2015 (12) TMI 1123 - HC - Income Tax

Nature of interest received by the landowner-assessee - enhanced compensation - whether the interest which is received by the assessee-landowner partakes the character of income or not and, in such a situation is it taxable under the provisions of the Act? - Held that - The award of interest under Section 28 of the 1894 Act applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded under Section 23(1A) and the solatium under Section 23(2) of the said Act. Section 28 is applicable only in respect of the excess amount, which is determined by the Court after a reference under Section 18 of the 1894 Act. Under Section 34 of the 1894 Act, the Collector awards interest on the compensation offered at the rate of 9% per annum for a period of one year from the date of taking possession and thereafter at the rate of 15% per annum from the date of expiry of one year on the amount of compensation or part thereof which remains unpaid or deposited before the date of such expiry. A plain reading of Sections 23(1A), 23(2) as also Section 28 of the 1894 Act clearly spells out that additional benefits are available on the market value of the acquired lands under Section 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation

Issues Involved:
1. Reassessment proceedings under Section 148 of the Income Tax Act, 1961.
2. Taxability of interest received under Section 28 of the Land Acquisition Act, 1894.
3. Exemption under Section 10(37) and deduction under Section 57(iv) of the Income Tax Act, 1961.
4. Tax Deduction at Source (TDS) on compensation amount.

Issue-wise Detailed Analysis:

1. Reassessment Proceedings under Section 148 of the Income Tax Act, 1961:
The court addressed the reassessment proceedings initiated under Section 148 of the Act. The petitioner challenged the notice issued for reassessment, contending that it was primarily based on the decision in CIT v. Bir Singh (HUF). The petitioner argued for the supply of reasons for the initiation of reassessment proceedings. The court noted that the reassessment was justified by the revenue, relying on the judgment in Bir Singh (HUF)'s case and the amendments introduced by the Finance (No.2) Act, 2009, which made interest on compensation or enhanced compensation taxable in the year of receipt.

2. Taxability of Interest Received under Section 28 of the Land Acquisition Act, 1894:
The primary question was whether the interest received by the landowner-assessee under Section 28 of the 1894 Act partakes the character of income and is taxable under the Income Tax Act. The court examined Sections 28 and 34 of the 1894 Act, explaining that Section 28 allows the court to award interest on excess compensation determined by it, whereas Section 34 deals with interest on compensation not paid or deposited on time. The court referred to various judgments, including Dr. Shamlal Narula v. CIT, which held that interest under Section 28 is a revenue receipt and taxable. The court concluded that interest under Section 28 is part of the enhanced compensation and taxable as income from other sources under Section 56 of the Act.

3. Exemption under Section 10(37) and Deduction under Section 57(iv) of the Income Tax Act, 1961:
The petitioner claimed exemption under Section 10(37) and deduction under Section 57(iv) of the Act. The court noted that these issues require examination based on the factual matrix and directed the petitioners to plead and claim the benefits before the Assessing Officer in accordance with the law.

4. Tax Deduction at Source (TDS) on Compensation Amount:
The petitioner sought a refund of TDS made out of the compensation amount, arguing it was exempt from deduction under Section 194LA of the Act. However, the court did not address arguments regarding TDS, leaving the issue open to be taken up in an appropriate case.

Conclusion:
The court dismissed the petitions, finding no merit in the arguments presented. The reassessment proceedings under Section 148 were justified, and the interest received under Section 28 of the 1894 Act was held to be taxable as income from other sources. The issues regarding exemption under Section 10(37) and deduction under Section 57(iv) were left to be addressed by the Assessing Officer based on the factual matrix. The issue of TDS was left open for future consideration.

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