AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 1157
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....Act on account of interest u/s 28 of the Land Acquisition Act 1894 of Rs. 4,78,95,440/- received by the appellant during the year, which was part of enhanced compensation for compulsory acquisition of his agricultural land exempt u/s 10(37) of the Income Tax Act 1961. 2. That having regard to the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the action of the Ld. Assessing Officer charging interest u/s 234B and u/s 234D of the Income Tax Act 1961. 3. That the appellant craves the leave to add, modify, amend, or delete any of the grounds of appeal at the time of hearing or before decision of appeal. 3. The brief facts of the case are that the assessee is a farmer. He has furnished his original return of income for A.Y.2019-20 electronically on 15.06.2019, subsequently filed revised return of income on 19.07.2019 declaring taxable total income at Rs. 17,08,910/-. The case of the assessee has been selected for scrutiny by issuing notice u/s. 143 (2) of the Act. The assessee had ancestral rural agricultural land situated at Badha in the district of Gurgaon which was acqu....
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.... In cases, where a landowner files reference u/s 18 of the Land Acquisition Act against such award of compensation granted by the Land Acquisition Officer, the Court may also award additional amount under Section 23(1-A), solatium under Section 23(2) and interest u/s 28 of the Land Acquisition Act to the assessee apart from market value of land on the date of acquisition forming part of enhanced compensation. In subsequent appeal to High Court and/or Hon'ble Supreme Court, the Court may confirm, enhance, or reduce the market price of acquired land. It may be noted that the assessee is entitled to interest u/s 34 of Land Acquisition Act only if there is delay in payment of compensation on or before taking possession of the acquired land. He has further submitted that award of interest under section 28 of the Land Acquisition Act 1894 discretionary and is determine by the court and awarded by the court is part of enhanced compensation and receipt is in capital in nature. 8. Section 34 and 28 of the Land Acquisition Act 1894 are under:- Section 34 of the 1894 Act reads as under: - "34. Payment of interest When the amount of such compensation is not paid or depo....
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....CIT vs Ghanshyam (HUF) [2009] 182 Taxman 368/315 ITR 1 SC the Hon'ble Supreme Court held that; 23. In addition to the market value of the land, as above provided, the Court shall in every case award a sum of 30 per cent on such market value, in consideration of the compulsory nature of acquisition. This is under section 23(2) of the 1894 Act. In short, section 23(2) talks about solatium. Award of solatium is mandatory. Similarly, payment of additional amount under section 23(1A) is mandatory. The award of interest under section 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded under section 23(1A) and the solatium under section 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the Court. Section 28 is applicable only in respect of the excess amou....
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....e to go by the provisions of the 1894 Act which awards "interest" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23(1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act....." It may also be apt to quote the following part of the decision of the Supreme Court in Ghanshyam (HUF)'s case (supra): 35 Section 45(5) read as a whole (including clause (c)) not only deals with reworking as urged on behalf of the assessee but also with the change in the full value of the consideration (computation) and since the enhanced compensation/ consideration (including interest under Section 28 of the 1894 Act) becomes payable/ paid under the 1894 Act at different stages, the receipt of such enhanced compensation/consideration is to be taxed in the year of receipt subject to adjustment, if any, under Section 155(16) of th....
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....arlier challenged the communication dated 9th February, 2015 whereby its application for a certificate under section 197 of the IT Act had been rejected and subsequently, tax on the interest payable under section 28 of the Act of 1894 has already been deducted at source. Consequently, the challenge to the above communication has become infructuous and hence, the prayer clause came to be modified. However, since the amount paid under section 28 of the Act of 1894 forms part of the compensation and not interest, the second respondent was not justified in deducting tax at source under section 194A of the IT Act in respect of such amount. The petitioner is, therefore, entitled to refund of the amount wrongly deducted under section 194A of the I.T. Act. 11. Reliance has also placed on the following judgments :- 1. CIT, Faridabad vs. Ghanshyam (HUF) [29] 182 Taxman 368 (SC) 2. CIT, Rajkot Vs. Govindbhai Mamaiya [2014] 52 taxman.com 27 (SC) 3. Surjit Kumar Chetal Vs. CIT-XV [2017] 86 taxmann.com 121 (Delhi) 4. Movaliya Bhikhubhai Balabhai v. ITO [2016] 70 taxmann.com 45 (Guj). 5. Hon'ble Supreme Court in the case of Shri Brahmaparkash & Ors.....
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....s exempted u/s 10(37) of the Act except the case of Mahender Pal Narang vs CBDT New Delhi [2020] taxmann.com 400 P&H). 13. In the case of Rupesh Rasshmikant Shah v. union Of India [2019] 108 taxmann.com 181 the Hon'ble Bombay High Court held that :- Section 4 read with sections 2(28A) and 194A, of the Income-tax Act, 1961 Income Chargeable as (Interest on compensation) - Whether interest awarded on compensation in motor accident claim cases from date of Claim Petition till passing of award or in case of Appeal, till judgment of High Court in such Appeal, is not 'income' and therefore would not be exigible to tax Held, yes Whether further, provision of deducting tax at source cannot govern taxability of amount which is being paid, hence, section 194A provision relating to deduction of tax at source also cannot make interest income chargeable to tax if it otherwise is not, as it is not a charging provision Held, yes Whether however, interest which maybe paid for delay in depositing awarded amount, would not form part of compensation and, therefore, would fall in bracket of interest income and would be exigible to tax under normal provisions - Held, yes [Paras 59 a....
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....Act is paid for the delayed payment of the compensation amount is a revenue receipt liable to tax under the Act. He has further submitted that after the judgment of the Ghanshyam's HUF case (Supra) the legislature introduced the provisions of section 56(2) (viii) vide an amendment w.e.f.1-04-2010 by the Finance Act (No2) Act ,2009. She has further submitted that in the case of Mahender Pal Narang v DBDT New Delhi [2020]120 taxmann.com 400(P&H) Hon'ble High Court has taken the dissenting view from the view of the Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai (Supra) and held that interest received on compensation or enhanced compensation is to be treated as income from other sources. Reliance has placed on the following judgments;- 1. Bikram SinghVs. Land Acquisition Collector 2. TMK Vs Govindaraju ChettyVs. Commissioner of Income Tax 3. PCIT vs. Inderjit Singh Sodhi (HUF) ITA 769/2023 &CM APPL 65057/2023 Decided on 08-04-2024 by Hon'ble High Court. 18. In the case of Mahender Pal Narang v DBDT New Delhi [2020]120 taxmann.com 400(P&H) the Hon'ble Punjab & Haryana High Court (Jurisdictional High Court) held that ;- 27. T....
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....Court in Movaliya Bhikhubhai Balabhai's case (supra) while dealing with deduction of tax at source relying upon Circular No. 5 of 2010 held that amendment to the provisions of the 1961 Act by Finance Act, 2010 Act was not in connection with the decision of Supreme Court in Ghanshyam's case (supra) but to mitigate the hardship caused by the decision of Supreme Court in Rama Bai's case (supra). It was held that interest under section 28 of the 1894 Act continues to part take the character of compensation and will not fall within the ambit of expression "interest". In view of discussion above, we with utmost respect are not in agreement with the view taken by Gujarat High Court. There is another aspect, le, the language of sections 56(2)(viii) and 57(iv) of the 1961 Act is plain, simple and unambiguous. There is no scope of taking outside aid for giving an interpretation to newly inserted sub-sections and clauses. 13. In view of the above, it is held that the interest received on compensation or enhanced compensation is to be treated as 'income from other sources' and not under the head 'Capital gains'." (Emphasis supplied). Views of the v....
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....egard to taxability of interest on compensation and enhanced compensation received by the assessee under sections 28 and 34 of the Predecessor Act would be governed by the existing provisions of the Act. The Central Board of Direct Taxes in tune with the provisions of Section 96 of the aforesaid Act has issued a Circular clarifying that 'compensation' received in respect of an award or agreement shall not be taxable under the provisions of the Act. The word compensation includes the element of interest under the said Act. Conclusion: The judgments rendered by the Hon'ble High Court of Punjab & Haryana taking the view that interest on compensation and enhanced compensation received by the assessee under sections 28 and 34 of the Predecessor Act are taxable as 'income from other sources' in view of the law laid down in Dr. Shamlal Narula's case(supra) and necessary amendment made thereafter in the provisions of Section 56(2) (viii) of the Act by the Legislature, lays down the law correctly. The construction put forth by three Judges Bench in Dr. Shamlal Narula's case(supra) which has held the field for sufficiently long time without havin....
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.... of Sections 145B, 56(2)(viii) and 57 (iv) in the Act vide which interest received on compensation and enhanced compensation has been made taxable as 'income from other sources', and if that be so then the question of the provisions of Section 10(37) of the Act for exemption of interest awarded under section 28 of the Land Acquisition Act from taxability would not come into play inasmuch as such interest is taxable as per the judgment of the Larger Benches of the Supreme Court in Dr. Shamlal Narula case etc, being not a part of compensation and even otherwise interest component of compensation received under section 28 being not expressly exempted there under. Had the intention of the Legislature been to exempt the interest on compensation or enhanced compensation under section 10(37) of the Act, then a provision would have been engrafted there under in view of the pronouncement earlier thereto rendered by the Hon'ble Supreme Court in Ghanshyam's case(supra), more so when the provisions of Section 56(2)(viii) were introduced in the Act providing there under that interest of compensation or enhanced compensation would be taxable as income from other sources. The inte....
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....ction 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received. (2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved. (3) The income referred to in sub-clause (xviii) of clause (24) of Section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year.]" 24. A conjoint reading of the aforementioned provisions i.e., Sections 56(2)(viii) and 145-B of the Act vividly stipulate that the income received by way of interest on compensation or on enhanced compensation shall be chargeable to tax under the head 'income from other sources'. Therefore, since the position with respect to the imposition of tax on interest on compensation or enhanced compensation, as it exists today, came into being only in the year 2010, the conclusions drawn from the decision in Ghanshyam (supra), which was passed in the year 2009, are ....
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....n by the Privy Council and all other cases and had held at p. 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." 9. This position of law has been consistently reiterated by this Court in the case of T.N.K. Govindaraju Chetty v. CIT [(1967) 66 ITR 465: AIR 1968 SC 129], Rama Bai v. CIT [1990 Supp SCC 699 : (1990) 181 ITR 400] and K.S. Krishna Rao v. CIT [(1990) 181 ITR 408 (SC)). Thus by a catena of judicial pronouncements, it is settled law that the interest received on delayed payment o....
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.... 5,65,280 (50 per cent. of Rs. 11,30,561) is taxable as income from other sources as per provisions of sections 56(2)(viii) read with 57(iv) and section 145A(b) of the Act for the assessment year 2010-11. The Commissioner of Income-tax (Appeals) and the Tribunal had upheld the order of the Assessing Officer in that regard. 22. No illegality or perversity could be pointed out by learned counsel for the assessee in the concurrent findings of fact recorded by the authorities below which may warrant interference by this court. No question of law, much less, substantial question of law arise in these appeals. 23. Accordingly, finding no merit in the appeals, the same are hereby dismissed." [Emphasis supplied] 29. Considering the foregoing discussion, we affirm the concurrent findings of the AO and CIT(A) and find that the view taken by the ITAT is unsustainable, as the same is based on an incorrect appreciation of law. The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. There is no question with respect to the vires of the amendment before us or regarding any ambi....