SOM NATH,YAMUNANAGAR vs. ITO, YAMUNANAGAR

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘B’, CHANDIGARH

BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.552/Chd/2016 (Assessment Year : 2008-09) Som Nath, Vs. The Income Tax Officer, Opposite Gaba Hospital, Ward-2, Tehsil Jagadhri, Yamuna Nagar, Yamuna Nagar. PAN: AGSPN6792L (Appellant) (Respondent)

Appellant by : Shri Ashwani Kumar, CA & Shri Aditya Kumar, CA Respondent by : Smt.Chanderkanta, Addl.CIT DR Date of hearing : 16.07.2018 Date of Pronouncement : 17.07.2018

ORDER PER ANNAPURNA GUPTA, AM:

This appeal has been preferred by the assessee against

the order of learned Commissioner of Income Tax (Appeals),

Panchkula (hereinafter referred to as CIT(Appeals)) dated

29.3.2016 relating to assessment year 2008-09.

Earlier this appeal of the assessee was dismissed by

this Tribunal in limine for non prosecution vide order dated

2.8.2017, which was recalled by the Tribunal vide order

dated 16.1.2018 in M.A.No.96/Chd/2017 In pursuance of

the same, the present appeal has been heard.

under:

“(1). That learned Commissioner of Income-Tax (Appeal) gravely erred on facts and law in upholding order passed by Assessing Officer liable to tax on 'interest' received on enhanced compensation awarded under section 28 of the Land Acquisition in respect of his agricultural land and ignoring the law laid down in Commissioner of Income-tax, Faridabad v. Ghanshyam (HUF) 315 ITR 1 (SC) 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"; (2). That the demand determined upon the appellant on account of the tax as also the interest charged was liable to be quashed and so the observations that the appellant was liable to be proceeded against under section 271(l)(c) of the Income-tax Act, 1961; (3). That learned CIT (Appeals) failed to consider submissions urged before him and that the impugned order discloses non- application of mind; (4) That the appellant reserves right to modify or add to any other ground of appeal.” 3. The sole issue in the present appeal is whether the

compensation received by the assessee on account of

compulsory acquisition of its land was in the nature of

interest taxable u/s 56 of the Income Tax Act, 1961 (in

short ‘the Act’) or was in the nature of compensation which

was exempt from capital gain tax u/s 10(37) of the Act.

had filed his return of income declaring income at

Rs.36,749/- which was assessed at Rs.1,50,750/- u/s

143(3) of the Act. Thereafter the CIT, Panchkula passed an

order u/s 263 of the Act canceling the assessment order

passed, on finding that the assessee had received

compensation on the compulsory acquisition of his

agricultural land from the Land Acquisition Officer, Urban

Estate, Panchkula amounting to Rs.9,46,356/- which

included interest of Rs.3,99,156/- and which amount was

taxable in the impugned year. Subsequently, in pursuance

to the directions of the CIT the Assessing Officer completed

assessment u/s 143(3) of the Act making addition of the

impugned interest of Rs.3,99,156/- as interest taxable u/s

56 of the Act.

contended that the interest had been received u/s 28 of the

Land Acquisition Act, 1894 and was, therefore, part of

compensation liable to be taxed u/s 45(5) of the Act and

was exempt from capital gain tax u/s 10(37) of the Act. The

assessee relied upon the decision of the Hon'ble Apex Court

in the case of CIT Vs. Ghanshyam (HUF) (2009) 115 ITR 1 in

support of its pleadings that the interest received u/s 28 of

the Land Acquisition Act, 1894 was in the nature of

compensation and not interest. The Assessing Officer

dismissed the contention of the assessee relying upon the

decision of the Hon'ble Jurisdictional High Court in the

case of CIT Faridabad Vs. Bir Singh HUF in ITA No.209 of

2004 dated 27.10.2010. The CIT(Appeals) also stated that

the Assessing Officer had rightly followed the decision of

the Hon'ble Jurisdictional High Court in the case of Bir

Singh HUF (supra) which had been followed by the Hon'ble

Jurisdictional High Court in the case of Manjeet Singh

(HUF) Karta Vs. Union of India in CWP No.15506 of 2013

dated 14.1.2014. The CIT(Appeals) pointed out that in the

decision of Manjeet Singh (supra), the Hon'ble

Jurisdictional High Court had considered the decision of

the Hon'ble Apex Court in the case of Ghanshyam, HUF

(supra) and after considering the same had held that the

interest received u/s 28 of the Land Acquisition Act, 1894

was in the nature of interest taxable u/s 56 of the Act. The

Ld.CIT(Appeals) further noted that the SLP filed against the

aforesaid decision of the Hon'ble Jurisdictional High Court

in the case of Manjeet Singh (HUF) (supra) had been

dismissed by the Hon'ble Apex Court. The CIT(Appeals),

therefore, upheld the order of the Assessing Officer

subjecting the interest received by the assessee on

enhanced compensation to tax in the impugned year.

appeal before us. During the course of hearing before us the

Ld. counsel for assessee stated that the decision of the

Hon'ble Apex Court in the case of Ghanshyam, HUF (supra)

had been reiterated by the Hon'ble Apex Court in the case

of CIT Vs. Gobind Bhai Mamaiya, 367 ITR 498 and further

in the case of Union of India & Others Vs. Hari Singh &

Others in Civil Appeal No.1504 of 2017 dated 15.9.2017.

The Ld. counsel for assessee pointed out that the aforesaid

decisions were rendered by the Hon'ble Apex Court

subsequent to the decision of the Hon'ble Jurisdictional

High Court in the case of Manjeet Singh(HUF) (supra) which

was passed on 14.1.2014 and was also subsequent to the

dismissal of SLP by the Hon'ble Apex Court in the case of

Manjeet Singh(HUF) (supra) vide order dated 18.12.2014.

The Ld. counsel for assessee, therefore, stated that the

decision in the case of Ghanshyam, HUF (supra) would

apply to the present assessee.

Hon'ble Apex Court had been affirmed in the subsequent

decisions passed by it, but stated that the decision passed

by the Hon'ble Jurisdictional High Court in the case of

Manjeet Singh(HUF) (supra) would apply and he relied upon

the order of the CIT(Appeals) in this regard.

perused the records and also gone through the documents

placed before us. We find merit in the contention raised by

the assessee. Undisputedly the interest amounting to

Rs.3,99,156/- had been received u/s 28 of the Land

Acquisition Act, 1894. We find that the nature of the said

interest and its taxability had been settled by the Hon'ble

Apex Court in its decision in the case of Ghanshyam, HUF

(supra) which has been reiterated by the apex court in the

case of Gobind Bhai Mamaiya (supra) and Hari Singh &

Others (supra) ,holding the same to be in the nature of

compensation taxable as such. In the case of Gobind Bhai

Mamaiya (supra) the Hon'ble Apex Court has reiterated its

findings in the case of Ghanshyam, HUF (supra) stating so

as under:

“Insofar as the second question is concerned, that is also covered by another judgment of this Court in Commissioner of Income Tax, Faridabad vs. Ghanshyam

(HUF) reported in (2009) 8 SCC 412, 6 albeit, in favour of the Revenue. In that case, the court drew distinction between the “interest” earned under Section 28 of the Land Acquisition Act and the “interest” which is under Section 34 of the said Act. The Court clarified that whereas compensation given to the assessee of the land acquired would be 'income', the enhanced compensation/consideration becomes income by virtue of Section 45(5)(b) of the Income Tax Act. The question was whether it will cover “interest” and if so, what would be the year of taxability. The position in this respect is explained in paras 49 and 50 of the judgment which make the following reading: “49. As discussed hereinabove, Section 23(1-A) provides for additional amount. It takes care of the increase in the value at the rate of 12% per annum. Similarly, under Section 23(2) of the 1894 Act there is a provision for solatium which also represents part of the enhanced compensation. Similarly, Section 28 empowers the court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under Section 23(1-A) and solatium under Section 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the court after reference under Section 18 of the 1894 Act. It depends upon the claim, unlike interest under section 34 which depends on undue delay in making the award. 50. It is true that “interest” is not compensation. It is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards “interest” both as an accretion in the value of the lands acquired and interest for undue delay. 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 (1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act.” 8. It is clear from the above that whereas interest under Section 34 is not treated as a part of income subject to tax, the interest earned under Section 28, which is on enhanced compensation, is treated as a accretion to the value and therefore, part of the enhanced compensation or consideration making it exigible to tax. After holding that interest on enhanced compensation under Section 28 of 1894 Act is taxable, the Court dealt with the other aspect namely, the year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. It would mean that

converse position i.e. spread over of this interest on accrual basis is not permissible.” which we find has been reiterated in the case of Hari Singh

& Others (supra) as under:

“(2) While determining as to whether the compensation paid was for agricultural land or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in 'Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF)' [2009 (8) SCC 412] in order to ascertain whether the interest given under the said provision amounts to compensation or not.” 9. The said decision as rightly pointed out by the Ld.

counsel for assessee have been rendered by the Hon'ble

Apex Court subsequent to the decision passed by the

Hon'ble Jurisdictional High Court in the case of Manjeet

Singh(HUF) (supra) which had dealt with the decisions of

the Hon'ble Apex Court in Ghanshyam, HUF (supra).

Therefore, in view of the same, the proposition laid down in

Ghanshyam, HUF (supra) remains and which having been

laid down by the Hon'ble Apex Court is the law of the land

and has to be followed by all lower authorities. In view of

the above, we hold that the interest received by the

assessee during the impugned year on the compulsory

acquisition of its land u/s 28 of the Land Acquisition Act, is

in the nature of compensation and not interest which is

taxable under the head income from other sources u/s 56 of

the Act as held by the authorities below. The compensation

being exempt u/s 10(37) of the Act is not disputed. In view

of the same the order passed by the CIT(Appeals) upholding

the addition made by the AO on account of interest on

enhanced compensation is not sustainable.

Order pronounced in the Open Court.

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 17th July, 2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR

Assistant Registrar, ITAT, Chandigarh