THE NEW FRIENDS CO-OPERATIVE, H.B.S.. LTD. vs. COMMISSIONER OF INCOME TAX

ITA/360/2007HC Punjab & HaryanaPHHC01073057200710 April 2008Author: MR. JUSTICE SATISH KUMAR MITTAL,MR JUSTICE RAKESH KUMAR GARG8 pages
AI SummaryAllowed

What were the facts?

The assessee, The New Friends Cooperative House Building Society Ltd., Faridabad, is appealing an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2001-02. The society acquired land for housing, which was later compulsorily acquired by the Government. The society received enhanced compensation of Rs. 9,45,32,917, including Rs. 6,40,00,000 in principal and Rs. 3,08,00,000 in interest. The Assessing Officer (AO) taxed the entire Rs. 9.56 crores in AY 2001-02, treating Rs. 5.29 crores as receipt under Section 45(5)(b) and Rs. 4.27 crores as interest under 'Income from other sources'. The Commissioner of Income Tax (Appeals) deleted the addition, holding that enhanced compensation and interest are taxable only when they attain finality. The Revenue appealed to the ITAT, conceding that enhanced compensation is taxable upon receipt, but interest is taxable on accrual basis after final determination. The ITAT directed the AO to tax compensation in the year of receipt and interest upon final determination.

What did the High Court hold?

The High Court found force in the arguments of the assessee. The Court noted that the issue was squarely covered by its own previous judgments in ITA No. 427 of 2005 (Chandi Ram vs. CIT) and ITA No. 490 of 2007 (CIT vs. Hardwari Lal (HUF)), as well as another judgment in ITA No. 177 of 2005. The Court also referred to the Bombay High Court's decision in CIT vs. Abdul Manan Shah, where the Supreme Court had dismissed the Revenue's SLP. In that case, the Bombay High Court, following the Supreme Court's decision in CIT vs. Hindustan Housing and Land Development Trust Ltd., held that additional compensation deposited in court during an appeal by the government was not taxable at that stage, as it had not accrued as income when disputed. The High Court answered the questions raised against the Revenue and in favour of the assessee, allowing the appeal. The operative direction was to allow the appeal filed by the assessee.

What were the issues?

1. Whether, in the facts and circumstances of the present case, the impugned orders of the Assessing Officer and the ITAT are legally sustainable? (Question of law) 2. Whether, in the facts and circumstances of the present case, the ITAT was right in law in holding that the amount of interest on enhanced compensation, upon judgment of the District Judge and utilized/invested at the assessee's discretion, was not includible in the total income of the assessee? (Question of mixed law and fact) Assessee's arguments: The assessee contended that the issue is covered in its favour by this Court's decisions in ITA No. 427 of 2005 (Chandi Ram vs. CIT) and ITA No. 490 of 2007 (CIT vs. Hardwari Lal (HUF)). The assessee also relied on the Supreme Court's dismissal of SLP against the Bombay High Court's decision in CIT vs. Abdul Manan Shah and a Karnataka High Court judgment in CCIT vs. Smt. Shanta Vva. Revenue's arguments: The Revenue supported the AO's order, arguing that if enhanced compensation and interest are upheld after the time limit for issuing a notice under Section 148, no remedy would be available to the Revenue. The Revenue further argued that as per Section 45(5) of the Income Tax Act, enhanced compensation and interest are taxable in the year of receipt.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 143(3),Section 45(5),Section 45(5)(b),Section 148

AI-generated summary — verify with the full judgment below

In the High Court for the States of Punjab and Haryana at Chandigarh … Date of decision: 10.4.2008 The New Friends Cooperative House Building Society Ltd., Faridabad Appellant Versus The Commissioner of Income Tax, Faridabad and another.

.. Respondent Coram: Hon’ble Mr.Justice Satish Kumar Mittal Hon'ble Mr.Justice Rakesh Kumar Garg Present: Mr.Akshay Bhan,Advocate for the Appellant. Mr.Yogesh Putney, Advocate for the Revenue/respondents. Rakesh Kumar Garg,J The assessee has filed the present Appeal under Section 260-A of the Income Tax Act, 1961(for short ‘the Act’) against the order dated 31.1.2007(Annexure A-3) passed by the Income Tax Appellate Tribunal, Delhi Bench ‘F’ New Delhi (for short ‘the Tribunal’), in ITA No.5370/Del/04 for the Assessment Year 2001-02. The assessee firm is a co-operative society and its main object is to acquire land and built houses on that land. The land acquired by the society was compulsorily acquired by the Government. During the year under consideration, the society has received enhanced compensation of Rs.9,45,32,917/- from the reference court comprising of additional c

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 260-A

All 2,570 judgments and leading authorities on Section 260-A →

Recent GST High Court judgments

Search GST case law →