DIVAN, J. -
(1.) BOTH these references arise out of the same order of the Tribunal and hence we will dispose of both of them by this common judgment.
(2.) THE assessment year under consideration is assessment year 1968 -69, the relevant previous year being calender year 1967. The assessee is a limited company and carries on business of manufacturing textiles. In its return of income for the assessment year 1968 -69, the assessee -company disclosed capital gains of Rs. 52, 989. During the accounting year, the Government of Gujarat acquired land admeasuring 10,390 square yards belonging to the company. Possession of the land was taken on November 24, 1967. The assessee -company received the sum of Rs. 1,74,807 as an by way of compensation together with interest, etc., under the terms of the award of the Land Acquisition Officer. The company calculated the capital gains at Rs. 52,989 and disclosed the same in return. The ITO, however, found on inquiry that the assessee -company was not satisfied with the amount of compensation awarded by the Land Acquisition Officer and had pursued the matter in appeal by asking for a reference under s. 18 of the Land Acquisition Act, 1894. In the reference application, the contention of the assessee -company was that compensation should be paid at the rate of Rs. 35 per square yard and the amount of compensation should be paid on that basis together with solatium at 15% on the amount that might be determined. The company was also claiming damages for the severance of the land and, under this item, it was claiming Rs. 25 per square yard. The company's claim in the reference application stood at Rs. 5,10,891. The ITO was of the view that, in view of the assessee's own contention before the Resident Assistant Collector, Bhavnagar, the total compensation receivable was Rs. 4,73,047 on the basis of fair market value. The ITO, therefore, proceeded to invoke the provisions of s. 52(2) of the Act of 1961 and on that basis determined the fair market value in lieu of the full value of consideration received by the assessee. After making adjustments, he determined long -term capital gains at Rs. 4,21,098.
The assessee took the matter in appeal before the AAC. The AAC took into consideration the alternative suggested by the assessee itself and he held that the proposal made by the assessee was quite fair and reasonable and it safeguarded the interests of the revenue and would not be unfair to the assessee also. The alternative proposal was that the assessee would not object to the determination of the capital gains with reference to the revised amount of compensation received by the assessee, in case the application for revision of compensation was accepted by the land acquisition authorities and the revision was accepted by the Land Acquisition Officer. Against the decision of the AAC,, the assessee went in appeal to the Tribunal. It was urged on behalf of the assessee that the provisions of s. 52(2) was not attracted and, so long as the award of the Land Acquisition Officer stood, there was no question of determining fair market value in respect of the property. As regards the alternative contention, the Tribunal observed that it was not necessary to deal with the said contention in view of the decision on the first contention. It further observed that it would be open to the ITO to proceed with the matter in accordance with law if a higher amount of compensation is received by the assessee at a later date. Thereafter, at the instance of the revenue, the following two questions have been referred to us by the Tribunal under s. 256(1) of the I.T. Act, 1961:
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the capital gains has to be determined with reference to the amount of compensation paid to the assessee by the Land Acquisition Officer ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of section 52(2) of the Income -tax Act would not apply to the transfer in the case of the assessee ?'
The revenue had also applied for a third question, namely:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in refusing to give direction to the Income -tax Officer to adopt the revised value of compensation in lieu of the compensation received by the assessee as and when the decision in this regard is reached by the Land Acquisition Authorities ?
(3.) THE Tribunal in the first instance felt that this question did not arise out of the order of the Tribunal. However, on an application made in that behalf, the High Court gave directions under s. 256(2) and the Tribunal, in pursuance of that direction, referred the third question which was not originally referred by the Tribunal, and that reference is Income -tax Reference No. 124 of 1978. The question that is referred to the High Court for our opinion in Income -tax Reference No. 124 of 1978 is that third question.;