2009 (9) TMI 85 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of enhanced compensation in the year of receipt.
2. Taxability of interest on enhanced compensation in the year of receipt.

Summary:

Issue 1: Taxability of Enhanced Compensation in the Year of Receipt

The Revenue challenged the CIT(A)'s decision that the enhanced compensation received by the assessee was not taxable in the assessment year 2000-01 because the award of compensation got finality on 10th Aug., 2005. The CIT(A) had relied on various case laws to support this decision. However, the Tribunal referred to the Supreme Court's decision in CIT vs. Ghanshyam (HUF) (2009) 315 ITR 1 (SC), which held that the receipt of enhanced compensation on compulsory acquisition of land is to be taxed in the year of receipt under s. 45(5), even if the compensation is disputed and subject to adjustment under s. 155(16). The Tribunal concluded that the taxability of the enhanced compensation in the year of receipt stands covered by the decision in Ghanshyam (HUF) and decided this issue against the assessee and in favor of the Revenue.

Issue 2: Taxability of Interest on Enhanced Compensation in the Year of Receipt

The assessee argued that the interest on enhanced compensation should not be taxed in the year of receipt but should be spread over the years from the date of delivery of possession of the land till the date of the order, relying on the Full Bench decision of the Supreme Court in Smt. Rama Bai vs. CIT (1990) 181 ITR 400 (SC). The Tribunal noted that this argument was not raised before the tax authorities below. However, the Tribunal considered the Supreme Court's decision in Ghanshyam (HUF), which held that interest under s. 28 of the Land Acquisition Act, 1894, is part of the enhanced compensation and is to be taxed in the year of receipt under s. 45(5). The Tribunal distinguished the decision in Smt. Rama Bai, stating that it did not consider the amended provisions of s. 45(5) and s. 155(16). Therefore, the Tribunal concluded that the interest on enhanced compensation is to be taxed in the year of receipt in accordance with the decision in Ghanshyam (HUF).

Conclusion:

Respectfully following the decision of the Supreme Court in Ghanshyam (HUF), the Tribunal decided both issues in favor of the Revenue, setting aside the order of the CIT(A). The appeal of the Revenue was allowed.