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Facts
The assessee received interest on enhanced compensation. The Assessing Officer treated this interest as taxable "Income from other sources" and made an addition after allowing a statutory deduction. The CIT(A) upheld the AO's order.
Held
The Tribunal held that interest on enhanced compensation is taxable under Section 56(2)(viii) of the Income Tax Act, as per amendments post-2010, and that the exemption under Section 10(37) is not applicable to such interest income.
Key Issues
Whether interest received on enhanced compensation is taxable as "Income from other sources" in light of amendments post-2010, or if it is exempt under Section 10(37).
Sections Cited
147, 10(37), 145A(b), 56(2)(viii), 57(iv), 145B(1)
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Order PER LALIET KUMAR, J.M: This is an appeal filed by the Assessee against the order of the Ld. CIT, Appeal Addl/JCIT(A)-1, Delhi dt. 18/06/2024 pertaining to Assessment Year 2015-16.
It has been brought to our notice that, that the present appeal is barred by limitation by 342 days, however no condonation application filed by the assessee. Considering that the issue involved is purely legal in nature, and respectfully following the ratio laid down by the Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji & Others [(1987) 167 ITR 471 (SC)]*, which emphasizes that substantial justice should prevail over technical considerations, we condone the delay in filing the appeal.
The assessee is an individual who did not file a return of income for the Assessment Year 2015-16. Proceedings u/s 147 of the Income Tax Act, 1961 were initiated based on information that the assessee had received interest on enhanced compensation amounting to Rs. 25,38,337/-. The assessee 2 subsequently filed a return declaring an income of Rs. 1,32,400/-. During the assessment proceedings, the Assessing Officer (AO) observed that the assessee had claimed the interest received u/s 28 of the Land Acquisition Act, 1894 as exempt u/s 10(37) of the IT Act. However, relying on the provisions of Section 145A(b) and Section 56(2)(viii), the AO held that interest received on enhanced compensation is taxable as "Income from other sources". Consequently, the AO allowed a statutory deduction of 50% u/s 57(iv) and made an addition of Rs. 12,69,169/- (being 50% of Rs. 25,38,337/-) to the total income of the assessee.
The Ld. CIT(A) adjudicated the appeal by upholding the order of the AO and dismissing the assessee's grounds. The Ld. CIT(A) observed that while the assessee relied heavily on the Hon'ble Supreme Court’s decision in CIT vs. Ghanshyam Das (HUF) to argue that interest u/s 28 is part of compensation, the legal landscape had significantly shifted with the Finance (No. 2) Act, 2009. The appellate authority noted that Section 56(2)(viii) and Section 145A(b) were specifically introduced w.e.f. 01.04.2010 to tax interest on compensation on a receipt basis under "Income from other sources". In arriving at this conclusion, the Ld. CIT(A) placed strong reliance on the recent judgment of the Hon'ble Delhi High Court in PCIT vs. Inderjit Singh Sodhi HUF (dated 08.04.2024), which held that the conclusions in Ghanshyam Das are unsustainable for the period post the 2010 amendments. Consequently, the Ld. CIT(A) confirmed the addition of Rs. 12,69,169/-, holding that the AO had correctly applied the amended statutory provisions.
Feeling aggrieved by the order the assessee is in appeal before us, on the grounds mentioned in the memo of appeal.
The Ld. Counsel for the assessee submitted that the interest received amounting to Rs. 25,38,337/- was on account of enhanced compensation u/s 28 of the Land Acquisition Act, 1894. It was vehemently argued that the Hon'ble Supreme Court in CIT vs. Ghanshyam Das (HUF) (315 ITR 1) has settled the law that interest u/s 28 is part of the enhanced value of the land and thus 3 partakes the character of compensation, distinct from interest u/s 34 which is for delay. Therefore, such receipt falls within the exemption provided u/s 10(37) of the Act. The counsel further relied on the Supreme Court’s subsequent decision in UOI vs. Hari Singh (2017) and CIT vs. Govindbhai Mamaiya (2014) to bolster the claim that the principle laid down in Ghanshyam Das remains the "law of the land". It was also contended that the 2010 amendment was intended to overcome the difficulty arising from Rama Bai vs. CIT regarding accrual vs. receipt basis, and was not meant to override the classification of interest u/s 28 as compensation itself.
Per contra, the Ld. Departmental Representative (DR) relied on the findings of the lower authorities, asserting that the statutory amendments are unambiguous. The DR contended that Section 56(2)(viii) acts as a specific charging section that brings interest on compensation—whether original or enhanced—to tax under "Income from other sources". It was submitted that the legislative intent post-2010 is clear: all interest received on compensation is taxable in the year of receipt u/s 145A(b), subject to a standard 50% deduction u/s 57(iv). The DR argued that the decision in Ghanshyam Das pertains to the pre-amendment era and that the recent jurisdictional and High Court rulings, specifically Puneet Singh vs. CIT (P&H) and Inderjit Singh Sodhi (Delhi HC), have clarified that the statutory amendments override the earlier judicial interpretation regarding exemption u/s 10(37) for interest income. The Ld.DR relied upon the decision of the Coordinate Bench in Ajay Kumar vs ITO (ITA No. 463/Chd/2023), forming part of the consolidated order in land-acquisition matters. Therefore, the addition made by the AO is in strict accordance with the prevailing law. He
We have carefully considered the rival submissions and examined the record. We observe that the Coordinate Chandigarh Bench, in the case of Ajay Kumar (supra), has already adjudicated identical arguments. The Bench ruled that interest on compensation falls within the ambit of Section 56(2)(viii) and is taxable in the year of receipt pursuant to Section 145B(1). The Bench explicitly rejected the applicability of Section 10(37) to the interest 4 component and clarified that claiming TDS credit is contingent upon the income being offered to tax. The facts in the instant case are materially identical.
In respectful adherence to the binding precedent of the Coordinate Bench in Ajay Kumar, we affirm the Ld. CIT(A)'s decision to sustain the addition. The assessee has failed to adduce any distinguishing features or contrary legal propositions that would justify a departure from the settled view of this Bench.