April 2010
Provisions of S. 45(5) relating to compulsory acquisition do not apply to compulsory requisition of land and building, and the compensation received is also not taxable as rent, as there was no element of income.
By C. N. Vaze , Shailesh Kamdar, Jagdish T. Punjabi
Chartered Accountants
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New Page 2
8. (2010) 122 ITD 457 (Chennai)
DCIT, Business Circle X, Chennai v. Udhava Das
Fomra
A.Y. : 2001-02. Dated : 27-3-2009
Provisions of S. 45(5) relating to compulsory acquisition do
not apply to compulsory requisition of land and building, and the compensation
received is also not taxable as rent, as there was no element of income.
Facts :
The assessees were the co-owners of land and building. The
State Government exercising powers u/s. 3(1) of the West Bengal (Requisition and
Acquisition) Act, 1948 requisitioned the said land and building on 23-4-1976.
The said property was later on acquired by the Government by issuing
Notification on 7-4-1990. Compensation was paid for requisition of property from
23-4-1976 to 7-4-1990. The assessee filed appeal for enhanced compensation which
was allowed on 20-4-2000. As the jurisdictional High Court by its order held
that interim compensation could not be taxed till the High Court reached
finality on the issue of enhanced compensation, the assessment proceedings for
A.Y. 2000-01 were reopened. The Assessing Officer taxed the entire compensation
u/s.45(5)(a) and S. 45(5)(b). The CIT(A) directed to delete requisition
compensation as the same amounted to capital receipt. The Department filed
appeal against the order of the CIT(A).
Held :
The Tribunal held that requisition of land was not a transfer
within the meaning of the West Bengal (Requisition and Acquisition) Act, 1948 as
it was only taking of possession of the land by the State and owners of the land
were only deprived from use and enjoyment of the land. The compensation was
received for the period from 23-4-1976 to 7-4-1990 for requisition of land. The
provisions of S. 45(5) could not be attracted as there was no transfer of
capital asset. Moreover, the compensation was also not an income of the
owner/assessee, because it was neither a rent nor a receipt in lieu of loss of
income or transfer of any right by the
assessee. Therefore, the compensation received for requisition could not be
taxed as an income of the assessee.
In view of the above, it was held that the said compensation
did not have any element of income, and hence, was not liable to tax either
under the head ‘capital gains’ or under other heads.
