2013 (12) TMI 728 - HC - Income Tax

Whether interest u/s 234A, 234B, and 234C be charged on notional income - Held that - The assessee has received compensation and interest thereupon only after the judgment of the Hon ble Supreme Court in the year 2001 - Only due to judicial pronouncement, the assessee has become entitled to receive the additional compensation and interest thereupon - The interest can be charged only on the income received and not from the date on which it was entitled to receive interest - No interest can be charged on notional interest - Following CIT Vs. ICD, Syndicate 2006 (3) TMI 90 - KARNATAKA High Court - No interest can be charged when there is no real income - The interest will have to be charged in the year when income was earned - It cannot be charged retrospectively when there was no receipt in the hands of assessee - Decided in favour of assessee.

Summary

Issues:
- Appeal against the consolidated judgment and order passed by the Income Tax Appellate Tribunal for assessment years 1989-90 to 1994-95.
- Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act.
- Dispute regarding chargeability of interest on additional compensation.
- Jurisdiction of the High Court in the matter.

Analysis:
The case involves an appeal by an assessee against the judgment of the Income Tax Appellate Tribunal regarding the imposition of interest under Sections 234A, 234B, and 234C of the Income Tax Act for the assessment years 1989-90 to 1994-95. The primary issue revolves around whether the charging of interest is justified, especially when the assessee received additional compensation under the Land Acquisition Act, including interest, but did not declare the interest for tax purposes. The Punjab and Haryana High Court and the Supreme Court have previously held that interest on additional compensation is taxable. The Assessing Officer issued a notice under Section 148, leading to the current dispute.

The appellant, represented by Senior Counsel, argues that interest should only be charged from the year when the income was received, relying on various case laws to support this contention. The appellant emphasizes that interest cannot be charged retrospectively and should align with the year of actual receipt of income. On the other hand, the Standing Counsel for the Department asserts that interest is mandatory and justifiable, especially when the assessee did not disclose the income received in the financial year.

In its analysis, the High Court refers to relevant legal provisions and previous judgments to determine the taxability of the interest earned on additional compensation. The court emphasizes that interest should be charged only when the actual income is received, not retrospectively. It highlights that interest is compensatory in nature and should align with the year of receipt of income. The court sets aside the lower authorities' orders and directs the Assessing Officer to charge interest under Sections 234A, 234B, and 234C in the assessment year when the interest on additional compensation was actually received, ruling in favor of the assessee.

In conclusion, the High Court allows all the appeals filed by the assessee, emphasizing the importance of charging interest in alignment with the year of actual income receipt and rejecting retrospective application of interest charges.