COMMISSIONER OF INCOME TAX vs. M/S I B MODEL FARM PVT LTD

ITR/367/1983HC GujaratGJHC24011833198306 December 1996Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE R.BALIA4 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s I B Model Farm Pvt Ltd, is in dispute with the revenue (Commissioner of Income Tax) concerning the assessment year 1975-76. The dispute revolves around whether capital gains arose from the transfer of land. The assessee and Gujarat Industrial Development Corporation (GIDC) entered into an agreement on July 4, 1974, for land acquisition. Possession was handed over on the same date, and an advance compensation of Rs. 9,12,000 was received on October 7, 1974. However, the formal award under the Land Acquisition Act, 1894, was made on January 9, 1978. The Income Tax Officer treated the transfer as occurring on July 4, 1974, and taxed the capital gains. The Commissioner (Appeals) and the Income Tax Appellate Tribunal (ITAT) held that vesting occurs only upon the award, thus capital gains were not taxable in AY 1975-76.

What did the High Court hold?

The High Court held that the issue is directly covered by its earlier decision in CIT, Gujarat-II vs. Purshottambhai Maganbhai Hatheesing (HUF) reported in 156 ITR 150. In that case, it was held that capital gains arising from the receipt of compensation for acquired land can be brought to tax in the year the transfer is effected under Section 45 of the Income Tax Act, 1961. The transfer is effected when possession is taken over pursuant to the award. Under Section 11 of the Land Acquisition Act, 1894, on an award being made, the property vests in the Government free from all encumbrances. Therefore, capital gains could not be brought to tax until the award was made, even if possession was taken earlier without exercising urgency powers. Following this precedent, the High Court answered the referred question in the affirmative, in favour of the assessee and against the revenue. The reference was disposed of accordingly.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, notwithstanding the transfer of possession of the land and receipt of compensation during the period relevant to assessment year 1975-76, no capital gains arise to the assessee because the award under the Land Acquisition Act, 1894, was made on January 9, 1978? (Question of law) Assessee's Contention: The ITAT held that capital gains are taxable only upon the making of an award, which occurred on January 9, 1978, and therefore, not in assessment year 1975-76. Revenue's Contention: The revenue contended that the transfer of possession and receipt of compensation on July 4, 1974, and October 7, 1974, respectively, should be considered as the point of transfer for capital gains, making it taxable in assessment year 1975-76. The revenue relied on the Income Tax Officer's view that the agreement formalized the transfer on July 4, 1974.

Which sections of the Income-tax Act were involved?

Section 45,Section 11,Section 17

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 367 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE R.BALIA. ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 45

All 1,329 judgments and leading authorities on Section 45 →

Recent GST High Court judgments

Search GST case law →