INCOME TAX OFFICER WARD-2 (1), JAMMU vs. SHRI MOHD ASLAM BAGGAR, JAMMU

The present appeal has been filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals), Jammu dated 22.11.2019 in respect of Assessment Year 2015-16.

ITO v. Mohd. Aslam Baggar “1. Whether in the facts and circumstances of the case, the Ld. CIT(A) was right in considering the date of transfer of the impugned land measuring 74K 08M as the year 1947 instead of 19.05.2014 (date of the final award of compensation).

2. Whether in the facts and circumstances of the case, if the date of transfer of the impugned land measuring 74K 08M was considered as the year 1947, was the huge quantum of compensation received i.e. Rs 8,55,60,000/- right to be held exempt u/s 10(37) of the Act by the Ld. CIT(A) since the amount was apparently paid by the Govt, of J&K at the prevalent land rates of FY 2014-15. which is evident from the fact that the entire revenue generated by the state of J&K in FY 1954-55 was only Rs 5.42 crores (Data taken from the article “Finances of Jammu and Kashmir State” by Sh. P N Kaul published in the Economic Weekly on August 25th, 1956).

The appellant craves to amend or add any one or more grounds of appeal.”

3. Briefly facts as per record are that during the year under consideration, the appellant assessee received compensation of Rs.8,55,60,000/- from Jammu & Kashmir Govt. which was claimed as exempt income in the return filed on 26.08.2015. During the assessment proceedings, the counsel for the assessee stated that the ITO v. Mohd. Aslam Baggar compensation received from J&K Govt. was in respect of the rural agricultural land situated at village Chinore, Jammu which was acquired by the Collector Land Acquisition Assistant Commissioner (Revenue), Jammu and that the said payment was received in the year 2014 after TDS of Rs. 85,46,350/-, which was claimed exempt u/s 10(37) of the Income Tax Act, 1961. In response to query raised by A.O. regarding nature of land, the appellant filed details in respect of the land and compensation amount received explaining that the land was agricultural in nature and is situated outside municipal limits. However, the Assessing Officer was not convinced and made independent enquiry from the office of Tehsildar (North), Jammu who categorically mentioned in his reply that the land under consideration is agricultural and unirrigated and is situated within the municipal limits. On receipt of this information and on the strength of the fact that the land was situated within the municipal limits, the Assessing Officer tax the receipts under the head Capital Gains ignoring the submission of the assesse that the land in question was acquired way back in the year 1947 and that the assessee had fought a long legal battle with the Revenue Authorities and received compensation during the F.Y. 2014-15 with support of order of the Revenue Authorities.

4. The assesse being aggrieved with the Assessment Order, went in appeal before the Ld. CIT(A) who has granted relief to the assesse.

The relevant part of the impugned order is reproduced as under:

“3.1. I have considered the facts of the case and the written submissions filed by the Authorized Representative of the appellant. I have also considered the Remand Report of the Assessing Officer and the Rejoinder submitted by the appellant through his Authorized Representative as well as other reports of the revenue authorities of concerned area. 3.2. Before coming to the legal issue of applicability of section 10(37) of the Act as claimed by the appellant before the A.O. or section 45(5)(a) of the Act under which the Assessing Officer charged the appellant with Capital gain, it is imperative to examine the facts of the case as emanating from the two orders passed by the Govt, of Jammu & Kashmir awarding compensation to the appellant. The subject of the final sanction order passed on 19.05.2014 was "Acquisition of land measuring 74 Kanals and 08 Marlas falling in village Chinore, Tehsil and District Jammu restored in the name of Mohd. Aslam S/o Baggar of the same village, for rehabilitation of Displaced Persons."

The gist of the order is reproduced hereunder

"Sanction is accorded to the allocation and placement of an amount of Rs. 855.60 lac (Rupees eight crore and fifty five lac and sixty thousand only) at the disposal of Collector Land Acquisition( Assistant Commissioner, Revenue) Jammu, under detailed head '941- Land Compensation' to meet the land compensation claim of Shri Mohd Aslam S/o Baggar R/o Chinore, Jammu, in respect of land measuring 74 Kanals and 08 Marlas, situated at village Chinore, Tehsil and District Jammu, acquired for rehabilitation of PoK DPs of 1947."

From this order itself is clear that the land of the appellant was acquired by the State Govt, to rehabilitate the Displaced Persons (persons who were displaced from PoK during and after partition in 1947). Another important document is the "FINAL AWARD' issued by the Collector, Land Acquisition, Asstt. Commissioner

(Revenue), Jammu vide No. ACR/LA/JMU/Res-Chinore/2013-14/1296-97 dated 08.01.2014 which is to determine the amount of the compensation based on the nature of land, disputes involved and current ownership of various lands owned by the appellant, some of which were returned to him and in respect of 74 Kanal & 08 Marla of the land which could not be returned to him, the impugned compensation was awarded by the Collector, Jammu vide order dated 19.05.2014. Vide Govt, order dated 08.01.2014, it is observed as under:-

FINAL AWARD

"Government of Jammu and Kashmir, Civil Secretariat Revenue Department in exercise of the powers conferred under section 14-A of the J&K State Evacuees (Administration of Property) Act Sambat 2006 decided to acquire land measuring 74 Kanal and 08 Marla particulars of which are given below of village Chinore Tehsil and District Jammu for rehabilitation of Displaced persons of 1947 vide Notification No. 02 of 2012 dated 17-12- 2012 and endorsement No. Rev/LB/20/2012 dated 17-12-2012.

Khewat No. Khasra No. Area Kanal Marla 25 76 07 12 76 min 04 01 76 min 05 08 76 min 13 00 126 09 04 126 min 01 10 124 07 00 04 88 01 Total (Khewat .25) 44 04

79 min 04 13 26 79 min 05 05 79 04 14 86 min 00 18 86 min 02 00 130 12 08 83 min 00 06

Total (khewat 26) 30 03 Grand Total (Khewat 25 & 26) 74 08

The land particulars of which is given above; stands already allotted to the displaced persons of 1947 from Pok thereby treating it as evacuee land and was subsequently deleted from the records of the Evacuee Property Department. This land has to be compulsorily acquired for the rehabilitation of those DP allottees of 1947 on payment of compensation to the rightful claimant. The instant case for the purpose, accordingly been entrusted to the Assistant Commissioner (Revenue) to complete all necessary proceedings as Collector, Land Acquisition.

It may be noted here that this land along with 24 Kanal & 07 Marla of more land bearing Khasra Nos. 86-Min (18 kanal 05 Marla) and 83-Min (02 Kanal 16 Marla), 76 (02 Kanal 19 Marla) and 125 (07 Marla) was, as per entries made in the Jamabandi of 1968-69 of village Chinore originally shown to be falling in the ownership of the following persons:-

Rukin Din son of Sawan ½ share and Ghulam Hassan, Baggar, Munshi, (i) Billu, Raj Mohd sons of Saraf Din ½ share (in 47 Kanal& 10 Marla of land in Khewat No.25).

Ghulam Mohd, Baggar, Munshi, Billu, Raj Mohd sons of Saraf Din 1/12 (ii) share, Badar Din (from 1st wife) 1/12 share, Sadar Din (from 2nd wife) 1/6 share sons; Rukin Din S/o Sawan 1/3 share , Din Mohd. & Sahib Din sons of Umar Din 1/3 share Gujjar-evacuees (in 51 Kanal& 05 Marla of land of Khewat No.26).

All of them were recorded as evacuees and land in the normal course was allotted either to the DPs of 1947 or to the local persons. However, Khasra No.125 (07 Marla) was shown in the self occupation of the Custodian Evacuee Property.

It appears from letter No.CG(EP)114/Camp dated 21-07-2011 of the Custodian addressed to Deputy Commissioner, Jammu as also from the above said Notification itself that whole of this land was subsequently deleted from the records of the Custodian under order dated 06-06-1964 passed by the Assistant Custodian (Tehsildar), Jammu on the application of Moh'd Aslam son of Baggar on the ground that all these land owners and their families did not migrate from their native area in the holocaust of 1947. Rather they got killed there. However, Moh'd Aslam was held to be the only surviving heir of the deceased.

Consequently whole of this land was restored to him. It also appears that an appeal also came to be filed against the restoration order before the Custodian. But it could not succeed and was dismissed by the appellant authority on 04-03- 1965. In the process, mutation No. 408 relating to the inheritance of deceased owners was also formally attested in favour of Moh'd Aslam son of Baggar, the only surviving member on 11-06-1986."

From the next para of the order dated 08.01.2014, it is clear that the impugned land of 74 Kanal & 08 Marla was not returned to the appellant as these were allotted to the displaced persons of POK in 1947 and their possession could not, be legally disturbed. The relevant para is reproduced hereunder:-

"The matter was still taken up for further examination by the learned Custodian General in suo-moto revision proceedings. But these proceedings also could not succeed and were dropped by the Custodian General under his order dated 06- 02-1999. In the result restoration order continued to remain effective and operative. But as 74 Kanal & 08 Marla of land was found to have been allotted to the displaced persons of 1947 from PoK, their possession could not, therefore, be legally disturbed. According to the letter of the Custodian dated 21-07-2011, no other Evacuee or State land was reportedly available for being given to the restoree in exchange of the said land. As such the case was processed by him for the acquisition of the said land for purpose of allowing this land to remain with DP allottees as provided under the Act."

3.3. Now let us go back to the facts of the case as put forth by the Ld. Authorized Representative before the A.O. as well as before me. It is also noticed from the assessment order that the A.R. had submitted history of litigation and forcefully argued that the land was acquired in the year 1947 for which compensation is received in the year under consideration, and therefore, assessee is not liable for capital gain. However, the assessee was informed that since the compensation is received in the year under consideration, thus, he is liable for capital gain. The appellant, Mohammad Aslam (Baggar) is the only surviving legal heir of land owners holding 98 K 15 M land at Village Chinore. In the holocaust of 1947 after the partition, the Baggar family left behind their land at Village Chinore and shifted to safer place in hiding. In the event of no trace of Baggar family, the local administration presumed that either they have migrated to Pakistan or there is no surviving family member. Hence, the entire Baggar family was recorded as evacuees and the land belonging to Baggar family was either allotted to the Displaced Persons (DP) of 1947 or to the local persons. On request of the appellant, this land was deleted from the records of Custodian vide order dated 06-06- 1964 on the ground that all these land owners and their families did not migrate from their native area, rather they got killed except the appellant. Hence, the land was restored to the appellant and mutation of inheritance was also attested in favour of the appellant on 11.06.1986. However, out of 98 K 15 M land, 21 K 11 M land was restored to the appellant and 2 K 16 M was held by a displaced person as non-occupancy tenant and balance 74 K 08 M was stood allotted to DPs of 1947. It is also mentioned that the appellant remained owner of land on papers only and he never got possession of land measuring 74 K 08 M since 1947. It has been contended by the Authorized Representative that since the land is acquired by the Govt, since 1947, at that time, land was out of municipal limits and it is only in 2003, vide SRO 46 dated 18/02/2003, the area where land is situated was included in municipal limit as ward 62 of Jammu Municipal Corporation. It was further submitted before me that the appellant-assessee was originally entitled to restoration of entire land of 98 K 15 M, however, 74 K 08 M land belonging to Baggar family was already allotted to DPs of 1947 from POK whose possession could not be legally disturbed and no other Evacuee or State Land was available for being given to the appellant in exchange of the said land, therefore, the land was compulsorily acquired on payment of compensation to the appellant. The compensation was awarded to the appellant after a long drawn process and final award was made vide order dated 19.05.2014. The appellant claimed the compensation received in lieu of land as exempt under section 10(37) of the Income Tax Act, 1961. The Assessing Officer discussed relevant provisions of the Act before making additions to the returned income. He firstly discussed section 2(14)(iii) and held that since land under consideration falls within the municipal limits, therefore, the same cannot be regarded as agricultural for the purposes of capital gains. The A.O. further discussed provisions of section 45(5) which relate to the year of taxability of compensation received by the assessee, which is not disputed by the appellant - assessee. The A.O. dismissed the claim of the appellant based on the simple assertion that "The land under consideration falls within the municipal limits as confirmed by the Tehsildar and thus cannot be regard as agricultural for the purpose of Capital Gain." From the order of assessment, it is seen that the Assessing Officer has not discussed provisions of section 10(37) under which the appellant claimed it as exempt. For the sake of brevity, provisions of section 10(37) are reproduced hereunder: "[(37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head "Capital gains" arising from the transfer of agricultural land, where— i. such land is situate in any area referred to in item (a) or item (b) of sub- clause (iii) of clause (14) of section 2; ii. such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his; iii. such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India; iv. Such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.

Explanation.— For the purposes of this clause, the expression "compensation or consideration" includes the compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority;"

Section 2(14)(iii), which deals with agricultural land not being capital asset, reads as under:

[(iii) agriculture land agricultural land— in India, not being land situate— a) in any area which is comprised within the jurisdiction of a municipality— (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population— of not less than ten thousand; or in any area within the distance, measured aerially, - b) not being more than two kilometres, from the local limits of any (i) municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (ii) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (iii) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) arid which has a population of more than ten lakh. Explanation - For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;)

Section 10(37) was introduced by Finance (No. 2) Act, 2004 with, effect from 01.04.2005 to exempt capital gain on agricultural land situate in any area referred to in item (a) or item (b) of section 2(14)(iii), if such land is acquired through compulsory acquisition under any law. The conditions set out in the Section 10(37) are duly met by the appellant as discussed by the Authorized Representative in the written submissions filed on 26.02.2019 and these four conditions are again reproduced hereunder "a) such land is situate in any area referred to in item (a) or item (b) of sub- clause (iii) of clause (14) of section 2

This fact is borne out from the order of the assessing officer itself and the learned AO has made addition due to the fact that the land is covered in section 2(14)(iii) and held that since land under consideration falls within the municipal limits and cannot be regarded as agricultural for the purposes of capital gains. b) such land, during the period of two years immediately preceding the date of transfer was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his

This fact is borne out from the orders of the compulsory acquisition and certificate issued by patwari, who has mentioned the said land to be agricultural land. This land was being used for agricultural purposes by the parents of the appellant- assessee prior to transfer, which took place in 1947. c) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India;

This fact is also borne out from the order of the Assessing Officer that the transfer of the land is by way of compulsory acquisition. Order passed by Assistant Commissioner (Revenue), Collector Land Acquisition for compulsory acquisition is placed in the paper book. d) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004

This fact is also borne out from the assessment order that compensation has been received by the assessee on or after 1st April, 2004."

3.4. I am in agreement with the Authorized Representative that the purport of section 10(37)(i), specifically suggests that the lands which fall within the municipal limits and even if the same are being used for agricultural purposes fall within the definition of non-capital asset. The finding recorded by the A.O. in so far as the status of the land is concerned is devoid of merit because the land in question in fact was an agricultural land when acquired by the State for the purposes of allotting the same in favour of the Displaced Persons of 1947, allotments of which were reportedly made considering the assessee and his relatives having either been killed or shifted to Pakistan, which in fact had happened as all except the assessee were killed. The nature of land being agricultural in nature is not only evident from the assessment record where the Assessing Officer has himself referred to the report of the Tehsildar received on 30.10.2017 but also from the Final Award of the Govt, dated 08.01.2014. This fact has also been confirmed during the appellate proceedings by the Tehsildar of the area vide his report dated 26.08.2019. The Assessing Officer was also asked during remand proceedings to examine the applicability of section 10(37) of the Act in view of these undisputed findings. However, the Assessing Officer failed to comment on the same and reiterated his predecessor's stand that the compensation is taxable u/s 45(5) of the Act because the agricultural land falls within the Municipal Corporation. From the events mentioned in paras above, starting from 1947, it can be said that the compensation paid to the assessee is nothing but a relief and the same cannot be viewed as "Capital Gain" particularly when the mandate of law of providing alternate land could not be complied with by the Govt. I am in agreement with the Ld. Authorized Representative that the finding recorded by the A.O. is bad and untenable in law as the land being an agricultural land was acquired and remained out of possession of the assessee. It was rather allotted to different persons by the State Govt. In the peculiar circumstances of the case, the acquisition of the land has to be taken into consideration when the land was allotted by the State and not from the date when the compensation was paid after a long drawn litigation and enquiry. If the matter is viewed from another angle then in that eventuality, the Custodian of Properties was under an obligation to return the land to the assessee after evacuating the persons in possession of the same, which was not thought proper for the reasons best known to the administration. Neither alternative land could be provided to the assessee but it was considered appropriate to compensate the appellant assessee in terms of money, which money cannot be termed as capital gain, as the land has not been sold rather has been allotted by State Govt, to different people without consent of the appellant assessee.

3.4. Ld. Authorized Representative has relied upon the decision Hon'ble Supreme Court of India in the case of Balakrishnan vs. Union of India &Ors. in Civil Appeal No. 1607/2010 wherein it was held that on the transfer of agricultural land by way of compulsory acquisition under any law, no capital gains tax is payable. I am in full agreement with the Authorized Representative that the Assessing Officer has made addition solely on the ground that the agricultural land is situated within municipal limits of Jammu. The Assessing Officer has ignored the fact that if such land had been situated beyond eight kilometers of municipal limits, then such land could not have been considered as capital asset chargeable to tax and would have been exempt under section 2(14) of the Act. Simply because the impugned land is situated within municipal limits, the exemption has been claimed under section 10(37) of the Act. After carefully examining the matter and perusing the material available on record, it is observed that the case of the Assessing Officer is that the land in question at the time of framing of assessment falls within the municipal limits of Jammu and is urban agricultural land which has duly been verified by him from the concerned revenue authorities and after satisfying himself about the nature of the said land, he has charged the same to capital gains tax by resorting to the provisions of section 45(5) of the Income-tax Act, 1961 without appreciating the fact that the assessee has claimed exemption under section 10(37) of the Income-tax Act, 1961. The provisions should be construed in such a manner to ensure that the object of the Act is fulfilled. Obviously, if the language of the Act is clear then the language has to be followed and if the language admits of two meanings then matter is to be considered with reference to the objects and reasons and find out the true meaning of the provisions as intended by the legislature. After going through the relevant provisions of the Act, it is observed that as per Finance Act, 2004 after clause 36 of the Finance Act, the clause 37 has been inserted in section 10 with effect from the 1st day of April, 2005 (assessment year 2005-06 and onwards) which provides that in the case of an individual or a HUF, any income chargeable under the head "capital gains" arising from the transfer of agricultural land situated in urban areas specified in section 2(14)(iii) shall be exempt, subject to conditions that (1) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such HUF or individual or a parent of his; (2) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the RBI, and (3) such income has arisen from the compensatioh or consideration for such transfer received on or after 01.04.2004. Thus, instead of examining the issue with reference to these provisions of the Income-tax Act, 1961 as claimed by the assessee for exemption, the A.O. merely rejected the claim of the assessee by holding that since the agricultural land is urban land which is situated within the municipal limits, charged the same to capital gain tax u/s 45(5) of the Income Tax Act, 1961. During the course of appellate proceedings, remand report was also called from the concerned Assessing Office on the submissions made by the counsel of the assessee but as reproduced above, the Assessing Officer has only reiterated the orders passed by his predecessor and reported that the assessee is liable to capital gain tax u/s 45(5) and failed to give any plausible reply to the contention raised by the assessee that the claim has actually see- made under the provisions of section 10(37) of the Income Act, 1961. On examination of the claim made by the assessee with reference to the provisions of section 10(37) of the Income tax Act, 1961, it has been noticed that the appellant fulfills all the conditions as prescribed under (1) sub-clause (i) of section 10(37) of the Income tax Act, 1961 mentioning that the land which is situated in any area referred to in item (a) or item (b) of section 2(14)(iii) is exempt from charging to capital gain. (2) under sub-clause (ii) of section 10(37) of the Income tax Act, 1961 mentioning that on the date of transfer, the impugned was being used for agricultural purposes. On independent enquiries made by the Assessing Officer from the office of the Tehsildar (North) Jammu vide his office letter dated 12.09.2017, the Tehsildar has categorically mentioned that the land under consideration is agricultural and unirrigated and is situated within the Muncipal limits. (3) under sub-clause (iii) of section 10(37) of the Income tax Act, 1961, it has been mentioned that such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined, the facts brought on record through the finding of the arbitration authority i.e, Collector Land Acquisition/it is mentioned that in exercise of the powers conferred under section 14-A of the J & K State Evacuees (Administration of Property) Act, Sambat 2006 it was decided to acquire land measuring 74Kanals & 08Marlas for rehabilitation of displaced persons of 1947 and it has further been clarified that Shri Mohd. Aslam was the only surviving heir of the deceased land owners whose land had been restored to him and after due diligence of the matter by different State Government authorities, the land compensation for compulsory acquisition of the land was sanctioned in favour of the assessee vide Government of J & K order No. Rev (LB) 103 of 2014 dated 19.05.2014. Lastly, (4) under sub-clause (iv) of section 10(37) of the Income tax Act, 1961, it is mentioned that such income has arisen from the compensation or consideration for such transfer received by such assessee on or after 01.04.2004. There is no dispute as far as this condition is concerned as the disbursing authority has disbursed the said amount vide

Government order dated 19.05.2014 which is the date after the prescribed date of 01.04.2004. 3.5. The provisions of section 10(37) are meant specifically for the purpose of removing hardship to a land holder, whose lands are situated in an area specified in section 2(14)(iii)(a)&(b). These lands which were originally used for agricultural purpose, if retained by the owner would continue to have been used for agricultural purpose but if they are compulsorily acquired, the owners have to part with title and possession of such lands and further have to pay income tax on capital gain on compulsory acquisition. In order to mitigate hardship to such owners who apart from being deprived of their lands also have to pay income tax on capital gain on compulsory acquisition, relief was provided to them in the form of section 10(37). Apart from the above, lands which would otherwise fall outside the ambit of capital asset become capital asset because of its nearness to urban area. Therefore, the legislature thought it fit to give exemption if such lands are compulsorily acquired for public purpose subject to the condition that, two years prior to their acquisition, the land was used for agricultural purposes. The A.O. on the basis of report of Tehsildar, agrees that the impugned land was agricultural land and this undisputed fact is also emanating from the order of State Govt, determining final award (order dated 08.01.2014) and the report of the Tehsildar obtained by this office u/s 133(6) of the Act. Before the acquisition, the land was being used for agricultural purposes only and there is no report to the contrary. Thus, there is no dispute that 78 Kanals and 8 Marla agricultural lands belonging to the assessee situated within urban area were compulsorily acquired by the Government on which assessee received compensation. The A.O. taxed this compensation u/s 45(5) of the Act on the ground that the lands were situated within Municipal limits, and therefore, not agricultural lands within the definition of Section 2(14)(iii) of the Act. Assessee's contention is that by virtue of section 10(37) inserted by Finance Act, 2004 with effect from A.Y. 2005-06, the compensation received on compulsory acquisition of urban agricultural land after 1.4.2004 was exempt from tax. It was also submitted that if the land was agricultural land and executable as per definition of capital asset, the same would have been outside the purview of section 45 and there was no need of introducing section 10(37). The alternate argument of the assessee is that the lands were acquired way back in 1947 and even allotted to the displaced persons (DPs of 1947) from PoK and the Govt, could not restore the land even after deleting the records of these lands from custodian property. When Govt, also failed to allot alternate piece of land in near vicinity, the process of awarding compensation was started in 2013 and awarded during the year under consideration. Therefore, the Assessing Officer is not right in coming to the ITO v. Mohd. Aslam Baggar conclusion that if a land falls within the discretion of capital asset under section 2(14)(iii)(a), then it would be a transfer of land which is not agricultural and therefore, one should not look at the provisions of section 10(37) at all. It is clear from reading of clauses (i), (ii) and (iii) of section 10(37) that the character of the land in the past has to be seen. In view of the facts enumerated above, the impugned order of the assessment passed by the Assessing Officer u/s 143(3) of the Income tax Act, 1961 holding that the capital gain tax is chargeable on the compulsory acquisition of the urban land by resorting to the provisions of section 45(5) of the Income Tax Act, 1961 is unsustainable in view of the provisions of sub-section (37) of section 10 of the Income Tax Act, 1961 and same is hereby deleted and appeal of the assessee is allowed on merit in accordance with law.”

ITO v. Mohd. Aslam Baggar published in the Economic Weekly on August 25th, 1956); that if the date of transfer of the impugned land measuring 74K 08M was considered as 19.05.2014 (date of the final award of compensation), the Ld. CIT(A) was not right in holding the entire compensation received as exempt u/s 10(37) of the Income Tax Act, 1961 since the second condition of Section 10(37) is not met as the land was not used for agricultural purposes in the period of two years immediately preceding the date of transfer (19.05.2014); that the Ld. CIT(A) has not considered the AO’s contention in the assessment order that the capital gains were to be calculated/loveable based on the year in the which the compensation was actually received in terms of Section 45(5) i.e. FY 2014-15 and not the year in which the land was acquired. He pleaded that the Assessment Order may be restored.

ITO v. Mohd. Aslam Baggar vide his report dated 26.08.2019. The Assessing Officer was also asked during remand proceedings to examine the applicability of section 10(37) of the Act. However, the Assessing Officer failed to comment on the same and reiterated his predecessor's stand that the compensation is taxable u/s 45(5) of the Act because the agricultural land falls within the Municipal Corporation.

6.1 Ld. AR has relied upon the decision Hon'ble Supreme Court of India in the case of Balakrishnan vs. Union of India &Ors. in Civil Appeal No. 1607/2010 wherein it was held that on the transfer of agricultural land by way of compulsory acquisition under any law, no capital gains tax is payable. He argued that the Ld. CIT(A) has been justified in full agreement with AR that the Assessing Officer has made addition solely on the ground that the agricultural land is situated within municipal limits of Jammu. The Assessing Officer has ignored the fact that if such land had been situated beyond eight kilometers of municipal limits, then such land could not have been considered as capital asset chargeable to tax and would have been exempt under section 2(14) of the Act. Simply because the impugned land is situated within municipal limits, the exemption as claimed under section 10(37) of the Act cannot be denied in view of the amendment and Hon’ble

ITO v. Mohd. Aslam Baggar Apex Court Judgement (Supra). He pleaded that finding of the Ld. CIT(A) may be sustained.

Admittedly, the AO charged capital gains merely because the impugned land was situated within municipal limits without rebuttal in the remand report to the contention raised by the appellant before the Ld. CIT(A) as regards to the claim of exemption under section 10(37) of the Act.

8. It is seen that the Ld. CIT(A) has considered the submission of the appellant, remand report of the AO and rebuttal of the appellant to the remand report, citation and amended law on its claim of exemption u/s 10(37) of the Act. The Ld. AR contended that starting from 1947, it can be said that the compensation paid to the assessee is nothing but a relief and the same cannot be viewed as "Capital Gain" particularly when the mandate of law of providing alternate land could not be complied with by the Govt. The Ld. CIT(A) has been in agreement with the Ld. Authorized Representative that the finding recorded by the A.O. was bad and untenable in law as the land being an agricultural land was acquired and remained out of possession of the assessee. It was rather allotted to ITO v. Mohd. Aslam Baggar different persons by the State Govt. In the peculiar circumstances of the case, the acquisition of the land has to be taken into consideration when the land was allotted by the State and not from the date when the compensation was paid after a long drawn litigation and enquiry. If the matter is viewed from another angle then in that eventuality, the Custodian of Properties was under an obligation to return the land to the assessee after evacuating the persons in possession of the same, which was not thought proper for the reasons best known to the administration. Neither alternative land could be provided to the assessee but it was considered appropriate to compensate the appellant assessee in terms of money, which money cannot be termed as capital gain, as the land has not been sold rather has been allotted by State Govt. to different people without consent of the appellant assessee.

Obviously, if the language of the Act is clear then the language has to be followed and if the language admits of two meanings then matter is to be considered with reference to the objects and reasons and find out the true meaning of the provisions as intended by the legislature. After going through the relevant provisions of the Act, it is observed that as per Finance Act, 2004 after clause 36 of the Finance Act, the clause 37 has been inserted in section 10 with effect from the 1st day of April, 2005 (assessment year 2005-06 and onwards) which provides that in the case of an individual or a HUF, any income chargeable under the head "capital gains" arising from the transfer of agricultural land situated in urban areas specified in section 2(14)(iii) shall be exempt, subject to conditions that (1) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such HUF or individual or a parent of his; (2) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the RBI, and (3) such income has arisen from the compensation or consideration for such ITO v. Mohd. Aslam Baggar transfer received on or after 01.04.2004. Thus, instead of examining the issue with reference to these provisions of the Income-tax Act, 1961 as claimed by the assessee for exemption, the A.O. merely rejected the claim of the assessee by holding that since the agricultural land is urban land which is situated within the municipal limits, charged the same to capital gain tax u/s 45(5) of the Income Tax Act, 1961. During the course of appellate proceedings, remand report was also called from the concerned Assessing Office on the submissions made by the counsel of the assessee but as reproduced above, the Assessing Officer has only reiterated the orders passed by his predecessor and reported that the assessee is liable to capital gain tax u/s 45(5) and failed to give any plausible reply to the contention raised by the assessee that the claim has actually to be seen as made under the provisions of section 10(37) of the Income Act, 1961. On examination of the claim made by the assessee with reference to the provisions of section 10(37) of the Income tax Act, 1961, it has been noticed that the appellant fulfills all the conditions as prescribed under (1) sub-clause (i) of section 10(37) of the Income tax Act, 1961 mentioning that the land which is situated in any area referred to in item (a) or item (b) of section 2(14)(iii) is exempt from charging to capital gain; (2) under sub- clause (ii) of section 10(37) of the Income tax Act, 1961 mentioning that on ITO v. Mohd. Aslam Baggar the date of transfer, the impugned land was being used for agricultural purposes. On independent enquiries made by the Assessing Officer from the office of the Tehsildar (North) Jammu vide his office letter dated 12.09.2017, the Tehsildar has categorically mentioned that the land under consideration is agricultural and unirrigated and is situated within the Muncipal limits; (3) under sub-clause (iii) of section 10(37) of the Income tax Act, 1961, it has been mentioned that such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined, the facts brought on record through the finding of the arbitration authority i.e, Collector Land Acquisition/it is mentioned that in exercise of the powers conferred under section 14-A of the J & K State Evacuees (Administration of Property) Act, Sambat 2006 it was decided to acquire land measuring 74Kanals & 08Marlas for rehabilitation of displaced persons of 1947 and it has further been clarified that Shri Mohd. Aslam was the only surviving heir of the deceased land owners whose land had been restored to him and after due diligence of the matter by different State Government authorities, the land compensation for compulsory acquisition of the land was sanctioned in favour of the assessee vide Government of J & K order No. Rev (LB) 103 of 2014 dated 19.05.2014. Lastly and that (4) under sub-clause (iv) of section 10(37) of the Income tax Act, 1961, it is ITO v. Mohd. Aslam Baggar mentioned that such income has arisen from the compensation or consideration for such transfer received by such assessee on or after 01.04.2004. There is no dispute as far as this condition is concerned as the disbursing authority has disbursed the said amount vide Government order dated 19.05.2014 which is the date after the prescribed date of 01.04.2014 and the Land Acquisition Act, 1894 stood repealed with effect from 1-1- 2014 and replaced by RFCTLARR Act.

ITO v. Mohd. Aslam Baggar 08.01.2014) and disbursed the said amount vide Government order dated 19.05.2014 which was after 01/01/2014 cannot change the status as not falling beyond municipality limits at the time of acquisition and as such would not change character of acquisition from that of compulsory acquisition to voluntary sale so as to deny exemption under section 10(37) to assessee. Further, the Hon’ble Apex Court in the case of “Balakrishnan vs. Union of India”, [2017] 80 taxmann.com 84 (SC) observed that merely because the compensation amount is agreed upon would not change the character of acquisition from that of compulsory acquisition to the voluntary sale of capital assets as under:

“7. It is in the aforesaid factual backdrop, this Court is to determine as to whether it can be treated that the land of the appellant was compulsorily acquired. From the facts mentioned above, it becomes apparent that the acquisition process was initiated by invoking the provisions of LA Act by the State Government. For this purpose, not only Notification under Section 4 was issued, it was followed by declaration under Section 6 and even Award under Section 9 of the LA Act. With the award the acquisition under the LA Act was completed. Only thing that remains thereafter was to pay the compensation as fixed under the award and take possession of the land in question from the appellant. No doubt, in case, the compensation as fixed by the Land Acquisition Collector was not acceptable to the appellant, the LA Act provides for making a reference under Section 18 of the Act to the District Judge for determining the compensation and to decide as to whether the compensation fixed by the Land Acquisition Collector was proper or not. However, the matter thereafter is only for quantum of compensation which has nothing to do with the acquisition. It is clear from the above that insofar as acquisition is concerned, the appellant had succumbed to the action taken by the Government in this behalf. His only objection was to the market value of the land that was fixed as above. To reiterate his grievance, the appellant could have either taken the aforesaid adjudicatory route of seeking reference under Section 18 of the LA Act leaving it to the Court to determine the market value. Instead, the appellant negotiated with Techno Park and arrived at amicable settlement by agreeing to receive the compensation in the sum of Rs. 38,42,489/-. For this purpose, after entering ITO v. Mohd. Aslam Baggar into the agreement, the appellant agreed to execute the sale deed as well which was a necessary consequence and a step which the appellant had to take.

Therefore, we find no infirmity or perversity in the order of the CIT(A) to the fact on record. Accordingly, the impugned order is sustained.

Order pronounced in the open court on 28.02.2023