C I T vs. BHOOP RAM DAGAR

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ITA/316/2007HC Punjab & HaryanaPHHC01073009200730 November 2010Bench: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL8 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeals and answered the question of law in favour of the revenue and against the assessee. The Court relied on its own decision in ITA No. 209 of 2004 (The Commissioner of Income Tax, Faridabad v. Bir Singh (HUF) Ballabgarh), decided on 27.10.2010. This earlier decision established that 'income from Business or profession' and 'income from other sources' are ascertained based on the system of accountancy followed by the assessee. If no specific method is adopted, the cash system is presumed. The Court held that interest under Section 34 of the Land Acquisition Act, 1894, 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 Income Tax Act. Furthermore, under the cash system of accountancy, interest awarded under Section 28 of the 1894 Act on enhanced compensation falls for taxation under Section 56 as 'income from other sources' in the year of receipt. The ratio decidendi is that interest on enhanced compensation, when accounted for under the cash system, is taxable in the year of receipt, irrespective of appeals in higher courts.

What were the facts?

The appeals were filed by the Commissioner of Income Tax, Faridabad (Revenue) against the orders of the Income Tax Appellate Tribunal (ITAT). The respondent in ITA No. 316 of 2007 is Shri Bhoop Ram Dagar (HUF), and similar respondents are involved in connected appeals (ITA Nos. 317 to 321 of 2007). The core issue revolves around the taxability of interest on enhanced compensation. The High Court admitted ITA No. 316 of 2007 for determination of a substantial question of law concerning the accrual basis of taxation of interest on enhanced compensation, particularly in light of conflicting judgments from the jurisdictional High Court and the Apex Court.

What were the issues?

1. Whether, on the facts and circumstances of the case, the Hon'ble ITAT is right in holding that the AO shall be within his jurisdiction to bring to tax the element of interest on accrual basis upon its final determination by the higher courts, in contradiction with the judgment of Hon'ble jurisdictional High Court of Punjab and Haryana following the judgment of Apex Court in the case of CIT vs. Rama Bai (181 ITR 400) 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? (Question of law) Assessee's Contention: Not explicitly recorded in the judgment. The judgment implies the assessee's position was that interest on enhanced compensation should be taxed on receipt basis, potentially influenced by the ITAT's view that taxation should await final determination by higher courts. Revenue's Contention: The Revenue contended that interest on enhanced compensation is taxable on an accrual basis, irrespective of the pendency of appeals, citing the judgment of the Apex Court in CIT vs. Rama Bai (181 ITR 400) and the jurisdictional High Court's stance in similar cases.

Which sections of the Income-tax Act were involved?

Section 45(5)(b),Section 56

AI-generated summary — verify with the full judgment below

ITA Nos. 316 of 2007 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 316 of 2007 Date of Decision: 30.11.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Bhoop Ram Dagar (HUF) ...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 order shall dispose of ITA Nos. 316 to 321 of 2007 as as learned counsel for the appellant submitted that similar questions of law are involved therein. 2. ITA No. 316 of 2007 was admitted by this Court vide order dated October 15, 2007 for determination of the following substantial question of law:- “Whether, on the facts and circumstances of the case, the Hon'ble ITAT is right in holding that the AO shall be within his jurisdiction to bring to tax the element of interest on accrual basis upon its final determination by the higher courts, in contradiction with the judgment of Hon'ble jurisdictional High Court

ITA Nos. 316 of 2007 -2- of Punjab and Haryana following the judgment of Apex Court in the case of CIT vs. Rama Bai (181 ITR 400) 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. 176 of 2005 and ITA No. 177 of 2005 in the cases of CIT, Faridabad vs. Dilbagh Singh, respectively).” 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, 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

ITA Nos. 316 of 2007 -3- 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 appeals are allowed and the question of law is answered in favour of the revenue and against the assessee. (AJAY KUMAR MITTAL) JUDGE November 30, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA Nos. 316 of 2007 -4- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA Nos. 317 of 2007 Date of Decision: 30.11.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Bharat Lal Dagar (HUF) ...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. The appeal is allowed. For reasons, see the detailed order of even date recorded in ITA No. 316 of 2007 [Commissioner of Income Tax, Faridabad v. Shri Bhoop Ram Dagar (HUF)]. (AJAY KUMAR MITTAL) JUDGE November 30, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA Nos. 316 of 2007 -5- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA Nos. 318 of 2007 Date of Decision: 30.11.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Rohtas Singh Dagar (HUF) ...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. The appeal is allowed. For reasons, see the detailed order of even date recorded in ITA No. 316 of 2007 [Commissioner of Income Tax, Faridabad v. Shri Bhoop Ram Dagar (HUF)]. (AJAY KUMAR MITTAL) JUDGE November 30, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA Nos. 316 of 2007 -6- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA Nos. 319 of 2007 Date of Decision: 30.11.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Sukh Ram Dagar (HUF) ...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. The appeal is allowed. For reasons, see the detailed order of even date recorded in ITA No. 316 of 2007 [Commissioner of Income Tax, Faridabad v. Shri Bhoop Ram Dagar (HUF)]. (AJAY KUMAR MITTAL) JUDGE November 30, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA Nos. 316 of 2007 -7- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA Nos. 320 of 2007 Date of Decision: 30.11.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Chet Ram Dagar (HUF) ...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. The appeal is allowed. For reasons, see the detailed order of even date recorded in ITA No. 316 of 2007 [Commissioner of Income Tax, Faridabad v. Shri Bhoop Ram Dagar (HUF)]. (AJAY KUMAR MITTAL) JUDGE November 30, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA Nos. 316 of 2007 -8- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA Nos. 321 of 2007 Date of Decision: 30.11.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Nathi Ram Dagar (HUF) ...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. The appeal is allowed. For reasons, see the detailed order of even date recorded in ITA No. 316 of 2007 [Commissioner of Income Tax, Faridabad v. Shri Bhoop Ram Dagar (HUF)]. (AJAY KUMAR MITTAL) JUDGE November 30, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

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