2008 (4) TMI 304 - HC - Income Tax

Acquisition of land - Interest on enhanced compensation accrual of income - held that the interest on enhanced compensation would not accrue till the issue of enhanced compensation is finally decided and thereafter on attaining the finality of determination of enhanced compensation by the court the interest accrued to the assessee has to be spread over on an annual basis right from the date of delivery of possession till the date of the order of the court on the time basis revenue s appeals are dismissed

Summary

Issues:
- Taxability of interest on enhanced compensation when the issue attains finality.

Analysis:
The High Court dealt with the issue of the taxability of interest on enhanced compensation when the issue attains finality. The Revenue filed appeals against the orders of the Income-tax Appellate Tribunal, which had held that interest on enhanced compensation is taxable only when the issue attains finality. The assessee had received enhanced compensation and interest on it during the relevant year. The Assessing Officer had assessed the interest income on a receipt basis, but the Commissioner of Income-tax (Appeals) upheld this decision. However, the Tribunal reversed this decision in favor of the assessee, citing a previous judgment. The Revenue challenged this before the High Court.

The Revenue argued that interest on enhanced compensation should be assessed on an accrual basis from the date of delivery of possession till the final determination of the compensation. They contended that the Tribunal erred in holding that interest is taxable only when the issue attains finality. The High Court, however, disagreed with this argument. They referred to a previous judgment and held that interest on enhanced compensation does not accrue until the issue is finally decided. The interest accrued to the assessee should be spread over on an annual basis from the date of delivery of possession till the court's final order on a time basis.

In conclusion, the High Court dismissed the appeals, stating that the Tribunal's view was in line with the authoritative pronouncement. They found no fault with the Tribunal's decision, emphasizing that interest on enhanced compensation should be spread over annually from the date of possession till the court's final order. Therefore, no substantial question of law remained for consideration, and the appeals were dismissed.