2009 (11) TMI 57 - HC - Income Tax

Penalty u/s 271(1)(c) - ITAT hold that the issue of taxability of compensation on agricultural land and interest thereon received by the assessee being a highly debatable issue on which two views are clearly possible and the claim of the assessee in adopting one possible view being bonafide one no case of penalty u/s 271 (1) (c ) of the Act could be made out - The question is not of taxability but of not paying tax when the issue was debatable. The assessee had arguable case and earlier view was in favour of the assessee in CIT v. Karanbir Singh which is based on the judgment of the Hon ble Supreme Court in CIT v. Hindustan Housing and Land Development Trust Ltd. which has now been reversed in Ghanshyam penalty not to be impsoed

Summary

Issues:
1. Interpretation of taxability of compensation on agricultural land and interest received by the assessee.
2. Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for not offering the compensation as taxable income.
3. Consideration of debatable issues and bonafide belief of the assessee in adopting a particular view.

Analysis:
1. The appeal before the High Court concerned the taxability of compensation on agricultural land and interest received by the assessee for the assessment year 2002-03. The Tribunal had held that the amount was taxable, leading to the Assessing Officer levying a penalty under Section 271(1)(c) of the Act. The CIT (A) set aside the penalty, stating that the requisite satisfaction for penalty imposition was not recorded. The High Court remanded the matter to the Tribunal to consider the satisfaction recorded. The Tribunal ultimately set aside the penalty, deeming the issue debatable, following the precedent set in CIT Vs. Sohan Lal (HUF).

2. The appellant argued that a subsequent Supreme Court judgment in Commissioner of Income-Tax v. Ghanshyam (HUF) clarified that income received as compensation was taxable, thus justifying the penalty imposition. However, the Court emphasized that the issue was not the taxability of the amount but the failure to pay tax when the issue was debatable. The assessee had a plausible case, supported by previous favorable judgments like CIT v. Karanbir Singh and CIT v. Hindustan Housing and Land Development Trust Ltd., which had now been reversed by the Ghanshyam judgment.

3. The Court concluded that since the Tribunal's decision aligned with the stance taken in the Sohan Pal case, where penalty imposition was deemed unnecessary for debatable issues, no substantial question of law arose. Consequently, the appeal was dismissed, upholding the Tribunal's decision and emphasizing the importance of considering the bonafide belief and debatability of tax issues in penalty assessments.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, and the Court's reasoning leading to the final decision.