C I T vs. ATTAR SINGH

ITA No. 555 of 2008 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 555 of 2008 (O&M) Date of Decision: 31.1.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Attar 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. AJAY KUMAR MITTAL, J. 1. This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order dated 13.11.2006 passed by the Income Tax Appellate Tribunal, Delhi Bench “G”, Delhi (in short “the Tribunal”), in ITA No. 4398/Del/2004 for the assessment year 1997-98, claiming following substantial question of law:- “Whether on the facts and circumstances of the case, the Hon'ble ITAT is right in holding that assessment of interest cannot be made until the matter is finally settled by the High Court, in contradiction with the judgment of Hon'ble Jurisdictional High Court of Punjab & Haryana following the judgment of Apex Court in the case of CIT vs. Rama Bai (181 ITR 400)

ITA No. 555 of 2008 -2- whereby interest on enhanced compensation is to be taxed on accrual basis irrespective of the pendency of appeal in higher courts in respect of enhanced compensation. [ITA No. 175 of 05 and ITA No. 177 of 05 in the cases of CIT, Faridabad Vs. Naresh Kumar and CIT, Faridabad Vs. Dilbagh Singh, respectively]? 2. Put shortly, the facts necessary for adjudication as narrated in the appeal are that the assessee received interest on enhanced compensation at Rs.82,58,720/-. The assessee expired and notices under Section 148 of the Act were issued to the legal heirs of the assessee on 21.3.2003 and returns declaring nil income were filed by some of the legal heirs. The Assessing Officer completed the assessment on 17.11.2003 at an income of Rs.82,58,720/-. On appeal, the Commissioner of the Income Tax (Appeals) [in short “the CIT(A)”] upheld the view of the Assessing Officer. On further appeal, the Tribunal set aside the orders of the CIT (A) as well as the Assessing Officer and directed the Assessing Officer to assess the interest paid to the assessee on enhanced compensation in the light of the directions of the Special Bench. Hence, the present appeal by the revenue. 3. We have heard learned counsel for the appellant. 4. The point that arises in this appeal is whether the interest on enhanced compensation is taxable in the hands of the assessee in the year of receipt. 5. 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,

ITA No. 555 of 2008 -3- 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 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.” 6. In view of the above, the appeal is allowed and the substantial question of law is answered in favour of the revenue. (AJAY KUMAR MITTAL) JUDGE January 31, 2011 (ADARSH KUMAR GOEL) gbs JUDGE