Punjab-Haryana High Court
Commissioner Of Income Tax vs Shri Prem Singh on 16 December, 2010
Author: Adarsh Kumar Goel
Bench: Adarsh Kumar Goel, Ajay Kumar Mittal
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
C.M. No.27928-29-CII of 2010 in
I.T.A. No.85 of 2010
Date of decision: 16.12.2010
Commissioner of Income Tax.
-----Appellant.
Vs.
Shri Prem Singh.
-----Respondent
CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL
HON'BLE MR. JUSTICE AJAY KUMAR MITTAL
Present:- Mr. Yogesh Putney, Sr. Standing Counsel
for the applicant/revenue.
Mr. Akshay Bhan, Advocate
for the non-applicant-assessee.
---
ADARSH KUMAR GOEL, J.
1. This application has been filed for modification of order dated 5.7.2010 passed by this Court while disposing of the main appeal.
2. The assessee received compensation for his land acquired under the provisions of the Land Acquisition Act, 1894 for public purpose vide notification dated 29.1.1990. The Collector gave award dated 21.1.1993 and compensation thereon was paid on 28.1.1993. On the date of award, land was agricultural in nature and by later notification dated 6.1.1994, the same was C.M. No.27929-CII of 2010 in 2 I.T.A. No.85 of 2010 covered in urban limits of Panchkula. The Assessing Officer held that since possession was taken after notification, compensation was liable to be taxed as capital gain. However, the CIT(A) and the Tribunal upheld the plea of the assessee that on the date of possession, the land was agricultural land and compensation received was not liable to be treated as capital gain.
3. The revenue preferred appeal before this Court claiming following substantial questions of law:-
"(i). Whether, on the facts and in the circumstances of the case learned ITAT is right in law in holding that the amount of enhanced compensation received by the assessee before its final determination does not entail assessability u/s 45(5)(b) of the Income-tax Act, 1961?
(ii) Whether, on the facts and in the circumstances of the case learned ITAT is right in law in holding that the interest on enhanced compensation does not accrue for taxation purposes till the issue of determination of enhanced compensation is finally decided?
(iii) Whether, on the facts and in the circumstances of the case learned ITAT has erred in law in holding that the interest on enhanced compensation is not liable for taxation till the issue of determination of enhanced compensation is finally decided within the meaning of Section 2 (14) of the I.T. Act,1961?
(iv) Whether, on the facts and in the circumstances of the case, learned ITAT is right in law in holding that the land in question was not a capital asset thereby completely ignoring the evidence on record considered by the Assessing Officer?C.M. No.27929-CII of 2010 in 3 I.T.A. No.85 of 2010
(v) Whether, on the facts and in the circumstances of the case, learned ITAT is right in law in admitting the additional evidence in the shape of copy of bank pass book and certificate from LAC, Panchkula for holding that the original compensation of Rs.983027.50 had been received by the assessee on 28.01.1993 without recording any reasons as required under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and without giving any opportunity of being heard to the revenue before admitting and considering this evidence?"
4. While dealing with the appeal, this Court upheld the view of the Tribunal on the question of land being agricultural land and dismissed the appeal as only that question was raised during arguments. In the application now filed, it is pointed out that the revenue had also claimed question of liability of interest on enhanced compensation being liable to be taxed as income from other sources. Since the said issue was not dealt with, the order requires modification.
5. We have heard learned counsel for the parties.
6. In view of judgment of the Hon'ble Supreme Court in CIT v. Ghanshyam (HUF) [2009] 315 ITR 1, the amount received by a land owner as interest on enhanced compensation, is liable to be taxed as income from other sources under Section 56 of the Income Tax Act, 1961. The Tribunal dealt with this aspect as under:-
C.M. No.27929-CII of 2010 in 4I.T.A. No.85 of 2010
15. ..... Similarly, in the case of Hardwari Lal, HUF (supra), it has been laid down that the interest on enhanced compensation for compulsorily acquisition of land also does not accrue for taxation purposes till the issue of the determination of enhanced compensation is finally decided. Considering the aforesaid judgements, we find no reasons to uphold the stand of the Revenue. Thus, on this aspect also, the assessee succeeds. It is not disputed that the issue relating to the determination of the enhanced compensation payable to the assessee is still in dispute before the Hon'ble Punjab & Haryana High Court and therefore, the parity of reasoning laid down by the Hon'ble High Court in the cases of Chandi Ram & others (supra) and Hardwari Lal, HUF (supra) clearly support the case of the assessee for the assessment year under consideration. Thus, the Revenue fails on these grounds also."
7. The Tribunal failed to consider taxability of interest and only focused on liability now to be taxed in the year of receipt. The view of the Tribunal that interest on enhanced compensation was not liable to be taxed in the year of receipt or at all, cannot be sustained in view of judgment in Ghanshyam (HUF). In Ghanshyam (HUF), the Hon'ble Supreme Court observed:-
"......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 C.M. No.27929-CII of 2010 in 5 I.T.A. No.85 of 2010 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....
xx xx xx xx xx .....When the Court/Tribunal directs payment of enhanced compensation under Section 23(1A), or Section 23(2) or under Section 28 of the 1894 Act it is on the basis that award of Collector or the Court, under reference, has not compensated the owner for the full value of the property as on date of notification."
8. The above observations show that interest on enhanced compensation is not treated as compensation while interest on original compensation as per award of the Collector is treated as part of compensation. If compensation is exempt from tax, the interest component which forms part of compensation will also form part of total income but income which is not part of compensation is liable to be taxed under Section 56 of the Act.
9. Under the scheme of the Land Acquisition Act, interest under Section 34 is part of compensation while interest under Section 28 is not. This aspect has also been discussed in the above judgment in following terms:-
C.M. No.27929-CII of 2010 in 6I.T.A. No.85 of 2010
"......The award of interest under Section 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded under Section 23 (1A) and the solatium under Section 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the Court. Section 28 is applicable only in respect of the excess amount, which is determined by the Court after a reference under Section 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in making award for compensation See: Ram Chand and Ors. etc v.
Union of India and Ors. (1994)1SCC44. In the case of Shree Vijay Cotton & Oil Mills Ltd. v. State of Gujarat [1991] 1 SCC 262, this Court has held that interest is different from compensation.
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 C.M. No.27929-CII of 2010 in 7 I.T.A. No.85 of 2010 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. Even though there is little confusion in reference to the relevant sections but the discussion clearly shows that interest directed by the Collector is to be treated as part of compensation under Section 34 while the interest on enhanced compensation ordered by the Court is not under Section 28 of the Land Acquisition Act.
11. In this view of the matter, the interest component on enhanced compensation under Section 28 is liable to be taxed under Section 56 of the Act even when compensation is treated as agricultural income and is not covered by Section 45(c) of the Act. We, thus, answer the questions in favour of the revenue and modify our order dated 5.7.2010 accordingly. The amount of interest on enhanced compensation is held to be taxable in the year of receipt irrespective of pendency of proceedings against award of enhanced compensation.
12. The application is disposed of accordingly.
(ADARSH KUMAR GOEL)
JUDGE
December 16, 2010 (AJAY KUMAR MITTAL)
ashwani JUDGE