ITAT, BENCH ‘C’, CHENNAI DCIT v. Udhava Das Fomra

Taxability of compensation received for requisition of land and building 

 

The compensation received for requisition of the land and building by the West Bengal State Government under the provisions of the West Bengal Land (Requisition and Acquisition) Act, 1948 does not have any element of income for tax either under the head of capital gain or other heads of the Income-tax Act, 1961.


RELEVANT EXTRACTS:

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8. After considering the rival contentions and materials on record, the issue before us is whether the compensation received for requisition of the land and building in question is taxable and more particularly under the head capital gain of Income Tax Act. In the present case, the land and building in question were initially requisitioned by the State Government of West Bengal u/s. 3(l) of the West Bengal Land (Requisition and Acquisition) Act, 1948 which reads as under:

“3.(l). If the State Government is of the opinion that it is necessary so to do for maintaining supplies and services essential to the life of the community or for increasing employment opportunities for the people by establishing commercial estates and industrial estates in different areas or for providing proper facilities for transport, communication, irrigation or drainage or for the creation of better living conditions in rural or urban areas, not being an industrial or other area excluded by the State Government by a notification in this behalf, by the construction or reconstruction of dwelling places in such areas or for purposes connected therewith or incidental thereto, the State Government may, by order in writing requisition any land and may make such further orders as appear to it to be necessary or expedient in connection with the requisitioning:"

9. The State Government by exercising its powers u/s. 3(l) of the Act can requisitioned any land for the purpose specified in the said section. As per section 6(1), if the land requisitioned u/s.3 is not acquired, the same may be released by the State Government from requisition and the possession is also returned to the owner who is entitled for the possession. As per section 4(2) of the said Act, the period of requisition comes to an end when a notification for acquisition of the land is published and the land vests absolutely in the State Government w.e.f. the date on which the notice is so published. From the above said provision of the said Act, it is clear that the requisition of the land is not a transfer because the ownership remains with the assessee/owner. The requisition of the land is only taking of possession of the land by the State Government for the purpose specified in section 3(1) of the Act, thereby the owners of the land are deprived from the "use1 and enjoyment of the land.

10. In the case in hand, the requisition took place on 23.04.1976 and it came to an end on 07.04.1990 when the land in question was acquired by issuing a notification u/s.4 of the said Act. The compensation payable against the requisition is only to compensate the owners of the property for depriving them from use and enjoyment of the land and building. Therefore, the said compensation received by the owners for requisition of the land is not capital in nature because it is not against the transfer of the land or transfer of any right by the assessees to the State, because it is not a voluntary transfer by the assessees to the Government but only as per the provision of statute. Moreover, the said compensation is also not an income of the owner/assessees because it is neither a rent nor receipt in lieu of loss of income or transfer of any right by the assessees. Therefore, the compensation received for requisition cannot be taxed as an income of the assessees under the Income Tax Act.

13. In the case of Commissioner of Income-Tax Vs. D.P. Sandu Bros. Chembur P. Ltd., (supra), the Hon'ble Apex Court has held as under:

"Furthermore, it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by the statute could be taxed as a casual or non-recurring receipt under section 10(3) read with section 56. We are fortified in our view by a similar argument being rejected in Nalinikant Ambalal Mody Vs. S.A.L. Narayana Row, CIT [1966] 61ITR 428 (SC), 432, 435."

14. Even otherwise, when the compensation which is not against the transfer of the properly (compulsory acquisition), then the same cannot be included as consideration for computation of capital gain as held by the Hon'ble Apex Court in the above noted judgments and the same cannot be taxed as income of the assessee under any other head.

In view of the above discussion, we hold that the compensation received for requisition of the land and building by the State Government under the provisions of the requisition and acquisition Act, does not have any element of income for tax either under the head of capital gain or other heads.

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