2013 (9) TMI 892 - HC - Income Tax

Taxability of interest received as compensation - Assessee received an interest of Rs. 1,17,49,161/- in the financial year 2004-05 from Oriental Bank of Commerce, Sangrur on FDRs/MIDRs, which had been made out of the compensation amount from the disputed property - Assessee submitted that the interest had been released on submission of security bond and he was not the final owner of the amount as court proceedings were still going on Held that - Relying upon the judgment in the case of CIT v. Karanbir Singh, 2007 (12) TMI 184 - PUNJAB AND HARYANA HIGH COURT interest is chageable to tax matter remanded back for reconsideration - Decided in favor of Revenue.

Issues:
1. Appeal by the revenue under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
2. Tax liability on interest component received by the assessee from a disputed property.
3. Interpretation of judicial orders regarding the taxability of interest income.
4. Applicability of previous court decisions on similar matters.
5. Decision on remanding the case to the Tribunal for fresh consideration.

Analysis:

1. The appeal was filed by the revenue under Section 260-A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal related to the assessment year 2005-06. The appeal raised a question regarding the tax liability of the interest component received by the assessee from a disputed property. The Tribunal had relied on previous court decisions, including the judgment in CIT v. Karanbir Singh, to dismiss the revenue's appeal.

2. The assessee received interest from a bank on fixed deposits made out of compensation from a disputed property. The Assessing Officer taxed a portion of this interest income, which the assessee contested, stating that he was not the final owner of the amount due to ongoing court proceedings. The Commissioner of Income Tax (Appeals) accepted the assessee's argument, leading to the revenue's appeal before the Tribunal. The Tribunal, following the decision in Karanbir Singh's case, upheld the CIT(A)'s decision, emphasizing that the right to receive interest on compensation was still under court adjudication.

3. The appellant argued that subsequent court decisions, such as in CIT, Faridabad v. Karambir Singh and CIT, Faridabad v. Smt. Burfi, necessitated a fresh consideration of the matter in light of the evolving legal position. The Court noted that previous judgments in Karambir Singh's, Smt. Burfi's, and Bir Singh's cases favored the revenue, aligning with the Supreme Court's decision in CIT v. Ghanshyam.

4. Considering the arguments and the legal precedents cited, the Court allowed the appeal by the revenue, setting aside the Tribunal's order and remanding the case for a fresh decision. The Court directed the Tribunal to reexamine the issue after providing an opportunity for both parties to present their case in accordance with the law.

This detailed analysis of the judgment highlights the key issues, legal arguments, court decisions, and the final decision to remand the case for further consideration.

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