2015 (1) TMI 1116 - AT - Income Tax

Tribunal upholds tax on interest from land acquisition compensation, citing Income Tax Act section.

The Tribunal held that the CIT(A) erred in allowing the assessee's appeal and upheld the AO's decision to tax interest on land acquisition compensation on ... Interest on land acquisition compensation assessed on receipt basis - CIT (A) deleted the addition - nature of interest, whether it is interest paid u/s. 28 or u/s. 34 of Land Acquisition Act, 1894.? - Held that:- Taking into account all the facts and circumstances of the issue as analysed in the foregoing paragraphs and also in conformity with (i) the ruling of the Hon’ble Supreme Court in the case of Ghanshyam (HUF) [2009 (7) TMI 12 - SUPREME COURT] and (ii) the findings of the Hon’ble Delhi Bench of the ITAT in the case of Ajay Sharma (2010 (12) TMI 548 - ITAT, Delhi ); we are of the view that the CIT (A) was not justified in allowing the assessee’s appeal. - Decided in favour of revenue. Capital gains computed on protective basis - Held that:- The additional compensation and interest received thereon is proposed to tax in the year of receipt. As the assessee has erroneously declared additional compensation and interest on accrual basis, the said returns will be assessed on a protective measure. The assessee’s claim on this count is not valid and, accordingly, the issue of ‘Capital gains computed on protective basis’ is not adjudicated. - Decided in favour of revenue. Issues Involved:1. Deletion of addition of Rs. 2,00,000/- as interest on land acquisition compensation assessed on receipt basis.2. Validity of reopening of assessment under sections 147 and 148 of the Income Tax Act.3. Taxability of interest on enhanced compensation on accrual vs. receipt basis.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 2,00,000/- as Interest on Land Acquisition Compensation Assessed on Receipt Basis:The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 2,00,000/- assessed as interest on land acquisition compensation on receipt basis. The assessee, a HUF, had declared interest income on an accrual basis, referencing the Supreme Court's judgment in Rama Bai v. CIT (1990) 181 ITR 400 (SC). The AO, however, assessed the interest on receipt basis, citing CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC). The CIT(A) ruled in favor of the assessee, noting the amendment to section 145A effective from AY 2010-11, mandating interest on compensation to be taxed on receipt basis from that year onwards. The Tribunal, however, found that the CIT(A) erred in distinguishing the facts of the Ghanshyam case and ruled that the interest received should be taxed in the year of receipt, as per the Supreme Court's judgment in Ghanshyam (HUF).2. Validity of Reopening of Assessment under Sections 147 and 148 of the Income Tax Act:The assessee contended that the AO did not furnish reasons for reopening the assessment. The Tribunal noted that the assessee had not objected to the reopening during the reassessment proceedings. Consequently, the Supreme Court's judgment in GKN Driveshafts (I) Ltd v. ITO (2003) 259 ITR 19 (SC) was not applicable in this case. Therefore, the reopening of the assessment was deemed valid.3. Taxability of Interest on Enhanced Compensation on Accrual vs. Receipt Basis:The Tribunal examined whether the interest on enhanced compensation should be taxed on an accrual or receipt basis. The Supreme Court in Ghanshyam (HUF) clarified that interest under section 28 of the Land Acquisition Act, 1894, is part of enhanced compensation and should be taxed in the year of receipt. The Tribunal noted that the CIT(A) incorrectly distinguished the Ghanshyam case, as the Supreme Court explicitly stated that even disputed compensation received against security is taxable in the year of receipt. The Tribunal also addressed the assessee's argument that the Rama Bai judgment (by a Three Judges' Bench) should prevail over Ghanshyam (by a Two Judges' Bench). It clarified that section 45(5) of the Act, effective from 1.4.1988, was not considered in Rama Bai's case, making the Ghanshyam judgment applicable.Conclusion:The Tribunal concluded that the CIT(A) was not justified in allowing the assessee's appeal and upheld the AO's decision to tax the interest on receipt basis. The Revenue's appeal was allowed. The Tribunal also addressed procedural issues, confirming the validity of the reopening of the assessment and dismissing the assessee's claims regarding protective assessment of capital gains.Pronouncement:The judgment was pronounced in the open court on 17.1.2014.