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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of the ld. CIT(A)-I, Noida dated 30.07.2018.
Following grounds have been raised by the assessee: “1. On the facts and circumstances of the case the order passed by the learned CIT(A) is bad both in the eyes of law and on facts.
2. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in sustaining the addition on account of interest of enhanced compensation to the extent of gross interest of Rs. 62,63,354/- as against the gross interest of Rs. 21,80,662/- declared by the assessee.
3. On the facts and circumstance of the case the learned CIT(A) has erred both on facts and in law in confirming the addition, rejecting the contention of the assessee that the amount having been received 2 Bhule Ram Sharma u/s 28 of the Land Acquisition Act, the same is not taxable.
4. On the facts and circumstance of the case the learned CIT(A) has erred both on facts and in law in confirming the addition, misinterpreting the various judicial pronouncements given by various High Courts.
5. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in confirming the addition rejecting the contention of the assessee that the interest received on compulsory acquisition is specifically exempt under section 96 of “The Right to Fair Compensation and Transparency in Land Acquisition Rehabilitation & Resettlement Act, 2013.
The only dispute before us pertains to taxability of interest received by the assessee on enhanced compensation paid by the State of Uttar Pradesh for compulsorily acquiring of the agricultural land of the assessee. The interest on the enhanced compensation paid by the NOIDA was of Rs.1,87,90,061/- on which TDS u/s 194A has been duly deducted. The Assessing Officer allowed 50% of the interest received on the enhanced compensation and taxed an amount of Rs.83,04,689/-.
The Assessing Officer invoked the provisions of Section 56(2)(viii) of the Income Tax Act, 1961 reads as under:
Viii. Income by way of interest received on compensation or enhanced compensation referred to in clause (b) of Section 145A.
(inserted w.e.f. 01.04.2010)
The assessee has shown interest on compensation of Land Acquisition of Rs.21,80,682/- and claimed deduction u/s 57(iv).
3 Bhule Ram Sharma The provisions Section 57(iv) of the Income Tax Act, 1961 reads as under: iv. In the case of income of the nature referred to in clause (viii) of sub-Section (2) of Section 56, a deduction of sum equal to 50% of such income and no deduction shall be allowed under any other clause of this Section.
Thus, the issue to adjudicate is “whether the interest on enhanced compensation partake the character of compensation or interest”.
This issue has been examined by various Courts namely, Hon’ble Gujarat High Court, Hon’ble Punjab & Haryana High Court and by the Hon’ble Apex Court.
8. In the case of Inderjit Singh Sodhi (HUF) Vs. ITO in order dated 19.06.2020 authored by one of the Member of this Bench held as under:
“13. Undisputedly, the issue involved in these appeals is regarding the taxability of interest received on enhanced compensation u/s 28 of the Land Acquisition Act, 1894. Now, there are two questions involved in these appeals, first issue is regarding the year of taxability of the interest income whether it has to taxed in the year of receipt in the light of the decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) or is to be taxed on the basis of apportionment for each year from the date of acquisition of lands till the receipt of the compensation in the light of the decision of the Inderjit Singh Sodhi Hon'ble Supreme Court in the case of Rama Bai (supra); the second issue involved is as to whether the interest awarded u/s 28 of the Land Acquisition Act on enhanced compensation is to be treated as part of the enhanced compensation 4 Bhule Ram Sharma and will not be taxable separately as interest income under the Head 'income from other sources'?
We find that both these issue s are covered by the aforesaid decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) holding the same to be in the nature of compensation itself. The Court also dealt with the other aspect namely, the year of tax and answered this quest ion by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. The said findings given in the case of Ghanshyam (HUF) (supra) have been reiterated by the Hon'ble Supreme Court in the case of Govindbhai Mamaiya (supra) observing as under:
"In so far as the second question is concerned, that is also covered by another judgment of this Court in Commissioner of Inco me Tax, Faridabad vs. Ghanshyam (HUF) reported in (2009) 8 SCC 412, 6 albeit, in favour of the Revenue. In that case, the court drew distinction between the "interest" earned under Section 28 of the Land Acquisition Act and the "interest" which is under Section 34 of the said Act. The Court clarified that whereas compensation given to the assessee o f the land acquired would be 'income', the enhanced compensation/consideration becomes income by virtue of Section 45(5)(b) of the Income Tax Act. The question was whether it will cover "interest" and if so, what would be the year of taxability. The position in this respect is explained in paras 49 and 50 of the judgment which make the following reading:
"49. As discussed hereinabove, Section 23(1-A) provides for additional amount. It takes care of the increase in the value at the rate of 12% per annum. Similarly, under Section 23(2) of the 1894 Act there is a provision for solatium which Inderjit Singh Sodhi also represents part of the enhanced compensation. Similarly, Section 28 empowers the court in its 5 Bhule Ram Sharma discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under Section 23(1-A) and solatium under Section 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the court after reference under Section 18 of the 1894 Act. It depends upon the claim, unlike interest under section 34 which depends on undue delay in making the award.
It is true that "interest" is not compensation. It is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards "interest" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23 (1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act."
It is clear from the above that whereas interest under Section 34 is not treated as a part of income subject to tax, the interest earned under Section 28, which is on enhanced compensation, is treated as an accretion to the value and therefore, part of the enhanced compensation or consideration making it exigible to tax. After holding that interest on enhanced compensation under Section 28 of 1894 Act is taxable, the Court dealt with the other aspect namely, the year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. It would 6 Bhule Ram Sharma mean that Inderjit Singh Sodhi converse position i.e. spread over of this interest on accrual basis is not permissible."
The Ld. counsel for assessee has further brought our attention the latest decision of the Hon'ble Supreme Court in the case of CIT Vs. Chet Ram (HUF) dated 12.9.2017 in Civil Appeal No.13053/2017 wherein also the Hon'ble Supreme Court has again reiterated the proposition laid down in the case of Ghanshyam (HUF) (supra), which we find has been further reiterated in the case of Union of India vs. Hari Singh & others in Civil Appeal No. 1504 of 2017 dated 15.9.2017, as under:
(2) While determining as to whether the compensation paid was for agricultural land or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in 'Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF)' [2009 (8) SCC 412] in order to ascertain whether the interest given under the said provision amounts to compensation or not.
The said decision as rightly pointed out by the Ld. counsel for assessee have been rendered by the Hon'ble Apex Court subsequent to the decision passed by the Hon'ble Jurisdictional High Court in the case of Manjeet Singh(HUF) (supra) which had dealt with the decisions of the Hon'ble Apex Court in Ghanshyam, HUF (supra) . Therefore, in view of the same, the proposition laid down in Ghanshyam, HUF (supra) remains and which having bee n laid down by the Hon'ble Apex Court is the law of the land and has to be followed by all lower authorities. In view of the above, we hold that the interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s 56 of the Act as 7 Bhule Ram Sharma held by the authorities below. The compensation being exempt u/s 10(37) of the Act is not disputed. In view o f the same the order passed by the CIT(Appeals) upholding the addition Inderjit Singh Sodhi made by the AO on account of interest on enhanced compensation is, not sustainable."
Before parting, the salient features of the orders of the Hon'ble Supreme Court are mentioned below:
• The order of the Bikram Singh Vs Land Acquisition Collector is dated 12.09.1996 - Interest of any nature is taxable irrespective of its receipt.
• The order of Ghanshyam (HUF) is dated 16.07.2009 "It is to answer the above questions that we have analysed the provisions of sections 23, 23(1A), 23(2), 28 and 34 of the 1894 Act. As discussed hereinabove, section 23(1A) pro vides for additional amount. It takes care of increase in the value at the rate of 12 per cent per annum. Similarly, under section 23(2) of the 1894 Act, there is a provision for solatium which also represents part of enhanced compensation. Similarly, section 28 empowers the Court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under section 23(1A) and solatium under section 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the Court after reference under section 18 of the 1894 Act. It depends upon the claim, unlike interest under section 34 which depends on undue delay in making the award. It is true that "interest" is not compensation. It is equally true that section 45(5) of the 1961 Act, refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act, which awards Inderjit Singh Sodhi "interest" both as an accretion in 8 Bhule Ram Sharma the value of the lands acquired and interest for undue delay. Interest under section 28 unlike interest under section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. So also additional amount under section 23(1A) and solatium under section 23(2) of the 1961 Act forms part of enhanced compensation under section 45(5)(b) of the 1961 Act. In fact, what we have stated hereinabove is reinforced by the newly inserted clause (c) in section 45(5) by the Finance Act, 2003 with effect from 1-4-2004."
• The order in the case of Manjit Singh (HUF) has been considered in the case of Ghanshyam (HUF).
• The order in the case Hari Singh & Others in CA No.1504/2017 dated 15 .09.2007 - held - While determining as to whether the compensation paid was for agricultural land or not, the Assessing Office r(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in CIT v. Ghanshyam (HUF) [2009] 182 Taxman 368/315 ITR 1 (SC) in order to ascertain whether the interest given under the said provision amounts to compensation or not.
• The order in the case Govindbhai Mamaiya 367 ITR 498 (SC) dated 04.09.2014 - Reiterated that "it is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to Inderjit Singh Sodhi go by the provisions of the 1894 Act which awards "interest" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation o r consideration which is no t the case with interest under Section 34 of the 1894 Act. So also 9 Bhule Ram Sharma additional amount under Section 23 (1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act."
• In the case of Ghanshyam (HUF), the Hon'ble Supreme Court equated the interest received u/s 28 of LA with compensation. It was held that the interest is accretion to the value of compensation and hence it is a part of compensation.
• In the case of Hari Singh (HUF), the Hon'ble Supreme Court reiterated the above proposition.”
Hence, keeping in view, the entire facts of the case and taking into consideration the legal issue which has been fairly settled as discussed above, the appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 25/10/2021.