C0MMISSIONER OF INCOME TAX vs. KESHWA DEVI

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ITA/43/2007HC Himachal PradeshHPHC01005079200708 December 2011Author: HONOURABLE MR. JUSTICE SANJAY KAROL,HONRABLE MR. JUSTICE R.B. MISRA6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the question of law did not survive for consideration. The Court reasoned that the enhanced compensation, including the interest component, received by the land owners/assessees was not interest under Section 34 of the Land Acquisition Act, 1894, but was compensation within the purview of Sections 23 and 28 of the Act. The Court relied on the Supreme Court's decision in Commissioner of Income Tax vs. Ghanshyam (HUF), which distinguished between interest under Section 28 (part of compensation) and interest under Section 34 (for delayed payment). The Court found that the interest awarded in this case was part of the enhanced compensation, not merely for delayed payment. Therefore, the appeals filed by the Revenue were dismissed.

What were the facts?

The appeals involve several respondents whose land was acquired for public purposes. The compensation, including interest, was enhanced by the High Court. The Assessing Officer treated the interest component as income in the respective financial years. This was upheld by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal (ITAT) set aside the orders, holding that since appeals by the assessees seeking further enhancement were pending before the High Court, the interest component was not taxable in the year under appeal. The amount received was compensation under Sections 23 and 28 of the Land Acquisition Act, 1894.

What were the issues?

1. Whether, on the facts and in the circumstances, the ITAT was correct in holding that interest comprised in enhanced compensation, released unconditionally to the assessee under High Court orders, could not be taxed until the appeal was finally decided by higher Courts? (Question of law) 2. Whether the ITAT was correct in holding that interest on enhanced compensation actually received by the assessee was not taxable in the year of receipt on the ground that it had not yet accrued, ignoring that the assessee was not following the mercantile system of accounting, and thus, under Sections 5 and 145, and in view of Section 45(5) of the Income Tax Act, such interest was taxable on the basis of receipt? (Question of mixed law and fact) Assessee's contentions: Not recorded. Revenue's contentions: Not recorded. The judgment focuses on the ITAT's reasoning and the Supreme Court's precedent.

Which sections of the Income-tax Act were involved?

Section 5,Section 145,Section 45(5),Section 23,Section 28,Section 34

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA.

I.T. Appeal No. 43 of 2007 with I. T. Appeals No. 38, 39, 41, 62 of 2007, 8, 16 & 42 of 2008

Date of Decision : 08.12.2011

I.T. Appeal No. 43 of 2007 Commissioner of Income Tax, Shimla

…Appellant

Versus:

1.

Keshwa Devi, d/o late Sh. Tara Chand, V & PO Jhakri, Tehsil Rampur Bushahr, Distt. Shimla.

2.

Sumitra Devi, d/o Late Sh. Tara Chand, V&PO Jhakri, Tehsil Rampur Bushahr, Distt. Shimla.

3.

Sheela Devi, d/o Late Sh. Tara Chand, V&PO Jhakri, Tehsil Rampur Bushahr, Distt. Shimla.

4.

Pushpa Devi, d/o Late Sh. Tara Chand, V&PO Jhakri, Tehsil Rampur Bushahr, Distt. Shimla.

5.

Yashoda Devi, d/o Late Sh. Tara Chand, V&PO Jhakri, Tehsil Rampur Bushahr, Distt. Shimla.

6.

Phoola Devi, wd/o Late Sh. Tara Chand, V&PO Jhakri, Tehsil Rampur Bushahr, Distt. Shimla.

…Respondents.

I.T. Appeal No.41 of 2007 Commissioner of Income Tax, Shimla

…Appellant

Versus:

Sh. Devki Nandan, s/o Sh. Daulat Ram, V&PO Jhakri, Tehsil Rampur Bushahr, Distt. Shimla. …Respondent

I.T. Appeal No.38 of 2007 Commissioner of Income Tax, Shimla

…Appellant

Versus:

Sh. Manmohan Singh, s/o Sh. Findu, Vill. Shah, Dhargurali, Jhakri, Tehsil Rampur Bushahr, Distt. Shimla.

…Respondent

2 I.T. Appeal No.39 of 2007 Commissioner of Income Tax, Shimla

…Appellant

Versus:

Sh. Mohan Lal s/o Sh. Lachi Ram (since deceased) through his LRs.

1(a). Tahal Dassi wd/o late Sh. Mohan Lal, Vill & P.O. Kotla, Tehsil Rampur Bushahr, Distt. Shimla.

1(b). Devender Singh s/o late Sh. Mohan Lal, Vill & P.O. Kotla, Tehsil Rampur Bushahr, Distt. Shimla.

1(c). Neelima Devi d/o late Sh. Mohan Lal, Vill & P.O. Kotla, Tehsil Rampur Bushahr, Distt. Shimla.

1(d). Rekha d/o late Sh. Mohan Lal, Vill & P.O. Kotla, Tehsil Rampur Bushahr, Distt. Shimla.

1(e). Nirmala d/o late Sh. Mohan Lal, Vill & P.O. Kotla, Tehsil Rampur Bushahr, Distt. Shimla.

…Respondents

I.T. Appeal No.62 of 2007 Commissioner of Income Tax, Shimla

…Appellant

Versus:

Sh. Mathu Ram, s/o Sh. Kathu Ram, V&PO Jhakri, Tehsil Rampur Bushahr, Distt. Shimla.

…Respondent I.T. Appeal No.8 of 2008 Commissioner of Income Tax, Shimla

…Appellant

Versus:

Sh. Shyam Lal s/o Sh. Shiva Nand, V&PO Jhakri, Tehsil Rampur Bushahr, Distt. Shimla.

…Respondent

I.T. Appeal No.16 of 2008 Commissioner of Income Tax, Shimla

…Appellant

Versus:

Sh. Madho, s/o Sh. Chand, Vill. Chounka, PO Mail, Tehsil Dalhousie, Distt. Chamba.

…Respondent

3 I.T. Appeal No.42 of 2008 Commissioner of Income Tax, Shimla

…Appellant

Versus:

Sh. Hari Singh, s/o Sh. Kesro, VPO Mail, Tehsil Dalhousie, Distt. Chamba.

…Respondent

Coram: The Hon’ble Mr.Justice R. B. Misra, Judge.

The Hon’ble Mr.Justice Sanjay Karol, Judge.

Whether approved for reporting?1 No For the appellant : M/s. Vinay Kuthiala, Vandana Kuthiala & Vishal Mohan, Advocates

For the respondents : M/s. Vivek Thakur & B.C. Negi,

Advocates.

Sanjay Karol, J. (Oral).

These appeals, except appeal No. 41 of 2007 were admitted on the following common substantial questions of law:-

1.

Whether on the facts and in the circumstances of the case, the ITAT was correct in holding that the interest comprised in the amount of enhanced compensation released unconditionally to the assessee under orders of the High Court, could not be taxed as income until the appeal was finally decided by the higher Courts?

2.

Whether the ITAT was correct in holding that the interest on enhanced compensation actually received by the assessee was not taxable in the year of receipt on the ground that such interest had not yet accrued, ignoring the fact that the assessee was not following the mercantile system of accounting for 1 Whether reporters of Local Papers may be allowed to see the judgment?

4 such interest and hence, under Sections 5 and 145 of the Income Tax Act and in view of Section 45(5) of the Act, such interest was taxable in the year under consideration on the basis of receipt?

2.

Facts are not much in dispute. Respondents’ land was acquired for a public purpose by the Government. The amount of compensation, inclusive of interest was enhanced by this Court in various appeals filed by various land owners. Such information was obtained by the Assessing Officer, who while assessing the income as per the return filed by the assessee, came to the conclusion that the component of interest was to be taken as income in the respective financial year. Order dated 23.1.2006 passed by the Income Tax Officer, Khaneri, Rampur Bushahr was affirmed by the Commissioner of Income Tax (Appeals), Shimla in the appeal filed by the assessee. But however in a further appeal filed by the assessee, before the Income Tax Appellate Tribunal, Chandigarh Bench (Camp at Shimla-Bench-II) vide order dated 13.6.2007, order passed by the Assessing Officer as affirmed by the Appellate Authority, was set-aside by holding that since the appeals filed by the assessee, seeking enhancement of compensation were pending before this Court, as such, the component of interest was not liable to be taxed in the year under appeal.

3.

That the amount received by the assessee is compensation under sections 23 & 28 of the Land Acquisition Act, 1894 (for short ‘the Act’), is not in dispute.

5

4.

The Apex Court in Commissioner of Income Tax vs. Ghanshyam (HUF), [2009] 315 ITR 1 (SC) has held as under:- “To sum up, interest is different from compensation. However, interest paid on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under Section 34. It is clear from reading of Sections 23(1A), 23(2) as also Section 28 of the 1894 Act that additional benefits are available on the market value of the acquired lands under Section 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation. It was held by the Constitution Bench of the Supreme Court in Sunder v. Union of India – (2001) 7 SCC 211, that “indeed the language of Section 28 does not even remotely refer to market value alone and in terms it talks of compensation or the sum equivalent thereto. Thus, interest awardable under Section 28, would include within its ambit both the market value and the statutory solatium. It would be thus evident that even the provisions of Section 28 authorise the grant of interest on solatium as well.” Thus solatium means an integral part of compensation, interest would be payable on it. Section 34 postulates award of interest at 9% per annum from the date of taking possession only until it is paid or deposited. It is a mandatory provision. Basically Section 34 provides for payment of interest for delayed payment.”

6

5.

Thus, in our considered view, question of law does not survive and arise for consideration as the amount of the enhanced compensation, including the component of interest, received by the land owners/assessee was actually not interest u/s 34 of the Act, but compensation within the purview of provisions of Sections 23 and 28 of the Act.

6.

Present appeals are accordingly dismissed, so also the pending application(s), if any.

7.

In view of the dismissal of the other appeals, appeal No. 41/2007 is also dismissed.

( R. B. Misra ),

Judge.

( Sanjay Karol ),

Judge. December 08, 2011 (rana)

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