2023 (5) TMI 123 - AT - Income Tax

Disallowance of claim of deduction @ 50% u/s 57(iv) - interest received on enhanced compensation - AO disallowed the claim on ground that as the appellant is in the business of real estate, the interest income arising from compulsory acquisition of property is taxable under the head PGBP and not income from other sources - HELD THAT - Section 56(2)(viii) provides that interest on enhanced compensation has to be taxed under the head Income from other source. We agree with Assessee that the deduction U/s 57(iv) is to be allowed and the ground on which revenue authorities have disallowed the claim being the assessee engaged in business is of no relevance. Thus, on the basis of the overriding provision of Section 56(2)(viii) read with Section 57(iv) of the Act, we agree that the assessee is entitled to the statutory deduction of 50% u/s 57(iv) of the Act. Hence we set aside the orders of the authorities below and decide the issue in favour of the Assessee.

Summary

Issues involved:
The issues involved in this judgment are:
1. Disallowance of addition to compensation received on land acquisition by the Government of India.
2. Disallowance of benefit of cost of acquisition while taxing compensation.
3. Disallowance of deduction under Section 57(iv) in respect of interest on enhanced compensation.

Issue 1: Disallowance of addition to compensation:
The appeal was against the order upholding the addition to compensation received on land acquisition without appreciating the factual matrix of the case. The assessee argued that there was no accrual of income in the relevant year as the compensation was under dispute. The assessee had accounted for the compensation in a later assessment year, leading to double taxation. The tribunal dismissed Grounds 1 and 2 as not pressed.

Issue 2: Disallowance of benefit of cost of acquisition:
The contention was that the assessing officer rejected the claim of cost of acquisition, disregarding the scheme and intent of the Income Tax Act. The argument was that income tax should be chargeable only on "Income" and the benefit of cost of acquisition should have been allowed while taxing compensation.

Issue 3: Disallowance of deduction under Section 57(iv):
The dispute was regarding the disallowance of deduction under Section 57(iv) in respect of interest on enhanced compensation. The assessing officer disallowed the deduction, stating that the interest income was taxable under the head "Profit and Gains of Business & Profession" due to the nature of the appellant's business. The tribunal, after considering relevant provisions, held that the interest on enhanced compensation should be taxed under the head "Income from Other Sources," allowing the deduction under Section 57(iv) to the assessee.

In conclusion, the tribunal allowed the appeal of the assessee, setting aside the orders of the lower authorities and deciding in favor of the assessee regarding the disallowance of deduction under Section 57(iv) in respect of interest on enhanced compensation.