COMMISSIONER OF IT FARIDABAD vs. SHANTIVIR VASHIST

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ITA/494/2010HC Punjab & HaryanaPHHC01093433201018 January 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL4 pages
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What did the High Court hold?

The High Court held that the question raised in the appeal is answered in favour of the revenue. The Court referred to the Supreme Court judgment in Commissioner of Income Tax, Faridabad Vs. Ghanshyam (HUF) (2009) 315 ITR 1, which clarified that enhanced compensation is taxable in the year of receipt, even if proceedings have not attained finality, due to an amendment to Section 45(5) of the Act. The Court also noted that interest on compensation awarded by the Collector is part of compensation, while interest on enhanced compensation is to be treated as income from other sources. Following this, the High Court had dealt with a similar matter in ITA No.209 of 2004 (The Commissioner of Income-Tax, Faridabad Vs. Bir Singh (HUF), Ballabgarh) decided on 27.10.2010, where it was held that interest under Section 28 of the Land Acquisition Act, 1894, on enhanced compensation falls for taxation under Section 56 as 'income from other sources' in the year of receipt, under a cash system of accountancy. The appeal was allowed.

What were the facts?

The Revenue (Commissioner of Income-Tax, Faridabad) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 2001-02. The assessee, Sh. Shantivir Vashist, received enhanced compensation for land acquisition during this assessment year. The Assessing Officer treated this compensation as capital gains. The CIT(A) and ITAT held that since the enhanced compensation was still under dispute and had not reached finality, it could not be taxed in the year of receipt. This decision was based on earlier judgments of the High Court and Supreme Court, including CIT vs. Prem Singh and CIT, West Bengal-II v. Hindustan Housing and Land Development Trust Ltd. The Revenue's appeal to the High Court challenged this view.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in confirming the CIT(A)'s order holding that enhanced compensation and interest thereon, being subject to litigation and not having reached finality, cannot be taxed in the year of dispute? This question turns on the interpretation of Section 45(5) of the Income Tax Act, 1961, and the principles of taxability of enhanced compensation and interest. Assessee's Contention: The assessee argued, and the lower authorities agreed, that since the enhanced compensation was still under dispute and had not reached finality, it could not be taxed in the year of receipt. This was based on the principle that taxability requires finality of the amount. The assessee relied on judgments like CIT vs. Prem Singh and CIT, West Bengal-II v. Hindustan Housing and Land Development Trust Ltd. Revenue's Contention: The Revenue contended that the ITAT was wrong in confirming the CIT(A)'s order. The Revenue argued that the Supreme Court in CIT, Faridabad vs. Ghanshyam (HUF) had settled the controversy, holding that enhanced compensation is taxable in the year of receipt, irrespective of finality, due to an amendment to Section 45(5). The Revenue also argued that interest under Section 28 of the Land Acquisition Act, 1894, on enhanced compensation is part of the enhanced compensation and thus taxable in the year of receipt.

Which sections of the Income-tax Act were involved?

Section 260A,Section 45(5),Section 28,Section 56

AI-generated summary — verify with the full judgment below

of 2010

-1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH of 2010

Date of decision: 18.1.2011 Commissioner of Income-Tax, Faridabad ...Appellant Versus Sh.Shantivir Vashist ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant.

**** ADARSH KUMAR GOEL, J (

Oral)

.

1.

As per office report, the respondent refused to accept notice and the notice was affixed at the door. Thus, service is treated to be completed.

2.

This Appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) against order dated 29.6.2009 passed by the Income Tax Appellate Tribunal, Delhi Bench 'G', New Delhi in ITA No.1772/(Del)/ 08, for the assessment year 2001-02, raising following substantial question of law:- “Whether on the facts and in the circumstances of the case, the ld. ITAT was right in law in confirming the order of the ld. CIT(A) in holding that since in of 2010

-2- **** the present case the matter is still under dispute, the enhanced compensation and interest thereon received by the assessee is subject to litigation and has not reached the finality and therefore cannot be taxed in the year of dispute disregarding the fact that the entire controversy on the year of taxability of enhanced compensation and interest thereon has now come to rest with the judgment of Hon'ble (2009) 315 ITR 1 (SC) wherein the Hon'ble Apex Court has held that the year in which enhanced compensation is received is the year of taxability and the interest u/s 28 of the Land Acquisition Act, 1894 on enhanced compensation is a part of enhanced compensation, therefore, the interest u/s 28 of the Land Acquisition Act on enhanced compensation will also be taxable in the year of receipt?

3.

The assessee received compensation for the acquisition of his land on different dates from 1.9.1999 to 18.4.2002. Enhanced compensation was received during the assessment year 2001-02. The assessing officer made assessment during the compensation received as capital gain. On appeal, CIT(A) held that since enhanced compensation had not reached finality, the amount could not be taxed in the year of receipt as per judgment of this Court in of 2010

-3- **** Hon'ble Supreme Court in Commissioner of Income Tax, West Bengal-II v. Hindustan Housing and Land Development Trust Ltd., (1986) 161 ITR 524. On appeal, the said view has been affirmed by the Tribunal.

4.

The matter was considered by Hon'ble Supreme Court in Commissioner of Income-Tax, Faridabad Vs. Bir Singh (HUF), Ballabgarh) decided on 27.10.2010. It was held that:- “(a) that ‘income from Business or profession’ and ‘income from other sources’ are ascertained on the basis of system of accountancy followed by the assessee; (b) where assessee is not maintaining books of accounts by adopting any specific method, it shall of 2010

-4- **** be treated to be cash system of accountancy; (c) the interest under Section 34 to be awarded by the Collector partakes the character of compensation and is taxable in the year of receipt in view of Section 45(5)(b) of the Act; and (d) under cash system of accountancy, the element of interest awarded by the Court received on enhanced amount of compensation under Section 28 of the 1894 Act falls for taxation under Section 56 as ‘income from other sources’ in the year of receipt.”

5.

In view of the above, question raised in the appeal is answered in favour of the revenue in the above terms.

6.

Accordingly, the appeal is allowed.

(Adarsh Kumar Goel)

Judge January 18,2011 (Ajay Kumar Mittal) Pka

Judge

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