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

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ITA/547/2006HC Punjab & HaryanaPHHC01075281200606 December 2010Bench: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL3 pages
AI SummaryRemanded

What did the High Court hold?

The High Court decided the first issue in favour of the revenue and against the assessee. It reasoned that the enhanced compensation and interest received partake of the character of compensation and are taxable in the year of receipt, as per Section 45(5)(b) of the Act. The court referred to its own decision in CIT v. Bir Singh (HUF) and the Supreme Court's decision in CIT v. Ghanshyam (HUF), which held that such amounts are taxable in the year of receipt irrespective of pending litigation. Consequently, the appeal was allowed to this extent. Regarding the second issue, since the Tribunal had not decided the matter of deductions under Sections 54B and 54F, the High Court remanded the case back to the Tribunal for a decision in accordance with the law. No other issues were expressly left undecided.

What were the facts?

The Revenue, Commissioner of Income Tax, Faridabad, appealed to the High Court of Punjab and Haryana against an order of the Income Tax Appellate Tribunal (ITAT), Delhi Bench, for the assessment year 1998-99. The appeal challenged the ITAT's decision regarding the taxability of enhanced compensation and interest received by the assessee, Shri Naval Singh. The core issue revolved around whether this income should be taxed in the year of receipt, especially in light of amendments to the Income Tax Act. The High Court noted that a similar issue had been decided by it in a previous case (CIT v. Bir Singh (HUF)) and by the Supreme Court in CIT v. Ghanshyam (HUF). The ITAT had not adjudicated on the issue of deductions under Sections 54B and 54F.

What were the issues?

1. Whether, on the facts and circumstances, the ITAT was legally correct in holding that a percentage of capital gain and interest arising from a payment covered by security should not be treated as income for the year when the law had been amended by inserting Section 45(5) effective from 01.04.1988? (Question of law) 2. Whether, on the facts and circumstances, the ITAT erred in not adjudicating the issue of deductions under Sections 54B and 54F of the Act? (Question of mixed law and fact) Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The revenue argued that enhanced compensation and interest thereon are taxable in the year of receipt, citing the amendment to Section 45(5) of the Act and judicial precedents. They relied on the High Court's decision in CIT v. Bir Singh (HUF) and the Supreme Court's decision in CIT v. Ghanshyam (HUF).

Which sections of the Income-tax Act were involved?

Section 260A,Section 45(5),Section 34,Section 56,Section 54B,Section 54F

AI-generated summary — verify with the full judgment below

ITA No. 547 of 2006 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 547 of 2006 Date of Decision: 6.12.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Naval Singh ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant. None for the respondent. AJAY KUMAR MITTAL, J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 24.3.2006 passed by the Income Tax Appellate Tribunal, Delhi Bench “F”, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 942/Del/2002 for the assessment year 1998-99, raising following substantial questions of law:- “1. Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in law in holding the order of the CIT(A) directing the Assessing Officer not to treat that percentage of capital gain and interest arising out of payment which is covered by security as income for the year when the law had already

ITA No. 547 of 2006 -2- been changed by amendment and new section 45(5) was inserted w.e.f. 01.04.1988? 2. Whether on the facts and in the circumstances of the case the Hon'ble ITAT has erred in not adjudicating the issue of deduction u/s 54B & 54F?” 2. We have heard learned counsel for the revenue. 3. The point that arises in this appeal is whether the amount of enhanced compensation which was released against security and interest received thereon would be taxable in the year of receipt. 4. The similar issue came up for consideration before this Court in ITA No. 209 of 2004 (The Commissioner of Income Tax, Faridabad v. Bir Singh (HUF) Ballabgarh) decided on 27.10.2010, wherein it was concluded as under:- “(a) that 'income from Business or profession' and 'income from other sources' are ascertain 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 be treated to be cash system of accountancy; (c) the interest under Section 34 to be awarded by the Collector partakes the characters 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

ITA No. 547 of 2006 -3- 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. Further, the Apex Court in Commissioner of Income-tax v. Ghanshyam (HUF), [2009] 315 ITR 1 (SC) had held that the amount of enhanced compensation received by the assessee would be taxable in the year of receipt in view of insertion of Section 45(5)(b) of the Act irrespective of whether any litigation is pending at the behest of the State in any court of law. 6. Accordingly, question No.1 is decided in favour of the revenue and against the assessee. The appeal is allowed to that extent. 7. Since the Tribunal has not decided the issue relating to deduction under Sections 54B and 54F of the Act, the matter is remanded to the Tribunal for decision in this regard in accordance with law. (AJAY KUMAR MITTAL) JUDGE December 6, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

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