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Income Tax Appellate Tribunal, DELHI BENCH: ‘D+ SMC’ NEW DELHI
Before: SHRI N. K. SAINI & MS SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 4/9/2017 passed by CIT (A)-2, Gurgaon, for Assessment Year 2013-14.
The grounds of appeal are as under:-
“1. The Ld. CIT(A) 2 Gurugram has erred in law and on facts in rejecting the appeal of the assessee against order passed by the Ld. A.O.
The Ld.CIT(A) has erred in deciding the issue whether interest received u/s 28 of the L.A Act in case of compulsory acquisition of agricultural land is in the nature of interest income or it is a part of enhanced compensation.
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The Ld.CIT(A) has erred in treating the receipt u/s 28 of the L.A Act as interest income taxable under I.T Act in contravention of the judgment of Hon'ble Supreme Court in case of Union of India & ors Vs. Hari Singh & Ors in Civil Appeal No. 15041 of 2017.
The Ld.CIT(A) has erred in confirming the addition of Rs. 47,84,031/- which may kindly be deleted.
The Ld.CIT(A) has erred in deciding the appeal on the basis of service of hearing notices issued in the name of dead person.
Return of income declaring income of Rs.1,99,500/- along with refund of Rs.9,56,810/- was filed by the assessee on 14/12/2014 and the same was processed u/s 143(1) on 11/3/2015. From the perusal of the Form No. 26AS, the Assessing Officer observed that the assessee received interest on enhanced compensation from state government at Rs.95,68,062/- but the same was not disclosed in the return. The Assessing Officer observed that income of Rs.47,84,030/- was escaped from the assessment as the provisions of Clause VIII of Sub Clause 2 of Section 56 of the Income Tax Act, regarding interest on compensation/enhance compensation is taxable. Thus, the Assessing Officer made an addition of Rs. 47,84,031/-.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A) and CIT(A) has passed ex-parte order without taking cognizance of the law in respect of interest received u/s 28 of the Land Acquisition Act and dismissed the appeal of the assessee.
The Ld. AR submitted that it will be appropriate to decide this issue at this juncture by the Tribunal as the identical issue has been decided by the Bangalore Tribunal in case of ITO Vs. Shri Vasavaraja M Kudarikannur being ITA Nos. 1747 & 1750/Bang/2017 dated 1/6/2018. The Ld. AR also relied upon the decision of the Hon’ble Apex Court in case of Union of India Vs. Hari Singh and ors. (Civil Appeal No. 15041/2017 order dated 15th September
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2017). The Ld. AR submitted that interest paid u/s 28 of the Land Acquisition Act amounts to enhance compensation and is not taxable as interest income.
The Ld. DR relied upon the order of the Assessing Officer as well as of the CIT(A).
We have heard both the parties and perused the material available on record. It is not a case of Revenue that the assessee has not received interest u/s 28 of the Land Acquisition Act, 1894. This issue has been decided by the Hon’ble Apex Court in case of Union of India Vs. Hari Singh (Supra) wherein it is held that on agricultural Land no tax is payable when the compensation/enhance compensation is received by the assessee as their land was agricultural land. The compensation was received in respect of agricultural land belonging to the assessee which had been acquired by the state government. Therefore, the same comes under the purview of Section 28 of the Land Acquisition Act. The Bangalore Tribunal in case of Shri Vasavaraja M Kudarikannur (supra) held as under:-
“11. We have heard the rival submissions of the ld. DR, who relied upon the order of the AO. We have considered the submissions of the ld. DR. It is not disputed by the AO that the land acquired was agricultural land and the conditions laid down u/s. 10(37)(i) to (iv) are applicable to the land which is in question which was compulsorily acquired. It is also not in dispute that the interest in question was interest awarded u/s. 28 of the Land Acquisition Act, 1894. In the given circumstances, we are of the view that the decision of the Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai (supra) will be applicable to the facts of the present case.
In Movaliya Bhikhubhai Balabhai v. Income-tax Officer-TDS-1- Surat [2016] 70 taxmann.com 45 (Gujarat), the Hon'ble Gujarat High Court had to deal with the nature of the interest awarded u/s.28 of the Land
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Acquisition Act, 1894. The facts of the case before the Hon'ble Gujarat High Court was that the petitioner's agricultural lands came to be acquired under the provisions of the Act of 1894 for the public purpose of the Ozat-2 Irrigation Scheme. The award passed by the Collector came to be challenged by the petitioner before the learned Principal Senior Civil Judge, Junagadh (hereinafter referred to as the "Reference Court"), who by an order dated 20th March, 2011 awarded additional compensation of Rs. 5,01,846/- in favour of the petitioner together with other statutory benefits. Pursuant to such award, the second respondent calculated the amount payable to the petitioner and in terms of the statement showing the amount of compensation to be deposited in the court, computed an amount of Rs. 20,74,157/- as payable to the petitioner by way of interest under section 28 of the Act of 1894. The petitioner made an application under section 197(1) of the Income Tax Act, 1961 (Act) for deciding the tax liability of interest and to issue a certificate as to NIL tax liability. The application was rejected on the ground that the interest amount on the delayed payment of ITA Nos. 1747 & 1750/Bang/2017 compensation and enhanced value of compensation is taxable as per the provisions of section 57(iv) read with sections 56(2)(viii) and 145A(b) of the Act under the head income from other sources. Being aggrieved by such order, the Assessee filed writ petition before Hon'ble Gujarat High Court. The question before the Court was whether interest awarded u/s.28 of the Act of 1894 is akin to compensation and chargeable to tax u/s.45(5) of the Act or under the head "Income from other sources" u/s.57(iv) read with Sec.56(2)(viii) and 145A(b) of the Act. The Hon'ble Gujarat High Court held that interest under section 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. In coming to the aforesaid conclusion, the Hon'ble Gujarat High Court followed the decision of Hon'ble Supreme Court in the case of CIT v. Ghanshyam (HUF) [2009] 182 Taxman 368, wherein it was held that interest under section 28 of the
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Act of 1894 is part of the amount of compensation whereas interest under section 34 thereof is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under section 34. On the applicability of the provisions of Sec.57(iv) read with 56(2)(viii) and Sec.145A(b) of the Act, the Hon'ble Gujarat High Court held, :-
"Section 145A of the I.T. bears the heading "Method of accounting in certain cases". Section 145A(b) provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. Clause (viii) of sub-section (2) of section 56 of the I.T. Act provides for income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A which is chargeable as income from other sources. The first respondent Income Tax Officer seeks to tax the interest received by the ITA Nos. 1747 & 1750/Bang/2017 petitioner under section 28 of the Act of 1894 as income from other sources under section 56(2)(viii) read with section 145A(b) of the I.T. Act. In the opinion of this court, in the light of the law laid down by the Supreme Court in the case of Ghanshyam (HUF) (supra), the interest received under section 28 of the Act of 1894 would not fall within the ambit of the expression "interest" as envisaged under section 145A(b) of the I.T. Act, inasmuch as, the Supreme Court in the above decision has held that interest under section 28 of the Act of 1894 is not in the nature of interest but is an accretion to the compensation and, therefore, forms part of the compensation."
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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 ITA Nos. 1747 & 1750/Bang/2017 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.
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
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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)."
ITA Nos. 1747 & 1750/Bang/2017
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-
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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 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."
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) is 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 orders of the CIT(Appeals).
ITA Nos. 1747 & 1750/Bang/2017
Consequently, both the appeals of the revenue are dismissed.”
The facts are identical and there is no difference at all in the factual aspect of the present case. Therefore, following the ratio laid down by the Apex Court as well as followed by the Tribunal, we are allowing the appeal of the assessee.
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In result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 20th September, 2018.
Sd/- Sd/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 20/09/2018 R.N*