TaxTMI 
TaxTMI 
2007 (2) TMI 244
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....och.) of 2005. 3. The facts in brief can be stated as under: The Government of Kerala has acquired the assessee's immovable property consisting of approximately 80 cents of land and 5500 sq.ft. of building under the Land Acquisition Act. The Government acquired the said property on 10-7-1986 and taken the possession on 10-9-1986. The Tehsildar passed the LA Award on 10-7-1986 fixing the compensation of Rs. 4,20,970/- which was later on reduced to Rs. 3,67,516/-. There was some dispute in respect of the ownership over the property and hence the competent authority deposited the amount of award in the Sub-Court of Calicut. The assessee filed petition for enhancement of compensation before the Sub-Court and by judgment dated 22-10-1990 the Sub-Court enhanced the compensation by Rs. 17,53,887.50/-. The Sub-Court also awarded interest at the rate of 9 per cent for one year and 15 per cent till payment of said sum. The State Government challenged the judgment of the Sub-Court by filing appeal in the Hon'ble High Court of Kerala being LAA No. 281 of 1992. The State Government deposited the amount of Rs. 23,47,886/- which included interest also in the Sub-Court, Kozhikode in 199....
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.... then. It was further contended that the assessee was not free to make investments as provided under sections 54, 54F etc., as the money was not under his control. The receipt could at best be said to have occurred when the bank guarantee expired, i.e., 19-9-1994, i.e., in the assessment year 1995-96 as a result of which the amount assessed in the hands of the assessee in the assessment year 199293 is legally wrong. It is further argued that the State Government had gone in further appeal against the entire award of the Sub-Court in LAA 281/92 and that appeal was finally decided only on 7-1-2003 and hence, the capital gains on enhanced compensation could be taxed only for the assessment year 200304 in view of the proposition of law laid down by the Hon'ble Supreme Court in CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 and P. Mariappa Gounder v. CIT [1998] 232 ITR 2. Relying on the decision of the Hon'ble Karnataka High Court in the case of Chief CIT v. Smt. Shantavva [2004] 267 ITR 67, the ld. Sr. counsel argued that when the reference court determines the compensation and such determination becomes final, the amount received in pursuance of the ....
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.... consideration received was taxed, shall be computed accordingly. It is proposed to insert a new sub-section (16) in section 155 to provide that the Assessing Officer shall amend the order of assessment to revise the computation of the said capital gain of that year by taking the compensation or consideration so reduced by the Court, Tribunal or any other authority to be the full value of consideration. These amendments will take effect from 1-4-2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years: (260 ITR (St.) 191, 217) The ld. Sr. counsel submitted that three things are clear from the above explanatory note which are as under: (a) There is no existing provision to mitigate the hardship of the assessee when compensation is subsequently reduced. (b) It is proposed to amend sub-section (5) by inserting a new clause (c); and (c) These amendments will take effect from 1-4-2004 and will apply to assessment year 2004-05 and subsequent years. The ld. counsel contended that the judgment of the Special Bench of Appellate Tribunal in the case of Padam Prakash (HUF) is primarily based on this su....
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.... by furnishing security to the satisfaction of the court. The mere fact that some amounts have been received by furnishing security in pursuance of the interim orders pending final determination would not make the amounts received by the assessee 'compensation' or 'consideration' that could be subjected to tax under section 45(5)(b). The ld. counsel submitted that a same view was taken in the case of T. Girijammal. The ld. counsel further submitted that in the decision of the Hon'ble Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589, it was held that the Income-tax Appellate Tribunal sitting anywhere in the country, has to respect the law laid down by the High Court, though of a different state, so long as there is no contrary decision of another High Court on that question. It was further submitted that in the decision in the case of Tej International (P.) Ltd. v. Dy. CIT [2001] 69 TTJ 651, it has been held that an authority higher than the Tribunal, i.e., the High Court has expressed an opinion on an issue, the Tribunal is no longer at liberty to rely upon earlier decisions of the Tribunal even if it were a party to them or inc....
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....reached finality. The ld. DR submitted that clause (c) of section 45(5) was not available in the decisions relied on by the ld. Sr. counsel and the Special Bench has correctly taken the view that it is declaratory or clarificatory in nature and it is having retrospective effect from 1-4-1988, though the same was introduced by Finance Act, 2003 with effect from 1-4-2004. The ld. DR supported the order of the Assessing Officer. 7. We have heard the rival submissions of the parties. We have also carefully considered the facts as per material placed before us. We have also carefully considered the precedents relied on both by the ld. counsel as well as by the ld. DR. We would like to clarify here that there is no dispute in respect of the facts between the assessee as well as the revenue. It is an admitted position that original compensation in respect of the award passed by the Tehsildar dated 10-7-1986 was enhanced by the Sub-Court by the judgment dated 22-10-1990 by the amount of Rs. 17,53,887/-. The Sub-Court also awarded interest to the assessee. The State Government challenged the judgment of the Sub-Court in the Hon'ble High Court of Kerala by filing appeal being LAA No. ....
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....dispute in this case in respect of charging the capital gain on the enhanced compensation but the only dispute is in respect of the year in which it should be charged to tax and in our opinion, sub-section (5) of section 45 is relevant on the issue. Sub-section (5) in section 45 was inserted by the Finance Act, 1987 to provide for taxation of the additional compensation in the year of receipt instead of the year of transfer of the said capital asset. It was further provided that the additional compensation will be deemed. to be the income in the hands of the recipient even if the actual recipient happens to be a person different from the original transferor. For this purpose, the cost of acquisition in the hands of the recipient of the additional compensation was provided to be Nil Moreover, the compensation awarded in the first instance would continue to be chargeable as income under the head 'Capital gain' in the previous year in which the transfer took place. In this context, reference may be made to CBDT Circular No. 495 dated 22-91987. 7.3 A new clause (c) was inserted in section 45(5) by the Finance Act, 2003 which was effective from 1-4-2004. It will be helpful to....
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.... of the Special Bench:- "1. Whether, on the facts and in the circumstances of the case, enhanced compensation and interest is to be taxed in the year of receipt, notwithstanding that order under which compensation and interest is received, is challenged before the higher courts and litigation is pending? 2. Whether, on the facts and in the circumstances of the case, will it make any difference to the taxability of compensation and interest if the same are received on furnishing of security?" As far as the facts relating to the case of Padam Prakash (HUF) are concerned, those are more or less identical to the facts of the assessee's case before us. There also the contention of the assessee was that, unless the issue of the enhanced compensation has reached finality, the same cannot be taxed on receipt basis. In that case also, the court of the Addl. District Judge released the amount and Assessing Officer brought to tax the same on receipt basis. The Special Bench was concerned with the interpretation of section 45(5) of the Act and it was more concerned with the consequences of insertion of clause (c) to sub-section (5) of section 45. The Special Bench refe....
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....and received. If for any reason, it subsequently reduced then assessment is required to be modified to take the reduced compensation of income. Thus the statutory provision leaves no scope for not taxing compensation on receipt basis under any situation. There is no way to read in clear language of the statute that receipt, if conditional or allowed as per interim order of the High Court is no receipt of compensation and would not be taxed in the year of the receipt. If the arguments of counsel for the assessee and interveners are adopted, it would tantamount to adopting a narrow and pedantic construction and reduce legislation to futility. Therefore, we do not find any substance in the arguments advanced on behalf of the assessees and the interveners. There is no doubt that in the case of Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 (SC), it was laid down by Their Lordships of the Supreme Court that there is no accrual of income unless the right to receive compensation is finally determined. Such a view had been taken by the several High Courts and by the Several Benches of the Tribunal, following the aforesaid decision of the Hon'ble Supreme Cou....
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....s, the Assessing Officer has rightly brought to tax the capital gain on the said enhanced compensation. In our further opinion, the principle laid down by the Hon'ble Special Bench of the Income-tax Appellate Tribunal in the case of Padam Prakash (HUF)are squarely applicable to the facts of the present case. We are, therefore, of the opinion that the Assessing Officer has rightly brought to tax the amount of enhanced compensation in the assessment year 1992-93. We, therefore, decide this issue against the assessee. 8. The next issue is regarding the assessment of interest on the enhanced compensation, whether it should be assessed on accrual basis or receipt basis. We have already narrated the relevant facts pertaining to the issue of enhanced compensation and the said facts are applicable to this issue also. Hence to avoid repetition, we are not reproducing the same. We have heard the ld. Sr. counsel for the assessee and the ld. DR for the revenue on this issue. The summary of the arguments of the ld. Sr. counsel are as under: The ld. Sr. counsel submitted that this issue is involved in ITA Nos. 325 to 330/(Coch.)/2005 for the assessment years 1987-88 to 1992-93. The Assess....
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.... of the dispute and when there are pending proceedings there is no accrual of interest and it is taxable only in the year of final adjudication. The ld. counsel further contended that the interest on enhanced compensation is taxable only in the assessment year 2003-04, when the order of the High Court in LAA 281/92 was pronounced. It was further contended that the decision in the case of Padam Prakash (HUF) is in conformity with the decision of the Third Member in the case of Bhim Singh Lather and it was held that in case a dispute relating to interest payable on enhanced compensation is pending before the court of law and has not attained finality, the same will not accrue and not liable to tax. It was further argued that only after it is finally determined, the same can be subjected to tax and hence interest on additional compensation is taxable only on the final adjudication of the dispute and when there are pending proceedings there is no accrual of interest. The ld. counsel further contended that it has also been so held in the case of T. Girijammal and in the case of Sajjansinh N. Chauhan v. ITO [2000] 73 ITD 38 (Ahd.). It was further argued that the case of Krishna Rao relie....
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....if at any stage the decision comes which is against the assessee, the assessee can always claim refund from the Department. It was further submitted by the ld. DR that the most important judgment regarding this issue is the case of Mrs. Rama Bai wherein the matter was finally settled by the Hon'ble Supreme Court. That was a case where the reference to the Supreme Court was made through the President of the Income Tax Appellate Tribunal wherein the Hon'ble Supreme Court held that interest cannot be taken to have accrued on the date or order of the court granting enhanced compensation but has to be taken as having accrued year after year from the date of delivery of possession of the lands till the date of such order. According to the ld. DR, the said judgment laid to rest the question of taxing interest on enhanced compensation. The ld. DR relied on the precedent in the case of K.S. Krishna Rao which was also relied on by the CIT (Appeals). 10. We have heard the rival submissions of the parties. We have also carefully considered the facts which are otherwise not disputed in this case on the issue also. We have also carefully considered the principles laid down in the prec....
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....the case of Padam Prakash (HUF) wherein after considering the principles laid down in the case of Hindus tan Housing & Land Development Trust Ltd. and Rama Bai's case it is held as under:- "That as far us the question of interest income on enhanced compensation is concerned, the Legislature had made no change in the statutory provision and, therefore, decision of the Supreme Court in the case of Hindus tan Housing & Land Development Trust Ltd. 161 ITR 524 as also the decision of Smt. Rama Bai v. CIT 181 ITR 400 (SC) would apply. The interest is to be assessed on accrual basis from year to year. However, the question of assessment of such interest on accrual basis would not arise unless it is finally determined. In case a dispute relating to interest payable on enhanced compensation is pending before a court of law and has not attained finality, the same will not accrue and not liable to tax. Only after it is finally determined, the same can be subjected to tax, in the light of the decisions of Hon'ble Supreme Court, referred to above." After carefully considering the principles laid down in the different precedents relied on by the ld. counsel, we are of the opi....
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....the year 1995. The copy of the said statement is placed in the paper book at page Nos. 2 to 21. The relevant portion of the statement is at page 9 of the paper book. The assessee objected by filing written explanation stating that all the Explanations given in section 132(4) statement are in the year 1995 and assessing the alleged income for all seven years prior to said statement is illogical and baseless since the assessee was not incurring such huge expenses during the year 1987 and that the situation prevalent during the year 1987 was having no relation to the statement given in 1985. The assessee also explained that he had sufficient money also in 1986-87. The Assessing Officer made the addition based on the admission of the assessee in the sworn statement recorded during the course of search that his family expenses were about Rs. 4,000/- per month and also incurred heavy expenses on legal matters. In respect of the expenses regarding the legal charges paid to his son, it was contended that his son is enrolled as an advocate in the year 1992, so there is no question of payment of any legal charges to his son in the year 1986 when he was not an advocate. Finally, the Assessing....