THE COMMR. OF INCOME TAX vs. KRISHAN LAL

ITA/290/2006HC Punjab & HaryanaPHHC01074988200624 February 2011Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL4 pages
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What were the facts?

The Revenue (Commissioner of Income Tax, Faridabad) filed an appeal under Section 260A of the Income Tax Act, 1961, against the order dated 5.7.2005 passed by the Income Tax Appellate Tribunal (ITAT), Delhi Bench “D”, New Delhi. The appeal pertains to assessment year 1998-99 and challenges the ITAT's decision regarding the taxability of interest received on enhanced compensation. The High Court noted that due to a fire in its premises, paper books were furnished by the Revenue's counsel and the matter was decided based on those. The appeal was clubbed with ITA No. 59 of 2007, involving similar questions of law.

What did the High Court hold?

The High Court allowed the appeals, answering the questions of law in favour of the Revenue and against the assessee. The Court referred to its own decision in ITA No. 209 of 2004 (The Commissioner of Income Tax, Faridabad v. Bir Singh (HUF) Ballabgarh), decided on 27.10.2010. In that decision, it was held that 'income from Business or profession' and 'income from other sources' are ascertained based on the system of accountancy followed. If no specific method is adopted, it's treated as a cash system. Crucially, the Court held that interest awarded under Section 34 of the Land Acquisition Act, 1894, partakes the character of compensation and is taxable in the year of receipt under Section 45(5)(b) of the Income Tax Act. Furthermore, under the cash system of accountancy, such interest received on enhanced compensation under Section 28 of the 1894 Act falls for taxation under Section 56 as 'income from other sources' in the year of receipt. The ratio decidendi is that interest on enhanced compensation is taxable in the year of receipt, irrespective of the mercantile system, especially when the assessee is following the cash system or no specific method is followed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT was right in holding that interest received on enhanced compensation is not taxable in the year of receipt, in view of the decision of the Apex Court in CIT Vs. TNK Govindarajulu Chetty, despite the fact that the assessee is not following the mercantile system of account? (Question of law) 2. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT was right in holding that although interest would be charged on year to year basis but it shall be done only when the dispute is finally settled by the Court? (Question of law) Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The Revenue argued that interest received on enhanced compensation is taxable in the year of receipt. They relied on the decision of the High Court in CIT v. Bir Singh (HUF) Ballabgarh, decided on 27.10.2010, which held that interest under Section 34 of the Land Acquisition Act, 1894, partakes the character of compensation and is taxable in the year of receipt in view of Section 45(5)(b) of the Income Tax Act. The Revenue also contended that under the cash system of accountancy, such interest falls for taxation under Section 56 as 'income from other sources' in the year of receipt.

Which sections of the Income-tax Act were involved?

Section 260A,Section 45(5)(b),Section 56

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 24.2.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Krishan Lal ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel, for the appellant. None for the respondent. AJAY KUMAR MITTAL, J.

1.

Since the Registry has not been able to send the files on account of fire in the Court premises, learned counsel for the appellant has furnished paper books which are taken on record. We proceed to decide the matter after hearing learned counsel for the revenue.

2.

This order shall dispose of ITA Nos. 290 of 2006 and 59 of 2007 as according to the learned counsel for the revenue the similar questions of law are involved therein.

3.

ITA No. 290 of 2006 has been filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order dated 5.7.2005 passed by the Income Tax Appellate Tribunal, Delhi Bench “D”, New Delhi in ITA Nos. 3938 & 3939/Del/01 for the assessment year -2- 1998-99, claiming the following substantial que

The order continues below.

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