C I T vs. BHOOP RAM DAGAR

These appeals under Section 260-A of the Income Tax Act (for short the 'Act') have been filed by the revenue against the orders passed by the Income Tax Appellate Tribunal, New Delhi, whereby it has been held that the interest on enhanced compensation is taxable when the issue relating to enhanced compensation attains its finality as the same would accrue to the assessee at that time only.

The brief facts of the case are that the assessee had received an enhanced compensation and interest on enhanced compensation during the year under consideration. The assessee filed return of income and showed interest income on accrual basis from year to year. The Assessing Officer held that the income from interest received by the assessee has to be assessed in the year of its receipt.

On appeal filed by the assessee against the order of the Assessing Officer, the Commissioner of Income Tax (Appeals) vide his order dated 7.3.2003 dismissed these appeals with the following observations:- “Keeping in view the above facts and circumstances of the case it is held that the Assessing Officer was correct in bringing to tax the interest received by the appellant from HUDA on receipt basis. The Hon'ble Supreme Court in the case of Bikram Singh & others has undoubtedly held that the appellant may spread his income over the years. But that is applicable to the facts of the case before the Hon'ble Supreme Court. The Hon'ble Apex Court has not held that in each and every case the appellant shall be entitled to spread its income. Each case has to be viewed with its own peculiarities. In this case, no books of accounts have been maintained. No returns have been filed for the earlier years to declare interest income. There was indeed no parameter or yardstick which could point out to the accrual of income in the form of interest, year to year, as the quantum on which the interest was to be calculated as also the period for which interest was to be calculated was itself fluid. The action of the Assessing Officer therefore, bringing to tax the interest on receipt basis is upheld and confirmed.”

Aggrieved against this order, the assessee preferred an appeal before the Tribunal. The Tribunal following the order of the Special Bench of the Tribunal in the case of DCIT v. Padam Parkash (HUF) 104 TTJ 989 decided the issue in favour of the assessee with the following observations:- “We have perused the records and considered the matter carefully. There is no dispute that the entire enhanced compensation is pending in dispute before the High Court. The Special Bench of the Tribunal in case of Padam Parkash HUF (supra) has held that in case the interest payable on enhanced compensation is pending in dispute before Court, the interest would not accrue and could be subject to tax only when the enhanced compensation is finally determined.

The revenue is in appeal before this Court challenging the order of Tribunal.

Mr. Yogesh Putney, learned counsel appearing for the revenue, has argued that in view of Rama Bai v. Commissioner of Income Tax, Andhra Pradesh (1990) 181 ITR 400, the interest on enhanced compensation for land compulsorily acquired under the Land Acquisition Act, 1894 awarded by the Court on a reference under Section 18 of the Act or on further appeal has to be taken to have accrued not on the date of the order of the Court granting enhanced compensation but on its having accrued year after year from the date of delivery of possession of the land till the date of such order, and such interest cannot be assessed to income-tax in one lump-sum in the year in which the order is made and therefore, the Tribunal has erred in law while holding that the interest on enhanced compensation is taxable when the issue relating to the enhanced compensation attains its finality as the same would accrue to the assessee at that time only. On the basis of the above said argument, counsel for the revenue has further argued that the following substantial question of law

We find no force in the contention raised by the counsel for the appellant. The point raised by the appellant is covered by the judgement of this Court in ITA No.490 of 2007 decided on 26.3.2008 wherein it has been held that the interest on enhanced compensation would not accrue till the issue of enhanced compensation is finally decided and thereafter on attaining the finality of determination of enhanced compensation by the Court, the interest accrued to the assessee has to be spread over on an annual basis right from the date of delivery of possession till the date of the order of the Court on the time basis.

Consequently, in the light of the said authoritative pronouncement, no fault can be found with the view taken by the Tribunal.