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Facts
The assessee received interest on enhanced compensation from land acquisition, treating it as exempt income under Section 10(37) of the Income Tax Act, which the AO accepted. The PCIT set aside this assessment under Section 263, arguing that the AO failed to consider the Finance (No.2) Act 2009 amendments, making such interest taxable as "Income from Other Sources", and directed a fresh assessment. The assessee appealed this PCIT order.
Held
The Tribunal dismissed the assessee's appeal, affirming the PCIT's order. It held that interest on enhanced compensation is indeed taxable as "Income from Other Sources" under Sections 56(2)(viii) and 145A(b) of the Income Tax Act, as clarified by the Finance (No.2) Act 2009 amendments and recent Jurisdictional High Court rulings. The AO's initial view that the interest was exempt under Section 10(37) was deemed unsustainable.
Key Issues
Whether interest on enhanced compensation partakes the character of "Income from Other Sources" u/s 56(2)(viii) of the Act, and whether the PCIT was correct in exercising power u/s 263 to set aside the assessment order.
Sections Cited
Section 263, Section 143(3), Section 144B, Section 10(37), Section 56(2)(viii), Section 57(iv), Section 145A(b), Section 145, Section 2(28-A)
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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’ NEW DELHI
order of the Ld. Principal Commissioner of Income Tax(Appeals) (“Ld.
PCIT for short”) dated 01.03.2024, wherein the Ld. CIT(A) held the Assessment Order dated 15/09/2021 as erroneous insofar as prejudicial to the interest of the Revenue and by setting aside the same under Section 263 of the Act, directed Assessing Officer to pass a fresh assessment order after giving due opportunity of being heard to the Assessee.
The brief facts of the case are that the case was selected for complete scrutiny for the purposes of verifying the claim of ‘refund of tax’ claimed by the Assessee. An assessment order dated 15/09/2021 came to be passed under Section 143(3) of the Income Tax Act, 1961 (for short “the Act”)read with Section 144B of the Act, wherein by following Judgment of the Hon'ble Apex Court in the case of CIT vs. Ghanshyam (HUF) and ITO, Ward 3(4), Gurgaon Vs. Rameshwar, the Assessing Officer held that no addition is required to be made on the interest received by the Assessee on the enhanced compensation. The Ld. PCIT vide order dated 01.03.2024, set aside the Assessment Order and directed the Assessing Officer to pass a fresh Assessment Order.
Aggrieved by the Order dated 01.03.2024 of the Ld. PCIT passed under Section 263 of the Act, the Assessee preferred the present appeal on the grounds mentioned above.
The Ld. Counsel for the Assessee submitted that the question as to whether receipt of interest of related to the additional compensation granted under Land Acquisition Act is a part of exempt income u/s 10(37) of the Act or not is a debatable issue, the A.O. while framing the Assessment u/s 143(3) of the Act has taken plausible view based on the decisions rendered by various Courts, which cannot be held to be erroneous while exercising power u/s 263 of the Act by the PCIT. The Ld. Counsel relied on following judicial pronouncements and sought for allowing the Appeal.
“i. CIT vs Govindbhai Mamaiya (2014) 52 taxmann.com270(SC); ii. ITO, TDS vs Muktanangiri Maheshgiri CA No 18475 of 2017(SC); iii. Sh Puneet Singh Karnal vs ACIT Delhi ITAT dated 08.12.2022;
Decisions cited in Kamla Devi vs ITO [2022] dated 21.09.2022(PB 107-113) iv. Paramjeet Singh vs ACIT Karnal dated 16.04.2021 dated 02.12.2020 vi. Nitya Nand v ITO Gurgaon dated 30.01.2020
Decisions cited in ITO vs Hari Singh Saini dated 17.03.2023(PB 114-120): vii. Rameshwar vs ITO Gurgaon Del/ 2017; viii. Jagmal Singh through LH vs ITO Gurgaon dated 20.09.2018; ix. ITO VS Shri Vasavaraja M Khudari Kannu 01.06.2018
X. M B Balabhai (2016) 70 taxmann.com 45 (Guj) xi. Sh Satbir vs ITO Ward 1 Jind to 1415/CHD/2016 xii. CIT vs Chet Ram HUF CA No 1353/2017 (SC) dated 12.09.2017; and xiii. various other decision cited on page 5 &6 of the decision
Further Chandigarh Bench of ITAT in case of Sh Bharat Bhushan & Ors vs Pr CIT Hisar in 597-602/CHD/2018 dated 11.01.2019 held that learned Principal Commissioner of Income Tax has erroneously relied on the judgment of jurisdictional Punjab and Haryana High Court in the case of Manjit Singh v. UOI CWP No. 15506/2013 dated 14.1.2014 and overlooking the following judgments of Apex Court: i. CIT vs. Ghanshyam (HUF) 315 ITR 1 (SC) (dated 16.7.2009); ii. CIT vs. Govindbhai Mamaiya 367 ITR 4 98(SC) (dated 4.9.2014; iii. CIT vs. Chet Ram (HUF) C.A. No, 13053/2017 (dated 12.9.2017); iv. UOI and ORS vs. Hari Singh and ORS C.A. No. 15041/2017 (SC); v. ITO Rajkot vs. Muktanandgiri Maheshgiri C.A. No. 18475/2017.”
Per contra, the Department's Representative submitted that the contention of the Assessee has been wrongly accepted by the A.O. and the interest received u/s 28 of the Land Acquisition Act was wrongly allowed as exempt u/s 10(37) of the Income Tax Act whereas it was chargeable to tax under the head “Income from other sources”. The Judgments supra relied upon by the Assessee have been rendered in respect of Assessment Years prior to introduction of Section 56(2)(viii), 57(iv) and 145A(b) by Finance Act 2009 w.e.f 01/04/2010. Further, the Department's Representative has also relied on the Judgment of the Jurisdictional High Court dated 08/04/2024 in and CM APPL 65057/2023 in the case of Principal Commissioner of Income Tax 10 Vs. Inderjit Singh Sodhi (HUF), thus, submitted that the Appeal of the Assessee deserves to be dismissed.
We have heard both the parties and perused the material available on record. The case of the Assessee was selected for complete scrutiny to verify issue of ‘Refund Claim’. On noticing that the Assessee has claimed refund of Rs. 11,58,591/- as against pre- paid tax of Rs. 11,60,650/-, the A.O. asked the Assessee to furnish details and to substantiate his claim. The Assessee submitted before the A.O. that he has received interest on enhanced compensation on compulsory acquisition of agriculture land u/s 28 of the Land Acquisition Act, which is exempt income. The Assessee has also produced copy of Khasra/Khatauni and Land Acquisition order in support of his claim. Further the Assessee has also relied on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam (HUF) and ITO Ward 3(4), Gurgaon Vs. Rameshwar which has further been reiterated in the case of Union of India Vs. Hari Singh & Others in (Civil Appeal No. 15041/2017 order dated 15th September, 2017). After considering the reply given by the Assessee, the Ld. A.O. satisfied that the amount of interest on the compensation so received under the Land Acquisition Act, 1894 is not deserves to be brought to tax.
The Ld. PCIT while exercising the power conferred u/s 263 of the Act set aside the assessment order on the ground that the A.O. failed to consider the amendment carried out while Finance (No.2) Act 2009 (w.e.f 01/10/2010), Clause vii of Sub Section 2 of Section 56 and also the Judgment of Jurisdictional High Court, accordingly passed the order impugned by setting aside the Assessment Order and directed the A.O. to pass fresh Assessment Order.
The only question arises for consideration in the present Appeal as to whether the interest on enhanced compensation received by the Assessee partakes the character of ‘Income from Other Sources’ u/s56(2)(viii) of the Act?.And, whether the Ld. PCIT is right in exercising the power conferred u/s 263 of the Act in setting aside the Assessment Order and directing the A.O. to make fresh assessment?
9. The very same question regarding as to whether interest on enhanced compensation partakes the character of ‘Income from Other Sources’ u/s 56(2)(viii) of the Act or not has been decided by the Jurisdictional High Court in the case of Principal Commissioner of Income Tax-10 Vs. Inderjit Singh Sodhi (HUF) in and CM APPL 65057/2023 vide order dated 08/04/2024. The Hon’ble Jurisdictional High Court held that interest, whether on compensation or enhanced compensation shall be considered as income from other sources and shall be taxable accordingly. The Jurisdictional High Court has also held that the Tribunal has erred in relying on the decision in CIT Vs. Ghanshyam (HUF) (2009) 315 ITR 1 (S.C) by taking into consideration of Finance(No.2) Act, 2009, which came into effect in the year 2010. The relevant portion of the Judgment of the Hon'ble High Court of Delhi is reproduced as under:-
“18. The solitary question which arises for our consideration in the present appeal is whether the interest on enhanced compensation received by the respondent-assessee partakes the character of income from other sources under Section 56(2)(viii) of the Act, to be considered as separable from the enhanced compensation.
At the outset, it is significant to refer to Sections 28 and 34 of the Act of 1894, which deal with the payment of interest on compensation, and read as under:- “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 a 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."
20. A reading of Section 28 of the Act of 1894 indicates that the said provision comes into play in cases where the Court finds that some higher compensation ought to have been provided by the Collector. In such situations, the Court may direct for payment of an interest on the excess awarded amount. Whereas, Section 34 of the Act of 1894 stipulates that the Collector shall award interest on the compensation at the rate of 9% per annum from the date of taking possession. It further lays down the condition that in case of non-payment despite expiry of a period of one year, the said interest on the amount of compensation which remains unpaid, shall be awarded at the rate of 15% per annum, calculable from the date of such expiry.
21. It is the contention of the respondent-assessee that the interest awarded under Section 28 of the Act of 1894, as discussed above, shall constitute a part of the compensation itself. The ITAT has also drawn strength from the observation of the Hon‟ble Supreme Court in the case of Ghanshyam (supra) and the relevant paragraph of the said decision reads as under:-
"35. To sum up, interest is different from compensation. However, interest paid on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for the delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under Section 34."
22. However, vide Finance (No.2) Act, 2009 (with effect from 01.10.2010), Clause (viii) of sub-Section 2 to Section 56 of the Act was inserted and the same is extracted hereunder as:-
"56. Income from other sources.-- *** (2) In particular and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income tax under the head "Income from other sources", namely:-- *** [(viii) income by way of interest received on compensation or on enhanced compensation referred to in [sub-section (1) of Section 145-B].]"
23. For the sake of clarity, Section 145-B of the Act is reproduced as under:-
"[145-B. Taxability of certain income.--(1) Notwithstanding anything to the contrary contained in Section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received. (2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved. (3) The income referred to in sub-clause (xviii) of clause (24) of Section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year.]"
A conjoint reading of the aforementioned provisions i.e., Sections 56(2)(viii) and 145-B of the Act vividly stipulate that the income received by way of interest on compensation or on enhanced compensation shall be chargeable to tax under the head „income from other sources‟. Therefore, since the position with respect to the imposition of tax on interest on compensation or enhanced compensation, as it exists today, came into being only in the year 2010, 17:00:34 the conclusions drawn from the decision in Ghanshyam (supra), which was passed in the year 2009, are unsustainable in the facts of the present case.
Further, much reliance has been placed by the ITAT upon the decision of the Hon‟ble Supreme Court in the case of CIT v. Govindbhai Mamaiya [(2014) 16 SCC 449], which relies upon the case of Ghanshyam (supra) to hold that the interest on enhanced compensation received under Section 28 of the Act of 1894 is exigible to tax on receipt basis. However, a deeper analysis of the decision in Govindbhai Mamaiya (supra) would show that it does not deal with any issue pertaining to the change in the taxability, put in place through the concerned amendment of 2010. Therefore, the said decision lacks any applicability in the facts and circumstances of the present case.
Notably, a three-Judges Bench of the Hon‟ble Supreme Court in the case of Sham Lal Narula (Dr.) v. CIT [(1964) 53 ITR 151], while considering the interest under Section 28 of the Act of 1894 to be analogous to the interest under Section 34 of the Act, took the view that the same did not form part of compensation. The relevant extract of the said decision is culled out as under:-
"9. --- 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 the 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 Section 28 of the Act, just like under Section 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. ---"
[Emphasis supplied] 17:00:34
The decision in Sham Lal Narula (supra) was subsequently followed by the Hon‟ble Supreme Court in the case of Bikram Singh v. Land Acquisition Collector [(1997) 10 SCC 243], wherein, it was held that interest under Section 28 of the Act of 1894 was in the nature of a revenue receipt and hence, the same was considered to be taxable. The relevant paragraphs of the said decision read as under:-
"8. The controversy is no longer res integra. This question was considered elaborately by this Court in Sham Lal Narula (Dr) v. CIT [(1964) 53 ITR 151 : AIR 1964 SC 1878] . 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 p. 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."
This position of law has been consistently reiterated by this Court in the case of T.N.K. Govindaraju Chetty v. CIT [(1967) 66 ITR 465 : AIR 1968 SC 129] , Rama Bai v. CIT [1990 Supp SCC 699 : (1990) 181 ITR 400] and K.S. Krishna Rao v. CIT [(1990) 181 ITR 408 (SC)] . 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(28-A), 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 17:00:34 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."
[Emphasis supplied]
In the case of Puneet Singh (supra), the High Court of Punjab and Haryana, while enunciating the effect of Section 145A(b) and Section 56(2)(viii) of the Act, has held as under:-
"19. The cumulative effect of section 145A(b) and section 56(2)(viii) would be that any interest received on compensation or on enhanced compensation shall be taxable under the head "Income from other sources" in the year of receipt.
However, by section 27 of the 2009 Act, a new clause (iv) in section 57 has been inserted with effect from April 1, 2010 which lays down that in the case of income of the nature referred to in section 56(2)(viii), a deduction of a sum equal to 50 per cent. of such income would be allowable thereunder and no deduction would be allowed under any other clause of section 57. The said provision reads thus: "57. Deductions.--The income chargeable under the head 'Income from other sources' shall be computed after making the following deductions, namely : . .. (iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent. of such income and no deduction shall be allowed under any other clause of this section."
The Assessing Officer in I. T. A. No. 132 of 2018 where the assessee had received Rs. 11,30,561 as interest income, held that the interest payment received on compensation/enhanced compensation to the tune of Rs. 5,65,280 (50 per cent. of Rs. 11,30,561) is taxable as income from other sources as per provisions of sections 56(2)(viii) read with 57(iv) and section 145A(b) of the Act for the assessment year 2010-11. The Commissioner of Income-tax (Appeals) and the Tribunal had upheld the order of the Assessing Officer in that regard.
No illegality or perversity could be pointed out by learned counsel for the assessee in the concurrent findings of fact recorded by 17:00:34 the authorities below which may warrant interference by this court. No question of law, much less, substantial question of law arise in these appeals.
Accordingly, finding no merit in the appeals, the same are hereby dismissed."
[Emphasis supplied]
Considering the foregoing discussion, we affirm the concurrent findings of the AO and CIT(A) and find that the view taken by the ITAT is unsustainable, as the same is based on an incorrect appreciation of law. The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. There is no question with respect to the vires of the amendment before us or regarding any ambiguity in the language of the amendment. The only concern is regarding the enunciation of the applicable law and we hold the same to unequivocally mean that interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income tax.
We, accordingly, answer the substantial question of law which has arisen in the instant appeal in affirmative and in favour of the Revenue. We, thus, hold that the ITAT has erred in relying upon the decision of Ghanshyam (supra), ignoring the changes brought about by Finance (No.2) Act, 2009, which came into effect in the year 2010.
In the light of the aforesaid judicial pronouncements and the concerned amendment, we set aside the order of the ITAT dated 19.06.2020. Consequently, the appeal stands allowed and the 17:00:34 concurrent findings of the AO and CIT(A) are hereby affirmed. Pending application(s), if any, are disposed of.”
The submission of the Ld. Assessee's Representative was that the Judgment of Ghanshyam (HUF) (supra) is still a valid law and it does not change the character of interest received on enhanced compensation on the agriculture land acquired by the Land Acquisition Authority and also relied on the various orders and Judgments.
We have gone through the Judgments and orders relied by the Ld. Assessee's Representative and it is found that those Judgments/Orders have been rendered either prior to the Judgment of the Jurisdictional High court in the case of Inderjit Singh Sodhi (HUF)
(supra) or those Judgments/Orders relied by the Assessee have not considered the ratio laid down by the Jurisdictional High Court in the case of Inderjit Singh Sodhi (HUF) (supra). Thus, we find no merit in the said argument of the Ld. Assessee's Representative.
The Assessee's Representative has also submitted that the A.O. has taken plausible view in considering the interest on the enhanced compensation as not taxable by relying on the Judgment of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra), therefore, the Ld. PCIT committed error in setting aside the Assessment Order. We are also not convinced with the said argument. Once the Jurisdictional High Court reiterates the law considering the amendment to the provision and also the previous Judgments, the law laid down by the Jurisdictional High Court becomes binding precedent and the authorities or the Tribunal cannot ignore the same and take different view. In the present case, the Jurisdictional High Court in the case of Principal Commissioner of Income Tax-10 Vs. Inderjit Singh & CM APPL 65057/2023 vide order dated 08th April, 2024, considered the insertion of Clause (viii) to Sub Section 2 of Section 56 of the Act w.e.f 01/10/2010 and also Judgment rendered by the Hon'ble Supreme Court in Ghanshyam (HUF) (supra) and held that the interest on compensation and enhanced compensation shall be considered as income from other sources and taxable. Thus, in our opinion, the view taken by the A.O. that the interest on enhanced compensation is part of the compensation and not the ‘interest’ per say and allowing the same as exempt u/s 10(37) of the Income Tax Act cannot be called as ‘plausible view’. Thus, we find no merit in the grounds of Appeal of the Assessee, accordingly, we are of the opinion that the Ld. CIT(A) has committed no error in setting aside the assessment order and directed the A.O. to frame fresh assessment in accordance with law.
In the result, the Appeal of the Assessee is dismissed.