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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-I’ : NEW DELHI
Before: SHRI P.K. BANSAL
Since all these appeals filed against the respective order of the CIT (A) involved the common issue, therefore, all these appeals are decided by this common order. All the parties agreed that all these cases be decided on the basis of the facts involved in the case of Smt. Kamlesh, w/o Shri Singhraj Singh.
The brief facts of the case are that the AO noted that the assessee along with other co-owners received compensation of interest amounting to Rs.1,07,25,394/- and the share of the assessee comes to Rs.10,72,540/- in the impugned assessment year. The AO, therefore, initiated proceedings u/s 147 by issuing notice u/s 148 of the Income-tax Act, 1961 (hereinafter ‘the Act’). Notice u/s 142(1) dated 14.12.2010 was issued for filing her return in response thereto. The assessee has filed the return declaring a total income of Rs.8,650/- from the house property and other sources and put a note on the return that, “During the year, we have received Rs.9,38,737/- i.e. 10% of the total amount of Rs.93,87,365/- against land acquisition out of that some amount was received against land balance amount was received against interest. But since this interest does not relate to this year so that income as well as TDS was not claimed during the year. We are attaching herewith copy of that proof.” The AO noted that the assessee is not the owner of the land but she along with other 9 co- owners purchased the right to receive the amount of compensation and interest thereon for that acquired land as per the order passed by the Addl.
District Judge-I, Bulandshahr. The AO, therefore, treated the sum of Rs.10,72,540/- as income from other sources. The assessee went in appeal before the CIT (A) and the CIT (A) noted that the amount received and receivable in respect of acquisition of the land by the assessee and other co-owners as under :-
Compensation 10,64,536.55 13,75,207.47 30% solatium 3,19,360.96 4,12,562.23 12% Additional Compensation 86,796.18 1,12,126.50 9% Interest 1,24,550.17 1,60,899.27 15% Interest 38,73,017.27 50,03,306.05
Total amount receivable 54,68,261.73 70,64,101.00 Amount received during the year 52,03,353.00 67,22,041.00 Amount pending 2,64,908.00 3,42,060.00 The CIT (A) noted that Smt. Sunita sold/transferred her right to receive which was awarded on 12.02.2002 through LA Ref.No.364 – Year 1990 in respect of her land for a sum of Rs.3 lakhs by virtue of Decree Assignment Letter dated 31.08.2002 to assessee as well as 9 other co-owners. The income so received cannot be exempt u/s 10(37) of the Act. What the assessee acquired can be laid as capital asset and the income arising on receipt of compensation by the assessee from the Government shall be treated as capital gain to be computed and taxed in the light of the relevant provisions of the Act. The CIT (A) did not agree with the action of the AO taxing the same as income from other sources and ultimately, the CIT (A) dismissed the appeal of the assessee.
The assessee even though has taken as many as 14 grounds of appeal but the issue involved before me relates to whether compensation so received by the assessee is assessable as income from other sources or assessee is entitled for exemption u/s 10(37) of the Act and whether the action taken by the AO by issuing the notice u/s 148 is valid or not.
4. I heard the rival submissions and carefully considered the same along with the orders of the tax authorities below. I noted that the notice u/s 148 has been issued after recording the reasons that the assessee has not shown the income in the return in respect of the compensation received and thereby it has resulted the escapement of assessment. It is not denied before me by the ld. Advocate that the assessee received the compensation along with the solatium and deemed interest during the impugned assessment year. The assessee has not filed the income-tax return and has not declared the same in the income-tax return filed by him. The notice u/s 148 of the Act was issued to the assessee on 05.04.2008. The compensation belonging to the assessee and related to the impugned assessment year, therefore, I confirm the finding of the ld. CIT (A) that the proceedings initiated by issuing of the notice u/s 148 are valid.
5. Now, coming to the other issue taken by the assessee, the CIT (A) has erred in confirming the order of the AO whereby he had treated the amount of Rs.10,72,540/- as income from other sources. I noted that the said amount has been treated as income from other sources by the AO but the CIT (A) after noting the facts from pages 12 to 14 of its order took the view that the said income has to be treated as capital gain and did not confirm the action of the AO in taxing the same as income from other sources. On this basis, this ground taken by the assessee becomes infructuous. I find that the assessee along with 9 co-owners through a Decree Assignment Letter dated 31.08.2002 purchased from Ms. Sunita her right to receive compensation which was awarded in her favour on 12.02.2002 through LA Ref.No.364 – Year 1990 vide order passed by Hon’ble Upper District Judge -1, Bulandshahr in respect of acquisition of her land being Khata No.39 and Plot No.161 measuring 1 Bigha 4 Biswa 10 Biswansi situated in village Dudrpur Pargana, Dehsil & District Bulandshahr for a consideration of Rs.3 lacs. Copy of which was filed before me also by the ld. Advocate in the paper book. Now, the question arises before me is whether the assessee can be regarded to be the owner of the agricultural land. The agricultural land has already been acquired and vested with the UP Government. The award in respect of the said land has already been given Ms. Sunita who entered into an assignment agreement with the assessee and 9 co-owners is not the owner of the agricultural land.
Therefore, she cannot transfer the agricultural land. She transferred only her right to receive compensation. Right to compensation is a capital asset which is defined u/s 2(14) of the Act and, therefore, whatever amount the assessee and other co-owners received by way of compensation on behalf of Ms. Sunita that amount will be consideration received against a capital asset and, therefore, I do not find any illegality or infirmity in the finding of the CIT (A) while he holds that income arising on receipt of compensation by the assessee form the Government shall be treated as capital gains to be computed and taxed in the light of the relevant provisions of the Act and that AO’s action in taxing the same as income from other sources is not justified. There is no illegality in the directions of the CIT (A) to the AO to compute the capital gains in accordance with the provisions contained in Chapter IV of the Act dealing with the capital gains and allowing the deduction to the assessee. I accordingly direct the AO to compute the capital gains by applying the provisions of section 45 read with section 48 of the Act.
Now, coming to the question whether the amount received by the assessee from the Government will be exempt u/s 10 (37) of the Act. Ld. Advocate before me relied on the order of the Mahender Singh passed by the CIT (A) dated 10.12.2012 in which the CIT (A) took the view that Mahender Singh, one of the co-owners, is entitled to get the exemption u/s 10(37) of the Act. The decision of the CIT (A) is not binding on me. No doubt, an appeal has been filed before the Tribunal but the Tribunal dismissed the appeal in view of the tax effect involved in that case. I noted that the provision of section 10 (37) lays down as under :-
“(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;”
From the perusal of the said section, it is apparent that the exemption u/s 10(37) is available to an individual or HUF in respect of the income chargeable under the head arising from the transfer of agricultural land where it complied with all the four conditions as stipulated under the said section. I have already held that in the case of the assessee, the compensation received cannot be regarded to have been arisen from the transfer of the agricultural land in hands of the assessee. The assessee and all other co-owners had bought the right to receive the compensation from Ms. Sunita and, therefore, what they have received, is the compensation from the Government on behalf of Ms. Sunita against the acquisition of her right under the assignment agreement. This amount received by the assessee and other co-owners cannot be regarded to have been received against the transfer of the agricultural land. The second condition given under section can also not be complied with as the land has to be used before its transfer during the two years by such individual or HUF, such individual or HUF means the persons who owned the land. The assessee and other co-owners did not own the land, therefore, the question of complying with this condition does not arise. I am of the view that the assessee did not comply with the conditions as stipulated u/s 10(37) and, therefore, in my opinion, the CIT (A) has rightly taken a view in the impugned case that the income arising in the hands of the assessee is not exempt u/s 10(37) of the Act. I have gone through the decision of the Hon’ble Supreme Court, as relied by the ld. Advocate of the assessee, in the case of Khorshed Shapoor Chenai (Mrs.) vs. Collector of Estate Duty (Asst.) – 122 ITR 21. I noted that this decision is not applicable in the facts of the case before me. In that case, the question involved was entirely different. The question relates to the passing of the right to receive the compensation on the death of the deceased. There was no question that if anybody buys the right to receive the compensation. These rights will be treated as agricultural land. I have also gone through the decision of Hon’ble Allahabad High Court in the case of UP Avas Evam Vikas Parishad vs. Kanak & Ors. – 2011 (112) RD 86. In this case also, I noted that the question relates to whether the Transfer of Property Act forbids the transfer of the compensation right. The Hon’ble High Court took the view that section 6 of the Transfer of Property Act does not forbid transfer of the compensation right. The ld. AR has by referring to page nos.28 & 29 and 32 & 33 of the paper book contended before me that the assessee and co- owners has paid a sum of Rs.5 lakhs to Mr. Vinod Kumar and Rs.7 lakhs to Mr. Dharampal Singh & Jwala Singh as per the order of the District Judge dated 21.04.2006 out of the compensation received by them. Copy of the order is available at pages 28 to 32 of the paper book. The AO is directed that while computing the capital gain in accordance with the provisions of section 48 should consider these amounts and reduce the same out of the total amount received by the assessee from the Government on account of compensation, solatium on the acquisition of the land. In view of the aforesaid discussion, I dismiss all the three appeals.