2025 (4) TMI 1492 - HC - Income Tax

Delay in filing the revised return of income - Condonation of Delay u/s 119(2)(b) - Petitioner was awarded the compensation for compulsory acquisition of the land in question by the Surat Municipal Corporation as per the award passed by the Civil Judge Senior Division under the provisions of the Land Acquisition Act 1894 - HELD THAT - Petitioner received the compensation in the month of September 2021 after the order of determining the share of the Petitioner passed by the Court on 04.09.2021. The Petitioner therefore could not show the amount of compensation in the original return filed on 04.01.2021. The Petitioner therefore was prevented by sufficient cause to claim the refund of the amount of tax deducted at source by the Surat Municipal Corporation at the time of deposit of the compensation with the Court. The reasoning given by the Respondents authorities while rejecting the application do not commensurate with the facts of the case inasmuch as the Respondents have failed to consider that the compensation received by the Petitioner was exempted from tax and therefore the Petitioner is entitled to get the refund of the TDS which was deposited by the acquiring body with the Government and for that purpose the Petitioner is required to file the revised return which can be possible only if the delay in filing such revised return is condoned by exercising the powers vested in Section 119 of the Act. The objection of Section 119 of the Act is to see that the Assessee are even not put to any unnecessary hardships to claim any refund which otherwise is eligible to get. Respondents-authorities were required to consider the facts of the case more particularly when the Petitioner admittedly has not received the compensation till the due date of filing of return on 31.05.2021 and when the Petitioner received such compensation the delay in filing the revised return is required to be condoned so that the Petitioner gets the refund of the TDS deposited by the acquiring body in the Government as such compensation received by the Petitioner is not taxable under the provisions of the Act. Order passed by the Respondents u/s 119 (2) (b) of the Act is hereby quashed and set aside and the Respondents are directed to pass the fresh order to condone the delay in filing the revised return by the Petitioner so as to process the same in accordance with law by the AO.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether the delay in filing the revised return of income for the Assessment Year 2020-21 by the Petitioner can be condoned under Section 119(2)(b) of the Income Tax Act, 1961, given the circumstances of receipt of compensation for compulsory acquisition of land after the due date for filing the original return;

(b) Whether the compensation received by the Petitioner for compulsory acquisition of land is taxable under the Income Tax Act, 1961;

(c) Whether the Petitioner is entitled to claim refund of Tax Deducted at Source (TDS) deducted by the acquiring authority (Surat Municipal Corporation) on such compensation;

(d) Whether the Respondent authorities erred in rejecting the application for condonation of delay in filing the revised return;

(e) The applicability and interpretation of relevant circulars and judicial precedents concerning the condonation of delay and refund of TDS in cases of compulsory acquisition compensation;

(f) Whether the Petitioner is liable to pay tax on the interest component received along with the compensation;

(g) The entitlement of the Petitioner to interest on the refund amount under Section 244A of the Income Tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Condonation of Delay under Section 119(2)(b) of the Income Tax Act, 1961

Relevant legal framework and precedents: Section 119(2)(b) empowers the Board or an authorized income-tax authority to admit an application or claim for exemption, deduction, refund, or any other relief after the expiry of the prescribed period if it is considered desirable or expedient to avoid genuine hardship. The Court referred to its own earlier decision in a similar case (Ramjibhai Lavabhai Undhad v. Chief Commissioner of Income Tax) and the judgment of the Supreme Court in Union of India v. Hari Singh, emphasizing the need to avoid unnecessary hardship to taxpayers.

Court's interpretation and reasoning: The Court observed that the Petitioner was prevented by sufficient cause from including the compensation amount in the original return filed on 04.01.2021 because the share of compensation was determined only on 04.09.2021, after the due date for filing the return (31.05.2021). The Petitioner could not have declared an amount not yet received or quantified. Therefore, the delay in filing the revised return was justified and ought to have been condoned by the Respondent authorities.

Key evidence and findings: The Petitioner's compensation was deposited by the Surat Municipal Corporation with the Court on 06.07.2019 but the share of the Petitioner was not determined until 04.09.2021. The Petitioner received the compensation only after this date, making it impossible to declare the income earlier. The Petitioner filed an application for condonation of delay on 08.02.2023.

Application of law to facts: The Court held that the Respondents failed to appreciate the factual matrix and the exemption status of the compensation. The delay was not due to negligence but due to the procedural requirement of determining the Petitioner's share. Hence, the delay in filing the revised return should have been condoned under Section 119(2)(b).

Treatment of competing arguments: The Respondents argued that the Petitioner ought to have verified FORM 26AS before filing the return, as the TDS was deposited earlier. The Court rejected this argument, emphasizing that the Petitioner did not receive the compensation or know his share until after the due date. The Court also noted that the Respondents did not consider the exemption of compensation from tax.

Conclusion: The Court concluded that the delay in filing the revised return deserved to be condoned to avoid genuine hardship to the Petitioner.

(b) Taxability of Compensation Received on Compulsory Acquisition of Land

Relevant legal framework and precedents: The Court relied on Circular No. 36 of 2016 and the Supreme Court's decisions, including the case of Union of India v. Hari Singh and Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF), which clarify that compensation received for compulsory acquisition of agricultural or non-agricultural land under the Land Acquisition Act, 1894, is exempt from tax. The Court also referred to Section 194LA of the Income Tax Act, which deals with TDS on compensation but exempts agricultural land compensation.

Court's interpretation and reasoning: The Court found that the compensation received by the Petitioner was exempt from tax under the Act. The Petitioner was entitled to claim refund of TDS deducted by the acquiring authority, as the tax deduction was not applicable to the compensation amount.

Key evidence and findings: The Petitioner's land was compulsorily acquired under the Land Acquisition Act, 1894, and the compensation was determined by the Civil Court. The Petitioner received compensation along with interest, all exempt from tax.

Application of law to facts: Since the compensation was exempt, the TDS deducted was not payable to the Government and had to be refunded to the Petitioner.

Treatment of competing arguments: The Respondents contended that the Petitioner was liable to pay tax on the interest component received. The Court rejected this contention, holding that the entire compensation, including interest, was exempt under the relevant provisions.

Conclusion: The compensation and interest received by the Petitioner were not taxable, entitling him to refund of TDS.

(c) Entitlement to Refund of TDS and Interest Thereon

Relevant legal framework and precedents: The Court extensively referred to the Supreme Court's judgment in Tata Chemicals Limited and various High Court rulings, which establish that when tax is collected illegally or without right, the revenue must refund the amount with interest under Section 244A of the Income Tax Act. Instruction No. 7/2013 mandates payment of interest on refunds where the assessee is not at fault.

Court's interpretation and reasoning: The Court held that the Petitioner was entitled to refund of TDS deducted on exempt compensation. Further, since the Petitioner was not at fault for the delay in filing the revised return, he was entitled to interest on the refund amount from the date of TDS deposit till the date of refund.

Key evidence and findings: The Petitioner was not informed about the TDS deduction timely, and Form 16A was not issued by the deductor, causing delay in claiming refund. The refund amount was already paid to the Petitioner.

Application of law to facts: The Court applied the principle that money received and retained without right carries with it the right to interest as a matter of course. The Petitioner's delay was excusable and not attributable to him.

Treatment of competing arguments: The Respondents relied on Circular No. 9 of 2015 to deny interest on belated refund claims. The Court distinguished this circular, noting it applies only to supplementary claims post-assessment, which was not the case here.

Conclusion: The Petitioner is entitled to refund of TDS along with interest under Section 244A of the Act.

(d) Application and Interpretation of Circulars and Precedents Regarding Condonation and Refund

Relevant legal framework and precedents: Circular No. 36 of 2016 clarifies non-taxability of compensation on compulsory acquisition. Circular No. 9 of 2015 relates to condonation of delay in refund claims. The Court relied on judicial precedents including the Supreme Court's decisions and its own prior rulings.

Court's interpretation and reasoning: The Court found that the Respondents misapplied Circular No. 9 of 2015, which does not bar condonation or interest in cases like the present. The Court emphasized that the law favors avoiding hardship to taxpayers and ensuring refunds are not denied due to procedural delays beyond the taxpayer's control.

Conclusion: The circulars and precedents support condonation of delay and grant of refund with interest in the facts of this case.

(e) Liability to Tax on Interest Component Received

Relevant legal framework and precedents: The Court noted that the entire compensation, including interest, is exempt under the Land Acquisition Act and Income Tax Act provisions.

Court's interpretation and reasoning: The Respondents' contention that tax is payable on interest was rejected as contrary to the statutory provisions and judicial pronouncements.

Conclusion: No tax liability arises on the interest component received along with compensation.

3. SIGNIFICANT HOLDINGS

"The Petitioner therefore was prevented by sufficient cause to claim the refund of the amount of tax deducted at source by the Surat Municipal Corporation at the time of deposit of the compensation with the Court. In such circumstances, the Respondents-authorities ought to have allowed the application of the Petitioner to condone the delay in filing the revised return to claim the refund of the TDS of Rs. 37,40,330/- deposited by the Surat Municipal Corporation."

"The objection of Section 119 of the Act is to see that the Assessee are even not put to any unnecessary hardships to claim any refund which otherwise is eligible to get."

"Money received and retained without right carries with it right to interest and whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows as a matter of course."

"The Petitioner's compensation received on compulsory acquisition of land is exempt under the provisions of the Income Tax Act, 1961 and therefore, the Petitioner is entitled to refund of the TDS deducted by the acquiring body."

"The impugned order dated 06.11.2023 passed by the Respondents under Sections 119 (2) (b) of the Act is hereby quashed and set aside and the Respondents are directed to pass the fresh order to condone the delay in filing the revised return by the Petitioner so as to process the same in accordance with law by the Assessing Officer."

The Court established the principle that where compensation for compulsory acquisition is received after the due date for filing returns, delay in filing revised returns can and should be condoned to avoid genuine hardship, especially when the compensation is exempt from tax and TDS has been deducted erroneously. The Petitioner's right to refund of TDS along with interest is upheld, and the taxability of the interest component is denied.

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