HIGH COURT OF PUNJAB AND HARYANA
Chandi Ram
v.
Commissioner of Income-tax
SATISH KUMAR MITTAL AND RAKESH KUMAR GARG, JJ.
IT APPEALS NOS. 4 TO 7 AND 438 OF 2005, 415 TO 417 AND 433
TO 437 OF 2007
February 25, 2008
Section 45,
read with section 155, of the Income-tax Act, 1961 - Capital gains - Year in
which assessable - Assessment years 1994-95 to 1998-99 - Assessee received
additional enhanced compensation on basis of award passed by District Judge -
However, 50 per cent of that amount was received on furnishing security in
terms of interim order passed by appellate authority till final decision of
appeal filed by State, challenging award of enhancing additional compensation -
Tribunal taking in consideration provisions of section 45(5)(c) and
section 155(16) held that entire amount of additional compensation received by
assessee was to be considered for purpose of capital gain in year of its
receipt - Whether since clause(c) to section 45(5) and sub-section (16) to
section 155 had been inserted with effect from 1-4-2004 and were applicable in
relation to assessment year 2004-2005 and not prior to that, same could not be
applied in instant case merely on ground that these are declaratory in
character - Held, yes - Whether only section 45(5)(b) was applicable and
same would be attracted only when assessee receives enhanced compensation in
pursuance of a final award/order of a Court, Tribunal or other authority
increasing compensation and if any amount is received after stay of award, in
pursuance of any interim order as payment subject to final result, it would not
be on an amount received as enhanced compensation under section 45(5)(b)
- Held, yes - Whether therefore, Tribunal was not justified in its action -
Held, yes
The assessee
received additional enhanced compensation on basis of award passed by District
Judge. However, 50 per cent of amount of the additional enhanced compensation
was received on furnishing security in terms of the interim order passed by the
appellate authority till the final decision of the appeal filed by the State,
challenging the award of enhancing the additional compensation. The Tribunal
taking into consideration, the provision of clause(c) of section 45(5) and sub-section (16) of section 155, which were
inserted by the Finance Act, 2003 with effect from 1-4-2004 held that the
entire amount of additional compensation as received by the assessee on the
basis of award given by the District Judge would be liable to be considered for
the purpose of computation of capital gain under section 45 in the year of its
receipt. In the instant appeal, the assessee contended that addition
compensation was considered to be received in the meaning of section 45(5)(b)
on date when the dispute was finally decided by appellate Court and, therefore,
additional compensation received by it on the basis of interim order could not
be assessed in year in which it was actually received. The assessee further
contended that clause(c) of section
45(5) and could not be sub-section (16) of section 155 would not be applicable
and taken into consideration while deciding the instant appeal, which pertained
to the assessment years 1994-95 to 1998-99, because these provisions are
prospective and made applicable with effect from 1-4-2004 and would only apply
in relation to the assessment year 2004-05 and subsequent years. The revenue on
the other hand contended that clause(c)
of section 45(5) is only a declaratory in character, therefore, it will apply
retrospectively.
Section 45
provides for charging of capital gain and such profits and gains shall be
deemed to be the income of the previous year, in which transfer took place.
Subsequently, when the department had to face difficulties in realizing capital
gains arising on compensation by Courts at different stages, i.e., at the level of District Judge, the
High Court and the Supreme Court, the Legislation introduced sub-section (5) to
section 45 with effect from 1-4-1988. Vide
this sub-section, the enhanced compensation was brought to charge to capital
gain in the year in which it was received. Prior to this, where capital gains
accrue or arise by way of compensation, the additional compensation is taken
into consideration for determining the capital gain for the year in which
transfer took place. To provide for rectification of assessment of the year in
which the capital gain was originally assessed, section 155(7A) was introduced.
The additional compensation was awarded in several stages by different appellate authorities. That
necessitates rectification of the original assessment at each stage. This
against caused great difficulty in carrying out the required rectification and
in effecting the recovery of additional demand. With a view to remove these
difficulties, a new sub-section (5) to section 45 was inserted which provides
for taxation of additional compensation in the year of receipt instead of in
the year of transfer of the capital asset. This provision was interpreted by
various High Courts and it has been held that section 45(5)(b) would be
attracted only when the assessee receives the enhanced compensation in
pursuance of a final award/order of a Court, the Tribunal or other authority
increasing the compensation. If any amount is received after stay of the award,
in pursuance of any interim order, as payment subject to the final result, it
will not be an amount received as enhanced compensation under section 45(5)(b).
This provision will be attracted only when the final decision is rendered by
the appellate or other authority. In
those decisions, the decision of the Supreme Court in CIT v. Hindustan Housing
& Land Development Trust Ltd. [1986] 161 ITR 524/27 Taxman 450A was constantly
followed. There was no reason to have a
contrary view to those judgments. [Para 9]
Clause (c) to section 45(5) and sub-section (16)
to section 155 have been inserted by the Finance Act, 2003, with effect from
1-4-2004. The notes on these clauses which have been published in (2003) 260
ITR (ST) 166 clearly stated that those amendments would take effect from
1-4-2004 and would, accordingly, apply in relation to the assessment year
2004-2005 and subsequent years. Clause(c)
to section 45 (5) was inserted to provide that where the amount of the
compensation is subsequently reduced by any Court, the Tribunal or other
authority, the capital gain of that year, in which the compensation received
was taxed, shall be recomputed accordingly. Sub-section (16) to section 155 was
inserted empowering the Assessing Officer to amend the order of assessment to
revise the computation of said capital gain of that year by taking into
consideration the compensation, so reduced by the authority. Actually, these
provisions were inserted to meet the situation when compensation is
subsequently reduced and in that situation, it was provided that the assessment
of additional compensation is to be reduced in the year of reduction. It could
not be said that clause(c) to
sub-section(5) of section 45 inserted by the Finance Act, 2003 is to be made
applicable retrospectively, and taken to be introduced with effect from
1-4-1988. It had been observed that that clause was inserted to make the entire
scheme workable and to supply an obvious omission in the provision. Therefore,
the said clause has to be taken to be declaratory in character and is not
applicable with retrospective effect. The entire sub-section (5) of section 45
is a charging section. The said sub-section itself is a code and contains
substantive provisions. Therefore, its provisions cannot be made applicable
retrospectively without any express indication. Clause (c) to section 45(5) was inserted by the Finance Act, 2003 with
effect from 1-4-2004. In the purpose clause, it was specifically stated that
the amendment would take effect from 1-4-2004 and would, accordingly, apply in
relation to the assessment year 2004-2005 and subsequent years. Similarly,
sub-section (16) to section 155 was introduced with effect from 1-4-2004 and as
per note [published in (2003) 260 ITR (ST) 166] the amendment was to apply in
relation to the assessment year 2004-05 and subsequent years. If the
Legislation wanted to insert those clauses with retrospective effect, it could
have been so stated in the Amending Act. Previously, when sub-section (7A) 10
Section 155 was inserted by the Finance Act, 1978, it was specifically
mentioned that it was inserted with retrospective effect from 1-4-1974. If the
Legislation wanted to insert those clauses with retrospective effect, it could
have been so mentioned in the Amending Act, but when specifically the
Legislation has mentioned that those clauses had been inserted with effect from
1-4-2004 and would be applicable in relation to the assessment year 2004-2005
and not prior to that, then those clauses could not be given retrospective
operation merely on the ground that these are declaratory in character. It is
settled law, that a taxing provision imposing liability is governed by the
normal presumption that it is not retrospective. There is no assumption as to
the retrospectivity of an amendment. Retrospectivity has to be enacted specifically
in the fiscal statute. [Para 11]
In the instant
case, it might be noted that amendment to section 45 by inserting clause(c) by the Finance Act, 2003 only stated
that the amended provision would come into force with effect from 1-4-2004. The
statute no where states that the said amendment was either clarificatory or
declaratory. On the contrary, in the note [published in (2003) 260 ITR 166], it
was clearly stated that the amendment would come into force with effect from
1-4-2004 and would be applicable in the assessment year 2004-2005. Therefore,
those amendments would apply only to future period and not to any period prior
to 1-4-2004 or any assessment year prior to the assessment year 2004-2005. [Para 12]
In the instant
case, the dispute related to the assessment years 1994-95 to 1998-99 and during
that period, only section 45(5)(b) was applicable, which has already
been interpreted by the High Court and various other Courts, wherein it has
been clearly held that section 45(5)(b)
will be attracted only when the assessee receives the enhanced compensation in
pursuance of a final award/order of a Court, the Tribunal or other authority
increasing the compensation. If any amount is received after stay of the award,
in pursuance of any interim order, as a payment subject to the final result, it
will not be an amount received as enhanced compensation as contemplated under
section 45(5)(b), but only an interim payment received subject to final
decision. Therefore, the Tribunal was not justified in taking contrary
view. [Para 13]
Consequently,
the impugned order was not substainable and the appeal was to be allowed. [Para 14]
CASE REVIEW:
Chief CIT v. Smt.
Shantavva (2004) 267 ITR 67/136 Taxman 678k (Kar.); CIT v. Shri
Karanbir Singh, Rajinder Kuti ITR No. 26 of 1997 decided on 17-1-2007
CIT v. Shri
Prem Singh IT Appeal No. 695 of 2005 dated 16-5-2007. [Para 13] and CIT v.
Hindustan Housing and Land Development Trust Ltd. [1986]161 ITR 524/27
Taxman 450A (SC). [Para 9] - followed