THE COMMISSIONER OF INCOME TAX vs. LAKSHMI CHAND (HUF)

The controversy to be resolved in the instant appeal is whether in the light of the judgment of the Apex Court in CIT v. Hindustan & Land Development Trust Limited, [1986] 161 ITR 524, the amount of enhanced compensation was exigible to tax in the year of receipt after insertion of Section 45(5) in the Income Tax Act, 1961 (in short “the Act”), though there was dispute pending regarding quantum of compensation in the High Court.

The facts necessary for adjudicating the present controversy as pleaded in the appeal are that the land of the assessee was acquired by the Haryana Urban Development Authority (HUDA) in March, 1991 and first compensation was awarded by the Land Acquisition Officer in that year itself. On appeal, the District Judge, Faridabad enhanced the amount of compensation. The assessee received additional compensation as well as interest for the relevant -2- assessment years. The dispute herein relates to taxability of enhanced compensation received by the assessee. The Assessing Officer initiated proceedings under Section 147 of the Act for the assessment years from 1994-95 to 1998-99 and issued notices under Section 148. The assessee had offered the receipt of interest on enhanced compensation in his return but additional compensation was not included in the computation and separate notes were attached with the return. The Assessing Officer disallowed the claim of the assessee relating to enhanced compensation and included in the taxable income in the year of receipt. The penalty proceedings under Section 271(1)(c) of the Act were also initiated against the assessee for non-disclosure of income. Feeling aggrieved, the assessee approached the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] while partly allowing the appeal of the assessee had given the guidelines to be followed by the Assessing Officer. The relevant guidelines for the purpose of this appeal are as under:- “(i) The income from capital gain and interest should be charged in the year of receipt. (ii) The percentage of capital gain arising out of payment which is covered by security should not be treated as income for the year but the remaining balance which has been unconditionally released should be charged to income from capital gain. Similar will be the amount of interest paid to be charged to tax.”

The revenue had challenged the aforesaid direction of the CIT (A) by filing the appeal before the Tribunal. The Tribunal had held -3- that the basis of taxation of compensation and enhanced compensation was the actual receipt by the assessee. Accordingly, the Tribunal reversed the findings of the CIT (A) holding the amount of additional compensation and interest received by the assessee subject to the furnishing of security not liable to be considered for the purposes of computation of capital gain under Section 45 of the Act in the year of its receipt.

We have heard learned counsel for the parties.

The question in this appeal is whether the enhanced compensation received by the assessee conditionally on furnishing security for its release would be exigible to capital gains tax in the year of receipt even after insertion of Section 45(5) of the Act retrospectively w.e.f. 1.4.1988. 6. The issue is no longer res integra. The Hon'ble Supreme Court in Commissioner of Income-tax v. Ghanshyam (HUF), [2009] 315 ITR 1 (SC) has held that in such a situation the year of taxability is the year of receipt of enhanced compensation. Once that is so, no error can be found with the view adopted by the Tribunal.

Accordingly, there is no merit in this appeal and the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE October 14, 2010 (ADARSH KUMAR GOEL) gbs JUDGE