Date of Award is the Date of Accrual of Capital Gains: Supreme Court [Read Judgment]

The Supreme Court while upholding the assessment of AO held that the date of award is the date of accrual of capital gains for the purpose of Section 45 of the Act of 1961.

The question concerning date of accrual of capital gains arose in the backdrop that though the proceedings for acquisition in question were taken up by way of notification dated May 15, 1968 and award of compensation was made on October 29, 1970 but, as a matter of fact, at the time of issuance of the initial notification for acquisition, the subject land was already in possession of the beneficiary under a lease, though the period of lease had expired.

In the light of these facts, the ITAT did not approve of charging tax over capital gains with reference to the date of award while observing that the date of notification would be treated as the date of taking over physical possession and the transaction leading to capital gains would be considered as having taken place on that date and not on the date of award.

The High Court, however, did not agree with this line of reasoning and held that the amount of compensation was determined only on the passing of the award dated October 29, 1970, and, therefore, if any capital gain was chargeable to tax, it would be chargeable for the previous year referable to the date of the award.

The root question is as to whether, on the facts and in the circumstances of the present case, the High Court was right in taking the date of award as the date of accrual of capital gains for the purpose of Section 45 of the Act of 1961.

The three-judge bench of Justice A.M. Khanwilkar, Justice Dinesh Maheshwari and Justice Sanjiv Khanna held that the AO had rightly assessed the tax liability of the appellant, on long-term capital gains arising on account of the acquisition, on the basis of the amount of compensation allowed in the award dated October 29, 1970, as also the enhanced amount of compensation accrued finally to the appellant and as regards interest income, had rightly made protective assessment on the accrual basis.