TaxTMI 
TaxTMI 
2018 (10) TMI 1984
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....following grounds: 1 That order dated 26.2.2018 u/s 263(1) of the Act by learned Principal Commissioner of Income Tax, Hisar has been made without satisfying the statutory preconditions contained in the Act and is therefore without jurisdiction and thus, deserves to be quashed as such. 1.1 That the learned Pr. Commissioner of Income Tax has failed to appreciate that once the learned Assessing Officer on examination of the facts on record and after making all possible enquiries had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the learned Principal Commissioner of Income Tax had a different opinion and that too, without having established in any manner that, view adopted by the learned Assessing Officer was an impossible view. 1.2 That various adverse findings and observations made by the learned Pr. Commissioner of Income Tax in order are based on fundamental misconception of facts and law, arbitrary and unjustified and therefore untenable. 1.3 That the finding that "assessment order has not been passed in accordance with the provisions of the Income....
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....n 56, case laws relied on, and the rationale of the decision is reproduced below: Return declaring an income of Rs. 4,66,040/- plus agri. Income at Rs. 2,00,000/was filed by assessee on 29.03.2014 for the Assessment Year 2013-14. Apart from it, assessee has also shown the exempt income of Rs. 1,61,14,384/- in Schedule El of the Income-tax return (enhanced compensation of Rs. 85,54,074/- and interest thereon at Rs. 75,60,310/-). and claimed exemption at Rs. 75,60,310/- u/s 10(37) of the Income-tax Act, 1961. The assessment proceedings u/s 143(3) of the Act were finalized by the AO vide order dated 24.11.2015 assessing total income on returned income. 2. Assessment record for the above mentioned assessment year was called upon and examined. During the year, certain land belonging to the assessee was acquired by the Land Acquisition Officer, HUDA and compensation, enhanced compensation and interest thereon were awarded in lieu thereof by the HUDA/various courts. As a result, assessee received interest on enhanced compensation amounting to Rs. 75,60,310/- u/ s 28 of the Land Acquisition Act during the year under consideration and claimed whole of the interest exempt in view of th....
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....rder under section 263(1) should not be passed. 3. In response thereto, Sh. S.K. Jain, CA and AR of the assessee appeared and filed written submission as under :- 3.1 That assessee has furnished return of income on 29.03.2014 declaring an income of Rs. 4,66,040/- and agriculture income of Rs. 2,00,000/- for the instant year. That perusal of the return of income would show that assessee has duly disclosed that, he has received exempt income of Rs. 1,61,14,384/- in schedule El (Exempt Income) of the Income tax return, which comprises of enhanced compensation of Rs. 85,54,0747-on compulsory acquisition of agricultural land and interest thereon amounting to Rs. 75,60,310/-on it. 3.2 Thereafter during the assessment proceedings u/s 143(3) of the Act, in response to the query of learned Assessing Officer, assessee furnished reply where in detail regarding enhanced compensation on compulsory acquisition of agriculture land has been submitted before learned Assessing Officer. 3.3 That on 24.11.2015, after considering the above said reply return of income filed by the assessee stood accepted as such vide order of assessment u/s 143(3) of the Act. (Thereafter, a notice was issued....
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....287ITR 286 (Del) CIT vs. Vikram Aditya and Associated iii) ITA 170/2017 (Del) CIT vs. Prudent Advisory Services (P) Ltd. 7 That in the impugned notice it has been alleged that element of interest awarded by the Court on enhanced compensation u/s 28 of the Land Acquisition Act, 1894 falls for taxation u/s 56 of the Income Tax Act, 1961 as "Income from Other Sources" 7.1 It is submitted that aforesaid allegation is based on the judgement of Hon'ble Punjab and Haryana High Court in its judgement dated 10.01.2014 in the case of Manjeet Singh (HUF) Karta Manjeet Singh Vs. Union of India and Others, CWP No. 15006 of 2013. It is submitted that aforesaid judgement has been distinguished by Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai vs. Income-tax Officer-TDS-1-Surat, dated 31.3.2016 reported in 388 ITR 343 (Guj). 7.2 That, assessee also seeks to rely on the following judgements: i) C.A No. 13053/2017 (SC) dated 12.09.2017 CIT Vs. Chet Ram (HUF) ii) 315 ITR 1(SC) dated 16.07.2009 CIT vs. Ghanshyam HUF iii) 367 ITR 498(SC) dated 04.09.2014 CIT vs. Govindbhai Mamaiya iv) C.A. No, 15041/2017 Union Of India And ORS. vs. Hah Singh And OR....
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....t to the above decision, the following 3 (three) amended provisions of Income Tax Act, 1961 were introduced by the Finance Act, 2009 w.e.f. 01.04.2010 :- 1. Clause (viii) of sub-section 2 of Section 56: "Income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A." 2. Clause (iv) Section 57: "In the case of income of 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." 3. Clause (b) of section-145A: "Interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received." In view of the above amended provisions introduced w.e.f. 01.04.2010, 50% of the interest on enhanced compensation is assessable as interest income under the head of income from other sources in the year the interest is received by the assessee. In this regard, the contention of the AR that the amendments were introduced to tax the interest on compensation and enhanced compensation in the y....
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.... that interest payable under Section 28 of the Act is 'enhanced compensation' for the purposes of Section 45(5) (b) of Income Tax Act, which if taken as the interpretation with reference to the Land Acquisition Act, 1894, will be contrary to the Constitution bench decision in Sunder (supra). We may also note that the decision clearly holds that additional amount is awardable only against the market value and not solatium: 'It is clear from reading of Sections 23(1 A), 23(2) as also Section 28 of the 1894 Act that additional benefits are available on the market value of the acquire lands under Section 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation.' 9. In view of the above, the appeal is allowed, the orders of the High Court and the Executing Court, in so far as they hold that additional amount under Section 23(1 A) is payable on solatium, are set aside. It is declared that additional amount under section 23(1 A) is awardable only on the market value determined under the first factor of Section 23 (1) of the Act and cannot be calculated on the solatium payable under Section 23(2) of the Act." 6. Reliance placed by the ....
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....8 of the Act, just like under s. 34 thereof, cannot be a compensation or damages for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner." 7. In view of the authoritative pronouncements of the Apex Court in the case of Dr. Shamlal Narula vs. CIT (Supra), Bikram Singh vs. Land Acquisition Collector, (Supra), Sunder vs. Union of India (Supra) and State of Punjab vs. Amarjit Singh (Supra), Hon'ble Punjab & Haryana High Court in Manjet Singh (Supra)held that the benefit of two Judges Bench's decisionin the case of Ghanshyam (HUF) cannot be derived by the assessee u/s 28 of the Land Acquisition Act and held that the element of interest awarded by the Court on enhanced compensation u/s 28 of the Land Acquisition Act, 1894 falls for taxation u/s 56 of the Income-tax Act, 1961 as "Income from Other Sources"in the year of receipt. The observation of Hon'ble Punjab & Haryana High Court in the case of Manjet Singh (Supra) is reproduced as under :- "12. Adverting to the case law on the subject, inevitably, reference is made to the judgment by the three Judges bench of the Supreme Court in the c....
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.... vs.Commissioner of Income-tax, Jammu [51 ITR 151]. Therein, K. Subba Rao, J., as he then was, considered the earlier case law on the concept of "interest" laid down by the Privy Council and all other cases and had held at page 158 as under: "In a case where title passes to the State, the statutory interest provided thereafter can only be regarded either as representing the profit which the owner of the land might have made if he had the use of the money or the loss he suffered because he had not that use. In no sense of the term can it be described as damages or compensation for the owner's right to retain possession, for he has no right to retain possession after possession was taken under Section 16 or Section 17 of the Act. We, therefore, hold that the statutory interest paid under Section 34 of the Act is interest paid for the delayed payment of the compensation amount and, therefore, is a revenue receipt liable to tax under the Income tax Act." This position of law has been consistently reiterated by this Court in the case of TMK Govindaraju Chetty vs. Commissioner of Income-tax, Madras [66 ITR 465], Rama Rai & Ors. vs. CIT, Andhra Pradesh [181 ITR 400] and K.S.Krishna....
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....in the year of receipt. 16. The reliance was placed upon following observations in Ghanshyam (HUF)'s case (supra):- "To sum up, interest is different from compensation. However, interest paid on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 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 interest under Section 34." 17. In view of the authoritative pronouncements of the Apex Court in Dr. Sham Lai Narula, T.N.K.Govindaraja Chetty, Amarjit Singh,Sunder, Bikram Singh's cases (supra), Rama Bai vs. CIT (1990) 181 ITR 400 and K.S.Krishna Rao v. CIT, (1990) 181 ITR 408, the assessee cannot derive any benefit from the aforesaid observations quoted above." 8. Further SLP filed against the above decision of Hon'ble Punjab & H....
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....am's case (supra) was followed. 11. Examining the issue of taxability of interest under Section 28 of the Act, in Commissioner of Income Tax v. Bir Singh (HUF), ITA No.209 of 2004 decided on 27.10.2010, it was held by the Division Bench of this Court that the interest awarded by court on enhanced compensation under Section 28 of the Act was chargeable to tax as income from other sources in the year of receipt. Division Bench of this Court again in Commissioner of Income Tax, Panchkula v. Prem Singh decided on 16.12.2010 while considering identical issue recorded as under: - "11. In this view of the matter, the interest component on enhanced compensation under Section 28 is liable to be taxed under Section 56 of the Act even when compensation is treated as agricultural income and is not covered by Section 45(c) of the Act. We thus answer the questions in favour of the revenue and modify our order dated 5.7.2010 accordingly. The amount of interest on enhanced compensation is held to be taxable in the year of receipt irrespective of pendency of proceedings against award of enhanced compensation. 12. Adverting to the judgment of the Gujarat High Court in Movaliya Bhikhubha....
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....th Section 57 (iv) and Section 145A(b) and the judicial position as discussed above, the assessment order passed by the AO u/s 143(3) of the Income Tax Act, 1961 failed to add the interest income of Rs. 37,80,155/- being 50% of the total interest income of Rs.75,60.310/-under the head of "Income from other sources". 11. In this context Explanation 2 of the Section 263 of the IT. Act, 1961 inserted by the Finance Act, 2015 w.e.f. 01/06/2015 reproduced as under :- "Explanation 2 :For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal Commissioner or Commissioner :- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictiona....
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....43(3)/147 instead of dropping the proceedings. As proceedings u/s 147 were dropped and escapement of income could not be brought to tax by the AO by recourse to action u/s 147, therefore, proposal for action u/s 263 was sent by the AO. The action u/s 263 is called for, not because of lack of enquiry but because the assessment order was not passed in accordance with the provisions of the Income Tax Act, 1961 and in accordance with the decision rendered by jurisdictional High Court and Supreme Court by rejecting the SLP. Therefore, legal and valid action u/s 263 was warranted in the instant issue and accordingly proceedings u/s 263 were initiated as per law. 12.2 The decisions Suresh Paul Bansal (supra), Vikram Aditya and Associates (supra) and Prudent Advisory Services (P) Ltd. (supra) relied on by the AR are also not applicable in the instant case. The above decisions are related to different views taken by the CIT in the order u/s 263 as against the order u/s 147/143(3) made by the AO. In the instant case, there is no difference in views taken by the AO while dropping the proceedings u/s 147 and the action taken u/s 263. As discussed above, in view of the objection by the asses....
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....he interest received on enhanced compensation was held to be in the nature of compensation and not interest which is taxable under the head income from other sources under section 56 of the Income Tax Act,1961. The relevant part of the order in the case of Satbir & Others Vs. ITO, Ward-1, Jind in ITA No. 1429/CHD/2016 dt. 09/07/2018 is as under: We have heard the rival contentions. It is pertinent to note here that interest under the Land Acquisition Act can be awarded under section 28 or/and under section 34 of the Land Acquisition Act, 1894. Interest awarded under section 28 of Land acquisition Act, 1894 is the interest on the excess amount of compensation awarded by the court over the amount awarded by the collector. It is awarded by the Court payable by the collector from the date on which the collector took the possession of the land to the date of payment of such excess into Court. Whereas interest under section 34 of the Land Acquisition Act, 1894 is given when the amount of compensation awarded by the collector is not paid or deposited on or before taking possession of land, such interest is payable from the time of so taking possession till the date of payment of compen....
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....d question is concerned, that is also covered by another judgment of this Court in Commissioner of Income Tax, Faridabad vs. Ghanshyam (HUF) reported in (2009) 8 SCC 412, 6 albeit, in favour of the Revenue. In that case, the court drew distinction between the "interest" earned under Section 28 of the Land Acquisition Act and the "interest" which is under Section 34 of the said Act. The Court clarified that whereas compensation given to the assessee of the land acquired would be 'income', the enhanced compensation/consideration becomes income by virtue of Section 45(5)(b) of the Income Tax Act. The question was whether it will cover "interest" and if so, what would be the year of taxability. The position in this respect is explained in paras 49 and 50 of the judgment which make the following reading: "49. As discussed hereinabove, Section 23(1-A) provides for additional amount. It takes care of the increase in the value at the rate of 12% per annum. Similarly, under Section 23(2) of the 1894 Act there is a provision for solatium which also represents part of the enhanced compensation. Similarly, Section 28 empowers the court in its discretion to award interest on the exce....