2024 (4) TMI 408 - HC - Income Tax

Characterization of receipt - interest received by the assessee under Section 28 and 34 of the Land Acquisition Act, 1894 - as per AO receipt of interest must be treated as income chargeable to tax u/s 56(2)(viii) of the Act and therefore, it allowed the statutory deduction of 50% of the interest income u/s 57(iv) - whether the interest on enhanced compensation received by the respondent-assessee partakes the character of income from other sources under Section 56(2)(viii) of the Act, to be considered as separable from the enhanced compensation? HELD THAT - A conjoint reading of the provisions i.e., Sections 56(2)(viii) and 145-B of the Act vividly stipulate that the income received by way of interest on compensation or on enhanced compensation shall be chargeable to tax under the head income from other sources . Therefore, since the position with respect to the imposition of tax on interest on compensation or enhanced compensation, as it exists today, came into being only in the year 2010, the conclusions drawn from the decision in Ghanshyam 2009 (7) TMI 12 - SUPREME COURT which was passed in the year 2009, are unsustainable in the facts of the present case. Much reliance has been placed by the ITAT upon the decision of the Hon ble Supreme Court in the case of CIT v. Govindbhai Mamaiya 2014 (9) TMI 587 - SUPREME COURT which relies upon the case of Ghanshyam (supra) to hold that the interest on enhanced compensation received under Section 28 of the Act of 1894 is exigible to tax on receipt basis. However, a deeper analysis of the decision in Govindbhai Mamaiya (supra) would show that it does not deal with any issue pertaining to the change in the taxability, put in place through the concerned amendment of 2010. Therefore, the said decision lacks any applicability in the facts and circumstances of the present case. Notably, a three-Judges Bench of the Hon ble Supreme Court in the case of Sham Lal Narula (Dr.) 1964 (4) TMI 10 - SUPREME COURT while considering the interest under Section 28 of the Act of 1894 to be analogous to the interest under Section 34 of the Act, took the view that the same did not form part of compensation We affirm the concurrent findings of the AO and CIT(A) and find that the view taken by the ITAT is unsustainable, as the same is based on an incorrect appreciation of law. The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. There is no question with respect to the vires of the amendment before us or regarding any ambiguity in the language of the amendment. The only concern is regarding the enunciation of the applicable law and we hold the same to unequivocally mean that interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income tax. We, accordingly, answer the substantial question of law which has arisen in the instant appeal in affirmative and in favour of the Revenue.

Summary

Issues Involved:
1. Taxability of interest on compensation or enhanced compensation under the Land Acquisition Act, 1894.
2. Applicability of Section 56(2)(viii) of the Income Tax Act, 1961 post the 2010 amendment.
3. Relevance of the Supreme Court decision in CIT v. Ghanshyam (HUF) post the amendment.

Summary:

Issue 1: Taxability of Interest on Compensation or Enhanced Compensation
The core issue was whether the interest received by the respondent/assessee u/s 28 and 34 of the Land Acquisition Act, 1894, falls under the provisions of Section 10(37) and Section 56(2)(viii) of the Income Tax Act, 1961. The High Court examined the provisions of the Land Acquisition Act, noting that Section 28 pertains to interest on excess compensation awarded by the court, whereas Section 34 deals with interest for delay in payment of compensation.

Issue 2: Applicability of Section 56(2)(viii) Post 2010 Amendment
The High Court emphasized the amendment introduced by the Finance (No. 2) Act, 2009, effective from 01.04.2010, which added Section 56(2)(viii) to the Income Tax Act. This provision specifically states that income by way of interest received on compensation or enhanced compensation shall be chargeable to tax under the head "income from other sources." The court highlighted that the amendment was a conscious departure from the earlier legal position.

Issue 3: Relevance of the Supreme Court Decision in CIT v. Ghanshyam (HUF) Post Amendment
The ITAT had relied on the Supreme Court's decision in CIT v. Ghanshyam (HUF) to treat the interest under Section 28 as part of the compensation. However, the High Court clarified that the decision in Ghanshyam (HUF) was rendered before the 2010 amendment and thus was not applicable to the current legal framework. The court also referred to subsequent judgments, including those from the Punjab and Haryana High Court, which upheld the taxability of such interest as income from other sources.

Conclusion:
The High Court concluded that the ITAT erred in setting aside the concurrent findings of the AO and CIT(A). It affirmed that post the 2010 amendment, interest on compensation or enhanced compensation is taxable as income from other sources u/s 56(2)(viii). The court set aside the ITAT's order and upheld the assessment order, thereby allowing the Revenue's appeal.