2020 (3) TMI 1115 - HC - Income Tax

Correct head of income - interest received under Section 28 of the Land Acquisition Act, 1894 - part take the character of the compensation and would fall under the head Capital gains or Income from other sources - HELD THAT - The scheme with regard to chargeability of interest received on compensation and enhanced compensation has undergone a sea change with the insertion of Sections 56(2)(viii) and 57(iv) of the 1961 Act. Section 56 deals with income from other sources and a specific provision has been inserted by way of sub-section 2(viii), whereby the interest received on compensation or enhanced compensation, as referred to in clause (b) to Section 145A has been included under the head 'Income from other sources'. In clause (iv) to Section 57, deduction of fifty per cent is provided on interest received on compensation or enhanced compensation. In view of the amendments, the decision of Apex Court in Ghanshyam's case 2009 (7) TMI 12 - SUPREME COURT does not come to the rescue of the petitioner to claim that interest received under Section 28 of the 1894 Act is to be treated as compensation and to be dealt with under Capital gains . The fact that there is no amendment carried out under Section 10(37) of the 1961 Act will not change the position. Section 10 deals with deductions and subsection (37) thereof deals with capital gains arising from transfer of agricultural land, it no where provides as to what is to be included under the head Capital gains . The argument raised is not well founded. Learned counsel has relied on Circular No. 5 of 2010 by merely reading clause 46.1. The said clause talks about undue hardship being caused as arrears of interest being taxable on accrual basis. Clause 46.2 states that Section 145A is amended to overcome the difficulty, by deeming the income for the year in which it is received. Clause 46.3 has been ignored in which Section 56(2)(viii) is dealt with that interest on compensation or on enhanced compensation referred to in clause (b) of Section 145A shall be assessed as income from other sources . It is held that the interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head Capital gains .

Summary

Issues:
- Interpretation of Sections 56(2)(viii) and 57(iv) of the Income Tax Act, 1961 regarding interest received under Section 28 of the Land Acquisition Act, 1894.
- Applicability of amendments brought in 2010 to the taxation of interest on compensation or enhanced compensation.
- Whether interest received under Section 28 of the 1894 Act should be treated as "Capital gains" or "Income from other sources".

Analysis:
The case revolved around the interpretation of Sections 56(2)(viii) and 57(iv) of the Income Tax Act, 1961 concerning interest received under Section 28 of the Land Acquisition Act, 1894. The petitioner claimed that the interest should be treated as part of enhanced compensation and fall under the head of "Capital gains" rather than "Income from other sources." The petitioner's argument was based on the Supreme Court's decision in Commissioner of Income-tax v. Ghanshyam (HUF) and Central Board of Direct Taxes Circular No. 5 of 2010, aiming to remove hardships created by previous court decisions.

The court analyzed the relevant provisions of the Income Tax Act, including Section 10(37), Section 56(2)(viii), Section 57(iv), and Section 145A(b). It noted that the amendments introduced in 2010, specifically Sections 56(2)(viii) and 57(iv), altered the taxation scheme for interest received on compensation or enhanced compensation. The court highlighted that the interest was now to be assessed as "Income from other sources" and provided for a deduction of fifty percent under Section 57(iv).

Referring to the Ghanshyam case, the court emphasized that the amendments superseded the previous interpretation, making it clear that interest on compensation or enhanced compensation should be treated as "Income from other sources." The court dismissed the petitioner's reliance on Circular No. 5 of 2010, emphasizing the unambiguous language of the amended sections and the need to interpret statutes strictly according to their ordinary meaning.

Ultimately, the court held that interest received on compensation or enhanced compensation should be categorized as "Income from other sources" and not under "Capital gains." The judgment was based on the plain language of the amended sections and the legislative intent, affirming the tax treatment prescribed by the 2010 amendments. As a result, the writ petition was dismissed based on this interpretation of the relevant provisions of the Income Tax Act.