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2018 (10) TMI 1754 - AT - Income TaxTaxability of the interest received on enhanced compensation u/s 28 of the Land Acquisition Act, 1894 - income from other sources - year of taxability of the interest income - assessee treated the interest on the enhanced compensation as part of the compensation liable to be taxed under section 45(5) of the income Tax Act and the transferred land being rural agricultural land exempt from capital Gains tax u/s 10(37) - enhanced compensation alongwith interest thereupon u/s 28 of the Land Acquisition Act, 1894 was received by the assessee - assessee treated the interest on the enhanced compensation as part of the compensation liable to be taxed under section 45(5) of the income and the transferred land being rural agricultural land exempt from capital Gains tax u/s 10(37) - HELD THAT - As decided in Manjeet Singh(HUF) 2015 (12) TMI 1123 - PUNJAB HARYANA HIGH COURT which had dealt with the decisions of the Hon'ble Apex Court in Ghanshyam, HUF 2009 (7) TMI 12 - SUPREME COURT holding the same to be in the nature of compensation taxable as such. The law of the land and has to be followed by all lower authorities. In view of the above, we hold that the interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s 56 of the Act as held by the authorities below. The compensation being exempt u/s 10(37) of the Act is not disputed. In view of the same the order passed by the CIT(Appeals) upholding the addition made by the AO on account of interest on enhanced compensation is, not sustainable - Decided in favour of assessee Revision u/s 263 - Since the adjudication relied on the judgments of the highest Court of the Country and also the judgments of jurisdictional High Courts the the action proposed by the CIT(Panchkula) under Section 263 is hereby quashed as at this juncture the order of the Assessing Officer cannot be termed as erroneous in so far as it is prejudicial to the interest of the Revenue. Regarding the taxes already paid no directions are being passed with reference to the issue of refund to the assessee. The Revenue may consider for appropriate relief in accordance with the provisions of Income Tax Act,1961 on receipt of application from the assessee in this regard.
Issues Involved:
1. Taxability of interest received on enhanced compensation. 2. Action of the Revenue invoked under sections 147, 154, and 263 of the Income Tax Act. Detailed Analysis: Taxability of Interest on Enhanced Compensation: The primary issue in these appeals is the taxability of interest received on enhanced compensation under section 28 of the Land Acquisition Act, 1894. The lands of the assessees were compulsorily acquired, and compensation was later enhanced by the court. The assessees treated the interest on enhanced compensation as part of the compensation, exempt from capital gains tax under section 10(37) of the Income Tax Act, 1961. The Assessing Officer (AO) observed that, starting from the assessment year 2010-11, the interest received on enhanced compensation was taxable in the year of receipt as per section 145A(b). For prior years, the AO applied the Supreme Court's decision in Rama Bai Vs. CIT, which required proportionate allocation of interest to different assessment years. The AO added the proportionate interest as taxable income under the head 'other sources' in the reopened assessment proceedings under section 147 read with section 143(3). CIT(A) Decision: The assessees cited the Supreme Court's decision in CIT Vs. Ghanshyam (HUF), which held that interest received under section 28 of the Land Acquisition Act is part of the compensation and not taxable as interest income. The CIT(A) allowed the appeal of the assessees based on this decision. Rectification under Section 154: The AO sought rectification under section 154, arguing that the interest received under section 28 was taxable as 'income from other sources' under section 56(2)(viii) read with section 57(iv), as per the Punjab & Haryana High Court's decision in Manjeet Singh (HUF) Vs. Union of India. The CIT(A), considering various High Court decisions, rectified the earlier order and held the interest taxable under 'other sources.' Tribunal's Analysis: The Tribunal noted that interest under section 28 is an accretion to the value of the land and part of enhanced compensation, unlike interest under section 34, which is for undue delay. The Supreme Court in Ghanshyam (HUF) and Govindbhai Mamaiya reiterated that interest under section 28 is part of the enhanced compensation and taxable on receipt basis. The Tribunal also referenced the Supreme Court's decisions in CIT Vs. Chet Ram (HUF) and Union of India Vs. Hari Singh, which upheld the same principles. The Tribunal concluded that the interest received under section 28 is in the nature of compensation and exempt under section 10(37). Action under Sections 147, 154, and 263: Since the core issue was decided in favor of the assessee, the Tribunal deemed the other grounds under sections 147 and 154 academic and did not adjudicate them. The Tribunal quashed the action under section 263, as the AO's order was not erroneous or prejudicial to the Revenue's interest. Conclusion: The appeals by the assessees were allowed, confirming that the interest received on enhanced compensation is part of the compensation and exempt from tax under section 10(37). The Tribunal did not pass directions regarding the refund of taxes already paid, leaving it to the Revenue to provide appropriate relief upon application by the assessees. Final Order: All the appeals preferred by the assessees were allowed, and the order was pronounced in the open court on 04/10/2018.
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