1996 (4) TMI 151 - AT - Income Tax

Summary

Issues:
Deduction under section 80-L on interest from compensation; Interpretation of "deposit" under section 80L; Applicability of section 80L to interest on compensation; Prima facie adjustment under section 143(1)(a); Rectification under section 154 of the Income-tax Act.

Analysis:
The appeals involved a common issue concerning the deduction under section 80-L on interest received as compensation for land acquisition. The assessees claimed the deduction under section 80L for interest received due to delay in compensation payment by the acquisition authorities.

The Assessing Officer initially disallowed the deduction under section 80L while making prima facie adjustments under section 143(1)(a) of the Income-tax Act. The matter was referred to the Dy. Commissioner of Income-tax under section 144A, who rejected the claim stating that section 80L was not applicable as the interest was not on any deposit envisaged under section 80L.

The CIT(A) upheld the decision, emphasizing that the assessees did not make any deposit with the State Housing Authority to earn the interest received as compensation. The CIT(A) concluded that since no "deposit" was made, the assessees were not entitled to the deduction under section 80L.

The assessees then appealed to the Appellate Tribunal, arguing that the decision to disallow the deduction was controversial and not legally correct. They cited precedents where similar deductions were allowed by the ITO following directions from the CIT(A).

The Tribunal, after considering the arguments, agreed with the CIT(A) and held that the interest received as compensation for delayed payment cannot be considered a deposit under section 80L. The Tribunal emphasized that the purpose of section 80L is to encourage investments in specific schemes, and interest on compensatory measures like the one received by the assessees does not qualify for exemption under section 80L.

The Tribunal dismissed the appeals, stating that the assessees' reliance on Circulars and previous decisions was unfounded as they did not support the interpretation that interest on compensation is equivalent to interest on a deposit. The Tribunal found no merit in the arguments raised by the assessees and upheld the decision to disallow the deduction under section 80L.

In conclusion, the Tribunal dismissed all the appeals of the assessees, affirming that the interest received as compensation for delayed payment does not qualify for deduction under section 80L of the Income-tax Act.