SC on compulsory land acquisition, taking over possession and capital gains

The Hon’ble Supreme Court, on 25th August 2020, in the matter of Raj Pal Singh v. Commissioner of Income-Tax, Haryana, Rohtak  pronounced that in the matters relating to compulsory acquisition of land under the Land Acquisition Act, 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.

The Hon’ble Supreme Court observed that:

A brief overview of the scheme of the Land Acquisition Act, 1894 makes it clear that publication of preliminary notification under Section 4 by itself did not vest the property in the Government; it only informed about the intention of the Government to acquire the land for a public purpose. After this notification, in the ordinary course, under Section 5A, the Land Acquisition Collector was required to examine the objection, if any, to the proposed acquisition; and after examining his report, if so made, the Government was to issue declaration under Section 6, signifying its satisfaction that the land was indeed required for public purpose. These steps were to be followed by notice under Section 9, stating that the Government intended to take possession of the land and inviting claims for compensation. Thereafter, the Collector was to make his award under Section 11. As per Section 16 of the Land Acquisition Act, 1894, the Land Acquisition Collector, after making the award, could have taken possession of the land under acquisition and thereupon, the land vested in the Government free from all encumbrances. (Para 31.1) A deviation from the process above-noted and a somewhat different process was permissible in Section 17 whereunder, in cases of urgency and if the Government had so directed, the Collector could have taken possession of any waste or arable land after fifteen days from the publication of the notice mentioned in Section 9(1), even though the award had not been made; and thereupon, the land was to vest in the Government free from all encumbrances. (Para 31.2)

In the matter of compulsory acquisition of land under the Land Acquisition Act, 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. However, so long as possession was not taken, the mere fact of issuance of notification under Section 4 of the Act or declaration under Section 6 thereof, did not divest the owner of his right in respect of the property in question. (Para 31.5)

Where, for any reason, possession of the land had already been taken by the Government or delivered by the owner before completion of process envisaged by Section 16 or Section 17 of the Land Acquisition Act, 1894. In such a case, the question, obviously, would be as to when has capital gain accrued?

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 ?

Income-tax on capital gains is not levied on the mere right to receive compensation. For chargeability of income-tax, the income ought to have either arrived or accrued. (Para 35)

In the matter of acquisition of land under the Land Acquisition Act, 1894, taking over of possession before arrival of relevant stage for such taking over may give rise to a potential right in the owner of the property to make a claim for compensation but, looking to the scheme of enactment, it cannot be said that transfer resulting in capital gains is complete with taking over of possession, even if such taking over had happened earlier than the point of time of vesting contemplated in the relevant provisions. (Para 35)

In the matters relating to compulsory acquisition of land under the Land Acquisition Act, 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. (Para 36)

Where the time period of any lease of immovable property is limited, it determines by efflux of such time, as per Section 111(a) of the Transfer of Property Act, 1882. Further, in terms of Section 108(q) of the Act , on determination of lease, the lessee is bound to put the lessor into possession of the leased property. In case where lessee does not deliver possession to the lessor after determination of the lease but the lessor accepts rent or otherwise assents to his continuing in possession, in the absence of an agreement to the contrary, the status of such lessee is that of tenant holding over, in terms of Section 116 of the Act. But, in the absence of acceptance of rent or otherwise assent by the lessor, the status of lessee is that of tenant at sufferance. (Para 39.2)

Copy of judgment: Judgement_25-Aug-2020

-Adv. Tushar Kaushik

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