TaxTMI 
TaxTMI 
2005 (3) TMI 400
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....n Officer filed an appeal before Punjab and Haryana High Court. Hon'ble High Court by their order dated 18th February, 1994 gave directions to the executing Court to release the amount of enhanced compensation to the assessee against adequate security. The assessee received enhanced compensation along with interest on different dates from 10th June, 1994 to 28th November, 1995 as per the particulars mentioned in the impugned orders. Thereafter, at the request of the assessee the Land Acquisition Officer issued TDS Certificate only on 22nd November, 1996. The assessee filed voluntary returns of income for financial years 1996-97 and 1997-98 relating to assessment years 1997-98 and 1998-99 for assessments years 1994-95 and 1995-96. The Assessing Officer issued notice under section 148 on 1lth December, 1996. The assessee declared total income of Rs. 56,026 in relation to assessment year 1994-95 and Rs. 41,000 in relation to assessment year 1995-96 in the return filed on 12th October, 1998 in response to notice under section 148. In these returns the assessee repeated the income as declared during the original assessment proceedings. The assessee argued that it had received enhanced c....
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....e relevant previous years. The assessee placed reliance on the judgment of the Hon'ble Supreme Court in the case of CIT v. Hindustan Housing & Land Development Trust Ltd. [l986] 161 ITR 524. The Ld. CIT(A) held that the quantum of enhanced compensation receivable was in dispute before the higher Court. In the event of the amount of compensation being reduced the interest was also likely to be reduced. She, therefore, held that only interest on undisputed amount could be brought to tax in the assessment year 1994-95. She directed the Assessing Officer accordingly. For assessment year 1995-96 the ld. CIT(A) deleted the assessment of the sum of Rs. 13,40,123 on the ground that this amount of enhanced compensation was in dispute. Aggrieved by these orders the revenue is in appeal before us. 5. During the course of hearing before us the ld. DR argued that the Ld. CIT(A) erred in applying the judgment of Hon'ble Supreme Court in the case of Hindustan Housing & Land Development Trust Ltd. because in the case of the assessee before us the payment had been made to the assessee. He strongly relied upon the judgment of the Hon'ble Supreme Court in the case of Smt. Rama Bai v. CIT 1990] 181....
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.... compensation by different Courts often results in mistakes of computation of tax. 24.6 With a view to removing these difficulties, the Finance Act, 1987 has inserted a new sub-section (5) in section 45 to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. The additional compensation will be deemed to be income in the hands of the recipient even if the actual recipient happens to be a person different from the original transferor by reason of death, etc. For this purpose the cost of acquisition in the hands of the receiver of the additional compensation will be deemed to be nil. The compensation awarded in the first instance would continue to be chargeable as income under the head 'Capital gains' in the previous year in which the transfer took place." 7. According to the Ld. AR, these paragraphs suggested that provisions of section 45(5) had been introduced so as to exclude the requirement of rectification. Hence, the provisions of section 45(5) applied only when the amount of additional compensation had become final. 8. We have carefully considered the rival submissions. As far as the Revenue's appe....
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....applied for assessment of amount of interest on additional compensation in the cases where the amount of enhanced compensation itself is in dispute. We, therefore, restore this issue to the file of the Ld. Assessing Officer for determination of interest on enhanced compensation in accordance with the guidelines laid down by Hon'ble Supreme Court in the case of Mrs. Khorshed Shapoor Chenai v. ACED [1980] 122 ITR 21. 10. In the result, while the Revenue's appeal for assessment year 1994-95 is allowed, for statistical purposes Revenue's appeal for assessment year 1995-96 shall be treated as partly allowed. Per N.V. Vasudevan, Judicial Member 11. I have gone through the order proposed by my ld. Brother. I am unable to persuade myself to agree with the conclusions arrived at by my ld. brother. I would however like to highlight the fact that the assessee in the present case follows a mercantile system of accounting. The questions for consideration on the facts of the present case are: (a) Whether the enhanced compensation received by the assessee was taxable in the hands of the assessee as income despite the fact that the quantum of enhanced compensation awarded is subject-ma....
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....ction 45(5)(b) will be attracted only when the assessee receives the 'enhanced compensation', in pursuance of a final award/order of a Court, Tribunal or other authority increasing the compensation. If any amount is received after stay of the award, in pursuance of any interim order, as a payment subject to the final result, it will not be an amount received as 'enhanced compensation' contemplated under section 45(5)(b), but only an interim payment received subject to final decision. It will attract section 45(5)(b) only when the final decision is rendered. We are supported in the said view by a decision of the Supreme Court and a decision of this Court. In CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524, the Supreme Court held: 'In the present case, although the award was made by the arbitrator on July 29, 1955, enhancing the amount of compensation payable to the assessee, the entire amount was in dispute in the appeal filed by the State Government. Indeed, the dispute was regarded by the Court as real and substantial, because the assessee was not permitted to withdraw the sum of Rs. 7,36,691 deposited by the State Government on April 25, 1956, with....
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....ews in the context of section 45(5) of the Act in the following cases: Jehangir P. Vazifdar v. ITO [1992] 42 ITD 67 (Bom.). Smt. Gulab Sundri Bapna v. Dy. CIT [2001] 79 ITD 455 (Delhi). Rikabchand M. Lalwani (HUF) v. Jt. CIT [2003] 81 TTJ (Pune) 964. 16. My learned brother however in taking a contrary view has followed the decision of the Delhi Bench of the Tribunal in the case of Asstt. CIT v. Trilok Singh [IT Appeal Nos. 708 to 711 (Delhi) of 2001, dated 18-6-2004]. I have perused the said order of the Tribunal and I find that the view expressed by the Tribunal is contrary to the preponderance of judicial opinion on the issue expressed by the decisions of the Tribunal as well as the decisions of the Hon'ble High Courts. There is however a decision of the Hon'ble A.P. High Court in the case of CIT v. M. Sarojini Devi [2001] 116 Taxman 613 in which there appears to be a contrary view expressed. I shall therefore refer to the said decision. The facts in the aforesaid case were that the lands belonging to the assessee were acquired by the Government in the year 1966 and compensation was awarded by the LAO. On reference, compensation at higher rate was awarded. The assesse....
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....er the question in favour of the revenue as indicated above and against the assessee." 17. As can be seen from the facts in the aforesaid case, the assessment year was 1976-77 prior to the introduction of section 45(5) in the IT Act. The provisions of section 45(5) of the Act as introduced by the Finance Act, 1987 came into effect only from 1-4-1988. The decision of the Hon'ble A.P. High Court, therefore, runs contrary to the decision of the Hon'ble Supreme Court in the case of CIT v. Hindusthan Housing & Land Development Trust Ltd. [1986] 161 ITR 524. 18.1 would, therefore, respectfully following the decision of the Hon'ble Karnataka High Court as well as the Hon'ble Bombay High Court and Rajasthan High Court and the view expressed by the various Benches of the Tribunal, hold that the enhanced compensation could not be brought to tax in the years under consideration as the dispute on the quantum of enhanced compensation had not attained finality. The interest on enhanced compensation would also for the very same reason not be liable to tax. The CIT(A) in my view had rightly allowed the appeal of the assessee and directed the addition made by the Assessing Officer to be delet....
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....-96. There was another difference between the two Members with regard to the taxability of interest received on the aforesaid disputed enhanced compensation and that arose in the appeal for assessment year 1994-95. The President, therefore, referred the following question also for my opinion as arising in the appeal for assessment year 1994-95: "Whether, on the facts and in the circumstances of the case, the interest received on disputed enhanced compensation which is subject-matter of litigation in appeals before appellate forum can be taxed without attaining finality?" 3. The brief facts of the case are that the assessee's land at Karnal was acquired by Land Acquisition Officer, Panchkula, and a compensation was awarded on 16th February, 1989 and the assessee received a compensation of Rs. 39,03,271 in February, 1989 in two instalments. Thereafter, an enhanced compensation was ordered by District Sessions Judge on 6th May, 1993 against which order both the assessee as well as Land Acquisition Officer went in appeal before the Punjab and Haryana High Court. The High Court by their order dated 18th February, 1994 declined to grant stay though directed the executing Court to r....
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....-------- Date of Amount Tax payment ----------------------------------------------------- 12-5-1994 1,28,585-40 14,401-50 ----------------------------------------------------- 28-7-1994 1,92,878-10 21,602-25 ----------------------------------------------------- 27-10-1994 3,10,536-78 34,779-99 ----------------------------------------------------- 9-12-1994 3,10,536-78 34,779-99 ----------------------------------------------------- 25-3-1995 6,83,601-80 75,588-66 ....
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....ion 45(5)(b) in assessment year 1995-96. The Assessing Officer also found that the assessee received interest on enhanced compensation aggregating to Rs. 20,67,441 for the period 16th February, 1989 to 19th January, 1994. The Assessing Officer worked out the interest attributable to various assessment years and assessed a sum of Rs. 3,68,384 attributable to the period 1-4-1993 to 19th January, 1994 and assessed the same as assessee's income for assessment year 1994-95. 7. The assessee carried the matters in appeal. The CIT(A) in the appeal for assessment year 1994-95 deleted the addition of interest by observing that the quantum of enhanced compensation receivable was in dispute before the higher court; that if compensation was reduced the interest would also be reduced and that the interest on undisputed amount only can be brought to tax. He, accordingly, directed the Assessing Officer to take into account only that portion of interest which related to the original compensation granted and not on the enhanced compensation which is being disputed and is still not certain. 8. In the appeal for assessment year 1995-96, he deleted the assessment of capital gain on enhanced compe....
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....cases of CIT v. A.B.V. Gowda [1986] 157 ITR 697 (Kar.), CIT v. Abdul Mannan Shah Mohammed [2001] 248 ITR 614 (Bom.) and CIT v. Jeevan & Sons [2000] 161 CTR (Raj.) 242 are the cases prior to section 45(5)(b). In Hindustan Housing decision of the Supreme Court there was no right to receive compensation and the issue was whether the compensation can be taxed or mercantile basis and not whether it could be taxed on receipt basis. He then referred to the decision of and also the decision in the case of Jehangir P. Vazifdar v. ITO [1992] 42 ITD 67 (Bom.) and distinguished the same by stating that it was not a case of receipt of part consideration which was unclouded and unshadowed nature. He further submitted that Delhi Tribunal in the case of Smt. Gulab Sundri Bapna v. Dy. CIT [2001] 79 ITD 455 is a case of surrender of tenancy rights having no cost of acquisition and that the Pune Tribunal in the case of Rikhabchand M. Lalwani (HUF) v. Joint CIT [2003] 81 TTJ (Pune) 964 was concerned with a case for exercising jurisdiction under section 263 wherein reference to clause (c) to section 45(5) was held cannot be had to, it being the later development of law. He then submitted that the High ....
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....rder of the CIT(A), he submitted that neither the additional compensation was chargeable nor the interest was taxable in the year under consideration as the matter is still subjudice before the High Court. As regards the interest, he also referred to the decision of Supreme Court in the case of P. Mariappa Gounder besides the decision of the Supreme Court in the case Smt. Rama Bai wherein it is held that interest accrues from year to year and to be assessed accordingly. 12. The parties were heard and record perused. Section 4 of the Act is the charging section and it provides that income-tax shall be charged for any assessment year in respect of the total income of the previous year of every person. Section 5 provides for the scope of total income and it provides that subject to the provisions of this Act the total income of any previous year of a person who is recipient includes all income from whatever sources derived which- (a) is received or deemed to be received in India in such year by or on behalf of such person; (b) accrued or arises or is deemed to accrue or arising to him in India during such year; or (c) accrues or arises to him outside India during such year....
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....ity of capital gain. Originally for capital gain the charge is provided only on accrual basis under section 45 of the Act by stating that any profits or gains arising from transfer of a capital asset shall be chargeable to income-tax under the head "Capital gains" and shall be deemed to be income of the previous year in which the transfer took place. This was irrespective of the fact whether the assessee has received the consideration or not. The Finance Act, 1987, however, made a change in the system of taxation of capital gain on accrual basis by insertion of the subsection (5) to section 45 with regard to the additional compensation received by the assessee pursuant to the order of the court, Tribunal or other authority, by providing that such additional compensation is to be charged under the head "Capital gain" in the previous year in which such compensation or part thereof was received by the assessee. Therefore, prior to the amendment, capital gain tax was chargeable on the basis of accrual and there was no option to the assessee or to the Revenue to make a departure therefrom, but from assessment year 1988-89, the Finance Act, 1987 made a part of the consideration received ....
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....eserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely:- (a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head "Capital gains" of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received; and (b) the amount by which the compensation or consideration is enhanced further enhanced by the court, Tribunal or other authority shall be deemed to be income chargeable under the head 'Capital gains' of the previous year in which such amount is received by the assessee;" 16. Explanatory Notes are appearing in Circular No. 475, dated 22-9-1987 in paras 24.5, 24.6 and 24.7 which read as under for bringing out this amendment:- "24.5 Under the existing provisions where capital gains accrue or arise by way of compulsory acquisition o....
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....eived was taxed shall be recomputed accordingly and the Assessing Officer shall amend the order of assessment to revise the computation of said capital gain of that year by taking the compensation or consideration so reduced by the Tribunal or authority to be the full value of the consideration. This amendment is made effective from 1st April, 2004. Clause (c) in sub-section (5) as inserted by the Finance Act, 2003 reads as under:- "(c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation or consideration referred to in clause (a) or, as the case may be, enhanced compensation or consideration referred to in clause (b), and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration." 18. Sub-section (16) as also inserted by Finance Act, 2003 in section 155 read as under:- "(16) Where in the assessment for any year, a capital gain arising from the t....
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....compensation and on appeal preferred by the assessee, the arbitrator made an award on July 29,1955 fixing the compensation at Rs. 30,10,873 and directed the payment of interest at 5% from the date of acquisition. The State Government deposited the additional amount of Rs. 7,36,691 in the court and the assessee was permitted to withdraw the same on May 9, 1956 only on furnishing of a security bond for refunding the amount in the event of appeal being allowed. The said receipt of Rs. 7,24,915 and balance having already been taxed was the subject-matter of dispute which according to the assessee was not chargeable to tax because it was subject to litigation and according to the revenue it was chargeable to tax because it became payable pursuant to arbitrator's award. The Supreme Court held that the entire amount of enhanced compensation was in dispute in appeal filed by the State Government and the dispute was recorded by the court as real and substantial because the respondent was not permitted to withdraw the amount by the State Government without furnishing bond for refunding the amount in the event of appeal being allowed. There was thus no absolute right to receive the amount at ....
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....owever, the insertion of clause (c) is only an enabling provision to reduce the rigors of the provision upon an assessee for downward rectification of the assessment in case of reduction of compensation. This is only an indication of intention of the Legislature that irrespective of the finality of the litigation the compensation is chargeable in the year of receipt and if per chance the said additional compensation is reduced in further litigation the Legislature has provided for a relief to be granted to the assessee. 24. The decision in the case of Lala Ram Dagar which has merely followed the aforesaid Division Bench decision in the case of Smt. Gulab Sundri Bapna and, therefore, nothing turns on that also. 25. In the case of Jahangir P. Vazifdar v. ITO [1992] 42 ITD 67 (Bom.), half of the additional compensation only was received by the assessee and that too subject to furnishing of security. According to the Revenue not only the amount actually received but the full amount of compensation was taxable in the year when the enhanced compensation was awarded, whereas the assessee's claim was that entire amount became vested only when the final order was passed by the High Co....
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.... The Supreme Court considered this distinction and held that whereas in the case of obtaining the amount in respect of such trading liability the sum is chargeable in the year of receipt irrespective of the fact that litigation for the remission thereof is pending; but where the amount has not been received the court held that there was no remission or cessation of liability so long as the matter was pending in litigation and until the matter is finally settled. The following passage from the Supreme Court's order would be demonstrative in this respect:- "The High Court then held that the liability of the assessee as regards the payment of excise duty cannot be said to have ceased because the judgment of the single judge of the High Court did not attain finality. Though the conclusion of the High Court which was affirmed by this court cannot be legally faulted, we cannot, however, approve of the following analysis of the section occurring in the judgment 'In short, what this provision means is that if an assessee has been allowed a deduction in the computation of its total income of any liability on account of loss or expenditure and if, subsequently, the liability of the assess....
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....geable to tax in the year of receipt as per the provisions of section 45(5) of the Act irrespective of the fact that the additional/enhanced compensation is subject-matter of further litigation. 29. In view of the aforesaid, in my opinion, insofar as the receipt of additional compensation by the assessee is concerned, it has to be charged on receipt basis and the Assessing Officer, in my opinion, was justified in charging the same and the CIT(A) was not right in deleting the same by relying upon the decision of Supreme Court in the case of Hindustan Housing & Land Development Trust Ltd. and by stating that no right has accrued to the assessee over the said additional compensation ignoring the provisions of the Act under section 45(5) which has shifted the charge of capital gain tax on receipt basis insofar as the additional compensation received is concerned. 30. As regards the second question, the facts are little different. There is no specific provision for making assessment of interest on cash basis. The assessee had been given a right to adopt the system of accounting by section 145. Undisputedly that system adopted by the assessee is accrual system of accounting. Since ....