1. This appeal under Section 260A of the Income Tax Act, 1961 ('Act' for short) by the Revenue is against the order of the Income Tax Appellate Tribunal, Bangalore Bench in ITA No. 439/Bang/1998 relating to assessment year 1994-95.

2. Respondent's land measuring 2 acres 14 guntas in Gadag Betgeri was acquired under notification dated 24-4-1997 for extension of market yard. The Land Acquisition Officer made an award at the rate of 75 paise per sq .ft. in regard to the acquired land. Respondent sought increase in compensation. The Reference Court increased the compensation to Rs. 8.50 per sq.ft. The judgment and award of the Reference Court was challenged in MFA No. 837/1987 before this Court. This Court by judgment dated 7-10-1992 determined the market price as Rs.7/- per sq.ft plus solatium and interest.

3. The Judgment of this Court was challenged by the Land Acquisition Officer before the Supreme Court in CA No.12884/1996. In terms of the interim orders of this Court and the Supreme Court, respondent received four sums of Rs. 2 lakhs each on 1-4-1993, 13-6-1993, 14-7-1993 & 30-11-1993 by furnishing security Court by order dated 23-9-1996 set aside the orders of this Court and the Reference Court and remanded the matter to the Reference Court for fresh determination of the market value with the following directions:

'The cases are remitted to the civil Court for decision afresh after giving an opportunity to the parties to adduce evidence afresh and then decide the market value according to law. Pending these appeals since the respondents have withdrawn the amount withdrawn will be adjusted when the award was passed by the reference Court'.

4. The Assessing Officer by order dated 4-3-1997 passed in regard to assessment year 1994-95 brought the said amount to tax under Section 45(5)(b) of theholding that amount received by the Assessee was deemed to be income of the year in which amounts were received. The appeal filed by the respondent was dismissed by the Commissioner of Income Tax (Appeals), Hubli by order dated 23-3-1998. On a further appeal by the respondent, the Income Tax Appellate Tribunal, Bangalore Bench in No. ITA 439/Bang/1998, passed an order dated 31-7-2003 allowing the appeal and holding that the amounts received by the respondent-Assessee was not liable to tax in her hands during the period relevant to the assessment year 1994-95 as the receipt of the said amount had a condition attached to it and an absolute right thereto had not accrued to the assessee.

5. Feeling aggrieved, Revenue has come up in this appeal. On the contentions urged, the following questions of law arise for consideration:

(i) 'Whether the Tribunal was correct in holding that amount received by the assessee does not fall within the ambit of Section 45(5)(b) of the

(ii) Whether the Tribunal was correct in applying the principle laid down in CIT vs A.B.V. Gowda (1986) 157 ITR 525 in spite of the provisions of Section 45(5)(b)

(iii) Whether the Tribunal was correct in holding that words 'received' and 'deemed' used in section 45(5)(b) will not apply to receipt of amounts in pursuance of interim orders

6. Section 45 deals with capital gains. Sub-Section (1) of Section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall save as otherwise provided in section 54, 54B, 54D, 54E, 54F, 54G and 54H be chargeable to income tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. Sub-Section (5) of section 45 which is relevant provides thus;

45(5): Notwithstanding anything contained in sub-section(1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law and the compensation or the consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely:-

The capital gain, computed with reference to the compensation awarded in the first instance.shall be chargeable as income under the head 'Capital gains' of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received; and the amount by which the compensation or consideration is enhanced or further enhanced by the Court, Tribunal or other authority shall be deemed to be income chargeable under the head 'Capital Gains' of the previous year in which such amount is received by the assessee'.

7. The Assessing officer treated the sum of Rs.8 lakhs received by the respondent as interim payment as enhanced compensation. The Tribunal has rightly held that the amount received by the respondent is not enhanced compensation. As the Supreme Court set aside the award of the Reference Court and Judgement of this Court in appeal and remanded the matter to the Reference Court for fresh determination, the question whether the Assessee is entitled to enhanced compensation and if so the quantum thereof, is yet to be determined. The sum of Rs.8 lakhs was received by the Assessee, not as enhanced compensation, but as payments in pursuance of interim orders of this Court and the Supreme Court, by furnishing security to the satisfaction of the Court, pending determination of the additional compensation. Only when the Reference Court determines the compensation and such determination becomes final the amount received in pursuance of the interim order will be appropriated against the compensation finally determined and will become income chargeable under the head 'capital gains'. On the other hand, if the enhanced compensation to be determined is les than the sum of Rs.8 lakhs, received by the respondent in pursuance of interim orders, the respondent will have to refund the excess amount received by her. If for any reason, the reference Court determines the compensation at the same rate determined by the Land Acquisition Officer (though improbable but theoretically possible), the entire sum of Rs.8 lakhs will have to be refunded by the respondent. Therefore, the mere fact that some amounts have been received by furnishing security in pursuance of interim orders, pending final determination, will not make the amounts received by Respondent, 'compensation' or 'consideration' that can be subjected to tax under Section 45(5)(b).

7.1) The Tribunal considered this aspect in detail, with reference Section 45 (5) (b). The Tribunal held that the word 'received' in the context of Section 45 (5)(b) refers only to such receipts which an assessee receives in pursuance of a vested right or enforceable decree/award. A conditional receipt of money subject to the final decision cannot be said to have been received by an assessee in his own right. The Tribunal next considered whether in view of the use of the word 'deemed in Section 45(5)(b), the amounts received in pursuance of interim orders, would become 'income'. The tribunal held that having regard to the time spent for adjudication matters due to procedure delays, the compensation is received several years after the acquisition of the land and therefore, the deeming provision in section 45(5)(b) provides for taxing the additional compensation not in the year of acquisition, but in the year when the compensation amount is received by the assessee. The Tribunal held that the deeming effect of the clause (b) of Section 45 (5) cannot be extended so as to take in its fold, conditional interim payments made subject to the final orders of the court.

7.2) We may clarify the effect of clauses (a) and (b) of Section 45(5) with reference to the following two illustrations:

NOTE: In the first illustration, the sum of Rs.20,000/- is received on 1-11-1992 in pursuance of an interim order, not as enhanced compensation, but as an interim payment to be accounted when the quantum of compensation is determined. The sum of Rs. 20,000/- may have to be returned if the compensation is finally determined at only Rs.50,000/-. The said sum became enhanced compensation only when the High Court rendered its decision on 1-7-1994. The sum of Rs.20,000/- received by the Assessee as an interim payment subject to final decision got appropriated towards the enhanced compensation determined on 1-7-1994 and is therefore deemed to be an income received on 1-7-1994.

In the second illustration, the sim of Rs. 40,000/- was received on 1-11-1992 as an undisputed part of compensation as the award of reference Court increasing the compensation became binding as no appeal was filed by LAO; and the appeal by the Assessee was for further enhancement. The deposit of Rs. 40,000/- on 1-11-1992 was not a payment in pursuance of an interim order, as in the first illustration, but a payment of enhanced compensation. Therefore, the sum of Rs.40,000/- drawn on 1-11-1992 attracts sub-Section 5(b) of Section 45 and is deemed to be income under the head 'capital gains' received on 1-11-1992.

8. Section 45(5)(b) will be attracted only when the assessee receives the 'enhanced compensation', in pursuance of a final award/order of a Court, Tribunal or other Authority increasing the compensation. If any amount is received after stay of the award, in pursuance of any interim order, as a payment subject to the final result it will not be an amount received as 'enhanced compensation' contemplated under Section 45(5)(b), but only an interim payment received subject to final decision. It will attract Section 45(5)(b) only when the final decision is rendered. We are supported in the said view by a decision of the Supreme Court and a decision of this Court.

8.1) In CIT, WEST BENGAL vs HINDUSTAN HOUSING AND LAND DEVELOPMENT TRUST 1986 (161) ITR 524 [LQ/SC/1986/239] , the Supreme Court held:

'In the present case, although the award was made by the arbitrator on July 29, 1955, enhancing the amount of compensation payable to the assessee, the entire amount was in dispute in the appeal filed by the State Government. Indeed, the dispute was regarded by the Court as real and substantial, because the assessee was not permitted to withdraw the sum of rs.7,36,691/- deposited by the State Government on April 25, 1956, without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at the stage. If the appeal was allowed in its entirety, the right to payment of the enhanced compensation would have fallen altogether'.

(emphasis added)

8.2) In CIT vs ABV GOWDA (1986) 157 ITR 697 [LQ/KarHC/1984/142] this Court held as follows:

'A mere claim to income without an enforceable right thereto cannot, therefore be regarded as an accrued income for the purpose of the Income-tax Act'.

The above principles are squarely applicable and Section 45(5)(b) does not change the position in any manner. [Section 45(5)(b) shifts the date of acquisition and from the date of determination of compensation by a Court/Tribunal/Authority, to the date of receipt of the compensation in pursuance of an enhancement by the Court/Tribunal/Authority. Two conditions have to be satisfied for applicability of Section 45(5)(b):

(i) There should be enhancement of compensation by a Court/Tribunal/Authority.

(ii) The Assessee should receive payment of such enhanced compensation.

When the award of the Reference Court enhancing the Compensation is stayed and an interim payment is ordered as condition of such stay or otherwise and is paid. Pending final decision neither of the two conditions are satisfied. The amount received in pursuance of an interim order by furnishing security, not being an amount payable in pursuance of an enforceable order or decree increasing the compensation, cannot be considered as receipt of enhanced compensation].

9. Therefore all the three questions have to be answered against the Revenue. We find no error in the order of the Tribunal and the appeal is dismissed as having no merit.