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2018 (7) TMI 1163 - AT - Income TaxRectification of mistake - taxability of interest on enhanced compensation - Held that - The proposition laid down in Ghanshyam, HUF (2009 (7) TMI 12 - SUPREME COURT) remains and which having been laid down by the Hon ble Apex Court is the law of the land and has to be followed by all lower authorities. The interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s 56 of the Act as held by the authorities below. The compensation being exempt u/s 10(37) of the Act is not disputed. In view of the same the order passed by the CIT(Appeals) upholding the addition made by the AO on account of interest on enhanced compensation is, not sustainable. Further the issue under consideration regarding the taxability of interest on enhanced compensation is a debatable issue and do not constitute a mistake apparent on record. In view of the limited and restricted powers of rectification u/s 154 or u/s 254 as the case may be, it cannot be said that any mistake apparent on record had occurred in the order of the Tribunal. In view of the above discussion, these appeals of the assessee are hereby allowed.
Issues Involved:
1. Condonation of delay in filing appeals. 2. Taxability of interest on enhanced compensation under Section 28 of the Land Acquisition Act, 1894. 3. Year of taxability of interest income. 4. Applicability of Section 154 of the Income Tax Act for rectification of mistakes apparent on record. Detailed Analysis: 1. Condonation of Delay in Filing Appeals: The appeals were barred by a limitation of 79 days. The assessees cited difficulties in engaging a Chartered Accountant and their own lack of understanding of Income Tax Laws as reasons for the delay. The Tribunal, to meet the ends of justice, condoned the delay and proceeded to adjudicate the appeals on merits. 2. Taxability of Interest on Enhanced Compensation: The lands of the assessees were compulsorily acquired, and they received enhanced compensation with interest under Section 28 of the Land Acquisition Act, 1894. The assessees treated this interest as part of the compensation exempt from capital gains tax under Section 10(37) of the Income Tax Act, 1961. The Assessing Officer, however, reopened the assessments and taxed the interest on a proportionate basis as per the Supreme Court decision in Rama Bai Vs. CIT. Before the CIT(Appeals), the assessees relied on the Supreme Court decision in CIT Vs. Ghanshyam (HUF), which held that interest under Section 28 of the Land Acquisition Act is part of the compensation and not taxable as 'income from other sources'. Initially, the CIT(A) allowed the appeals based on this decision. However, upon rectification applications by the Assessing Officer, the CIT(A) reversed the decision, relying on the Punjab & Haryana High Court's decisions in Manjeet Singh (HUF) and other cases, which held that such interest is taxable under Section 56(2)(viii) of the Income Tax Act. 3. Year of Taxability of Interest Income: The Tribunal noted that the Supreme Court in Ghanshyam (HUF) and subsequent cases (Govindbhai Mamaiya, Chet Ram (HUF), and Hari Singh) clarified that interest under Section 28 of the Land Acquisition Act is part of the enhanced compensation and should be taxed in the year of receipt, not on an accrual basis. 4. Applicability of Section 154 for Rectification: The Tribunal held that the issue of taxability of interest on enhanced compensation is debatable and does not constitute a mistake apparent on record. Therefore, the CIT(A)'s use of Section 154 to rectify the earlier order was not justified. Conclusion: The Tribunal concluded that the interest received under Section 28 of the Land Acquisition Act is part of the compensation and not taxable as 'income from other sources'. The compensation being exempt under Section 10(37) of the Income Tax Act is not disputed. The Tribunal allowed the appeals, holding that the CIT(A)'s order upholding the additions made by the Assessing Officer was not sustainable. The appeals were allowed, and the impugned additions were deleted. The Tribunal emphasized that the principles laid down by the Supreme Court in Ghanshyam (HUF) and other subsequent cases are the law of the land and must be followed by all lower authorities.
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