Capital Gains In Case Of Compulsory Land Acquisition Accrues On Arrival Of The Relevant Stage Of Taking Possession And Not Before: SC [Read Judgment]

The Supreme Court has observed that capital gains in a case of compulsory acquisition of land [under Land Acquisition Act of 1894]  shall be deemed to have accrued: (a) upon making of the award, in the case of ordinary acquisition referable to Section 16; and (b) after expiration of fifteen days from the publication of the notice mentioned in Section 9 (1), in the case of urgency acquisition under Section 17.

The bench comprising Justices AM Khanwilkar, Hemant Gupta and Dinesh Maheshwari, observed that capital gains shall be deemed to have accrued upon arrival of the relevant stage of taking possession and not before.

The bench was considering the appeal against the Punjab and Haryana High Court judgment in which it held that the capital gains arising out of land acquisition compensation were chargeable to income-tax under Section 45 of the Income Tax Act, 1961 for the previous year referable to the date of award of compensation i.e., 29.09.1970 and not the date of notification for acquisition. The legal issue that arose in this appeal was this: when capital gains would accrue in a case of compulsory acquisition of land where possession had already been taken before reaching of the relevant stage for taking over possession in the structured process contemplated by the statute?

Referring to the statutory scheme of the Land Acquisition Act, the bench comprising Justices observed that compulsory acquisition of land under the Act of 1894 for public purpose, the property was to vest absolutely in the Government (thereby divesting the owner of all his rights therein) only after taking of possession in either of the methods i.e., after making of award, as provided in Section 16; or earlier than making of award, as provided in Section 17. In other words, the owner was divested of the property and same vested in the Government in absolute terms only if, and after, the possession was taken by either of the processes envisaged in Sections 16 and 17, the bench noted.

Answering the issue, the bench referred to various judgments of the High Courts and the Supreme Court and observed:

In our view, in the matters relating to compulsory acquisition of land under the Act of 1894, completion of transfer with vesting of land in the Government essentially correlates with taking over of possession of the land under acquisition by the Government. However, where possession is taken over before arriving of the relevant stage for such taking over, capital gains shall be deemed to have accrued upon arrival of the relevant stage and not before. To be more specific, in such cases, capital gains shall be deemed to have accrued: (a) upon making of the award, in the case of ordinary acquisition referable to Section 16; and (b) after expiration of fifteen days from the publication of the notice mentioned in Section 9 (1), in the case of urgency acquisition under Section 17.

In the present case, the court noted that the land in question was subjected to acquisition under the Land Acquisition Act of 1894 by adopting the ordinary process leading to award under Section 11. Therefore, the court said that capital gains to the assessee-appellant for the acquisition in question could not have accrued before the date of award.

While dealing with the contention that the land in question had already been in possession of the beneficiary of acquisition, the court said:

"Even if we keep all other aspects aside and assume that the land in question was, or came, in possession of the Government before passing of the award, the position of law stated in point (a) of paragraph 36 hereinabove would apply; and capital gains shall be deemed to have accrued upon arrival of the relevant stage of taking possession i.e., making of award and hence, capital gains cannot be taken to have accrued before the date of award i.e., 29.09.1970. " 

Holding thus, and answering other issues against the appellant, the bench dismissed the appeal.

Case details

Case no.: CIVIL APPEAL NO. 2416 OF 2010

Case name: RAJ PAL SINGH  vs. COMMISSIONER OF INCOME-TAX, HARYANA, ROHTAK 

Coram: Justices AM Khanwilkar, Hemant Gupta and Dinesh Maheshwari

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