Income Tax Appellate Tribunal - Bangalore
Ramvallabh Asawa, Bellary vs Department Of Income Tax on 9 January, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH : BANGALORE
BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
ITA Nos.1045 to 1047/Bang/2012
Assessment years : 2004-05 to 2006-07
The Deputy Commissioner of Vs. Shri Ramvallabh Asawa,
Income-tax, D.No.22, Nehru Colony,
Circle 1, 4th Cross,
Bellary. Bellary.
PAN : AKIPA 2549J
APPELLANT RESPONDENT
Appellant by : Dr. S. Palani Kumar, Jt.CIT(DR)
Respondent by : Shri K. Gururaj Acharya, C.A.
Date of hearing : 09.01.2014
Date of Pronouncement : 17.01.2014
ORDER
Per Bench These three appeals, at the instance of the Revenue, are directed against the orders of the CIT (A), Hubli, dated, 30.5.2012. The relevant assessment years are 2004-05, 2005-06 and 2006-07.
ITA Nos.1045 to 1047/Bang/2012 Page 2 of 15
2. The Revenue has, in its Memorandum of appeals for all the AYs under consideration, raised an identical solitary ground, namely, "that the CIT (A) erred in deleting the additions of Rs.7,89,014/- (sic) Rs.9,50,000/-, Rs.7,95,713/-(sic) Rs.43,50,000/- and Rs.7.27,020/-(sic) Rs.4,50,000, added to the assessments being interest on land acquisition compensation assessed on receipt basis for the AYs 2004-05, 2005-06 and 2006-07 respectively."
3. As the issue raised in these appeals is pertaining to the same assessee, for the sake of convenience, they were heard together and disposed of by this common order.
4. Briefly stated, the facts of the issue are as under:
The assessee, an individual, is a partner in M/s. Radheshyam Trading Company, Bellary. The assessee had filed his returns of income, declaring total incomes at Rs.8,48,032/-, Rs.8,98,604/- and Rs.44,98,155/-
for the AYs 2004-05 to 2006-07 respectively on 31.7.2009. The assessee had also declared interests of Rs.7,89,014/-, Rs.7,95,713/- and Rs.7,27,020/-on additional compensations received on acquisition of his land by the Government for the above mentioned assessment years.
According to the AO, as the incomes of the assessee had escaped assessments within the purview of the provisions of s. 147 of the Act, the assessee was required to furnish his returns of income for the AYs under consideration by issuance of notices u/s 148 of the Act. In compliance, the ITA Nos.1045 to 1047/Bang/2012 Page 3 of 15 assessee had requested the AO to treat the returns of income filed originally be treated as in response to the said notices. During the course of assessment proceedings, the assessee was asked to furnish the details of properties acquired, compensation and interest received on acquisition etc., In response, the assessee, among others, submitted that on account of acquisition of land by the Land Acquisition Officer, the initial value at Rs.53,658/- per acre was fixed in the acquisition proceedings dated 7.3.1990. Aggrieved by the inadequacy of the compensation, the assessee had approached the Hon'ble Civil Court which had awarded, among others, higher compensation of Rs.3,00,000 per acre and interest @ 9% from 7.2.1990 to 6.2.1991 for one year. The authorities took up the issue before the Hon'ble High Court. The Hon'ble Court had, in its ruling on 24.10.2005, fixed the award at Rs.2,75,000/acre besides other benefits as allowed by the lower Court. Keeping in view of the judgment of the Hon'ble Supreme Court in the case of Rama Bai v. CIT (1990) 181 ITR 400 (SC), the assessee had returned the interest incomes on accrual basis. However, placing reliance on the judgment of the Hon'ble Supreme Court in the case of CIT v. Ghanshyam (HUF) reported in (2009) 315 ITR 1 (SC) which has been duly followed by the Hon'ble ITAT, Delhi Bench reported in (2011) 15 Taxmann.com 366 (Delhi), the AO had assessed the interest received on additional compensation to tax in the year(s) of receipt at Rs.9,50,000/-, Rs.43,50,000/- and Rs.4,50,000/- for the AYs 2004-05, 2005-06 and 2006- 07 respectively.
ITA Nos.1045 to 1047/Bang/2012 Page 4 of 15 4.1 Aggrieved, the assessee took up the issue, among others, before the CIT (A) for all the AYs under consideration. After taking into account the contentions of the assessee, the CIT (A) had decided the issue in favour of the assessee. The identical reasoning of the CIT (A) for the AYs under dispute is extracted [from the order for AY 2004-05) as under:
"I have gone through the facts of the case, contents in the assessment order and assessee's written submissions. The AO has added the interest income on receipt basis, relying on Hon'ble Supreme Court judgment in the case of CIT v. Ghanshyam (HUF) (2009) 315 ITR 1/182 Taxman 368. The facts of the case relied by the AO are distinguishable. In the Supreme Court case the enhanced compensation and the interest received by assessee was in dispute and is pending before the court, and the assessee has received the amount against the security furnishing up to the satisfaction of the executing court. In this regard, it is pertinent to mention that 'the amendment include clause
(viii) to sub-section 2 to sec. 56 which is introduced through Finance Bill (2), 2009 with effect from 01.04.2010 prospectively and the amendment to sec.
145A with effect from 01.04.2010 wherein clause (b) has been introduced which is of a mandatory to tax the interest received on compensation on receipt basis only which is effective from the assessment year 2010.11. Hence, this treatment is mandatory for the assessment year 2010-11 and onwards and not for earlier years."
4.2. Aggrieved, the Revenue has come up before us with the present appeal. During the course of hearing, the learned DR submitted that the CIT (A) ought to have appreciated the facts recorded by the assessing officer in the assessment orders that the interest received by the assessee relates to additional compensation, the interest so received has to be charged to tax in the year of receipt. It was, further, submitted that the CIT (A) ought to have appreciated the fact that the amendments to section 145A of the Act was done later on the decision of the Hon'ble ITA Nos.1045 to 1047/Bang/2012 Page 5 of 15 Supreme Court in the case of CIT v. Ghanshyam (HUF) (supra) and, thus, it was argued that the facts of the said of the Hon'ble Court is applicable to all similar cases prior to the assessment year 2010-11. It was, further, pointed out by the learned DR that the CIT (A) ought to have appreciated the facts of the judgment of the Hon'ble Apex Court in the case of Ghanshyam (HUF) (supra) as discussed by the assessing officer in the assessment orders wherein it was held that the interest on account of acquisition of land was to be taxed in year in which it was received. It was, therefore, pleaded that the stand of the AO requires to be restored and that of the CIT (A) be cancelled.
4.2.1 On the other hand, the submission made by the learned AR is summarized as under:
- that the AO had neither furnished any reason nor communicated as to why the reasons could not be furnished for initiating action u/ss. 147 and 148 of the Act. In this connection, the assessee relies on the judgment of the Hon'ble Supreme Court in the case of GKN Driveshafts (I) Ltd v. ITO (2003) 259 ITR 19 (SC);
- that the interest in the case of the assessee on account of the Hon'ble Jurisdictional High Court dated 24.10.2005 had to be spread over for the period from March 1990 to October, 2005 on accrual or mercantile basis. For this proposition, the assessee relies on the judgment of the Hon'ble Supreme Court in the case of Rama Bai v. CIT (1990) 181 ITR 400 (SC);
- that the AO had referred to the verdict of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) wherein it was held that the interest on acquisition of land would be taxed in year in which it was received. Since the assessee's case is distinguishable with that of the judgment of the Hon'ble Supreme Court (supra), it is not applicable to the assessee's case;
ITA Nos.1045 to 1047/Bang/2012 Page 6 of 15
- that in the present case, as the issue dealt with is only in relation to interest received on enhanced compensation, the ratio laid down by the Hon'ble Supreme Court in Rama Bai's case (supra) continues to apply until the amendment to s. 145A by Finance Act, 2009 prospectively from the AY 2010-11. Thus, until the amendment to the Finance Act, 2009, interest on enhanced compensation could be offered to tax under mercantile basis using the precedence of Supreme Court's verdict in Rama Bai's case (supra);
- that the verdict in case of Rama Bai was delivered by a Three Judges' Bench whereas the verdict in Ghanshyam's case was pronounced by Two Judges' Bench of the Hon'ble Apex Court and according to the ruling of the Hon'ble Supreme Court in Pradip Chandra Parija & Others v. Pramod Chandra Patnaik & Others reported in (2002) 254 ITR 99 (SC) that the Bench of Two Judges is bound to follow the decision of Bench of Three Judges and, hence, the judgment in Ghanshyam case is per incuriam; and that the CIT (A) had rightly considered this fact and decided the issue in favour of the assessee.
4.2.2. In conclusion, it was prayed that there was no infirmity in the findings of the CIT (A) on the issue warranting interference.
5. We have carefully considered the rival submissions, perused the relevant materials on record and also the case laws on which either of the party have placed strong reliance. The property owned by the assessee was acquired by the Government by fixing the compensation at Rs.53,658/acre as per the Acquisition Proceedings dated 7.3.1990. The compensation amount was enhanced to Rs.3 lakhs per acre by the Civil Court which was, however, subsequently fixed at Rs.2,75,000/- per acre by the Hon'ble jurisdictional High Court vide its judgment dated 24.10.2005.
Based on the said judgment, the assessee had furnished his returns of ITA Nos.1045 to 1047/Bang/2012 Page 7 of 15 income for the assessment years under dispute, admitting, among others, interest received on enhanced compensation on accrual basis by placing reliance on the judgment of the Hon'ble Supreme Court in the case of CIT v. Hindustan Housing & Land Development Trust Ltd [161 ITR 524 (SC)]. The AO has, after due consideration of the assessee's contentions, as recorded in the respective assessment orders and by relying on the findings of the Hon'ble ITAT, Delhi Bench reported in (2011) 15 taxmann.com 366 Delhi and also the judgment of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra), held that the interest received on the additional compensation were to be assessed to tax in the year(s) of receipt. This was strongly objected to by the assessee before the CIT (A). The CIT (A) has, in his identical reasons, decided the issue in favour of the assessee on the premise that the facts of the case - CIT v. Ghanshyam (HUF) - relied on by the AO are distinguishable. 5.1 Before considering the issue in depth, we would like to point out that neither the orders of the authorities below nor the ld. AR was able to throw much light as to the nature of interest, whether it is interest paid u/s. 28 or u/s. 34 of Land Acquisition Act, 1894. However, since it is an interest received along with enhanced compensation, we proceed to consider the matter as if interest is in the nature of interest mentioned u/s. 28 of the Land Acquisition Act, 1894.
ITA Nos.1045 to 1047/Bang/2012 Page 8 of 15 5.2 The Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) has considered the impact of introduction of section 45(5) and taxability of interest on enhanced compensation in depth. The issue before the Hon'ble Apex Court in the case of Ghanshyam (HUF) (supra), in brief, was that during the previous year relevant to the AY 1999-2000, the assessee received enhanced compensation on his lands being acquired by the Haryana Urban Development Authority as also interest thereon. In the return of income for the relevant AY, the assessee did not offer the amount of enhanced compensation and the interest received thereon for taxation, on the plea that the amount of enhanced compensation received had not accrued to him during the year of receipt as the entire amount was in dispute in appeal before the H C which appeal stood filed by the State against the order of the reference Court granting enhanced compensation; and that the amount of enhanced compensation and the interest thereon were received by him in terms of the interim order of the HC against his furnishing of security. The AO did not accept the assessee's contentions on the premise that in terms of s. 45(5) enacted w.e.f. 1.4.1988, the amount by which compensation or consideration stood enhanced or further enhanced by the Court would be deemed to be income chargeable under the head 'capital gains' of the previous year in which the said amount came to be received. He accordingly, brought to tax the amount of enhanced compensation and the interest thereon received by the assessee in the year of receipt. On appeal, the CIT (A) accepted the assessee's ITA Nos.1045 to 1047/Bang/2012 Page 9 of 15 contention and deleted the amount of enhanced compensation and interest thereon from the total income of the assessee. The Tribunal upheld the order the CIT (A). The High Court also dismissed the revenue's appeal. When the issue had finally reached before the Hon'ble Supreme Court for consideration, the Hon'ble Court, after duly analysing the provisions of sections, 2 (47), 45(1) (as it stood prior to 1.4.2004) , 45(5) (as it stood prior to 1.4.2004), 45(5) after 1.4.2004, 155(6) after 1.4.2004, came to the conclusion that -
"32. The issue to be decided before us - what is the meaning of the words 'enhanced compensation/consideration' in section 45(5)(b) of the 1961 Act? Will it cover 'interest'? These questions also bring in the concept of the year of taxability.
33. It is to answer the above questions that we have analysed the provisions of sections 23, 23(1A), 23(2), 28 and 34 of the 1894 Act. As discussed hereinabove, section 23(1A) provides for additional amount. It takes care of increase in the value at the rate of 12 per cent per annum. Similarly, under section 23(2) of the 1894 Act, there is a provision for solatium which also represents part of 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 (1A) 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. 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 of consideration which is not the case with interest under section 34 of the 1894 Act. So also additional amount under section 23(1A) and solatium u/s 23(2) of the 1961 Act forms part of enhanced compensation u/s 45(5)(b) of the 1961 Act. In fact, what we have stated hereinabove is reinforced by the newly inserted clause (c) in section 45(5) by the Finance Act, 2003 with effect from ITA Nos.1045 to 1047/Bang/2012 Page 10 of 15 1.4.2004. This newly added clause envisages a situation where in the assessment for any year:-
- the capital gain arising from the transfer of a capital asset is computed by taking the -
- compensation or consideration referred to in clause (a) of section 45(5) or, as the case may be,
- enhanced compensation or consideration referred to in clause
(b) of section 45(5), and subsequently such compensation or consideration is reduced by any Court, Tribunal or other authority.
34. In such a situation, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by Such Court, Tribunal or other authority to be the full value of the consideration. For giving effect to such re-computation, the provisions of the newly inserted (with effect from 1.4.2004) section 155 (16) by the Finance Act, 2003 (32 of 2003), have been enacted.
35. It was urged on behalf of the assessee that section 45(5) (b) of the 1961 Act deals only with re-working, its object is not to convert the amount of enhanced compensation into deemed income on receipt. We find no merit in this argument. The scheme of section 45(5) of the 1961 Act was inserted with effect from 1.4.1988 as an overriding provision. As stated above, compensation under the LA Act 1894, arises and is payable in multiple stages which does not happen in cases of transfers by sale etc. Hence, the legislature had to step in and say that as and when the assessee- claimant is in receipt of enhanced compensation, it shall be treated as - deemed income' and taxed on receipt basis. Our above understanding is supported by insertion of clause (c) in section 45(5) with effect from 1.4.2004 and section 155(16) which refer to a situation of a subsequent reduction by the Court, Tribunal or other authority and re-computation/amendment of the assessment order. Section 45(5) read as a whole (including clause 'c') not only deals with re-working as urged on behalf of the assessee but also with the change in the full value of the consideration (computation) and since the enhanced compensation/consideration (including interest under section 28 of the 1894 Act) becomes payable/paid under 1894 Act at different stages, the receipt of such enhanced compensation/consideration is to be taxed in the year of receipt subject to adjustment, if any, under section 155(16) of the 1961 Act, later on. Hence, the year in which enhanced compensation is received is the year of taxability. Consequently, even in cases where pending appeal, the Court/Tribunal/Authority before which appeal is pending, permits the claimant to withdraw against security or otherwise the enhanced compensation (which is in dispute), the same is liable to be taxed under section 45(5) of the 1961 Act. We may clarify that even before the insertion of section 45(5) (c) and section 155(16) with effect from 1.4.2004, the receipt ITA Nos.1045 to 1047/Bang/2012 Page 11 of 15 of enhanced compensation under section 45(5)(b) was taxable in the year of receipt which is only reinforced by insertion of clause (c) because the right to receive payment under the 1894 Act is not in doubt................" 5.3. It is pertinent to mention here that while coming to the above conclusion, the Hon'ble Court had duly considered the judgment of Hon'ble Supreme Court in CIT v. Hindustan Housing & Land Development Trust Ltd (1986) 161 ITR 524 (SC) and distinguished the same.
5.4 Likewise, the ITAT, Delhi Bench 'A' has, in the case of DCIT v. Ajay Sharma reported in (2011) 15 taxmann.com 366 (Delhi)/ (2011) 48 SOT 164 (Delhi) held as under:
"The Supreme Court in the case of CIT v. Ghanshyam (HUF)[2009] 315 ITR 1 / 182 Taxman 368 has viewed that the additional compensation received by the assessee is to be assessed in the year in which it is received. The Supreme Court also held that interest on enhanced compensation under section 28 of the Land Acquisition Act, 1894, will form part of the enhanced value of the land. While section 34 of that Act will be construed as interest simpliciter for delay in payment so that it would be governed by law relating to assessment of interest on such delay being on accrual basis. In the instant case, the assessee had received interest on enhanced value of land and it was covered by section 28 of the Land Acquisition Act, and, therefore, interest amount was also to be assessed in the assessment year 2002-03 in which the amount had been received. It was, therefore, held that the assessing officer was justified in assessing the amount of enhanced compensation along with interest thereupon in the year in which it was received..........................."
5.5. Further, we would like to refer to the observation of the CIT (A) that the judgment of the Hon'ble Supreme Court in Ghanshyam's case is distinguishable on the premise that 'In the Supreme Court case the enhanced compensation and the interest received by assessee was in ITA Nos.1045 to 1047/Bang/2012 Page 12 of 15 dispute and is pending before the court and the assessee has received the amount against the security furnishing up to the satisfaction of the executing court [source: Page 9 of CIT (A)'s order]. However, the Hon'ble Supreme Court had explicitly clarified that "35. ........... Consequently, even in cases where pending appeal, the Court/Tribunal/Authority before which appeal is pending, permits the claimant to withdraw against security or otherwise the enhanced compensation (which is in dispute), the same is liable to be taxed under section 45(5) of the 1961 Act." Thus, the judgment of the Hon'ble Apex Court is directly on the point and is not distinguishable as claimed by the CIT (A).
5.6. With regard to the assessee's argument that the Hon'ble Supreme Court's verdict in Rama Bai's case was delivered by a Three Judges' Bench whereas the verdict in Ghanshyam's case was pronounced only by a Two Judges' Bench and, thus, the Two Judges' Bench was bound to follow the decision of Three Judges' Bench; we would like to point out that section 45(5) of the Act inserted by the Finance Act, 1987 w.e.f. 1.4.1988 was not considered by the Hon'ble Supreme Court (since that case pertained to A.Y. 1968-69); when the question of accrual of interest on enhanced compensation was dealt with in the case of Rama Bai and Ors v. CIT reported in (1990) 181 ITR 400 (SC). Accordingly, we are of the view that the contention that the Two Members' Bench was bound to follow the decision of the Three Members' Bench does not fit in, in the instant case, as argued by the assessee.
ITA Nos.1045 to 1047/Bang/2012 Page 13 of 15 5.7. Taking into account all the facts and circumstances of the issue as analysed in the foregoing paragraphs and also in conformity with (i) the ruling of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) and
(ii) the findings of the Hon'ble Delhi Bench of the ITAT in the case of Ajay Sharma (supra); we are of the view that the CIT (A) was not justified in allowing the assessee's appeal. In substance, the Revenue's appeal is allowed.
6. Before parting with, we would like to deal with the issues raised by the learned AR during the course of hearing as under:
(i) The AO had neither furnished nor communicated the reasons for initiation of proceedings u/s 147 of the Act:
At the out-set, we would like to point out that, as could be seen from the assessment order under consideration, the assessee had not objected to the re-opening of the assessment during the course of re-assessment proceedings and, therefore, the judgment of the Hon'ble Supreme Court in the case of GKN Driveshafts (I) Ltd v. ITO (supra) cannot be of any help to the assessee.
(ii) Capital gains computed on protective basis in the AY 2006-07:
As a matter of fact, the issue raised by the Revenue in its appeals under consideration is only the assessing of the interest received during the AY 2006-07. Moreover, the assessee has not ventured to file its Cross ITA Nos.1045 to 1047/Bang/2012 Page 14 of 15 Objection before this Bench against the AO's alleged stand in computing the Capital Gains on protective basis. It is pertinent to mention here that the issue under consideration is, "whether the interest received is to be assessed on accrual or on receipt basis?" However, on a perusal of the assessment order under dispute, it is observed that the AO had rightly assessed the interest on receipt basis. For appreciation of facts, the relevant portion of the AO's observation is extracted as under:
"Accordingly, the additional compensation and interest received thereon is proposed to tax in the year of receipt. As the assessee has erroneously declared additional compensation and interest on accrual basis, the said returns will be assessed on a protective measure. Thus, for the assessment year under consideration, the capital gains additional compensation is assessed on a protective measure since the same has to be assessed to tax on receipt basis for the assessment year 2007-
08. However, interest is assessed at Rs.4,50,000/- on receipt basis for the year under consideration i.e., 2006-07."
[Source: page 10 of the Asst. order for AY 2006-07] Therefore, the assessee's claim on this count is not valid and, accordingly, the issue of 'Capital gains computed on protective basis' is not adjudicated.
7. In the result, the Revenue's appeals for the assessment years 2004- 05, 2005-06 & 2006-07 are allowed.
Pronounced in the open court on this 17th day of January, 2014.
Sd/- Sd/-
( JASON P. BOAZ ) ( GEORGE GEORGE K. )
Accountant Member Judicial Member
Bangalore,
Dated, the 17th January, 2014.
/D S/
ITA Nos.1045 to 1047/Bang/2012
Page 15 of 15
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.