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Income Tax Appellate Tribunal, DELHI ‘SMC’ BENCH,
Before: SHRI B.P. JAIN
The above four appeals of different assessees arise from different orders of the ld. CIT(A), as per details given below: ITA No. A.Y. Date of order of the CIT(A) ITA No. 141/DEL/2016 2013-14 19.10.2016 ITA No. 1388/DEL/2017 2010-11 06.01.2017 ITA No. 1390/DEL/2017 2011-12 06.01.2017 ITA No. 1392/DEL/2017 2011-12 06.01.2017
As the issues raised in all the four appeals are identical and were heard together, the same are disposed of by this common order for the sake of convenience and brevity.
Almost identical grounds have been raised in all the four appeals. First of all, I am taking up the appeal in ITA No. 141/DEL/2017 for assessment year 2013-14. The assessee has raised as many as 8 grounds of appeal. However, only ground Nos. 4 and 5 have been pressed which are reproduced hereinbelow:
“4. That having regard to the facts and circumstances of the case, the ld. CIT(A) has erred in law and on facts in upholding the action of the Assessing Officer in making an addition of Rs. 41,84,185/- on account of alleged interest received on enhanced compensation as “Income from other sources” and that too, u/s 56(2)(viii) r.w.s 145A(b) of the Act.
That in any case and in any view of the matter, action of the ld. CIT(A) in confirming the action of the Assessing Officer in making the impugned addition is bad in law and against the facts and circumstances of the case.”
Facts, in brief, as emanating from the first appellate order are that the assessee had claimed exempt income of interest of Rs. 83,68,370/- received from State Government DRO-cum-LAC. The AO noted that the appellant had received interest on enhanced compensation amounting to Rs. 83,68,370/-. The A.O held that interest on enhanced compensation is taxable u/s 56(2)(viii) and after allowing
a deduction of sum equal to 50% of interest received, as per the provisions of Section 57(l)(v) remaining amount of Rs. 41,84,185/- was added to the total income of the “i
Before the ld. CIT(A), the ld. counsel for the assessee submitted written submissions which were considered by the ld. CIT(A), who in fact, confirmed the action of the Assessing Officer after detailed discussion of the matter.
Aggrieved by the order of the ld. CIT(A), the present appeal is filed before this Tribunal.
I have heard both the sides and perused the relevant material on record. After careful consideration of the above facts and circumstances of the case and rival contentions, I find force in the arguments of Ld. counsel of the assessee. I do not find any infirmity in the well reasoned order of the ld. CIT(A) and the only issue whether interest received u/s 28 of the Land Acquisition Act is exempt under the Act as it could not partake the character of compensation for acquisition of agricultural land and whether the sale is taxable under the head ‘other sources’.
The issue whether the interest paid under the provisions of section 28 of LA Act is part of the enhanced compensation or is it taxable as interest income has been a debatable issue and has been considered by number of judicial authorities. The Hon'ble Supreme Court in the case of CIT V/s Ghansham (HUF) (Supra) held that interest paid on the excess amount, u/s 28 of 1894 Act., depends upon a claim by the person whose land is acquired whereas interest u/s 34 is for delay in making payment. Interest u/s 28 is a part of enhanced value of land which is not the case in the matter of payment of interst u/s 34.
The Hon'ble Punjab & Haryana High Court considered this issue in the case ’of Manjeet Singh (HUF) Karta Manjeet Singh V/s Union of India and Ors. CWP No. 15506 of 2013 dated 14/01/2014 (2016) 237 taxmann 116. The Hon’ble Jurisdictional High Court considered the issue whether the interest u/s 28 of the 1894 Act. is taxable u/s 56 of the IT Act. as income from other sources. In this case the Hon'ble High Court referred to the decision of the Hon'ble Supreme Court in the case of CIT V/s Ghanshyam (Supra). The Hon'ble High Court also referred to a number of other decisions of the Hon'ble Supreme Court and held as under
" 7. The primary question for consideration that arises in these petitions relates to the nature of interest received by the landowner-assessee under Section 28 of the 1894 Act. In other words, whether the interest which is received by the assessee- landowner partakes the character of income or not and, in such a situation is it taxable under the provisions of the Act.
It would be apposite to quote herein below Sections 28 and 34 of1894 Act which read thus:-
“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 entuml ver annum from the date on which he took possession of the land to the date ent 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."
The award of interest under Section 28 of the 1894 Act applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. 'In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded under Section 23(1 A) and the solatium under Section 23(2) of the said Act. Section 28 is applicable only in respect of the excess amount, which is determined by the Court after a reference under Section 18 of the 1894 Act.
Under Section 34 of the 1894 Act, the Collector awards interest on the compensation offered at the rate of 9% per annum for a period of one year from the date of taking possession and thereafter at the rate of 15% per annum from the date of expiry of one year on the amount of compensation or part thereof which remains unpaid or deposited before the date of such expiry.
A plain reading of Sections 23(1A), 23(2) as also Section 28 of the 1894 Act clearly spells out that additional benefits
are available on the market value of the acquired lands under Section 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation. The Constitution Bench of the Supreme Court in Sunder’s case (supra) had approved the following observations of the Division Bench of this Court in State of Haryana vs. Smt.Kailashwati and others, AIR 1980 P&H 117:-
“10. Once it is held as it inevitably must be that the solatium provided for under Section 23(2) of the Act forms an integral and statutory part of the compensation awarded to a landowner, then from the plain terms of Section 28 of the Act, it would be evident that the interest is payable on the compensation awarded and not merely on the market value of the land. Indeed the language of Section 28 does not even remotely refer to market value alone and in terms talks of compensation or the sum equivalent thereto. The interest awardable under Section 28 therefore would include within its ambit both the market value and the statutory solatium. It would be thus evident that the provisions of Section 28 in terms warrant and authorize the grant of interest on solatium as well. ”
Adverting to the case law on the subject, inevitably, reference is made to the judgment by the three Judges bench of the Supreme Court in the case of Dr. Shamlal Narula Vs.. CIT, [1964] 53ITR 151, which had considered the issue regarding award of interest under the 1894 Act. Interest under Section 28 of the 1894 Act was considered akin to
interest under Section 34 thereof as both were held to be on account of keeping back the amount payable to the owner and did not form part of compensation or damages for the loss of the right to retain possession. It was noticed as under:- “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 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 s. 28 of the Act, just like under s. 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. ” The principle of Dr.Shamlal Narula's case (supra) had subsequently been applied by three Judges Bench of the Apex Court in a later decision in T.N.K.Govindaraju Chetty v. CIT, (1967) 66ITR 465.
Further Sec. 2(28A) of the Act defines “interest” and was inserted by Finance Act, 1976 to be effective from 1.6.1976. It reads thus:- “'interest' means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised. ” The expression 'interest' occurring in sub-section (28A) of Sec 2 of the Act widens the scope of the term 'interest' for the purposes of the Act.
Another three Judges bench of the Apex Court in Bikram Singh vs. Land Acquisition Collector, (1997) 224ITR 551 following Dr. ShamlalNarula's case (supra) and taking into consideration definition of “interest” in Section 2(28A) of the Act had recorded that interest under Section 28 of the 1894 Act was a revenue receipt and is taxable. It was held as under
“The controversy is no longer res integra. This question was considered elaborately by this Court in Dr. Shamlal Narula v.s- CWP Commissioner of Income-tax, Jammu [51 ITR 151]. 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 page 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 delayed payment of the compensation amount and, therefore, is a revenue receipt tax under the Incomet ax Act.” This position of law has been consistently by this Court in the case of TMK Govindaraju Chetty vs. Commissioner of Income-tax, Madras [66ITR 465], Rama Rai & Ors. vs. CIT, Andhra Pradesh [181 ITR 400] and K.S. Krishna Rao vs. CIT, A.P. [181 ITR 408].
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 eligible to income tax. It is true that in amending the definition of "interest" in Section 2(28A) 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. But the question is: whether the interest on delayed payment on the acquisition of the immovable property under the Acquisition Act would not be eligible to income-tax? It is seen that this Court has consistently taken the view that it is a revenue receipt. The amended definition of "interest" was not intended to exclude the revenue receipt of interest on delayed payment of compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue receipt is exigible to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest. It would mean that
the interest received as income on the delayed payment of the compensation determined under Section 28 or 31 of the Acquisition Act is a taxable event. ”, 15. Now, we advert to the judgment of the Apex Court in Ghanshyam (HUF) 's case (supra) on the basis of which learned counsel for the assessee had sought reconsideration of judgment of this Court in CIT v. Bir Singh, ITA No.209 of 2004 decided on 27.10.2010 where Division Bench of this Court has held that element of interest awarded by the court on enhanced amount of compensation under Section 28 of the 1894 Act falls for taxation under Section 56 as 'income from other sources' in the year of receipt.
The reliance was placed upon following observations in Ghanshyam (HUF)'s case (supra):-
“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 delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is art of the amount of compensation whereas interest under Section 34 is only for delay in 'king 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. ”
In view of the authoritative pronouncements of the Apex Court in Dr. Sham Lai Narula, T.N.K.Govindaraja Chetty, Amarjit Singh, Sunder, Bikram Singh's cases (supra), Rama Bai vs. CIT (1990) 181 ITR 400 and K.S.Krishna Rao v. CIT, (1990) 181 ITR 408, the assessee cannot derive any benefit from the aforesaid observations quoted above."
The Hon’ble Supreme Court dismissed the SLP filed in the case of Manjeet Singh (HUF) Karta Manjeet Singh Vs. Union of India & Ors. CWP No. 15506 of 2013(as discussed above) by way of Special Leave to appeal (C No. 34642 of 2014 vide order dated 18.12. 2014 with the following order:-
"Heard Ld. Counsel for the petitioner and perused the relevant material. We do not find any legal and valid grounds for interference. The Special Leave Petitions are dismissed.”
The Hon’ble Punjab & Haryana High Court considered all the aforesaid cases, in the case of Sunder Lal & Anr. Vs. Union of India in CWP No. 2014 of 2015. In this order dated 21.09.2015 the Hon’ble Jurisdictional High Court held as under:- “9. In view of the above and also the amendments made by the Finance (No. 2) Act, 2009 w.e.f. 1.4.2010 noticed hereinbefore, no advantage can be derived by the petitioners from the judgment in Ghanshyam's case (supra).
Examining the issue of taxability of interest under Section 10. 28 of the Act, in Commissioner of Income Tax v. Bir Singh (HUF), ITA No. 209 of 2004 decided on 27.10.2010, it was held by the Division Bench of this Court that the interest awarded by court on enhanced compensation under Section 28 of the Act was chargeable to tax as income from other sources in the year of receipt. Division Bench of this Court again in Commissioner of Income Tax, Panchkula v. Prem Singh decided on 16.12.2010 while considering identical issue recorded as under
“11. In this view of the matter, the interest component on enhanced compensation under Section 28 is liable to be taxed under Section 56 of the Act even when compensation is held to be taxable in the year of receipt irrespective of pendency of proceedings against award of enhanced compensation.” 11. The judgment of learned Single Judge in Mandir Nar Singh Puri's case (supra) (Annexure P-10) on which reliance has been placed by the petitioners being contrary to the aforesaid pronouncements cannot be taken to be interpreting the legal provisions correctly and is, thus, overruled.
Still further, this Court in Sarti v. Haryana State Industrial and Infrastructure Development Corporation Ltd. and others, CWP No. 9739 of 2011 decided on 30.5.2011 dealing with the issue of tax deducted at source under similar circumstances had recorded as under:-
“8. This Court, in Income Tax Appeal No. 209 of 2004, decided on 27.10.2010 (Commissioner of Income Tax, Faridabad v. Bir Singh (HUF), Ballabgarh) had held that interest paid to the assessee under Section 28 of the Land Acquisition Act, 1894 (for brevity, “1894 Act”) on enhanced amount of compensation in respect of the acquired land falls for taxation under Section 56 of the Act as “income from other sources” and is exigible to tax in the year of receipt under cash system of accountancy. It had also been observed that where the assessee is not maintaining books of accounts by adopting any specific method, it shall be treated to be cash system of accountancy. In the present case, the interest received by the petitioner was on account of delay in making the payment of enhanced compensation and, therefore, would fall under Section 28 of the 1894 Act. Such payment could not par-take the character of compensation for acquisition of agricultural land and, thus, was not exempt under the Act. Once that was so, the tax at source had been rightly deducted by the payer. ”
In view of the above, the tax at source has been rightly deducted and the petitioners. can claim the refund, if any, admissible to them by filing the income tax returns in accordance with law. ”
Further, on this issue, the Hon’ble Punjab & Haryana High Court has recalled the earlier decision in the case of Jagmal Singh and Ors. Vs. State of Haryana & Anr. vide its order dated 02.02.2016 in RA-CR No. 46 CH of 2014 in CR No. 7740 of 2012. The Hon’ble High Court while recalling this order held as under:-
“1. The applications for review is sought by the Union of India on the plea that the orders passed by this Court in the absence of any representation of Union, failed to take of an amendment in the Income Tax Act. The said provision made interest onent assessed on additional amount on land acquisition awards under Section 28 of the Land Acquisition Act as taxable. The amendment through Section 145-A (b) took effect from April 2010. I have relied on a judgment of the Supreme Court in Commissioner of Income-tax, Faridabad Versus Ghanshyam (HUF) Civil Appeal No. 4401 of2009 decided on 16.7.2009 reported in 2009 (9) JT 445 to hold that the interest awarded on enhanced compensation is not taxable. The effect of the judgment has been statutorily abrogated by virtue of the amendment. The award of the Collector itself has been passed subsequent to the amendment on November 10, 2010. A Division Bench of this Court in Hari Kishan Versus Union of India 2014 (2) PLR 662 and another judgment in Attar Singh and others Versus State of Haryana and others, CWP No. 10125 of 2015 dated 3.9.2015 have reiterated the position of taxability on enhanced compensation under the Land Acquisition Act on the basis of the amendment and the fact of inapplicability of
Ghanshyam's case (supra), after the amendment to the statute. The decisions already rendered by the Court were parentally wrong, failing to note of the statutory amendment and its effect on the awards in the two decisions, referred to above.
The orders already passed are recalled and the review applications are allowed holding that interest on the additional award is taxable under income tax and liable to be deducted at the time of deposit”
From the aforesaid decisions, it is evident that after the amendment of the Income Tax Act by way of insertion of Section 56(2)(viii) and Section 57(1)(v) by Finance Act 2009 w.e.f 01.04.2010, the issue whether the interest received on enhanced compensation was taxable as income from other sources has been finally settled. In these circumstances the decisions of the Hon’ble Supreme Court in the case of CIT vs. Ghanshyam (HUF) (Supra) is not applicable in the appellant’s case. The appellant has contended that a different view has been taken by the Hon’ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai vs. ITO in Special Civil Application no. 17944 of 2015 dated 31.03.2016. In this case, the Hon'ble High Court has held as under:-
“12. On behalf of the first respondent, reliance has been placed upon decisions of different High Courts taking a different view. This court is not in agreement with the adopted by the other High Courts which are not consistent with the law laid in the case of Ghanshyam (HUF) (supra). In Manjeet Singh (HUF) Karta Manjeet Singh’s case (supra), the Punjab and Haryana High Court has chosen to place reliance upon various decisions of the Supreme Court rendered during the period 1964 to 1997 and has chosen to brush aside the subsequent decision of the Supreme Court in Ghanshyam (HUF)’s case (supra) which is directly on the issue by observing that the assessee cannot derive any benefit from the observations made by the Supreme Court as quoted therein. In Hari Kishan’s case (supra), the Punjab and Haryana High Court has placed reliance upon its earlier decision in the case of Manjet Singh (HUF) Karta Manjeet Singh (supra). In Bir Singh (HUF) ’s case (supra), the Punjab and Haryana High Court has held that under the scheme of the 1894 Act, interest under section 34 is part of compensation while interest under section 28 is not the interest which partakes the character of compensation and is treated differently. In the opinion of this court, the above view of the Punjab and Haryana High Court is contrary to what has been held in the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra) wherein it has been held that 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. This court is in agreement with the view adopted by the Punjab and Haryana
High Court in Jagmal Singh’s case (supra), which has been extensively referred to in paragraph 4.1 above. The decision of the Delhi High Court in Sharda Kochhar’s case (supra), having been rendered in the context of a different controversy would have no applicability to the facts of the present case.
It may be pointed out here that the Hon’ble Gujarat High Court did not take note of the fact that the Hon’ble Supreme Court has dismissed the SLP filed against the order of the Hon’ble P&H High Court in the case of Sh. Manjeet Singh. The Hon'ble High Court also did not take note of the fact that the Hon'ble Punjab and Haryana High Court has already recalled its order in the case of Jagmal Singh's case on which the Hon'ble Gujarat High Court has relied upon. Apparently these facts were not brought to the notice of the Hon'ble Gujarat High Court.
The decisions of the Hon’ble P&H High Court in the case of Manjeet Singh and in the case of Sunderlal and Anr. Dated 21.09.2015 (Supra) and in the case of Jagmal Singh and Ors. (Supra) being the latest decisions of Hon'ble Jurisdictional Punja b and Haryana High Court on this issue and these decisions having considered the decision of the Hon’ble Supreme Court in the case of CIT vs. Ghanshyam (Supra) and also considering the fact that the Hon’ble Supreme Court
has dismissed the SLP filed in the case of Manjit Singh (HUF) (Supra), it is held that the interest received u/s 28 of the Land Acquisition Act is not exempt under the act as it could not partake the character of compensation for acquisition of agricultural land. It is held that the interest received on enhan6ed compensation in the appellant’s case is liable to tax under the head income from other sources. Accordingly, the grounds of appeal raised by the assessee are dismissed.
In the result, the appeal of the assessee is dismissed.
Now we take up the other three appeals being ITA Nos. 1388, 1390 and 1392. We find that the issue is identical to the issue in the case of Dinesh Yadav in ITA No. 141/DEL/2011 decided by me hereinabove. Accordingly, my order hereinabove on this issue shall be identically applicable in all the three cases of different assessees.
In the result, all the four appeals of different assessees stand dismissed. The order is pronounced in the open court on 11.10.2017.
Sd/- [B.P. JAIN] ACCOUNTANT MEMBER Dated: 11th October, 2017 VL/