HARI KISHAN vs. P.O., INCOME TAX APPELLATE TRIBUNAL AND ORS.

ITA/345/2007HC Punjab & HaryanaPHHC01073041200709 April 2008Author: MR. JUSTICE SATISH KUMAR MITTAL,MR JUSTICE RAKESH KUMAR GARG4 pages
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What were the facts?

The appeals by assessees Hari Kishan and Smt. Chandrawati, for Assessment Year 1998-99, challenge the Income Tax Appellate Tribunal's (ITAT) order dated January 31, 2007. The ITAT held that enhanced compensation received by the assessees during the pendency of a dispute before the courts is deemed income for capital gains computation in the year of receipt, under Section 45(5) of the Income Tax Act. The assessees had received interim compensation amounting to Rs. 19,23,468/- and Rs. 12,89,026/- respectively, due to land acquisition. The Assessing Officer and the Commissioner of Income Tax (Appeals) had confirmed the taxability of this enhanced compensation in the year of receipt. The ITAT followed a Special Bench decision in DCIT vs. Padam Parkash (HUF) and distinguished the Supreme Court's ruling in CIT vs. Hindustan Housing and Land Development Trust Limited.

What did the High Court hold?

The High Court allowed both appeals, holding that the enhanced compensation received by the assessees during the pendency of a dispute before the courts is not taxable as capital gains in the year of receipt. The Court followed its own previous decision in Shri Chandi Ram vs. The Commissioner of Income Tax, Faridabad, and other related judgments. The reasoning was that Section 45(5)(b) of the Income Tax Act is attracted only when enhanced compensation is received pursuant to a final award or order of a court, tribunal, or other authority. Any amount received as an interim payment, subject to the final result, does not qualify as enhanced compensation contemplated under Section 45(5)(b). The Court found that the ITAT had taken a contrary view to the established legal position. The substantial question of law was answered in favor of the assessees and against the revenue. No issue was expressly left undecided.

What were the issues?

1. Whether, in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal is right in law in holding that the enhanced compensation received by the assessees during the pendency of dispute of compensation before the Hon'ble Courts is deemed to be income for the purpose of computation of Capital gain in the year of receipt in terms of the provisions of Section 45(5) of the Income Tax Act? Assessee's Contention: The assessees argued that enhanced compensation received during the pendency of a dispute, particularly as an interim payment subject to final adjudication, is not taxable as capital gains in the year of receipt under Section 45(5)(b) of the Act. They relied on the High Court's previous decisions in Shri Chandi Ram vs. The Commissioner of Income Tax, Faridabad (decided on February 25, 2008), and other related cases, which held that Section 45(5)(b) is attracted only upon receipt of enhanced compensation pursuant to a final award or order. Revenue's Contention: The revenue was unable to controvert the legal position presented by the assessees and conceded that the controversy was squarely covered by the High Court's prior judgment in favor of the assessees.

Which sections of the Income-tax Act were involved?

Section 45(5),Section 45(5)(b)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I .T.A.

No. 345 of 2007

Hari Kishan .....APPELLANT Versus The Presiding Officer, Income Tax Appellate Tribunal, New Delhi and others ....RESPONDENTS I .T.A.

No. 361 of 2007

Smt. Chandrawati .....APPELLANT Versus The Presiding Officer, Income Tax Appellate Tribunal, New Delhi and others ....RESPONDENTS DATE OF DECISION: APRIL 09, 2008 CORAM: HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE RAKESH KUMAR GARG --- Present: Mr.Shiv Kumar, Advocate, for the appellant. Mr. Yogesh Putney, Advocate, for the respondents. .. SATISH KUMAR MITTAL, J. This order shall dispose of I.T.A. Nos.345 and 361 of 2007 which are arising from the common order dated 31.1.2007 passed by the Income Tax Appellate Tribunal, New Delhi (hereinafter referred to as `the Appellate Tribunal'). These appeals have been filed by the assessees under Section 260A of the Income Tax Act against the aforesaid order dated 31.1.2007

I .T.A.

No. 345 of 2007 and another

-2- passed by the Appellate Tribunal, by raising the following substant

The order continues below.

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