2016 (1) TMI 1444 - AT - Income Tax

Tribunal upholds CIT(A)'s order on tax implications of compensation & interest

The Tribunal dismissed the Revenue's appeal and upheld the Ld.CIT(A)'s order on all grounds. The judgment clarified the tax implications of the ... Addition of compensation and interest thereon - rights relating to the land belonging to the legal heir - HELD THAT:- The assessee has entered into a sale agreement dt. 19.6.2002 a copy of which is placed at pages 1 to 12 of the paper book. This agreement discloses that both Mr.Ashok Kumar Singhal as well as his son Shri Varun Kumar Singhal have acquired all the rights relating to the land belonging to the legal heir of Late Shri Ram Prasad. Just because Mr.Varun Singhal has not contributed any part of the consideration, it cannot be said he has no rights in this agreement. Be it as it may, the Court of the ADJ has taken cognizance of this agreement and had decreed the issue in favour of the assessee. The decree stands in the name of both Shri Ashok Kumar Singhal and Shri Varun Kumar Singhal. The A.O. based his order on surmises. Hence we have no hesitation in upholding the order of the Ld.CIT(A) on this issue. Hence we dismiss this ground of appeal. On the issue of taxability of interest the Ld.CIT(A) followed the decision of Hon’ble Supreme Court in the case of Rama Bai vs. CIT [1989 (11) TMI 2 - SUPREME COURT]and in the case of CIT vs. Ghanshyam HUF [2009 (7) TMI 12 - SUPREME COURT] The Ld.D.R. has not pointed out any contrary decision. Thus we uphold this order of the Ld.CIT(A) and dismiss the appeal of the Revenue. Issues:- Addition of compensation and interest- Applicability of Section 60 of the Income Tax Act 1961- Taxability of interest component of enhanced compensation- Validity of the order of the Ld.CIT(A)Issue 1: Addition of Compensation and InterestThe appeal was filed by the Revenue against the order of the Ld.Commissioner of Income Tax (Appeals) regarding the addition of compensation and interest amounting to Rs. 36,09,654. The assessee, an Advocate, and his son purchased rights to receive compensation from land owners, which led to a dispute for enhanced compensation and interest. The AO raised a query on taxing the compensation and interest received in the hands of the son at the maximum rate, rejecting the submission that the son was gifted half share by the father. The Ld.AO concluded that the entire receipt is taxable in the hands of the assessee. The First Appellate Authority directed the compensation to be split equally between the assessee and his son based on the order of the Civil Court.Issue 2: Applicability of Section 60 of the Income Tax Act 1961The Ld.CIT(A) held that Section 60 of the Income Tax Act 1961 became infructuous due to the settlement of the title dispute by the Civil Court. The AO contested this decision, but the Tribunal upheld the Ld.CIT(A)'s order, dismissing the Revenue's appeal on this ground.Issue 3: Taxability of Interest Component of Enhanced CompensationRegarding the taxability of the interest component of the enhanced compensation, the Ld.CIT(A) followed the Supreme Court's decision in the case of Rama Bai vs. CIT and CIT vs. Ghanshyam HUF, holding that interest must be assessed on an accrual basis. As no interest accrued during the year, the addition was deemed to be deleted. The Tribunal upheld this decision, dismissing the Revenue's appeal on this issue as well.Issue 4: Validity of the Order of the Ld.CIT(A)After considering the facts, material on record, and case laws cited, the Tribunal upheld the Ld.CIT(A)'s order on both issues. The Tribunal found that the Court decree favored both the assessee and his son, rejecting the AO's order based on surmises. The Tribunal also upheld the Ld.CIT(A)'s decision on the taxability of interest, citing relevant Supreme Court judgments.In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Ld.CIT(A)'s order on all grounds. The judgment provided detailed analysis on each issue, ensuring a comprehensive understanding of the tax implications related to the compensation and interest received by the assessee and his son.