COMMISSIONER OF INCOME-TAX, FARIDABAD vs. GHANSHYAM (HUF)

CIVIL APPEAL No. 4401/2009Supreme Court[2009] 10 S.C.R. 102516 July 2009Bench: 2 JudgesAuthor: S.H. KAPADIA, AFTAB ALAM32 pages
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What did the Supreme Court hold?

The Supreme Court held that the year in which enhanced compensation is received is the year of taxability. Even in cases where an appeal is pending, and the assessee is permitted to withdraw the amount against security or otherwise, the receipt of such amounts is liable to be taxed under Section 45(5) of the Income-tax Act, 1961. The Court clarified that Section 45(5) was introduced to address the difficulties arising from compensation being awarded in multiple stages in compulsory acquisition cases, making it taxable on a receipt basis. The judgment in Hindustan Housing was distinguished as it predated the insertion of Section 45(5) and was under the 1922 Act. The Court allowed the appeals of the Department. However, it directed that recomputation would not be done for the decade-old matters, given the complexity and the passage of time, subject to what was stated regarding the type of interest and compensation components.

What were the facts?

The assessee, Ghanshyam (HUF), did not offer enhanced compensation and interest received from HUDA for land acquisition in its return for assessment year 1999-2000. The assessee argued this amount had not accrued as it was under dispute in a High Court appeal filed by the State against the Reference Court's order. The amount was received against furnishing security. The Assessing Officer (AO) disagreed, citing Section 45(5) of the Income-tax Act, 1961. The CIT(Appeals) agreed with the assessee, holding the amount had not accrued due to the pending appeal. The ITAT upheld the CIT(Appeals)'s order. The High Court, relying on Hindustan Housing, held that when the State is in appeal against enhanced compensation and interest, the receipt is not taxable.

What were the issues?

1. Whether enhanced compensation and interest thereon, received by the assessee against furnishing security during the pendency of a State appeal against the enhanced award, is taxable as capital gains in the year of receipt, under Section 45(5) of the Income-tax Act, 1961. Assessee's contention: The enhanced compensation and interest had not accrued to the assessee during the year of receipt as the entire amount was in dispute in the First Appeal before the High Court. The receipt was only against security furnished to the satisfaction of the executing court. Revenue's contention: In terms of Section 45(5) of the Income-tax Act, 1961, any amount by which compensation is enhanced is deemed income chargeable under the head 'Capital Gains' in the previous year of receipt, irrespective of pending appeals or conditions of receipt.

Which sections of the Income-tax Act were involved?

Section 45(5),Section 155(7A),Section 2(47),Section 45(1),Section 155(16),Section 23(1A),Section 23(2),Section 28,Section 34

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[2009] 10 S.C.R. 1025 COMMISSIONER OF INCOME-TAX, FARIDABAD v. GHANSHYAM (HUF) (Civil Appeal No. 4401 of 2009) JULY 16, 2009 [S.H. KAPADIA AND AFTAB ALAM, JJ.)

Income Tax Act, 1961: A B Sections 2(47), 45, 155 ~ Compensation towards land c acquisition - Enhanced compensation and interest thereon awarded by the Reference Court - Disputed in appeal - Included in assessment by the Assessing Officer - CIT (Appeals) holding that it did not accrue to the assessee since the entire amount was in dispute in first appeal - Tribunal 0 upheld the order of CIT (Appeals) - High Court held that when the State is in appeal against the enhanced compensation and interest thereon the receipt of additional compensation and interest thereon was not taxable - On appeal, Held: The year in which enhanced compensation is received is the year E of taxability - Even in cases where appeal is pending, and the assessee is permitted to withdraw the amount against security or otherwise, the receipt of such amounts is liable to be taxed under Section 45(5) - Land Acquisition Act, 1894 - Sections 23(1), 23(1A), 23(2), 28, 34. · F Assessee filed its return of income for the assessment yea

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