2019 (1) TMI 1068 - HC - Income Tax

Character of income - accrual of income - Nature of interest received by the landowner-assessee under Section 28 of the 1894 Act - whether the interest which is received by the assessee-landowner partakes the character of income or not and, in such a situation is it taxable under the provisions of the Act - Held that - The award of interest under Section 28 of the 1894 Act applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded u/s 23(1A) and the solatium u/s 23(2) of the said Act. Section 28 is applicable only in respect of the excess amount, which is determined by the Court after a reference under Section 18 of the 1894 Act. Under Section 34 of the 1894 Act, the Collector awards interest on the compensation offered at the rate of 9% per annum for a period of one year from the date of taking possession and thereafter at the rate of 15% per annum from the date of expiry of one year on the amount of compensation or part thereof which remains unpaid or deposited before the date of such expiry. A plain reading of Sections 23(1A), 23(2) as also Section 28 of the 1894 Act clearly spells out that additional benefits are available on the market value of the acquired lands under Section 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation. The cumulative effect of Section 145A(b) and Section 56(2) (viii) would be that any interest received on compensation or on enhanced compensation shall be taxable under the head 'income from other sources' in the year of receipt. However, by Section 27 of the 2009 Act, a new clause (iv) in Section 57 has been inserted w.e.f. 01.04.2010 which lays down that in the case of income of the nature referred to in Section 56(2)(viii), a deduction of a sum equal to 50% of such income would be allowable thereunder and no deduction would be allowed under any other clause of Section 57 No illegality or perversity could be pointed out by learned counsel for the assessee in the concurrent findings of fact recorded by the authorities below which may warrant interference by this Court. No question of law

Issues Involved:
1. Bifurcation and spread over of interest on land acquisition compensation.
2. Taxability of interest received on compensation/enhanced compensation.
3. Applicability of 'Nil Rate Slab' for the period before the amendment.
4. Set-off of interest income for landowners similar to salary arrears for salaried persons.

Issue-wise Detailed Analysis:

1. Bifurcation and Spread Over of Interest on Land Acquisition Compensation:
The primary question was whether the interest on land acquisition compensation could be bifurcated and spread over from the date of acquisition to the date of payment, pursuant to Section 145A(b) by the Finance Act, 2009, effective from 01.04.2010, read with Section 5 of the Income Tax Act, 1961. The court analyzed Sections 28 and 34 of the Land Acquisition Act, 1894, and concluded that interest received under these sections is taxable as income. The court emphasized that Section 28 interest is awarded on the excess compensation determined by the court, and Section 34 interest is for delayed payment of compensation. The court referred to various Supreme Court judgments, including Dr. Shamlal Narula v. CIT and Bikram Singh v. Land Acquisition Collector, to affirm that such interest is a revenue receipt and taxable.

2. Taxability of Interest Received on Compensation/Enhanced Compensation:
The court examined whether the interest received on compensation/enhanced compensation by the assessee, as awarded by the court on a reference under Section 18 of the Land Acquisition Act, 1894, should be taxed annually from the date of possession to the date of the court's order. The court referenced the Finance (No.2) Act, 2009, which amended Section 145A and inserted Clause (viii) in sub-Section (2) of Section 56, mandating that such interest be deemed income in the year of receipt. The court upheld that interest received on compensation/enhanced compensation is taxable under 'income from other sources' in the year of receipt, as per Sections 56(2)(viii) and 145A(b).

3. Applicability of 'Nil Rate Slab' for the Period Before the Amendment:
The issue was whether the landowner could claim the benefit of the 'Nil Rate Slab' of income for the period before the amendment (Finance Act, 2009, effective from 01.04.2010). The court noted that the amendment aimed to mitigate hardships by taxing interest on compensation/enhanced compensation in the year of receipt, irrespective of the method of accounting. The court held that the amendment did not intend to exclude such interest from taxability but rather to clarify its treatment as a revenue receipt taxable in the year of receipt.

4. Set-off of Interest Income for Landowners Similar to Salary Arrears for Salaried Persons:
The court considered whether a landowner could set off interest income similar to how a salaried person sets off salary arrears. The court referred to Section 57(iv) of the Income Tax Act, which allows a deduction of 50% on interest income received on compensation or enhanced compensation as per Section 56(2)(viii). The court concluded that the Assessing Officer, CIT(A), and the Tribunal correctly applied the provisions, holding that 50% of the interest amount received is taxable as income from other sources.

Conclusion:
The court found no merit in the appeals and upheld the concurrent findings of the authorities below. The interest received on compensation/enhanced compensation is taxable as income from other sources in the year of receipt, with a 50% deduction allowable under Section 57(iv). The appeals were dismissed, and no substantial question of law was found to warrant interference.

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