BIR SINGH,FARIDABAD vs. INCOME TAX OFFICER, WARD 1(1), FARIDABAD

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)].

The hon’ble Delhi High Court in the case of Principal Commissioner of Income-tax 10 v. Inderjit Singh Sodhi (HUF) reported in [2024] 423 ITR 13 (Delhi), deliberated at length on the issue at hand as follows: Page 6 of 15 [A.Y 2017-18] Bir Singh Vs. The .I.T.O “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].]"

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 Page 7 of 15 [A.Y 2017-18] Bir Singh Vs. The .I.T.O 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.

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] Page 8 of 15 [A.Y 2017-18] Bir Singh Vs. The .I.T.O 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 Page 9 of 15 [A.Y 2017-18] Bir Singh Vs. The .I.T.O 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.

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

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.

Similarly, the Hon’ble Punjab & Haryana High Court, in the case of Mahender Pal Narang [2021] 415 ITR 13 (P & H) and Puneet 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.

From the perusal of the facts and circumstances of the case and the judicial precedence as discussed above, 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. 33,03,628/- 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 being exempt u/s 10(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 hon’ble Supreme Court in Sham Lal Narula (Dr.) v. CIT (supra) and hon’ble High Court of Delhi in the case of Page 13 of 15 Mahender Pal Narang and Puneet Singh (supra) 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. dismissed.