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Facts
The assessee received Rs. 1,82,04,310/- as interest on enhanced compensation for agricultural land acquired in FY 2008-09 but did not declare this income in the tax return. The Assessing Officer (AO) brought this interest to tax, a decision upheld by the Ld. CIT(A).
Held
The Tribunal dismissed the assessee's appeal, affirming that the interest received on enhanced compensation is taxable as "income from other sources." It ruled that, due to amendments introduced by the Finance (No.2) Act, 2009 (effective 01.04.2010), such interest is chargeable to tax under Section 56(2)(viii), with a 50% deduction allowed under Section 57(iv), as per jurisdictional High Court pronouncements.
Key Issues
Whether interest received on enhanced compensation for compulsory acquisition of agricultural land is taxable as "income from other sources" under the Income Tax Act, 1961, especially after the amendments introduced by the Finance (No.2) Act, 2009.
Sections Cited
143(3), 28, 56(2)(viii), 57(iv), 145A(b), 10(37)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, DELHI
Before: MS. MADHUMITA ROY & SHRI AVDHESH KUMAR MISHRA
The instant appeal filed by the assessee is directed against the order dated 12.04.2024 passed by the Ld. National Faceless Appeal Centre (NFAC), Delhi, arising out of the Assessment Order dated 30.11.2016 passed by the ITO, Ward-2(2), Gurgaon, under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for Assessment Year 2014-15.
2. At the time of hearing of the matter none appeared on behalf of the assessee. It also appears from the record that previously on very many occasions the assessee did not appear and thus, having no other alternative we have proceeded to deal with the matter ex-parte.
3. The Ld. DR filed written submission in the following manner:
There are divergent views on this taxability of interest on the enhanced compensation awarded u/s 28 of the Land Acquisition Act wherein the Hon'ble Punjab & Haryana H.C has consistently taking a view that it is an income to be treated under the head 'income from other sources'.
2. Back in the year 1996 on 12* September, the Hon'ble Apex Court while disposing the SLP against a decision of the Hon'ble Punjab & Haryana High Court in the case of Bikram Singh and Ors. Vs Land Acquisition Collector and ors [1997] 224 ITR 551 [SC] on the issue of payment of income tax on the delayed interest amount recovered under the Land Acquisition Act 1894, interpreted the legal issue as to whether the delayed interest on the compensation paid under the LAA is chargeable to income tax under Section 4 & 5 of the Income Tax Act, 1961. After considering the provision of Section 2[28A], 194A and previous decisions on the issue laid down the proposition that interest received as income on delayed payment of the compensation determined under Section 28 or 31 of the Acquisition Act is a taxable event being a revenue receipt. [Ref: Para 10 of the order].
3. The interpretation of the above judgement of the Hon'ble Supreme Court in the case of Bikram Singh [Supral got the legislature acceptance by incorporating Section 145A[b] and Section 56[1][iii] w.e.f. 01.01.2010 by Finance Act [2] of 2009.
4. When in the Writ Petition of Sunder Lal and another Vs UOI [CWP No.20014 of 2015] before the Hon'ble Punjab & Haryana High Court [disposed vide order dated 21.09.2015] a prayer was made to get the refund of TDS deducted on the amount of interest awarded under section 28 of the Act on acquisition of the agricultural land, taking reliance on the judgements of the Apex Court in CIT Vs Ghanshyam [HUF] [2009] 315 ITR1 [SC] and that of the Hon'ble Punjab & Haryana High Court in HUDA Vs Mandir Nar Singh puri and others CR No.7953 of 2013 decided on 21.12.2013. In view of the amended provisions of the Act, introduced by Finance Act 2009, the Division Bench of the Hon'ble High Court did not find any merits in the writ petition holding that the cumulative effect of the amendments brought in by Finance Act 2009 [supral would be interest component on the amount of compensation or enhanced compensation would be eligible to tax in the year of receipt irrespective of the method of accounting being employed by the assessee. It was also observed that after the amendments made through Finance Act 2009 the judgments of the Apex Court in the case of Ghanshyam [supra] and Manjeet Singh [HUF] CWP No.15506 of 2013 [14.1.2014] no advantage can be derived by the petitioners on this issue. Further following the judgement of the Hon'ble Apex Court in the case of Bikram Singh [supra] it was categorically held that interest received on account of delay in making the payment of enhanced compensation would fall under section 28 of the 1894 Act and such payment could not par-take the character of compensation for acquisition of agricultural land and thus not exempt from tax.
The Hon'ble P&H, High Court in the case Mahindra Pal Narang vs. CBDT (2020) 423 ITR 13 dated 19/2/2020 wherein the Hon'ble High Court again considered the provisions of Section 10 (37), 56 (2) (viii, 57 (iv), 145B of the income tax act. It rejected the reliance by the assessee on the decision of Hon'ble Supreme Court in Ghanshyam HUF. It further rejected the reliance by the assessee on the decision of the Hon'ble Gujarat High Court in Movaliya's case holding that the Hon'ble Gujarat High Court did not read properly the paragraph number 46.3 of the circular number 5 of 2010 where all interest received on compensation or on enhanced compensation shall be assessed as income from other sources in the year in which it is received. It further held that in view of the amendment to the provisions of the income tax act decision of the Hon'ble Supreme Court in the case of Ghanshyam does not come to the rescue of the assessee. It further held that the language of the income tax act with respect to the chargeability of interest as income is plain, simple and unambiguous and therefore no scope of taking outside aid for giving any interpretation to this subsection or clauses are required.
Thus it held that interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains.
Special leave petition against this decision has been dismissed by the Hon'ble Supreme Court on 04.03.2021.
Since the AO of the present case falls under the jurisdiction of Hon'ble P. & H. High Court, therefore, ratio of Hon'ble Punjab & Haryana High Court has a binding precedent in the present case.
Further in a recent decision the Hon'ble Delhi High Court, in & CM Appl.6505//2023, in the case of PCIT Vs Inderjit Singh Sodhi [HUF], has decided this issue in favour of the revenue on similar lines vide its order dated 5.3.2024. Following the same line of interpretation the Hon'ble 'G' Bench of ITAT Delhi has also decided an appeal in the favour of the revenue on this issue in the case of Veena Shah vide order dated 28.6.2024.
Hon'ble 'H' Bench of ITAT Delhi has also decided an appeal in the favour of the revenue on this issue in the case of Bheem Singh in vide order dated 02.08.2024. Thus, in view of the amendment in statute by way of introducing Section 56[2][viii], 57[iv] and Section 145B of the Income Tax Act by Finance [No.2.] Act 2009 and above legal position the interest received on compensation or enhanced compensation u/s 28 of the Land Acquisition Act is taxable w.e.f. 01.04.2010 @ 50%.”
In fact, the assessee received interest on enhanced compensation from Land Acquisition officer Gurgaon amounting to Rs.182,04,310/- on account of compulsory acquisition of appellants agricultural land by the Government of Haryana in Financial Year 2008-09 but the same was not declared in the return filed by the assessee. In terms of the provision of Clause viii of Sub-Section 2 of Section 56 of the Act, the interest on compensation/enhanced compensation is taxable. Upon allowing 50% deduction under Section 57 of the Act, the taxable income comes to Rs.91,02,155/-.
5. The Ld. CIT(A) while upholding the addition made by the Ld. AO observed as follows:
“7. Decision: The appellant in its grounds of appeal has assailed the AO in assessing the income by making additions and disallowances under various head without proper appreciation of facts and pleaded for the deletion of the said additions/disallowances. 7.1 The appellant in its Grounds of Appeal No. 1 assailed the AO on following grounds:
1. The interest received by appellant was provided under section 23 and 28 of the land acquisition act, 1894 is the part of the compensation as per the supreme court in the case of commissioner of income tax, Faridabad vs Ghanshyam (huf).
2. The high court of Gujrat also held the same view in special civil application no. 17944 of 2015.”
7.1.1 The appellant filed submissions and relied on case laws to support its ground of appeal and claimed that the interest received by the assessee u/s 28 of the Land Acquisition Act is part of Compensation and is exempt us 10(37) of the Act in View of the judgment of the Hon'ble Apex Court in the case of CIT vs. Ghanshyam Dass & V Ors. 315 ITR 1(SC) followed by the Hon'ble Apex Court in the case of CIT vs. Gobind Bhai Mamaiya. 367 ITR 498(SC). The appellant, therefore, contended that the Id AO treated the interest on enhanced compensation as interest income and has taxed it as interest income received u/s 57. (iv) of the Act read with section 145A of the Act whereas the interest on enhanced compensation has been held by the Hon'ble Apex court as part of the compensation and is not interest income as has been treated by the AO. 7.1.2 All the facts of the case, Grounds of appeal, statement of facts, online submissions of the appellant and the case laws cited and the assessment order are considered. The submission of the appellant is examined. It is noted that the AO has discussed this issue in detail in the assessment order at para number 4 to 16 after discussing findings of various courts on the issue and concluded that, "Keeping in view above the decision of Hon'ble jurisdictional High Court in the case of Manjeet Singh (HUF) through Karta Manjeet Singh, CWP No- 15506 of 2013 as reproduced and decision of the Apex Court in the cases of Dr. Sham Lal Narula (53 ITR 151), T.N.K. Govindraja Chetty (66 ITR 465), Bikram Singh (224 ITR 551), Rama Bai Vs. CIT (1990) 181 ITR 400 and K.S. Krishna Rao vs. CIT (1990)181 ITR 408 the interest received on compensation or enhanced compensation is liable to tax as income from other sources.
Further this is to be pointed out that sections 56(2)(vii), 145 A(b) and 57 (v) have been introduced by Finance (No.2) Act, 2009 with effect from 01.04.2010 as below:- ………………………………………. From plain reading of the sections introduced with effect from 1 April, 2010 le from AY 2010-11 interest received on delayed compensation or enhanced compensation would be liable to tax as income from other sources u/s 56(2) (vili of the 1. T. Act. No distinction has been made in clause Vill of subsection (2) of section 56 of the IT Act in respect of interest on delayed compensation i.e. interest u/s 34 of Land Acquisition Act 1894 or interest received on enhanced compensation i.e. interest u/s 28 of Land Acquisition Act 1894. The issue has been set at rest with the introduction of section 56(2) (vili) and 145A(b) to the IT. Act with effect from 01.04.2010. The interest received would be liable to tax in the year of receipt in view of provisions of section 145A(b) of the IT. Act However, deduction to the extent of 50% would be available to the assessee u/s 57(iv) of the I.T. Act.
In view of the above interest received on enhanced compensation to the extent of at Rs.1,82,04,310/- is brought to tax as income of the assessee from other sources. Whereas the assessee has declared amounting to Rs. 1824310/- as interest on enhanced compensation. The assessee has not declared interest on enhanced compensation amounting to Rs. 1,63,80,000/-(Rs 18204310/- minus Rs. 1824310/-) Deduction u/s 57(iv) of the IT. Act is allowed to the extent of 50% of the interest received Le. Rs. 8190000/- and the balance amount of Rs. 8190000/- is added to the taxable income of the assessee and credit of TDS deducted amounting to Rs. 1820431/- is allowed. Credit of TDS of bank interest amounting to Rs. 104392/- is also allowed as the assessee has already included in income in his total income. Since the assessee has concealed the particulars of his income to the extent of Rs. 81,90,000/- penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 read with section 274 are being initiated separately”. 7.1.3 In view of the above, and considering the latest decision of Hon'ble Delhi High Court in the case of Pr. CIT VS Inderjit Singh Sodhi (HUF), ITA 769/2023 & CM APPL 65057/2023, order dated 08.04.2024 wherein the Hon'ble Court has decided as following after discussing the various case laws on the issue: "1. The present appeal involves an examination of the taxability of the interest component, earned on compensation or enhanced compensation, ordered under Land Acquisition Act, 1894 ["Act of 1894"].
The instant appeal has been preferred by the Revenue against the order passed by the Income Tax Appellate Tribunal ["ITAT"] dated 19.06.2020, whereby, the ITAT deleted the addition made by the Assessing Officer ["AO"] under Section 56(2)(viii) of the Income Tax Act, 1961 ["Act"] for the Assessment Year ["AY"] 2016-17.
We may note that vide order dated 15.12.2023, we had briefly noticed the substantial questions of law arising in the present appeal in terms of paragraph nos.5 and 5.1, which read as under:-"5. The central issue which arises for consideration is: whether interest received by the respondent/assessee under Section 28 and 34 of the Land Acquisition Act, 1894 would fall under the provisions of Section 10(37) and Section 56(2)(viii) of the Income Tax Act, 1961 [in short, "Act"]?5.1. We may note that it would also be necessary to examine the provisions of Section 45(5)(c) of the Act.”
4. At the outset, we are formally admitting the instant appeal on the following substantial question of law:-Whether the ITAT has erred in setting aside the concurrent view of the AO and the Commissioner of Income Tax (Appeals) ["CIT(A)"] which held that after amendment of Section 56 of the Act vide Finance (No.2) Act, 2009 (w.e.f. 01.04.2010), no benefit can be derived by the respondent assessee from the decision of the Hon"ble Supreme Court in the case of CIT v. Ghanshyam (HUF) [(2009) 315 ITR 1 (SC)?
………………..
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 ambiguity in the language of the amendment. The only concern is regarding the enunciation of the applicable law and we hold the same to 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 30. We, accordingly, answer the substantial question of law which has arisen in the instant appeal in affirmative and in favour of the Revenue. We, thus, hold that the ITAT has erred in relying upon the decision of Ghanshyam (supra), ignoring the changes brought about by Finance (No.2) Act, 2009, which came into effect in the year 2010.
In the light of the aforesaid judicial pronouncements and the concerned amendment, we set aside the order of the ITAT dated 19.06.2020. Consequently, the appeal stands allowed and the concurrent findings of the AO and CIT(A) are hereby affirmed. Pending application(s), if any, are disposed of." 7.1.4 Considering all the facts and circumstances of the case and judicial pronouncements as mentioned above, the addition made by the AO for Rs. 81,90,000/-to the taxable income of the appellant is confirmed. In view of the fact that there is no material on record to warrant interference in the order of Assessing Officer, the Grounds of Appeal are hereby dismissed.”
6. Having regard to the judgment passed by the Hon’ble jurisdictional High Court in the case of PCIT Vs. Inderjit Singh Sodhi in of 2023 as discussed hereinabove and the amendment brought by the Finance (2) Act , 2009 w.e.f 01.04.2010 the order passed by the Ld. AO confirmed by the First Appellate Authority is found to be just and proper so as not to warrant interference.
The appeal of the assessee is, thus, dismissed.