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1985 DIGILAW 201 (KAR)

BUDDAIAH v. COMMISSIONER OF INCOMETAX

1985-04-16

K.S.PUTTASWAMY, S.R.RAJASEKHARA MURTHY

body1985
( 1 ) THE Income-Tax Appellate Tribunal, bangalore Bench has referred the following question of law for our opinion under section 256 (1) of the Income-Tax Act, 1961, at the instance of the assessee :"on the facts and in the circumstances of the case, whether the Tribunal was justified in law in holding that the capital gains in respect of survey- nos. 193, 206 and 207 was assessable to tax for the assessment year 1974-75 ?" ( 2 ) THE Assessee is a HUF owning some agricultural lands in Kodihalli village situated within the urban agglomeration of the city of Banglore. Sy. Nos. 193, 206. 207/1 of the said village were acquired by the City Improvement Trust board, Bangalore, in pursuance to the preliminary Notification under Section 4 and final Notification dated 19-8-1964 issued under Section 6 by the Land acquisition Officer for on behalf of the city Improvement Trust Board (CITB ). The possession of Sy. No. 206 was taken by the LAO. , on 2i-4-l973, and sy. Nos. 193 and 207/1 on 8-11-1973. ( 3 ) IN the assessment of the assessee for the assessment year 1974-75, the income Tax Officer (ITO) brought to tax, under 'capital gains', the compensation received by the assessee in respect of the acquisition of three survey numbers by the CITB. The assessee chanllengcd the assessment before the Appellate Assistant commissioner (AAC) who upheld the assessment in so far as Sy. Nos. 193 and 207/1 was concerned. In respect of Sy. No. 206, he held that the award was passed on 29-3-1973 and that, therefore, the transfer took, place during the accounting year relevant for the assessment years 1973-74 and not 1974-75. The assessment relating to 'capital gains' for tbisyearin respect of the sail Survey number was, therefere, directed to be modified. ( 4 ) BOTH the 1to as well as the assessee preferred second appeals to the tribunal. The Tribunal held that the possession of Sy. No. 206 was taken on 21-4 1973 and Sy. Nos. 193 and 207/1 was taken on 8-11-1973, and both these dates fell during the accounting year ended 31 3-1974 and upheld the assessment made by the 1to. The Tribunal thus dismissed the assessec's appeal and allowed the appeal of the Department. These two references arise out of the common order passed by the Tribunal for the assessment year 1974 75. 193 and 207/1 was taken on 8-11-1973, and both these dates fell during the accounting year ended 31 3-1974 and upheld the assessment made by the 1to. The Tribunal thus dismissed the assessec's appeal and allowed the appeal of the Department. These two references arise out of the common order passed by the Tribunal for the assessment year 1974 75. ( 5 ) THE common question that arises for our decision in these references is : whether the income from the capital gains arising out of transfer by acquisition for the lands during the previous year 1973-74 was rightly brought to tax in the assessment for the assessment year 1974 75 ? this question has to be answered with reference to the LAND ACQUISITION ACT, 1894 (Act) read with Section 2 (47) of the income-Tax Act The acquisition for the citb was done by the Special Land acquisition Officer appointed for this purpose by the Government, under the land ACQUISITION ACT, 1894. Under Section 45 of the Income Tax act, any profits or gains arising from the transfer of capital asset effected in the previous year, is chargeable to Income- tax Act under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. ( 6 ) UNDER Section 2 (47) of the income-Tax Act, the term 'transfer' is defined as :"transfer", in relation to a capital asset, includes ihe sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law". Under this definition, compulsory acquisition under any law is also consider, das a transfer for the purpose of computation of capital gains tax under section 45 of the Income-Tax Act. ( 7 ) THE acquisition for the CITB is done under the provisions of LAND ACQUISITION ACT, 1894. The L. A. Act 1984, as amended and adopted by the State Government, provides for the acquisition of land for' public purpose. The proceedings for acquisition start with a preliminniy notification under Section 4 of the Act. The final proposal to acquire is notified under' section 6 of the Act. After due enquiry, as is contemplated under the Act, an award is made proposing the amount of compensation and possession of land so acquired is taken by the Deputy Commissioner pursuant to the award made under Section 11. The final proposal to acquire is notified under' section 6 of the Act. After due enquiry, as is contemplated under the Act, an award is made proposing the amount of compensation and possession of land so acquired is taken by the Deputy Commissioner pursuant to the award made under Section 11. The lands acquired thereupon vest absolutely in the Government free from all encumbrances. ( 8 ) IT is the contention of Shri shivaram, learned Counsel appearing for the assessee that the transfer takes place when final notification under Section 6 is issued under the L. A. Act and the title of the assessee to the lands ceases on such a notification being issued by the Government. He, therefore, submits that since the date of final notification in this case was issued on 19-8 1964, the assessment to capital gains in the assessment for the assessment year 1974 75, is not valid. ( 9 ) THIS contention of the assessee was rejected by the Tribunal following its decision in I. T. A. No. 73 and 499/75-76 in the case of P. Kannan, Mysore. The tribunal had relied upon two decisions reported in 1957 Rajasthan 59 and 1963 guarath 50 in Kannan's case which was the subject matter of reference before this court in I. T. R. C. No. 119 of 1978 (P. Kannan v. The Commissioner of Incometax, karnataka, Bangalore), disposed of on 12-12-1984. It was held by this Court in that case that the title to the lands vests in Government under Section 16 of the L. A. Act on the taking of possession of the land by the Deputy Commissioner pursuant to an award passed under section 11 of the Act. It is thus laid down by this Court that the transfer of title in the lanes acquired under the L. A. Act passes to Government with the possession being delivered by the assessee as provided under Section 16 of the Act and this ruling would thus be relevant for purposes of answering these references. It is thus laid down by this Court that the transfer of title in the lanes acquired under the L. A. Act passes to Government with the possession being delivered by the assessee as provided under Section 16 of the Act and this ruling would thus be relevant for purposes of answering these references. ( 10 ) IN Fruit and Vegetable Merchants union v. Improvement Trust, Delhi (AIR 1957 S. C. 344), the word 'vest' within the meaning of Section 16 as it occurs in the l A. Act was interpreted by the Supreme court as follows :- "as will presently appear, the term"vesting" has a variety of meaning which has to be gathered from the context in which it has been used. It may mean full ownership, or only possession for a particular purpose, or clothing the authority with power to deal with the property as the agent of another person or authority. . . . . . . . . . . . . . . . ". That the 'word "vest" is a word of variable import is shown by provisions of Indian statutes also. For example, s. 56 of the Provincial Insolvency Act (5 of 1920) empowers the Court at the time of the making of the order of adjudication or thereafter to appoint a receiver for the property of the insolvent and further provides that "such property shall thereupon vest in such receiver". The property vests in the receiver for the purpose of administering the estate of the insolvent for the payment of his debts after realising his assets. The property of the insolvent vests in the receiver not for all purposes but only for the purpose of the insolvency Act and the receiver has no interest of his own in the property. On the other hand, Ss. 16 and 17 of the land ACQUISITION ACT, 1894 (Act 1 of 1894), provide that the property so acquired, upon the happening of certain events, shall "vest absolutely in the Government free from all encumbrances". In the cases contemplated by Ss. 16 and 17 the property acquired becomes the property of Government without any conditions or limitations either as to title or possession. The legislature has made it clear that the vesting of the property is not lor any limited purpose or limited duration. In the cases contemplated by Ss. 16 and 17 the property acquired becomes the property of Government without any conditions or limitations either as to title or possession. The legislature has made it clear that the vesting of the property is not lor any limited purpose or limited duration. It would thus appear that the word "vest" has not got a fixed connotation, meaning in all cases that the property is owned by the person or the authority in whom it vests It may vest in title, or it may vest in possession, or it may vest in a limited sense, as indicated in the contest in which it may have been used in a particular piece ot legislation The provisions of the Improvement Act, particularly Ss. 45 to 49 and 54 and 54-A when they speak of a certain building or street or square or other land vesting in a municipality or other local body or in a trust, do not necessarily mean that ownership has passed to any of them". ( 11 ) THE same was the view of the full Bench of the Andhra Pradesh High court in The Andhra Pradesh Agricultural university Rajendran v. Mahmoodunnisa begum and Another (AIR 1976 A. P.) 134. Their Lordships held that once an award is made and possession is taken, the lands automatically vest in the Government. The assessee's contention, therefore, is contrary to the provisions of Section 16 of the L. A. Act Since the title of the owner of the lands acquired under the l. A. Act passes to the Government on possession being taken by the D. C. , under section 16 of the Act, the date of taking possession becomes relevant for purposes of Section 45 of the I. T. Act, so far as transfer of title is concerned. ( 12 ) IN this view of the matter, the question of law referred by the Tribunal has to be answered in the affirmative and against the assessee. The question is answered accordingly, and we hold that for the purposes of capital gains tax under Section 45 of the i. T. Act the transfer of the lands acquired took place on 21-4-1973 and 8-11-1973 and during the previous year ending 31-3-1974 relevant for the assessment year 19/4-75. --- *** --- .