TaxTMI 
TaxTMI 
2025 (3) TMI 524
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....lication of mind is unjustified. It be so held now." 3. The brief facts of the case are that, for the year under consideration, the assessee had received additional compensation against compulsory acquisition of agricultural land by the Government of Gujarat, along with interest component of Rs. 30,91,191/-. The assessee had claimed the entire amount received on account of enhanced compensation, which consisted of interest component, as exempt income u/s 10(37) of the Act. The Assessing Officer observed that, in view of the amended provisions of Section 145(B) of the Act with effect from 01.04.2017, the interest component is taxable u/s 56(2)(viii) of the Act; accordingly amount of Rs. 15,45,596/-, being 50% of the interest component of Rs. 30,91,191/- was brought to tax u/s 56(2)(viii) of the Act. Subsequently, assessment order was passed by the Assessing Officer u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act on 31.01.2021, determining the income of the assessee at Rs. 29,45,847/- by making addition of Rs. 15,45,596/- against the returned income of Rs. 14,00,251/-. 4. Aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Ld. CIT(A) who dis....
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....partakes the character of income from other sources under section 56(2)(viii), to be considered as separable from the enhanced compensation. Thus, taxability of interest on enhanced compensation of Rs. 79,44,141 is to be examined u/s 56 of the Act. 1.1. AR of the Appellant has relied upon decision of Hon'ble Supreme Court in Ghanshyam HUF's and also relied upon accounting principles as held by the decision of Hon'ble Supreme Court in Rama Bal vs. CIT (1990) 181ITR 400. 1.2. Rebuttal: It is submitted that insertion of section 145A, 145B, 56(2)(viii) and 57(iv) by the Finance (No. 2) Act, 2009 has changed the character of Interest under section 28 of the Land Acquisition Act from 'capital receipt' forming part of enhanced compensation as envisaged in section 45(5) of the Act to 'revenue receipt' chargeable to tax as 'income from other sources'. CBDT Circular No. 5 dated 03.06.2010 reported in (2010) 324 ITR (St.) 293, it is stated that the Hon'ble Supreme Court in the case of Rama Bai Vs. CIT (supra) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to th....
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....y Finance Act 2009 w.e.f 01.04.2010. 4. Analysis of Land Acquisition Act: It is significant to refer to Sections 28 and 34 of the Act of 1894, which deal with the payment of interest on compensation, and read as under:- "28. Collector may be directed to pay interest on excess compensation.- If the sum which, in the opinion of the court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of [nine per centum] per annum from the date on which he took possession of the land to the date of payment of such excess into Court." 4.1. Payment of interest.- When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of nine per centum per annum from the time of so taking possession until it shall have been so paid or deposited. Provided that if such compensation or any part thereof is not paid or deposited within a period of one year from the date on ....
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....lity of the provisions of sub-section (1), the following incomes shall be chargeable to income tax under the head "Income from other sources", namely:- [(viii) income by way of interest received on compensation or on enhanced compensation referred to in [sub-section (1) of Section 145-B].]" 4.5. For the sake of clarity, Section145-B of the Act is reproduced as under:- "[145-B. Taxability of certain income.-(1) Notwithstanding anything to the contrary contained in Section 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]" A conjoint reading of the aforementioned provisions i.e., Sections 56(2)(w7....
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....a new clause (iv) in section 57 has been inserted with effect from April 1, 2010 whichlays down that in the case of income of the nature referred to in section 56(2) (viii), a deduction of a sum equal to 50 per cent, of such income would be allowable thereunder and no deduction would be allowed under any other clause of section 57. The said provision reads thus: "57. Deductions.-The income chargeable under the head' Income from other sources' shall be computed after making the following deductions, namely :. . . (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." 5. [2024] 161 taxmann.com 301 (Delhi) [08-04-2024] The Hon'ble Delhi HC in IT Appeal NO. 769 OF 2023 CM APP.L 65057 OF 2023- in case of Principal Commissioner of Income Tax-10 v. Inderjit Singh Sodhi (HUF)decided the issue in favour of the Revenue on 08.04.2024: Held - Section 56 of the Income-tax Act, 1961, read with sections 28, 34 and 145 of the Land Acquisition Act, 1894 - Income from other ....
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.... 56(2)(vlii) by Finance Act, 2009 w.e.f 1-4-2010, order of Principal Commissioner passed under section 263 could not be Interfered - Held, yes [Paras 18 and 26] [In favour of revenue] 8. Prayer: 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 or regarding any ambiguity in the language of the amendment. The only concern is regarding the enunciation of the applicable law. It is unequivocally mean that interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income tax u/s 56(2)(vii) r.w.s 57(iv) of the Act. Vijay Kumar Mangla JCIT, Ahmedabad." 8. Heard both the parties and perused the material available on record. 9. We find that similar issue stands adjudicated by the order of the Hon'ble High Court of Delhi in the case of CIT Vs. Indrajit Singh Sodhi (HUF). The examination of the issue are as under:- The Delhi High Court has held that interest received on compensation or enhanced compensation shall ....
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....rom 01.04.2010, therefore, the decision relied upon by the respondent-assessee herein was not applicable as the same pertained to the year prior to the said amendment. While relying upon the judgment of the Supreme Court in the case of Ghanshyam, the ITAT drew an equivalence between the interest received under Section 28 of the 1894 Act and the enhanced compensation. It was further held that since the interest amounts to accretion to the value of compensation, therefore, the same must be treated as a part of compensation. A division bench of Hon'ble High Court of Delhi upheld the concurrent findings of the AO and CIT(A) and found 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. In the light of the judicial pronouncements and the concerned amendment, the court set aside the order of the ITAT. Consequently, the appeal of the revenue was allowed and the concurrent findings of the AO and CIT(A) are hereby affirmed. 10. The similar issue stands adjudicated by the order of the IT....
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....nder the head 'other sources' and accordingly, added the proportionate amount of interest in the imp ugned years in the reopened assessment proceedings u/s 147 r.w.s. 143(3) of the Act. 7. Before the Ld.CIT (Appeals), the assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) and contended that as per the ratio laid down in the said decision the interest received u/s 28 of the Land Acquisition Act, 1894 does not partake the character of interest, rather it was a part of compensation of land which was not taxable as per the provisions of sect ion 10(37) of the Income Tax Act. The Ld. CIT(Appeals) after considering the submissions of the assessee as well as considering the nature of compensation and interest thereupon received by the assessee, held that the issue was squarely covered by the decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) and accordingly, allowed the appeal of the assessee. 8. Subsequently the Assessing Officer moved an application for rectification of the u/s 154 of the Act before the CIT(A) pleading therein that the interest received on....
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....cquisition Act can be awarded under sect ion 28 or/and under sect ion 34 of the Land Acquisition Act, 1894. Interest awarded under sect ion 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 sect ion 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 pay able from the time of so taking possession till the date of payment of compensation. In the case in hand, the Ld. CIT (Appeals) vide his order dated 14.3.2016 had allowed the appeal of the assessee following the decision in case of Ghanshyam (HUF) (supra), wherein it has held Interest u/s 28 of the Land Acquisition Act 1984, unlike interest u/s 34 is an accretion to the value of the land, hence it is part of enhanced compensation or consideration which is not the case with interest u/s 34A. So also additional amou....
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....at 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 excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under Section 23(1-A) and solatium under Section 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the court after reference under Section 18 of the 1894 Act. It depends upon the claim, unlike interest under section 34 which depends on u....
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....sion amounts to compensation or not." The said decision as rightly pointed out by the Ld. counsel for assessee have been rendered by the Hon'ble Apex Court subsequent to the decision passed by the Hon'ble Jurisdictional High Court in the case of Manjeet Singh(HUF) (supra) which had dealt with the decisions of the Hon'ble Apex Court in Ghanshyam, HUF (supra). Therefore, in view of the same, the proposition laid down in Ghanshyam, HUF (supra) remains and which having been laid down by the Hon'ble Apex Court is the law of the land and has to be followed by all lower authorities. In view of the above, we hold that the interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s 56 of the Act as held by the authorities below. The compensation being exempt u/s 10(37) of the Act is not disputed. In view of the same the order passed by the CIT(Appeals) upholding the addition made by the AO on account of interest on enhanced compensation is, not sustainable." 11. Before pa....
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.... or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in CIT v. Ghanshyam (HUF) [2009] 182 Taxman 368/315 ITR 1 (SC) in order to ascertain whether the interest given under the said provision amounts to compensation or not. * The order in the case Govindbhai Mamaiya 367 ITR 498 (SC) dated 04.09.2014 - Reiterated that "it is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have 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." * In the case of Ghanshyam (HUF), the Hon'ble Supreme Court equated the interest received....