2011 (2) TMI 867 - HC - Income Tax

Income from other sources - The Hon ble ITAT was holding that Interest received on enhanced compensation is not taxable in the year of receipt despite the fact that the assessee is not following the mercantile system of account - The similar issue came up for consideration before this Court in The Commissioner of Income Tax Faridabad v. Bir Singh (HUF) Ballabgarh (2010 -TMI - 205309 - PUNJAB & HARYANA HIGH COURT) - As per this case the appeals are allowed and the questions of law are answered in favour of the revenue.

Summary

Issues:
1. Taxability of interest received on enhanced compensation in the year of receipt.

Analysis:

Issue 1: Taxability of interest received on enhanced compensation in the year of receipt

The judgment pertains to ITA No. 290 of 2006 filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal. The substantial questions of law raised in this case revolve around the taxability of interest received on enhanced compensation. The court deliberated on whether the interest received on enhanced compensation is taxable in the year of receipt. The court referred to a previous case where it was concluded that under the cash system of accountancy, interest received on enhanced compensation is taxable as 'income from other sources' in the year of receipt. Therefore, the court allowed the appeals and answered the questions of law in favor of the revenue and against the assessee.

In conclusion, the judgment clarifies the tax treatment of interest received on enhanced compensation, emphasizing that under the cash system of accountancy, such interest is taxable as 'income from other sources' in the year of receipt.