2012 (9) TMI 220 - AT - Income Tax

Assessment of interest on compensation on acquisition of land - income in the hand of individual or HUF - reopening of the assessment made u/s 147 - Held that - From the return filed in compliance with the notice issued u/s 148 it is clear that the assessee from very inception of the assessment proceedings has taken a stand that the compensation along with interest awarded on acquisition of land does not belong to him but to the HUF. It is also a fact that the Land Reforms Tribunal in its order has observed that the agricultural land is an ancestral property and not a self acquired property. The pahani patrika also records the character of the land as ancestral property. When the assessee has taken a specific stand in the reassessment proceedings that the compensation awarded belongs to the HUF as the land acquired was an ancestral property belonging to the HUF, the AO was not justified in totally ignoring the claim of petitioner without examining it while completing the assessment. The CIT (A) has also not recorded any finding with regard to the ancestral character of the land - restore the matter to the file of the AO to re examine the assessee s claim - in favour of assessee for statistical purpose.

Issues:
1. Validity of reopening assessment under section 147.
2. Taxability of interest on compensation as income of individual vs. HUF.
3. Taxability of interest on compensation under the Income Tax Act.
4. Definition of interest under the IT Act and its applicability to the received amount.

Analysis:
1. The appeals challenged the assessment for the assessment years 2002-03 to 2005-06, questioning the validity of the reopening of the assessment under section 147. The appellant argued that the notice was issued to the individual, while the income belonged to the Hindu Undivided Family (HUF). The contention was that the notice was not valid as the income derived was HUF's. The tribunal found common issues in all appeals and clubbed them together for convenience.

2. The main contention revolved around the taxability of interest on compensation received on the acquisition of land as income of the individual or the HUF. The appellant claimed that the compensation and interest belonged to the HUF, not the individual. The appellant provided evidence, including documents like the order passed by the Land Reforms Tribunal and pahani patrika, to support the claim that the acquired land was ancestral property of the HUF. The tribunal observed that the AO did not properly examine the claim of the appellant and directed the matter to be restored to the AO for reevaluation based on the evidence presented.

3. The issue of taxability of interest on compensation under the Income Tax Act was raised. The appellant argued that the interest received was not separate from compensation but an integral part of it, hence should be treated as compensation, not interest. The tribunal noted that the AO did not adequately consider the evidence provided regarding the ancestral nature of the acquired land belonging to the HUF. The matter was remanded to the AO for a thorough examination of the assessability of compensation and interest received.

4. The appellant contended that the received amount could not be termed as interest under the IT Act and, therefore, should not be taxed as a separate source of income. The tribunal found merit in the appellant's argument and directed the AO to reevaluate the assessability of the compensation and interest received based on the evidence presented. The tribunal refrained from deciding on certain grounds pending the AO's examination of the factual aspects related to the taxability of the received amounts.

In conclusion, the tribunal allowed all appeals for statistical purposes and remanded the matter to the AO for a detailed examination of the taxability of the compensation and interest received based on the evidence provided by the appellant regarding the ancestral nature of the acquired land belonging to the HUF.

← Previous Next →