CIT, PANCHKULA vs. RANI SHAKUNTLA DEVI, PANCHKULA

ITA/955/2008HC Punjab & HaryanaPHHC01080999200827 October 2010Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL4 pages
AI SummaryRemanded

What were the facts?

The Revenue (Commissioner of Income Tax, Panchkula) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2003-04. The assessee, Smt. Rani Shakuntla Devi, had declared an income of Rs. 3,46,480. The Assessing Officer (AO) later found the assessee received Rs. 2,27,32,695 as enhanced compensation and Rs. 86,11,120 as interest on enhanced compensation. A notice under Section 148 was issued for the interest amount. The AO completed the assessment by adding Rs. 86,11,120 as interest. The Commissioner (CIT) invoked Section 263, noting that the enhanced compensation of Rs. 1,41,49,163 was also received in the relevant period and directed the AO to modify the assessment. The ITAT cancelled the CIT's order, stating the matter of enhanced compensation was not finalized and retaining it to earn interest was inconsequential.

What did the High Court hold?

The High Court held that the primary question is whether enhanced compensation is exigible to capital gains tax in the year of receipt, irrespective of pending litigation. Citing the Supreme Court's decision in Commissioner of Income-tax v. Ghanshyam (HUF) [2009] 315 ITR 1 (SC), the Court found that under Section 45(5)(b) of the Act, inserted retrospectively w.e.f. 1.4.1988, taxability of income is in the year of receipt, regardless of whether litigation regarding the award of compensation has attained finality. Therefore, the CIT had rightly invoked revisional jurisdiction under Section 263. The High Court set aside the order of the Tribunal and answered question No. 1 in favour of the Revenue. Question No. 2 was rendered academic in view of the decision on question No. 1. The matter was remitted to the Tribunal for passing orders in accordance with law. The parties were directed to appear before the Tribunal on 16.12.2010.

What were the issues?

1. Whether the ITAT was correct in cancelling the CIT's order under Section 263, thereby not bringing to tax enhanced compensation of Rs. 1,41,59,163 by ignoring Section 45(5) and the fact that it was received and retained in AY 2003-04? 2. Whether the ITAT was correct in holding that Sections 45(5)(c) and 155(16) are not applicable retrospectively for AY 2003-04 and are contrary to the Supreme Court's decision in Allied Motors (P) Ltd. (224 ITR 677)? Assessee's contentions: The assessee argued that the ITAT was correct in its decision, implying that the enhanced compensation was not taxable in AY 2003-04. The assessee also relied on the Supreme Court's decision in Allied Motors (P) Ltd. (224 ITR 677) regarding the retrospective applicability of Sections 45(5)(c) and 155(16). Revenue's contentions: The Revenue contended that the CIT rightly invoked Section 263, as the enhanced compensation was received in AY 2003-04 and should be taxed under Section 45(5). The Revenue argued that the taxability of income is in the year of receipt, irrespective of pending litigation, citing the Supreme Court's decision in Commissioner of Income-tax v. Ghanshyam (HUF) [2009] 315 ITR 1 (SC).

Which sections of the Income-tax Act were involved?

Section 260A,Section 45(5),Section 155(16),Section 148,Section 143(3),Section 263(1),Section 45(5)(b)

AI-generated summary — verify with the full judgment below

Income-tax Appeal No. 955 of 2008 1

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- Income-tax Appeal No. 955 of 2008 Date of decision: 27.10.2010 The Commissioner of Income Tax Panchkula --- Appellant Versus Smt. Rani Shakuntla Devi --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Yogesh Putney, Senior Standing Counsel for the Revenue. Mr. H.N. Mehtani, Advocate for the respondent-assessee. --- AJAY KUMAR MITTAL, J.

This order will dispose of Income-tax Appeal Nos. 955 and 956 of 2008 as the substantial questions of law raised therein are common. The facts have been taken from Income Tax Appeal No. 955 of 2008. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the Revenue against the order dated 7.7.2008, passed by the Income Tax Appellate Tribunal, Chandigarh Bench (B), Chandigarh (in short “the Tribunal”) in ITA No. 990/CHANDI/2007 in respect of the assessment year 2003-04, raising the following substantial questions of law for determination by this Court:

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