2017 (2) TMI 510 - HC - Income Tax

Assessment of interest on enhanced compensation - enhanced compensation under Section 28 of the Land Acquisition Act, 1894 and interest thereon has attained finality and the amount has been paid to the assessee - nature of income - Held that - The interest component on enhanced compensation under Section 28 of the 1894 Act is liable to be taxed under Section 56 of the 1961 Act and is not covered by Section 45(5)(c). Section 45(5)(c) of the 1961 Act does not apply to the case before us for it was introduced by an amendment w.e.f. 01.04.2004. However, the judgement squarely applies even in respect of cases under Section 45(5)(b) as well for it is expressly observed that interest on enhanced compensation is not treated as compensation. See Commissioner of Income Tax. Versus Shri Prem Singh 2010 (12) TMI 460 - PUNJAB AND HARYANA HIGH COURT - Decided in favour of revenue.

Summary

Issues:
Appeal against ITAT order for assessment year 2003-2004 regarding interest on enhanced compensation under Land Acquisition Act, 1894.

Analysis:
The High Court considered an appeal against the ITAT order for the assessment year 2003-2004 concerning the taxation of interest on enhanced compensation under the Land Acquisition Act, 1894. The substantial question of law revolved around whether the interest on enhanced compensation, even when received by the assessee, should be assessed considering the dispute's pendency before the High Court and the release of the amount upon furnishing security. The Court noted that the enhanced compensation and interest had been finalized and paid to the respondent-assessee after the question of law was framed.

The appeal was adjourned earlier to await a Supreme Court decision in a related matter. The respondent-assessee argued that interest on enhanced compensation falls under the compensation definition in the Income Tax Act, 1961, while the appellant disagreed. The Court referred to a previous judgment in a similar case and held that interest on enhanced compensation is taxable under Section 56 of the 1961 Act, not covered by Section 45(5)(c), even if the compensation is treated as agricultural income and not under Section 45(5)(b) introduced in 2004.

The Division Bench's interpretation of the Supreme Court's judgment in a previous case was considered binding, and the Court did not allow further arguments on this matter. The Court decided in favor of the appellant-revenue, holding that the interest component on enhanced compensation under the Land Acquisition Act is taxable in the year of receipt, irrespective of pending proceedings against the award. Consequently, the appeal was allowed, and the Tribunal's order was set aside.