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2015 (10) TMI 1898 - AT - Income TaxEnhanced compensation and interest - whether the AO and the Ld.CIT(A) have erred in not excluding from taxable income the disputed interest, on enhanced compensation? - Held that - Vide Circular No.5/2001-02(F.No.142/13/2010-SO-PPL) dt. 3.6.2010, the Board explained the rationalisation of the provision by insertion of S.56(2)(viii). Income shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. There is no gainsaying that the department circulars are binding on the assessee. Admittedly the assessee followed mercantile system of accounting. Under these circumstances, the interest income in question cannot be brought to tax during the year. Thus we hold that the interest income in question cannot be brought to tax in the hands of the assessee.
Issues Involved:
1. Taxability of enhanced compensation and interest thereon when the matter is sub-judice. 2. Applicability of Section 57(iv) for deduction against interest income. 3. Estoppel against law in the context of tax declarations. Detailed Analysis: 1. Taxability of Enhanced Compensation and Interest Thereon: The primary issue in this case is whether the enhanced compensation and the interest thereon, which are still under dispute in the court, can be taxed in the assessment year 2009-10. The assessee declared the enhanced compensation and interest in his revised return due to an order from the Additional District Judge (ADJ). Both the assessee and the Delhi Metro Rail Corporation filed appeals against this order, and the matter is still sub-judice before the Delhi High Court. The tribunal held that disputed compensation and interest cannot be taxed until the compensation is finally determined by the court. This conclusion is supported by several precedents, including: - CIT vs. Hindustan Housing & Land Development Trust Ltd. (161 ITR 524): The Supreme Court held that additional compensation does not accrue and is not taxable when the right to receive it is in dispute. - CIT vs. Padam Parkash (HUF) (104 ITD 1): Enhanced compensation is taxable on a receipt basis, not when it is still subject to litigation. - Dy.CIT vs. Shri Bhim Singh Lather: Interest on enhanced compensation is chargeable on a year-to-year basis only after the right to receive it is finally settled by the court. 2. Applicability of Section 57(iv) for Deduction Against Interest Income: The assessee claimed a deduction of 50% against the interest income under Section 57(iv). The assessing officer disallowed this deduction, stating that the amendment to Section 57(iv) was effective from 01/04/2010, and thus not applicable for the assessment year 2009-10. The tribunal did not specifically address this issue in the judgment, as the primary focus was on the taxability of the interest income itself. However, the disallowance by the assessing officer was implicitly upheld due to the effective date of the amendment. 3. Estoppel Against Law in the Context of Tax Declarations: The assessee argued that even if he had declared the income in his return, the AO is duty-bound to follow the law and not tax amounts that are not legally income. The tribunal supported this view, citing several case laws: - CIT vs. DKB & Co. (243 ITR 618): There cannot be estoppel against a statute. - Mayank Poddar (HUF) vs. WTO (262 ITR 633): An item not taxable by law cannot become taxable due to the assessee's misunderstanding or admission. - Nirmala L Mehta vs. A Balasubramaniam, CIT (269 ITR 185): Acquiescence cannot take away the relief an assessee is entitled to if the tax is levied without authority of law. The tribunal concluded that the mere declaration of income by the assessee, due to ignorance or misunderstanding of the law, does not make it taxable if it is not legally income. Conclusion: The tribunal allowed the appeal in part, holding that the interest income on the enhanced compensation, which is still under dispute, cannot be taxed in the assessment year 2009-10. The tribunal emphasized that there is no estoppel against law, and the AO must follow the legal provisions irrespective of the declarations made by the assessee in his return. The judgment was pronounced on 07th October 2015.
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