KAPOOR SINGH vs. CHIEF COMMISSIONER OF INCOME TAX AND ANR.

Facts

The petitioner, Kapoor Singh, filed a writ petition challenging an order dated 07.05.2008 by the Chief Commissioner of Income Tax, rejecting his petitions for waiver of interest charged under Section 234B of the Income Tax Act, 1961. The petitioner received compensation for acquired land in 1995, with enhanced compensation and interest amounting to Rs. 30,79,445/- on 11.11.2000 and Rs. 25,60,333/- on 06.11.2001. These amounts were assessed on an accrual basis from assessment year 1995-96 to 2000-01. However, the initial assessment did not charge interest under Sections 234B and 234C. This assessment was later cancelled under Section 263 by the CIT for non-charging of interest. A fresh assessment order charged the interest. The petitioner sought waiver of this interest, arguing he received the amounts after the close of the relevant financial years and could not foresee the receipts.

Held

The High Court allowed the writ petition and set aside the order dated 07.05.2008. The Court held that the interest on enhanced compensation was received by the assessee on 10.11.2000 and 06.11.2001. The Court reasoned that if these amounts were considered income for the assessment years 1995-96 to 2000-01, then no interest could be charged under Sections 234B and 234C as this income was not in the hands of the assessee during those specific years. The Court's reasoning implies that the accrual basis of taxation for interest on enhanced compensation, as laid down in cited precedents, should be applied correctly to the assessment years in which the income was actually received or became taxable, and that the initial assessment's failure to charge interest was not necessarily an error if the income was not yet taxable in those years. The operative direction was to set aside the impugned order.

Key Issues

1. Whether the petitioner's petitions for waiver of interest under Section 234B of the Income Tax Act, 1961, were liable to be rejected on the grounds that they were not covered under the relevant CBDT circulars, specifically clause (e) of para 2 of circular (P-1)? Assessee's contention: The petitioner argued that he received the enhanced compensation and interest after the close of the financial years relevant to assessment years 1995-96 to 2000-01, and therefore, could not have foreseen these receipts. He sought waiver of interest under Section 234B based on clause (e) of para 2 of circular (P-1). Revenue's contention: The revenue contended, citing judgments of the High Court in Commissioner of Income Tax, Faridabad vs. Smt. Burfi and Nepal Saini vs. ITO, that interest on enhanced compensation is taxable on accrual basis irrespective of the pendency of appeals. The revenue also pointed out that the circular empowered waiver of interest under Section 234C, not Section 234B, for short or late payment of installments.