CIT LUDHIANA vs. SMT.PARKASH KAUR ETC.MOGA

ITR/114/1999HC Punjab & HaryanaPHHC01038544199909 September 2010Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL8 pages
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What were the facts?

The assessee, Chanan Singh (now represented by his legal heirs), received enhanced compensation and interest after his land was acquired by Defence Authorities in 1972. The compensation was enhanced from Rs. 1,09,364 to Rs. 11,49,885, with solatium of Rs. 2,99,970 and interest of Rs. 21,67,552. The assessee received Rs. 4,87,795 on 28.5.1984. For assessment year 1985-86, the Assessing Officer made an addition of Rs. 2,89,678 as capital gains. The CIT(A) deleted this addition, holding that Section 45(5)(b) was not applicable retrospectively. The Revenue's appeal to the Tribunal was dismissed. The High Court is hearing a reference filed by the Revenue.

What did the High Court hold?

The High Court held that the enhanced compensation was not exigible to capital gains tax. Section 45(5)(b) was introduced w.e.f. 1.4.1988 and thus did not apply to the assessment year 1985-86. The Court also found Section 155(7A) inapplicable as the original assessment year was 1972-73 and no return was filed for rectification. Regarding interest, the Court noted that interest under Section 28 of the Land Acquisition Act, 1894, partakes the character of compensation and would follow the same principle. However, for interest under Section 34, the method of accountancy is crucial. The Court found no evidence that the assessee followed the mercantile/accrual basis for interest income. Therefore, it was presumed the assessee followed the cash system, making the interest received during assessment year 1985-86 taxable. The reference was answered accordingly.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in not upholding the assessment of enhanced compensation and interest received by the assessee under the general provisions of the Income-tax Act, even if the provisions of Section 45(5)(b) were not specifically applicable? Assessee's contentions: The assessee's arguments are not explicitly recorded in the judgment. However, the judgment implies the assessee argued that Section 45(5)(b) was not applicable and that the notice under Section 148 was invalid, which the CIT(A) rejected. Revenue's contentions: The Revenue contended that the enhanced compensation and interest were taxable as capital gains. They relied on Section 45(5)(b) of the Act read with Explanation (ii) thereto, and alternatively, Section 155(7A) of the Act, to bring the receipt of enhanced compensation under capital gains tax.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 148,Section 45(5)(b),Section 155(7A),Section 292B,Section 28,Section 34,Section 145

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH Date of Decision: 9.9.2010 The Commissioner of Income-Tax, Ludhiana ...Petitioner Versus Smt. Parkash Kaur and others ...Respondents. CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present: Mr. Rajesh Katoch, Central Govt. Standing Counsel for the petitioner.

None for the respondent. AJAY KUMAR MITTAL, J.

The controversy herein is basically between assessee, Chanan Singh and the Revenue pertaining to the assessment year 1985-86. Chanan Singh having died, his legal heirs i.e. Parkash Kaur, wife and two daughters, namely, Parvinder Kaur and Jatinder Kaur are on record in his place. Reference in this judgment will, however, be made by indicating assessee only.

In this reference filed under Section 256(1) of the Income- tax Act, 1961 (for short “the Act’”) the Income Tax Appellate Tribunal, Amritsar Bench Amritsar, (in short “the Tribunal”) vide order dated 26.3.1999, passed in Reference Application No. 142(ASR)/1998 arising out of ITA No. 242(ASR/1992) at the instance of the Revenue, in -2- respect of assessment year 198

The order continues below.

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