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2024 (6) TMI 77 - HC - Income TaxNature of receipt - Characterization of receipt - receipt of interest against the principal amount deposited by the assessee pursuant to the auction sale - HELD THAT - Interest accrued on the compensation received herein can be termed as a capital receipt and thus, the same is not chargeable to tax. In the present case, the amount in question was received due to the order passed by the Punjab and Haryana High Court on account of cancellation of the auction. It is pertinent to point out that this amount cannot be characterized as compensation granted by the Court on account of cancellation of the auction. Rather, such an amount was a bona fide amount of the successful auction bidder, which he had deposited against the purchase of the land. The amount so received by the assessee was the entitlement of the successful bidder which was given back to the assessee vide an order of the Court. Thus, when the amount in question was not in the nature of compensation, then, as a natural corollary, the interest accrued on the said amount cannot tantamount to revenue receipts and hence, the same cannot be subjected to tax as per Section 56 (2) (viii) of the Act. We are of the considered opinion that the ITAT was correct in holding that the amount of interest was in the nature of capital receipt and thereby, not chargeable to tax. Thus, we do not find any reason to interfere with the judgment rendered by the ITAT.
Issues Involved:
1. Whether the receipt of interest against the principal amount deposited by the assessee, pursuant to an annulled auction sale, is liable to be characterized as a capital receipt. 2. The correctness of the ITAT order dated 13.04.2018, which deleted the addition of INR 3,19,07,676/- holding it as a capital receipt not chargeable to tax. Detailed Analysis: 1. Characterization of the Receipt: The primary issue in this appeal is whether the interest received by the assessee on the principal amount deposited during an auction sale, which was later annulled by the court, should be considered a capital receipt. The assessee had acquired the right to purchase a property through an auction conducted by Punjab National Bank. After paying the entire purchase price, the auction was annulled, and the Punjab and Haryana High Court directed the refund of the deposited amount along with accrued interest. The Assessing Officer (AO) added the amount of INR 3,19,07,676/- to the total income of the assessee, treating it as a non-capital receipt. The Commissioner of Income Tax (Appeals) [CIT(A)] initially affirmed this finding but later modified the order, holding the amount as a capital receipt not liable to tax. The ITAT upheld this view, leading to the present appeal by the Revenue. 2. Correctness of the ITAT Order: The ITAT, in its order dated 13.04.2018, held that the amount received was not in the nature of debt but was due to the cancellation of the auction. The ITAT characterized the interest on the refunded amount as a capital receipt and therefore, not chargeable to tax. The Revenue contended that the amount should be considered as income from other sources under Section 56(2)(viii) of the Income Tax Act, 1961, and thus taxable. The court considered the arguments from both sides. The Revenue argued that the amount received was in the nature of compensation, making the interest taxable. The assessee countered that the amount was not compensation but a refund due to the annulled auction, supported by precedents like CIT v. Saurashtra Cement Ltd. and Pr. CIT v. Pawa Infrastructure Pvt. Ltd. Judicial Precedents: The court referred to several judicial precedents to support its conclusion. In Saurashtra Cement Ltd., the Supreme Court held that damages for delay in procuring a capital asset were a capital receipt and not taxable. Similarly, in Pawa Infrastructure Pvt. Ltd., compensation received from the cancellation of a lease was deemed a capital receipt. In Girish Bansal v. Union of India, the court held that the amount received due to the cancellation of a sale certificate was a capital receipt. Conclusion: The court concluded that the amount received by the assessee was not compensation but a refund of the deposited amount due to the annulled auction. Therefore, the interest accrued on this amount was a capital receipt, not chargeable to tax under Section 56(2)(viii) of the Act. The ITAT's decision to characterize the interest as a capital receipt was upheld, and the appeal by the Revenue was dismissed. Judgment: The appeal was dismissed, and the ITAT's order holding the interest amount of INR 3,19,07,676/- as a capital receipt not chargeable to tax was upheld. Pending applications, if any, were also disposed of.
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