Law: Income Tax Act, 1961

Section: 45

[Indian Income Tax Act, 1961].....Capital gains---Computation of capital gains---Compulsory acquisition of land---Solarium awarded in addition to compensation--Solarium is a profit arising from transfer of land---Solarium to be taken into account in calculating capital gains---Solarium awarded on basis of the market value of land---Deduction of solarium not permissible on the basis of an assumed value as on January 1, 1954, or January 1, 1964---Indian Income Tax Act, 1961, Sections. 45 & 48---Indian Land Acquisition Act, 1894. The conditions precedent for attracting section 45 of the Income Tax Act, 1961, are that there should- be a transfer of a capital asset and, as a result of such transfer gain should have arisen to the transferor, clause (47) of section 2 defines "transfer" in relation to a capital asset as the sale, exchange or relinquishment of the asset or the extinguishments of any right therein. There is a transfer when land is compulsorily acquired. Subsection (2) of section 23 of the Land Acquisition Act, 1894, provides for payment of a sum equal to 15 percent. of the market value of the land in addition to the market value in consideration of the compulsory nature of the acquisition. This amount may be called solatium but the purpose and object of such payment have not been specified. In the absence of any specific mention of the reason other than the compulsory nature of the acquisition, the additional payment at the rate of 15 percent. of the market value cannot be said to be money not forming part of the consideration. The additional amount, received by the owner of the land under section 23(2) of the 1894 Act, is undoubtedly a profit arising from the transfer of land in the hands of the owner. CIT v. Subaida Beevi (M.) (Smt.) (1986) 160 ITR 557 (Ker.); Karvalves Ltd. v. CIT (1992) 197 ITR 95 (Ker.) and Todiwalla (R. R:) v. CIT (1994) 208 ITR 65 (Bom.) fol. Held, (i) that the amounts received as solarium in the assessment years 1977-78 and 1978-79 formed part of the consideration for purposes of working out the capital gains under the Income-tax Act. (ii) That there could not be any assumption that the assessee was entitled to any solarium…

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