C I T PANCHKULA vs. RANI TARA DEVI

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ITA/775/2008HC Punjab & HaryanaPHHC01080800200804 August 2016Author: MR. JUSTICE M.M. AGGARWAL,MR. JUSTICE AVNEESH JHINGAN4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the interest component on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, is liable to be taxed under Section 56 of the Income Tax Act, 1961. This was based on the interpretation of the Supreme Court's judgment in CIT Vs Ghanshyam (HUF) by a Division Bench of the High Court in the case of CIT Vs Shri Prem Singh. The Division Bench had expressly held that interest on enhanced compensation is not treated as compensation. While Section 45(5)(c) of the 1961 Act was introduced later, the reasoning that interest on enhanced compensation is not compensation applied to cases under Section 45(5)(b) as well. The High Court found itself bound by its own Division Bench's interpretation of the Supreme Court's judgment and did not permit the assessee to argue otherwise. The question of law was decided in favour of the revenue. The impugned order of the Tribunal was set aside. The appeal was allowed.

What were the facts?

The appeal concerns assessment year 2003-2004. The assessee, Rani Tara Devi, received enhanced compensation under Section 28 of the Land Acquisition Act, 1894, along with interest. The Income Tax Appellate Tribunal (ITAT) had confirmed the CIT (Appeals)'s order, which held that the interest on enhanced compensation was not taxable, even though received, due to pending High Court proceedings and the amount being released on security. The appeal was admitted on a substantial question of law regarding the taxability of this interest. It was later admitted that the enhanced compensation and interest had attained finality and been paid to the assessee. The appeal was adjourned sine-die to await a Supreme Court decision in a related matter.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in directing that the interest on enhanced compensation, even when actually received by the assessee, shall not be assessed since the dispute was pending before the High Court and the amount had been released on furnishing of security? (Question of mixed law and fact, concerning Section 45(5) and Section 56 of the Income Tax Act, 1961). Assessee's contention: Interest on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, forms part of the compensation within the meaning of Section 45(5) of the Income Tax Act, 1961. The assessee relied on the interpretation of the Supreme Court judgment in CIT Vs Ghanshyam (HUF). Revenue's contention: The interest on enhanced compensation is not part of the compensation and is taxable under Section 56 of the Income Tax Act, 1961. The revenue contended to the contrary of the assessee's interpretation of the Supreme Court judgment.

Which sections of the Income-tax Act were involved?

Section 28,Section 45(5),Section 56

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA-775-2008 (O&M) Date of decision:- 04.08.2016 The Commissioner of Income Tax, Panchkula ...Appellant Versus Rani Tara Devi ...Respondent CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE DEEPAK SIBAL Present:- Mr. Yogesh Putney, Advocate, for the appellant. Mr. Akshay Bhan, Senior Advocate, with Mr. Alok Mittal, Advocate, for the respondent. * * * * S.J. VAZIFDAR, A.C.J. (ORAL) This is an appeal against the order of the Income Tax Appellate Tribunal pertaining to the assessment year 2003-2004 confirming the order passed by the CIT (Appeals). 2. The appeal is admitted on the following substantial question of law:- “Whether on the facts and in the circumstances of the case the Hon’ble ITAT was right in law in directing that the interest on enhanced compensation, even when actually received by the assessee, shall not be assessed since the dispute is pending before the High Court and the amount has been released on furnishing of security?” It is admitted that after this question of law was framed, the enhanced compensation under Section 28 of the Land Acquisition Act, 1894 (for short the 1894 Act) and interest Amodh Sharma 2016.08.09 11:13 I attest to the accuracy and authenticity of this document chandigarh ITA-775-2008 (O&M) 2 thereon has attained finality and the amount has been paid to the respondent-assessee. 3. By an order dated 16.02.2009, the appeal was adjourned sine-die to await the decision of the Supreme Court in a Special Leave Petition filed by the appellant against the order and judgement of this Court in ITA-490-2008 titled as CIT Vs Hardawari Lal and others. The Supreme Court delivered the judgement in the case of CIT Vs Ghanshyam (HUF), [2009] 315 ITR 1. 4. Mr. Bhan, learned senior counsel appearing on behalf of the respondent-assessee contends that interest on the enhanced compensation under Section 28 also forms part of the compensation within the meaning of that term in Section 45(5) of the Income Tax Act, 1961 (for short the 1961 Act). The appellant contends to the contrary. 5. The judgement of the Supreme Court in Ghanshyam’s case was considered by a Division Bench of this Court in an

order and judgement dated 16.12.2010 passed in CMs-27928-29-CII-2010 in ITA-85-2010 titled as Commissioner of Ghanshaym’s case and held as under:- “8. The above observations show that interest on enhanced compensation is not treated as compensation while interest on original compensation as per award of the Collector is treated as part of compensation. If compensation is exempt from tax, the interest component which forms part of compensation will also form part of total income but income which is not part of compensation is liable to be taxed under Section 56 of the Act.

10.

Even though there is little confusion in reference to the relevant Amodh Sharma 2016.08.09 11:13 I attest to the accuracy and authenticity of this document chandigarh

ITA-775-2008 (O&M) 3 sections but the discussion clearly shows that interest directed by the Collector is to be treated as part of compensation under Section 34 while the interest on enhanced compensation ordered by the Court is not under Section 28 of the Land Acquisition Act.

11.

In this view of the matter, the interest component on enhanced compensation under Section 28 is liable to be taxed under Section 56 of the Act even when compensation is treated as agricultural income and is not covered by Section 45(5)(c) of the Act. We, thus, answer the questions in favour of the revenue and modify our order dated 05.07.2010 accordingly. The amount of interest on enhanced compensation is held to be taxable in the year of receipt irrespective of pendency of proceedings against award of enhanced compensation.” (emphasis supplied) The Division Bench of this Court has, therefore, expressly held that the interest component on enhanced compensation under Section 28 of the 1894 Act is liable to be taxed under Section 56 of the 1961 Act and is not covered by Section 45(5)(c). Section 45(5)(c) of the 1961 Act does not apply to the case before us for it was introduced by an amendment w.e.f. 01.04.2004. However, the judgement squarely applies even in respect of cases under Section 45(5)(b) as well for it is expressly observed that interest on enhanced compensation is not treated as compensation.

6.

Mr. Bhan contended that the interpretation of the judgement of the Supreme Court by the Division Bench of this Court is incorrect. We are, however, bound by the interpretation of the judgement of the Supreme Court in Shri Prem Singh’s case. We, therefore, did not permit Mr. Bhan to elaborate on this aspect of the matter. The assessee’s Amodh Sharma 2016.08.09 11:13 I attest to the accuracy and authenticity of this document chandigarh

ITA-775-2008 (O&M) 4 remedy, if any, is to challenge this order in the Supreme Court.

7.

The question of law is, therefore, decided in favour of the appellant-revenue.

8.

The appeal is allowed. The impugned order of the Tribunal is set aside. (S.J. VAZIFDAR) ACTING CHIEF JUSTICE (DEEPAK SIBAL) JUDGE 04.08.2016 Amodh Whether speaking/reasoned Yes/No√ Whether reportable Yes/No√ Amodh Sharma 2016.08.09 11:13 I attest to the accuracy and authenticity of this document chandigarh

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