2019 (11) TMI 579 - AT - Income Tax

Method of accounting of interest received on delayed compensation - Accrual of income - whether the impugned interest income is attributable to the period of 18 years beginning from the assessment year 1991-92 and up-to the assessment year 2008-09 as claimed by the assessee? - HELD THAT - The court has awarded the interest on the enhanced compensation to the 5 parties. Therefore in our considered view the impugned interest income belongs to the 5 parties as claimed by the assessee. Assessee during the assessment proceedings has submitted the details of the parties who are entitled for the interest income along with the period to which the interest pertains. The details are available on page 24 of the paper book. None of the authorities below have pointed out any defect therein. The impugned interest income i.e. interest on the enhanced compensation was chargeable to tax to the respective years to which it pertains till the assessment year 2009-10. In holding so, we draw our support and guidance from the judgment of Hon ble Supreme Court in the case of Rama Bai v/s CIT 1989 (11) TMI 2 - SUPREME COURT as held interest cannot be taken to have accrued on the date of the order of the Court granting enhanced compensation but has to be taken as having accrued year after year from the date of delivery of possession of the lands till the date of such order. Amendment under section 145A of the Act which mandates to levy the tax on the interest on the enhanced compensation in the year of receipt doesn t apply to the year under consideration. Therefore we hold that such interest income shall be subject to tax on accrual basis for the year under consideration. We note that the assessee has paid the tax on such interest income which was worked out for the each year involved separately in the year under consideration. Indeed the TDS certificate was issued in the name of the assessee and accordingly the assessee has paid the taxes due on such income on behalf of all other parties. This fact can be verified from the income tax return filed by the assessee placed on page 1 of the paper book. Therefore, it is immaterial whether other parties have paid the taxes on such income. As such there is no loss to the revenue as well as there is no technique used by the assessee to avoid the tax on such income adopting the colorable device - we set aside the order of the learned CIT (A) and direct the AO to delete the addition made - Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Addition of ?59,39,819 as income from other sources.
3. Taxability of interest on enhanced compensation as part of the compensation for land.
4. Classification of interest as income from other sources versus capital gain.
5. Taxability of interest on enhanced compensation on receipt basis.
6. Allocation of interest among co-owners.
7. Breach of principles of natural justice by lower authorities.
8. Levy of interest under section 234A/B/C of the Act.
9. Initiation of penalty under section 271(1)(c) of the Act.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee did not press the ground challenging the reopening under section 147 of the Act. Therefore, this issue was dismissed as not pressed.

2. Addition of ?59,39,819 as Income from Other Sources:
The assessee, an individual deriving income from agricultural activities, received ?60,06,559 as interest on enhanced compensation awarded by the Hon’ble Gujarat High Court. The assessee claimed that this interest amount should be allocated among five co-owners and over a period of 18 years. However, the AO treated the entire interest income as belonging to the assessee for the year under consideration. The CIT(A) confirmed the AO’s decision, noting that the interest was received by the assessee and not offered for taxation on an accrual basis in earlier years.

3. Taxability of Interest on Enhanced Compensation:
The assessee argued that the interest on enhanced compensation should be considered part of the compensation for land and hence not taxable. The AO and CIT(A) disagreed, treating the interest as taxable income.

4. Classification of Interest as Income from Other Sources vs. Capital Gain:
The authorities treated the interest as income from other sources rather than capital gain. The assessee contended that this classification was incorrect.

5. Taxability of Interest on Enhanced Compensation on Receipt Basis:
The assessee contended that the interest should be taxed on an accrual basis over the period it pertains to, based on the Supreme Court judgment in Rama Bai v/s CIT. The authorities, however, taxed the entire interest in the year of receipt.

6. Allocation of Interest among Co-owners:
The assessee claimed that the interest should be allocated among five co-owners. The AO and CIT(A) did not accept this allocation, as there was no direction in the High Court’s order to allocate the interest among the co-owners, and the TDS certificate was issued in the name of the assessee.

7. Breach of Principles of Natural Justice:
The assessee argued that the lower authorities did not properly appreciate the facts and ignored various submissions, explanations, and information provided, constituting a breach of the principles of natural justice.

8. Levy of Interest under Section 234A/B/C:
The CIT(A) confirmed the AO’s action of levying interest under section 234A/B/C of the Act.

9. Initiation of Penalty under Section 271(1)(c):
The CIT(A) confirmed the AO’s action of initiating penalty under section 271(1)(c) of the Act.

Judgment:
The Tribunal analyzed the facts and concluded that the impugned interest income belongs to the five co-owners as per the Gujarat High Court’s order. The interest income pertains to the period from the assessment year 1991-92 to 2008-09 and should be taxed on an accrual basis for the respective years. The amendment under section 145A, mandating tax on receipt basis, does not apply to the year under consideration. The Tribunal noted that the assessee paid the tax on the interest income for each year involved, and there was no loss to the revenue. Therefore, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition made. The appeal was partly allowed.

Order pronounced in the Court on 16/10/2019 at Ahmedabad.

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