2017 (9) TMI 1532 - SC - Income Tax

Tax on the enhanced amount of compensation - Income assessed for income tax - receipt of enhanced compensation and interest thereon under an interim order passed by the High Court in pending appeals relating to land acquisition matter - Held that - See case of Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) (2009 (7) TMI 12 - SUPREME COURT) wherein the provisions of Section 45(5) of the Income Tax Act, 1961 were considered and this Court in paragraphs 53 to 56 has held that in view of the Amendment in the Income Tax Act, the person who has received enhanced compensation and interest thereon even by an interim order passed by the Court would be assessed to tax for that enhanced compensation. We allow these Civil Appeals, set aside the orders of the High Court as also the Income Tax Appellate Tribunal and hold that the respondents are liable to pay tax on the enhanced amount of compensation and interest received by them during the year in question.

Summary

Issues:
Whether respondents-assessees receiving enhanced compensation and interest under an interim High Court order in a land acquisition matter are liable for income tax in the year of receipt.

Analysis:
The Supreme Court considered the issue of tax liability on enhanced compensation and interest received by respondents-assessees under an interim High Court order in pending land acquisition appeals. The Court referred to the case of Commissioner of Income Tax v. Ghanshyam (HUF) and analyzed the provisions of Section 45(5) of the Income Tax Act, 1961. The Court highlighted paragraphs 53 to 56 of the Ghanshyam case, emphasizing that the receipt of enhanced compensation is deemed income and taxable on a receipt basis. The Court explained that Section 45(5) deals with the full value of consideration and requires taxation in the year of receipt, even if the compensation is received under dispute or by interim order.

The Court clarified that the scheme of Section 45(5) mandates taxation in the year of receipt for enhanced compensation under the Land Acquisition Act, 1894. It noted that the compensation is based on the property's full value at the date of notification under Section 4 of the Act. The Court emphasized that when the court directs payment of enhanced compensation, it is to ensure full value compensation for the property. The Court further highlighted that the receipt of enhanced compensation under Section 45(5) is taxable even if the right to receive payment under the Land Acquisition Act is not in doubt.

Based on the analysis of the Ghanshyam case and the provisions of Section 45(5) of the Income Tax Act, the Supreme Court allowed the Civil Appeals, setting aside the High Court and Income Tax Appellate Tribunal orders. The Court held that the respondents are liable to pay tax on the enhanced compensation and interest received during the relevant year. The judgment concluded by stating that the respondents must bear their own costs in the matter.