 67,325.63 was paid on September 16, 1979.

In the reassessment proceedings for the said assessment year 1974 75, the Assessing Officer opined that the land was acquired u/s 17 of the Land Acquisition Act and, as such, the land acquired vested absolutely with the Government on February 7, 1973, when possession was taken over. It was further opined by the Assessing Officer that since possession of the land has been given/vested to the Government on February 7, 1973, the capital gains arising out of the said transfer is assessable at the hands of the assessee in the assessment year 1974-75. Since, the assessee-company follows the accounting year from January 1, 1973, to December 31, 1973. The Assessing Officer also charged the interest u/s 139(8) of the Act. Being dissatisfied with the assessment order dated March 6, 1987, of the Income Tax Officer, the Assessing Officer passed u/s 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. The appellate authority, the Commissioner of Income Tax (Appeals) observed that the Commissioner of Income Tax (Appeals) was not the appropriate authority to pass an order as to the validity of the land acquisition proceedings. However, the Commissioner of Income Tax (Appeals) held that no interest is chargeable u/s 217(1A) of the Act and no interest u/s 139(8) of the Act can be charged in case of reassessment, vide order dated July 7, 1989, passed in Appeal No. 63-817 of 1987-88.

Being aggrieved by the said order of July 7, 1989, passed by the Commissioner of Income Tax (Appeals), 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 the 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 the assessment year 1974-75.

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 have been acquired u/s 17(4) of the Land Acquisition Act.

He further submits that even if the acquisition of the said land u/s 17 of the Land Acquisition 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 Land Acquisition Act ; inasmuch as by the end of that year, no award was yet made, but the award was made only on July 27, 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 (Executors to the Estate of Late Shrimant Sraswatibai Patwardhan) Vs. Commissioner of Income Tax, 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 to passing of property or legal vesting of title of the land acquired in the Government.

Sri U. Bhuyan, learned counsel for the Revenue/respondent, submits that the acquisition of the land in question was made by invoking a special provision of law contemplated u/s 17 of the Land Acquisition 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 Commissioner of Income Tax (Appeals) or the Appellate Tribunal to decide the questions or issues relating to the validity of the acquisition of the assessee''s land u/s 17 of the Land Acquisition Act.

It would be apparent from a perusal of the decision of the Bombay High Court in the case of Annaparai Estate Limited Vs. State of Karnataka, that the notifications which are rescinded cease to exist legally and the court only considered the relevant operative notifications under Sections 4 and 6 of the Land Acquisition 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 u/s 16 and Section 17 of the Land Acquisition Act relating to the taking of possession of the land so acquired. Section 16 of the Land Acquisition Act enables the Collector to take possession of the land only when he has made an award u/s 11. Thereafter, the land shall thereupon vest absolutely in the Government, free from all encumbrances. Section 17 of the Land Acquisition 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, Sub-section (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 all encumbrances.

The decision and the judgment of the Bombay High Court in M.B. Karmarkar and D.L. Gokhale (Executors to the Estate of Late Shrimant Sraswatibai Patwardhan) Vs. Commissioner of Income Tax, does not help the case of the assesses as the said case is quite different from the present case of the assessee-petitioner.

The Income Tax Appellate Tribunal found that since the land has been acquired and taken possession of on February 7, 1973; and that, the accounting period of the assessee-company starts from January 1, 1973, and ends on December 31, 1973, the capital gain is assessable in the assessment year 1974-75.

It is also evident from the order of the Tribunal that the 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 u/s 17 of the Land Acquisition 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.

In our considered view, if possession of the land has been taken over and handed over in case of urgency, as required u/s 17 of the Land Acquisition 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 February 7, 1973, and the effective date of transfer of the title in the land would be February 7, 1973, and hence, the capital gains was assessable during the accounting year relevant to the assessment year 1974-75.

The Income Tax Appellate Tribunal also observed that so long as the order of the Collector acquiring the land of the assessee-company u/s 17(1) even bail in law as alleged by the assessee''s counsel, is in subsistence and not quashed or in any manner modified, the acquisition of land u/s 17 of the Land Acquisition Act is to be considered a valid one. Undoubtedly, the Tribunal have no jurisdiction to go into the merits of the land acquisition proceedings. In the instant case, old Section 17(1) of the Land Acquisition 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 Land Acquisition Act is quoted below :

"17. Special powers in cases of urgency.--(1) In cases 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 waste or arable land needed for public purposes or for a company. Such land shall thereupon vest absolutely in the (Government), free from all encumbrances."

The new Section 17 of the Land Acquisition Act was not in force at the relevant time of the acquisition of the assessee''s land. The new Section 17(1) of the Land Acquisition Act is also quoted below for ready reference :

"17. Special powers in case of urgency.--(1) In cases 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, free from all encumbrances."

Under the new Section 17 of the Land Acquisition Act, the words "any waste" or "arable land" do not find its place as the same has been substituted by the words "any land".

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 questions Nos. (i) and (iii) in the affirmative and in favour of the Revenue and against the assessee. On a perusal and consideration of 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 legally transferred within the meaning of Section 17 of the Land Acquisition Act when the land was neither "waste" nor "arable" (emphasis* laid). In our considered view, this 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 have left this questions No. (ii) unanswered. However, we affirm the observation of the learned Tribunal that the acquisition of the assessee''s land u/s 17 (old) of the Land Acquisition Act is a valid one.

A copy of this judgment under the signature of the Registrar and the seal of the High Court shall be transmitted to the Income Tax Appellate Tribunal.