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Income Tax Appellate Tribunal, BENGALURU BENCH B, BENGALURU
Before: SHRI. A. K. GARODIA
PER LALIET KUMAR, JUDICIAL MEMBER :
This is an appeal filed by the Revenue against the order of the CIT (A), Belagavi, dt.23.08.2017, for the assessment year 2014-15.
The basic ground by the revenue in the present appeal pertains to, whether the interest income received by the assessing on the land acquisition compensation is required to beat taxed as income from ITA.20176/Bang/2017 Page - 2 other sources or an exempt income under section 10 (37) of the income tax act.
The Ld. DR for the revenue had submitted that by virtue of the Finance act 2010, an amendment was brought in by the Parliament and thereby it was laid that the income by way of interest received on compensation or on enhanced compensation referred to in clause (b)of section 145 A is required to be treated as income from other sources. Ld. DR had drawn our attention to section 56 which is to the following effect:
(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.
(2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :— 1...............................
3 [(viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A.] It was contended by the DR that the tribunal is bound to apply the law laid down by the Parliament and therefore interest income is required to be treated as income from other sources, as the assessee had received this income on the land acquisition compensation.
ITA.20176/Bang/2017 Page - 3
On the other hand the ld AR had submitted that the issue had already been decided by the coordinate bench in the matter of ITO VS Sangappa [96 taxmann.com 541]. Therefore the present appeal is required to be decided against the revenue and in favour of this is our attention was drawn paragraphs 12, 13 and 14 of the said decision.
We have heard both the sides and perused the relevant material on record, gone through the orders of the authorities below and the case law cited by the parties. The coordinate bench in the matter of Sangappa (supra) had held as under : “12. It was argued on behalf of the Revenue before the Hon'ble Gujarat High Court that the decision of Hon'ble Supreme Court in the case of Ghanshyam (HUF) was rendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability cases pertaining to AY 2010-11 and afterwards. Such an argument was repelled by the Hon'ble Gujarat High Court as follows: '11. It has been vehemently contended on behalf of the first respondent that the above decision has been rendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability to the facts of the present case. The scope and effect of the substitution (with effect from 1st April, 2010) of section 145A, as also amendment made in section 56(2) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No. 5/2010, dated 3.6.2010, as follows: "Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation.— 46.1 The existing provisions of Income Tax Act, 1961, provide that income chargeable under the head "Profits and gains of business or profession" or "Income from other sources", shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further the Hon'ble Supreme Court in the case of Smt. Rama Bai v. CIT (1990) 84 CTR (SC) 164 : (1990) 181 ITR 400 (SC) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers.
ITA.20176/Bang/2017 Page - 4 46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed by the assessee. 46.3 Further, clause (viii) is inserted in sub-section (2) of the section 56 so as to provide that income by way of interest received on compensation or enhanced compensation referred to in clause (b) of section 145A shall be assessed as "income from other sources" in the year in which it is received. 46.4 Applicability. - This amendment has been made applicable with effect from 1st April, 2010, and it will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years." Thus, the substitution of section 145A by Finance (No. 2) Act, 2009 was not in connection with the decision of the Supreme Court in Ghanshyam (HUF)'s case (supra) but was brought in to mitigate the hardship caused to the assessee on account of the decision of the Supreme Court in Rama Bai v. CIT [1990] 181 ITR 400/[1991] 54 Taxman 496 whereby it was held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. Therefore, when one reads the words "interest received on compensation or enhanced compensation" in section 145A of the I.T. Act, the same have to be construed in the manner interpreted by the Supreme Court in Ghanshyam (HUF)'s case (supra).' 13. The Hon'ble Gujarat High Court finally concluded, as follows: '13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes the character of compensation, it does not fall within the ambit of the expression "interest" as contemplated in section 145A of the I.T. Act. The first respondent - Income Tax Officer was, therefore, not justified in refusing to grant a certificate under section 197 of the I.T. Act to the petitioner for non- deduction of tax at source, inasmuch as, the petitioner is not liable to pay any tax under the head "income from other sources" on the interest paid to it under section 28 of the Act of 1894.
The petitioner had earlier challenged the communication dated 9th February, 2015 whereby its application for a certificate under section 197 of the I.T. Act had been rejected, and subsequently, tax on the interest payable under section 28 of the Act of 1894 has already been deducted at source. Consequently, the challenge to the above communication has become infructuous and hence, the prayer clause ITA.20176/Bang/2017 Page - 5
came to be modified. However, since the amount paid under section 28 of the Act of 1894 forms part of the compensation and not interest, the second respondent was not justified in deducting tax at source under section 194A of the I.T. Act in respect of such amount. The petitioner is, therefore, entitled to refund of the amount wrongly deducted under section 194A of the I.T. Act.' 14. In the light of the aforesaid decision of the Hon'ble Gujarat High Court and in the light of the admitted factual position in the present case, we are of the view that the CIT(Appeals) was fully justified in allowing exemption u/s. 10(37) of the Act on the interest received by the assessee u/s. 28 of the Land Acquisition Act, 1894. We find no grounds to interfere with the impugned order of the CIT(Appeals).{“ Therefore following the decision of the coordinate bench in the identical facts of the case, the appeal of the revenue is dismissed, as the undisputed facts are that the assessee had received the interest on the compensation which is at par with the compensation and is exempt under section 10 (37) of the Act.
In the result the appeal of the revenues dismissed.
Order pronounced in the open court on 24th day of April, 2019.