2010 (10) TMI 861 - HC - Income Tax

Interest on enhanced compensation - assessee is the father of the children who are owners of the land inherited by them from their maternal grandfather. Enhanced compensation and interest thereon were received on acquisition of the said land. The income received by way of interest was assessed as capital gain in the hands of the father of the minor children under s. 64(1A) of the Act - Held that - Assessee has neither been able to show how judgment of the Hon ble Supreme Court in Ghanshyam s case) (2009 (7) TMI 12 - SUPREME COURT) can be distinguished nor he has been able to give any reason for excluding the applicability of s. 64(1A). In these circumstances view taken by the Tribunal cannot be sustained. Accordingly the questions raised by the Revenue are answered in its favour appeal is allowed.

Summary

Issues:
1. Taxability of interest on enhanced compensation in the hands of the assessee.
2. Taxability of interest received on enhanced compensation by assessee's minor children under s. 64(1A) of the IT Act, 1961.

Issue 1: Taxability of interest on enhanced compensation in the hands of the assessee:
The appeal raised substantial questions of law regarding the taxability of interest on enhanced compensation received by the assessee, Shri Laxman Swaroop Goel, under the Income-tax Act, 1961. The Tribunal had held that the interest on enhanced compensation was not taxable in the hands of the assessee as it had not attained finality, given the ongoing dispute before the High Court. However, the Revenue contended that the interest on enhanced compensation should be taxed in the year of receipt, relying on the Supreme Court's judgment in CIT vs. Ghanshyam (HUF) (2009) 224 CTR (SC) 522. The High Court analyzed the facts and relevant legal provisions, ultimately ruling in favor of the Revenue, stating that the Tribunal's decision could not be sustained.

Issue 2: Taxability of interest received on enhanced compensation by assessee's minor children under s. 64(1A) of the IT Act, 1961:
The second issue revolved around the taxability of interest received on enhanced compensation by the assessee's minor children under section 64(1A) of the Income-tax Act, 1961. The Assessing Officer had added the interest amount to the father's income under s. 64(1A), but the CIT(A) and the Tribunal disagreed, holding that the income of the minor children from inherited property could not be clubbed in the hands of the father. The High Court examined the provisions of s. 64(1A) in detail, considering relevant case laws and amendments to the Act. The Court upheld the Revenue's arguments, emphasizing that the Tribunal had failed to apply s. 64(1A) correctly and had wrongly relied on certain judgments. The High Court ruled in favor of the Revenue, allowing the appeal and deciding that the interest received by the minor children should indeed be taxable in the hands of the assessee.

In conclusion, the High Court allowed the appeal, holding in favor of the Revenue on both issues regarding the taxability of interest on enhanced compensation and interest received by the assessee's minor children. The judgment provided a detailed analysis of the legal provisions, case laws, and factual circumstances, ultimately clarifying the tax treatment in these specific scenarios under the Income-tax Act, 1961.