2008 (3) TMI 306 - HC - Income Tax

Held that 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 therefore Tribunal is right in holding that holding that the interest is taxable when the issue relating to enhanced compensation attains its finality

Summary

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

Analysis:
The High Court dealt with the issue of whether interest on enhanced compensation is taxable when the issue attains finality. The Revenue challenged the Tribunal's order, arguing that interest should be assessed in the year of its receipt, relying on the case of Rama Bai v. CIT. The court, however, held that the interest on enhanced compensation is taxable only when the issue attains finality, following the Special Bench decision in Deputy CIT v. Padam Prakash, HUF. The court emphasized that interest cannot be taxed until the issue of enhanced compensation is finally settled.

The court referred to various precedents to support its decision. It cited the Madras High Court's judgment in CWT/IT v. Smt. T. Girija Ammal, which stated that enhanced compensation cannot be treated as part of the compensation until it is finally determined by the court. Additionally, the court relied on the Supreme Court's decision in CIT v. Hindustan Housing and Land Development Trust Ltd., which established that interest on enhanced compensation cannot be taxed until the issue is settled. The court also mentioned its own decision in Chandi Ram v. CIT, where it held that enhanced compensation should be assessed when the dispute attains finality.

Furthermore, the court discussed the Karnataka High Court's ruling in Chief CIT v. Smt. Shantavva, which emphasized that compensation received in pursuance of interim orders pending final determination cannot be taxed until the final determination. The court also referred to the Supreme Court's decision in K. S. Krishna Rao v. CIT, which stated that interest on enhanced compensation should be spread over on an annual basis from the date of possession till the court's order.

In conclusion, the court dismissed the appeals, stating that interest on enhanced compensation accrues only when the issue attains finality, and it should be spread over on an annual basis. The court found no fault with the Tribunal's view, as it aligned with the authoritative pronouncements of the apex court and upheld the principle that interest accrues only upon final determination of enhanced compensation.