2010 (12) TMI 361 - HC - Income Tax

Enhanced compensation - The Apex Court in Commissioner of Income-tax v. Ghanshyam (HUF), 2009 -TMI - 34152 - SUPREME COURT had held that the amount of enhanced compensation received by the assessee would be taxable in the year of receipt in view of insertion of Section 45(5)(b) of the Act irrespective of the pendency of any litigation at the behest of the State in any court of law - Decided in favour of the revenue and against the assessee. Deduction u/s 54B & 54F - The Tribunal has not decided the issue relating to deduction u/s 54B and 54F of the Act, the matter is remanded to the Tribunal for decision in this regard in accordance with law.

Summary

Issues involved:
1. Interpretation of tax law regarding the taxation of enhanced compensation and interest received against security.
2. Determination of the applicability of Section 45(5) of the Income Tax Act, 1961.
3. Adjudication of the issue of deduction under Sections 54B and 54F of the Act.

Detailed Analysis:
The judgment by the Punjab and Haryana High Court, delivered by Mr. Justice Adarsh Kumar Goel and Mr. Justice Ajay Kumar Mittal, addressed the issues arising from ITA Nos. 47 and 50 of 2007 concerning the taxation of enhanced compensation and interest received against security. In ITA No. 47 of 2007, the revenue appealed against the order of the Income Tax Appellate Tribunal related to the assessment year 1998-99. The Court admitted the appeal to determine substantial questions of law. The primary question was whether the enhanced compensation released against security and the interest received should be taxable in the year of receipt. The Court referred to a previous case and concluded that interest awarded by the Collector partakes the character of compensation and is taxable in the year of receipt under Section 45(5)(b) of the Act. The Court also cited a Supreme Court decision emphasizing that enhanced compensation is taxable in the year of receipt, regardless of pending litigation.

Regarding the issue of deduction under Sections 54B and 54F of the Act, the Court noted that the Tribunal had not adjudicated on this matter. As a result, the Court remanded the issue back to the Tribunal for a decision in accordance with the law. The judgment favored the revenue on the first question related to the taxation of enhanced compensation and interest, based on the provisions of Section 45(5)(b) of the Act. The appeal was allowed in favor of the revenue on this issue. However, the Court directed a further review by the Tribunal on the issue of deduction under Sections 54B and 54F, emphasizing the need for a proper decision in accordance with the law.