Holding

Receipt of enhanced compensation, including additional compensation, solatium and interest under Section 28 of the Land Acquisition Act, is taxable in the year of receipt under Section 45(5) of the Income‑Tax Act, 1961, even if the amount is contested in a pending appeal.

Summary

The assessee (Ghanshyam HUF) received enhanced compensation and interest from the Haryana Urban Development Authority for land acquired under the Land Acquisition Act, 1894, but omitted these amounts from its 1999-2000 return, arguing that they were in dispute in a pending appeal by the State. The Assessing Officer, CIT (Appeals) and the Income‑Tax Appellate Tribunal held that the amounts had not accrued and should not be taxed. The High Court, relying on Hindustan Housing, also held they were not taxable. The Supreme Court examined the scheme of Section 45(5) of the Income‑Tax Act, 1961, the nature of additional compensation, solatium and interest under the 1894 Act, and held that such amounts constitute "enhanced compensation" and are deemed income in the year of receipt, irrespective of any pending appeal. Consequently, the Department's appeal was allowed, confirming taxability of the amounts in the year received.

Issues considered

Whether enhanced compensation and interest received under the Land Acquisition Act, when under dispute in a pending appeal, accrue to the assessee for tax purposes in the year of receipt.
Whether interest under Section 28 of the Land Acquisition Act forms part of the "enhanced compensation" contemplated in Section 45(5) of the Income‑Tax Act.
Whether the Hindustan Housing judgment is applicable to the present case under the 1961 Act.
What is the correct year of taxability for such enhanced compensation and interest.

Legislation cited

Finance Act, 1987
Finance Act, 2003
Income Tax Act, 1961s. 128, s. 154, s. 155(16), s. 155(7A), s. 2(47), s. 45, s. 45(5), s. 54H
Land Acquisition Act, 1894s. 18, s. 23(1), s. 23(1A), s. 23(2), s. 28, s. 34, s. 4

Subjects

capital gainsSection 45(5)enhanced compensationland acquisitiontaxabilityinterestassessment yearappealincome taxcompulsory acquisition

Judgment

[2009] 10 S.C.R. 1025

COMMISSIONER OF INCOME-TAX, FARIDABAD A
v.
GHANSHYAM (HUF)
(Civil Appeal No. 4401 of 2009)
JULY 16, 2009
B
[S.H. KAPADIA AND AFTAB ALAM, JJ.)

Income Tax Act, 1961:

Sections 2(47), 45, 155 ~ Compensation towards land c
acquisition - Enhanced compensation and interest thereon
awarded by the Reference Court - Disputed in appeal -
Included in assessment by the Assessing Officer - CIT
(Appeals) holding that it did not accrue to the assessee since
the entire amount was in dispute in first appeal - Tribunal 0
upheld the order of CIT (Appeals) - High Court held that when
the State is in appeal against the enhanced compensation
and interest thereon the receipt of additional compensation
and interest thereon was not taxable - On appeal, Held: The
year in which enhanced compensation is received is the year E
of taxability - Even in cases where appeal is pending, and
the assessee is permitted to withdraw the amount against
security or otherwise, the receipt of such amounts is liable to
be taxed under Section 45(5) - Land Acquisition Act, 1894 -
Sections 23(1), 23(1A), 23(2), 28, 34. ·
F
Assessee filed its return of income for the
assessment year 1999-2000 in which he did not offer the
amount of enhanced compensation and the interest
received thereon from Haryana Urban Development
Authority (HUDA) towards acquisition of assessee's G
lands during the previous year relevant to the
assessment year, on the plea that the amount of
enhanced compensation received had not accrued to the
assessee during the year of receipt as the entire amount
1025 ·H
1026 SUPREME COURT REPORTS (2009] 10 S.C.R.

A was in dispute in appeal before the High Court which
appeal stood filed by the State against the order of the
Reference Court granting enhanced compensation. The
amount was received by the assessee in terms of the
interim order of the High Court against the assessee's
B furnishing security to the satisfaction of the executing
court. According to the assessee, the interest received on
enhanced compensation during the previous year was
also not chargeable to tax on the same plea. 1 •

The A.O. did not accept the contentions of the
C assessee on the ground that in terms of Section 45(5) of
the Income-tax Act, 1961 enacted w.e.f. 1.4.88, the amount
by which compensation or consideration stood
enhanced or further enhanced by the Court, is deemed
income chargeable under the head "Capital Gains" of the
D previous year in which the said amount came to be '
received. On appeal, CIT (A) came to the conclusion that
since the enhanced compensation received was in
dispute in the pending First Appeal, both the enhanced
compensation as well as the interest thereon had not
E accrued to the assessee during the year of receipt as the
entire amount was in dispute in First Appeal and that the
assessee had received the said amount only against
security furnished to the satisfaction of the executing
court.
F
Aggrieved by the decision of the CIT(A), the
Department moved Income-tax Appellate Tribunal (ITAT)
which its order upheld the order of the CIT(A) and
dismissed the appeal of the Department. Aggrieved by
G the decision of the Tribunal the matter was carried in
appeal to the High Court under Section 260A of the 1961
Act. The High Court held that the case is squarely covered l ..
by the judgment of the Supreme Court in the case of
Hindustan Housing. According to the High Court, when the
State is in appeal against the order of enhanced
H
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1027
GHANSHYAM (HUF)

compensation and interest thereon the receipt of A
~·~ additional compensation and interest thereon was not
taxable as income as the said two items were disputed
by the Government in appeal. Hence th~ appeal by the
Department.
B
Allowing the appeals, the Court

HELD: 1. Under Section 45(1) of the Incomes tax Act,
1961, profits or gains arising from the transfer of a capital
asset effected in the previous year is taken to be the
income of the previous year in which the transfer took C
place and such profits are chargeable to tax under the
head "Capital Gains". However, it was noticed that in
cases where capital gains accrued or arose by way of
compulsory acquisition, the additional compensation
stood awarded in several stages by different appellate D
authorities which necessitated rectification of the original
assessment at each stage. To provide for rectification of
the assessment of the year in which capital gains was
originally assessed, Section '155(7A) was also introduced.
Since additional compensation under the Land E
Acquisition Act, 1894 was awarded in several stages
multiple rectifications had to be made to the original
assessment which cause great difficulty in carrying out
the required rectification and in effecting the recovery of
additional demand. It was also noticed that repeated F
rectifications of assessment on account of enhancement
of compensation by different courts often resulted in
mistakes in computation of tax. Therefore, with a view to
remove these difficulties, the Finance Act 1987 inserted
Section 45(5) to provide for taxation of additional G
compensation in the year of receipt instead of in the year
of transfer of the capital asset. Accordingly, additional
compensation is treated as "deemed income" in the
hands of the recipient even if the actual recipient
happens to be a person different from the original
H
1028 SUPREME COURT REPORTS (2009] 10 S.C.R.

A transferor by reason of death, etc. For this purpose, the
cost of acquisition in the hands of the receiver of the
additional compensation is deemed to be nil. However,
the compensation awarded in the first instance would
continue to be chargeable as income under the head
B "Capital Gains", in the previous year in which transfer
took place. At this stage, it may be noted, that, Section
45(1) stood further amended (w.e.f. 1.4.91) so as to
include reference to Section 54H and Section 45(5)(a)
which stood amended w.e.f. 1.4.88. [Para 16] [1041-C-H;
C 1042-A-B]

2. The important point to be noted is that in the case
of compulsory acquisition of an asset, the capital gains
in the compensation, as originally awarded, is charged
to tax in the year in which the transfer by way of
D compulsory acquisition takes place, but additional
compensation is brought to tax only in the year in which
it is received. [Para 17) [1043-E)

3.1. Interest is different from compensation. However,
E interest paid on the excess amount under Section 28 pf
the Land Acquisition Act, 1894 Act depends upon a claim
by the person whose land is acquired whereas interest
under Section 34 is for delay in making payment. Interest
under Section 28 is part of the amount of compensation
F whereas interest under Section 34 is only for delay in
making payment after the compensation amount is
determined. Interest under Section 28 is a part of
enhanced value of the land which is not the case in the
matter of payment of interest under Section 34. [Para 24)
G [1048-H; 1049-A-B]

3.2. Solatium means an integral part of
compensation, interest would be payable on it. Section
34 postulates award of interest at 9% per annum from the
date of taking possession only until it is paid or
H deposited. It is a mandatory provision. Basically Section
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1029
GHANSHYAM (HUF)

34 provides for payment of interest for delayed payment. A
[Para 25) (1049-E-F]

Assistant Commissioner, Gadag Sub-Division, Gadag v.
Mathapathi Basavannewwa and others AIR 1995 SC 2492;.
State of Tamil Nadu and others etc. v. L. Krishnan and others 8
etc. AIR 1996 SC 497; Ram Chand & others etc v. Union of
India & Ors. 1994(1) SCC 44; Shree Vijay Cotton & Oil Mills
Ltd. v. State of Gujarat (1991) 1 SCC 262 and Sunder v.
Union of India (2001) 7 SCC 211, relied on. ,

4. The judgment of .this Court in Hindustan Housing C
was delivered on 29. 7.86. It was prior to 1.4.88 when
Section 45(5) stood incorporated by Finance Act 1987
w.e.f. 1.4.88. Further, the judgment of this Court in
Hindustan Housing has been given in respect of
assessment year 1956-57 under the Income-tax Act, 1922 D
·whereas, the present case relates to the 1961 Act which
defines the word "transfer" in much wider sense under
Section 2(47). With the insertion of Section 45(5) in the
1961 Act w.e.f.1.4.88 a totally new scheme stood
introduced keeping in mind cases of compulsory E
acquisition· under the 1894 Act under which
compensation is payable at multiple stages and amounts
stand withdrawn by the assessee-claimants and used by
the assessee(s) for several years, during which litigation
is pending. It is in the context of Section 45(5) that the F
year of taxability has to be decided. It is significant to note
that Section 128 of 1922 Act did not contain specific
reference to compulsory acquisition. as contained in
Section 2(47) of the 1961 Act. [Para 28] [1050-H; 1051-A-
D] G
Commissioner of Income-tax, West Bengal-II v.
--> Hindustan Housing and Land Development Trust Ltd. (1986)
161 ITR 524 (SC), held inapplicable.

5. Section 23(1A) provides for additional amount. It H
1030 SUPREME COURT REPORTS [2009] 10 S.C.R.

A takes care of increase in the value at the rate of 12 % per
annum. Similarly, under Section 23(2) of the 1894 Act ,_-
there is a provision for solatium which also represents
part of enhanced compensation. Similarly, Section 28
empowers the court in its discretion to award interest on
B the excess amount of compensation over and above what
is awarded by the Collector. It includes additional amount
under Section 23(1A) and solatium under Section 23(2)
of the said Act. Section 28 applies only in respect of the ~ ,,.
excess amount determined by the court after reference
c under Section 18. It depends upon the claim, unlike
interest under Section 34 which depends on undue delay
in making the award. It is true that "interest" is not
compensation. It is equally true that Section 45(5) of the
1961 Act refers to compensation. Interest under Section
28 unlike interest under Section 34 is an accretion to the
D
value, hence it is a part of enhanced compensation or
consideration which is not the case with interest under
Section 34 of the 1894 Act. So also additional amount
under Section 23(1A) and solatium under Section 23(2)
of the 1961 Act forms part of enhanced compensation
E under Section 45(5)(b) of the 1961 Act. [Para 33] [1053-A-
F]
6. The assessed capital gain of that year shall be
recomputed by taking the compensation or consideration
F as so reduced by such court, Tribunal or other authority
to be the full value of the consideration. For giving effect
to such recomputation, the provisions of the newly
inserted (w.e.f. 1.4.2004) section 155(16) by the Finance
Act, 2003 (32 of 2003) have been enacted. [Para 34] [1054-
G B-C]
7. The scheme of Section 45(5) of the 1961 Act was I_,
inserted w.e.f. 1.4.88 as an overriding provision.
Compensation under the L.A. Act, 1894, arises and is
payable in multiple stages which does not happen in
H cases of transfers by sale etc. He.,ce, the legislature had
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1031
GHANSHYAM (HUF)

to step in and say that as and when the assessee- A
claimant is in receipt of enhanced compensation it shall
be treated as "deemed income" and taxed on receipt
basis.' This is supported by insertion of clause (c) in
Section 45(5) w.e.f. 1.4.04 and Section 155(16) which
refers to a situation of a subsequent reduction by the B
Court, Tribunal or other authority and recomputation/
amendment of the assessment order. Section 45(5) read
as a whole (including clause "c") not only deals with re-
working but also with the change in the full value of the
consideration (computation) and since the enhanced c
compensation/consideration (including interest under
Section 28 of the 1894 Act) becomes payable/paid under
1894 Act at different stages, the receipt of such enhanced
compensation/consideration is to be taxed in the year of
receipt subject to adjustment, if any, under Section
0
155(16) of the 1961 Act, later on. Hence, the year in which
enhanced compensation is received is the year of
taxability. Consequently, even in cases where pending
appeal, the Court/Tribunal/Authority before which appeal
is pending, permits the claimant to withdraw against E
security or otherwise the enhanced compensation (which
is in dispute), the same'iS liable to be taxed under Section
45(5) of the 1961 Act. This is the scheme of Section 45(5)
and Section 155(16) of the 1961 Act. It is clarified that
even before the insertion of Section 45(5)(c) and Section
155(16) w.e.f. 1.4.04, the receipt of enhanced F
compensation under Section 45(5)(b) was taxable in the
year of receipt which is only reinforced by insertion of
clause (c) because the right to receive payment under the
1894 Act is not in doubt. It is important to note that
compensation, including enhanced compensation/ G
----J consideration under the 1894 Act, is based on the full
value of property as on date of notification under Section
4 of that Act. When the Court/Tribunal directs payment of
enhanced compensation under Section 23(1A), or
Section 23(2) or under Section 28 of the 1894 Act it is on H
1032 SUPREME COURT REPORTS [2009] 10 S.C.R.

A the basis that award of Collector or the Court, under
reference, has not compensated the owner for the full
value of the property as on date of notification. [Para 35]
[1054-D-H; 1055-A-E]

8. In this batch of cases which relate back to
8
assessment years 1991-92 and 1992-93, possibly the
proceedings under the L.A. Act 1894 would have ended.
In number of cases it is found that proceedings under the
1894 Act have been concluded and taxes have been paid.
Therefore, by this judgment the law has been settled but
C it is directed that since matters are decade old and since
this Court is not aware of what has happened in Land
Acquisition Act proceedings in pending appeals, the
recomputation on the basis of this judgment, particularly
in the context of type of interest under Section 28 vis-vis
D interest under Section 34, additional compensation under
Section 23(1A) and solatium under Section 23(2) of the
1894 Act, would be extremely difficult after all these years,
will not be done. [Para 36) [1055-E-H]

E Case Law Reference :
(1986) 161 ITR 524 (SC) held inapplicable Para 6
AIR 1995 SC 2492 relied on Para 22
AIR 1996 SC 497 relied on Para 22
F
1994(1) sec 44 relied on Para 23
(1991) 1 sec 262 relied on Para 23
(2001) 1 sec 211 relied on Para 25
G CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4401 of 2009.

From the Judgment & Order dated 16.05.2007 of the High
Court of Punjab & Haryana at Chandigarh in ITA No. 222 of
H 2005.
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1033
GHANSHYAM (HUF)

---i WITH A
,,. C.A. Nos. 4402, 4403, 4404, 4405, 4406, 4407, 4408, 4409,
4410,4411,4412,4413,4414,4415,4416,4417,4418,4419,
4420, 4422, 4423, 4424, 4425, 4426 of 2009.

K. Radhakrishnan, H. Raghavendra Rao, Arijit Prasad, B
T.A. Khan, Rahul Kaushik, Amey Nargolkar, kunal Bahri,
Gaurav Agrawal, M. Khairati and B.V. Balaram Das for the
.... • Appellants .

S. Ganesh, Amar Dave, Ruby Singh Ahuja, Simran Brar,
Abeer Kumar, Pragya Ohri, Karanjawala, Himanshu
c
Upadhyaya, R.C. Kaushik, Kavin Gulati, Rashmi Singh and
Avnish Pandey for the Respondents.

The Judgment of the Court was delivered by
,... -I
D
S. H. KAPADIA, J. 1. Delay condoned.
2. Leave granted.
3. The controversy in the present batch of civil appeals
pertains to the interpretation of Section 45(5) of the Income-
E
tax Act, 1961; as it stood prior to 1.4.2004.
FACTS IN THE LEAD MATIER

Civil A(:!(:!eal No. 4401 of 2009 - Arising out of S.L.P. {C}
No.17640 of 2008 - Commissioner of Income Tax,
F
Faridabad v. Ghanshyam (HUF).
4. Assessee received enhanced compensation on its
lands being acquired by Haryana Urban Development Authority
(HUDA) as also interest thereon during the previous year
relevant to assessment year 1999-2000. G
~t
5. Assessee filed its return on income for the assessment
year 1999-2000 in which he did not offer the amount of
enhanced compensation and the interest received thereon
during the previous year relevant to the assessment year for
taxation, on the plea that the amount of enhanced H
1034 SUPREME COURT REPORTS [2009] 10 S.C.R.

A compensation received had not accrued to the assessee ...__
during the year of receipt as the entire amount was in dispute ...
in appeal before the High Court which appeal stood filed by
the State against the order of the Reference Court granting
enhanced compensation. The amount was received by the
B assessee in terms of the interim order of the High Court against
the assessee's furnishing security to the satisfaction of the
executing court. The interest received on enhanced
compensation during the previous year was also, according to .. ..,,.
the assessee, not chargeable to tax on the same plea.
c 6. The A.O. did not accept the contentions of the
assessee on the ground that in terms of Section 45(5) of the
Income-tax Act, 1961 ("1961 Act", for short) enacted w.e.f.
1.4.88, the amount by which compensation or consideration

D
stood enhanced or further enhanced by the Court, is deemed
income chargeable under the head "Capital Gains" of the
~ -
previous year in which the said amount came to be received.
The A.O. accordingly brought to tax the amount of enhanced
compensation of Rs.87, 13,517/- received by the assessee
during the previous year relevant to the assessment year 1999-
E 2000. Similarly, interest on enhanced compensation of
Rs.1,4 7,575/- received by the assessee during the previous
year was also brought to tax in the year of receipt. The assessee
filed appeal against the order of the A.O. in which he reiterated
the above contention. Assessee also placed reliance on the
F judgment of' this Court in Commissioner of Income-tax, West
Bengal-II v. Hindustan Housing and Land Development Trust
Ltd. -(1986) 161 ITR 524 (SC). CIT (A) came to the conclusion
that since the enhanced compensation received was in dispute
in the pending First Appeal. both, the enhanced compensation
G as well as the interest thereon had not accrued to the assessee
during the year of receipt as the entire amount was in dispute '-
in First Appeal and that the assessee had received the said
amount only against security furnished to the satisfaction of the
executing court. At this stage, it may be mentioned that the
H amount of enhanced compensation sought to be taxed under
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1035
GHANSHYAM (HUF) [S.H. KAPADIA, J.]

Section 45(5) of the 1961 Act was Rs.87,13,517/c whereas the A
~
interest on enhanced compensation which was also sought to
be taxed was Rs.1,47,575/-.

7. Aggrieved by the decision of the CIT(A), the Department
moved Income-tax Appellate Tribunal (ITAT) which following its
B
order upheld the order of the CIT(A) and dismissed the appeal
of the Department. Aggrieved by the decision of the Tribunal
the matter was carried in appeal to the High Court under
.... -·- Section 260A of the 1961 Act. By the impugned judgment it
has been held that the case is squarely covered by the judgment
of the Supreme Court in the case of Hindustan Housing
c
(supra). According to the High Court, when the State is in
appeal against the order of enhanced compensation and
interest thereon the receipt of additional compensation and
interest thereon was not taxable as income as the said two
,>- '
_,
items were disputed by the Government in appeal. D
Consequently, the Department's appeal was dismissed by the
Higp Court, hence this civil appeal is filed by the Department.

ISSUE
E
8. The short question to be decided in this batch of civil
appeals is : whether ITAT was right in ordering deletion of -
enhanced compensation and interest thereon from the total
income of the assessee on the ground that the said two items,
awarded by the Reference Court, was under dispute in First
Appeal before the High Court. F

Analysis of provisions of the 1961 Act

9. We quote hereinbelow Section 2(47) of the 1961 Act
which reads as under: G
---f
• "2 - Definitions

In this Act, unless the context otherwise requires,-

(47) "transfer", in relation to a capital asset, H
1036 SUPREME COURT REPORTS [2009] 10 S.C.R.

A includes,-

(i) the sale, exchange or relinquishment of the asset;
or

(ii) the extinguishment of any rights therein; or
B
(iii) the compulsory acquisition thereof under any
law; or
j .,.

(iv) in a case where the asset is converted by the
owner thereof into, or is treated by him as, stock-
c in-trade of a business carried on by him, such
conversion or treatment; [or]

(v) any transaction involving the allowing of the
possession of any immovable property to be taken
D or retained in part performance of a contract of the ;- '
nature referred to in Section 53A of the Transfer of
Property Act, 1882 (4 of 1882); or

(vi) any transaction (whether by way of becoming a
member of, or acquiring shares in, a co-operative
E
society, company or other association of persons
or by way of any agreement or any arrangement or
in any other manner whatsoever) which has the
effect of transferring, or enabling the enjoyment of,
any immovable property.
F
Explanation.-For the purposes of sub-clauses (v) and
(vi), "immovable property" shall have the same meaning
as in clause (d) of Section 269UA."

G 10. We also quote hereinbelow Section 45(1) of the 1961
Act as it stood prior to 1.4.2004 which reads as under: ~-
"45 - Capital gains

(1) Any profits or gains arising from the transfer of a capital
H asset effected in the previous year shall, save a~
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1037
GHANSHYAM (HUF) [S.H. KAPADIA. J.]
'-
otherwise provided in sections [***] [54, 54B, [***] [540, A
[54E, [54EA, 54EB,] 54F [. 54G and 54H]]]]]. be
chargeable to income-tax under the head "Capital gains",
and shall be deemed to be the income of the previous year
in which the transfer took place."
B
11. We also quote hereinbelow Section 45(5) of the 1961
Act as it stood prior to 1.4.2004 which reads as under:

"45 - Capital gains

(5) Notwithstanding anything contained in sub-section (1 ), c
where the capital gain arises from the transfer of a capital
asset, being a transfer by way of compulsory acquisition
under any law, or a transfer the consideration for which was
determined or approved by the Central Government or the
Reserve Bank of India, and the compensation or the o
consideration for such transfer is enhanced or further
enhanced by any court, Tribunal or other authority, the
capital gain shall be dealt with in the following manner,
namely:-
,..
(a) the capital gain computed with reference to the E
compensation awarded in the first instance or, as
l the case may be, the consideration determined or
approved in the first instance by the Central
Government or the Reserve Bank of India shall be
chargeable as [income under the head "Capital F
gains" of the previous year in which such
compensation or part thereof, or such
consideration or part thereof, was first received];
and
G
(b) the amount by which the compensation or
.I consideration is enhanced or further enhanced by
the court, Tribunal or other authority shall be
deemed to be income chargeable under the head
"Capital gains" of the previous year in which such H
1038 SUPREME COURT REPORTS (2009] 10 S.C.R.

A amount is received by the assessee;"

12. We also quote hereinbelow Section 45(5) of the 1961
Act after 1.4.2004 which reads as under:

"45 - Capital gains
B
(5) Notwithstanding anything contained in sub-section (1 ),
where the capital gain arises from the transfer of a capital
asset, being a transfer by way of compulsory acquisition 1 •
under any law, or a transfer the consideration for which was
c determined or approved by the Central Government or the
Reserve Bank of India, and the compensation or the
consideration for such transfer is enhanced or further
enhanced by any court, Tribunal or other authority, the

D
capital gain shall be dealt with in the following manner,
namely:- . ~

(a) the capital gain computed with reference to the
compensation awarded in the first instance or, as the case
may be, the consideration determined or approved in the
first instance by the Central Government or the Reserve
E Bank of India shall be chargeable as [income under the ...
head "Capital gains" of the previous year in which such
compensation or part thereof, or such consideration or
part thereof, was first received]; and

F (b) the amount by which the compensation or consideration
is enhanced or further enhanced by the court, Tribunal or
other authority shall be deemed to be income chargeable
under the head "Capital gains" of the previous year in
which such amount is received by the assessee;
G (c) where in the assessment for any year, the capital gain
arising from the transfer of a capital asset is computed by
taking the compensation or consideration referred to in
clause (a) or, as the case may be, enhanced
compensation or consideration referred to in clause (b),
H and subsequently such compensation or consideration is
1040 SUPREME COURT REPORTS [2009] 10 S.C.R.

A may be, the compensation or consideration enhanced or
)- --\.-
further enhanced as referred to in clause (b) of sub-section
(5) of Section 45, to be the full value of consideration
deemed to be received or accruing as a result of the
transfer of the asset and subsequently such compensation
B or consideration is reduced by any court, Tribunal or other
authority, the Assessing Officer shall amend the order of
assessment so as to compute the capital gain by taking
the compensation or consideration as so reduced by the t .r"
court, Tribunal or any other authority to be the full value of
c consideration; and the provisions of Section 154 shall, so
far as may be, apply thereto, and the period of four years
shall be reckoned from the end of the previous year in
which the order reducing the compensation was passed
by the court, Tribunal or other authority."
D 14. The following conditions need to be satisfied for taxing ._ ~

a transaction as capital gains, viz., the subject-matter must be
a capital asset, the transaction must fall in the definition of
"transfer", there must be profit or loss called "Capital Gains"
and that the taxpayer has claimed exemption in whole or in part
E by complying with legal provisions (Like Section 54F).

15. Section 45(1) of the 1961 Act speaks about capital
gains arising out of "transfer'' of a capital asset. The definition
of the expression "transfer" is contained in Section 2(47) of the
F 1961 Act. It has very wide meaning. What is taxable under
Section 45(1) of the 1961 Act is "profits and gains arising from
a transfer of a capital asset" and the charge of income-tax on
the capital gains is a charge on the income of the previous year
in which the transfer took place. Capital gain(s) is an artificial
income. It is created by the 1961 Act. Profit(s) arising from
G
transfer of capital asset is made chargeable to income-tax
under Section 45(1) of the 1961 Act. From the scheme of
Section 45, it is clear that capital gains is not an income which
accrues from day-to-day during a specific period but it arises
_,.
-
at fixed point of time, namely, on the date of the transfer. In short, ...
H '
'
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1041
GHANSHYAM (HUF) [S.H. KAPADIA, J.]

Section 45 defines capital gains, it makes them chargeable to A
.~
tax and it allots the appropriate year for such ~harge. It also
enacts a deeming provision. Section 48 lays down mode of
computation of capital gains and deductions therefrom.

16. The question which arises for determination is - why B
was Section 45(5) inserted by the Finance Act, 1987, w.e.f.
1.4.88? Under Section 45(1 ), profits or gains arising from the
... -f
transfer of a capital asset effected in the previous year is taken
to be the income of the previous year in which the transfer took
place and such profits are chargeable to tax under the head
"Capital Gains". However, it was noticed that in cases where
c
capital gains accrued or arose by way of compulsory
acquisition, the additional compensation stood awarded in
several stages by different appellate authorities which
necessitated rectification of the original assessment at each
,. ~ stage. To provide for rectification of the assessment of the year D
in which capital gains was originally assessed, Section
155(7A) was also introduced. However, as stated above, since
additional compensation under the Land Acquisition Act, 1894
was awarded in several stages multiple rectifications had to be
made to the original assessment which cause great difficulty E
in carrying out the required rectification and in effecting the
-f recovery of additional demand. It was also noticed that
repeated rectifications of assessment on account of
er111ancement of compensation by different courts often resulted
in mistakes in. computation of tax. Therefore, with a view to F
remove these difficulties, the Finance Act 1987 inserted
Section 45(5) to provide for taxation of additional compensation
in the year of receipt instead of in the year of transfer of the
capital asset. Accordingly, additional compensation is treated
as "deemed income" in the hands of the recipient even if the G

- t actual recipient happens to be a person different from the
original transferor by reason of death, etc. For this purpose, the
cost of acquisition in the hands of the receiver of the additional
compensation is deemed to be nil. However, the compensation
awarded in the first instance would continue to be chargeable H
""'!"
1042 SUPREME COURT REPORTS [2009] 10 S.C.R.

A as income under the head "Capital Gains", in the previous year
~
in which transfer took place. At this stage, it may be noted, that,
Section 45(1) stood further amended (w.e.f. 1.4.91) so as to
include reference to Section 54H and Section 45(5)(a) which,
as stated above, stood amended (w.e.f. 1.4.88). The scope
B and effect of the above amendments made in Section 45, as
also insertion of Section 54H, by Finance Act 1991, has been
elaborated in the following portion of the Departmental Circular
No.621 dated 19.12.91: 'I- .,

"Streamlining the provisions relating to exemption for roll-
c over of capital gains-

Capital gains are deemed to be income of the
previous year in which the transfer giving rise to the gains
takes place except where othe1wise provided. According
D in the case of compulsory acquisition of assets, the capital ~ '
gains included in the compensation, as originally awarded,
is charged to tax in the year in which the transfer by way
of compulsory acquisition takes place, but additional
compensation is brought to tax only in the year in which it
E is received.

It has been brought to the notice of the Government
that in case of compulsory acquisition of assets, at times
there is a considerable gap between the dates of
acquisition and payment of compensation. The result is that
F the existing provisions of capital gains taxation operate
harshly inasmuch as the affected persons are unable to
avail of the exemption for roll-over of capital gains, within
the specified time period through investment in specified
assets.
G
Section 45 of the Income-tax Act has, therefore, ~ #-

been amended to provide that capital gains arising from
the transfer of the capital asset by way of compulsory
acquisition under any law shall be charged to tax in the
H previous year in which the compensation is first received. .
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1043
GHANSHYAM (HUF) [S.H. KAPADIA, J.]

This amendment takes effect retrospectively from 1st A
~
April, 1988.

Further, a new section 54H has been inserted in the
Income-tax Act, to provide that in cases where
compensation in respect of any asset acquired
B
compulsorily is received after the date of such transfer, the
period for investment in specified assets shall be reckoned
. ,-)-
from the date of receipt of such compensation. However,
where the compensation was first received before 1st
April, 1991, and the period for making investment in any
specified asset has expired before 1st October, 1991,
c
such period shall stand extended up to 31st December,
1991.

This amendment takes effect from the 1st day of
, _,_ ' October, 1991." D

17. The important point to be noted is that in the case of
compulsory acquisition of an asset, the capital gains in the
compensation, as originally awarded, is charged to tax in the
year in which the transfer by way of compulsory acquisition
E
takes place, but additional compensation is brought to tax only
in the year in which it is received.
-t
18. Thus, Section 45(5) enacts overriding provisions and
takes care of a situation :
F
--where the capital gains arises from the transfer of a
capital asset, being-

--a transfer by way of compulsory acquisition under
any law, or
G
~ -1- --a transfer the consideration for which was
determined or approved by the Central Government
or the Reserve Bank of India, and

--the compensation or consideration for such transfer is H
'
1044 SUPREME COURT REPORTS [2009) 10 S.C.R.

A enhanced or further enhanced by any court, tribunal or other
authority.

In such a situation, the capital gain so arising is, for and
from assessment year 1988-89, to be dealt with as under:-
B (a) the capital gain computed with reference to-

--the compensation awarded in the first instance or,
as the case may be

--the consideration determined or approved in the
c first instance by the Central Government or the
Reserve Bank of India

is chargeable as income under the head "Capital
gains" of the previous year in which such
D compensation or part thereof, or such
consideration or part thereof, was first received; and

(b) the amount by which the compensation or consideration
is enhanced or further enhanced by the court, tribunal or
E other authority is to be deemed fo be the income
chargeable under the head "Capital gains" of the previous
year in which such amount is received by the assessee.

Analysis of the provisions of L.A. Act, 1894

F 19. At the outset we quote hereinbelow Sections 23(1),
23(1A) and 23(2) of the 1894 Act which read as under:

"23 - Matters to be considered in determining
compensation
G (1) In determining the amount of compensation to be
awarded for land acquired under this Act, the court shall
take into consideration--

first, the market-value of the land at the date of the
H publication of the notification under section 4, sub-
..
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1045
GHANSHYAM (HUF) [S.H. KAPADIA, J.]

section (1 ); A

secondly, the damage sustained by the person
interested, by reason of the taking of any standing
crops or trees which may be on the land at the time
of the Collector's taking possession thereof;
B
thirdly, the damage (if any), sustained by the person
interested, at the time of the Collector's taking
possession of the land, by reason of severing such
land from his- other land;
c
fourthly, the damage (if any), sustained by the
person interested, at the time of the Collector's
taking possession of the land, by reason of the
acquisition injuriously affecting his other property,
.. ·l' movable
•.
or immovable,
11,. •.
in any other. manner, or his D
e~rnmgs;

• fifthly; if, in consequence of the acquisition of the
land by the Collector, the person interested is
compelled to change his residence or place of
business, the reasonable expenses (if any) E
incidental to such change; and
}
sixthly, the damage (if any) bona fide resulting from
diminution of the profits of the land between the
time of the publication of the declaration under F
section 6 and the time of the Collector's taking
possession of the land.

(1A) In addition to the market value of the land above
provided, the Court shall in every case award an amount
G
calculated at the rate of twelve per centum per annum on
such market-value for the period commencing on and from
the date of the publication of the notification under section
4, sub-section (1 ), in respect of such land to the date of
the award of the Collector or the date of taking possession
of the land, whichever is earlier. H
1046 SUPREME COURT REPORTS [2009] 10 S.C.R.

A Explanation.-ln computing the period referred to in
this sub-section, any period or periods during which r--...
the proceedings for the acquisition of the land were
held up on account of any stay or injunction by the
order of any court shall be excluded.
B
(2) In addition to the market-value of the land as above
provided, the court shall in every case award a sum of thirty
per centum on such market-value, in consideration of the
f
compulsory nature of the acquisition." <P

c 20. We also quote hereinbelow Section 28 of the 1894 Act
which reads as under:

"28. Collector may be directed to pay interest on excess
compensation. -
D If the sum which, in the opinion of the court, the Collector
ought to have awarded as compensation is in excess of
' "' /

the sum which the Collector did award as compensation,
the award of the Court may direct that the Collector shall
pay interest on such excess at the rate of [nine per centum)
E per annum from the date on which he took possession of
the land to the date of payment of such excess into Court."

21. We also quote hereinbelow Section 34 of the 1894
which reads as under:
F
"34. Payment of interest.-

When the amount of such compensation is not paid or
deposited c:in or before taking possession of the land, the
Collector shall pay the amount awarded with interest
G thereon at the rate of nine per centum per annum from the
time of so taking possession until it shall have been so -t ....
paid or deposited.

Provided that if such compensation or any part
H thereof is not paid or deposited within a period of
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1047
GHANSHYAM (HUF) [S.H. KAPADIA, J.]

one year from the date on which possession is A
--~ taken, interest at the rate of fifteen per centum per
annum shall be payable from the date of expiry of
the said period of one year on the amount of
compensation or part thereof which has not been
paid or deposited before the date of such expiry." B
22. Section 23(1A) was introduced in the 1894 Act to
mitigate the hardship caused to the owner of the land who is
:+
deprived of its enjoyment by taking possession from him and
using it for public purpose, because of considerable delay in
making the award and offering payment thereof [See : c
Assistant Commissioner, Gadag Sub-Division, Gadag v.
Mathapathi Basavannewwa and others - AIR 1995 SC 2492].
To obviate such hardship, Section 23(1A) was introduced and
the Legislature envisaged that the owner is entitled to 12% per
annum additional amount on the market value for a period D
-~· ~
commencing on or from the date of publication of the notification
under Section 4( 1) of the 1894 Act upto the date of the award
of the Collector 9r the date of taking possession of the land,
whichever is earlier. The additional amount payable under
Section 23(1A) of the 1894 Act is neither interest nor solatium. E
It is an additional compensation designed to compensate the
owner of the land, for the rise in price during the pendency of
t the land acquisition proceedings. It is a measure to offset the
effect of inflation and the continuous rise in the value of
properties. [See: State of Tamil Nadu and others etc. v. L. F
Krishnan and others etc. - AIR 1996 SC 497]. Therefore, the
amount payal91e under Section 23(1A) of the 1894 Act is an
additional compensation in respect to the acquisition and has
to be reckoned as part of the market value of the land. Sub-
section (1A) of Section 23 was introduced by Land Acquisition G

- ..' (Amendment) Act, 1984. It provides that in every case the Court
shall award an amount as additional compensation at the rate
of 12% per annum on the market value of the land for the period
commencing on and from the date· of publication of the
notification under Section 4( 1) to the date of the award of the H
1048 SUPREME COURT REPORTS (2009] 10 S.C.R.

A Collector or to the date of taking possession of the land,
whichever is earlier. In other words sub-section (1A) of Section !'·-

23 provides for additional compensation. The said sub-section
takes care of increase in the value at the rate of 12% per
annum.
B
23. In addition to the market value of the land, as above
provided, the Court shall in every case award a sum of 30%
on such market value, in consideration of the compulsory nature
of acquisition. This is under Section 23(2) of the 1894 Act. In
short, Section 23(2) talks about solatium. Award of solatium is
c mandatory. Similarly, payment of additional amount under
Section 23(1A) is mandatory. The award of interest under
Section 28 of the 1894 Act is discretionary. Section 28 applies
when the amount originally awarded has been paid or deposited
and when the Court awards excess amount. In such cases
D interest on that excess alone is payable. Section 28 empowers s -..
the Court to award interest on the excess amount of
compensation awarded by it over the amount awarded by the
Collector. The compensation awarded by the Court includes the
additional compensation awarded und!'lr Section 23(1A) and
E the solatium under Section 23(2) of the said Act. This award
of interest is not mandatory but is left to the discretion of the
Court. Section 28 is applicable only in respect of the excess
amount, which is determined by the Court after a reference
under Section 18 of the 1894 Act. Section 28 does not apply
F to cases of undue delay in making award for compensation
(See: Ram Chand & others etc v. Union of India & Ors. -
1994(1) SCC 44]. In the case of Shree Vijay Cotton & Oil Mills
Ltd. v. State of Gujarat - (1991) 1 SCC 262, this Court has
held that interest is different from compensation.
G
24. To sum up, interest is different from compensation.
However, interest paid on the excess amount under Section 28
of the 1894 Act depends upon a claim by the person whose
land is acquired whereas interest under Section 34 is for delay
;.
-
in making payment. This vital difference needs to be kept in
H
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1049
GHANSHYAM (HUF) [S.H. KAPADIA, J.]

mind in deciding this matter. Interest under Section 28 is part A
-· t
of the amount of compensation whereas interest under Section
34 is only for delay in making payment after the compensation
amount js determined. Interest under Section 28 is a part of
enhanced value of the land which is not the case in the matter
of payment of interest under Section 34. B

25. It is clear from reading of Sections 23(1A), 23(2) as
. also Section 28 of the 1894 Act that additional benefits are
-'
available on the market value of the acquired lands under
Se_ction 23(1A) and 23(2) whereas Section 28 is available in
respect of the entire compensation. It was held by the
c
Constitution Bench of the Supreme Court in Sunder v. Union
of"fndia :- (2001) 7 sec 211, that "indeed the language of
Section 28 does .not even remotely refer to market value alone
and. in terms it talks of compensation -or the sum equivalent
~.~ > thereto. Thus, interest awardable under Seetion 28, would D
include within its a·mbit both the market value and the statutory
solatium. It would be thus evident th~t even the provisions of
Section 28 authorise the grant of interest on solatium as well."
Th~s solatium means an integral part of compensation, interest
would be payable on it. Section 34 postulates award of interest E
at 9% per annum from the date of taking possession only until
it is paid or deposited. It is a mandatory provision. Basically
Se.ction 34 provides for payment Of interest for delayed
payment._
F
Taxabilitv of additional com'pensation and interest under
Section 45{5} of the 1961 Act in the context of the
provisions of L.A. Act, 1894

26. The question-before this Court is : whether additional
amount under Section 23(1A), solatium under Section 23(2), G
> ~ interest paid on excess compensation under Section 28 and
interest under Sect.ion 34 of the 1894 Act, could be treated as
part of the compensation under Section 45(5) of the 1961 Act?

27. In the case of Hindustan Housing (supra) certain lands H
1050 SUPREME COURT REPORTS [2009] 10 S.C.R

A belonging to the assessee-company, which was in the business t -
of dealing in land and which maintained its account on
mercantile system, were first requisitioned and then
compulsorily acquired by the State Government. The Land
Acquisition Officer awarded Rs.24,97,249/- as compensation.
B On appeal the Arbitrator made an award at Rs.30, 10,873/- with
interest at 5% from the date of acquisition. Thereupon, the State
preferred an appeal to the High Court. Pending the appeal, the
State Government deposited in the Court Rs.7,36,691/- being . _,
the additional amount payable under the award and the
c assessee was permitted to withdraw that additional amount on
furnishing a security bond for refunding the amount in the event
of the said Appeal being allowed. On receiving the amount, the
assessee credited it in its suspense account on the same date.
The question was : whether the additional amount of
D
Rs.7,24,914/- could be taxed as the income on the ground that \ -.,
it became payable pursuant to the award of the Arbitrator. The
Tribunal held that the amount did not accrue to the assessee
as its income and was, therefore, not taxable in the assessment
year 1956-57. The financial year in which the additional amount
came to be withdrawn ended on 31.3.56. It was held by this
E Court that although award was made on 29. 7.1955, enhancing
the amount of compensation payable to the assessee, the
entire amount was in dispute in the appeal filed by the State.
Therefore, there was no absolute right to receive the amount
at that stage. It was held that if the Appeal was to be allowed
F in its entirety, the right to payment of enhanced compensation
would have fallen altogether. Therefore, according to this Court,
the extra amount of compensation of Rs.7,24,914/- was not
income arising or accruing to the assessee during the previous
year relevant to the assessment year 1956-57.
G
28. The question is : whether the judgment of this Court in ~ ....
Hindustan Housing (supra) would apply to the present case
which arises under the Income-tax Act, 1961? At the outset, it
may be noted that the judgment of this Court in Hindustan
H Housing (supra) was delivered on 29.7.86. It was prior to ,
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1051
GHANSHYAM (HUF) [S.H. KAPADIA, J.]

,- . 1.4.88 when Section 45(5) stood incorporated by Finance Act
1987 w.e.f. 1.4.88. Further, the judgment of this Court in
A

Hindustan Housing (supra) has been given in respect of
assessment year 1956-57 under the Income-tax Act, 1922
whereas, in the present case, we are concerned with the 1961
Act which defines the word "transfer" in much wider sense 8
under Section 2(47). Lastly, for the reasons given hereinafter,
particularly in the context of introduction of Section 45(5) of the
, + 1961 Act w.e.f.1.4.88 a totally new scheme stood introduced
keeping in mind cases of compulsory acquisition under the
1894 Act under which compensation is payable at multiple c
stages and amounts stand withdrawn by the asse$see-
claimants and used by the assessee(s) for several years, during
which litigation is pending. It is in the context of Section 45(5)
that we need to decide the year of taxability. It is significant to
note that Section 128 of 1922 Act did not contain specific D
~ ,J
reference to compulsory acquisition as contained in Section
2(47) of the 1961 Act. Therefore, in our view, the judgment of
this Court in Hindustan Housing (supra) is not applicable to
the present case.

29. From Section 45 it is clear that capital gains are not E
income accruing from day to day. It is deemed income which
arises at a fixed point of time, viz, date of transfer. Section
45(5), newly inserted by the Finance Act, 1987, w.e.f. 1.4.88
and subsequently amended, retrospectively w.e.f. 1.4.88, by the
Finance Act, 1991, enacts overriding provision and takes care F
of a situation -

where the capital gains arise from the transfer of a
capital asset, being a transfer by way of compulsory
acquisition and the compensation for such transfer stands G
enhanced in stages by any court, tribunal or authority. In
,,. -+ such a situation, the capital gains so arising is, for and from
assessment year 1988-89, has to be dealt with as under:-

(i) the capital gains computed with respect to the
compensation awarded in the first instance would H
1052 SUPREME COURT REPORTS [2009] 10 S.C.R.

A be chargeable as Income under the head "Capital
Gains" of the previous year in which such -; -
compensation or part thereof was first received;
and

(ii) amount by which compensation or consideration
B
is enhanced or further enhanced by the court,
tribunal or authority is to be Deemed Income

c
chargeable under the head "Capital Gains" of the
previous year in which such amount is received by
the assessee.
I-
-
30. For the said purpose, the- cost of acquisition is to be
taken as Nil [See: Explanation (i)]. Also, where the enhanced
compensation is received by any person, other than the
transferor by reason of the death of the transferor or for any
D reason, the amount of such additional compensation or
'~
additional consideration is to be deemed to be the income of
the recipient of the previous year in which such amount is
received by him.

31. Two aspects need to be highlighted. Firstly, Section
E
45(5) of the 1961 Act deals with transfer(s) by way of
compulsory acquisition and not by way of transfers by way of
sales etc. covered by Section 45(1) of the 1961 Act. Secondly,
Section 45(5) of the 1961 Act talks about enhanced
compensation or consideration which in terms of L.A. Act 1894
F results in payment of additional compensation.

32. The issue to be decided before us - what is the
meaning of the words "enhanced compensation/consideration•
in Section 45(5)(b) of the 1961 Act? Will it cover "interesr?
G These questions also bring in the concept of the year of
taxability.
.. 4

33. It is to answer the above questions that we have
analysed the provisions of Sections 23, 23(1A), 23(2), 28 and
34 of the 1894 Act. As discussed hereinabove, Section 23(1A)
H
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1053
GHANSHYAM (HUF) [S.H. KAPADIA, J.]
provides for additional amount. It takes care of i.ncrease in the A
·- • value at the rate of 12 % per annum. Similarly, under Section
~
23(2) of the 1894 Act there is a provision for solatium which
also represents part of enhanced compensation. Similarly,
Section 28 empowers the court in its discretion to award
interest on the excess amount of compensation over and above B
what is awarded by the Collector. It includes additional amount
under Section 23(1A) and solatium under Section 23(2) of the
said Act. Section 28 of the 1894 Act appiies only in respect
of the excess amount determined by the court after reference
under Section 18 of the 1894 Act. It depends upon the claim, c
unlike interest under Section 34 which depends on undue delay
in making the award. It is true thaf "ihterest" is not
compensation. It is equally true that Section 45(5) 'bf the 1961
Act refers to compensation. But as discussed hereirtabove, we
have to go by the provisions of the 1894 Act which awards D
_, ,\
"interest" both as an accretion in the value of the lands acquired
and interest for undue delay. Interest under Section 28 unlike
to
interest under Section 34 is an accretion the value, hence it
is a part.of enhanced compensati.on or consideration which is
not the case with interest under Section 34 of the 1894 Act:
E
So also additional amount under Section 23(1A) and solatium·
u.nder Section 23(2) of the 1961 Act forrris part. of enhanced
compensation under Section 45(5)(b) of the 1961 Act. lh fact,
what we have stated hereinabove is reinforced by the newly
-·· inserted clause (c) in Section 45(5) by the Finance Act, 2003
w.e. f.1.4.2004. This newly added clause envisages. a situation' F
·where in the assessment for any ye'ar,- . · ·

-the capital gain arising from the transfer of a capital asset
is computed by taking the-
G
-compensation or consideration referred to in clause (a)
> ., of section 45(5) or, as the case may be,

-enhanced compensation
\ .
or consideration
. referred t6. in
clause (b) of section 45(5), ., .
:- H
1054 SUPREME COURT REPORTS [2009] 10 S.C.R.

A and subsequently such compensation or consideration is
reduced by any court, Tribunal or other authority. .- -·
34. In such a situation, such assessed capital gain of that
year shall be recomputed by taking the compensation or
consideration as so reduced by such court, Tribunal or other
B
authority to be the full value of the consideration. For giving
effect to such recomputation, the provisions of the newly
inserted (w.e.f. 1.4.2004) section 155(16) by the Finance Act,
2003 (32 of 2003), have been enacted. . •

c 35. It was urged on behalf of the assessee that Section
45(5)(b) of the 1961 Act deals only with re-working, its object
is not to convert the amount of enhanced compensation into
deemed income on receipt. We find no merit in this argument.
The scheme of Section 45(5) of the 1961 Act was inserted
D w.e.f. 1.4.88 as an overriding provision. As stated above, I, -
compensation under the L.A. Act, 1894, arises and is payable
in multiple stages which does not happen in cases of transfers
by sale etc. Hence, the legislature had to step in and say that
as and when the assessee-claimant is in receipt of enhanced
E compensation it shall be treated as "deemed income" and
taxed on receipt basis. Our above understanding is supported
by insertion of clause (c) in Section 45(5) w.e.f. 1.4.04 and
Section 155(16) which refers to a situation of a subsequent ~

F
reduction by the Court, Tribunal or other authority and
recomputation/amendment of the assessment order. Section
45(5) read as a whole (including clause "c") not only deals with
re-working, as urged on behalf of the assessee but also with
-
the change in the full value of the consideration (computation)
and since the enhanced compensation/consideration (including
interest under Section 28 of the 1894 Act) becomes payable/
G
paid under 1894 Act at different stages, the receipt of such
enhanced compensation/consideration is to be taxed in the year t-

of receipt subject to adjustment, if any, under Section 155(16)
"'
of the 1961 Act, later on. Hence, the year in which enhanced
compensation is received is the year of taxability.
H
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1055
GHANSHYAM (HUF) [S.H. KAPADIA, J.)

-· Consequently, even in cases where pending appeal, the Court/
Tribunal/Authority before which appeal is pending, permits the
claimant to withdraw against security or otherwise the enhanced
A

compensation (which is in dispute), the same is liable to be
taxed under Section 45(5) of the 1961 Act. This is.the scheme
of Section 45(5) and Section 155(16) of the 1961 Act. We may B
clarify that even before the insertion of Section 45(5)(c) and
Section 155(16) w.e.f. 1.4.04, the receipt of enhanced
compensation under Section 45(5)(b) was taxable in the year
of receipt which is only reinforced by insertion of clause (c)
because the right to receive payment under the 1894 Act is not c
in doubt. It is important to note that compensation, including
enhanced compensation/consideration under the 1894 Act, is
based on the full value of property as on date of notification

.,,.., . under Section 4 of that Act. When the Court/Tribunal directs
payment of enhanced compensation under Section 23(1A), or
Section 23(2) or under Section 28 of the 1894 Act it is on the
D
basis that award of Collector or the Court, under reference, has
not compensated the owner for the full value of the property as
on date of notification.

36. Having settled the controversy going on for last two E
decades, we are of the view that in this batch of cases which
~ relate back to assessment years 1991-92 and 1992-93,

- possibly the proceedings under the L.A. Act 1894 would have
ended. In number of cases we find that proceedings under the
1894 Act have been concluded and taxes have been paid. F
Therefore, by this judgment we have settled the law but we direct
that since matters are decade old and since we are not aware
of what has happened in Land Acquisition Act proceedings in
pending appeals, the recomputation on the basis of our
judgment herein, particularly in the context of type of interest G
', ~
under Section 28 vis-a-vis interest under Section 34, additiona~
compensation under Section 23(1A) and solatium under
Section 23(2) of the 1894 Act, would be extremely difficult after
all these years, will not be done.
37. Subject to what is stated hereinabove, we allow the H
1056 SUPREME COURT REPORTS [2009] 10 S.C.R.

A civil appeal of the Department with no order as to cost.
Civil Appeal No. 4402 of 2009-Arising out of S.L.P. (C) No.17644 of 2008 "
Civil Appeal No. 4403 of 2009-Arising out of S.L.P. (C) No.17643 of 2008
Civil Appeal No. 4404 of 2009-Arising out of S.L.P. (C) No.17645 of 2008
B Civil Appeal No. 4405 of 2009-Arising out of S.L.P. (C) No.17642 of 2008
Civil Appeal No. 4406 of 2009-Arising out of S.L.P. (C) No.17641of2008
Civil Appeal No. 4407 of 2009-Arising out of S.L.P. (C) No.17647 of 2008
IL
Civil Appeal No. 4408 of 2009-Arising out of S.L.P. (C) No.17646 of 2008
Civil Appeal No. 4409 of 2009-Arising out of S.L.P. (C) No.8350 of 2009
c Civil Appeal No. 4410 of 2009-Arising out of S.L.P. (C) No.8451of2008
Civil Appeal No. 4411of2009-Arising out of S.L.P. (C) No.4832 of 2008
Civil Appeal No. 4412 of 2009-Arising out of S.L.P. (C) No.4833 of 2008
Civil Appeal No. 4413 of 2009-Arising out of S.L.P. (C) No.4834 of 2008
D Civil Appeal No. 4414 of 2009-Arising out of S.L.P. (C) No.4835 of2008
Civil Appeal No. 4415 of 2009-Arising out of S.L.P. (C) No.20657 of 2008
• ...
Civil Appeal No. 4416 of2009-Arising out of S.L.P. (C) No.20658 of 2008
Civil Appeal No. 4417 of 2009-Arising out of S.L.P. (C) No.20659 of 2008
Civil Appeal No. 4418 of 2009-Arising out of S.L.P. (C) No.7599 of 2009
E Civil Appeal No. 4419 of 2009-Arising out of S.L.P. (C) No.3054 of2008
Civil Appeat No. 4420 of 2009-Arising out of S.L.P. (C) No.3717 of 2009
~
Civil Appeal No. 4422 of 2009-Arising out of S.L.P. (C) No.4174 of 2009
Civil Appeal No. 4423 of 2009-Arising out of S.L.P. (C) No.31566 of 2008 <'.

F Civil Appeal No. 4424 of 2009-Arising out of S.L.P. (C) No.713 of 2009
Civil Appeal No. 4425 of 2009-Arising out of S.L.P. (C) No.5300 of 2009
Civil Appeal No. 4426 of 2009-Arising out of S.L.P. (C) No.6378 of 2009

38. For the reasons given and also subject to what is .
G stated hereinabove in Civil Appeal No. 4401 of 2009 - Arising
out of S.L.P. (C) No.17640 of 2008 - Commissioner of Income /'-
'
Tax, Faridabad v. Ghanshyam (HUF), the civil appeals filed
by the Department stand allowed with no order as to costs.
G.N. Appeals allowed.
H