D.L.F. United Ltd. vs Commissioner Of Income-Tax
1995 Latest Caselaw 753 Del

JUDGMENT

Dr. M.K. Sharma, J.

1. As the questions of law referred to us for our opinion in these references involve identical questions of law with only some textual changes, we propose to dispose of these references by this common judgment.

2. Income-tax References Nos. 259 to 261 of 1977 :

3. The present references by applications under section 256(1) of the Income-tax Act, 1961, relate to the assessment years 1967-68, 1968-69 and 1969-70. As the questions of law arising for consideration in respect of the aforesaid assessment years were common a consolidated statement of the case was drawn up by the Tribunal whereby the following five questions of law have been referred for our opinion :

"(1) Whether, on the facts and in the circumstances of the case, the compensation amounts of Rs. 70,371, Rs. 11,656 and Rs. 16,23,117 received by the assessee for the assessment years 1967-68, 1968-69 and 1969-70 for acquisition of its lands by the Government are assessable to tax as profits of the assessor's business?

(2) Whether, on the facts and in the circumstances of the case, the above compensation amounts can be said to be agricultural income within the meaning of section 2(1) (a) of the Income-tax Act, 1961, and as such exempt from income-tax?

(3) Whether, on the facts and in the circumstances of the case, the character of the assessor's lands changed from stock-in-trade and the same stood sterilised and converted into a capital asset as a result of the issue of the notifications under section 4 of the Land Acquisition Act, 1894?

(4) Whether, on the facts and in the circumstances of the case, income from one-half of the property situate at 16, Aurangzeb Road, has rightly been held to be assessable under the head 'Property'?

(5) If the answer to question No. 4 is in the negative, whether the claim for repairs and depreciation has been rightly restricted to one-half of the claim?"

4. DLF Housing and Construction Co. Pvt. Ltd. was a company carrying on business as colonizers by purchasing, developing and selling plots of land in and around Delhi. In the course of its business, the company acquired certain agricultural lands in certain villages around Delhi, out of which some land was acquired by the Government through a notification issued under section 4 of the Land Acquisition Act followed by a declaration issued under section 6 of the Land Acquisition Act. In pursuance of the said acquisition, in accordance with the provisions of the Act, the company received compensation for the land after assessment under the Land Acquisition Act. The Income-tax Officer, while assessing the company, held that the company was a dealer in lands and, accordingly, the said acquired land constituted the company's stock-in-trade and, consequently, the compensation received by the company was liable to be taxed as income in the three assessment years under consideration. On appeal, at the instance of the company, the Appellate Assistant Commissioner, following his earlier order for the assessment year 1965-66, decided the issue against the company and upheld the order of assessment passed by the Income-tax Officer. In the meantime, DLF Housing and Construction Company was amalgamated with DLF United Limited and, accordingly, the present assessee preferred appeals to the Tribunal. By that time, however, the assessor's appeal pertaining to the assessment year 1963-64 raising similar contentions came up for consideration and was decided by the Full Bench of the Tribunal. Accordingly, for the assessment years under consideration, the Tribunal, following the judgment and order passed by the Full Bench of the Tribunal, affirmed the conclusion of the Appellate Assistant Commissioner and rejected the assessor's appeals. The petition filed by the assessee seeking a reference to the High Court under section 256(1) came up for consideration before the Tribunal in respect of the aforesaid appellate orders and the Tribunal referred the aforesaid questions of law to this court for its opinion holding the same as questions of law.

5. Income-tax Reference No. 287 of 1977 :

6. This reference arises out of the application filed by the assessee under section 256(1) of the Income-tax Act and relates to the assessment year 1966-67. In this reference, the following questions of law have been referred by the Tribunal for our opinion holding the same to be questions of law :

"(1) Whether, on the facts and in the circumstances of the case, compensation of Rs. 11,802 received by the assessee for the acquisition of its lands by the Government is assessable to tax as profits of the assessor's business?

(2) Whether, on the facts and in the circumstances of the case, compensation of Rs. 11,802 was its agricultural income within the meaning of section 2(1) (a) of the Income-tax Act, 1961, and as such exempt from income-tax?

(3) Whether, on the facts and in the circumstances of the case, the character of the assessor's lands changed from stock-in-trade and the same stood sterilised and was converted into a capital asset as a result of the issue of notifications under sections 4 and 6 of the Land Acquisition Act, 1894?

(4) Whether, on the facts and in the circumstances of the case, income from one-half of the property situate at 16, Aurangzeb Road, New Delhi, has rightly been held to be assessable under the head 'Property'?"

7. The facts of this reference, out of which the aforesaid questions of law have arisen are similar and identical with those of the Income-tax References Nos. 259 to 261 of 1977 and in order to avoid repetition of the facts we do not propose to set out the facts of the said case herein.

8. Learned counsel appearing for the parties conceded before us that the order of the Special Bench referred to and relied up by the Tribunal in the aforesaid references has been the subject-matter of reference to this court and the same has already been answered in favor of the assessee. The said decision of this court is in DLF United Limited v. CIT [1986] 161 ITR 714. Our attention has also been drawn to some other decisions of this court under similar circumstances relating to the same assessee in respect of the assessment years 1961-62, 1964-65 and also for the assessment year 1965-66. The questions of law referred in the aforesaid references have also been answered in favor of the assessee in DLF Housing and Construction (P.) Ltd. v. CIT [1983] 141 ITR 806 (Delhi) and DLF United Ltd. v. CIT [1986] 158 ITR 342 (Delhi) and in the case of DLF United Ltd. v. CIT [1986] 161 ITR 709 (Delhi).

9. At this stage, we may specifically refer to the decision of this court in DLF United Ltd. v. CIT [1986] 161 ITR 714, wherein the following questions were referred to this court for its opinion in respect of the same assessee for the assessment year 1963-64 (at page 714) :

"(1) Whether, on the facts and in the circumstances of the case, the compensation of Rs. 2,33,489 and the enhanced compensation of Rs. 1,04,924 received by the assessee for the acquisition of its lands by the Government are assessable to tax as the profits of the assessor's business?

(2) Whether, on the facts and in the circumstances of the case, the compensation of Rs. 2,33,489 and the enhanced compensation of Rs. 1,04,924 were its agricultural income within the meaning of section 2(1) of the Income-tax Act, 1961, and as such exempt from income-tax?

(3) Whether, on the facts and in the circumstances of the case, the character of the assessor's lands changed from stock-in-trade and the same stood sterilised and was converted into a capital asset as a result of the issue of notification under section 4 of the Land Acquisition Act, 1894?

(4) Whether, on the facts and in the circumstances of the case, income from one-half of the property situate at 16, Aurangzeb Road, has rightly been held to be assessable under the head 'Property'?

(5) If the answer the question No. 4 is in the negative, whether the claim for repairs and depreciation has been rightly restricted to one-half of the claim?"

10. This court, while answering the questions of law referred to this court in the said reference, considered the ratio of the decision of this court in respect of the same assessee in DLF Housing and Construction Pvt. Ltd. v. CIT [1983] 141 ITR 806. On a consideration of the ratio of the aforesaid decision, this court while answering the reference held that except for the amounts, questions Nos. 1, 2, 4 and 5, now referred, are the same with some textual changes. Question No. 3, according to this court, was different and that question No. 3 was a new question. After considering the arguments put forward by learned counsel for the rival parties, this court, in the said reference, held that the compensation amount is not assessable as profit from the business and, accordingly, answered question No. 1 referred to in the said reference in the negative. This court further held in respect of question No. 2 that the compensation paid to the assessee is not agricultural income of the assessee but is a capital gain which is exempt under the Income-tax Act and, accordingly, the said question was answered in the negative. Question No. 3 was held to be academic by this court but still this court held that on the facts of the case, the notification under section 4 has no effect on the character of the acquired land. So far as question No. 4 of the said reference is concerned the same was answered in the affirmative and against the assessee and this court further held that question No. 5 did not arise because of its terms.

11. Mr. B. B. Ahuja, learned counsel appearing for the assessee, submitted before us the all the five questions of law referred to this court for its opinion in the case of DLF United Ltd. v. CIT [1986] 161 ITR 714 are identical and similar to the questions of law which arise for our consideration in the present references. Therefore, learned counsel submitted that following the ratio of the aforesaid decision of this court in DLF United Ltd. v. CIT [1986] 161 ITR 714, the answer to the aforesaid questions would be in favor of the assessee so far as the first three questions are concerned and so far as the fourth question is concerned the same should be answered in the affirmative and against the assessee. According to him, the present reference, in all respects is covered by the aforesaid decision of this court in DLF United Ltd. v. CIT [1986] 161 ITR 714. He further submitted that in view of the fact that the Full Bench decision of the Tribunal, on which the Tribunal has relied upon for coming to its decision in the present references, was the judgment and order against which the aforesaid reference in DLF United Ltd. v. CIT [1986] 161 ITR 714 arose and, therefore, the decision of this court in the present references on the question of law should not deviate from that of the earlier decision of this court, the facts being identical and the view of this court all along being consistent.

12. We may at this stage refer to another important aspect related to the present case. Subsequent to the aforesaid decision of this court in DLF United Ltd. v. CIT [1986] 161 ITR 714, this court had occasion to deal with another reference of the same assessee in respect of the assessment year 1965-66. Learned counsel appearing for the Revenue in the said reference also made an endeavor to distinguish the facts in the said reference from that of the case in DLF United Ltd. v. CIT [1986] 161 ITR 714. This court, however, on a consideration of the rival submissions of counsel for the parties held that on the facts, the questions of law which were referred to this court for its opinion had to be answered in favor of the assessee because this court found that the reference made to this court from the order of the Special Bench, referred to earlier had been answered in favor of the assessee so far as the three questions which were involved in the said reference were concerned. The said decision in the case of DLF United Ltd. v. CIT is reported in [1986] 161 ITR 709 (Delhi). In the said decision of this court, it was held that the High Court is bound to confine itself to the facts as found by the Tribunal or as admitted before it. Relying upon the decisions of the Supreme Court in the case of CIT v. Panipat Woollen and General Mills Co. Ltd. [1976] 103 ITR 66, this court held that while answering the reference, the High Court cannot go behind the statement of facts. In the aforesaid decision in the case of DLF United Ltd. v. CIT (supra), this court held in respect of question No. 1 that prior to the acquisition of the land in question and even till the date of the award, the assessee made no attempt to transfer or alter the character of the agricultural land and that the assessee had not taken steps to develop the lands in question in its normal line of business, with a view to parcel it out into plots for sites to be utilised for housing and commercial buildings. This court further held that, in other words, the agricultural lands purchased originally by the assessee for urbanisation or conversion into building plots remained agricultural land till the acquisition and payment of compensation, and in view of the said finding this court held that the first question has to be answered in the negative, i.e., the profits were not business profits. With regard to the second question, this court found that as the compensation had been paid for the acquisition of agricultural land, the question really involved a determination as to whether the price paid for the land by way of compensation could be included within the definition of "agricultural income". It was further held that the agricultural land was excluded from the definition of "capital asset" occurring in section 2(14) (iii) and accordingly any gain resulting from the acquisition of agricultural land was not income, and accordingly the answer to the said question was that the compensation amount was not income.

13. Mr. B. Gupta, learned counsel appearing for the Revenue, on the other hand, submitted before us that the assessee is and has been a leading colonizer of Delhi and that the facts as found by the Assessing Officer for all the assessment years involved in the present reference, namely, assessment years 1966-67, 1967-68, 1968-69 and 1969-70 are altogether different from the facts which were there in the assessment year 1961-62, in the case of DLF Housing and Construction (P.) Ltd. v. CIT [1983] 141 ITR 806 (Delhi). Learned counsel, in support of the aforesaid submissions has strenuously taken us through the ratio of the decision in DLF United Ltd. v. CIT [1986] 161 ITR (Delhi) and also the statement of the case of the present reference. Learned counsel also drew our attention to the various orders passed by the Income-tax Officer and also the Appellate Assistant Commissioner and the appellate order of the Tribunal involved in the present reference and on the basis thereof made a valiant effort to distinguish the facts of the present reference on the ground that so far as the land involved in the present references is concerned, the assessee dealt with the same for the purpose of their business, namely, purchasing the same, plotting into house sites for the purpose of sale of the same in the course of their ordinary course of business. He submitted that the questions, so far as these years of assessments are concerned, have to be decided, therefore, on materially different facts.

14. We have given our anxious consideration to the submissions made by learned counsel for the parties. It is a well-settled proposition of law that a reference in income-tax matters is on a question of law and that this question of law has to be answered by the High Court on the basis of facts and circumstances either found by the Tribunal or admitted by the parties before the Tribunal. The questions referred to us for our opinion start with the words "whether, on the facts and in the circumstances of the case". The Supreme Court has interpreted the aforesaid wordings in the decisions in CIT v. Calcutta Agency Ltd. and CIT v. Panipat Woollen and General Mills Co. Ltd. , wherein the Supreme Court held that the aforesaid wordings imply that the High Court is bound the confine itself to the facts as found by the Tribunal and, therefore, the High Court cannot go behind the statement of facts referred to it for its opinion on the question of law referred.

15. The statement of the case relating to the present references nowhere states that the character of the lands and nature of the compensation received in the above years on the acquisition of agricultural lands are different from those which were the subject-matter of income-tax references in the earlier assessment years already decided by this court and referred to above. We have carefully gone through the statement of facts referred to us in the present references and therein we could not find any finding recorded by the Tribunal that the agricultural lands purchased by the assessee which were subsequently acquired under the land acquisition proceedings relating to the assessment years under consideration were developed lands or that the same were parceled or plotted for sites to be utilised for houses and commercial buildings. On the other hand, the Tribunal has, in categorical terms in the said statement of facts, recorded that the facts and circumstances are identical and the contentions urged are also the same for the assessment years under consideration with the facts and circumstances in respect of the assessment year 1963-64.

16. In our opinion, it is not open for the Revenue to challenge the findings of the Tribunal and the statements recorded in the statement of the case at the time of finalising the statement of the case that the facts and circumstances and the contentions in the above reference are identical to those in the assessment years 1963-64. On going through the statement of the case of the present references and also the decision of the case in DLF United Ltd. v. CIT [1986] 161 ITR 714 (Delhi), we are of the conclusive opinion that there is no material on record and none has been pointed out by learned counsel for the Revenue to show that the nature of land and the compensation received in the assessment years under consideration are of different nature than that of the land involved for the assessment year 1963-64. As we have come to a definite conclusion that the facts in relation to the assessment years under consideration with which we are now concerned are on all material particulars similar to or identical with those that came up for consideration in 1964-65, we have to answer the questions in terms of the answers given by this court in respect of the reference in DLF United Ltd. v. CIT [1986] 161 ITR 714 (Delhi) inasmuch as we respectfully agree with the reasoning of this court in the aforesaid references. Besides, the said view appears to be the consistent view of this court with which we respectfully agree.

17. Learned counsel appearing for the Revenue submitted before us that as to whether the surplus arising on the acquisition of land in the hands of the assessees is a profit of business or adventure in the nature of trade or is a capital receipt or revenue receipt is a finding of fact and, therefore, this court is not entitled to disturb the said finding of fact. In support of the aforesaid submission, learned counsel for the Revenue also relied upon two decisions of the Supreme Court in the case of CIT v. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 and CIT v. Greaves Cotton and Co. Ltd. [1968] 68 ITR 200.

18. We have carefully gone through the ratio of the aforesaid two decisions and, in our opinion, the judgment of the Supreme Court in the case of CIT v. Greaves Cotton and Co. Ltd. [1968] 68 ITR 200 does not support the case of the Revenue. On the other hand, the decision in the case in CIT v. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 is a decision on the particular facts of the case where the High Court on a reference proceeded to consider the question from an entirely new angle which was never the case of the assessees and in view of the said facts, the Supreme Court held that it was not open to the High Court to go into the question whether the shares have been held by way of investment as no decision of the Tribunal was invited thereon and that the High Court had gone beyond the matters which were the subject-matter of the controversy before the Tribunal. On the other hand, we may usefully refer to two other decisions of the Supreme Court in Ramnarain Sons (P.) Ltd. v. CIT [1961] 41 ITR 534 and Oriental Investment Co. Ltd. v. CIT [1957] 32 ITR 664, wherein the Supreme Court in considering whether a transaction is or is not an adventure in the nature of trade held that the inference on such a question raised by the Tribunal on the facts found is a mixed question of law and fact. Similarly, in Oriental Investment Co. Ltd. v. CIT [1957] 32 ITR 664, the Supreme Court further held that the question regarding the characteristics of the business of dealing in shares or that of an investor is a mixed question of fact and law. Besides on similar facts and circumstances and on identical question, this court has answered the questions of law referred to this court for the earlier years of assessment in favor of the assessee, the relevance of which and the fact thereof cannot be lost sight of by us. Therefore, the second submission of learned counsel for the Revenue has no force at all and is rejected.

19. After giving our decision on the aforesaid two submissions of learned counsel appearing on behalf of the Revenue, we are left to decide that last contention raised by the Revenue that the insertion of the Explanation to the definition of agricultural income in section 2(1A) of the Income-tax Act by the Finance Act, 1989, with retrospective effect from April 1, 1970, makes a difference to the approach to the answer to the question in the above reference. The aforesaid submission of learned counsel for the Revenue is to be dealt with by us particularly in view of the fact that the aforesaid amendment relied upon by learned counsel for the Revenue and insertion thereof came to be made in the year 1989 with retrospective effect from April 1, 1970, i.e., prior to the decisions of this court on the identical facts rendered in respect of the same assessee for the earlier years of assessment. As we have already held that the surplus of the compensation amount arising as a result of acquisition of the agricultural land in question was a capital receipt and not income at all, the question of change in the definition of "agricultural income" because of the insertion of the Explanation has no relevance in the present context.

20. However, even assuming the said Explanation to section 2(1A) inserted with effect from April 1, 1970, by the Finance Act, 1989, is applicable to the facts and circumstances of the case as submitted by learned counsel for the Revenue, let us now examine whether the contention raised by learned counsel for the Revenue that it is clarificatory in nature and would apply to all the assessments even prior to April 1, 1970 is valid or has any substance in it. Learned counsel submitted before us that the said Explanation inserted in the definition of "agricultural income" in section 2(1A) of the Act by the Finance Act, 1989, although was given retrospective effect from April 1, 1970, the same is clarificatory in nature and would apply to all the assessments even prior to April 1, 1970, and in that view the questions of law referred to us for our opinion have to be answered in favor of the Revenue. In support of his submission, learned counsel relied upon a decision of the Supreme Court in the case of CIT v. P. Doraiswamy Chetty [1990] 183 ITR 559, where the Supreme Court was considering Explanation 2 added to section 64 by the Finance Act, 1979, with effect from April 1, 1980, according to which the expression "income" in section 64 includes loss and in that context, the Supreme Court held that the same would apply for the earlier years also. The said decision of the Supreme Court while arriving at the aforesaid conclusion relied heavily upon the ratio of the decision in an earlier case of CIT v. J. H. Gotla , dealing with a provision similar to that of section 16(3) of the 1922 Act and interpreted the term "income" as including loss, even without the aid of any Explanation, as also on the basis of a circular of the Board issued in 1944 to the same effect. It is, however, significant to note that no retrospective effect as such was given to the said Explanation at the time of amendment as has been done in the same of Explanation inserted in section 2(1A) of the Act giving retrospective effect specifically from April 1, 1970. Since a specific date has been provided for by the Legislature for operation of the amendment for its retrospective effect, i.e., from April 1, 1970, in our opinion, the said Explanation has no effect at all and cannot apply to an assessment proceeding prior to the period April 1, 1970. In this connection, we may appropriately refer to a decision of the Supreme Court in Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1, in which the court while considering Explanation 1 to section 40(b) inserted in 1984 by the Taxation Laws (Amendment) Bill, 1984, made applicable, with effect from April 1, 1985, held that (at page 18) :

"An 'Explanation', generally speaking, is intended to explain the meaning of certain phrases and expressions contained in a statutory provision. There is no general theory as to the effect and intendment of an Explanation except that the purpose and intendment of the 'Explanation' are determined by its own words. An Explanation, depending on its language, might supply or take away something from the contents of a provision. It is also true that an Explanation may - this is what Sri Ramachandran suggests in this case - be introduced by way of abundant caution in order to clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative errors and to place what the Legislature considers to be the true meaning beyond any controversy or doubt. Hypothetically, that such can be the possible purpose of an 'Explanation' cannot be doubted. But the question is whether, in the present case, Explanation 1 inserted into section 40(b) in the year 1984 has had that effect.

The 'Notes on Clauses' appended to the Taxation Laws (Amendment) Bill, 1984, say that clause 10 which seeks to amend section 40 will take effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. The express prospective operation and effectuation of the 'Explanation' might, perhaps, be a factor necessarily detracting from any advancement of the intent on the part of the Legislature that the Explanation was intended more as a legislative exposition or clarification of the existing law than as a change in the law as it then obtained."

21. This court had occasion to consider the aforesaid observations of the Supreme Court in a case where also a similar question in respect of the effect of an amendment of an "Explanation" being added to the substantive provision arose for consideration. This court, in the case of CIT v. Sita Ram Kharaiti Lal [1995] 211 ITR 400, after noticing the said observation of the Supreme Court, held thus (at page 416) :

"The above observation in no way advances the case of the Revenue before us. The effect to be given to an explanatory amendment depends upon several factors, including its language. The concluding sentence in the above observation indicates that, when the Legislature has made the Explanation operative prospectively by words expressed therein, its operation shall have to be confined to the future date. The same reasoning would govern the case when Parliament limited the retrospectivity of the Explanation with effect from a particular date. In such a situation, giving further retrospectivity to the Explanation will be hijacking the intention of the Legislature into an impermissible area.

The declaration and the clarification involved in Explanation 2, are only for purposes of assessments with effect from April 1, 1976. This provision widens the concept of 'entertainment expenditure' by including in its scope such of the expenditures which are otherwise traditionally understood as routine business expenditures incurred in connection with 'business-hospitality'. Therefore, the widened meaning cannot be extended to post periods when the amended Explanation 2 was not in operation."

22. In view of the aforesaid conclusion reached by us, the last submission advanced by learned counsel for the Revenue also has no merit and is rejected.

23. In view of the aforesaid conclusions in respect of the questions of law which have been referred to us for our opinion, we propose to give the same answer following the previous judgments of this court referred to above. Accordingly, in respect of Income-tax References Nos. 259-261 of 1977, we answer question No. 1 in the negative on the basis that the compensation amount is not assessable as profit from the assessor's business whereas question No. 2 is answered in the negative on the basis that the compensation paid is not agricultural income but is a capital gain which is exempted under the Income-tax Act as arising from agricultural land. Question No. 3 is held to be academic but still we answer the same be holding that the notification under section 4 has no effect on the character of the acquired land. At the same time, we also hold that the said question is purely academic and accordingly requires no answer at all. On the other hand, we answer question No. 4 in the affirmative and against the assessee. We also hold that question No. 5 does not arise because of its textual terms. However, in view of our conclusion reached in respect of Income-tax References Nos. 259-261 of 1977, we also answer the questions of law involved in Income-tax Reference No. 287 of 1977, we answer questions Nos. 1 and 2 in the negative. We further hold and answer question No. 3 to be academic and accordingly requiring no answer but still holding that the notification under section 4 has no effect on the character of the acquired land. However, so far as question No. 4 is concerned, we answer the same in the affirmative and against the assessee.

24. In the result, the references are answered and disposed of accordingly. No order as to costs.