AZIZUDDIN LATIPHODDIN KAZI L/H OF DECEASED LATIPHODDIN AJIMODDIN KAZI,LATUR vs. THE INCOME TAX OFFICER, WARD-4, LATUR

This assessee’s appeal for Assessment Year 2013-14 arisen directed against the National Faceless Appeal Centre(NFAC), Delhi’s DIN & Order No.ITBA/NFAC/S/250/2023- 14/1053863085(1) dated 22.06.2023, in proceedings under section 250 of the Income Tax Act, 1961 [in short “the Act”].

The assessee pleads the following substantive grounds in the instant appeal. “1. On the facts and in the circumstances of the case and in law and it appears that the Ld. NFAC-Delhi while considering the statutory appeal of the appellant-assessee before it, did not consider at all the written submissions made before it. The Ld. NFAC passed the appeal order without properly considering the subject matter of grievances placed before it. The principles of Natural justice have been violated. The order be cancelled and set aside. 2. On the facts and in the circumstances of the case and in law the copies of submissions made before Ld. NFAC-Delhi are separately filed in the independent paper book filed. The order deserves to be cancelled and set aside.

On the facts and in the circumstances of the case and in law the Ld. NFAC-Delhi was not entitled to disallow the claim of exemption of interest received under S. 28 of the Land Acquisition, 1894, received on Enhanced compensation of compulsory acquisition of the Act. It be allowed in favour of the appellant-assessee deleting such disallowance. 4. On the facts and in the circumstances of the case and in law the Central Board of Direct Taxes issued a benevolent circular to all the authorities working under the Act that such receipt of additional compensation u/s 28 of the Land Acquisition Act 1894 as the it was not interest but additional compensation and also was exempt under S. 10(37) of the Act. The exemption be granted accordingly. 5. On the facts and in the circumstances of the case and in law and according to judicial decisions the same was binding on all being benevolent circular being in the nature of administrative relied assisting the assessee. It has also been held that the circulars supplant the law and do not supplement. They can be raised for the first time also before the judicial forum during the course of hearing. It be held accordingly. 6. On the facts and in the circumstances of the case and in law and in view of the benevolent circular issued by the CBDT (The circular included in the paper book) the Ld. NFAC-Delhi in Faceless Appeal proceedings ought not to have been confirmed the exparte assessment done by the Assessing Officer. Even the circular of CBDT (supra) produced before the appellant authority is allowable. Accordingly the circular produced in this appeal though for the first time be accepted and justice be done as per law.

We have heard both the sides through virtual court and cogitated over the relevant material on record. Indisputably, the amount of net interest income computed by the AO u/s.56(2)(viii) of the Act pertains to section 28 of the LAA. The assessee treated such amount as part of the enhanced compensation of land and claimed the same as exempt from tax on the ground that the land itself was agricultural. To buttress the contention that interest u/s 28 of the LAA is a part of compensation and hence not chargeable to tax, the ld. AR chiefly relied on the judgment of the Hon’ble Supreme Court in CIT Vs. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) before the Tribunal in which it has been held that interest u/s.28 under The Land Acquisition Act, is to be taxed as part of consideration on receipt basis. This judgment was delivered on 16-07-2009. The Finance (No.2) Act, 2009 w.e.f. 01-04-2010 inserted clause (viii) to section 56(2) providing that: “income by way of interest received on compensation or on enhanced compensation referred to in sub-section (1) of section 145B” shall be chargeable to income-tax under the head “Income from other sources”. Section 145B(1) provides that: “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”. Thus it is palpable that post the decision in Ghanshyam (supra), a statutory amendment has been carried out providing that income by way of interest received on compensation or on enhanced compensation shall be chargeable to income-tax under the head “Income from other sources”.

Question of deduction of tax at source on interest u/s 28 of the LAA once again came up for consideration before the Hon’ble jurisdictional High Court in a batch of 13 petitions with the lead case of Shivajirao S/o Dnyanoba Ghanwat & Ors. VS. The State of Maharashatra & Ors. (WP No. 5402 of 2013). The petitioners contended that the tax was deducted at source on the entire amount of compensation awarded in Land Acquisition proceedings, including the interest u/s 28 of the Land Acquisition Act, which was not deductible in the light of the judgment of the Hon’ble Supreme Court in Ghanshyam (HUF) (supra). Per contra, the Respondent made out a case that tax at source was rightly deductible as there was no difference between the interest granted u/s 28 and 34 of the LAA. This view was bolstered on the basis of an earlier judgment of the Hon’ble Supreme Court in Bikram Singh (supra) 224 ITR 551 (SC). The Hon’ble Bombay High Court, vide its judgment dated 27.08.2013 (copy at pages 69 onwards of the assessee’s paper book), recorded the petitioner’s contention in para 8 and that of the respondent in paras 3 read with 4. In para 5 of the judgment, their Lordships found that: ‘Section 34 casts obligation upon Collector to pay interest after compensation is worked out. Section 28 puts similar obligation upon the Court when the Court finds that the compensation awarded under section 11 was inadequate. Therefore, there is no change in nature of interest either u/s.28 or section 34. Even if court hikes compensation for land and interest is awarded under Section 28 of the Act, upon such increased compensation, in the light of larger Bench judgment, the Department Azizuddin Ltiphoddin Kazi (L/h of Deceased Latiphoddin Ajimoddin Kazi) [A] and Disbursing Authorities are bound to effect deduction of TDS’. On the interplay between the Hon’ble Apex Court judgments in Ghanshyam (supra) & Bikram Singh (supra), the Hon’ble Bombay High Court in para 4 found the: `issue to be squarely covered by the larger Bench judgment of the Apex court’ in Bikram Singh (supra). Then it noted in para 9 of the judgment that: “We have perused para 24 and 25 of the judgment of the Apex Court in Commissioner of Income Tax Vs. Ghanshyam (supra). We find that the Hon’ble Apex Court there, was not called upon to look into the Larger Bench judgment delivered earlier in case of Bikram Singh (supra). In para 7, the Hon’ble Larger Bench has found that the interest paid u/s.28 is not by way of any charge on compensation determined u/s.23(1). We, therefore, with respect, follow the larger Bench judgment of the Hon’ble Apex Court”. Thus it is plentifully lucid that the Hon’ble jurisdictional High Court has categorically held that interest u/s 28 of the Land Acquisition Act is chargeable to tax.

The ld. AR then submitted that the Hon’ble Supreme Court in Union of India and others Vs. Hari Siingh and others (2018) 302 CTR 0458 (SC) has considered a similar issue and decided the same in favour of the Azizuddin Ltiphoddin Kazi (L/h of Deceased Latiphoddin Ajimoddin Kazi) [A] assessee. It was then contended that since the judgment of the Hon’ble jurisdictional High Court was rendered prior to that of Hon’ble Supreme Court in Hari Singh and others (supra), the latter should be followed in preference to the former.

We are unable to find any relevance of the judgment of Hon’ble Supreme Court in Hari Singh and others (supra), insofar as the issue under consideration is concerned. In that case, the Land Acquisition Collector deducted tax at source from compensation on account of compulsory acquisition of land and deposited the same with the exchequer. A writ petition was filed in the High court urging that no deduction of tax at source was permissible in view of the provisions of section 194LA of the I.T. Act, since the land which was acquired was agricultural land and this provision categorically mentions that in respect of agricultural land, tax at source was not to be deducted. The Hon’ble High Court directed the Income-tax Department to refund the amount to the collector and held: “that the Collector will determine whether the compensation paid is for property other than the agricultural land or otherwise and whether deduction of tax at source was permissible under other provisions of law…..”. Aggrieved thereby, the Revenue approached the Hon’ble Supreme Court pleading that the matter should have been remitted to the AO for deciding the nature of land acquired and not the Collector as it was the AO who was to come to the conclusion whether land was agricultural or not. Accepting the contention on behalf of the Revenue, the Hon’ble Supreme Court held that the claimant should approach the concerned AO and raise the issue that no tax was payable on compensation/enhanced compensation which was received by them as their land was agricultural land. It was further observed that, while determining as to whether the compensation paid was for agricultural land or not, the AO will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in CIT, Faridabad Vs. Ghanshyam (HUF) in order to ascertain whether the interest given under the said provision amounts to compensation or not. It is abundantly clear that the judgment in the case of Hari Singh and others (supra) is based an altogether different factual matrix in Azizuddin Ltiphoddin Kazi (L/h of Deceased Latiphoddin Ajimoddin Kazi) [A] which the question was as to whether it was the Collector or the AO who will decide as to whether any tax was payable on compensation/enhanced compensation. This issue came to be decided by Hon’ble Supreme Court by holding that the AO was the competent authority. There is no adjudication on the point as to whether interest u/s.28 of the Land Acquisition Act is chargeable to tax separately or part of enhanced compensation. There is a simple direction to the AO to consider this aspect of the matter.

In view of the foregoing discussion, it is manifest that the judgment of the Hon’ble jurisdictional High Court holding that interest u/s.28 under the LAA is chargeable to tax, is intact and has not been disturbed in any manner by the Hon’ble Supreme Court in the case of Hari Singh and others (supra). On a specific query, the ld. AR could not point out as to whether the judgment of the Hon’ble jurisdictional High Court in Shivajirao (supra) has been reversed or modified in any manner by the Hon’ble Supreme Court. Respectfully following the judgment of the Hon’ble jurisdictional High Court in Shivajirao (supra) and the judgment of Hon’ble Punjab & Haryana High Court in Manjeet Singh (supra) along with the statutory amendment carried out to section 56(2) inserting clause (viii) w.e.f. 01-04-2010, it is overt that the ld. CIT(A) has taken an unexceptionable view in the matter pertaining to the A.Y. 2013-14. We, therefore, uphold the same. This ground is not allowed.”

We have heard the foregoing vehement rival contentions. It transpires that the instant issue of taxability of the assessee’s interest income received under section 28 of the Act is covered in assessee’s favour as per the hon’ble high court’s Bombay bench holding that the same is not taxable under section 56(2)(viii) of the Act as against the Revenue’s contentions that the Aurangabad bench of the very hon’ble jurisdictional high court has taken a divergent view against the taxpayer in Shivajirao and Others Vs. State Writ Petition No.5042/2013 dated 27.08.2013(supra).

This assessee’s appeal is dismissed.