2014 (2) TMI 961 - HC - Wealth-tax

Valuation of the right to receive compensation - whether the value of enhanced compensation awarded to the assessee in includible under wealth tax assessment - Held that - Following the decision of Hon ble Supreme Court in the case of CIT vs. Ghanshyam, 2009 (7) TMI 12 - SUPREME COURT , decided in favor of assessee.

Summary

Issues:
Department's appeal under Section 27A of the Wealth Tax Act against ITAT's order for assessment years 1984-85 and 1985-86. Substantial question of law regarding the valuation of enhanced compensation awarded to the assessee by the District Judge.

Analysis:
The Department filed an appeal under Section 27A of the Wealth Tax Act against the judgment of the Income Tax Appellate Tribunal (ITAT) for the assessment years 1984-85 and 1985-86. The appeal raised a substantial question of law regarding the valuation of enhanced compensation awarded to the assessee by the District Judge. The Tribunal observed that the additional compensation received by the assessee needed to be brought to tax in the year it was received. The case involved the acquisition of the assessee's land by the Government in 1983-84, with the first installment of compensation received in 1984. Subsequently, the assessee filed a case for enhancement of compensation, which was granted by the District Judge in 1990.

The High Court referred to the Supreme Court's decision in CIT vs. Ghanshyam, which highlighted the taxability of enhanced compensation under the Income Tax Act. The Supreme Court clarified that enhanced compensation under the Land Acquisition Act is treated as deemed income and taxed on a receipt basis. The year in which the enhanced compensation is received is considered the year of taxability. The Court differentiated between compensation and interest, emphasizing that interest under Section 28 is part of the enhanced value of the land and is taxable in the year of receipt.

Based on the legal principles outlined by the Supreme Court, the High Court upheld the Tribunal's decision to tax the enhanced compensation in the year of its actual receipt. The Court found no infirmity in the Tribunal's order and ruled in favor of the assessee, dismissing the Department's appeals. Therefore, the judgment favored the assessee and upheld the taxation of the enhanced compensation in the year it was received, in accordance with the relevant provisions of the Income Tax Act.