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Raj Pal Singh v. Commissioner of Income Tax, Haryana

Civil Appeal · 2020 INSC 505Decided 25 Aug 2020
Civil Appeal No. 2416 of 2010
Justice A.M. Khanwilkar · Justice Hemant Gupta · Justice Dinesh Maheshwari

Background

The appellant's land was acquired by the government in 1968, but the compensation award was made only in 1970, by which time the land was already leased to another party whose lease had expired shortly before the acquisition notification. A dispute arose over which year's income the resulting capital gains should be taxed in: the Income Tax Appellate Tribunal held the transfer (and tax liability) should be dated to the 1968 notification, while the tax department and the High Court held it should be dated to the 1970 compensation award, which made a tax difference for the relevant assessment year.

Decision Breakdown

The Supreme Court held that capital gains tax liability on compulsorily acquired land accrues from the date the compensation award is made, not from the date of the initial acquisition notification, because legal transfer of the property for tax purposes is tied to when compensation is finally determined. The Court also rejected the appellant's argument that the department's treatment of a separate, later assessment year (where facts were different) should bind how this earlier assessment year was treated. Finding no error in the tax authorities' assessment, the Court dismissed the appeal and upheld the tax demand.

Lesson Learnt

When land is compulsorily acquired by the government, the capital gains tax clock generally starts running from the date compensation is awarded, not from the earlier date of the acquisition notification: a timing distinction that can matter significantly for which year's tax rules and rates apply.

Official source (sci.gov.in)View Judgment (PDF)

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