The Delhi High Court has held that interest received on compensation or enhanced compensation shall be taxable under head “Income from other sources”. The court set aside the order of the Income Tax Appellate Tribunal ( ITAT ).
The revenue challenged the order passed by the Income Tax Appellate Tribunal [ “ITAT” ], whereby, the ITAT deleted the addition made by the Assessing Officer [ “AO” ] under Section 56(2)(viii) of the Income Tax Act, 1961 [ “Act” ] for the assessee, Inderjit Singh Sodhi ( HUF ). The appeal involves an examination of the taxability of the interest component, earned on compensation or enhanced compensation, ordered under Land Acquisition Act, 1894 [ “Act of 1894” ].
The central issue which arises for consideration is: whether interest received by the respondent/assessee under Section 28 and 34 of the Land Acquisition Act, 1894 would fall under the provisions of Section 10(37) and Section 56(2)(viii) of the Income Tax Act, 1961 [ “Act” ]?
The respondent-assessee had filed its Income Tax Return [ “ITR” ] declaring the income to the tune of Rs.3,08,920/-. The said ITR filed by the respondent-assessee was selected for scrutiny and a notice was served upon him under Section 143(2) of the Act. Subsequently, another notice under Section 142(1) of the Act was issued, calling upon the respondent-assessee to furnish the relevant information as asked for. The respondent-assessee duly submitted the reply to the said notice.
The AO found that the respondent-assessee had claimed an exemption on the receipt of income amounting to Rs.26,93,84,780/-. Thereafter, the AO vide email dated 13.11.2018, made an enquiry under Section 133(6) of the Act from the District Revenue Officer-cum Land Acquisition Collector [ “Collector” ], asking about the details of payments of Rs.18,86,63,176/- and Rs.8,02,13,161/-. It was informed by the Collector that the enhanced compensation was released in light of the judgment in the case titled as Ram Chander & Ors. v. State of Haryana & Ors. and the respondent-assessee herein was a petitioner in the said case and therefore, he was entitled for the consequential benefits, including the interest on enhanced compensation.
The AO held that the receipt of interest must be treated as income chargeable to tax under Section 56(2)(viii) of the Act and therefore, it allowed the statutory deduction of 50% of the interest income under Section 57(iv) of the Act. Accordingly, an amount of Rs.4,01,06,580/- was added to the taxable income of the respondent-assessee and vide assessment order dated 23.12.2018, the total income of the respondent-assessee was assessed to be Rs.4,04,15,500/-.
On appeal, the CIT(A) found that since Section 56 of the Act was amended by the Finance (No.2) Act, 2009, which led to the introduction of Section 56(2)(viii) of the Act with effect from 01.04.2010, therefore, the decision relied upon by the respondent-assessee herein was not applicable as the same pertained to the year prior to the said amendment.
While relying upon the judgment of the Supreme Court in the case of Ghanshyam, the ITAT drew an equivalence between the interest received under Section 28 of the 1894 Act and the enhanced compensation. It was further held that since the interest amounts to accretion to the value of compensation, therefore, the same must be treated as a part of compensation.
A division bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav upheld the concurrent findings of the AO and CIT(A) and found 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.
In the light of the judicial pronouncements and the concerned amendment, the court set aside the order of the ITAT. Consequently, the appeal of the revenue was allowed and the concurrent findings of the AO and CIT(A) are hereby affirmed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
