ORDER
T.V. Rajagopala Rao, President
1. This is an assessee’s appeal for assessment year 1989-90. The main question involved in this appeal is computation of capital gains. Three subsidiary questions are involved. The first among them is :
(1) Whether, since no amount of compensation is awarded in the year of account and since the award was passed only on 22-2-1990 even the amount received in this year of account, namely, Rs. 83,364 is not liable for capital gains and the whole of the compensation amount awarded is liable for capital gain only in assessment year 1990-91 ?
(2) Alternatively, since only an amount of Rs. 83,364 which represents 80 per cent of the compensation was received by the assessee in the year of account only, the capital gains is to be computed on that amount as for as assessment year 1989-90 is concerned.
(3) What is the value of the land acquired as on 1-1-1974 ? Whether its value can be accepted at Rs. 26 per sq. yd. as per the registered valuer’s report ?
(4) Whether the amount of Rs. 4,573 is correctly levied as interest and whether it accrued in the accounting year relevant to 1989-90? Alternatively, whether it is excessive?
2. The facts giving rise to the issue on hand are the following:
The assessee held 3206 sq. yds. of agricultural land at Kaseru Buxar, village which was acquired by Meerut Development Authority. It was acquired by the Special Land Acquisition Officer, Meerut for Ganga Nagar Scheme under the Notification issued under Sections 4, 6 & 17 of the Land Acquisition Act in the Gazette on 14-8-1987. Possession of the land was taken from the assessee on 11 -7-1988 and the award was passed by the LAO on 22-2-1990. Rs. 83,370 representing 80 per cent of compensation under the Award was received by the assessee by a cheque dated 2-8-1988 and the said amount was credited by the assessee in his bank account on 18-8-1988. On 22-2-1990, the award was passed under which the total compensation awarded was Rs, 1,34,182 and the interest of Rs. 9,292.
3. The assessee filed his return voluntarily for assessment year 1989-90 for which the previous year ended by 31 -3-1989 disclosing an income of Rs. 31,040. The nature of the income disclosed was capital gains and income from other sources. It also returned an agricultural income of Rs. 2,500. In that return, the cost of acquisition was disclosed at Rs. 20 per sq. yd. The original return was filed on 12-1-1990. The same was revised on 17-9-1991 in which the income was disclosed at Rs. 26,415. The reason for revising the return was that the cost of acquisition adopted as on 1-1-1974 was revised from Rs. 20per sq. yd. to Rs. 26 per sq. yd. The claim of Rs. 26 per sq. yd. was supported by a sale deed and the registered valuer’s report.
4. Before the ITO it was contended that since the award was passed and the compensation was received under the award on 6-6-1991 the whole of the capital gain should be assessed only in assessment year 1992-93. In any view of the matter, since only 80 per cent of the compensation was received by him in the accounting year relevant to asst. year 1989-90 the capital gain should be assessed only on the amount of Rs. 83,370. The ITO did not agree with the contentions of the assessee. He held that under Section 45(5), the capital gain is to be charged during the same year in which it has been earned and since the assessee had received the first amount of Rs. 83,370 which the assessee must have shown in his Income-tax return of having received the same on 2-8-1988 from the Special Land Acquisition Officer and since that date falls within assessment year 1989-90, the assessee is to be assessed for capital gains during assessment year 1989-90. The assessee claimed the value of the land at Rs. 26 per sq. yd. However, the ITO had taken its value at Rs. 15 per sq. yd. as on 1-1-1974. Thus he computed the capital gains at Rs. 38,046 as shown in his assessment orders.
5. So also he had computed the interest portion of the compensation received as Rs. 4,573 and he had taken it to be the interest earned from 11-7-1988 the date when possession was taken over from the assessee to 10-7-1989 and had brought it to tax.
6. Having been aggrieved with the assessment of the capital gains also the assessment of interest, the assessee went in appeal before the Dy. CIT(Appeals), Meerut and questioned the correctness of the computation of capital gains by the ITO in taking the whole of compensation of Rs. 1,34,182 awarded under the award dated 22-2-1990. The assessee contended that when only Rs. 83,370 was received by him in the year of account relevant to asst. year 1989-90 the ITO is not authorised under law to take the whole of the compensation determined under the award dated 22-2-1990 for purposes of computation of capital gains for asst. year 1989-90. This contention was negatived by the D.C. (Appeals), Meerut. He held the ITO rightly taxed the whole amount in the previous year relevant to asst. year 1989-90 because in the provisions of Section 45(5)(a), it has been specifically mentioned that for the compensation awarded in the first instance, the capital gains shall be chargeable in the previous year in which such compensation or part thereof was first received. In this case, the assessee first received the award amount, though it does not represent the whole of the awarded amount, in the previous year relevant to assessment year 1989-90. Hence, the Assessing Officer rightly assessed the whole amount of compensation awarded in the first instance.
7. The next attack against the assessment order was about the wrongly taxing the interest received on compensation. It was contended that on the whole of the interest received on the awarded compensation, tax was duly paid in the assessment year 1990-91 and so no part of the interest is liable to be brought to tax in this assessment year. However, this argument was negatived by the Dy. CIT (Appeals) on the authority of the Hon’ble Supreme Court in the case of Rama Baiv. CIT[ 1990] 181ITR 400. He held that the Assessing Officer had rightly taxed interest pertaining to the year from 11-7-1988 to 31-3-1989 on mercantile basis.
8. Having felt aggrieved against the Dy. CIT (Appeals)’s order, the present appeal is preferred before this Tribunal and thus the matter stood before me at present.
9. Now firstly let us examine whether capital gains is to be computed on Rs. 83,370 or the whole of the amount given as compensation under the award namely Rs. 1,34,182. As already stated Rs. 83,370 represents 80 per cent of the ultimately awarded compensation under the award dated 22-2-1990. In fact the assessee received the remaining compensation amount under the award namely Rs. 59,175 on 6-6-1991. He had paid capital gains tax on the said amount for asst. year 1991-92. So also the assessee received a total sum of Rs. 9,292 as interest under the award dated 22-2-1990 and on the whole of the interest, the assessee paid tax in assessment year 1990-91.
10. Now let us see whether the lower authorities were correct in their interpretation of Section 45(5). The provision reads as follows :
45(5)(a):
(5) Notwithstanding anything contained in Sub -section (1), where the capital gains arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India and the compensation or the consideration for such transfer is enhanced or further enhanced by any court. Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely :
(a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head ‘Capital gains’ of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received; and
The date of delivery of possession is the date of transfer in the case of Land Acquisition. Now there are two crucial words used in Section 45(5)(a). One set of words used are: ‘compensation or part thereof. The another set of words used are: ‘such consideration or part thereof. What is received under transfer is consideration and not compensation. The concept of compensation could set in only when an award was passed by a duly authorised authority. In this case, the Land Acquisition Officer had passed his award on 22-2-1990. Therefore, there is no denying the fact that what is received under the award is compensation. Now the question here is if before the compensation is awarded under an award, what is the nature of the payment received under a legally effected transfer. Here the facts apply disclose that transfer of possession had taken place on 11-7-1988 and the amount of Rs. 83,370 was given to the assessee on 2-8-1988. What is paid under a legal transfer should be considered as a legal consideration. Now in the facts of this case, up to the date the award is passed, though it may not be said that there was duly awarded compensation, it cannot be denied that there was no legal consideration paid for the transfer of the land. Even before the date of the passing of the award, there is no impediment for a legal transfer having taken place. In the facts of this case, that is what actually happened. Therefore, Rs. 83,370 should be taken to be the consideration received under a legal transfer. Section 45(5)(a) speaks of the consideration or part thereof which was received. The amount of Rs. 83,370 received fulfilled all the characteristics of the words ‘consideration first received’. Therefore, the said amount of Rs. 83,370 is liable for capital gains, not so much as part of ultimately awarded compensation but as consideration first received towards transfer of the land. Therefore, since the award was passed only on 22-2-1990 much after the payment of this sum of Rs. 83,370, it cannot be taken to be part of awarded compensation even before it is awarded. Therefore, for asst. year 1989-90, capital gain cannot be computed on the basis that the ultimately awarded compensation under the award was Rs. 1,34,182. I hold that the capital gains can be computed taking the consideration first received was only Rs. 83,370.
11. As regards inclusion of interest since the award itself is passed on 22-2-1990 and it is only under the terms of the award, interest was ordered to be paid, no amount of interest can be added in the income of the assessee in the asst. year 1989-90 since 22-2-1990 falls outside the accounting year relevant to asst. year 1989-90. Further, interest is to be computed from the date of delivery of possession to the date of the order. Now in this case, the date of the order is the date of the award. Since the award itself is not passed, no amount of interest can be included and I hold that the tax on the whole of the interest granted under the award was correctly paid only in asst. year 1990-91. The Hon’ble Supreme Court’s authority of Rama Bai’s case (supra) is neither here nor there and it does not come to the rescue of the revenue. This point is to be decided against the revenue and in favour of the assessee.
12. The only issue remaining is about the value of the land as on 1 -1 -1974. The assessee himself in his first income-tax return valued the land at Rs. 20 per sq. yd. and computed capital gains on that basis. In the revised return he wanted to fix the value of the land at Rs. 26 per sq. yd. on the basis of the sale deed and also on the basis of the approved valuer’s report. The ITO fixed the value at Rs. 15 per sq. yd. Having regard to all the facts and circumstances, I hold the value of the land at Rs. 20 per sq. yd. On this issue, the assessee has to partly succeed.
13. In the result, the appeal of the assessee is partly allowed.