2024 (12) TMI 704 - AT - Income Tax

Interest on enhanced compensation under Land Acquisition Act taxable as income from other sources under section 56(2)(viii)

The ITAT Delhi dismissed the assessee's appeal regarding exemption of interest on enhanced compensation under the Land Acquisition Act. The Tribunal held ... Revision u/s 263 - whether receipt of interest of related to the additional compensation granted under Land Acquisition Act is a part of exempt income u/s 10(37) or not? - HELD THAT:- The very same question regarding as to whether interest on enhanced compensation partakes the character of ‘Income from Other Sources’ u/s 56(2)(viii) of the Act or not has been decided in the case of Inderjit Singh Sodhi (HUF) [2024 (4) TMI 408 - DELHI HIGH COURT] wherein as held that interest, whether on compensation or enhanced compensation shall be considered as income from other sources and shall be taxable accordingly. The Jurisdictional High Court has also held that the Tribunal has erred in relying on the decision of Ghanshyam (HUF) [2009 (7) TMI 12 - SUPREME COURT] by taking into consideration of Finance(No.2) Act, 2009, which came into effect in the year 2010. The view taken by the A.O. that the interest on enhanced compensation is part of the compensation and not the ‘interest’ per say and allowing the same as exempt u/s 10(37) of the Income Tax Act cannot be called as ‘plausible view’. Thus, we find no merit in the grounds of Appeal of the Assessee, accordingly, we are of the opinion that the Ld. CIT(A) has committed no error in setting aside the assessment order and directed the A.O. to frame fresh assessment in accordance with law. Appeal of the Assessee is dismissed. Issues Involved:1. Whether the interest on enhanced compensation received by the Assessee is taxable as 'Income from Other Sources' under Section 56(2)(viii) of the Income Tax Act.2. Whether the Principal Commissioner of Income Tax (PCIT) was justified in setting aside the Assessment Order under Section 263 of the Act.Issue-wise Detailed Analysis:1. Taxability of Interest on Enhanced Compensation:The primary issue in this appeal was whether the interest on enhanced compensation received by the Assessee should be considered as 'Income from Other Sources' under Section 56(2)(viii) of the Income Tax Act. The Assessee argued that the interest received under Section 28 of the Land Acquisition Act is part of the compensation and thus exempt under Section 10(37) of the Income Tax Act. The Assessee relied on various judicial pronouncements, including the Supreme Court's decision in CIT vs. Ghanshyam (HUF), which held that interest under Section 28 forms part of the compensation.However, the Tribunal noted that the Jurisdictional High Court, in the case of Principal Commissioner of Income Tax-10 Vs. Inderjit Singh Sodhi (HUF), had clarified that interest on compensation or enhanced compensation should be treated as 'Income from Other Sources' due to the amendments introduced by the Finance (No.2) Act, 2009, effective from 01.10.2010. The High Court emphasized that the 2010 amendment was a conscious legislative change, and thus, the interest is taxable under the head 'Income from Other Sources'. The Tribunal concluded that the Assessee's reliance on earlier judgments was misplaced since those did not consider the post-amendment legal position.2. Justification of PCIT's Action under Section 263:The second issue was whether the PCIT was justified in invoking Section 263 of the Income Tax Act to set aside the Assessment Order. The Assessee contended that the Assessing Officer (A.O.) had taken a plausible view by relying on the Supreme Court's decision in Ghanshyam (HUF), and therefore, the PCIT's action was unwarranted.The Tribunal, however, held that once the Jurisdictional High Court had clarified the law considering the amendment, the authorities, including the Tribunal, were bound by it. The Tribunal found that the A.O.'s view was not plausible in light of the binding precedent set by the Jurisdictional High Court. Consequently, the PCIT was correct in exercising his powers under Section 263 to set aside the Assessment Order and direct the A.O. to pass a fresh order in accordance with the amended legal provisions.Conclusion:The Tribunal dismissed the Assessee's appeal, affirming the PCIT's decision to set aside the Assessment Order. It held that the interest on enhanced compensation is taxable as 'Income from Other Sources' following the 2010 amendment, and the PCIT rightly exercised his powers under Section 263. The Tribunal emphasized adherence to the binding precedent set by the Jurisdictional High Court, thereby rejecting the Assessee's arguments based on earlier judicial pronouncements.