TaxTMI 
TaxTMI 
2018 (6) TMI 1529
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....as compulsorily acquired by the Special Land Acquisition Officer [hereinafter referred to as "the SLAO"], Bagalkot under the provisions of the Land Acquisition Act, 1894 vide Notification dated 29.07.2000. There were five co-owners of the land so acquired. The assessee in ITA No.1744/B/17 is a legal heir of a deceased co-owner holding 1/5th share over the land acquired by the Govt. The assessee in ITA No.1750/B/17 is a co-owner who held 1/5th share in the land acquired by the Govt. Aggrieved by the award as originally passed awarding compensation for the land acquired by the Govt., the co-owners had filed a reference for enhanced compensation. The SLAO, Bagalkot vide order dated 23.06.2012 awarded enhanced compensation and interest which was paid on 18.05.2012. The details of enhanced compensation and interest on enhanced compensation awarded is as follows:- [in Rs.] [in Rs.] Assessee's share (1/5th) [in Rs.] Total enhanced compensation received 3,14,97,643 62,99,529 9% interest for one year 28,34,788 15% interest for the rest of the period 4,36,01,501 Total interest received 4,64,36,289 92,87,258 Total amo....
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..................... (ii) ............... (iii) ................... (iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section." "Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :- (i) .......................... to (vii) .......................... (viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A;" Method of accounting in certain cases. "145A. Notwithstanding anything to the contrary contained in section 145,- (a) .................. (b) interest received by....
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....5 (Guj). 9. The CIT(Appeals) accepted the plea of the assessee and held that interest to the extent of Rs. 90,37,666 which was interest awarded u/s. 28 of the Land Acquisition Act, 1894 partook the character of compensation for land acquired and fell within the ambit of section 10(37) of the Act and to that exempt was exempt. The remaining sum of Rs. 2,49,592 was brought to tax as income from other sources after allowing deduction of 50% u/s. 57(iv) of the Act. The following were the relevant observations of the CIT(Appeals):- "8.1 From the facts it is observed that interest received of Rs. 90,37,666/- is under section 28 of Land Acquisition Act, 1894 out of total interest received of Rs. 92,87,258/-. Interest received under section 28 is eligible for exemption under section 10(37) of Income-tax Act, as discussed in above paras. Assessing Officer is directed to allow the interest received under section 28 of Land Acquisition Act at par with enhanced compensation and allow exemption u/s 10(37) of Income-tax Act, 1961. The balance interest of Rs. 2,49,592/- (Rs.92,87,258 / minus Rs. 90,37,666/-) is to be treated as income from other sources and be taxed after allowing 50% of deduc....
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....read with sections 56(2)(viii) and 145A(b) of the Act under the head income from other sources. Being aggrieved by such order, the Assessee filed writ petition before Hon'ble Gujarat High Court. The question before the Court was whether interest awarded u/s.28 of the Act of 1894 is akin to compensation and chargeable to tax u/s.45(5) of the Act or under the head "Income from other sources" u/s.57(iv) read with Sec.56(2)(viii) and 145A(b) of the Act. The Hon'ble Gujarat High Court held that interest under section 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. In coming to the aforesaid conclusion, the Hon'ble Gujarat High Court followed the decision of Hon'ble Supreme Court in the case of CIT v. Ghanshyam (HUF) [2009] 182 Taxman 368, wherein it was held that interest under section 28 of the Act of 1894 is part of the amount of compensation whereas interest under section 34 thereof is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of ....
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....in section 56(2) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No. 5/2010, dated 3.6.2010, as follows: "Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation.- 46.1 The existing provisions of Income Tax Act, 1961, provide that income chargeable under the head "Profits and gains of business or profession" or "Income from other sources", shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further the Hon'ble Supreme Court in the case of Smt. Rama Bai v. CIT (1990) 84 CTR (SC) 164 : (1990) 181 ITR 400 (SC) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. 46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed by the assessee. 46.3 Further, clause (viii) is inserted ....