2006 (9) TMI 91 - HC - Income Tax

Income -During the pendency of appeal filed by the SG an interim order passed by the HC directing the SG to deposit award amount and out of which 50% amount withdrawn by the assessee - Revenue contented that withdrawn amount taxable in that period - Held that withdrawn amount taxable only when decision attained finality

Summary

Issues:
1. Taxability of compensation received pending appeals before the Calcutta High Court.
2. Applicability of Section 45(5)(c) of the Income-tax Act for assessment years 1997-98 and 1998-99.
3. Consideration of the decision of the High Court in the case of CWT/CIT v. T. Girija Ammal.

Issue 1: Taxability of compensation received pending appeals before the Calcutta High Court:
The case involved appeals against the order of the Income Tax Appellate Tribunal Madras 'A' Bench regarding the taxability of amounts received by the assessees as additional compensation during land acquisition proceedings. The assessees, co-owners of a property in Kolcutta, received enhanced compensation as per interim orders of the Calcutta High Court pending appeals filed by the State. The Revenue contended that these amounts should be taxed as capital gains under section 45(5)(b) of the Income-tax Act. However, the assessees argued that the amounts were conditional payments and should not be taxed until the final outcome of the appeals. The High Court referred to section 45(5) of the Act, which specifies the treatment of enhanced compensation, and noted that the amounts received should be deemed as income chargeable in the year of receipt.

Issue 2: Applicability of Section 45(5)(c) of the Income-tax Act:
The High Court did not delve into the question of the applicability of Section 45(5)(c) of the Income-tax Act for the assessment years 1997-98 and 1998-99. This section deals with the computation of capital gains in cases where compensation or consideration is reduced by a court or tribunal after assessment. Since the primary issue of taxability of amounts received pending appeals was resolved in favor of the assessee, the court found it unnecessary to address this specific provision.

Issue 3: Consideration of the decision in CWT/CIT v. T. Girija Ammal:
The High Court highlighted the decision in CWT/CIT v. Smt. T. Girija Ammal, where it was held that additional compensation received pending appeals could not be treated as part of the compensation until finally determined by the High Court or Supreme Court. The court emphasized that the right to receive such additional compensation was only an inchoate right during the pendency of appeals. Following this precedent, the High Court concluded that the amounts received by the assessees as part of the compensation were only assessable once the appeals before the Calcutta High Court reached finality. The Appellate Tribunal's failure to consider the interim nature of the amounts received led the High Court to rule in favor of the assessee, stating that the amounts were not liable to tax.

In conclusion, the High Court ruled in favor of the assessee, holding that the amounts received pending appeals before the Calcutta High Court were not taxable until the appeals reached finality. The court emphasized the interim nature of the payments and the inchoate right of the assessees over the additional compensation. The decision in CWT/CIT v. Smt. T. Girija Ammal was instrumental in guiding the court's interpretation of the taxability of such amounts.