REKHA KISHORE BARI,DHULE vs. ASSESSING OFFICER-NFAC, DELHI

1.4. Further, against the enhanced compensation order and District Judge Order, NHAI has filed Appeal before Hon'ble Bombay High Court (Aurangabad bench) and same is pending as on date. 1.5. Meanwhile, since NHAI had not disbursed the Award, Appellant filed a Writ Petition before Hon'ble High Court and sought directions for disbursal. Accordingly, the NHAI disbursed the compensation on 27/12/2019 (disbursal order is at pg. no 13-15 of factual paper book). A break up of compensation received is at Pg.no 1 of the factual Paper book. (Note: Said compensation was disbursed under indemnity bond that, if any higher court reduces the compensation, then Appellant shall repay the amount copy of said Indemnity bond submitted to NHAI is at pg. no. 16-21 of factual paper book) 1.6.In said compensation payment, interest amounted to Rs.63,35,685/-. This, receipt of interest, is subject matter of present appeal before Your Honours. 1.7. Appellant, claimed said compensation as exempt from Income- tax.

3.2. However, Ld. CIT(A) upheld the order of Ld. AO by stating that Appellant has not brought any document or evidence. Our Submission before Your Honours 4. Firstly, on the issue that entire compensation is exempt from Income-tax (ground No 1) owing to Applicability of RFCTLARR Act. 4.1. Ld. AO has declined to accept the claim that compensation received is exempt on the ground that Appellants land was acquired in FY 2008-09 and RFCTLARR came into existence on 01/04/2014. 4.2. Your Honours, Ld. AO and Ld. CIT(A) has grossly erred by not perusing the RFCTLARR Act and other public documents such as Circular issued by Ministry of road, transport & highway, ordinance and orders notified by Central Government which covered National Highway Act, 1956 under the ambit of RFCTLARR and which also covered the cases where compensation was not paid till commencement of RFCTLARR. 4.3. As per sec. 96 of RFCTLARR, no income tax can be levied on any compensation paid under RFCTLARR. 4.4. However, since the moot question is whether RFCTLARR applies to the case of Appellant. It is pertinent to refer section 24(2) of the RFCTLARR (pg.6 of legal paper book), which provides that cases where compensation for land acquisition is not paid till commencement of RFCTLARR then proceedings under old act shall get lapsed and provision of RFCTLARR gets applied. 4.5. Further, as per RFCTLARR (Amendment) ordinance, 2014, sub. sec (3) of sec. 105 of RFCTLARR was amended to cover all the statutes mentioned in 4th Schedule of RFCTLARR Act for the applicability of 1st, 2nd and 3rd Schedule of RFCTLARR. (pg.23 of legal paper book) (Background: Basically, 4th Schedule of RFCTLARR contains the list of statutes to which RFCTLARR does not apply and NHAI Act, 1956 is covered by 4th schedule. (pg. no. 12 of legal paper book) However, later on vide RFCTLARR (amendment) ordinance 2014, so as to remove the difficulties, sec. 105 of RFCTLARR was amended by substituting sub, sec 3, owing to which all statutes mentioned in 4th schedule were given benefit of RFCTLARR. By which, The NHAI Act,

1956 also got covered in the Ambit of RFCTLARR Act. pg. no 23 of legal paper book) 4.6. Further, Central Government also notified, RFCTLARR (removal of difficulties) Order, 2015 (pg. no 25 to 27 of legal paper book), in which Central Government has explicitly and categorically stated that it is necessary to extend the benefit available under RFCTLARR to the land owners whose lands are acquired under statutes mentioned in Schedule 4. Owing to which, land acquisition under The NHAI Act, 1956 also gets benefits available under RFCTLARR (please refer last 4 paras at pg. no 27 of legal paper book). 4.7. In above context, even Ministry of Road, Transport & Highway, has also issued a circular in the guidance and advisory of Ld. Assistant Solicitor General of India (Ms. Pinky Anand) on 13/01/2016 (pg. no 14 to 20 of Legal Paper Book). 4.7.1. Said circular has made reference to advice of Ld. ASG, which is at pg. 16-20 of legal paper book. 4.7.2. Upon perusal of the Advice of Ld. ASG, particularly the answer to query no. ii (at pg. no 19 of Legal paper book) it can be observed that, Ld. ASG has clearly stated that provisions of sec. 24 shall be applicable even to The NHAI Act from 01/01/2015 (from 01/01/2015- because of RFCTLARR Amendment Ordinance) 4.8. Your Honours, in view of above, it is clear through circulars and notifications of Central Government that sec. 24 of RFCTLARR is applicable to the NHAI Act 1956 and accordingly, cases where compensation were not paid till commencement of RFCTLARR Act are now covered under RFCTLARR Act. Accordingly, all the benefits available under RFCTLARR are available to those cases also. 4.9. And since, in the instant case, compensation is paid in FY 2019- 20 i.e., after 01/01/2015, all the beneficial provisions of RFCTLARR equally applies to Appellant. 4.10. Our above contention that NHAI Act, 1956 is covered under the Ambit of RFCTLARR is also adjudicated in favour of Assessee by Hon'ble Chandigarh ITAT in - DCIT Vs. Sh. Ram Gopal (397/CHD/2019) -(pg. no.43 to 52 of paper book). Smt. Baljit Kaur Vs. ITO (ITA No.408/CHD/2022)- In this case NHAI issued notification to acquire land on 03/05/2013, award was made on 15/01/2014 and compensation cheque was issued on 20/03/2015 (para 8 of order- pg.34 of legal Paper book). In our instant case also, Ld. AO states that land is acquired prior to commencement of RFCTLARR. 4.11. Further, the issue that interest received is forming part of compensation and accordingly exempt owing to sec. 96 of RFCTLARR is decided by Hon'ble Chennai ITAT in case of ACIT Vs. SV Global Mills Ltd (ITA 2684/CHNY/2019)- As definitions under RFCTLARR Act, 'compensation includes Interest payable (Sec. 3(1)- cost of acquisition includes compensation, while compensation itself includes interest payable]. (Note: Sec. 96 of RFCTLARR exempts entire compensation from income-tax irrespective to nature of land i.e., Agri land or other land. CBDT has also clarified this vide its circular 36/2016) 4.12. Concluding remarks: i. It can be observed from the RFCTLARR (removal of difficulties) Order, that Central Govt. has categorically stated that they are extending the BENEFITS available in RFCTLARR even to landowners who were excluded earlier. Owing to which land Acquisitions matters under NHAI Act, 1956 also got included/benefitted under the RFCTLARR. ii. The effect of which is that, even the pending matters where compensations were not paid also get covered under RFCTLARR as per sec 24(2) of RFCTLARR. iii. Moreover, this aspect has been agreed and circulated by Ministry of Road, transport and Highway under the advice of Ld. ASG who has categorically answered that the provisions of sec. 24(2) of RFCTLARR will apply to NHAI Act, 1956 also. iv. Therefore, since Appellant has received payment of compensation in FY 2019-20 (i.e., after 01.01.2015), it is covered under RFCTLARR Act and benefit of sec. 96 of RFCTLARR is also available to the Appellant, i.e., no Income-tax can be levied on compensation received. 4.13. Prayer: Addition made by Ld. AO and that upheld by Ld. CIT(A) be kindly deleted.

5.9. However, it is important to take note of the legal background in which, sec. 1458 (1), which was substituted for erstwhile sec. 145A(b) which was brought in by FA 2009. 5.9.1. Your Honour's, as per memorandum to FB 2009 (pg. no 80 of paper book), sec. 145A was amended to address the situation arisen owing to judgement of Hon'ble Apex Court in case of Rama Bai Vs CIT (181 ITR 400), wherein it was held that interest on delayed or enhanced compensation is to be taxed in each separate year in which it is accrued. For e.g. If interest is payable for 10 years, then interest should have been taxed in 10 different years. 5.9.2. In above, context, Legislation amended sec. 145A of the Act so as to tax the interest amount in the year of receipt as against all those years in which it was accrued. 5.9.3. From above, it can be understood that, said amendment was carried out only to mitigate the hardship of taxing in all different years. That means, said amendment was not carried out to tax that interest where litigation was pending. In other words, said amendment does not determine the year of taxability where litigation is pending. 5.10. Your Honour's, it is further crucial to examine provisions of sec. 45(5) of the Act, which covers such situation where litigation is pending and the compensation gets reduced in future. 5.10.1. Clause (c) of section 45(5) of the Act, provides for recomputation of income where the compensation or enhanced compensation is first taxed and in subsequent year court/tribunal etc. has reduced the amount of compensation. 5.10.2. Owing to said provisions present in 45(5) of the Act, if compensation is reduced in subsequent years, Assessee does not get into legal hardship of getting its income recomputed and also getting refund of taxes. 5.11. Your Honour's, similar provision is absent u/s 56(2) of the Act. 5.12. Upon perusal of the memorandum and upon comparison on sec. 56(2)(viii) with Sec. 45(5) of the Act, it is clear that legislation does not intend to decide the year of taxability of interest where litigation is pending. 5.13. Your Honours, it is trite law that, unless the income has unconditionally and without any embargo accrued to Assessee, same cannot be charged to tax.

5.14. As submitted above, that sec. 56(2) (viii) r.w.s sec. 1458 (1) (erstwhile 145A(b)) of the Act were not brought to determine the year of taxability of interest where litigation is pending, it is pertinent to take note of certain judicial pronouncements which decides the year of taxability where litigation is pending, as under a. CIT Vs. Hindustan Housing & Land Development Trust Ltd [1986] 161 ITR 524 (SC)- legal Paper book pg no. 81-84 b. CIT Vs. Abdul Mannan Shah Mohammed [2001] 248 ITR 614 (Bombay)- legal Paper book pg no. 85-86 c. New Friends Co-Operative House Building Society Ltd Vs. CIT [2010] 327 ITR 39 (Punjab & Haryana)- legal Paper book pg no. 87- 90 5.15. Your Honour's, since, sec. 56(2)(viii) r.w.s 145 (1) (erstwhile 145A(b) of the Act does not determine the year of taxability where litigation is pending; and even though above judgements pertain to Assessment Years prior to Amendment u/s 145A of the Act; it is important to refer above judicial pronouncements since the issue of determining the year of taxability in such cases is adjudicated directly thereby. 5.16. Concluding remarks: 1. The enhanced compensation amount is subject to the litigation pending before Higher Courts and will get crystalized only upon decision of those courts. ii. In case, the compensation is reduced by higher courts in subsequent years, there is no enabling provision u/s 56(2) of the Act for re- computing reduced income as it exists in sec. 45(5)(c) of the Act. Upon perusal of Memorandum to Finance Bill 2009 in relation to amendment in sec. 145A of the Act, it can be understood that said amendment w.r.t deeming the year of income and its taxation was only to counter the difficulty of taxing the interest in all the years of accrual. Whereas, said amendment was never brought to determine the year of taxability where litigation is pending. 5.17. Prayer: In view of our above submission, which is without prejudice to our foremost plea that entire compensation is exempt, it is humbly prayed that interest so charged to tax in the year under consideration be kindly deleted.” Submission of ld.DR : 3. The ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A). Ld.DR further relied in the case of PCIT Vs. Inderjit Singh Sodhi(HUF) [2024] 161 taxmann.com 301(Delhi).

Findings & Analysis : 4. We have heard both the parties and perused the records. Basic facts of this case are as under :

4.1 The assessee had filed return of income for A.Y.2020-21 on 19/12/2020 declaring total income at Rs.42,87,800/- and agricultural income of Rs.20,000/-. The said return was processed under section 143(1) of the Act. Then, assessee filed Revised return on 21/05/2021 declaring Total Income at Rs.11,19,950/-. The assessee’s case was selected for scrutiny, accordingly various notices were issued. Assessee partially complied the notices.

4.2 The main issue in this case is that the Assessee’s land was acquired for National Highway. Assessee’s land bearing Gut Number 2/2A of Village Nagav, District Dhule, Maharashtra was notified for acquisition for the purpose of widening of National Highway under Primary Notification issued by Ministry of Road Transport & Highway, Government of India, dated 28/02/2008. The Special Land Acquisition Officer-2, Dhule issued Final Notification under section 3(D) of the National Highways Act, 1956 in respect of the impugned land on 23/02/2009. The Special land Acquisition Officer-2, Dhule determined the compensation vide order dated 19/09/2009. The said compensation was paid to the Assessee on 30/08/2010. The details of the compensation paid, as appearing in the assessment order, are as under : Land Cost of 10% u/s Constru Total TDS Actual Area land Rs. 3(G)(2) ction Compensation amount well paid 3534 14,31,27 1,43,127 47803 16,22,200/- 1,62,220 14,59,980 sq.m 0 4.3 Thus, the actual amount of Rs.14,59,980/- was paid to the assessee on 30/08/2010. The assessee filed an appeal against the compensation. The Additional Divisional Commissioner and Arbitrator passed Arbitration Award on 23/02/2012 by enhancing the compensation under section 3G of the National Highways Act 1956 .Since the NHAI had not disbursed the additional compensation decided by the Arbitrator, the Assessee filed a Writ Petition before the Hon'ble High Court. Then Competent Authority NHAI vide letter dated 17/12/2019 had directed assessee to file an Indemnity Bond that in case the Hon’ble High Court reverses the Decision of the Arbitrator the Assessee will have to return the additional compensation(copy of the said letter at page 13 of the paper book of the assessee). The Assessee filed an Indemnity Bond to the NHAI, copy of the same enclosed by assessee in the paper book at page 16-19. Then, on 27/12/2019 the assessee received enhanced compensation as per Award dated 23/02/2012 of Rs.84,16,221/- and Interest on Compensation of Rs.63,35,685/-. The assessee claimed said amount received on 27/12/2019 as exempt in the Revised Return filed by the assessee. In this case it was submitted by the Ld.AR that the appeal filed by NHAI is pending before the Hon’ble High Court of Judicature of Bombay, Bench at Aurangabad.

4.4 The Assessing Officer in the Assessment Order dated 31/08/2022, held that the 50% of the Interest on Compensation is taxable as Income from Other Sources. The Assessing Officer(AO) also did not allowed expenditure claimed by the assessee in the revised return.

4.4.1 Aggrieved by the Assessment Order, the Assessee filed an appeal before the Commissioner of Income Tax (appeal) who confirmed the Assessment Order without giving any specific reason and without discussing the issue. Aggrieved by the order of the Ld.Commissioner of Income Tax(Appeal) the assessee has filed appeal before this Tribunal.

4.5 The issue before us is whether the Interest on land acquisition Additional Compensation issued under the National Highways Act, 1956 is taxable as Income from Other Sources?

4.6 The relevant provisions under National Highways Act 1956 are reproduced here under : “3G. Determination of amount payable as compensation.—(1) Where any land is acquired under this Act, there shall be paid an amount which shall be determined by an order of the competent authority……… (5) If the amount determined by the competent authority under sub- section (1) or sub-section (2) is not acceptable to either of the parties, the amount shall, on an application by either of the parties, be determined by the arbitrator to be appointed by the Central Government— (6) Subject to the provisions of this Act, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to every arbitration under this Act. (7) The competent authority or the arbitrator while determining the amount under sub-section (1) or sub-section (5), as the case may be, shall take into consideration— (a)the market value of the land on the date of publication of the notification under section 3A; (b) the damage, if any, sustained by the person interested at the time of taking possession of the land, by reason of the severing of such land from other land; (c) the damage, if any, sustained by the person interested at the time of taking possession of the land, by reason of the acquisition injuriously affecting his other immovable property in any manner, or his earnings; (d) if, in consequences of the acquisition of the land, the person interested is compelled to change his residence or place of business, the reasonable expenses, if any, incidental to such change. ……………………. 3J. Land Acquisition Act 1 of 1894 not to apply.—Nothing in the Land Acquisition Act, 1894 shall apply to an acquisition under this Act.]”

4.7 In this case the main argument of the assessee is that the Compensation amount has not yet attained finality as the Appeal filed by NHAI against the Additional Compensation is pending before the Hon’ble High Court. The NHAI had released the amount only after taking an Indemnity Bond from the assessee. Therefore, the Ld.AR pleaded that the Interest amount has not yet attended finality and hence it has not yet accrued to the assessee. Ld.AR submitted that it is contingent in nature. Ld.AR submitted that Assessee may have to refund the amount if Hon’ble High Court /Supreme Court reverse the Arbitration Award.

4.8 However, the assessee admittedly had not filed details regarding the Indemnity Bond before the Assessing Officer and ld.CIT(A). The Ld.AR requested that the documents may be admitted as Additional Evidence as they go to the root of the issue. We are of the considered opinion that the Indemnity Bond which is at page 16-19 of the paper book is crucial document to decide the issue of taxability. The Assessing Officer had no opportunity to analyse the Indemnity Bond. Assessing Officer had no opportunity to Analyze the taxability of Interest Income in the light of conditions imposed by the Competent Authority NHAI, before disbursing the Additional Compensation. We have noted that since the Assessee had never raised this contention before the Assessing Officer the Assessing Officer had not discussed it in the assessment Order. The assessee had filed an additional ground of appeal. The Additional Ground raised by the Assessee is Legal in nature and all facts pertaining to the said legal ground were on the records of the Assessing Officer mainly the letter dated 17/12/2019 issued by Competent Authority which is at Page 13 of the paper book vide which the Competent Authority had directed to file the Indemnity bond, was on the record of the Assessing Officer as claimed by the Assessee. (Ld.DR has not rebutted the said claim of the Assessee). In this fact and circumstances of the case, we set aside the Assessment Order to the Assessing Officer for de-novo adjudication. The Assessing Officer shall adjudicate the claim of the Assessee that the Amount has not accrued to the assessee as the litigation is pending before the Hon’ble High Court. The Assessing Officer shall allow the Assessee to file all relevant details. The AO shall provide opportunity to the assessee. In the result the additional ground raised by the Assessee is allowed for statistical purpose.

5. The another ground raised by the Assessee is that the Interest is not Taxable as per the decision of ITAT Chennai in the case of Global Mill Ltd.

5.1 The decision of ITAT Chennai is in the context of The Right to Fair Compensation and Transparency in land Acquisition, Rehabilitation and Resettlement Act 2013(RFCTLARR). The Assessee has pleaded that as per section 24 of the RFCTLARR Act the RFCTLARR Actthe RFCTLARR Act is applicable in the case of the assessee as the Assessee has received enhanced compensation in F.Y.2019-20.

5.2 We hereby reproduce the Section 24 of the RFCTLARR Act as under :

“Section 24 in The Right To Fair Compensation And Transparency In Land Acquisition, Rehabilitation and Resettlement Act, 2013. 24. Land acquisition process under Act No. 1 of 1894 shall be deemed to have lapsed in certain cases.

(1)Notwithstanding anything contained in this Act, in any case of land acquisition proceedings initiated under the Land Acquisition Act, 1894,-(a)where no award under section 11 of the said Land Acquisition Act has been made, then, all provisions of this Act relating to the determination of compensation shall apply; or(b)where an award under said section 11 has been made, then such proceedings shall continue under the provisions of the said Land Acquisition Act, as if the said Act has not been repealed.

(2)Notwithstanding anything contained in sub-section (1), in case of land acquisition proceedings initiated under the Land Acquisition Act, 1894, where an award under the said section 11 has been made five years or more prior to the commencement of this Act but the physical possession of the land has not been taken or the compensation has not been paid the said proceedings shall be deemed to have lapsed and the appropriate Government, if it so chooses, shall initiate the proceedings of such land acquisition afresh in accordance with the provisions of this Act: Provided that where an award has been made and compensation in respect of a majority of land holdings has not been deposited in the account of the beneficiaries, then, all beneficiaries specified in the notification for acquisition under section 4 of the said Land Acquisition Act, shall be entitled to compensation in accordance with the provisions of this Act.”

5.3 Thus, as per Section 24 of RFCTLARR Act, in following conditions the RFCTLARR Act will be applicable :  Where no Award under section 11 of the Land Acquisition Act has been made.

 Where Award has been made under Land Acquisition Act prior to five years or more but actual possession of land has not been taken or compensation has not been paid. 5.4 In the case of the Assessee the Special land Acquisition Officer -2 Dhule has declared the Award vide his letter No.SLAO/ NHP/Case No.1/2008 on 19/02/2009. The amount was dispersed to the assessee on 30/08/2010 and the assessee has admittedly received it. The Land was taken in possession by competent authority .Thus the compensation was paid to the assessee in 2010 which is much before the enactment of RFCTLARR Act. Assessee pleaded that Additional Compensation was paid in 2019, hence RFCTLARR Act is applicable. We do not agree with this proposition as Initial Compensation was paid in 2010 as per the Order of the Special land acquisition Officer Dhule and land was taken in possession.

5.4.1 The RFCTLARR Act came into effect on 1st January 2014. Since the initial compensation was paid in 2010 and land was acquired, as per section 24 of the RFCTLARR Act 2013, RFCTLARR Act, 2013 is not applicable to the case of the assessee. Thus, the Ground No.1 of appeal raised by the assessee is dismissed.

5.5 The Ld.AR has relied on following case laws :  DCIT Vs. Sh. Ram Gopal (397/CHD/2019)  Smt. Baljit Kaur Vs. ITO (ITA No.408/CHD/2022  ACIT vs Global Mills Ltd 5.6 All these case laws relied by the Assessee are distinguishable on facts. In the case of Baljit Kaur vs ITO the land was acquired vide notification dated 15/01/2014 and compensation was received on 20/03/2015. Thus the land was acquired after RFCTLARR Act, 2013 came into effect on 1st Jan, 2014.

5.6.1 Similarly, in the case of Ram Gopal the compensation was paid on 31/12/2014 and land was notified on 15/01/2014. Thus the land was acquired after RFCTLARR Act came into effect.

5.6.2 Similarly, in S.V.Global, the land was acquired after RFCTLARR Act came into effect.

5.7 Therefore, all these case laws relied by the Ld.AR are distinguishable on facts and hence not applicable to the present appeal. 6. No other ground was pleaded before us.