BHIM SINGH,GURGAON vs. ITO WARD 1(3) , GURGAON

Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.

Ground No. 1 has not been pressed. The same is dismissed as not pressed.

Briefly stated, the facts of the case are that the assessee is an individual and filed his return of income on 23.07.2019 declaring total income of Rs. 6,07,140/-. The assessee had received Rs 1,05,75,310/- as Interest Income during the year which he had claimed exempt income 10(37) of the I T Act. In absence of any documentary evidence in support of the claim for exempt Interest income, the Assessing Officer treated the amount of Rs.1,05,75,310/- as income u/s.69Aof the I T. Act.

Aggrieved, the assessee went in appeal before the ld. CIT(A). who held that the interest was received on enhanced compensation on acquisition of land which is taxable under the head ‘income from other sources’ under section 56(2)(viii) r.w.s 145A(b) but directed the Assessing Officer to recomputed the income of Rs. 1,05,75,310/- after allowing a deduction of a sum equal to fifty percent of such income as

Now the aggrieved assessee is in appeal before us.

Before us, the ld. counsel for the assessee stated that the interest received was interest on enhanced compensation granted u/s 28 of the Land Acquisition Act, 1894 on acquisition of agricultural land hence it partakes the character of enhanced compensation and both the amount are exempt u/s 10(37) of the Act. The ld counsel of the assessee heavily relied upon the decision of the Hon'ble Supreme Court in the case of Ghanshyam Das HUF 315 ITR 1 where the Hon'ble Apex Court decided that interest u/s 28 on enhanced compensation unlike interest u/s 34 on compensation is an accretion to the value of land hence it is part of enhanced compensation or consideration which is not the case with interest u/s 34 of the Land Acquisition Act, 1894.

The ld. counsel for the assessee further relied upon the decision of the Hon'ble Himachal Pradesh High Court in the case of CIT Vs. Joginder Singh 217 Taxmann 208 and Gujarat High Court in the case of Movaliya Bhikha Bhai Bala 70 Taxmann.com 45 wherein their Lordships have decided that interest u/s 28 of Land Acquisition Act is a part of compensation.

The ld counsel of the assessee relied on various decision of the ITAT which followed the decision of the Hon'ble Apex Court in favour of the assessee including :

The ld. counsel for the assessee stated that even after the decision of the High Court of Punjab &Haryana in the case of Mahender Pal Narang Vs. Central Board of Direct Taxes, New Delhi (2020) 120 Taxmann.com 400(Punjab &Haryana) dated 19.02.2020, the decision of the Supreme Court in the case of CIT Vs. Ghanshyam Dass HUF 2009 315 ITR 1 (SC) is still valid &binding as per orders passed by authorities subsequent to said orders.

Per contra, the ld. DR relied upon the orders of the authorities below. The ld DR also relied on the decision of Punjab &Haryana High Court in the case of Mahender Pal Narang Vs. Central Board of Direct Taxes, New Delhi (2020) 120 Taxmann.com 400(P&H) and Delhi High Court in the case of Inderjit Singh Sodhi (HUF) reported in [2024] 161 taxmann.com 301 (Delhi).

We have heard the rival submissions and have perused the relevant material on record. In the present case it is not in dispute that the assessee received interest u/s 28 of the Land Acquisition Act, 1984 during the year on enhanced compensation for acquisition of land.The issue for adjudication is whether the interest received under section 28 of the Land Acquisition Act on enhanced compensation for acquisition of land,is exempt u/s 10(37) or will be exigible to tax under the "income from other sources" in view of amendment w.e.f 01.04.2010 in the provisions of section 56(2)(viii) and 57(iv) of the Act.

Before proceeding further, we find it appropriate to deal with the various provisions of the laws that comes under play in the present controversy. The two sections that deals with the interest on compensation in the Land Acquisition Act, 1894 are section 34 and section 28. The section 34 of the Land Acquisition Act provides for payment of interest on delayed payment of compensation and Section 28 of the Land Acquisition Act provides for the interest on enhanced compensation awarded by the Court. The sections 28 and 34 of the Land Acquisition Act read as under: -

The taxability of interest on delayed payment of compensation u/s 34 of LAA was not under dispute. The controversy raised is with regard to the taxability of the interest received on enhanced compensation u/s 28 of LAA. This issue of taxability of interest received on enhanced compensation u/s 28 of LAA came up for consideration, way back in 1964, by a three judge bench of the Hon’ble Supreme Court in the case of Sham Lal Narula (Dr.) v. CIT [(1964) 53 ITR 151]. The hon’ble Court considered the interest under Section 28 of the Act of 1894 to be analogous to the interest under Section 34 of the Act, and held that the same did not form part of compensation. The relevant extract of the said decision is culled out as under:-

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. This position of law has been consistently reiterated by the Supreme 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] 84 CTR 144/181 ITR 408/[1991] 54 Taxman 339 (SC)].

It was in 2009 that the Hon'ble Supreme Court in the case of Ghanshyam HUF (supra) grappled with issue“whether additional amount under section 23(1A), solatium under section 23(2), interest paid on excess compensation under section 28 and interest under section 34 of the 1894 Act, could be treated as part of the compensation under section 45(5) of the 1961 Act?”The Hon’ble Court answered in affirmative that the “interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23(1A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act”.

We are of the considered opinion that the decision of Ghanshyam HUF deals with the taxability of interest on enhanced compensation under section 28 of the Land Acquisition Act under capital gains under section 45(5)(b) of the Act only. In this case, the Hon’ble Supreme Court had no occasion to deal with the issue of taxability of interest received under section 28 of LAA as ‘income from other sources’ especially after the amended provision of section 56(2)(viii) and 145B(1) of the I T Act with effect from 01.04.2010.

It was in 2010, to align the law with the legislative intent, the Parliament brought in an amendment into clause (viii) of sub-Section 2 to Section 56 of the Act, vide Finance (No.2) Act, 2009 (with effect from 01.04.2010) and section 145B(1) of the Income Tax Act to bring the interest on compensation or on enhanced compensation as taxable as ‘income from other sources’. The relevant provisions for deciding this case are extracted hereunder:

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, 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. 25. Further, much reliance has been placed by the ITAT upon the decision of the Hon'ble Supreme Court in 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. 26. 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] 27. 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] 84 CTR 144/181 ITR 408/[1991] 54 Taxman 339 (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 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] 28. 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. 20. 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 the authorities below which may warrant interference by this court. No question of law, much less, substantial question of law arise in these appeals.

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.”

Similarly, the Hon’ble Punjab & Haryana High Court, in the case of Mahender Pal Narang [2021] 415 ITR 13(P & H)andPuneet Singh (2019) 415 ITR 215(P&H),had held categorically that the interest received on compensation or on enhanced compensation is taxable under the head "Income from other sources" in the year of receipt. The decision of Puneet Singh (supra) has been quoted with approval by the Delhi High Court in the case of Inderjit Sodhi(supra). We also note that the decision in the case of Mahender Pal Narang and Puneet Singh is binding in the case of the assessee as he is assessed in the territorial and subjective jurisdiction of the Hon’ble Punjab & Haryana High Court.

The decisions of the coordinate benches of the ITAT based on Ghanshyam HUF (supra) and relied upon by the Ld. Counsel, have not considered the decision of the Supreme Court’s earlier three bench judgment in the case of Sham Lal Narula (supra) and its interpretation by the Hon’ble Delhi and Punjab & Haryana High Court in the cases discussed above. Consequently, all the ITAT decisions relied upon by the assessee do not postulate correct law as held in the case of Veena Shah(supra).

From the perusal of the facts and circumstances of the case and the position of law as on date, we are of the considered view that the language in section 56(2)(viii) and 145B(1) are plain, simple and unambiguous and that the correct legal position is that the interest of Rs. 1,05,75,310/- received during the year on enhanced compensation under section 28 of the Land Acquisition Act, 1894 is exigible to tax u/s 56(2)(viii) r.w.s 145B(1). The assessee’s claim of the same as exempt u/s10(37) of the Act is unsustainable as the provisions of section 10(37) deals with ‘compensation’ only and not “interest on compensation or enhanced compensation”. Respectfully following the High Court’s decisions of Delhi and Punjab & Haryana as cited above, we hold that the ld. CIT(A)’s order to recompute the interest on enhanced compensation in accordance with section 56(2)(viii) r.w.s. 145B(1) and allowing deduction u/s 57(iv) needs no interference. Grounds 2 and 3 raised by the assessee are, accordingly, dismissed.

In the result, the appeal of the assessee in is dismissed.