BHARAT BHUSHAN,KARNAL HARYANA vs. ITO, WARD-1, KARNAL

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC’, DELHI Before Dr. B. R. R. Kumar, Accountant Member ITA No. 2715/DEL/2023: Asstt. Year: 2018-19 The CIT/NFAC Delhi Bharat Bhushan, Vs HN-202/4, Dea Begampura, VPO- Gudha, Tehsil Gharaunda, Karnal, Haryana 132114 (APPELLANT) (RESPONDENT) PAN No. AWUPB 3704 A Assessee by : None Revenue by : Shri Atiq Ahmed, Sr. DR Date of Hearing: 14.11.2023 Date of Pronouncement: 16.11.2023

ORDER Per Dr. B. R. R. Kumar, AM:- The present appeal has been filed by the assessee against the order of ld. NFAC/CIT(A), Delhi dated 31.05.2023.

ITA No.2715/DEL/2022 Bharat Bhushan

ITA No.2715/DEL/2022 Bharat Bhushan given circumstances, we are of the view that the decision of the Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai (supra) will be applicable to the facts of the present case. 12. In Movaliya Bhikhubhai Balabhai v. Income-tax OfficerTDS-1-Surat [2016] 70 taxmann.com 45 (Gujarat), the Hon'ble Gujarat High Court had to deal with the nature of the interest awarded u/s.28 of the Land Acquisition Act, 1894. The facts of the case before the Hon'ble Gujarat High Court was that the petitioner's agricultural lands came to be acquired under the provisions of the Act of 1894 for the public purpose of the Ozat-2 Irrigation Scheme. The award passed by the Collector came to be challenged by the petitioner before the learned Principal Senior Civil Judge, Junagadh (hereinafter referred to as the "Reference Court"), who by an order dated 20th March, 2011 awarded additional compensation of Rs. 5,01,846/- in favour of the petitioner together with other statutory benefits. Pursuant to such award, the second respondent calculated the amount payable to the petitioner and in terms of the statement showing the amount of compensation to be deposited in the court, computed an amount of Rs. 20,74,157/- as payable to the petitioner by way of interest under section 28 of the Act of 1894. The petitioner made an application under section 197(1) of the Income Tax Act, 1961 (Act) for deciding the tax liability of interest and to issue a certificate as to NIL tax liability. The application was rejected on the ground that the interest amount on the delayed payment of ITA Nos. 1747 & 1750/Bang/2017 compensation and enhanced value of compensation is taxable as per the provisions of section 57(iv) read with sections 56(2)(viii) and 145A(b) of the Act under the head income from other sources. Being aggrieved by such order, the Assessee filed writ petition before Hon'ble Gujarat High Court. The question before the Court was whether interest awarded u/s.28 of the Act of 1894 is akin to compensation and chargeable to tax u/s.45(5) of the Act or under the head "Income from other sources" u/s.57(iv) read with Sec.56(2)(viii) and 145A(b) of the Act. The Hon'ble Gujarat High Court held that interest under section 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. In coming to the aforesaid conclusion, the Hon'ble Gujarat High Court followed the decision of Hon'ble Supreme Court in the case of CIT v. Ghanshyam (HUF) [2009] 182 Taxman 368, wherein it was

ITA No.2715/DEL/2022 Bharat Bhushan held that interest under section 28 of the Act of 1894 is part of the amount of compensation whereas interest under section 34 thereof is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under section 34. On the applicability of the provisions of Sec.57(iv) read with 56(2)(viii) and Sec.145A(b) of the Act, the Hon'ble Gujarat High Court held, :- "Section 145A of the I.T. bears the heading "Method of accounting in certain cases". Section 145A(b) provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee 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. Clause (viii) of sub-section (2) of section 56 of the I.T. Act provides for income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A which is chargeable as income from other sources. The first respondent Income Tax Officer seeks to tax the interest received by the ITA Nos. 1747 & 1750/Bang/2017 petitioner under section 28 of the Act of 1894 as income from other sources under section 56(2)(viii) read with section 145A(b) of the I.T. Act. In the opinion of this court, in the light of the law laid down by the Supreme Court in the case of Ghanshyam (HUF) (supra), the interest received under section 28 of the Act of 1894 would not fall within the ambit of the expression "interest" as envisaged under section 145A(b) of the I.T. Act, inasmuch as, the Supreme Court in the above decision has held that interest under section 28 of the Act of 1894 is not in the nature of interest but is an accretion to the compensation and, therefore, forms part of the compensation. " It was argued on behalf of the Revenue before the Hon'ble Gujarat High Court that the decision of Hon'ble Supreme Court in the case of Ghanshyam (HUF) was rendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability cases pertaining to AY 2010-11 and afterwards. Such an argument was repelled by the Hon'ble Gujarat High Court as follows: "11. It has been vehemently contended on behalf of the first respondent that the above decision has been rendered prior

ITA No.2715/DEL/2022 Bharat Bhushan to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability to the facts of the present case. The scope and effect of the substitution (with effect from 1st April, 2010) of section 145A, as also amendment made in section 56(2) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No. 5/2010, dated 3.6.2010, as follows: "Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation.- 46.1 The existing provisions of Income Tax Act, 1961, provide that income chargeable under the head "Profits and gains of business or profession" or "Income from other sources", shall be computed in accordance with either cash or mercantile ITA Nos. 1747 & 1750/Bang/2017 system of accounting regularly employed by the assessee. Further the Hon'ble Supreme Court in the case of Smt. Rama Bai v. CIT (1990) 84 CTR (SC) 164 : (1990) 181 ITR 400 (SC) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. 46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed by the assessee. 46.3 Further, clause (viii) is inserted in sub-section (2) of the section 56 so as to provide that income by way of interest received on compensation or enhanced compensation referred to in clause (b) of section 145A shall be assessed as "income from other sources" in the year in which it is received. 46.4 Applicability. - This amendment has been made applicable with effect from 1st April, 2010, and it will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years." Thus, the substitution of section 145A by Finance (No. 2) Act, 2009 was not in connection with the decision of the Supreme Court in Ghanshyam (HUF)'s case (supra) but was brought in to mitigate the hardship caused to the assessee on account of the decision of the Supreme Court in Rama Bai v. CIT[1990] 181 ITR 400/[1991] 54 Taxman 496 whereby it was held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual

ITA No.2715/DEL/2022 Bharat Bhushan basis. Therefore, when one reads the words "interest received on compensation or enhanced compensation" in section 145A of the I.T. Act, the same have to be construed in the manner interpreted by the Supreme Court in Ghanshyam (HUF)'s case (supra)." ITA Nos. 1747 & 1750/Bang/2017 13. The Hon'ble Gujarat High Court finally concluded, as follows: "13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes the character of compensation, it does not fall within the ambit of the expression "interest" as contemplated in section 145A of the I.T. Act. The first respondent - Income Tax Officer was, therefore, not justified in refusing to grant a certificate under section 197 of the I.T. Act to the petitioner for non-deduction of tax at source, inasmuch as, the petitioner is not liable to pay any tax under the head "income from other sources" on the interest paid to it under section 28 of the Act of 1894. 14. The petitioner had earlier challenged the communication dated 9th February, 2015 whereby its application for a certificate under section 197 of the I.T. Act had been rejected, and subsequently, tax on the interest payable under section 28 of the Act of 1894 has already been deducted at source. Consequently, the challenge to the above communication has become infructuous and hence, the prayer clause came to be modified. However, since the amount paid under section 28 of the Act of 1894 forms part of the compensation and not interest, the second respondent was not justified in deducting tax at source under section 194A of the I.T. Act in respect of such amount. The petitioner is, therefore, entitled to refund of the amount wrongly deducted under section 194A of the I.T. Act." 14. In the light of the aforesaid decision of the Hon'ble Gujarat High Court and in the light of the admitted factual position in the present case, we are of the view that the CIT(Appeals) is fully justified in allowing exemption u/s. 10(37) of the Act on the interest received by the assessee u/s. 28 of the Land Acquisition Act, 1894. We find no grounds to interfere with the impugned orders of the CIT (Appeals). ITA Nos. 1747 & 1750/Bang/2017 15. Consequently, both the appeals of the revenue are dismissed. ”

ITA No.2715/DEL/2022 Bharat Bhushan The facts are identical and there is no difference at all in the factual aspect of the present case. Therefore, following the ratio laid down by the Apex Court as well as followed by the Tribunal, we are allowing the appeal of the assessee. 6. Ratio of the above decision is squarely applicable to the facts of the present case. Therefore, respectfully following the said decision, I hold that the interest received under Section 28 of the LA Act by the assessee is part of enhanced compensation and is not liable for Income tax. Accordingly, the Assessing Officer is directed to delete the addition made while computing the income of the assessee. 7. In the result, all the appeals of the assessee are allowed.

BY ORDER,

(Asstt. Registrar) ITAT,Delhi