2011 (8) TMI 679 - HC - Income Tax

Interest on Enhanced Compensation vis a vis compensation within Sections 23 and 28 - Land acquired for public purpose compensation inclusive of interest - ITAT held interest comprised in the amount of enhanced compensation released unconditionally could not be taxed as income until the appeal was finally decided by the higher Courts - Held That - In view of CIT vs. Ghanshyam (HUF) (2009 - TMI - 34152 - SUPREME COURT) interest is different from compensation. However interest paid on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Cort held question of law does not does not survive and arise for consideration as the amount was compensation under Section 23 28 and not not interest u/s 34. - Decided against the revenue.

Summary

Issues:
1. Taxability of interest on enhanced compensation released unconditionally.
2. Taxability of interest on enhanced compensation in the year of receipt.

Issue 1:
The case involved the question of whether the interest comprised in the amount of enhanced compensation released unconditionally to the assessee could be taxed as income before the appeal was finally decided by higher courts. The ITAT held that the interest on enhanced compensation received by the assessee was not taxable until the appeal was decided by higher courts. The Assessing Officer initially concluded that the interest component should be treated as income in the respective financial year. However, the ITAT set aside the Assessing Officer's decision, stating that since the appeals seeking enhancement of compensation were pending before the court, the interest was not liable to be taxed in the year under appeal. The court emphasized that the amount received by the assessee was compensation under the Land Acquisition Act, and interest under Section 28 was part of the enhanced value of the land, not interest under Section 34 for delayed payment.

Issue 2:
The second issue revolved around the taxability of interest on enhanced compensation in the year of receipt. The ITAT held that the interest received by the assessee was not taxable in the year of receipt because it had not yet accrued. The court, referring to the Supreme Court's decision in Commissioner of Income Tax vs. Ghanshyam (HUF), clarified the distinction between interest and compensation under the Land Acquisition Act. The court concluded that the interest received by the landowners/assessee was not interest under Section 34 of the Act but compensation within the provisions of Sections 23 and 28 of the Act. Therefore, the court dismissed the appeals, stating that the question of law did not arise as the enhanced compensation, including the interest component, was considered compensation under the Act.

In conclusion, the High Court of Himachal Pradesh dismissed the appeals, along with any pending applications, as the interest on enhanced compensation was deemed to be part of the compensation under the Land Acquisition Act, not interest under Section 34. The judgment clarified the taxability of interest on enhanced compensation and emphasized the distinction between interest and compensation under the relevant legal provisions.