2023 (1) TMI 824 - AT - Income Tax

Interest received on enhanced compensation u/s 28 of the Land Acquisition Act, 1894 - whether it partakes nature of enhanced compensation and is exempt from tax under Section 10 (37) ? - AO taking into consideration the provision of sub-section (1) of Section 145B of the Act read with section 56(2)(viii) was of the view that interest part of the enhanced compensation was taxable and further extending the benefit of Section 54(4) of the Act of deduction of 50% proposed additions - HELD THAT - In the case where there is conflict of views between different High Courts, ITO must follow the decision of the High Court within whose jurisdiction he is functioning - Hon ble Rajasthan High Court in the case of CIT -vs.- Sunil Kumar 1994 (7) TMI 42 - RAJASTHAN HIGH COURT held that the decision of the Jurisdictional High Court is binding on the Income tax Authorities and the Tribunal within the jurisdiction of the Court and the contrary decision of another High Court is not relevant, and that a point decided by the Jurisdictional High Court can no longer be considered to be a debatable issue. Then in the case of CIT -vs.- Smt. Aruna Luthra 2001 (8) TMI 84 - PUNJAB AND HARYANA HIGH COURT the Full bench of the Hon ble Punjab Haryana High Court has held that once the jurisdictional High Court or Supreme Court decides a particular issue, the judgment of jurisdictional High Court/Supreme Court would relate back to the date when particular section was inserted in the Act. Coming to the claim of assessee based on the basis of judgment of Hon'ble Supreme Court of India in CIT Vs. Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT it is pertinent to mention that the same was of 16.07.2009 however, subsequent amendments in the Act have been taken note by Hon ble Punjab and Haryana High Court in the judgment of Mehendra Pal Narang V. CBDT 2020 (3) TMI 1115 - PUNJAB AND HARYANA HIGH COURT and which has been thoroughly relied by the Ld. Tax authorities below. CIT(A) has also taken into consideration the aforesaid observations of Hon ble P H High Court and specifically observed that the Hon ble High Court had considered the decision of the Hon ble Apex Court in the case Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT - The SLP filed by the assessee had been dismissed by Hon ble Apex Court in 2021 (3) TMI 1399 - SC ORDER - The decision of Hon ble Jurisdictional High Court on similar issue is wholly binding on me. Hence, it is held that interest received on enhanced compensation is taxable u/s 56(2)(viii) of the Act. The bench is of considered opinion that the ld Tax Authorities Below have not fallen in any error in following the judgment of jurisdictional High Court. That being so, there is no merit in the grounds of appeal, therefore, appeal stands dismissed.

Summary

Issues Involved:

1. Taxability of interest on enhanced compensation under Section 28 of the Land Acquisition Act, 1894.
2. Applicability of Section 10(37) of the Income Tax Act, 1961.
3. Relevance of the Supreme Court judgment in CIT Vs. Ghanshyam (HUF) [315 ITR 1(SC)].
4. Binding nature of the jurisdictional High Court's decision.
5. Interpretation of Section 56(2)(viii) and Section 145B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of Interest on Enhanced Compensation:

The primary issue is whether the interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, is taxable. The Assessing Officer (AO) included the interest amount as taxable income under Section 145B(1) read with Section 56(2)(viii) of the Income Tax Act, 1961. The AO relied on the judgment of the Punjab and Haryana High Court in Mahendra Narang vs. CBDT, which held that such interest is taxable as "Income from Other Sources."

2. Applicability of Section 10(37) of the Income Tax Act, 1961:

The assessee contended that the interest on enhanced compensation forms part of the compensation and is exempt from tax under Section 10(37) of the Act, citing the Supreme Court judgment in CIT Vs. Ghanshyam (HUF). However, the AO and the CIT(A) did not accept this argument, holding that the interest is taxable under Section 56(2)(viii) despite the exemption under Section 10(37).

3. Relevance of the Supreme Court Judgment in CIT Vs. Ghanshyam (HUF):

The assessee argued that the Supreme Court in CIT Vs. Ghanshyam (HUF) had held that interest received under Section 28 forms part of the enhanced compensation and is exempt from tax under Section 10(37). However, the Tribunal noted that subsequent amendments in the Act, specifically Section 56(2)(viii) and Section 145B, have been considered by the Punjab and Haryana High Court in Mahendra Narang vs. CBDT, which held that such interest is taxable.

4. Binding Nature of the Jurisdictional High Court's Decision:

The Tribunal emphasized that the jurisdictional High Court's decision is binding. Since the land in question is situated in Panipat, Haryana, the jurisdictional High Court is the Punjab and Haryana High Court. The Tribunal cited several judgments to support the principle that the jurisdictional High Court's decision is binding on the Income Tax Authorities and the Tribunal within the jurisdiction.

5. Interpretation of Section 56(2)(viii) and Section 145B of the Income Tax Act, 1961:

The Tribunal considered the amendments brought by the Finance Act, 2010, which inserted Section 56(2)(viii) and Section 145B. These provisions specifically state that interest received on compensation or enhanced compensation shall be assessed as "Income from Other Sources." The Tribunal noted that the Punjab and Haryana High Court had thoroughly considered these amendments and held that the interest is taxable under these provisions, overriding the earlier Supreme Court judgment in CIT Vs. Ghanshyam (HUF).

Conclusion:

The Tribunal upheld the order of the CIT(A) and dismissed the appeal, holding that the interest on enhanced compensation is taxable under Section 56(2)(viii) of the Income Tax Act, 1961, as per the binding precedent of the jurisdictional High Court. The Tribunal found no merit in the grounds of appeal raised by the assessee. The order was pronounced in the open court on 17/01/2023.