THE NEW VIKASH CO-OP. HOUSE BUILDING SOCIETY LTD.,FARIDABAD vs. ITO,WARD-2(1), FARIDABAD

The captioned appeal is filed by the assessee against the order dated 15.08.2024 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] in Appeal No. NFAC/2009-10/10203848 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 30.12.2019 passed u/s 143(3) r.w.s. 254 of the Act pertaining to assessment year 2010-11.

Brief facts of the case are that in this case, the original assessment was completed u/s 143(3) dated 13.02.2013 wherein various additions were made on account of enhanced compensation and interest on enhanced compensation which were challenged by the assessee before the appellate authorities and finally, the matter was remanded back by the Co-ordinate Bench of Tribunal in vide order dated 29.06.2018. Thereafter, the order u/s 143(3) r.w.s. 254 was passed by the AO on 30.12.2019 assessing the income of the assessee at INR 3,14,33,400/- which includes the income computed under head “income from capital gain” at INR 2,64,07,962/-.

Against this order, the assessee is in appeal before us by taking following grounds of appeal:- 1. “THAT in the present case relevant to the AY 2010-11, the Ld. Assessing Officer had decided the remand case vide impugned appeal effect order dated 30/12/2019 read with order rectification dated 23/11/2022 in compliance of directions given by this Hon'ble Tribunal in its appeal order dated 29/06/2018. Directions given were …………. Further, interest on compensation of Rs.67,04,556=00 is chargeable to tax u/s. 56[2] [viii] of the Act and from the interest income the assessee is entitled for deduction u/s. 57 [iv] of 50% of the interest income as deduction.

THAT on appeal, the Ld. First Appellate Authority vide impugned appeal order dated 15/08/2024 has further erred to hold that this issue is not the subject matter of rectification and upheld the view of the Ld. Assessing Officer.

At the outset, Ld.AR drew our attention to para 45 of the order passed by ITAT in wherein the Tribunal has in categorical term directed that interest on enhanced compensation of INR 67,04,556/- is chargeable to tax under section 56(2)(viii) of the Act and assessee is entitled for deduction u/s 57(iv) of the Act of 50% interest income. However, the AO in the order passed u/s 143(3) r.w.s 254 of the Act, had not followed these directions and assessed the same under the head “capital gains”. According to ld.AR, this is the mistake apparent from record and deserves to be rectified. However, lower authorities had wrongly hold the same as not a mistake apparent from record. Thus, Ld.AR requested to direct the AO to rectify the order and treat the interest on enhanced compensation as income from other source and allowed 50% deduction as provide under Act.

On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of lower authorities.

We have heard the contentions of both the parties and perused the material available on records. From the perusal of the orders of the lower authorities, we find that the directions given by Co-ordinate Bench were not followed and the AO has made the addition towards interest on enhanced compensation by treating the same as part of Long Term Capital Gain (“LTCG”). The relevant direction of Co-ordinate Bench in as contained in para 45 are as under:- 45. “Ground No. 2 of the appeal is with respect to taxation of enhanced compensation and interest thereon. WEF 01.04.2010, there is a change in the taxability of computation mechanism of enhanced compensation and interest on enhanced compensation. Compensations is chargeable to tax u/s 45(5) of the Income Tax Act, 1961 in the year in which it is received. There is no dispute with respect to chargeability of that sum. The only dispute remains is that how the interest on the enhanced compensation would be chargeable to tax. The provision of section 56(2)(viii) provides that income by way of interest received on enhanced compensation is income of the assessee and same shall be chargeable to tax according to section 145A (b) of the act. The provision of section 145A (b) provides that the interest shall be deemed to be the income of the year in which it is received. Therefore, the enhanced compensation as well as interest is chargeable to tax in the year it has been received. Undisputedly, same were received on 29.09.2009 and hence they are chargeable to tax in the impugned year. Furthermore, the provision of section 57(iv) which provides that the deduction of sum equals to 50% of the income being interest on enhanced compensation shall be allowed. In view of this it is apparent that compensation of Rs. 19703406/- is chargeable to tax u/s 45(5) of the Act. Further interest on compensation of Rs. 6704556/- is chargeable to tax u/s 56(2) (viii) of the Act and from the interest income the assessee is entitled for deduction u/s 57(iv) of 50% of the interest income as deduction/No other deduction is further allowable. Part of the ground No. 2 is also against the chargeability of bank interest as income of the assessee. This issue is squarely covered against the assessee by the decision of the Hon'ble Supreme Court in case of Bangalore Club (supra) therefore; we hold that bank interest of Rs. 5025433/- earned by the assessee

From the perusal of above directions, we find no ambiguity in the source and it was in very clear words deserved that interest on enhanced compensation should be assessed under the head “income from other sources” and assessee is entitled for deduction u/s 57 of the Act. Now in the order passed u/s 143(3) r.w.s. 254, AO had against assessed the same as income from capital gains. This being so, in our opinion, the lower authorities has erred in not following the directions of Tribunal and therefore, we direct the AO to treat the interest on enhanced compensation of INR 67,04,556/- as income from other source and further direct to allow deduction @ 50% as provided in section 57(iv) of the Act out of such income. Not following the directions of Tribunal is a mistake apparent therefore, we allowed the appeal of the assessee with the aforesaid direction.

In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 13.08.2025.