2019 (8) TMI 1423 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on interest addition under Income Tax Act

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of interest on compensation/enhanced compensation ... Disallowance of 50% interest on compensation/enhanced compensation u/s 56 (2)(viii) - HELD THAT:- We find that it is an undisputed fact that assessee has received interest u/s 28 of Land Acquisition Act, 1894. The Hon’ble Apex Court in the case of CIT vs Ghanshyam(HUF) [2009 (7) TMI 12 - SUPREME COURT] has clearly held that interest received by the assessee in view of section 28 of Land Acquisition Act 1894 is part of the compensation and therefore was not taxable. The Hon’ble Delhi Bench of the Tribunal in the case of Shri Opinder Singh Virk, vide [2019 (5) TMI 676 - ITAT DELHI] has dealt with the decision of the Hon’ble Supreme Court in the case of Chet Ram (HUF) [2017 (9) TMI 1532 - SUPREME COURT as well as the case laws of Ghanshyamdas and after analysing the same has again held that interest receipt on enhanced compensation u/s 28 of the Land Acquisition Act is in the nature of compensation. There is no error in the order of the AO treating the interest received by them u/s 28 of the LAA,1894,as compensation following the proposition laid down by the apex court in Ghanshyam HUF(supra). Appeal filed by the Revenue is dismissed. Issues Involved:1. Deletion of addition made on the ground of disallowance of 50% interest on compensation/enhanced compensation under Section 56(2)(viii) of the Income Tax Act.2. Consideration of decisions from various courts regarding the taxability of interest on enhanced compensation.Detailed Analysis:1. Deletion of Addition on Interest on Compensation/Enhanced Compensation:The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 96,29,902/- made on the ground of disallowance of 50% interest on compensation/enhanced compensation under Section 56(2)(viii) of the Income Tax Act. The CIT(A) relied on the Supreme Court's decision in the case of Ghanshyam (HUF) delivered on 16.07.2009. The Revenue argued that the Finance Act, 2009, effective from 01.04.2010, amended the law to charge such interest under the head 'income from other sources' in the year of receipt. The Revenue also cited the Punjab & Haryana High Court's decision in Manjit Singh (HUF) vs. UOI, which held that interest on enhanced compensation is a revenue receipt chargeable to income tax.2. Consideration of Various Court Decisions:The Revenue argued that the CIT(A) failed to consider the Punjab & Haryana High Court's decisions in CIT vs. Bir Singh (HUF) and Sunder Lai vs. UOI, which held that interest on enhanced compensation is taxable under Section 56 as income from other sources in the year of receipt. The Revenue also cited the Supreme Court's decision in CIT vs. Chet Ram (HUF), which held that interest on enhanced compensation received under an interim order is taxable in the year of receipt.The Assessee's representative countered by citing various Tribunal decisions, including the Delhi Bench's decision in Opinder Singh Virk and the Lucknow Tribunal's decision, which favored the assessee. The representative argued that these decisions considered the same legal principles and facts, supporting the assessee's position.Tribunal's Findings:The Tribunal reviewed the material and arguments presented. It noted that the assessee received interest under Section 28 of the Land Acquisition Act, 1894. The Supreme Court in Ghanshyam (HUF) held that such interest is part of the compensation and not taxable. The Delhi Bench of the Tribunal in Opinder Singh Virk reaffirmed this, stating that interest under Section 28 is in the nature of compensation.The Tribunal also considered the Supreme Court's direction in Hari Singh, which emphasized that interest under Section 28 is part of the enhanced compensation and should be treated as capital gain, exempt under Section 10(37) if related to agricultural land. The Tribunal directed the AO to refund the TDS deducted on such interest, following the Supreme Court's rulings.The Tribunal further noted that the Chandigarh Bench of the Tribunal, in a similar case, relied on the Supreme Court's decision in Hari Singh, which reaffirmed that interest under Section 28 is part of the enhanced compensation and not taxable as income from other sources.Conclusion:The Tribunal dismissed the Revenue's appeal, finding no infirmity in the CIT(A)'s order. The Tribunal held that interest received under Section 28 of the Land Acquisition Act is part of the compensation and exempt under Section 10(37) if related to agricultural land. The order was pronounced in the open court on 09/08/2019.