2010 (10) TMI 1039 - HC - Income Tax

Summary

Issues involved:
The judgment deals with the cancellation of an order by the Commissioner of Income Tax u/s 263 to bring an enhanced compensation to tax, and the applicability of certain provisions u/s 45(5) and 155(16) for the assessment year 2003-04.

Cancellation of Order u/s 263:
The Commissioner of Income Tax invoked revisional jurisdiction u/s 263 of the Income-tax Act, 1961 to modify the assessment order due to the enhanced compensation received by the assessee in the relevant financial year. The Tribunal later canceled the CIT's order, stating that the matter of enhanced compensation had not been finalized, and the assessee was allowed to retain the compensation and earn interest. The High Court, however, held that the enhanced compensation is exigible to capital gains tax in the year of receipt, regardless of pending litigation. Citing a Supreme Court case, it was determined that taxability of income shall be in the year of receipt as per Section 45(5)(b) of the Act, inserted retrospectively w.e.f. 1.4.1988. Consequently, the High Court set aside the Tribunal's order and remitted the matter for further proceedings.

Applicability of Provisions u/s 45(5) and 155(16):
The High Court addressed the issue of whether provisions under Section 45(5)(c) and 155(16) were applicable with retrospective effect for the assessment year 2003-04 and if they were contrary to a previous Supreme Court ruling. It was noted that the said provisions were not applicable with retrospective effect for the relevant year and were contrary to the ratio laid down by the Supreme Court in a specific case. The High Court rendered question No.2 academic in light of the answer to question No.1 and directed the parties to appear before the Tribunal for further proceedings.

Conclusion:
The High Court's judgment emphasized the taxability of enhanced compensation in the year of receipt and upheld the invocation of revisional jurisdiction u/s 263 by the Commissioner of Income Tax. The matter was remitted to the Tribunal for further action, and the applicability of certain provisions was clarified in line with relevant legal precedents.