2014 (6) TMI 744 - AT - Income Tax

Apportioning interest income among co-owners in land acquisition case

Income Tax Officer Versus Shri Navinchandra C. Patel

The appellate tribunal upheld the order of the Ld. CIT(A) in a case involving the addition of interest received for delay in payment of compensation for ... Accrual of interest income on delayed payment of compensation for land acquisition – Held that:- The land belonged to 3 co-owners was acquired by Sardar Sarovr Nigam ltd. - the interest received is to be trifurcated among the three persons - Following Commissioner of Income-Tax, Madras Versus T. NK Govindarajulu Chetty [1987 (2) TMI 3 - SUPREME Court] - the interest received is to be assessed on accrual basis year to year and not to be assessed in its entity in the year of receipt - AO is directed to apportion the interest among the 3 co-owners - The interest apportioned to the appellant shall be spread over the period of delay in paying the compensation - The share of interest accruing to the appellant for the year under consideration shall be assessed to tax – revenue was not able to controvert the findings of the CIT(A) – Decided against Revenue. Issues:1. Addition of interest received for delay in payment of compensation for land acquisition.Analysis:The case involved the revenue's appeal against the order of Ld. CIT(A)-XI Ahmedabad deleting the addition of interest received for delay in payment of compensation for land acquisition. The AO found that the assessee had only declared net agricultural income despite receiving significant interest income. The interest income was received from the office of the Executive Engineer N P Canal Division No. 7, Gandhinagar. The AO added the interest income to the total income of the assessee as the assessee did not respond to the show cause notice.Ld. CIT(A) considered the submission of the assessee and deleted the addition after analyzing the case. The assessee argued that the interest received should be trifurcated among the three co-owners and assessed on an accrual basis year to year, citing relevant Apex Court judgments. The AR distinguished a decision regarding chargeability to capital gains and contended that the interest income should be assessed under the head income from other sources. Ld. CIT(A) agreed with the contentions and directed the AO to apportion the interest among the co-owners, assessing the share of interest accruing to the appellant for the year under consideration.During the hearing, no faults were found with Ld. CIT(A)'s findings, and no contrary binding decision was presented by the revenue. Hence, the appellate tribunal upheld the order passed by Ld. CIT(A), dismissing the revenue's appeal. The CO filed by the assessee in support of Ld. CIT(A)'s order was dismissed as infructuous. Consequently, both the appeal filed by the revenue and the CO by the assessee were dismissed.