Income Tax Appellate Tribunal - Hyderabad
P. Susheela, Hyd, Hyderabad vs Ito, Ward-6(2), Hyderabad, Hyderabad on 7 December, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 100/HYD/2016
Assessment Year: 2011-12
Smt. P. Susheela, The Income Tax Officer,
HYDERABAD Vs Ward-6(2),
[PAN: AGTPP2500K] HYDERABAD
(Appellant) (Respondent)
For Assessee : Shri K.C. Devdas, AR
For Revenue : Shri A. Sitarama Rao, DR
Date of Hearing : 27-10-2016
Date of Pronouncement : 07-12-2016
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-9, Hyderabad dated 04-12-2015. The issue in this appeal is whether the enhanced compensation received by assessee would be taxable as 'income from other sources'.
2. Briefly stated facts are that assessee is an individual and her agricultural land admeasuring 37.23 acres situated at Patancheru Village, Medak District was compulsorily acquired by I.T.A. No. 100/Hyd/2016 :- 2 -: Smt P. Susheela the APIIC Limited for the purpose of Industrial Park in 1976-77. The said land was acquired by the Land Acquisition Officer under the Land Acquisition Act, 1894. The Land Acquisition Officer initially ordered compensation and an amount of Rs. 12,96,950/- was paid. Assessee approached the Additional District Judge, Sangareddy, who granted a decree fixing the rate at 19 per sq. yd., vide decree dt. 31-12-1979. Not satisfied with the award, assessee approached the Hon'ble High Court for enhancement of compensation. The Hon'ble High Court of A.P. vide Appeal No. 1054/80 dt. 18-04-2003 granted following enhancement of compensation allowed by the Additional District Judge, Sangareddy:
i. Market value of the land was determined at 19 per sq. yd;
ii. Assessee was allowed statutory benefits like solatium etc., and granted interest at 4% from the date of notification till 30-04-1982 and thereafter @ 9%; iii. Assessee was eligible for additional market value u/s.
23(1A) of the Land Acquisition Act;
2.1. Hon'ble High Court also granted interest @ 15% from 01-05-1983 till the payment of order. The matter was further carried to the Hon'ble Supreme Court and the Hon'ble Supreme Court in Civil Appeals Nos. 1661 & 1662 and 2982/04 has confirmed the order of the Hon'ble High Court and allowed the parties to draw the amounts. Consequent to that, the Additional District Judge, Sangareddy, has issued Memo dt. 11-02-2011 I.T.A. No. 100/Hyd/2016 :- 3 -: Smt P. Susheela sanctioning the compensation to assessee which included the interest portion. Assessee has received a total amount of Rs.
1,78,07,048/-. The bifurcation of which is as under:
Rs.
i. Land value fixed 34,55,497
ii. Solatium 10,00,000
iii. Additional Market Value
(Rs. 63,404+Rs.45,350) 1,08,754
iv. Interest at rate of 4% from
2.9.76 to 30.4.1982 7,48,021
v. Interest at 9% from 1.5.1982
to 30.04.1983 2,97,343
vi. Interest at 15% from 1.5.1983
to 26.06.2010 1,34,57,862
2.2. Since the amount was received during the year relevant for AY. 2011-12, assessee filed return of income claiming exemption u/s. 10(37) as lands acquired were agricultural lands and the compensation was exempt from taxation. Relying on the provisions of Section 56(2)(viii) and 57(iv) r.w. 145A(b), the AO has treated the interest income of Rs. 1,45,03,227/- received during the year as taxable and by allowing 50% of the amount as expenditure brought to tax an amount of Rs. 72,51,613/- under the head 'income from other sources'. It was the contention of assessee that the interest granted u/s. 28 of that Act is to be considered as compensation which is exempt following the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam HUF [315 ITR 1]. The AO, however has negatived the above contention stating that the judgement was delivered on 16-07-2009 and subsequently, the Finance Act was I.T.A. No. 100/Hyd/2016 :- 4 -: Smt P. Susheela amended by insertion of Section 145A(b) w.e.f. 01-04-2010, therefore, the amount received during the year was taxable in the year of receipt. Assessee also made an alternate contention that an amount of Rs. 99,11,460/- was the amount receivable as per the order of the Hon'ble High Court as on that date, hence that amount has already accrued prior to the amendment that was brought. Therefore, following the principles laid down by the Hon'ble Supreme Court in the case Ramabai Vs. CIT [181 ITR 400], the accrued amount was taxable in earlier years. The same cannot be brought to tax in the year under consideration. This contention was also negatived by the AO stating that the Act was amended to avoid the hardship to assessees and accordingly, entire amount was taxable in the year of receipt.
3. Aggrieved by the order of AO, the matter was carried to the Ld. CIT(A), who after considering the submissions of assessee and the facts, however, rejected the contentions stating as under:
"4.4. However, the assessee's contentions are not acceptable as it is seen from record that the compensation awarded to the assessee includes interest component of Rs. 1,45,03,226/-. I have also perused the High Court order dt. 18.04.2003 in appeal no. 1054 of 1980 where in it is clearly held that "the claimants apart from other statuary benefits are entitled to interest at 4% from the date of notification to 30.04.1982 and 9% interest for a period of one year and thereafter 15%"
from this it is clearly evident that the amount of Rs. 1,45,03,227/- represents interest paid for delay in payment of enhanced compensation. Therefore, the assessee's contention that it does not amount to interest is not correct. The assessee's reliance on the case of Sri Ghanshyam Das Vs. CIT (SC) also cannot be accepted as the Assessing Officer has clearly stated in the assessment order that the judgement in this case was delivered on 16.07.2009 but subsequently in the Finance Act 2009, the IT Act has been specifically amended to bring to tax interest received on compensation or enhanced compensation in the year of receipt. A I.T.A. No. 100/Hyd/2016 :- 5 -: Smt P. Susheela plain reading of the sections 145A(b) and 56(2)(vii) also clearly indicate that the interest received on compensation or an enhanced compensation are taxable in the year of receipt. For the sake of convenience the section 56(2)(viii) and section 145A(b) are reproduced as under:
Sec. 56(2) "In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income tax under the head Income from Other Sources, namely -
(viii) Income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A".
Section 145A(b) "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"
4.5. in view of the above provisions of the IT Act, the assessee is clearly liable for taxation of interest received on enhanced compensation as income from other sources in the year of receipt. Further, the assessee's contention that the interest should be taxed on accrual basis also cannot be accepted as the amended provisions of section 145A(b) are very clear in specifying that the interest shall be deemed to be the income of the year in which it is received. In view of all the above mentioned facts and circumstances, I find no infirmity in the order of the Assessing Officer and therefore the order is hereby upheld".
Aggrieved, assessee is in appeal before us.
4. All the grounds raised are with reference to the taxability of the said amount and the grounds raised are as under:
"2. The Hon'ble CIT(A) ought to have observed that the interest received is in respect of compensation for acquiring agriculture land and therefore the same is exempt u/s. 10(37) of the IT Act.
3. The Hon'ble CIT(A) ought to have observed that the interest on compensation was paid u/s. 28 of the Land Acquisition Act and therefore the same would form part of the compensation and cannot be assessed as "income from other sources" u/s. 56 of the IT Act.
I.T.A. No. 100/Hyd/2016
:- 6 -: Smt P. Susheela
4. The Hon'ble CIT(A) ought to have observed that the payment made by the authorities for the delay in payment of compensation also form part of compensation and can never be termed as interest and hence the same is beyond the definition of section 2(28A) of the IT Act.
5. The Hon'ble CIT(A) ought to have observed that in the given facts and circumstances of the case section 145A or 56 would not have any application.
6. The Hon'ble CIT(A) ought to have observed that even for argument it is agreed that the interest on compensation was liable for tax the same should be brought to tax on accrual basis in the light of pre- amendment provisions i.e. provisions standing earlier to 01.04.2010 and settled legal position as the acquisition and accrual of interest took place during that period.
7. Without prejudice to the above, the Hon'ble CIT(A) ought to have observed that the applicability of amendments to section 145A and 56 with effect from 01.04.2010 is prospective only and cannot be applied for interest receivable on compensation for the period earlier to 01.04.2010".
Ground Nos. 1 & 8 are general in nature.
5. Ld. Counsel referring to the judgement of the Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam HUF [315 ITR 1] (supra) and subsequent judgment of the Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai Vs. ITO [138 DTR (Guj) 223 & 2016-TIOL-854-High Court-AHM-IT] submitted that the amount sanctioned u/s. 28 of the Land Acquisition Act partakes the character of compensation, which in this case is exempt u/s. 10(37) on which there is no dispute. He further referred to the orders of the Hon'ble High Court and the Hon'ble Supreme Court, submitted that the so called interest was nothing but the enhanced compensation payable u/s. 28 of the Land Acquisition Act, 1894 which is to be considered as 'enhanced I.T.A. No. 100/Hyd/2016 :- 7 -: Smt P. Susheela compensation'. Since the compensation paid on acquisition of agricultural lands the entire amount was exempt u/s. 10(37).
6. Ld. DR, however, submitted that the Act was amended to bring to tax the interest granted to assessee on the compensation and accordingly, the amount of interest calculated by the AO is correctly brought to tax in the year of receipt as per the provisions of Section 56(2)(viii) and Section 145A.
7. We have considered the rival contentions and perused the orders of the authorities. We are of the opinion that assessee succeeds in its grounds as the interest is not paid u/s. 34 of the Land Acquisition Act, but u/s. 28 of the Act of 1894. The Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam HUF [315 ITR 1] (supra) has analysed the interest component sanctioned on the compensation and held that:
"................Interest is different from compensation. Interest paid on the excess amount under section 28 of the Land Acquisition Act, 1894, depends upon a claim made by the person whose land is acquired, whereas interest under section 34 is for delay in making payment; it postulates award of interest at 9 per cent per annum from the date of taking possession only until it is paid or deposited. Interest under section 28 would include within its ambit both the market valuation and the solatium and 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 the enhanced value of the land, which is not the case in the matter of payment of interest under section 34".
7.1. Accordingly, the interest received u/s. 28 of The Land Acquisition Act would be included within its ambit of both the market value and solatium as part of amount of compensation.
I.T.A. No. 100/Hyd/2016
:- 8 -: Smt P. Susheela
8. The argument of the Revenue is that consequent to the amendment brought to the Act w.e.f. 01-04-2010, the interest received is taxable in the year of receipt. There is no dispute that the interest received was made taxable in the year of receipt u/s. 145A rws 56(2)(vii). But that can only apply to interest u/s. 34 of the Land Acquisition Act but not to the interest u/s. 28 under the Land Acquisition Act which becomes part of Compensation. The principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam HUF [315 ITR 1] (supra) have not been amended. The same contention was considered by the Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai Vs. ITO [138 DTR (Guj) 223 & 2016-TIOL-854-High Court-AHM-IT] (supra). In that case the assessee was the original claimant in Land Reference Case No.1737/1999 which was decided by the Principal Senior Civil Judge by an award dated 23rd March, 2011 whereby the reference was partly allowed and additional compensation was awarded at the rate of Rs.41.60 per square metre for the irrigated lands and Rs.33.28 per square metre for non-irrigated lands along with other benefits under the Land Acquisition Act, 1894. Pursuant to the award passed by the Reference Court, the Executive Engineer, Irrigation Scheme Division submitted a calculation sheet which showed an amount of interest of Rs.20,74,157/- and the amount of TDS to be deducted as per section 194A was shown to be Rs.2,07,416/-. The assessee made an application to the Income Tax Department u/s 197(1) for deciding the tax liability of interest and to issue a certificate as to NIL tax liability. By the impugned communication dated 9th February, 2015, the application had been rejected on the ground that the interest amount on the delayed payment of compensation I.T.A. No. 100/Hyd/2016 :- 9 -: Smt P. Susheela and enhanced value of compensation was taxable as per the provisions of section 57(iv) read with sections 56(2)(viii) and 145A(b). In the said case, it was held that:
" it is an admitted position that the interest on which the tax is sought to be deducted at source u/s 194A is interest u/s 28 of the Act of 1894 and not under section 34 thereof. As already noted, the petitioner's application for a certificate u/s 197 for no deduction of TDS has been rejected on the ground that the interest amount received u/s 28 of the Act of 1894 is taxable as per the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b). Section 145A 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 subsection (2) of section 56 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 petitioner under section 28 of the Act of 1894 as income from other sources u/s 56(2)(viii) read with section 145A(b). In the opinion of this court, in the light of the law laid down by the SC in the case of Ghanshyam (HUF), 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) inasmuch as, the SC in the above decision has held that interest u/s 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. Thus, it is clear that the SC after considering the scheme of section 45(5) has categorically held that payment made under section 28 of the Act of 1894 is enhanced compensation, as a necessary corollary, therefore, the contention that payment made under section 28 of the Act of 1894 is interest as envisaged under section 145A of the I.T. Act and has to be treated as income from other sources, deserves to be rejected;
it has been vehemently contended on behalf of the first respondent that the above decision has been 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 to the facts of the present case. Thus, the substitution of section 145A by Finance (No.2) Act, 2009 was not in connection I.T.A. No. 100/Hyd/2016 :- 10 -: Smt P. Susheela with the decision of the SC in Ghanshyam (HUF) but was brought in to mitigate the hardship caused to the assessee on account of the decision of SC in Smt. Rama Bai v. CIT, (1990) 181 ITR 400 (SC) whereby it was held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. Therefore, when one reads the words "interest received on compensation or enhanced compensation" in section 145A, the same have to be construed in the manner interpreted by the SC in Ghanshyam (HUF). 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. The first respondent - ITO was, therefore, not justified in refusing to grant a certificate u/s 197 to the assessee 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 u/s 28 of the Act of 1894. The petitioner had earlier challenged the communication dated 9th February, 2015 whereby its application for a certificate u/s 197 had been rejected, and subsequently, tax on the interest payable u/s 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 u/s 194A in respect of such amount. The petitioner is, therefore, entitled to refund of the amount wrongly deducted u/s 194A. For the foregoing reasons, the petition succeeds and is accordingly allowed. The second respondent having wrongly deducted an amount of Rs.2,07,416/- by way of tax deducted at source out of the amount of Rs.20,74,157/- payable to the petitioner u/s 28 of the Act of 1894 and having deposited the same with the income-tax authorities, taking a cue from the decision of the Punjab and Haryana High Court in Jagmal Singh v. State of Haryana, the first respondent is directed to forthwith deposit such amount with the Reference Court, which shall thereafter disburse such amount to the petitioner herein. Rule is made absolute accordingly with costs".
8.1. Respectfully following the principles laid down by the Hon'ble Gujarat High Court which considered the amended provisions of the Act (judgment was rendered after the order of Ld. CIT(A) on 31-03-2016) and the Hon'ble Supreme Court referred above, we have to hold that the interest received u/s. 28 of the I.T.A. No. 100/Hyd/2016 :- 11 -: Smt P. Susheela Land Acquisition Act, 1894 is nothing but enhanced compensation on the lands acquired. Since the lands are agricultural lands originally, the compensation is exempt u/s. 10(37). In view of that, we uphold the claims of assessee and the grounds are considered allowed. AO is directed to grant exemption as claimed.
9. In the result, appeal of assessee is allowed.
Order pronounced in the Open Court on 7th December, 2016 Sd/- Sd/-
(D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 7th December, 2016 TNMM Copy to :
1. Smt. P. Susheela, Hyderabad. C/o. B. Narsing Rao & Co., Chartered Accountants, Plot No. 554, Road No. 92, Jubilee Hills, Hyderabad.
2. The Income Tax Officer, Ward-6(2), Hyderabad.
3. CIT (Appeals)-9, Hyderabad.
4. Pr.CIT-6, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.