2021 (6) TMI 145 - HC - Income Tax

Interest income on amount received on compulsory acquisition of land for constructing a house - compensation received by the land acquisition officer - main contention of the petitioner is that the accrued interest received by him has to be spread over from the date of acquisition and the petitioner's request was not considered - petitioner herein had used the amount received on compulsory acquisition of land for constructing a house and the said claim was supported by a valuation report and held that the Assessing Authority has to give necessary relief to the petitioner on that score - primary contention urged the petitioner is that the interest portion received by the petitioner following his land acquisition should be spread over from the year of acquisition till the year of payment HELD THAT - We have to necessarily sustain the contention of the petitioner's counsel that even though a sum of ₹ 45,00,000/- was received as interest in the year 2006 for the assessment year 2007-2008, still it cannot be taxed as a single receipt and that the said amount should be spread over from the year of acquisition. We called upon the counsel on either side to file a memo of calculation to demonstrate if by such spreading over, whether the petitioner would be liable to pay any tax at all. The learned Standing Counsel appearing for the respondents filed a statement, which prima facie indicates that the petitioner would definitely have to pay a substantial sum by way of tax. If only the petitioner is able to demonstrate that the petitioner's tax dues will be zero, if the interest amount is spread over from the year of acquisition till the date of payment, this Court can consider granting relief to the petitioner.The petitioner's counsel would contend that it is for the respondent to issue notice of assessment. I cannot countenance such a contention. We would be justified in ordering refund, only if the petitioner can demonstrate that he is not at all liable to pay any sum towards tax for the amount of compensation received by him. As already admitted by the petitioner's counsel, the petitioner received a sum of ₹ 58,00,000/- out of the said amount, ₹ 45,00,000/- alone represented the interest portion. The Standing Counsel has demonstrated that spreading over the interest portion over several years would still attract liability more than what was deducted at source. Since, the petitioner had not demonstrated that the petitioner is not liable to pay any tax, I am not inclined to interfere with the impugned order. The Writ Petition is dismissed.

Summary

Issues:
1. Calculation of interest received on land acquisition for tax assessment.
2. Claim for spreading interest amount over multiple years.
3. Assessment of tax liability on interest received.

Analysis:
1. The petitioner owned lands in Virudhunagar, acquired for the Collectorate Complex, and received compensation after seeking reference and enhancement. The compensation included enhanced compensation, solatium, and interest. The petitioner filed returns for the assessment year 2007-2008, stating only a portion of interest received. The Assessing Authority rejected the petitioner's request to spread the accrued interest over multiple years for tax assessment.

2. The petitioner filed a Revision under Section 264 of the Income Tax Act, 1961, seeking relief on the interest portion received following land acquisition. The Revisional Authority partially allowed the application, noting that the petitioner used the amount for constructing a house. The petitioner argued that the interest should be spread over from the year of acquisition till payment, as he had no taxable liability in the relevant assessment year. The petitioner claimed that no demand was raised for previous years, and the deducted TDS amount was unlawfully retained by the respondents.

3. The Court upheld the petitioner's contention that the interest amount should be spread over multiple years for tax assessment. The petitioner's counsel was asked to demonstrate if spreading the interest would result in zero tax liability. The Standing Counsel indicated a substantial tax liability if the interest was spread over. As the petitioner failed to prove zero tax liability and the interest spreading would still attract tax, the Court dismissed the Writ Petition, stating that refund could only be ordered if no tax liability existed. The petitioner's inability to demonstrate zero tax liability led to the dismissal of the petition.