VIJAY SINGH CHAUHAN,NOIDA vs. ITO,WARD-2(5), NOIDA

4. The appellant has raised the following grounds of appeal: “GROUND OF APPEAL - 1: The Ld. CIT(A) erred in upholding the decision of the Ld. AO to include an additional amount of Rs.6,71,51,098/- in the appellant's taxable income under the head "Income from Other Sources." GROUND OF APPEAL - II: The Ld. CIT(A) failed to appreciate the factual and legal contentions raised by the appellant with respect to the taxation of interest received as compensation/enhanced compensation under Section 28 of the Land Acquisition Act 1894. In addition as per the legal precedent of CIT vs. Ghanshyam Das (HUF) to support the contention that interest paid under Section 28 should not be taxable. GROUND OF APPEAL-III: The Ld. CIT(A) failed to understand that interest components under Section 28 and Section 34 of the Land Acquisition Act 1894 are different. Interest under Section 28 is rightfully viewed as an integral part of the compensation amount and should not be subjected to regular income tax treatment. GROUND OF APPEAL-IV:

Vijay Singh Chauhan vs. ITO The CIT(A), failed to consider the decisions of various courts, including the Supreme Court and this Hon'ble ITAT wherein under similar circumstances the Interest received u/s 28 was treated as an integral part of section 28. Since, it was an agricultural land on which the compensation has been awarded by the court; and secondly, the interest received on enhanced compensation u/s 28 of the Land Acquisition Act is part of compensation and hence is not taxable, and the assessee is entitled for exemption u/s 10(37) of the Act. The appellant prays for a fair consideration of his contentions and a just decision in line with the principles of law and equity. In support of the contention of the assessee reliance is placed on the following judgments passed by the Hon'ble Delhi ITAT, wherein the facts in question were similar and the Hon'ble ITAT Delhi passed the judgment in favour of the Assessee.  ITO, Ward 2. vs. Hari Singh Saini & CO No.164/Del/2022  ITO vs Girish Kumar - I.Τ.Α. No. 5084/DEL/2019  Pranav Saran vs ACIT, Circle 32 - ITA No.499/Del./2021  Ram Kishan vs ITO, Ward 60-ITA No. 5391/Del/2017  Virendr Rathee vs ITO, Ward 5 -  Nitin Kumar vs. ITO - We hold that firstly, GROUND OF APPEAL -

V: The appellant craves leave to add, amend, alter, or withdraw any of the above-mentioned grounds of appeal during the course of the appellate proceedings.”

5. Heard rival submissions and carefully scanned the materials available on record.

6. Reiterating the grounds of appeal

, The Learned AR submitted that taxation of interest received as compensation / enhanced compensation under section 28 of the Land Acquisition Act, 1894, the interest components under section 28 and section 34 of the Land Acquisition Act, 1894 are different. Interest under section 28 is rightfully viewed as an integral part of the compensation amount and should not be subjected to regular income tax treatment. Also submitted that it was an agricultural land on which the compensation has been awarded by the court, and secondly, the interest received on enhanced compensation u/s 28 of the Land Acquisition Act is Vijay Singh Chauhan vs. ITO the part of compensation and hence is not taxable, and the appellant is entitled for exemption u/s 10(37) of the Act.

7. The Ld. AR, placed reliance on the case of CIT v. Ghanshyam (HUF) (2009) 315 ITR 1(SC)., and also, placed the reliance on the various decisions of Co-ordinate Bench of ITAT Delhi, which are reproduced as under:  ITO, Ward 2. vs. Hari Singh Saini & CO No.164/Del/2022  ITO vs Girish Kumar - I.Τ.Α. No. 5084/DEL/2019  Pranav Saran vs ACIT, Circle 32 - ITA No.499/Del./2021  Ram Kishan vs ITO, Ward 60-ITA No. 5391/Del/2017  Virendr Rathee vs ITO, Ward 5 -  Nitin Kumar vs. ITO -  Pawan Kumar vs. Pr. CIT [2024] 159 taxmann.com 61 (Delhi-Trib.)  Movaliya Bhikhubhai Balabhi vs. ITO-TDS-1, Surat [2016] 70 taxmann.com 45 (Gujrat).

8. Per Contra, the Learned DR relying upon the orders passed by the both authorities below, submitted that the Legislature introduced the provisions of section 56(2)(viii) vide an amendment, by the Finance Act, 2009, w.e.f. 01/04/2010, and inserted “income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A’ and correspondingly by the said Act, also introduced the provisions of section 57(iv) providing for a deduction of a sum equal to the fifty percent of the income referred to in section 56(2)(viii). Further submitted that section 145A of the Act provides for the method of accounting in certain cases and section 145A(b) inter-alia, provides that notwithstanding anything contrary contained in section 145, interest received on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received and subsequently, the provisions of section 145A was replaced by the provisions of section 145B, by the Finance Act, 2018 , w.e.f.01/04/2017, with the result that income by way of interest received on Vijay Singh Chauhan vs. ITO compensation or on enhanced compensation referred to in section 145B was made chargeable to tax as income from other sources u/s 56(2)(viii) of the Act.

9. It is also submitted on behalf of the Revenue, that in the case of Mahendra Pal Narang versus CBDT, the Hon’ble Punjab & Haryana High Court, took dissent view, from the view taken by the Hon’ble High Court of Gujrat in the case of Movaliya Bhikhubhai Balabhai (supra) and held that the words “interest received on compensation or enhanced compensation” in sections 56(2)(viii) and 57(iv) was plain, simple and unambiguous and therefore, any interest received on compensation or enhanced compensation shall be assessable as income from other sources and not under the head capital gains.

10. The Ld. AR has further submitted that the Ld. AO and Ld. CIT(A) wrongly applied, Section 45 of the Act concerning the facts of the present case as Section 45 deals with "Capital Gains." However, Section 10(37) overrides Section 45 of the Act in cases where agricultural land is compulsorily acquired, and the compensation qualifies for exemption. Since the Appellant's land was agricultural in nature and compulsorily acquired, no capital gains arise U/s 45 of the Act, rendering it inapplicable to the present case. Also submitted that the Section 56(2)(viii) of the Act relates to income chargeable under the head "Income from Other Sources." However, this provision does not apply to compensation or consideration for the compulsory acquisition of agricultural land that qualifies for exemption U/s 10(37) of the Act. The order of the Ld. AO to tax the compensation U/s 56(2)(viii) of the Act is, therefore, misplaced and contrary to law. As in the present case, the Compensation amount was finally determined in February 2014 by the Judgment of the Hon'ble Supreme Court, though the acquisition was made in 1990 and it was paid to the assessee in June 2014, all the more it was the interest on the amount of the Vijay Singh Chauhan vs. ITO compensation which was determined at the later stage, not at the time of the acquisition which was awarded by the Court order or otherwise at a later stage.

10.2 The Ld. AR, further argued, that the interest received U/s 28 compensates the landowner for the delay in receiving proper compensation for the compulsory acquisition of land, thereby forming part of the compensation and not being treated as taxable income and accordingly, the interest received U/s 28 of the Land Acquisition Act must be excluded from the taxable income, as it does not constitute a capital receipt forming part of the enhanced compensation. The addition made by the Learned AO and sustained by the Learned CIT(A) is contrary to law and facts and deserves to be set aside. 10.3 Also submits that Section 34 applied to cases where landowners do not oppose the amount of compensation initially awarded by the Collector, but the Collector fails to pay or deposit the awarded amount on time after taking possession of the land. The interest U/s 34 of the LA Act is meant to compensate the landowners for this delay in payment. Which is not the case herein. The provisions of U/s 28,28A, and 34 of LA Act deal with interest on compensation and re-determination of compensation for land acquired under the Land Acquisition Act. While all three Vijay Singh Chauhan vs. ITO provisions address issues related to compensation, they save different purposes and apply in distinct circumstances. 10.4. Further submitted that, as also held in the landmark case of CIT vs. Ghanshyam Das (HUF) [315 ITR 1 (SC)], the Hon'ble Supreme Court categorically observed that interest received U/s 28 of the LA Act is not in the nature of interest U/s 56(2)(viii) of the Income Tax Act, 1961, but rather a part of the enhanced compensation itself. Para 24 of the Judgment is re-produced hereinafter for clarification: “24. 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 part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under Section 34. 10.5. The Learned AR submits that delays in the determination of compensation at various stages coupled with delayed actual payment to the landowners are common phenomena and, therefore, payment of interest gives a healing touch, which partially recompenses the decline of the intrinsic worth of money and for such reasons, the interest received U/s 28 of the LA Act must be excluded from the taxable income, as it doesn't constitutes a capital receipt forming part of the enhanced compensation and the appellant is entitled to exemption/s 10(37) of the Act.

10.6 The Learned AR also submitted that Para 5.7 of the impugned order, erroneously relied on the decision of the Hon’ble Punjab & Haryana High Court in Mahender Pal Narang v. CBDT [2020] 423 ITR 13, as this decision failed to fully consider the binding principles laid down by the Hon’ble Supreme Court in Ghanshyam (HUF) and Hari Singh. Moreover, while interpreting the interest Vijay Singh Chauhan vs. ITO received by the assessee, the AO and the CIT(A) should have also considered the placement of Sections 28 and 34 within the framework of the LA Act. Section 28 is placed in Part III of the Act, which is titled "Reference to Court and Procedure Thereon," while Section 34 is placed in Chapter V, titled "Payment." The placement and the headings of these chapters reflect the legislative intent. Section 28 deals with the interest awarded by the court on enhanced compensation, which is inherently linked to the process of adjudicating and determining fair compensation. Conversely, Section 34 pertains to interest awarded purely for delay in payment, a separate context entirely. The placement of Section 28 in the procedural part of the Act indicates the legislature's intent to treat interest under this section as part of the original compensation, whereas interest under Section 34 is treated as independent income. Had the legislature intended to treat interest under Section 28 as taxable income distinct from compensation, it would have placed it elsewhere in the statute.

10.7. The Learned AR vehemently submitted that the compensation received for the compulsory acquisition of agricultural land is exempt under Section 10(37) of the Act. The land in question satisfies all the necessary conditions for exemption, including its use for agricultural purposes, its location within a specified area, and the receipt of compensation post-April 1, 2004. The interest received under Section 28 of the Land Acquisition Act is an integral part of the enhanced compensation, compensating for the delayed payment. It is distinct from interest under Section 34, which is taxable as "Income from Other Sources." Judicial precedents, including the Hon'ble Supreme Court's decisions in Ghanshyam (HUF) and Hari Singh, and decisions of the Hon'ble ITAT Delhi, unequivocally support the Appellant's position.

Vijay Singh Chauhan vs. ITO 5.3 The appellant submitted various case-laws apart from the Hon'ble Supreme Court's judgment in the case of CIT, Faridabad vs. Ghanshyam (HUF) which are reproduced in para 4 above. 5.4 I have considered the facts of the case and the submissions made by the appellant. The undisputed fact in this case is that the appellant received an amount of Rs. 13,43,02,195/- being interest on compensation/enhanced compensation from New Okhla Industrial Development Authority which acquired this land in the early 1980. The appellant did not Include it in the return of income on the pretext that the said land was an agricultural land within the meaning of Section 2(14) of the Income Tax Act, 1961 and any amount received as compensation/enhanced compensation u/s 28 or Sec. 28A of the Land Compensation Act was attributable to the land sale. value and hence exempt u/s 10(37) of the Income Tax Act 1961. The appellant maintained that even though it was named as interest, actually it was in the nature of compensation/enhanced compensation to be treated as principle amount in line with Section 28 of the Land Compensation Act and not as interest on delayed payment u/s 34 of the said Act. In reliance of its claim that this income is to be treated as exempt being in the nature of principle amount, the appellant relied mainly on the Hon'ble Supreme Court's decision in the case of CIT vs. Ghanshyam (HUF). The appellant also relied on various other case laws detailed in para 4 above. 5.5 Section 56(2) (viii) of the I.T. Act was introduced w.e.f. A.Y. 2010-11. The wordings of the section are clear and it is reproduced as below: "Income by way of interest received on compensation or enhanced compensation referred to in Clause(b) of Section 145A" Clause (b) of Section 145A is reproduced below: "Interest received by appellant as compensation/enhanced compensation as the case may be shall be deemed to be the income of the year in which it is received." Section 57(iv) allows deduction of 50% of the income referred to in section 56(2)(viii). Hence, there is no distinction mentioned in the Act with respect to interest received on compensation as is brought out by the appellant. The language of the above section is plain, simple and unambiguous. There is no scope of taking outside aide for giving interpretation to the newly inserted sub-sections and clauses. The Hon'ble Supreme Court in ITC Ltd. vs CCE(2004) 7 SCC 591 held as under: "These decisions exemplify the general rule of statutory construction that words have to be construed strictly according to their ordinary and natural meaning, particularly when the statute is a fiscal one irrespective of the object with which the provision was introduced. Of course if there is ambiguity in the statutory language, reference may be made to the legislative intent to resolve the ambiguity. But if the statutory language is unambiguous then that must be given effect to. The legislature is deemed to intend and mean what it says. The need for interpretation arises only when the words used in the statute are, on their own terms ambivalent and do not manifest the intention of the legislature 5.6 Now coming to the Hon'ble Supreme Court decision relied upon by the appellant, the issue to be decided in the cited judgment was whether compensation/enhanced Vijay Singh Chauhan vs. ITO compensation or interest on is liable to be taxed u/s 45(v) in the year of receipt. WENT compensation is liable to be taxed u/s 45(v) in the year of receipt. 5.7 The Hon'ble Supreme Court held that interest u/s 28 unlike interest u/s 34 has an accretion to the value, hence it is part of compensation/enhanced compensation or consideration which is not the case with interest u/s 34 of the Land Compensation Act 1894 and hence it was held that interest u/s 28 is to be treated as part of compensation/enhanced compensation and assessed to tax as per section 45(v) of the I. T Act. This judgment was prior to the insertion of Section 56(2) (viii) of the Act and the A.Y. pertained to 1999-2000. Section 56(2)(viii) of the Act was inserted w.e.f. A.Y. 2010-11. The case of the appellant pertains to A.Y. 2015-16 which is very well after introduction of Section 56(2) (viii). The Hon'ble High Court of Punjab & Haryana in the case of Mahendar pal Narang vs CBDT, New Delhi has distinguished the decision of Hon'ble Supreme Court in the case of CIT vs Ghanshyam (HUF) and held that the said decision does not come to the rescue of the petitioner as amendments have taken place in various sections of the Act after the said decision. The facts are identical to the facts of the appellant's case, hence the Supreme Court decision is no longer applicable in view of the amendments in the Act. It is worthwhile to mention that the SLP filed by the appellant in the case of Mahendar pal Narang has been dismissed by the Hon'ble Supreme Court. (126 taxmann.com 105 (SC)/2021) 5.8 With regard to reliance by the appellant on other case laws, the discussion is as follows: 1. Shri Pawan Giri HUF Vs Department of Income Tax (Hon'ble ITAT, Chandigarh): The Assessment Year concerned is AY 2008-09 when section 56(2)(vii) was not in statute. It followed the Hon'ble Supreme Court decision in the case of CIT, Faridabad vs. Ghanshyam (HUF). The more relevant case law will be Hon'ble High Court of Punjab & Haryana in the case of Mahendar pal Narang vs CBDT, New Delhi which has distinguished the above judgment. 1.

2. Movaliya Bhikubhai Balabhai Vs ITO (Hon'ble Gujarat HC-C A no 50 of 2017) The Hon'ble High Court of Punjab & Haryana in the case of Mahendar pal Narang vs CBDT, New Delhi has dissented from this judgment and as SLP filed by the appellant against the latter judgment has been dismissed by the Hon'ble Supreme Court and is in favour of revenue, the latter decision will apply to the appellant's case.

25. We find merit in the argument of the Ld. DR that the assessment order dated 11.02.2021, wherein the decisions of the Hon'ble Jurisdictional High Coat/Punjab & Haryana High Court in the cases of Mahender Pal Narang (Supra) and Puneet Singh (Supra) not followed was erroneous and prejudicial to the revenue as per the clause (d) of Explanation 2 to section 263 of the Act.

26. In view of the foregoing discussions, we are of the considered opinion that the order of Ld. PCIT is in accordance with the ratio laid down by Hon'ble Supreme Court in the cases of Sham Lal Narula (supra) and Malabar Industrial Co. Ltd, 243 ITR83 and the Hon'ble High Courts in the cases of Mahender Pal Narang (Supra), Puneet Singh (Supra) and Inderjit Singh Sodhi (HUF) [2024] 161 taxmann.com 301 as the AO's order is not only legally permissible under the provisions of the Act but also against the binding decisions of Hon'ble Punjab and Haryana High Court in the cases of Mahender Pal Narang (Supra) and Puneet Singh (Supra). Thus, we are of the considered view that the PCIT is fully Vijay Singh Chauhan vs. ITO justified in holding that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue as the assessment order is based on an incorrect appreciation of law.

& CM Appeal 65057/2023 , in which solitary question for consideration was before the Hon’ble Court that whether the interest on enhanced compensation received by the assessee partakes the character of income from other sources u/s 56(2)(viii) of the Act, to be considered as separable from the enhanced compensation and substantial question of law arosen before Hon’ble Court that whether interest received by the assessee u/s 28 and 34 of the Land Acquisition Act, 1894 would fall under the provisions of section 10(37) and 56(2)(viii) of the Act and has held that the interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income tax, relevant paras of which as under: “19. At the outset, it is significant to refer to Sections 28 and 34 of the Act of 1894, which deal with the payment of interest on compensation, and read as under:- "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 per centum per annum from the date on which he took possession of the land to the date of payment 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.

Vijay Singh Chauhan vs. ITO 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."

Vijay Singh Chauhan vs. ITO 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."

21. The Assessing Officer in 1. 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 22. No illegality or perversity could be pointed out by learned counsel for the assessee in the co findings of fact recorded by the authorities below which may warrant interference by this court No question of law, much less, substantial question of lave arise in these appeals 23. Accordingly, finding no merit in the appeals, the same are hereby dismissed." [Emphasis supplied] 29. Considering the foregoing discussion, we affirm the concurrent findings of the AO and CIT(A) and find that the view taken by the ITAT is unsustainable, as the same is based on an incorrect appreciation of law. The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. There is no question with respect to the vires of the amendment before us or regarding any ambiguity in the language of the amendment. The only concern is regarding the enunciation of the applicable law and we hold the same to unequivocally mean that interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income tax.”