ABDUL AZEEZ POOLAKKODAN,KOTTAKKAL vs. ITO WARD 1, TIRUR

Appellant by: Shri Anil D. Nair, Advocate Respondent by: Smt. J.M. Jamuna Devi, Sr. D.R. Date of Hearing: 17.04.2024 Date of Pronouncement: 19.04.2024 O R D E R Per: Sanjay Arora, AM Vide the instant Appeal, the Assessee agitates the dismissal of his appeal contesting the order under section 154 of the Income Tax Act, 1961 (the Act), dated 04.04.2018, for Assessment Year (AY) 2015-16 by the Commissioner of Income Tax (Appeals), Income Tax Department [CIT(A)] dated 26.10.2022.

(AY : 2015-16) Abdul Azeez Poolakkodan v. ITO the AO on 15.12.2018, seeking rectification of his assessment inasmuch as the interest allowed was allowed u/s. 28 of the Land Acquisition Act, 1894 (LAA), which stands held as part of the compensation by the Hon'ble Apex Court in CIT vs. Ghanshyam (HUF) [2009] 315 ITR 1 (SC), i.e., as part of the transfer consideration and, thus, exempt u/s. 10(37) of the Act. The same did not find favour with the AO, in whose opinion there was no mistake in his order; the assessment being in accordance with the provisions of law. The view being reiterated in first appeal by the ld. CIT(A) per the impugned order, the assessee is in second appeal.

(AY : 2015-16) Abdul Azeez Poolakkodan v. ITO 3.2 The facts as narrated above are not in dispute. Further, even as there is nothing on record to exhibit that the interest received by the assessee falls u/s. 28 of LAA; the assessee on the last occasion the case came up for hearing relying on a certificate dated 13.12.2018 by the Office of the Special Tahsildar, Koyilandy for the purpose, which was found invalid as the same was after the date of assessment, so that it could not form part of the record. We refer thereto as this aspect is integral to the assesse’s claim inasmuch as the Apex Court has held only interest u/s. 28, as opposed to interest u/s. 34, as part of compensation and, thus, capital in nature. This, however, would not detain us inasmuch as it becomes clear on a plain reading of s.28 of LAA which, along with s. 34 thereof, forming part of the assessee’s submissions, was read out during hearing, that the same pertains to interest on delayed payment of enhanced compensation, as opposed to s.34 interest, which relates to delayed payment of the initial award, held as compensatory and, thus, liable to tax as income, i.e., in terms of the decision in Ghanshyam (HUF) (supra). Without doubt, inasmuch a decision by the Apex Court is declaratory of the law of the land, any decision inconsistent therewith is, to that extent, liable to be regarded as mistaken and amended (refer, inter alia, Asst. CIT v. Saurashtra Kutch Stock Exchg. Ltd. [2008] 305 ITR 227 (SC)).

3.3 Sections 56(2)(viii) and 57(iv) came on the statute w.e.f. 01.04.2010, i.e., AY 2010-11 onwards. The decision in Ghanshyam (HUF) (supra) is for AY 1999-00. The said decision by the Hon'ble Apex Court thus has no bearing on the said provisions, invoked by the AO in bringing the impugned interest to tax. Even as observed by the Bench during hearing, it is only where a Constitutional Court declares the same as ultra vires the Act (i.e., on a view that interest u/s. 28 of LAA is capital in nature), that would entitle the assessing authority to disregard the same. The Hon'ble Apex Court per it’s Constitutional Bench decision in Punjab Distilling Industries Ltd. v. CIT [1965] 57 ITR 1 (SC) explained that there is no conflict between a receipt being capital in nature and, by fiction of law, an income chargeable

(AY : 2015-16) Abdul Azeez Poolakkodan v. ITO to tax under the Act. That is, the nature of the receipt as capital, which is the purport of the decision in Ghanshyam (HUF) (supra), would not per se preclude interest from being, at the same time, subject to tax. Further, per it’s larger bench decision in Sham Lal Narula (Dr.) v. CIT [1964] 53 ITR 151 (SC), not referred to in it’s later decision in Ghanshyam (HUF)(supra), the Apex Court held the provisions of s. 28 and 34 of LAA as analogous, i.e., compensatory, and, thus, not part of compensation (pg. 156). The decision in P.V. Kurien v. CIT [1962] 46 ITR 288 (Ker), holding interest on enhanced compensation as capital in nature, was negated by the Hon’ble Court (pgs. 157-158). The upshot thereof is that even de hors s. 56(2)(viii), applied by the AO, it may not be possible to say that interest u/s. 28 of LAA is not income, much less of it being regarded as so by him as ‘mistaken’, liable to be rectified u/s. 154.