2013 (11) TMI 1450 - AT - Income Tax

Interest on enhanced compensation - Held that - Following CIT v. Ghanshyam HUF 2009 (7) TMI 12 - SUPREME COURT - Interest u/s 34 is interest and is not part of compensation - Following Rama Bai v. CIT 1989 (11) TMI 2 - SUPREME Court - The interest accrued to the assessee has to be spread over on an annual basis right from the date of delivery of possession till the date of the order of the Court on time basis - Decided against Revenue.

Issues:
1. Taxability of interest on enhanced compensation received by the assessee.
2. Validity of reopening the case under section 148.
3. Applicability of judicial pronouncements on taxability of interest.

Issue 1: Taxability of interest on enhanced compensation received by the assessee:
The case involved an appeal by the revenue against the deletion of an addition of Rs.12,18,994 made by the Assessing Officer on account of interest on enhanced compensation received by the assessee. The revenue argued that the interest received should be taxed in the year of receipt itself as the assessee was not maintaining books of accounts. On the other hand, the assessee contended that the interest should be spread over on an annual basis from the date of delivery of possession till the date of the court order, citing various judicial pronouncements. The Tribunal noted that the interest received was under section 34 of the Land Acquisition Act and held that such interest is not part of compensation. While the Supreme Court had not addressed the year of taxability of accumulated interest under section 34, the Tribunal referred to the case law of Rama Bai v. CIT and the judgment of the Punjab & Haryana High Court in CIT v. Bhoop Room DAgar HUF & Others. The Tribunal concluded that the interest accrued to the assessee should be spread over on an annual basis, following the principles laid down in the aforementioned cases. Consequently, the Tribunal dismissed the revenue's appeal, upholding the decision of the CIT(A) to delete the addition made by the Assessing Officer.

Issue 2: Validity of reopening the case under section 148:
The assessee challenged the reopening of the case under section 148, contending that the notice was not served on all legal heirs. The CIT(A) considered the submissions of the assessee, reviewed the documents and evidences, and referred to various judicial pronouncements before deleting the addition made by the Assessing Officer. The Tribunal noted the arguments raised by both parties regarding the reopening of the case. However, the Tribunal's decision primarily focused on the taxability of interest on enhanced compensation, and it did not specifically address the validity of reopening the case under section 148 in its detailed analysis.

Issue 3: Applicability of judicial pronouncements on taxability of interest:
The Tribunal extensively discussed the applicability of judicial pronouncements on the taxability of interest on enhanced compensation. It referred to the decisions of the Hon'ble Supreme Court in cases such as CIT v. Ghanshyam HUF and Rama Bai v. CIT, along with the judgment of the Punjab & Haryana High Court in CIT v. Bhoop Room DAgar HUF & Others. The Tribunal analyzed the provisions of the Land Acquisition Act and held that interest under section 34 is to be taxed under the residuary head of income and should be spread over on an annual basis. By citing these judicial pronouncements, the Tribunal justified its decision to uphold the deletion of the addition made by the Assessing Officer, emphasizing the need to tax the interest accrued to the assessee over multiple years rather than in a lump sum in the year of receipt.

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