BHAGWAN VITHOBA MORE,,LATUR vs. INCOME-TAX OFFICER, WARD - 1,, LATUR

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE

BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA No.1806/PUN/2017 (Assessment Year: 2010-11) Shri Bhagwan Vithoba More, The Income Tax Officer At Post Kopergaon, Ward -1, Latur Taluka & Dist. Latur Vs. PAN : AZVPM7554P

Appellant Respondent Appellant by: Shri Sharad A Shah Respondent by: Shri S.P. Walimbe Date of Hearing: 04.05.2022 Date of Pronouncement: 12.05.2022 O R D E R Per S.S. Godara, JM This assessee’s appeal for AY 2010-11 arises against the order of the CIT(A)-2, Aurangabad’s order dated 01.05.2017 passed in case No. ABD/CIT(A)-2/285/2016-17 involving proceedings under Section 144 r.w.s. 147 of the Income Tax Act, 1961; in short the Act.

Heard both the parties. Case file perused.

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“5. In the instant case, the assessing officer had noted that the assessee had received an amount of Rs.1,90,51,664/- as interest on enhanced compensation. These facts were evident from the return of income filed on 27/09/2011. The assessee had not offered the interest on enhanced compensation for taxation as per the provisions of section 56(2)(viii). Accordingly, the assessing officer had issued the notice u/s.147 as he had nasons to believe that income had escaped assessment. In assessment proceedings, the assessee had made submissions as to why the interest component of enhanced compensation is not taxable. The assessing officer did not accept the contentions raised by the assessee. The assessing officer referred to the provisions of section 56(2)(viii) and Section 145A of the Act and held that the legislative intent behind the amendments is to tax the interest received on compensation or enhanced compensation in the year of receipt of the interest. He then referred to the provisions of section 57(iv) of the Act whereby a deduction of 50% of such income is allowed to the assessee in respect of income received u/s.56(2)(viii) of the Act. In view of the above, the assessing officer held that interest received on enhanced compensation of Rs.1,90,51,664/- is taxable u/s.56(2)(viii) of the Act and after providing for deduction u/s.57(iv) of the Act, he brought an amount of Rs.95,25,832/- to tax. 6. In appellate proceedings, the assessee stated that the agricultural land was acquired by the Special Land Acquisition Officer, MIW, Latur and the en ire compensation including interest is exempt u/s.10(37) of the Act. The assessee then referred to the following case laws in support of his contention that interest received u/s.28 of the Land Acquisition Act is nothing but a part of enhanced value of land which is exempt from tax: 1. CIT Vs. Ghanshyamdas (HUF) (SC). 2. CIT Vs. Keshawadevi (High Court of Madhya Pradesh). 3. CIT, Rajkot Vs. Govindbhaibiamaiya (SC). 4. Movaliya Bhikhubhai Balabhai Vs. ITO, TDS-1, Surat. 7. The stated that the decision of the Honourable Supreme Court in the case of CIT Vs. Ghanshyamdas (HUF) is on the issue whether additional amount u/s.23(1A) comprises of solatium paid u/s.23(2) of the Land Acquisition Act and interest paid on excess compensation u/s.28 is a part of compensation whereas interest paid u/s. 34 is a revenue receipt which is liable for tax. He claimed that the entire interest amount received u/s. 28 of the Land Acquisition Act is a part of compensation which is exempt from tax. He further stated that the Honourable Supreme Court in the case of Ghanshyamdas (HUF) has followed the decision given by the Honourable Supreme Court in the case of Sunder Vs. Union of India (2001) 7 SSC 211. He then referred to the decision given in the case of Movaliya Bhikhubhai Balbhai Vs. ITO, TDS-1, Surat to state that interest does not fall within the ambit of expression ‘Interest’ as contemplated in section 145A of the Act. It was stated that it is clear from the decisions cited by him that interest received u/s. 28 is a part of enhanced compensation which is taxable u/s. 45(5) of the Act and in case of compulsory acquisition of an agricultural land compensation is exempt from tax u/s.10(37) of the Act and in case of the rural agricultural land, the entire compensation is not taxable because the land itself is not a capital asset as per the Act. In view of the above, it was stated that a decision in favour of the assessee be taken. 8. On a careful consideration to the submissions made by the assessee and the facts of this case I find that this case is squarely covered by the decision in

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the case of Bikram Singh Vs. Land Acquisition Collector [1997] 224 ITR 551 (SC). The Hon’ble Supreme Court held : “7. Relying upon these three provisions, it is contended that the definition of ‘interest’ is confined only to money-lending business between debtor and the creditor and if the creditor receives any amount by way of interest from the debtor, it is in the nature of a receipt of income on a charge paid in respect of money borrowed or in respect of the credit facility given which have been utilised and, therefore, the definition would be applicable only when the money is lent by a creditor and received by the debtor. Then only interest is chargeable to income- tax. When interest is paid either under section 34 or section 28 of the Land Acquisition Act, it is only a payment in consideration of loss of enjoyment of the possession by the owner. It is not by way of any charge on compensation determined under section 23(1). Therefore, it is not exigible to income-tax. We find no force in the contention. 8. The controversy is no longer res integra. This question was considered elaborately by this Court in Dr. Shamlal Narula v. CIT [1964] 53 ITR 151. Therein, K. Subba Rao, J., as he then was, considered the earlier case law on the concept of "interest" laid down by the Privy Council and all other cases and had held at page 158 as under: ... in a case where title passes to the State, the statutory interest provided thereafter can only be regarded either as representing the profit which the owner of the land might have made if he had the use of the money or the loss he suffered because he had not that use. In no sense of the term can it be described as damages or compensation for the owner's right to retain possession, for he has no right to retain possession after possession was taken under section 16 or section 17 of the Act. We, therefore, hold that the statutory interest paid under section 34 of the Act is interest paid for the delayed payment of the compensation amount and, therefore, is a revenue receipt liable to tax under the Income-tax Act .... " (p. 158) 9. This position of law has been consistently reiterated by this Court in the case of T.N.K. Govindaraju Chetty v. CIT [1967J 66 lTR 465, Rama Rai v. CIT [1990]181 ITR 400 and K.S. Krishna Rao v. CIT [1990J 181 ITR 408. Thus, by a catena of judicial pronouncements, it is settled law that the interest received on delayed payment of the compensation is a revenue receipt exigible to income-tax. It is true that in amending the definition of 'interest' in section 2(28A), interest was defined to mean interest payable in any manner in respect of any money borrowed or debt incurred including a deposit, claim or other similar right or obligation and includes any service, fee or other charges in respect of the moneys borrowed u( debt incurred or in respect of any credit facility which has not been u riliscd. It is seen that the word 'interest' for the purpose of the Act was interpreted by the inclusive definition. A literal construction may lead to the conclusion that the interest received or payable in any manner in respect of any moneys borrowed or a debt incurred or enumerated analogous transaction would be deemed interest. That was explained by the hoard in the circular referred to hereinbefore. 10. But the question is: whether the interest on delayed payment on the acquisition of the immovable property under the Acquisition Act would not be exigible to income-tax? It is seen that this Court has

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consistently taken the view that it is a revenue receipt. The amended definition of 'interest' was not intended to exclude the revenue receipt of interest on delayed payment of compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue receipt is exigible to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest. It would mean that the interest received as income on the delayed payment of the compensation determined under section 28 or 31 of the Land Acquisition Act is a taxable event. Therefore, we hold that it is a revenue receipt exigible to tax u/s.c of the Act. Section 194A has no application for the purpose of this case as it encompasses deduction of the income at the source. However, the appellants are entitled to spread over the income for the period for which payment came to be made so as to compute the income for assessing tax for the relevant accounting year." (Emphasis Mine). 9. The decision in Bikram Singh case (supra) was given by a Three Member Bench of the Hon'ble Apex Court whereas the decision in Ghamshyam (lICF) case was given by a Two Judge Bench of the Hon'ble Supreme Court. Hence, the decision given by the Larger Bench shall prevail over the decision given by the Smaller Bench, even though the same may be of a later date. 10. The Hon'ble 'Aurangabad Bench of the Bombay High Court has considered this issue in Writ Petition No. 5402 of 2013, in the case of Shivajirao Dnyanoba Ghanwat Vs. State of Maharashtra and others in judgment dated 27/08/2013 and in Writ Petition NO.5401 of 2013 in the case of Balasaheb Raosaheb Bidwe and Others Vs. State of Maharashtra. Apart from the above two, 11 other cases on similar ground was disposed by the Hon'ble Bombay High Court, Aurangabad Bench. The Income Tax Department was a party in all the 13 writ petition. The issue before the Hon'ble High Court was that interest in land acquisition proceedings means interest awarded only u/s.34 of the L.A. Act, 1894 and that interest awarded u/s.28 of the L.A.Act, 1894 cannot be looked into. The Hon'ble Court also locked into the decision given in the case of Ghanshyam (BUF) (supra) & Bikram Singh (supra) and decided the issue in the fallowing words: "9. We have perused para-24 & 25 of the judgement of the Apex Court in "Commissioner of Income Tax Vs. Ghanshyam" supra.. We find that the Honourable Apex Court there was not called upon to look into the larger bench judgement delivered earlier in the case of Bikram Singh (supra). In para-7 the Honourable larger bench has found that the interest paid u/s.28 is not by way of any charge on compensation determined u/s.23(1). We, therefore, with respect, follow the larger Bench judgement of the Honourable Apex Court." 11. In the case of Manjet Singh (HUF) Karta Manjeet Singh Vs. Union of India [2016]65 taxmann.com 160 (Punjab & Haryana), similar decision on the same issue has been taken. The decision is as under: 7. The primary question for consideration that arises in these petitions relates to the nature of interest received by the landowner-assessee

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under Section 28 of the 11)94 Act. In other words, whether the interest which is received by the assessee- landowner partakes the character of income or not and, in such a situation is it taxable under the provisions of the Act. 8. It would be apposite to quote herein below Sections 28 and 34 of 1894 Act which read thus:- 28.Collector may be directed to pay interest on excess compensation. – If the sum which, in the opinion of the court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of [nine per centum] per annum from the date on which he took possession of the land to the date of payment of such excess into Court." "34. Payment of interest- When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of nine per centum per annum from the time of so taking possession until it shall have been so paid or deposited. Provided that if such compensation or any part thereof is not paid or deposited within J period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date of expiry of the said period of one year on the amount of compensation or part thereof which has not been paid or deposited before the date of such expiry." 9. The award of interest under Section 28 of the 1894 Act applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases 'interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the dditional compensation awarded under Section 23(1A) and the solatium under Section 23(2) of the said Act. Section 28 is applicable only in respect of the excess amount, which is determined by the Court after a reference under Section 18 of the 1894 Act. 10. Under Section 34 of the 1894 Act, the Collector awards interest on the compensation offered at the rate of 9% per annum for a period of one year from the date of taking possession and thereafter at the rate of 15% per annum from the date of expiry of one year on the amount of compensation or part thereof which remains unpaid or deposited before the date of such expiry. 11. A plain reading of Sections 23(1A), 23(2) as also Section 28 of the 1894 Act clearly spells out that additional benefits are available on the market value of the acquired lands u/s. 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation. The Constitution Bench of the Supreme Court in Sunder's case (supra) had approved the following observations of the Division Bench of this Court in State or Huryana v. Smt.Kailashwati, AIR 1980 Punj. & Har. 117:- 10. Once it is held as it inevitably must be that the solatium provided for under Section 23(2) of the Act forms an integral and statutory part of the compensation awarded to a landowner, then from the plain terms of Section 28 of the Act, it would be evident that the interest is payable on the

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compensation awarded and not merely on the market value of the land. indeed the language of Section 28 does not even remotely refer to market value alone and in terms talks of compensation or the sum equivalent thereto. The interest awardable under Section 28 therefore would include within its ambit both the market value and the statutory solatium. It would be thus evident that the provisions of Section 28 in terms warrant and authorize the grant of interest on, solatium as well." 12. Adverting to the case law on the subject, inevitably, reference is made to the judgment by the three Judges bench of the Supreme Court in the case of Dr. Shamlal Narula v. ClT [1964] 53 ITR 151, which had considered the issue regarding award of' interest under the 1894 Act. Interest under Section 28 of the 1984 Act was considered akin to interest under Section 34 thereof as both were held to be on account of keeping back the amount payable to the owner and did not form part of compensation or damages for the loss of the right to retain possession. It was noticed as under:- "As we have pointed out earlier, as soon as the Collector has taken possession of the land either before or after the award the title absolutely vests in the Government and thereafter owner of the land so acquired ceases to have any title or right of possession to the land acquired. Under the award he gets compensation for both the rights. Therefore, the interest awarded under s. 28 of the Act, just like under s. 34 thereof, cannot be a compensation or damages for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner." The principle of Dr.Shamlal Narula's case (supra) had subsequently been applied by three Judges Bench of the Apex Court in a later decision in T.N.K. Govindaraju Chetty v. CI1'[1967] 66 ITR 465. 13. Further Section 2(28A) of the Act defines "interest" and was inserted by Finance Act, 1976 to be effective from 1.6.1976. It reads thus:- "interest' means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised." The expression 'interest' occurring in sub-section (28A) of Section 2 of the Act widens the scope of the term 'interest' for the purposes of the Act. 14. Anotehr three judges bench of the Apex Court in Bikram Singh v. Land Acqusition Collector [1997J ;:L4 ITR 551/[1996J 89 Taxman 119 following Dr. Shumlul Nurula's case (supra) and taking into consideration definition of "interest" in Section 2(28A) of the Act had recorded that interest under Section 28 of the 1894 Act was a revenue receipt and is taxable. It was held as under:- 'The controversy is no longer res integra. This question was considered elaborately by this Court in Dr.Snamlal Narula v. eIT [1964] 53 ITR 151 (SC). Therein, K. Subba Rao, ]., as he then was, considered the earlier case law on the concept of "interest" laid down by the Privy Council and all other cases and had held at page 158 as under: "In a case where title passes to the State, the statutory interest provided thereafter can only be regarded either as representing the profit which the owner of the land might have made if he had the use of the money or the loss he suffered because he had not that use. In no sense of the term can it be described as damages or

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compensation for the owner's right to retain possession, for he has no right to retain possession after possession was taken under Section 16 or Section 17 of the Act. We, therefore, held that the statutory interest paid under Section 34 of the Act is interest paid for the delayed payment of the compensation amount .uid, therefore, is a revenue receipt liable to tax under the Income-tax Act." This position of law has been consistently reiterated by this Court in the case of TMK Covirularaju Chetty v. Commissioner of Income-tax, Madras [66 ITR 465], Rama Rai & Ors. v. Cl'T, Andhra Pradesh [181 ITR 400] and K.S. Krishna Rao v. en: A.P. [181 lTR 408]. Thus by a catena of judicial pronouncements, it is settled law that the interest received on delayed payment of the compensation is ;l revenue receipt eligible to income tax. It is true that in amending the definition of "interest" in Section 2(28A) interest was defined to mean interest payable in any manner in respect of any money borrowed or debt incurred including a deposit, claim or other similar right or obligation and includes any service, fee or other charges in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised. It is seen that the word "interest" for the purpose of the Act was interpreted by the inclusive definition. A literal construction may lead to the conclusion that the interest received or payable in any manner in respect of any moneys borrowed or a debt incurred or enumerated analogous transaction would be deemed interest. That was explained by the Board in the circular referred to hereinbefore. But the question is: whether the interest on delayed payment on the acquisition of the immovable property under the Acquisition Act would not be eligible to income-tax? It is seen that this Court has consistently taken the view that it is a revenue receipt. The amended definition of "interest" was not intended to exclude the revenue receipt of interest on delayed payment of compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue receipt is exigible to tax. The amendment is only bring within its tax net, income received from the transaction covered under the definition of interest. It would mean that the interest received as income on the delayed payment of the compensation determined under Section 28 or 31 of the Acquisition Act is a taxable event.”

“3. The learned counsel first of all invited out attention to the tribunal’s order dated 01.07.2019 allowing the instant appeal followed by the Revenue’s miscellaneous application MA No. 42/Pun/2020 which has accepted on 20.08.2021 in the latter’s favour. Mr. Shah thereafter submitted that the interest income in issue is not taxable going by the hon’ble apex court decision in CIT vs. Ghanshyamdas (HUF) 315 ITR 1 (SC) r.w.s. 10(37) of the Act. We find no merit inn assessee’s instant argument once the legislature has inserted Section 56(2)(viii) vide Finance Act 2009 w.e.f. 01.04.2010 holding interest received on compensation or on enhanced compensation referred to in “clause (b) of Section 145A” as treating the corresponding income as income from “other” sources. The assessee could hardly rebut the fact that the foregoing statutory provision in fact makes both interest on compensation as well as on

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enhanced compensation deemed as income of the year in which it is received whereas the assessment year before their lordships was 1999-2000 only. We thus hold that the CIT(A) has rightly affirmed the assessment findings assessing the impugned interest income in assessee’s hands. 4. Mr. Shah at this stage invited our attention to the Revenue’s averments in the foregoing miscellaneous application (supra) that its Tax Appeal in a connected case is pending in hon’ble jurisdictional high court raising the very issue. We find no substance in assessee’s instant latter request as well once it is clear that the impugned interest income is very much taxable as per the amended provision i.e. Section 56(2)(viii) r.w.s. 57(iv) r.w.s. 145A(b) applicable w.e.f. 01.04.2010. The assessee fails in its sole substantive ground as well as in the main appeal therefore.”

We adopt the foregoing detailed reasons mutatis mutandis to reject the assessee’s arguments as well as his instant sole substantive grievance. The CIT(A) detailed findings under challenge are upheld in entirety.

Order pronounced in the open court on 12th May, 2022. Sd/- Sd/- (Dipak P. Ripote) (S.S. Godara) Accountant Member Judicial Member पुणे / Pune; दिन ांक / Dated : 12th May, 2022. रवि

आिेश की प्रविविवप अग्रेविि / Copy of the Order forwarded to : अपीि र्थी / The Appellant. 1. प्रत्यर्थी / The Respondent. 2. 3. The CIT(A)-2, Aurangabad 4. The Pr. CIT-2, Aurangabad 5. DR, ITAT, “A” Bench, Pune. ग र्ड फ़ इि / Guard File. 6. //सत्य वपि प्रवि// True Copy// आिेश नुस र / BY ORDER,

िररष्ठ वनजी सविि / Sr. Private Secretary आयकर अपीिीय अविकरण ,पुणे / ITAT, Pune