KRISHAN KUMAR (HUF),NARWANA vs. ITO, JIND

Per Bench :

This bunch of appeals have been preferred by different

assessees for different assessment years. Whereas the respective

appeals of S/Shri Satbir and Ved Pal for three years each are

directed against the separate orders of CIT (Appeals), Jind dated

02.11.2016, the respective appeals of Shri Sheo Chand, Shri

Karambir, Shri Krishan Kumar, HUF and Shri Ravi Dutt for three

years each are directed against the orders of the ld. CIT

(Appeals) Hissar dated 02.11.2016. The respective appeals of

Shri Dharam Pal and Shri Chandgi Ram for the three years are

directed against the separate orders of CIT (Appeals) Faridabad

3 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

dated 28.07.2016 and respective appeals of Shri Amarjeet for the

three years are directed against the order of the CIT (Appeals)

Faridabad of July,2016. All the appeals in the case of each of

the assessees pertain to assessment years 2007-08 to 2009-10.

the issue involved in all the appeals is identical, the same were

heard together and are being disposed by this common order for

the sake of convenience.

assessee in ITA Nos.1430 to 1437/Chd/2016 are barred by

limitation by 79 days, for which applications for condonation of

delay have been filed by the assessees in the respective appeals,

wherein reasons for the delay have been given that due to the

difficulty in conducting/engaging concerned Chartered

Accountant/representative at Chandigarh for filing the appeals

and further delay on the part of the concerned Chartered

Accountant because of his over busy schedule and being

engaged in of the tax audit reports of other assessees for which

the last date was approaching. The Ld. counsel for assessee has

further submitted that the assessees are agriculturists and

illitrate villagers and do not know the complexity of the Income

Tax Laws and further they are not regular income tax payees.

justice, the delay in filing of the appeals is, therefore, condoned

and we proceed to adjudicate the appeals on merits.

4 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

the orders passed by the CIT(Appeals) u/s 154 of the Act.

ITA Nos.1429 to 1437/Chd/2016

that the lands of the assessees were compulsorily acquired by

the HSIIDC, Sirsa/Government of Haryana in the year 2005.

Subsequently the compensation was enhanced by the Court. The

enhanced compensation alongwith interest thereupon u/s 28 of

the Land Acquisition Act, 1894 was received by the assessees in

the financial year 2008-09 relevant to assessment year 2009-10.

The assessees treated the interest on the enhanced

compensation as part of the compensation liable to be taxed

under section 45(5) of the income Tax Act and the transferred

land being rural agricultural land exempt from capital Gains tax

u/s 10(37) of the Income Tax Act, 1961.

Subsequently, from the perusal of the computation of income

attached with the return of income filed by the assessee for

assessment year 2009-10, the Assessing Officer observed that

w.e.f. assessment year 2010-11 the interest received on

enhanced compensation was taxable in the year of receipt as per

the provisions of section 145A(b) of the Act. However, prior to

assessment year 2010-11 interest received on

compensation/enhanced compensation was taxable on

proportionate basis for the each year in view of the decision of

the Hon'ble Supreme Court rendered in the case of Rama Bai Vs.

CIT dated 8.11.1989 reported in 181 ITR 400 (SC). The Assessing

Officer, therefore, reopened the assessment proceedings of the

5 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

assessees and applied the ratio of the decision of the Hon'ble

Supreme Court in the case of Rama Bai (supra) and held that the

interest received by the assessees on the enhanced compensation

was to be proportionately allocated to different assessment years

as having accrued year after year from the date of delivery of

possession of the lands till the date of such order. The Assessing

Officer observed that the lands of the assessees were acquired in

the year 2005, whereas the interest on the enhanced

compensation had been received in the year 2008. He, therefore,

calculated the proportionate interest pertaining to each

assessment year and added the same as taxable receipt under

the head ‘other sources’ and accordingly, added the

proportionate amount of interest in the impugned years in the

reopened assessment proceedings u/s 147 r.w.s. 143(3) of the

Act.

decision of the Hon'ble Supreme Court in the case of CIT Vs.

Ghanshyam (HUF) (2009) 315 ITR 1 (SC) and contended that as

per the ratio laid down in the said decision the interest received

u/s 28 of the Land Acquisition Act, 1894 does not partake the

character of interest, rather it was a part of compensation of

land which was not taxable as per the provisions of section

10(37) of the Income Tax Act. The Ld. CIT(Appeals) after

considering the submissions of the assessee as well as

considering the nature of compensation and interest thereupon

received by the assessee, held that the issue was squarely

covered by the decision of the Hon'ble Supreme Court in the case

6 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

of Ghanshyam (HUF) (supra) and accordingly, allowed the appeal

of the assessee.

for rectification of the u/s 154 of the Act before the CIT(A)

pleading therein that the interest received on enhanced

compensation u/s 28 of Land Acquisition Act was chargeable to

tax as ‘income from other sources’ u/s 56(2)(viii) r.w.s. 57(iv) of

the Act in the light of the decision of the Hon'ble Punjab &

Haryana High Court in the case of ‘Manjeet Singh (HUF), Karta

Manjeet Singh Vs. Union of India & Others’ in CWP No.15506 of

2013, date of decision 14.1.2014, wherein, the Hon'ble High

Court has held that the interest received by the assessee u/s 28

as well as u/s 34 of the Land Acquisition Act on the additional

compensation received was chargeable to tax u/s 56(2)(viii)

r.w.s.57(iv) of the Act. It was further contended that even the

SLP filed in that case before the Hon'ble Supreme Court had

been dismissed vide order dated 18.12.2014 in SLP No.34642 of

2014. Reliance was also placed on the decision dated 2.2.2016of

the Hon'ble Punjab & Haryana High Court in the case of Jagmal

& Another Vs. state of Haryana & Another in RA-CR NO.46 Cll of

2014 in CR No.7740 of 2012, whereby the Hon'ble High Court

had recalled its earlier order and held that the interest of the

additional award was taxable under u/s 56(2)(viii) r.w.s.57(iv) of

the Act.

also the decision of the Hon'ble Punjab & Haryana High Court in

the case of Sunder Lal & Another Vs. Union of India & Others in

7 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

CWP No.20014 of 2015, order dated 21.9.2015 and also in the

case of CIT Vs. Bir Singh (HUF) in ITA No.209 of 2004, etc. held

that in the light of the above decisions, the mistake apparent on

record had occurred in his order while allowing the appeal of the

assessees while relying upon the decision of the Hon'ble

Supreme Court in the case of Ghanshyam (HUF) (supra). He,

therefore, vide the impugned order passed u/s 154 of the Act

held that the interest received by the assessee on enhanced

compensation on account of acquisition of land was taxable as

‘income from other sources’. He, therefore, confirmed the

additions made by the Assessing Officer passed in the reopened

assessment proceedings carried out u/s 147 r.w.s. 143(3) of the

Act.

the above orders passed by the CIT(Appeals) u/s 154 of the Act.

here that interest under the Land Acquisition Act can be

awarded under section 28 or/and under section 34 of the Land

Acquisition Act, 1894. Interest awarded under section 28 of Land

acquisition Act, 1894 is the interest on the excess amount of

compensation awarded by the court over the amount awarded by

the collector. It is awarded by the Court payable by the collector

from the date on which the collector took the possession of the

land to the date of payment of such excess into Court. Whereas

interest under section 34 of the Land Acquisition Act, 1894 is

given when the amount of compensation awarded by the collector

is not paid or deposited on or before taking possession of land,

8 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

such interest is payable from the time of so taking possession

till the date of payment of compensation. In the case in hand,

the Ld. CIT (Appeals) vide his order dated 14.3.2016 had allowed

the appeal of the assessee following the decision in case of

Ghanshyam (HUF) (supra), wherein it has held Interest u/s 28 of

the Land Acquisition Act 1984, unlike interest u/s 34 is an

accretion to the value of the land , hence it is part of enhanced

compensation or consideration which is not the case with

interest u/s 34A. So also additional amount u/s 23(1A) and

solatium u/s 23(2) form part of enhanced compensation.

the decision of the Hon'ble High Court in the case of Bir Singh

(HUF) (supra) and Manjeet Singh (HUF) (supra) & Others as

noted above, recalled his orders dated 14.3.2016 and confirmed

the additions made by the Assessing Officer.

regarding the taxability of interest received on enhanced

compensation u/s 28 of the Land Acquisition Act, 1894. Now,

there are two questions involved in these appeals, first issue is

regarding the year of taxability of the interest income whether it

has to taxed in the year of receipt in the light of the decision of

the Hon'ble Supreme Court in the case of Ghanshyam (HUF)

(supra) or is to be taxed on the basis of apportionment for each

year from the date of acquisition of lands till the receipt of the

compensation in the light of the decision of the Hon'ble Supreme

Court in the case of Rama Bai (supra); the second issue involved

is as to whether the interest awarded u/s 28 of the Land

9 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

Acquisition Act on enhanced compensation is to be treated as

part of the enhanced compensation and will not be taxable

separately as interest income under the Head ‘income from

other sources’?

decision of the Hon'ble Supreme Court in the case of Ghanshyam

(HUF) (supra) holding the same to be in the nature of

compensation itself. The Court also 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. The said findings given in the case of Ghanshyam (HUF) (supra) have been

reiterated by the Hon'ble Supreme Court in the case of

Govindbhai Mamaiya (supra) observing as under:

“In so far 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

10 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

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.”

attention the latest decision of the Hon'ble Supreme Court in the

case of CIT Vs. Chet Ram (HUF) dated 12.9.2017 in Civil Appeal

No.13053/2017 wherein also the Hon'ble Supreme Court has

again reiterated the proposition laid down in the case of

Ghanshyam (HUF) (supra), which we find has been further

reiterated in the case of Union of India vs. Hari Singh & others

in Civil Appeal No. 1504 of 2017 dated 15.9.2017, 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

11 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

(8) SCC 412] in order to ascertain whether the interest given under the said provision amounts to compensation or not.”

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.

taxability of interest on enhanced compensation is a debatable

issue and do not constitute a mistake apparent on record. In

view of the limited and restricted powers of rectification u/s 154 or u/s 254 of the Act, as the case may be, it cannot be said that

12 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

any mistake apparent on record had occurred in the order of the

Tribunal.

In view of the above discussion, these appeals of the

assessees are hereby allowed.

ITA Nos.1413 to 1424/Chd/2016 & 77 to 82/Chd/2017:

the CIT(Appeals) in confirming the orders passed by the

Assessing Officer u/s 147 of the Act and thereby making the

impugned additions on similar proposition as discussed above.

Almost identical worded orders have been passed by the

CIT(Appeals) in these appeals wherein at para 4.3 of the order,

the Ld.CIT(Appeals) has made the following observations:

“4.3 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.”

himself has held that the issue under consideration was a

debatable issue at time of reopening of assessment and the issue

was squarely covered by the decision of the Hon'ble Supreme

Court in the case of Ghanshyam (HUF) (supra) which was relied

upon by the assessee and has also discussed by the Assessing

Officer in the impugned order passed u/s 147 of the Act. The

principle laid down by the Hon'ble Supreme Court in the case of

Ghanshyam (HUF) (supra) since have been reiterated by the

Hon'ble Supreme Court in the case of Govindbhai Mamaiya

13 ITA Nos. 1413 to 1437/Chd/2016 & 77 to 82/Chd/2017- Shri Satbir, Narwana and others.

(supra) and further in the case of Chet Ram (HUF) (supra) and in

the case of Hari Sing (supra),as discussed above.

are not sustainable in the light of above referred to decisions of

the Hon’ble Supreme Court and they are accordingly ordered to

be deleted.

In the result, all the appeals preferred by the assessee are

allowed.

Order pronounced in the open court on 09.07.2018

Sd/- Sd/- (B.R.R. KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 09.07.2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR Assistant Registrar, ITAT, Chandigarh