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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: SHRI R.S.SYAL, HON’BLE & SHRI LALIET KUMAR
PER LALIET KUMAR, JUDICIAL MEMBER :
The present appeal is being filed by the revenue on the following grounds :- “1. On facts and circumstances of the case CIT (Appeal) has erred in holding that the interest income received by the assessee is to be taxed in the respective years after holding the receipt of Rs. 3,19,07,676/- by the assessee as interest income on the deposit for purchase of land and hence taxable, ignoring the clear provisions of Section 56(1) of the Act. 2.On facts and circumstances of the case CIT (Appeal) has erred in holding that the interest income received by the assessee is to be taxed in the respective years relying on the decision of Hon’ble Supreme Court in the case of Rama Bai versus CIT 181 ITR 400 ignoring the fact that the amount involved is not in the nature of interest on compensation or enhanced compensation. 3.On facts and circumstances of the case and without prejudice to the GOA as per (1) and (2) above, CIT (Appeal) has erred in holding that the interest income received by the assessee is to be taxed in the respective years relying on the decision of Hon’ble Supreme Court in the case of Rama Bai versus CIT 181 ITR 400 ignoring the clear provision of Act in section 145A(b) which clearly lays down that interest received by an assessee on compensation or enhanced compensation as the case may be, shall be deemed to be the income of the year in which it is received. 4.On facts and circumstances of the case and without prejudice to the GOA as per (1) and (2) above, CIT (Appeal) has erred in holding that the interest income received by the assessee is to be taxed in the respective years relying on the decision of Hon’ble Supreme Court in the case of Rama Bai versus CIT 181 ITR 400 ignoring the clear provision of Act in section 145A(b) which was introduced to overcome the hardship caused by the above cited decision of the Hon’ble Supreme Court as is evident from the explanatory note to finance act, 2009 (para 46 of CIRCULAR NO. 05/2010, DATED 3rd JUNE, 2010 (copy attached.)”
At the outset, the Ld. AR has drawn our attention to the decision of the Tribunal passed in the case of the assessee in where in the Tribunal in paragraphs 10, 11 and 12 held as under :
“ We have carefully considered the rival contentions and perused the orders of lower authorities. Admittedly, assessee is not in business of real estate. Brief facts shows that Assessee Company participated in the auction carried out by Punjab National Bank, Chandigarh on 5.12.2006 through Debt Recovery Tribunal in respect of property mortgaged by M/s. Sanmati Rice Mills as a security for borrowed fund. The assessee was declared the highest bidder at Rs. 10.07 crores. The assessee deposited the above sum with DRT in stipulated time as per terms and conditions of the bidder auction. The Debt Recovery Tribunal also issued the certificate of sale to the assessee on 02.03.2007. Subsequently the order of the Debt Recovery Tribunal was challenged before Debt Recovery Appellant Tribunal (DRAT) and orders dated 25.06.2009 was passed wherein it was Page | 4 & 3099/Del /2016 Assessment Year: 2011-12 INS Finance & Investment P Ltd Vs ITO ordered that the possession taken by the assessee of the auctioned property be returned back to the original borrower. The assessee challenged the above order before the Hon'ble Punjab and Haryana High Court in CWP number 1470 of 2010. The Hon'ble High Court directed Punjab National Bank to return the whole sum deposited along with interest accrued thereon. Consequently, the DRT recovered the money from Punjab National Bank and refunded the same to the appellant. So assessee was repaid originally auction amount as well as a further sum of Rs 31907676/- . The Punjab National Bank by making the repayment deducted the tax at source in respective years and issued certificates in favour of DRT. Furthermore, the assessee filed a civil suit in the court of Civil Judge Sr.
Division, Chandigarh for recovery of damages. It is stated that the above sum was accepted from Punjab National Bank subject to legal right of the petitioner to challenge the compromise arrived between the borrower and the bank. Therefore, it was stated that the dispute had not reached any finality and therefore, no interest or damages have accrued to the assessee finally. The assessee further relied on the decision of Ghaziabad Development Authority Vs. Dr. N. K. Gupta 258 ITR 337 wherein it has been held that merely because the damages are stated to be interest they cannot be subject to tax as interest. We have also carefully perused the order of the Debt Recovery Tribunal, Chandigarh dated 03.12.2008 wherein in para No. 22 has set aside the sale, and the bank was directed to refund the sale consideration originally accepted from the appellant along with any interest accrued on it, which has been kept in the office of the Debt Recovery Tribunal. Therefore, the Debt Recovery Tribunal has not awarded any interest to the appellant but it has just refunded the money deposited by the assessee in auction along with any interest earned by the bank on that sum in favour of DRT. The revenue could not show that at the time of auction there was any condition of payment of interest to the assessee in case the auction is cancelled. In fact as per certificate of sale dated 02.03.2007 even the Page | 5 & 3099/Del /2016 Assessment Year: 2011-12 INS Finance & Investment P Ltd Vs ITO possession of the property was also given confirming the sale absolutely in favour of the assessee. Even otherwise as per the provisions of section 2(28A) of the Act interest means interest payable in any manner in respect of money borrowed or debt incurred including a deposit, claim or other similar rights. In the present case, the above sum was not payable to the assessee because of any such debt incurred. The assessee purchased a property in auction which was transferred to assessee, subsequently the sale was cancelled, so assessee was paid original sum and some further amount which was earned by bank as interest thereon from the date assessee paid to the bank till the date of order. Therefore, above sum cannot be considered as interest. Now, it is required to be examined that whether such sum received by the assessee is a capital receipt or revenue in nature. As held by the Hon'ble Supreme Court in CIT Vs. Saurashtra Cement Ltd. 325 ITR 422 that the question whether a particular receipt is capital or revenue it is not possible to formulate any single criteria as decisive in the determination of the question. In the present case, the sum is received by the assessee on cancellation of sale contract as per the auction of Sanmati Rice Mills. Further, the sum received by the assessee had direct nexus to the cancellation of acquisition of the immovable property obtained by him in auction. Further, it is clear that excess of amount then what assessee deposited, received by the assessee for a breach of a contract and hence same is a capital receipt. The coordinate bench in DCIT Vs. Winsome Yarns Limited [TS-546-IT-2014 (Chandigarh)] [2014] 50 taxmann.com 318 (Chandigarh - Trib.) decides the identical issue. In that particular case the transaction of sale of industrial plot was set aside by Hon'ble Supreme Court and the assessee was deprived of making future profits on the industrial plot and therefore, the compensation received by the assessee against such surrender was held to be capital receipt not chargeable to tax.
The ld DR could not controvert above facts and finding that sum is not chargeable to tax as it is capital receipt. Ld DR has heavily relied on the provision of section 56(2) (viii) of the act. The above section provides that income shall be chargeable to tax under the head income from other sources if it is income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A. The provision of section 145A provides that any interest received by the assessee on compensation or enhanced compensation shall be chargeable to tax in the year in which it is received. Therefore, provision of section 145A speaks about the timing of taxability and section 56(2)
(viii) the head under which it is chargeable. However, the character of income should be interest on compensation or enhanced compensation. In the present case, we have already held that it is not interest but compensation. Section 56 (2) (viii) also does not provide for taxation of compensation but only interest on such compensation. In the present case, the assessee has received compensation. Ld DR also could not show that if the amount received is interest on compensation what the amount of compensation itself is. In view of this, we reject the contention of the revenue that provision of section 56 (2) (viii) applies to the impugned amount.
In view of above decision of coordinate bench, which has considered identical issue as per principles enunciated by the Hon Sc , we respectfully following it hold that Rs. 31907676/- is a capital receipt Page | 22 & 3099/Del /2016 Assessment Year: 2011-12 INS Finance & Investment P Ltd Vs ITO and is not chargeable to tax therefore. Hence, Ground no 1 of the appeal of the assessee is allowed.
On the basis of the above, it was submitted by the Ld. AR that as the interest income received by the assessee has been held to be capital in nature by the Tribunal, therefore, action of the Ld. CIT whereby the Ld. CIT has allowed the claim of the assessee and permitting the assessee to claim interest income as compensation in different years on proportionate / pro rata basis is not correct. Per contra of the Ld. DR, has submitted that the decision of the Tribunal rendered in the case of (supra) was not finally accepted by the revenue and he further relied upon the decision of the Hon’ble Supreme Court in the matter of Rama Bia vs. CIT.
We have heard the rival contention of both the parties and perused the material available on record. As is clear from the paragraph 11 (supra) that Tribunal held in the case of the assessee that the income by way of interest received by the assessee was in the nature of compensation and therefore in view of the provision of Section 56(2) (viii) is required to be excluded from the total income. 5. Once the Tribunal in the case of the assessee, had categorically held above, then it is not appropriate for the bench in the present proceeding to take a contrary view. Therefore, in view of the facts when the Tribunal had already held that the income received by way of interest was compensation in nature ad clause falls within (viii) of section 56(2) then the receipt of income cannot be treated as interest and would not be liable for taxation, hence the finding recorded by CIT whereby CIT has granted proportionate adjustment of interest in various years, become, irrelevant & infructuous on the basis of finding i.e. income was capital in nature, had already been reversed by the Tribunal. 6. In view of above, we find no merit in the appeal of the revenue and accordingly the appeal of the revenue is dismissed. 7. In the result, appeal of the revenue is dismissed. Order pronounced in open court on 11th October, 2018.